Cadiz Inc.
Annual Report 2002

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KCADIZ INC - CDZIFiled: November 02, 2004 (period: December 31, 2002)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. 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) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2002 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. Employerincorporation 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 -------------------- ----------------------------------------- None None Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.01 PER SHARE (Title of Class) Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filingrequirements for the past 90 days. YES NO X --- --- Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K (Section 220.405 of thischapter) is not contained herein, and will not be contained tothe best of registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III ofthis Form 10-K or any amendment of this Form 10-K.Indicate by check mark whether the Registrant is an acceleratedfiler (as defined in Exchange Act Rule 12b-2). YES NO X --- ---As of September 30, 2004, the Registrant had 6,612,674 shares ofcommon stock outstanding. The aggregate market value of thecommon stock held by nonaffiliates as of June 30, 2004 wasapproximately $41,050,122 based on 4,773,270 shares of commonSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.stock outstanding held by nonaffilliates and the closing price onthat date. Shares of common stock held by each executive officerand director and by each entity that owns more than 5% of theoutstanding common stock have been excluded in that such personsmay be deemed to be affiliates. This determination of affiliatestatus is not necessarily a conclusive determination for otherpurposes. DOCUMENTS INCORPORATED BY REFERENCE The Registrant is not incorporating by reference any otherdocuments within this Annual Report on Form 10-K except thosefootnoted in Part IV under the heading "Item 15. Exhibits,Financial Statement Schedules, and Reports on Form 8-K". Page i TABLE OF CONTENTS Part I------Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . 1Item 2. Properties . . . . . . . . . . . . . . . . . . . . . .10Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 12 Item 4. Submission of Matters to a Vote of Security Holders. .13 Part II-------Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .14 Item 6. Selected Financial Data . . . . . . . . . . . . . . . 15 Item 7. Management's Discussion and Analysis of FinancialCondition and Results of Operations . . . . . . . . . . . . . .16Item 7A. Quantitative and Qualitative Disclosures about MarketRisk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Item 8. Financial Statements and Supplementary Data . . . . . 36 Item 9. Changes in and Disagreements with Accountants onAccounting and Financial Disclosure . . . . . . . . . . . . . .37Item 9A. Controls and Procedures . . . . . . . . . . . . . . .37 Part III--------Item 10. Directors and Executive Officers of the Registrant . 37 Item 11. Executive Compensation . . . . . . . . . . . . . . . 40 Item 12. Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters . . . . . . . . . . 47 Item 13. Certain Relationships and Related Transactions . . . 52Item 14. Principal Accountant Fees and Services . . . . . . . 53 Part IV-------Item 15. Exhibits, Financial Statements and Reports of Form 8-K.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Page iiSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART I ITEM 1. BUSINESS Information presented in this Form 10-K that discussesfinancial projections, proposed transactions such as thoseconcerning the further development of our land and water assets,information or expectations about our business strategies,results of operations, products or markets, or otherwise makesstatements about future events, are forward-looking statements.Forward-looking statements can be identified by the use of wordssuch as "intends", "anticipates", "believes", "estimates","projects", "forecasts", "expects", "plans" and "proposes".Although we believe that the expectations reflected in theseforward-looking statements are based on reasonable assumptions,there are a number of risks and uncertainties that could causeactual results to differ materially from these forward-lookingstatements. These include, among others, the cautionarystatements under the caption "Certain Trends and Uncertainties",as well as other cautionary language contained in this Form 10-K.These cautionary statements identify important factors that couldcause actual results to differ materially from those described inthe forward-looking statements. When considering forward-lookingstatements in this Form 10-K, you should keep in mind thecautionary statements described above.OVERVIEW Our primary asset consists of three blocks of largelycontiguous land in eastern San Bernardino County, California.This land position totals approximately 45,000 acres. Virtuallyall of this land is underlain by high-quality groundwaterresources with demonstrated potential for various applications,including water storage and supply programs and agricultural,municipal, recreational, and industrial development. Two of thethree blocks of land are located in proximity to the ColoradoRiver Aqueduct, the major source of imported water for southernCalifornia. The third block of land is located near the ColoradoRiver. The value of these assets derives from a combination ofpopulation increases and limited water supplies throughoutsouthern California. In addition, most of the major populationcenters in southern California are not located where significantprecipitation occurs, requiring the importation of water fromother parts of the state. We therefore believe that acompetitive advantage exists for those companies that possess orcan provide high quality, reliable, and affordable water to majorpopulation centers. Notwithstanding certain actions taken in 2002 by theMetropolitan Water District of Southern Californian("Metropolitan"), as described below, we expect to be able to useour land assets and related water resources to participate in abroad variety of water storage and supply, transfer, exchange,and conservation programs with public agencies and other parties. In 1997 we commenced discussions with Metropolitan in orderto develop principles and terms for a long-term agreement for ajoint venture groundwater storage and supply program on our landin the Cadiz and Fenner valleys ("Cadiz Program"). Followingextensive negotiations with us, in April 2001 Metropolitan'sBoard of Directors approved definitive economic terms,conditions, and responsibilities ("Principles of Agreement"),which were to serve as the basis for a final agreement to beexecuted between us, subject to the then-ongoing environmentalreview process. The Cadiz Program would have provided Metropolitan with avaluable increase in water supply during periods of drought orother emergencies, as well as greater reliability and flexibilityin operation of its Colorado River Aqueduct. During wet years,surplus water from the Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Page 1Colorado River would be stored in the aquifer system underlying Cadiz' land. When needed, the stored water, together with indigenous groundwater, would be returned to the Colorado River Aqueduct for distribution to Metropolitan's member agencies throughout six southern California counties. On August 29, 2002, the U.S. Department of the Interiorapproved the Final Environmental Impact Statement for the CadizProgram and issued its Record of Decision, the final step in thefederal environmental review process for the Cadiz Program. TheRecord of Decision amends the California Desert Conservation AreaPlan for an exception to the utility corridor element and offeredto Metropolitan a right-of-way grant necessary for theconstruction and operation of the Cadiz Program. On October 8, 2002, Metropolitan's Board consideredacceptance of the Record of Decision and the terms and conditionsof the right-of-way grant. The Board voted not to adoptMetropolitan staff's recommendation to approve the terms andconditions of the right-of-way grant issued by the Department ofthe Interior for the Cadiz Program by a vote of 47.11% in favorand 47.36% against the recommendation. Instead, the Board votedfor an alternative motion to reject the terms and conditions ofthe right-of-way grant and to not proceed with the Cadiz Programby a vote of 50.25% in favor and 44.22% against. Irrespective of Metropolitan's actions, SouthernCalifornia's need for water storage and supply programs has notabated. We believe there are several different scenarios tomaximize the value of this water resource, all of which are undercurrent evaluation. See "Water Resource Development" below. Because we expected that these alternatives may havedifferent anticipated capital requirements and implementationperiods than those previously established for the Cadiz Program,we promptly entered into an agreement with our senior securedlender, ING Capital LLC ("ING"), for a three year extension ofapproximately $35 million of senior secured loans with a maturitydate of January 31, 2003. We also entered into agreements withthe holders of our preferred stock for an extension until July2006 of the mandatory redemption date of this preferred stock.Our extension with ING was subject to certain conditions,including annual renewals of the revolving credit facility of ourwholly-owned subsidiary, Sun World International, Inc. (which,together with its subsidiaries, we refer to as "Sun World"). Sun World was, however, unable to obtain such a renewal forits 2003-2004 growing season. Historically, we, as the parentcompany of Sun World, had supplemented Sun World's annual workingcapital requirements. We were not able to do this for the 2003-2004 growing season, thereby compelling Sun World to obtain alarger facility than in prior years. Sun World was able to obtainthis larger facility but only conditioned on obtaining theconsent of holders of Sun World's outstanding First MortgageNotes, which Sun World was ultimately unable to procure. Becauseof this, the only way Sun World could obtain the new financingneeded to provide working capital for its 2003-2004 growingseasons was to seek court approval, pursuant to Chapter 11, to anew Debtor in Possession ("DIP") facility. Therefore, in January2003 Sun World filed a voluntary petition for Chapter 11bankruptcy protection in order to access its needed seasonalfinancing. Sun World's financial situation and bankruptcy filing, inturn, negated the agreement we had previously reached with INGfor the three-year extension of our senior secured loans. We wereunable to make payment of this debt upon the original January 31,2003 maturity date, and in February 2003 ING declared these loansto be in default, although we remained in negotiations with INGfor an overall restructuring of this debt. Page 2Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Given the negative effect of these various developments onthe trading price for our common stock, we were unable tomaintain the minimum price needed for continued listing on theNasdaq National Market. Effective March 27, 2003, our commonstock was delisted from trading on the Nasdaq National Market. In light of these events, we have implemented the followingrestructuring steps: * In June 2003 we completed an equity offering of $2.0 million in newly issued common stock (including $320 thousand in shares issued for services); * In October 2003 we completed an exchange of all of our then outstanding preferred stock for newly issued common stock; * In November 2003 Sun World submitted its plan of reorganization to the Bankruptcy Court; * In December 2003 we completed a comprehensive restructuring which resulted in: * A new extension of up to three years of our $35 million debt facility with ING; * An additional equity infusion of $8.6 million through the issuance of common stock; * A one for twenty-five reverse split of our outstanding common stock; * The transfer of our properties to Cadiz Real Estate LLC, a Delaware limited liability company wholly owned by us and created at the behest of ING; and * The completion of a binding agreement with the holders of a majority of Sun World's First Mortgage Notes, otherwise referred to as the "Bondholders", which provides for the transfer of an unsecured claim due to us from Sun World of $13.5 million to a trust controlled by the Bondholders, as well as the pledge of our equity in Sun World to this trust as security for our obligation to support a plan of reorganization for Sun World that provides no recovery to us on account of our equity interests in Sun World. In return, the Bondholders agreed to release us from any obligations pursuant to our guarantee of Sun World's First Mortgage Notes. With the implementation of these restructuring steps, wehave been able to retain ownership of all of our assets relatingto our water programs and obtain working capital needed tocontinue our efforts to develop our water programs, albeit withour commitment to support a Sun World plan of reorganization thatprovides for the divestiture of our equity interests in SunWorld. Because many of our pre-existing common stockholders haveparticipated in the equity issuances which were part of therestructuring, our base of common stockholders remains largelythe same as before the restructuring. We remain committed to our water programs and we continue toexplore all opportunities. We cannot predict with certainty whichof these various opportunities will ultimately be utilized. Page 3(A) GENERAL DEVELOPMENT OF BUSINESS ------------------------------- We are a Delaware corporation formed in 1992 to act as thesurviving corporation in a Delaware reincorporation mergerbetween us and our predecessor, Pacific Agricultural Holdings,Inc., a California corporation formed in 1983.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As part of our historical business strategy, we haveconducted our land acquisition, water development activities,agricultural operations and search for international water andagricultural opportunities for the purpose of enhancing the long-term appreciation of our properties and future prospects. See"Narrative Description of Business" below. The focus of our water development activities has been theCadiz Program. The actions of Metropolitan in late 2002 have, ata minimum, delayed the Cadiz Program, which in turn has caused usto undergo a corporate restructuring. In 2003, our businessdevelopment activities consisted largely of implementing thisrestructuring, which has included the Chapter 11 filing of andformulation of a plan of reorganization for our Sun Worldsubsidiary and a completion of an amendment and extension of ourcredit facilities with our senior secured lender. Our primarygoal in this process has been to maintain ownership of our SanBernardino properties and to create a capital structure whichwould allow us to continue our development of the Cadiz Program.With the completion of an overall capital restructuring inDecember 2003, we believe that we have succeeded in achievingthis goal. This overall capital restructuring provided for up toa three year extension of our $35 million debt facility with INGand an additional equity infusion of $8.6 million through theissuance of common stock, and is described in more detail in Item7, "Management's Discussion and Analysis of Financial Conditionand Results of Operation." We acquired all of the outstanding capital stock of SunWorld in 1996. Since that time, until late 2002, we provided toSun World various management and administrative services andfacilities, and supplemented Sun World's annual working capitalrequirements. In late 2002, it became apparent that we would notbe able to continue to provide such ongoing financial support toSun World. In order to obtain the new financing needed to provideworking capital for its 2003-2004 growing seasons, on January 30,2003 (the "Petition Date"), Sun World and three of its whollyowned subsidiaries filed voluntary petitions under Chapter 11 ofthe Bankruptcy Code in the United States Bankruptcy Court,Central District of California, Riverside Division (Case Nos: RS03-11370 DN, RS 03-11369 DN, RS 03-11371 DN, RS 03-11374 DN).Shortly following the filing of the petitions, Sun World soughtand obtained authority to enter into a Debtor in Possession("DIP") facility which provided Sun World with sufficient loanavailability to continue its operations. As of the petitiondate, due to the Company's loss of control over the operations ofSun World, the financial statements of Sun World will no longerbe consolidated with those of Cadiz, but instead Cadiz willaccount for its investment in Sun World on the cost basis ofaccounting. In November 2003 Sun World filed a plan of reorganization(Debtors' Joint Plan of Reorganization dated November 24, 2003)with the Bankruptcy Court (the "Plan") and accompanyingdisclosure statement. Under the Plan as proposed, the reorganizedSun World will continue to operate as a going concern followingeffectiveness of the Plan; however, all of our ownershipinterests in the reorganized Sun World will be canceled. Thereorganized Sun World's equity interests will be held instead bySun World's creditors. Also, under the proposed Plan, all serviceagreements between Sun World and us will be terminated, andapproximately $13.5 million in debt owed to us by Sun World(including approximately $12.3 million in loans) will be canceled. Page 4 We supported the filing of the Plan in the belief that themanner in which the Plan provides for the resolution of claimsasserted by and against us in the Sun World bankruptcyproceedings would be in our best interests. In furtherance ofthis belief, and in order to ensure that our interests in SunWorld are treated in a manner consistent with that under theproposed Plan irrespective of whether or not the Plan is approvedin its proposed form, in December 2003 we entered into a globalSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.settlement agreement with Sun World and with the holders of amajority of Sun World's First Mortgage Notes, otherwise referredto as the Bondholders. This global settlement agreement providesfor: * The grant by Sun World to us of a general unsecured claim against Sun World of $13.5 million in full and final settlement of all claims and causes of action between us, and the termination and/or rejection of all contracts and agreements between us and Sun World, with the exception of an agricultural lease by us to Sun World of our Cadiz, California farm properties (the "Sun World Settlement"); * The transfer of this unsecured claim to a trust controlled by the Bondholders; * Our agreement not to seek a recovery in the Sun World bankruptcy proceedings on account of our equity interest in Sun World, and a pledge of all of our equity interests in Sun World to the Bondholder trust as security for our obligations under the global settlement; and * The waiver by the Bondholders (and by any other holders of First Mortgage Notes who elect to opt into the settlement) to seek recovery against us on account of our guarantee of Sun World's obligations under the First Mortgage Notes. The Sun World Settlement was subject to the approval of theBankruptcy Court, which was obtained by Sun World. BankruptcyCourt approval was not required for the other aspects of theglobal settlement. The Bankruptcy Court's approval order for theSun World Settlement is currently the subject of an appeal by acreditor of Sun World. Sun World is defending against thisappeal. We have an agreement with the Bondholders providing thatthe other aspects of the global settlement, as described above,shall remain fully effective even if the pending appeal of theSun World Settlement is successful. A hearing to consider the adequacy of the disclosurestatement accompanying the Plan, most recently scheduled for June11, 2004, has been subject to several postponements and nohearing date is currently scheduled. In Sun World's filings withthe Bankruptcy Court, Sun World has reported that it believesthat the Plan likely cannot be confirmed absent the acceptance ofthe holders of the First Mortgage Notes, in their capacity assecured creditors. Sun World has further reported to theBankruptcy Court that the holders of the First Mortgage Noteshave not yet reached a consensus with respect to certaincorporate governance issues relating to the reorganized company,and that they have been unable to finalize a shareholderagreement term sheet. In the meantime, Sun World has, with BankruptcyCourt approval, expanded the scope of its engagement with Ernst &Young Corporate Finance LLC to include services related to (i) asale of substantially all of its assets pursuant to a motion or aplan of reorganization, and (ii) obtaining an equity investor andfinancing under a plan of reorganization and is actively pursuing the sales/investment process. Sun World has chosen to delay the preparation of an amended Plan and disclosure statement and the scheduling of a disclosure statement hearing date pending the outcome of these most recent developments. Sun World's exclusivity period (i.e. the period during which only SunWorld may file a plan of reorganization) currently expires onOctober 8, 2004. We cannot predict at this time what changes, if any, will be made to the Plan as a result of the foregoing or whether or not the Plan, as amended, will be approved. Page 5(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS --------------------------------------------- During the year ended December 31, 2002, we operated ouragricultural resources segment and continued to develop our waterresource segment of the business. See Consolidated FinancialStatements. Also, see Item 7, "Management's Discussion andSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Analysis of Financial Condition and Results of Operations".(C) NARRATIVE DESCRIPTION OF BUSINESS --------------------------------- With the completion of our financial restructuring inDecember 2003, we are able to continue with our strategy ofdevelopment of our holdings for their highest and best uses. Atpresent, our development activities are focused on water resourcedevelopment at our San Bernardino County properties.WATER RESOURCE DEVELOPMENT Our portfolio of water resources, located in close proximityto the Colorado River or the major aqueduct systems of centraland southern California, such as the State Water Project and theColorado River Aqueduct, provides us with the opportunity toparticipate in a variety of water storage and supply programs,exchanges and transfers.(A) THE CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM --------------------------------------------------------- The Company owns approximately 35,000 acres of land and related high-quality groundwater resources in the Cadiz andFenner valleys of eastern San Bernardino County. The aquifersystem underlying this property is naturally recharged byprecipitation (both rain and snow) within a watershed ofapproximately 1,300 square miles. See Item 2, "Properties - TheCadiz/Fenner Property". In 1997 we commended discussions with Metropolitan in orderto develop principles and terms for a long-term agreement for ajoint venture groundwater storage and supply program on thisland. The Cadiz Program would provide Metropolitan with avaluable increase in water supply during periods of drought orother emergencies, as well as greater reliability and flexibilityin operation of its Colorado River Aqueduct. During wet years,surplus water from the Colorado River would be stored in theaquifer system that underlies the Cadiz property. When needed,the stored water and indigenous groundwater would be returned tothe Colorado River Aqueduct for distribution to Metropolitan'smember agencies throughout six southern California counties.Metropolitan provides supplemental water to approximately 17million people. In addition, temporary withdrawals of indigenous groundwaterwould also be available from the Cadiz Program duringemergencies, in full compliance with the GROUNDWATER MONITORING &MANAGEMENT PLAN approved by the U.S. Department of the Interiorin its RECORD OF DECISION. With this provision of the MANAGEMENTPLAN the effective long-term storage capacity of the CadizProgram may exceed two million acre-feet. Following extensive negotiations with us, in April 2001Metropolitan's Board of Directors approved definitive economicterms and responsibilities, which were to serve as the basis fora final agreement to be executed between us, subject to the then-ongoing environmental review process. Pursuant to thesedefinitive terms, during storage operations, Metropolitan wouldpay a $50 fee per acre-foot for put of Colorado River water intostorage, and a $40 fee per acre-foot for return of Colorado Riverwater from storage, or a total of $90 per acre-foot to cyclewater into Page 6and out of the basin. On the transfer of indigenous water, Metropolitan would pay a base rate of $230 per acre-foot, which will be adjusted according to a fair market value adjustment procedure. Metropolitan would commit to minimum levels of utilization of the Cadiz Program for both storage of ColoradoRiver Aqueduct water (900,000 acre-feet) and transfer ofindigenous groundwater (up to 1,500,000 acre-feet). In addition,the definitive terms provided for the grant to Cadiz of theSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.option to sell a portion of the indigenous groundwater (30,000acre-feet per year for 25 years or a total of 750,000 acre-feet)to outside third parties within Metropolitan's service area atfair market value. Cadiz Program 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 Program area; * A 35-mile conveyance pipeline to connect the spreading basins and wellfield to the Colorado River Aqueduct at Metropolitan's Iron Mountain pumping plant; and * A pumping plant to pump water through the conveyance pipeline from Metropolitan's Iron Mountain pumping plant to the spreading basins. The expected cost of these facilities is approximately $150million, which was to be jointly shared. The definitive terms for the Cadiz Program also call for theestablishment of a comprehensive groundwater monitoring andmanagement plan to ensure long-term protection of the groundwaterbasin. In October 2001, the environmental report was issued byMetropolitan and the U.S. Bureau of Land Management, incollaboration with the U.S. Geological Survey and the NationalPark Service. On August 29, 2002, the U.S. Department of Interiorapproved the Final Environmental Impact Statement for the CadizProgram and issued its Record of Decision, the final step in thefederal environmental review process for the Cadiz Program. TheRecord of Decision amends the California Desert Conservation AreaPlan for an exception to the utility corridor element and offeredto Metropolitan a right-of-way grant necessary for theconstruction and operation of the Cadiz Program. On October 8, 2002, Metropolitan's Board consideredacceptance of the Record of Decision and the terms and conditionsof the right-of-way grant. The Board voted not to adoptMetropolitan staff's recommendation to approve the terms andconditions of the right-of-way grant issued by the Department ofthe Interior for the Cadiz Program by a vote of 47.11% in favorand 47.36% against the recommendation. Instead, the Board votedfor an alternative motion to reject the terms and conditions ofthe right-of-way grant and to not proceed with the Cadiz Programby a vote of 50.25% in favor and 44.22% against. Subsequent to Metropolitan's actions, negotiations towards afinal agreement for the Cadiz Program on the basis of thepreviously approved definitive terms have ceased. With Metropolitan's actions, we have not been able tocomplete the environmental review phase of the Cadiz Program. Itis our position that Metropolitan's actions of October 2002breached various contractual and fiduciary obligations ofMetropolitan to us, and interfered with the economic advantage wewould obtain from the Cadiz Program. Therefore, in April 2003 we Page 7filed a claim against Metropolitan seeking compensatory andpunitive damages. See Item 3 - "Legal Proceedings". Irrespective of Metropolitan's actions, the need for newwater storage and supply programs has not diminished in thesouthwestern United States. The Colorado River watershed iscurrently in the grip of a prolonged drought that presents majorchallenges to the economies of California, Nevada, and Arizona.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.As population continues to grow at record rates, these states arefaced with the very real possibility that current and futuresupplies will not be able to meet demand. Implementation of the Cadiz Program would provide a valuableincrease in water supply during periods of drought or otheremergencies, as well as greater reliability and flexibility inoperation of the Colorado River Aqueduct. During wet years,excess water from the Colorado River would be stored in theaquifer system that underlies approximately 35,000 acres of landowned by Cadiz. When needed, the stored water would be returnedto the Colorado River Aqueduct for distribution. In addition, temporary withdrawals of indigenous groundwaterwould also be available during emergencies, in full compliancewith the GROUNDWATER MONITORING & MANAGEMENT PLAN approved by theU.S. Department of the Interior in its RECORD OF DECISION. Withthis provision of the MANAGEMENT PLAN the effective long-termstorage capacity of the Cadiz Program may exceed two million acre-feet. The Company believes there are a variety of scenarios underwhich the value of the Cadiz Program may be realized. Indeed,exploratory discussions have been initiated with representativesof governmental organizations, water agencies, and private waterusers with regard to their expressed interest in implementationof the Cadiz Program. Several such discussions have been heldwith water agencies that are independently seeking reliability ofsupply. Other discussions have focused on the possibility ofexchanging water stored at the Cadiz Program with watercontractors in other regions in California. In addition, thecurrent drought within the Colorado River watershed has served asan impetus to cooperative discussions between states, with thegoal that interstate exchanges and transfers may also becomefeasible in the future. Because of the Company's long-term relationship withMetropolitan, the Company also intends to pursue discussions withthe agency in an effort to determine whether there are termsacceptable to both parties under which the Cadiz Program could beimplemented. With the recent finalization of the QuantificationSettlement Agreement (QSA), an agreement between the Secretary ofthe Interior, the State of California, Metropolitan and threeother southern California water agencies quantifying the amountof water California's Colorado River users could expect on anannual basis, Metropolitan's Colorado River supplies are nowspecified and limited only by the variable volume of flow on theriver. To meet the growing needs of its service area,Metropolitan must take advantage of all opportunities to storeavailable Colorado River water during periods of surplus. Withvirtually all environmental permits and approvals in place forthe Cadiz Program, except for those dependent upon Metropolitan'scertification of the Environmental Impact Report (EIR), theCompany believes a partnership with Metropolitan could be renewedin a timely manner if terms acceptable to both parties were to benegotiated. In the absence of a negotiated resolution, the Company wouldcontinue to seek an administrative resolution of its claimagainst Metropolitan. In April 2003 the Company filed anadministrative notice of claim with Metropolitan asserting thebreach by Metropolitan of various obligations specified in thePRINCIPLES OF AGREEMENT. The Company believes that by failing to Page 8complete the environmental review process, as specified in thePRINCIPLES OF AGREEMENT, Metropolitan violated this contract,breached its fiduciary duties to the Company and interfered withthe Company's prospective economic advantages. In discussionsfollowing presentation of this claim, Cadiz and MWD agreed toevaluate alternative approaches to implementation of the CadizProgram. MWD has not to date responded to the claim and Cadizhas until October 2005 to file a lawsuit against the agency.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(B) OTHER EASTERN MOJAVE PROPERTIES ------------------------------- Our second largest block of land is approximately 9,000acres in the Piute Valley of eastern San Bernardino County. Thislandholding is located approximately 15 miles from the resortcommunity of Laughlin, Nevada, and about 12 miles from theColorado River town of Needles, California. Extensivehydrological studies, including the drilling and testing of afull-scale production well, have demonstrated that thislandholding is underlain by high-quality groundwater. The aquifersystem underlying this property is naturally recharged byprecipitation (both rain and snow) within a watershed ofapproximately 975 square miles. Additional hydrological investigations and discussions withpotential partners have commenced with the objective ofdeveloping our Piute Valley assets. Additionally, we own or control additional acreage locatednear Danby Dry Lake, approximately 30 miles southeast of ourlandholdings in Cadiz and Fenner valleys. Our Danby Lakeproperty is located approximately 10 miles north of the ColoradoRiver Aqueduct, and initial hydrological studies indicate that ithas excellent potential for a groundwater storage and supplyproject.AGRICULTURAL OPERATIONS Sun World is a leading producer of high value crops and oneof California's largest vertically integrated agriculturalconcerns. Farming approximately 10,000 acres of agriculturalcrops throughout southern and central California, Sun World growsdozens of varieties of fresh fruit and vegetables, and is one ofthe top three domestic producers of table grapes (5% of UnitedStates production) plums (6%), colored peppers (4%), andwatermelon (3%). Sun World's operations include divisionsspecializing in farming, packing, marketing, and proprietaryproduct development. On January 30, 2003, Sun World filed voluntary petitionsunder Chapter 11 of the Bankruptcy Code. See "General Developmentof Business", above. Since the filing date, Sun World hasoperated its business and managed its affairs as debtor anddebtor in possession. As of that date due to the Company's lossof control over the operations of Sun World, the financialstatements of Sun World will no longer be consolidated with thoseof Cadiz, but instead, Cadiz will account for its investment inSun World on the cost basis of accounting. As a result ofchanging to the cost basis of accounting on January 31, 2003, wehad a net investment in Sun World of approximately $195 thousandconsisting of loans and other amounts due from Sun World of$13,500,000 less losses in excess of investment in Sun World of$13,305,000. We wrote off the net investment in Sun World of $195 thousand at the Chapter 11 filing date because we do not anticipate being able to recover our investment. As part of the Sun World bankruptcy process, we are nolonger engaged in agricultural operations. We lease for operationby others approximately 1,600 acres of Cadiz/Fenner agriculturalreal property. See Item 2. "Properties - Leased Farm Property". Page 9SEASONALITY Our water resource development activities are not seasonalin nature. With our divestiture of Sun World as contemplated by theagreement with a majority of Sun World's bondholders, ouroperations will no longer be subject to the general seasonaltrends that are characteristic of the agricultural industry.COMPETITIONSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We face competition for the acquisition, development andsale of our properties from a number of competitors, some ofwhich have greater resources than us. We may also facecompetition in the development of water resources associated withour properties. Since California has scarce water resources andan increasing demand for available water, we believe thatlocation, price and reliability of delivery are the principalcompetitive factors affecting transfers of water in California.EMPLOYEES As of December 31, 2002, we employed approximately 465 full-time employees (i.e. those individuals working more than 1,000hours per year), most of whom were employed by Sun World. SunWorld, throughout the year, engages various part-time andseasonal employees, with a seasonal high of approximately 2,000part-time employees. Additionally, Sun World contracts withoutside labor contractors for personnel used in the farmingoperations with a seasonal high of approximately 5,000 people.Approximately 155 of our employees are represented by a laborunion pursuant to contracts renewed in 2002 that expire in 2006.Generally, we believe that our employee relations are good.REGULATION Our operations are subject to varying degrees of federal,state and local laws and regulations. As we proceed with thedevelopment of our properties, including the Cadiz Program, wewill be required to satisfy various regulatory authorities thatwe are in compliance with the laws, regulations and policiesenforced by such authorities. Groundwater development, and theexport of surplus groundwater for sale to single entities such aspublic water agencies, is not subject to regulation by existingstatutes other than general environmental statutes applicable toall development projects. Additionally, we must obtain a varietyof approvals and permits from state and federal governments withrespect to issues that may include environmental issues, issuesrelated to special status species, issues related to the publictrust, and others. Because of the discretionary nature of theseapprovals and concerns which may be raised by variousgovernmental officials, public interest groups and otherinterested parties during both the development and approvalprocess, our ability to develop properties and realize incomefrom our projects, including the Cadiz Program, could be delayed,reduced or eliminated.ITEM 2. PROPERTIES 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, 2006. Currentbase rent under the lease is approximately $7,550.00 per month. Page 10 As part of our December 2003 overall capital restructuring,we transferred all of our assets (with the exception of any SunWorld related assets) to Cadiz Real Estate LLC, a Delawarelimited liability company, which we sometimes refer to as CadizReal Estate. We hold 100% of the equity interests of Cadiz RealEstate, and therefore we continue to hold 100% beneficialownership of the properties which we transferred to Cadiz RealEstate. Cadiz Real Estate was created at the behest of our seniorsecured lender, ING. The Board of Managers of Cadiz Real Estateconsists of two managers appointed by us and one independentmanager named by ING. As long as our obligations to ING areoutstanding, Cadiz Real Estate may not institute bankruptcyproceedings without the unanimous consent of this Board ofManagers (including the independent manager). Cadiz Real Estate is a co-obligor under our creditfacilities with ING, for which the assets of Cadiz Real Estatehave been pledged as security.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Because the transfer of our properties to Cadiz Real Estatehas no effect on our ultimate beneficial ownership of theseproperties, we refer throughout this Report to properties ownedof record either by Cadiz Real Estate or by us as "our"properties. The following is a description of our significantproperties.THE CADIZ/FENNER PROPERTY In 1984, we conducted an investigation of the feasibility ofthe agricultural development of land located in the Mojave Desertnear Cadiz, California, and confirmed the availability of high-quality water in commercial quantities appropriate foragricultural development. Since 1985, we have acquiredapproximately 34,500 acres in the Cadiz and Fenner Valleys ofeastern San Bernardino County approximately 30 miles north of theColorado River Aqueduct. Additional numerous independent geotechnical and engineeringstudies conducted since 1985 have confirmed that the Cadiz/Fennerproperty overlies a natural groundwater basin which is ideallysuited for the underground water storage and dry year transfersas contemplated in the Cadiz Program. See Item 1, "Business -Narrative Description of Business - Water Resource Development". In November 1993, the San Bernardino County Board ofSupervisors unanimously approved a General Plan Amendmentestablishing an agricultural land use designation for 9,600 acresat Cadiz for which 1,600 acres have been developed and are leasedto Sun World and an unaffiliated third party. This action alsoapproved permits to construct infrastructure and facilities tohouse as many as 1,150 seasonal workers and 170 permanentresidents (employees and their families) and allows for thewithdrawal of more than 1,000,000 acre-feet of groundwater fromthe groundwater basin underlying our property.OTHER EASTERN MOJAVE PROPERTIES We also own approximately 10,900 additional acres in theeastern Mojave Desert, including the Piute and Danby Lakeproperties. The Piute property consists of approximately 9,000 acres andis located approximately 60 miles northeast of Cadiz andapproximately 15 miles west of the Colorado River and Laughlin,Nevada, a small, fast growing town with hotels, casinos and waterrecreation facilities. We identified the Piute property foracquisition by a combination of satellite imaging and geologicaltechniques which we used to identify water at Cadiz. Page 11LEASED FARM PROPERTY Concurrently with our acquisition of Sun World in 1996, weleased to Sun World approximately 1,600 acres of our Cadiz/Fennerproperty which has been developed for agricultural use. Thislease, as amended pursuant to Sun World's bankruptcy proceedings,now provides for the lease by Sun World of 1,100 acres of thisproperty through the 3004 season. The remainder of the property is leased to an unaffiliated third party. These leases provide for the lessee to be responsible for all costs associated with growing crops on the leased property. The majority of this land is used for the cultivation of permanent and annual crops and support activities,including packing facilities.DEBT SECURED BY PROPERTIES Of our outstanding debt at December 31, 2002, $116.7 millionrepresents loans secured by Sun World's properties and $35.1million represents loans secured by the majority of our non-SunWorld properties. Information regarding interest rates andSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.principal maturities is provided in Note 10 to the consolidatedfinancial statements.ITEM 3. LEGAL PROCEEDINGS CLAIM AGAINST METROPOLITAN On April 7, 2003 we filed an administrative claim againstThe Metropolitan Water District of California ("Metropolitan"),asserting the breach by Metropolitan of various obligationsspecified in our Principles of Agreement with Metropolitan. Webelieve that by failing to complete the environmental reviewprocess for the Cadiz Program, as specified in the Principles ofAgreement, Metropolitan violated this contract, breached itsfiduciary duties to us and interfered with our prospectiveeconomic advantages. See Item 1, "Business - NarrativeDescription of Business - Water Resource Development". Thefiling was made with the Executive Secretary of Metropolitan. Weare seeking recovery of compensatory and punitive damages. In discussions following presentation of this claim, we andMetropolitan have agreed to evaluate alternative approaches toimplementation of the Cadiz Program. Metropolitan has not todate responded to the claim and we have until October 2005 tofile a lawsuit against the agency. SUN WORLD BANKRUPTCY FILING January 30, 2003 (the "Petition Date") Sun World and threeof its wholly owned subsidiaries (Sun Desert, Inc., CoachellaGrowers and Sun World/Rayo) filed voluntary petitions underChapter 11 of the Bankruptcy Code in the United States BankruptcyCourt, Central District of California, Riverside Division (CaseNos: RS 03-11370 DN, RS 03-11369 DN, RS 03-11371 DN, RS 03-11374DN). See Item 1, "Business - General Development of Business". OTHER PROCEEDINGS There are no other material pending legal proceedings to whichwe are a party or of which any of our property is the subject. Page 12ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our stockholdersduring the fourth quarter of 2002. The results of our AnnualMeeting of Stockholders held on May 6, 2002 were reported in ourQuarterly Report on Form 10-Q for the quarterly period endedMarch 31, 2002. Page 13 PART IIITEM 5. MARKET FOR REGISTRANT'SCOMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is currently traded over the counter on theOTC U.S. Market, often referred to as the "Pink Sheets" under thesymbol "CDZI-OTC". Prior to March 27, 2003, the Company's commonstock was listed on the Nasdaq National Market (Nasdaq). On March27, 2003, the Company's common stock was delisted from Nasdaq,and thereafter traded on the OTC Bulletin Board until May 23,2003, at which time our common stock was removed from theBulletin Board and began trading on the Pink Sheets. Thefollowing table reflects actual sales transactions for the datesthat the Company was trading on Nasdaq, and high and low bidinformation for dates subsequent. The OTC Bulletin Board and PinkSheet market quotations reflect inter-dealer prices, withoutretail mark-up, mark-down or commission and may not necessarilyrepresent actual transactions. The high and low ranges of thecommon stock for the dates indicated have been provided byBloomberg LP. Please note that all stock prices listed throughoutSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.this annual report on Form 10K have been adjusted for the one for25 reverse stock split that took place in December 2003. HIGH LOW QUARTER ENDED SALES PRICE SALES PRICE ------------- ----------- ----------- 2001: March 31 $ 262.50 $ 200.775 June 30 $ 254.50 $ 206.25 September 30 $ 250.00 $ 178.75 December 31 $ 224.50 $ 181.25 2002: March 31 $ 225.00 $ 191.75 June 30 $ 275.00 $ 205.75 September 30 $ 155.50 $ 75.00 December 31 $ 68.75 $ 5.25 On July 31, 2004, the high, low and last sales prices forthe shares, as reported by Bloomberg, were $15.00, $15.00, and$15.00, respectively. We also have an authorized class of 100,000 shares ofpreferred stock. As of December 31, 2002, there were four seriesof preferred stock designated for issuance including: * 40,259 shares of Series A Junior Participating Preferred Stock pursuant to a Stockholders' Rights Plan, of which none were issued and outstanding * 5,000 shares of Series D Convertible Preferred Stock of which 5,000 shares were issued and outstanding; * 3,750 shares of Series E-1 Convertible Preferred Stock of which 3,750 shares were issued and outstanding; * 3,750 shares of Series E-2 Convertible Preferred Stock of which 3,750 shares were issued and outstanding; The Company subsequently entered into an agreement with theholders of the Series D, Series E-1 and Series E-2 on October 21,2003 in which the preferred stockholders exchanged Page 14all of their shares of preferred stock for 400,000 shares of common stock. On December 15, 2003, Cadiz filed a certificate of elimination which eliminated the Series D, Series E-1 and Series E-2 Convertible Preferred Stock. On May 10, 1999 we adopted a Stockholders' Rights Plan. Inconnection with the Rights Plan, and as further described in theRights Plan, we declared a dividend of one preferred sharepurchase right for each outstanding share of our common stockoutstanding at the close of business on June 1, 1999, and filed aCertificate of Designations designating for issuance 40,259shares of Series A Junior Participating Preferred Stock. Noshares of Series A Participating Preferred Stock were everissued. The Rights Plan was amended and terminated by our Boardof Directors on March 25, 2004. On March 26, 2004, Cadiz filed acertificate of elimination which eliminated this series ofpreferred stock. As of July 31, 2004, the number of stockholders of record ofour common stock was 240 and the estimated number of beneficialowners was approximately 2,263. To date, we have not paid a cash dividend on our commonstock and we do not anticipate paying any cash dividends in theforeseeable future. Our ability to pay such dividends is subjectto covenants pursuant to agreements with our primary lender thatprohibits the payment of dividends. During the quarter ended December 31, 2002, we did not issueSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.any shares. All securities sold by us during the three yearsended December 31, 2002 which were not registered under theSecurities Act have previously been reported in our Annual andQuarterly Reports on Forms 10K and 10-Q.ITEM 6. SELECTED FINANCIAL DATA The following selected financial data insofar as it relatesto the years ended December 31, 2002, 2001, 2000, 1999 and 1998has been derived from our audited financial statements. Theinformation that follows should be read in conjunction with theaudited consolidated financial statements and notes thereto foreach of the three years in the period ended December 31, 2002included in Part IV of this Form 10-K. See also Item 7,"Management's Discussion and Analysis of Financial Condition andResults of Operations". ($in thousands, except for per share data) YEAR ENDED DECEMBER 31, ----------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ----Statement of Operations Data:Total revenues $ 114,250 $ 92,402 $ 107,745 $ 115,229 $ 106,544Net loss (22,225) (25,722) (22,458) (8,594) (7,470)Less: Preferred stock dividends 1,125 591 - - - Imputed dividend on preferred stock 984 441 - - - --------- -------- --------- --------- ---------Net loss applicable to common stock $ (24,334) $(26,754) $ (22,458) $ (8,594) $ (7,470) ========= ======== ========= ========= =========Per share:Net loss (basic and diluted) $ (16.76) $ (18.66) $ (15.88) $ (6.20) $ (5.63) ========= ======== ========= ========= =========Weighted-average common shares outstanding 1,452 1,434 1,414 1,387 1,327 ========= ======== ========= ========= ========= Page 15 DECEMBER 31, ------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ----Balance Sheet Data:Total assets $ 191,883 $ 198,275 $ 203,617 $ 214,102 $ 214,359Long-term debt $ 115,447 $ 141,429 $ 145,610 $ 142,089 $ 142,317Redeemable preferred stock $ 10,942 $ 9,958 $ 3,950 $ - $ -Common stock and additional paid-in capital $ 156,166 $ 152,765 $ 143,063 $ 136,552 $ 127,998Accumulated deficit $(157,287) $(135,062) $(109,340) $ (86,882) $ (78,288)Stockholders' equity (deficit) $ (1,121) $ 17,703 $ 33,723 $ 49,670 $ 49,710ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In connection with the "safe harbor" provisions of thePrivate Securities Litigation Reform Act of 1995, the followingdiscussion contains trend analysis and other forward-lookingSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.statements. Forward-looking statements can be identified by theuse of words such as "intends", "anticipates", "believes","estimates", "projects", "forecasts", "expects", "plans" and"proposes". Although we believe that the expectations reflectedin these forward-looking statements are based on reasonableassumptions, there are a number of risks and uncertainties thatcould cause actual results to differ materially from theseforward-looking statements. These include, among others, ourability to maximize value from our Cadiz, California land andwater resources; the uncertainty of the outcome of Sun World'sbankruptcy proceedings; our outstanding guarantee of Sun World'sFirst Mortgage Notes; and our ability to obtain new financings asneeded to meet our ongoing working capital needs. See additionaldiscussion under the heading "Certain Trends and Uncertainties"below.OVERVIEW CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM. In1997, we commenced discussions with the Metropolitan WaterDistrict of Southern California (Metropolitan) in order todevelop principles and terms for a long-term agreement for ajoint venture water storage and supply program on and under ourCadiz, California property. In July 1998, Cadiz and Metropolitanapproved the Principles and Terms for Agreement for the CadizGroundwater Storage and Dry-Year Supply Program (the CadizProgram). At the same time, Cadiz and Metropolitan authorizedpreparation of a final agreement based on these principles andinitiated the environmental review process for the Cadiz Program.Following extensive negotiations with Cadiz to further refine andfinalize these basic principles, Metropolitan's Board ofDirectors approved definitive economic terms and responsibilitiesat their April 2001 board meeting. The Cadiz Program definitiveeconomic terms were to serve as the basis for a final agreementto be executed between Metropolitan and Cadiz, subject to thethen-ongoing environmental review process. Under the Cadiz Program, during wet years or periods ofexcess supply, surplus water from the Colorado River Aqueductwould be stored in the groundwater basin underlying our property.During dry years or times of reduced allocations from theColorado River, the previously imported water, together withadditional existing groundwater, would be extracted anddelivered, via a conveyance pipeline, back to the aqueduct. On August 29, 2002, the U.S. Department of Interiorapproved the Final Environmental Impact Statement for the CadizProgram and issued its Record of Decision, the final step in the Page 16federal environmental review process for the Cadiz Program. TheRecord of Decision amends the California Desert Conservation AreaPlan for an exception to the utility corridor element and offeredto Metropolitan a right-of-way grant necessary for theconstruction and operation of the Cadiz Program. On September 17, 2002, the Metropolitan Subcommittee onRules and Ethics scheduled a series of meetings in October andNovember 2002 to consider (a) acceptance of the Record ofDecision and the terms and conditions of the right-of-way grant,(b) certification of the environmental documentation for theCadiz Program under state law, and (c) the final agreementbetween Cadiz and Metropolitan. On October 8, 2002, Metropolitan's Board consideredacceptance of the Record of Decision and the terms and conditionsof the right-of-way grant. The Board voted not to adoptMetropolitan staff's recommendation to approve the terms andconditions of the right-of-way grant issued by the Department ofthe Interior for the Cadiz Program by a vote of 47.11% in favorand 47.36% against the recommendation. Instead, the Board votedfor an alternative motion to reject the terms and conditions ofthe right-of-way grant and to not proceed with the Cadiz Programby a vote of 50.25% in favor and 44.22% against.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Irrespective of Metropolitan's actions, SouthernCalifornia's need for water storage and supply programs has notabated. We believe there are several different scenarios tomaximize the value of this water resource, all of which are undercurrent evaluation. Until October 2002 we had expected that the Cadiz Programwould be implemented upon the previously negotiated terms, and wehad structured our financing arrangements with a view to suchimplementation. Following Metropolitan's vote in October 2002 tonot proceed with the Cadiz Program, these financing arrangementswere no longer workable on their then existing terms. In January 2003 our wholly-owned subsidiary, Sun WorldInternational, Inc. (which, together with its subsidiaries, werefer to as "Sun World") filed a voluntary petition for Chapter11 bankruptcy protection in order to access seasonal financing.Historically, we, as the parent company of Sun World, hadsupplemented Sun World's annual working capital requirements.However, at the time of Sun World's filing we did not have theability to do this. The only way Sun World could obtain the newfinancing needed to provide working capital for its 2003-2004growing seasons was to seek court approval, pursuant to Chapter11, to a new Debtor in Possession ("DIP") facility. Sun World's financial situation and bankruptcy filing, inturn, negated an agreement we had previously reached with ourprimary lender, ING Capital LLC ("ING") for a three yearextension of approximately $35 million of senior secured loanswith a maturity date of January 31, 2003. As we were unable tomake payment of this debt when due, in February 2003 ING declaredthese loans to be in default, although we remained innegotiations with ING for an overall restructuring of this debt. Our financing activities during 2003 were directed primarilytowards completion of an overall restructuring of our capitalstructure which would preserve our ability to continue with ourwater resource development programs. This overall capitalrestructuring was successfully completed in December 2003, andfeatured the following components, in chronological order: * In June 2003 we completed a private equity offering of 800,000 shares of our common stock (after giving effect to our one for twenty-five reverse stock split Page 17 effective December 15, 2003 (the "Reverse Split")). 672,000 shares were issued in consideration of $1.68 million in cash, 112,000 were issued in consideration for $280 thousand in services rendered to us, and 16,000 were issued as consideration for fees related to the equity offering. The proceeds raised in this offering provided sufficient working capital for us to continue operations pending completion of the larger $8.6 million private placement in December 2003 described below. * In August 2003 our stockholders approved implementation of a reverse split of our outstanding common stock, with the exact ratio for the split to be determined by our Board of Directors at the time of the split. The reverse split was intended to increase the likelihood of our being able to meet the minimum trading price required for listing our stock on The Nasdaq SmallCap Market or other national securities exchange, as well as to provide us with additional authorized but unissued shares of common stock to be used for capital raising and other purposes. * In October 2003 we entered into an agreement with the holder of all of our outstanding Series D, Series E-1 and Series E-2 preferred stock whereby we issued 400,000 shares of our common stock (after giving effect to the Reverse Split) in exchange of all of our then outstandingSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Series D, Series E-1 and Series E-2 preferred stock. In connection with this conversion, we recorded a charge against paid-in capital as an inducement to convert. * In December 2003 we simultaneously completed: * An extension of up to three years of our $35 million debt facility with ING (see "Liquidity and Capital Resources - Current Financing Arrangements - Cadiz Obligations" below); * A one for twenty-five reverse split of our outstanding common stock; * An additional equity infusion of $8.6 million through the issuance of 3,440,000 shares of common stock; * The transfer of our properties to Cadiz Real Estate LLC, a Delaware limited liability company wholly owned by us and created at the behest of ING; and * The completion of our global settlement agreement with the holders of a majority of Sun World's First Mortgage Notes (the "Bondholders") which provides for the pledge of our equity in Sun World together with an unsecured claim due to us from Sun World of $13.5 million to a trust controlled by the Bondholders (see "Liquidity and Capital Resources - Current Financing Arrangements - Sun World Obligations" below). As a consequence of all of these transactions, the numberof outstanding shares of our common stock (after giving effect toour December 2003 one for twenty-five reverse stock split) hasincreased from 1,858,659 shares as of December 31, 2002(including 400,000 common shares issuable upon the conversion ofoutstanding Series D and E preferred stock) to Page 188,200,340 shares as of December 31, 2003 (including 1,728,955 common shares issuable upon the conversion of outstanding Series F preferred stock). With the completion of these transactions, we have providedfor our short-term working capital needs and are able to refocusour efforts on obtaining and utilizing the capital necessary toproceed with our water resource development programs.RESULTS OF OPERATIONS The consolidated financial statements set forth herein foreach of the three years in the period ended December 31, 2002reflect the results of our operations and the operations of ourwholly-owned subsidiaries including Sun World. A summary of the Sun World elements which our managementbelieves is essential to an analysis of the results of operationsfor such periods is presented below. For purposes of thissummary, the term Sun World will be used, when the context sorequires, with respect to the operations and activities of ourSun World subsidiary, and the term Cadiz will be used, when thecontext so requires, with respect to our operations andactivities that do not involve Sun World. In January 2003, Sun World filed a voluntary petition forChapter 11 bankruptcy protection. As of that date due to theCompany's loss of control over the operations of Sun World, thefinancial statements of Sun World will no longer be consolidatedwith those of Cadiz, but instead, Cadiz will account for itsinvestment in Sun World on the cost basis of accounting. As aresult of changing to the cost basis of accounting on January 31,2003, the Company had a net investment in Sun World of approximately $195 thousand consisting of loans and other amounts due from Sun WorldSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of $13,500,000 less losses in excess of investment in Sun World of$13,305,000. Cadiz wrote off the net investment in Sun World of $195 thousand at the Chapter 11 filing date because it does not anticipate being able to recover its investment. For this reason, our net income or loss in future fiscal periods will be largely reflective of the operations of our water development activities. Sun World conducts its operations through four operatingdivisions: farming, packing, marketing and proprietary productdevelopment. Net income from farming operations varies from yearto year primarily due to yield and pricing fluctuations which canbe significantly influenced by weather conditions, and are,therefore, generally subject to greater annual variation than SunWorld's other divisions. However, the geographic distribution ofSun World's farming operations within California and thediversity of its crop mix make it unlikely that adverse weatherconditions would affect all of Sun World's properties or all ofits crops in any single year. Nevertheless, net income from SunWorld's packing, marketing and proprietary product developmentoperations tends to be more consistent from year to year than netincome from Sun World's farming operations. Packing and marketingrevenues from third party growers represent less than 10% of SunWorld's total revenues. Sun World has entered into agreementsdomestically and internationally to license selected proprietaryfruit varieties and continues to pursue additional domestic andinternational licensing opportunities. License revenues representless than 10% of our total revenues, but provide a higheroperating margin than the other Sun World divisions.(A) YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001 --------------------------------------------------------------------- Sun World's agricultural operations are impacted by thegeneral seasonal trends that are characteristic of theagricultural industry. Sun World has historically received themajority of its net income during the months of June to Octoberfollowing the harvest and sale of its table Page 19grape and stonefruit crops. Due to this concentrated activity, Sun World has historically incurred losses with respect to its agricultural operations during the other months of the year. The table below sets forth, for the periods indicated, theresults of operations for Sun World's four main operatingdivisions (before elimination of any interdivisional charges) aswell as the categories of costs and expenses we incurred whichare not included within the divisional results (in thousands): YEAR ENDED DECEMBER 31 2002 2001 ---- ---- Divisional income (loss): Farming $ 6,701 $ (3,243) Packing 9,761 8,320 Marketing 4,551 3,303 Proprietary product development 4,457 2,891 --------- --------- 25,470 11,271 General and administrative 12,819 10,890 Unusual items included in G&A 1,710 - Special litigation - (7,929) Non-recurring compensation expense - 5,537 Removal of underperforming crops 4,514 736 Depreciation and amortization 7,480 8,151 Interest expense, net 21,172 19,551 Income tax (benefit) expense - 57 --------- --------- Net loss $ (22,225) $ (25,722)Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ========= ========= FARMING OPERATIONS. Income from farming operations totaled$6.7 million for the year ended December 31, 2002 compared to anet loss of $3.2 million for the year ended December 31, 2001.Farming revenues were $87.4 million and farming expenses were$80.7 million for the year ended December 31, 2002 compared tofarming revenues of $71.7 million and farming expenses of $74.9million for 2001. Farming results were favorably impacted by thetiming of the table grape harvest in Coachella and Mexicoreturning to normal as opposed to the harvest starting two weekslate in 2001, which created an overlap with the early table grapeharvests in the San Joaquin valley. Year-to-date average F.O.B.prices for table grapes were 3.5% higher than the prior year.Additionally, Sun World experienced increased table grapeproduction due to increased yields and due to leasing someadditional organic table grape acreage for the 2002 season. SunWorld sold 4.4 million boxes of table grapes for the year endedDecember 31, 2002 compared to 3.5 million boxes during the sameperiod in 2001. Results were also favorably affected by increasedplum yields as plum units sold were 32% higher in 2002 than in2001. Sun World also experienced a 58% increase in F.O.B. pricesfor peppers. Results were favorably impacted by the continuedstrong performance of Sun World's proprietary SUPERIORSEEDLESS(R) and MIDNIGHT BEAUTY(R) table grapes and BLACKDIAMOND(R) plums as production increased and F.O.B. pricesremained strong coupled with the removal of certainunderperforming crops at the conclusion of the 2001 season. SunWorld continues to achieve a price premium for its proprietarytable grape and stonefruit products compared to competingcommercially available varieties. Page 20 PACKING OPERATIONS. Sun World's packing and handlingfacilities contributed $9.8 million in income during the yearended December 31, 2002 and $8.3 million during the year endedDecember 31, 2001. Packing and handling revenue for theseoperations of $23.3 million was offset by $13.5 million ofexpenses for the year ended December 31, 2002. Revenues totaled $21.4 million offset by expenses of $13.1 million for the year ended December 31, 2001. Sun World packed 3.0 million units during the year ended December 31, 2002 compared to 2.9 million units for the year ended December 31, 2001. For the year ended December 31, 2002, Sun World handled 8.9 million units compared to 8.2 million units in 2001. The increase in units packed and handled was due primarily to increased production of table grapes and plums. Units packed and handled during the year endedDecember 31, 2002 consisted of Sun World-grown table grapes,peppers and seedless watermelons in the Coachella Valley; tablegrapes and citrus products packed for third party growers; andtable grapes, stonefruit, citrus, and peppers from the SanJoaquin Valley. MARKETING OPERATIONS. During the year ended December 31,2002, a total of 10.1 million units were sold consistingprimarily of Sun World-grown table grapes, peppers andwatermelons from the Coachella Valley; table grapes and citrusfrom domestic third party growers; and Sun World-grown tablegrapes, stonefruit, citrus, and peppers from the San JoaquinValley. These unit sales resulted in marketing revenue of $12.2million. Marketing expenses totaled $7.6 million for the yearended December 31, 2002 resulting in income from marketingoperations of $4.6 million. During the year ended December 31,2001, 10.1 million units were marketed resulting in revenues of$7.5 million offset by expenses of $4.2 million for income of$3.3 million. The increase in marketing profits was primarilydue to increased F.O.B. prices for table grapes, plums andpeppers. Additionally, revenues and expenses increased due tofruit purchased from third party suppliers and sold primarily toa customer's distribution center related to Sun World's role asa primary supplier of certain fruit categories in 2002. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a longSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.history of product innovation, and its research and developmentcenter maintains a fruit breeding program that has introduceddozens of proprietary fruit varieties. Additionally, Sun Worldcontinues to expand its licensing program with key strategicpartners worldwide to introduce, trial and produce Sun World'sproprietary varieties, which provides Sun World with a long-termannual revenue stream based upon a royalty fee for each box ofproprietary fruit sold during the life of the tree or vine.During the year ended December 31, 2002, income from proprietaryproduct development was $4.5 million consisting of revenues of$6.9 million offset by expenses of $2.4 million. For the yearended December 31, 2001, income was $2.9 million consisting ofrevenues of $4.9 million offset by expenses of $2.0 million. Theincrease in proprietary product development net income wasprimarily due to a $0.5 million increase in intercompanyroyalties due to increased yields and higher F.O.B. prices and a$1.4 million increase in international royalties due primarily toimproved table grape yields for acreage under license coupledwith a delay in the South Africa harvest season, whicheffectively shifted a portion of South African revenues from thefourth quarter of 2001 to the first quarter of 2002. Revenuesinclude $1.3 million related to project development andmanagement fees payable in equity of KADCO for both 2002 and2001. GENERAL AND ADMINISTRATIVE EXPENSES. General andadministrative expenses for the year ended December 31, 2002totaled $12.8 million compared to $10.9 million for the 2001period before the inclusion in 2002 of $1.1 million for the write-off of capitalized legal costs incurred by Sun World inlitigation relating to the unsuccessful defense of intellectualproperty rights and $0.6 million in professional fees relating tounsuccessful attempts by Sun World to restructure debt during theyear. The increase was primarily due to higher employee relatedcosts coupled with $0.8 million of professional fees related tothe KADCO combination that was not completed and costs related toexploring water development opportunities in the Middle East. UNUSUAL ITEMS INCLUDED IN GENERAL AND ADMINISTRATIVEEXPENSES. Unusual items for the year ended December 31, 2002totaled $1.7 million compared to none in 2001. The Page 21unusual items consisted of $1.1 million for the write-off of capitalized legal costs incurred by Sun World in litigation relating to the unsuccessful defense of intellectual property rights and $0.6million in professional fees relating to unsuccessful attempts bySun World to restructure debt during the year. SPECIAL LITIGATION. Cadiz was engaged in lawsuits againstWaste Management seeking monetary damages arising from activitiesadverse to us in connection with a landfill, which until itsdefeat by the voters of San Bernardino County in 1996, wasproposed to be located adjacent to our Cadiz/Fenner Valleyproperties. In March 2001, Cadiz executed a settlement agreementwith Waste Management related to these lawsuits. Pursuant to thesettlement agreement, Waste Management paid Cadiz $6 million incash and granted to Cadiz approximately 7,000 acres of realproperty in eastern San Bernardino County primarily adjacent tothe Cadiz Program property. The settlement resulted in netproceeds recognized of $7.9 million (consisting of $6.0 million in cash and land valued at $1.9 million) for the year ended December 31, 2001. NON-RECURRING COMPENSATION. In March 2001, Cadiz agreed toissue 564,163 deferred stock units to certain senior managers ofCadiz and Sun World. These deferred stock units were issued inexchange for the cancellation of 1,055,000 fully vested optionsto purchase our common stock held by the senior managers. Werecorded a one-time charge of $5,537,000 and no cash was expendedin connection with the issuance of the deferred stock units. REMOVAL OF UNDERPERFORMING CROPS. During 2002, we removedapproximately 1,900 acres of underperforming crops consisting ofSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.200 acres from the Cadiz ranch and 1,700 acres from Sun World'sranches. The crops removed include approximately 100 acres ofjuice grapes and 100 acres of citrus at the Cadiz ranch and 500acres of wine grapes, 300 acres of raisin grapes, 400 acres ofstonefruit, 400 acres of citrus, and 100 acres of table grapesfrom Sun World's operations. The Company recorded a non- cashcharge of $4.5 million in connection with the removal of thesecrops. During 2001, management decided to remove approximately 40acres of citrus at the Cadiz ranch and Sun World removedapproximately 700 acres of wine grapes, citrus, and stonefruit.We recorded a charge of $0.7 million in connection with theremoval of these crops. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation andamortization expense for the year ended December 31, 2002 totaled$7.5 million compared to $8.2 million during the same period in2001. The decrease in depreciation was primarily attributable tocertain assets being removed in 2001 and 2002 and certain assetsbecoming fully depreciated during the past year. INTEREST EXPENSE, NET. Net interest expense totaled $21.5million compared to $19.6 million for the years ended December31, 2002 and 2001. The following table summarizes the componentsof net interest expense for the two periods (in thousands): YEAR ENDED DECEMBER 31 2002 2001 ---- ---- Interest on outstanding debt - Sun World $ 14,484 $ 14,574 Interest on outstanding debt - Cadiz 976 1,347 Amortization of financing costs 5,761 3,748 Interest income (49) (118) --------- --------- Page 22 $ 21,172 $ 19,551 ========= ========= The decrease in interest on outstanding debt for the yearended December 31, 2002 is primarily due to the impact of lower rateson Cadiz variable rate debt. Amortization of financing costs increasesbecause of the addition of amortization of warrants issued for the extension and increase in the Cadiz credit facilities in the first quarter of 2002. Financing costs, which include legal fees and warrants, are amortized over the life of the debt agreement.(B) YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 --------------------------------------------------------------------- The table below sets forth, for the periods indicated, theresults of operations for Sun World's four main divisions (beforeelimination of any interdivisional charges), as well as thecategories of costs and expenses we incurred which are notincluded within the divisional results (in thousands): YEAR ENDED DECEMBER 31 2001 2000 ---- ---- Divisional income (loss): Farming $ (3,243) $ 2,791 Packing 8,320 7,193 Marketing 3,303 3,868 Proprietary product development 2,891 4,331 --------- ---------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 11,271 18,183 General and administrative 10,890 10,939 Special litigation (7,929) 424 Removal of underperforming crops 736 1,549 Non-recurring compensation expense 5,537 - Depreciation and amortization 8,151 8,381 Interest expense, net 19,551 19,188 Income tax expense 57 160 --------- --------- Net loss $ (25,722) $ (22,458) ========= ========= FARMING OPERATIONS. Income from farming operations totaled$3.2 million for 2001 compared to a net profit of $2.8 million in2000. Farming revenues were $71.7 million and farming expenseswere $74.9 million for 2001. For 2000, Sun World had farmingrevenues of $86.4 million and farming expenses of $83.6 million.Farming results were negatively impacted by a two-week weatherrelated delay in the table grape harvest in Coachella and Mexico,which created an overlap with the early table grape harvests inthe San Joaquin Valley. This overlap created downward pressure onF.O.B. prices for table grapes that continued through the entireSan Joaquin Valley harvest. Year-to-date F.O.B. prices for tablegrapes were 3% below 2000 farming results. Additionally, SunWorld experienced lower table grape yields as it sold 3.5 millionboxes during 2001 compared to 3.9 million boxes during 2000. Page 23 Results were also negatively impacted in 2001 compared to2000 due to decreased prices for wine grapes, peppers and plums.Average F.O.B. prices for wine grapes and peppers were down dueto oversupply in the industry by 45% and 29%, respectively,compared to 2000. Profits for plums were down due to lower yieldscoupled with smaller sized fruit resulting from adverse weather. Sun World sold 0.8 million boxes of plums in 2001 compared to 1.0 million boxes in 2000. F.O.B. prices for plums were 25% below 2000 prices. 2001 citrus results were $1.1 million higher than 2000 due to an 18% increase in production yields coupled with a9% increase in F.O.B. prices. The decrease in farming expenses isprimarily due to the removal of certain underperformingstonefruit and wine grape acreage at the conclusion of the 2000growing season and the reduction and elimination of certain rowcrop acreage in 2001 for crops that had become unprofitable. SunWorld's proprietary table grape and stonefruit products allowedSun World to continue to command price premiums to the overallmarket. PACKING OPERATIONS. Sun World's packing and handlingfacilities contributed $8.3 million in income during 2001compared to $7.2 million in 2000. The aggregate packing andhandling revenue for these operations of $21.4 million was offsetby $13.1 million of expenses for 2001. Revenues totaled $21.9million offset by expenses of $14.7 million for 2000. Sun Worldpacked 2.9 million units during 2001 and moved an additional 5.3million units through the cold storage facilities for a total of8.2 million units processed through the packing operations in2001 compared to 8.6 million units in 2000. This decrease inunits is due primarily to lower Sun World-grown table grape andplum yields as well as fewer units of third party citruspartially offset by increased units of third party table grapes.The increase in profits is due to increased profits per unitresulting from a price increase in storage and handling revenuesfor table grapes, stonefruit and peppers that was implemented in2001 to offset increased energy and labor costs. Units packed andhandled during 2001 consisted primarily of Sun World-grown tablegrapes, peppers and seedless watermelons in the Coachella Valley;table grapes and citrus products packed for third party growers;and Sun World-grown table grapes, stonefruit, citrus, and peppersfrom the San Joaquin Valley. MARKETING OPERATIONS. During 2001, a total of 10.1 millionunits were sold consisting primarily of Sun World-grown tableSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.grapes, peppers and watermelons from the Coachella Valley; tablegrapes and citrus from domestic third party growers; and SunWorld-grown table grapes, stonefruit, citrus, and peppers fromthe San Joaquin Valley. These unit sales resulted in marketingrevenue of $7.5 million. Marketing expenses totaled $4.2 millionfor 2001 resulting in income from marketing operations of $3.3million. During 2000, 11.5 million units were sold resulting inrevenues of $8.6 million offset by expenses of $4.7 million forincome of $3.9 million. The decrease in revenues, marketingprofits and units sold is primarily due to lower F.O.B. pricesfor table grapes, plums and peppers, decreased units of Sun World-grown table grapes and plums, and the elimination of certainunderperforming stonefruit and row crops from production in 2001. PROPRIETARY PRODUCT DEVELOPMENT. Sun World has a longhistory of product innovation, and its research and developmentcenter maintains a fruit breeding program that has introduceddozens of proprietary fruit varieties. Additionally, Sun Worldcontinues to expand its licensing program with key strategicpartners worldwide to introduce, trial and produce Sun World'sproprietary varieties, which provides Sun World with a long-termannual revenue stream based upon a royalty fee for each box ofproprietary fruit sold during the life of the tree or vine.During 2001, income from proprietary product development was $2.9million consisting of revenues of $4.9 million offset by expensesof $2.0 million. For 2000, income was $4.3 million consisting ofrevenues of $6.0 million offset by expenses of $1.7 million. Thedecrease in proprietary product development net income isprimarily due to decreased intercompany royalties due to lighteryields, additional costs associated with the expansion of SunWorld's Page 24licensing distribution structure, and a timing differencefor international royalties due to harvest delays in SouthAfrica. Revenues include $1.3 million related to projectdevelopment and management fees payable in equity of KADCO forboth 2001 and 2000. During 2001, Sun World expanded its acreage under license with its strategic partners by 15% to over 7,000 acres. GENERAL AND ADMINISTRATIVE EXPENSES. General andadministrative expenses totaled $10.9 million for 2001 and 2000. SPECIAL LITIGATION. We were engaged in lawsuits againstWaste Management seeking monetary damages arising from activitiesadverse to us in connection with a landfill, which until itsdefeat by the voters of San Bernardino County in 1996, wasproposed to be located adjacent to our Cadiz/Fenner Valleyproperties. In March 2001, we executed a settlement agreementwith Waste Management related to these lawsuits. Pursuant to thesettlement agreement, Waste Management paid Cadiz $6 million incash and granted to Cadiz an exclusive option to receive, at nocost to Cadiz, up to approximately 7,000 acres of real propertyin eastern San Bernardino County primarily adjacent to the CadizProgram property. In April 2001, we exercised the option and as aconsequence acquired the subject property. The settlementresulted in net proceeds of $7.9 million (consisting of $6.0 million in cash and land valued at $1.9 million) for 2001. During 2000, expensesincluding litigation costs and professional fees related to thismatter totaled $0.4 million. NON-RECURRING COMPENSATION. In March 2001, we issued564,163 deferred stock units to certain senior managers of Cadizand Sun World. These deferred stock units were issued in exchangefor the cancellation of 1,055,000 fully vested options topurchase our common stock held by the senior managers. The numberof the deferred stock units issued was calculated based on theaverage closing price for the 10 business days following thefiling of our Annual Report on Form 10-K for the year endedDecember 31, 2000 on March 29, 2001. We recorded a one-timecharge of $5,537,000 and no cash was expended in connection withthe issuance of the deferred stock units.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. REMOVAL OF UNDERPERFORMING CROPS. In December 2000, werecorded a $1.5 million charge to remove certain underperformingcrops, primarily 600 acres of wine grapes and stonefruit. DEPRECIATION AND AMORTIZATION. Depreciation andamortization expenses for the year ended December 31, 2001totaled $8.2 million compared to $8.4 million for the year endedDecember 31, 2000. The decrease is primarily attributable tocertain assets being sold or removed in 2001 and other assetsbecoming fully depreciated. INTEREST EXPENSE. Net interest expense totaled $19.6million during the year ended December 31, 2001 compared to $19.2million during the year ended December 31, 2000. The followingtable summarizes the components of net interest expense for thetwo periods (in thousands): YEAR ENDED DECEMBER 31 2001 2000 ---- ---- Interest on outstanding debt - Sun World $ 14,574 $ 14,546 Interest on outstanding debt - Cadiz 1,347 2,319 Amortization of financing costs 3,748 2,546 Page 25 Interest income (118) (223) --------- --------- $ 19,551 $ 19,188 ========= ========= The increase in interest on outstanding debt during 2001was primarily due to (a) increased average borrowings under SunWorld's revolving credit facility; (b) increased interest andfinancing costs related to the debt added by Sun World inDecember 2000, and (c) amortization of warrants issued for theextension of Cadiz' revolving credit facility and term loanfacility, which total increase is partially offset by the savingsfrom lower prime and LIBOR interest rates on our variable ratedebt. Financing costs, which include legal fees, loan fees andwarrants, are amortized over the life of the debt agreement.LIQUIDITY AND CAPITAL RESOURCES(A) CURRENT FINANCING ARRANGEMENTS ------------------------------ CADIZ OBLIGATIONS. As we have not received significantrevenues from our water resource activity to date, we have beenrequired to obtain financing to bridge the gap between the timewater resource development expenses are incurred and the timethat revenue will commence. Historically, we have addressed theseneeds primarily through secured debt financing arrangements withour lenders, private equity placements and the exercise ofoutstanding stock options. As of December 31, 2002, we were obligated for approximately$10,095,068 under a senior term loan facility and $25 millionunder a revolving credit facility with our primary securedlender, ING Capital LLC. Each facility had a maturity date ofJanuary 31, 2003. Sun World's bankruptcy filing negated anagreement we had previously reached with ING for a three yearextension of these loans, and in February 2003 ING declared theseloans to be in default. During 2003 we remained in continuing discussions with INGconcerning an overall restructuring of this debt and in December2003, as part of an overall restructuring of our capitalstructure, we entered into agreements with ING which providedfor:Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. * Establishing the outstanding principal amount owed under the senior term loan facility at $10 million and under the revolving credit facility at $25 million, for an aggregate outstanding principal balance owed to ING of $35 million; * The immediate payment to ING of approximately $2.4 million, representing payment of approximately $2 million in accrued and unpaid interest on the credit facilities through September 30, 2003 and payment of approximately $400,000 in expenses incurred by ING; * An extension of the maturity date of the credit facilities until March 31, 2005, with three additional automatic 6 month extensions conditioned on our maintaining, as of the commencement date of each extension, cash in an amount equal to at least 4% of the outstanding principal balance of the credit facilities in a cash collateral account held by ING; * Interest commencing as of October 1, 2003 at the rate of either (i) 8%, payable in cash, or (ii) 4% payable in cash plus 8% payable in kind. Interest is payable every six months commencing March 31, 2004. We have the right to choose the form of payment with respect to each date upon which an interest payment is due. At the closing of our restructuring, we deposited into ING's cash collateral account the sum of $2,142,280, Page 26 representing interest accruing at the rate of 4% per annum from October 1, 2003 until March 31, 2005; * The issuance to ING of 100,000 shares of Series F preferred stock, convertible as of the date of issuance into 1,728,955 shares of our common stock. As the holder of this preferred stock, in addition to conversion rights ING has: * The right to appoint two members of our Board of Directors * The right to approve the authorization or issuance of any other class or shares of our preferred stock; * Anti-dilution protection; * Pre-emptive rights; * Registration rights; and * Dividend, liquidation and voting rights shared on an as-converted basis with common stock. * The transfer of all of our assets (with the exception of any Sun World related assets) to Cadiz Real Estate LLC, a Delaware limited liability company ("Cadiz Real Estate"), a newly created Delaware limited liability company in which we hold 100% of the economic interests. Cadiz Real Estate is a co- obligor with us on our credit facilities with ING, and the properties now held of record by Cadiz Real Estate secure our obligations under these facilities. We have entered into a management agreement with Cadiz Real Estate pursuant to which we will manage the assets now held by Cadiz Real Estate, subject to the requirements of the Operating Agreement of Cadiz Real Estate. The Operating Agreement of Cadiz Real Estate provides for a Board of Managers consisting of two managers appointed by us and one independent manager named by ING. As long as our obligations to ING are outstanding, Cadiz Real Estate may not institute bankruptcy proceedings without the unanimous consent of this Board of Managers (including the independent manager). The debt covenants associated with these credit facilitieswere negotiated by the parties with a view towards our operatingand financial condition as it existed at the time of therestructuring. Given current circumstances, we do not consider itlikely that we will be in material breach of such covenants.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. As we continue to actively pursue our business strategy,additional financing specifically in connection with our waterprograms will be required. See "Outlook", below. As the partiesanticipated this need at the time of our credit restructuring,the covenants in the credit facility which would otherwiseprohibit our incurrence of additional debt (or our use of ourassets as security for such debt) contain an exception for debtand liens incurred in order to finance the acquisition,construction or improvement of any assets (up to a maximum of$135 million at any one time outstanding). The covenants in thecredit facilities do not prohibit our use of equity financing,but do provide that 35% of the proceeds of such issuance beapplied as a prepayment against such facilities (which prepaymentmay take the form of a deposit in ING's cash collateral account).We do not expect these covenants to materially limit our abilityto undertake debt or equity financing in order to finance ourwater development activities. Subsequent to the conversion of Series D and E preferredstock discussed in Item 5, at December 31, 2003, we have nooutstanding credit facilities or preferred stock other than thatheld by ING as described above. Page 27 SUN WORLD OBLIGATIONS. Sun World has outstanding $115million of First Mortgage Notes. The First Mortgage Notes wereoriginally to mature on April 15, 2004. The First Mortgage Notesare currently in default as a consequence of the Sun Worldbankruptcy filing. Sun World's proposed plan of reorganization currently provides for settlement of claims held by the holders of these notes through the issuance of equity interests in Sun World to such holders. The Sun World notes are also secured by the guarantee ofCadiz. As we are not a party to the Sun World bankruptcy filing,the effectiveness of a plan of reorganization which dischargesSun World's obligation to holders of these notes will not, in andof itself, release us of any obligations which we may still haveunder this guarantee. The Plan, as currently proposed, includes arelease in our favor with respect to any of our remainingobligations under this guarantee; however, we do not know whetherthis provision of the Plan will be approved by the BankruptcyCourt. We have limited any potential obligation we may haveotherwise had under the guarantee by entering into releaseagreements with the majority of holders of the Sun World notes.For example, in December 2003 we entered into a global settlementagreement with Sun World and with the holders of a majority ofSun World's First Mortgage Notes (the "Bondholders") (see Item 1,"Business - General Development of Business"). Pursuant to thisglobal settlement agreement, the Bondholders waived their rightsto seek recovery against us on account of our guarantee of SunWorld's obligations under the First Mortgage Notes. This rightwill similarly be waived by any other note holder which elects toopt into this settlement. The identity and ownership interests ofSun World's bondholders is not a matter of public record,however, based on the results of investigations performed onbehalf of Sun World, we believe that we have obtained waiversand/or releases to date from Bondholders which hold, togetherwith their affiliates, approximately 88% in interest ofoutstanding Sun World notes. All of the remaining Sun Worldnotes (other than a nominal interest of less than 1%) are held bypersons who are also shareholders of ours. No non-releasing bondholder has sought to enforce ourguarantee of Sun World's obligations against us, nor has any suchbondholder given any indication to us that it plans to do so. Aspart of our December 2003 global settlement agreement, theBondholders gave written direction to the indenture trusteeirrevocably instructing the trustee to take no action against uson behalf of bondholders or on account of the guarantee.Further, we believe that if a bondholder's claim against SunSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.World is ultimately satisfied in whole or in part through a SunWorld plan of reorganization, then such bondholder will not beentitled to enforce the guarantee against us as to the amount ofthe claim so satisfied. In view of all of these factors, we do not anticipate thatsignificant claims will be made against us under the guaranteeand we are not setting aside existing working capital or seekingto raise additional working capital in order to pay claims underthe guarantee. We have no other obligations or working capital needs withrespect to Sun World. As part of our December 2003 globalsettlement, we have settled all of our claims and obligationswith Sun World. Although we continue to be the record owner ofSun World's stock, Sun World will not be receiving workingcapital contributions from us while it is in bankruptcyproceedings. Sun World's currently proposed plan ofreorganization provides for our ownership interests in Sun Worldto be canceled. Whether or not this plan is approved, we do notexpect to provide working capital support for a reorganized SunWorld. CASH USED FOR OPERATING ACTIVITIES. Cash used foroperating activities totaled $10.1 million for the year endedDecember 31, 2002, as compared to cash used for operating Page 28activities of $4.3 million for the year ended December 31, 2001.The increase in cash used for operating activities was primarilydue to $4.4 million lower accounts payable balances and $1.0million higher inventories at December 31, 2002. CASH USED FOR INVESTING ACTIVITIES. Cash used forinvesting activities totaled $2.1 million for the year endedDecember 31, 2002, as compared to $5.5 million for the sameperiod in 2001. The decrease was primarily due to reduced capitalexpenditures coupled with increased sales of property, plant andequipment. CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided byfinancing activities totaled $14.0 million for the year endedDecember 31, 2002 consisting primarily of $10 million ofborrowings under the Cadiz revolving credit facility coupled withnet short-term borrowing of $4.4 million by Sun World. Borrowingsincreased from the prior year in which monies were received fromthe Rail-Cycle and Rayo water litigation settlements. For thesame period in 2001, cash provided by financing activitiestotaled $7.9 million consisting primarily of $7.5 million inproceeds from the issuance of Series E preferred stock.Principal payments on long-term debt totaled $0.8 million for theyear ended December 31, 2002 compared to $1.6 million for theyear ended December 31, 2001. Net proceeds from the exercise ofstock options totaled $0.8 million during the year ended December31, 2002 and $1.6 million for the year ended December 31, 2001.(B) OUTLOOK ------- SHORT TERM OUTLOOK. The proceeds of our 2003 privateplacements have provided us with sufficient cash to meet ourexpected working capital needs through approximately May 2005.$2.0 million of the proceeds of our December 2003 privateplacement were used to bring current our outstanding interestpayments owed to ING under our ING credit facilities. $2.1million of the proceeds of our December 2003 private placementwere placed in a cash collateral account with ING in order toextend the maturity date of the credit facility through March 31,2005. These funds can be applied, if necessary, to the payment ofaccrued interest due under our credit facilities with ING. Theremainder of the proceeds will be used to meet our ongoingworking capital needs. LONG TERM OUTLOOK. In the longer term, our working capitalSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.needs will be determined based upon the specific measures wepursue in the development of our water resources. Whichevermeasure or measures are chosen, we expect that we will need toraise additional cash from time to time until we are able togenerate cash through our development activities. We willevaluate the amount of cash needed, and the manner in which suchcash will be raised, on an ongoing basis. We may meet any suchfuture cash requirements through a variety of means to bedetermined at the appropriate time. Such means may include equityor debt placements, or the sale or other disposition of assets.Equity placements would be undertaken only to the extentnecessary so as to minimize the dilutive effect of any suchplacements upon our existing stockholders. (C) CERTAIN TRENDS AND UNCERTAINTIES -------------------------------- In connection with the "safe harbor provisions of thePrivate Securities Litigation Reform Act of 1995, we are filingcautionary statements identifying important risk factors thatcould cause our actual results to differ materially from thoseprojected in our forward-looking statements made by or on ourbehalf. Page 29 We wish to caution readers that these factors, among others,could cause our actual results to differ materially from thoseexpressed in any projected, estimated or forward-lookingstatements relating to us. The following factors should beconsidered in conjunction with any discussion of operations orresults by us or our representatives, including any forward-looking discussion, as well as comments contained in press releases, presentations to securities analysts or investors, or other communications to us. In making these statements, we are not undertaking toaddress or update each factor in future filings or communicationsregarding our business or results, and are not undertaking toaddress how any of these factors may have caused changes todiscussions or information contained in previous filings orcommunications. In addition, certain of these matters may haveaffected our past results and may affect future results. OUR REVENUES ARE DEPENDENT UPON THE SUCCESS OF OUR WATERDEVELOPMENT PROJECTS. We may never generate revenues or becomeprofitable unless we are able to successfully implement our waterdevelopment programs. At present, we do not know the terms, ifany, upon which we may be able to proceed with the Cadiz Program,or any alternative means which we may be able to use in order toimplement our water development programs. Regardless of the formof our water development programs, the circumstances under whichtransfers or storage of water can be made and the profitabilityof any transfers or storage are subject to significantuncertainties, including hydrologic risks of variable watersupplies, risks presented by allocations of water under existingand prospective priorities, and risks of adverse changes to orinterpretations of U.S. federal, state and local laws,regulations and policies. Additional risks attendant to suchprograms include our ability to obtain all necessary regulatoryapprovals and permits, possible litigation by environmental orother groups, unforeseen technical difficulties, and generalmarket conditions for water supplies. WE ARE UNCERTAIN OF THE OUTCOME OF SUN WORLD'S BANKRUPTCYPROCEEDINGS. Sun World's plan of reorganization, as filed withthe U.S. Bankruptcy Court, has not been approved. We do not knowwhen or if this plan will ever be approved. In addition, we donot know whether changes will need to be made to the plan inorder to obtain approval of the plan and, if so, what suchchanges would be. Notwithstanding our separate and binding globalsettlement agreements with Sun World and with the holders of amajority in interest of Sun World's First Mortgage Notes, we willnot know the exact nature of the post-bankruptcy ownershipstructure of Sun World or the final disposition of our claims andSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the claims of Sun World's creditors in the bankruptcy proceedingsuntil such proceedings are formally concluded. A PENDING APPEAL OF THE BANKRUPTCY COURT'S APPROVAL OF OURSETTLEMENT WITH SUN WORLD MAY BE SUCCESSFUL. A single unsecuredcreditor of Sun World has appealed the order of the BankruptcyCourt which authorized Sun World to enter into a globalsettlement agreement with us. We may be exposed to significantmonetary damages (and, as a result, potential default under ouragreements with our senior secured lender) if (i) this appeal issuccessful in reversing the Bankruptcy Court's order, (ii) oursettlement with Sun World is thereafter disapproved andabandoned, (iii) litigation is commenced on behalf of Sun World'sestate against us, and (iv) a judgment is obtained against us andenforced. OUR GUARANTEE OF SUN WORLD'S FIRST MORTGAGE NOTES REMAINSOUTSTANDING. Sun World's First Mortgage Notes are secured by ourguarantee. If, notwithstanding our efforts to limit potentialobligations under this guarantee, a claim is successfullyasserted against us under this guarantee, we may not have theability to pay such a claim. Our inability to pay a claim underthe guarantee may materially and adversely affect our ability toconduct our business and thereby cause a default under ouragreements with our senior secured lender. Page 30 OUR FAILURE TO MAKE TIMELY PAYMENTS OF PRINCIPAL ANDINTEREST ON OUR INDEBTEDNESS MAY RESULT IN A FORECLOSURE ON OURASSETS. As of December 31, 2003, we had indebtedness outstandingto our senior secured lender of approximately $35 million. Ourassets have been put up as collateral to secure the payment ofthis debt. If we cannot generate sufficient cash flow to maketimely payments of principal and interest on this indebtedness,or if we otherwise fail to comply with the terms of agreementsgoverning our indebtedness, we may default on our obligations. Ifwe default on our obligations, our lenders may sell off theassets that we have put up as collateral. This, in turn, mayresult in a cessation or sale of our operations. OUR STOCK IS NOT TRADED ON A NATIONAL SECURITIES EXCHANGE.Effective March 27, 2003, our common stock was delisted fromtrading on the Nasdaq National Market. While we intend to reapplyfor a Nasdaq listing as soon as we are eligible to do so, certainrequirements for such a listing, such as minimum trading price,are not within our control, and therefore we cannot be certainwhen or if we will be able to meet the initial listingrequirements of Nasdaq or another national securities exchange. FURTHER EQUITY FINANCINGS WILL RESULT IN THE DILUTION OFOWNERSHIP INTERESTS OF CURRENT STOCKHOLDERS. We may requireadditional capital to finance our operations until such time asour water development operations produce revenues. We cannotassure you that our current lenders, or any other lenders, willgive us additional credit should we seek it. Consequently, wewill likely seek to raise additional working capital in the nearterm through further equity financings, which will result indilution to the equity interests of current common stockholders. THE REGISTRATION FOR RESALE OF COMMON STOCK PURSUANT TOEXISTING REGISTRATION RIGHTS AGREEMENTS WILL INCREASE THE NUMBEROF OUTSTANDING SHARES OF OUR COMMON STOCK ELIGIBLE FOR RESALE.The sale, or availability for sale, of these shares could causedecreases in the market price of our common stock, particularlyin the event that a large number of shares were sold in thepublic market over a short period of time. Similarly, theperception that additional shares of our common stock could besold in the public market in the future, could cause a reductionin the trading price of our stock. WE ARE RESTRICTED BY CONTRACT FROM PAYING DIVIDENDS AND WEDO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE. Anyreturn on investment on our common stock will depend primarilyupon the appreciation in the price of our common stock. To date,Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.we have never paid a cash dividend on our common stock. The loandocuments governing our credit facilities with ING prohibit thepayment of dividends while such facilities are outstanding. As wehave a history of operating losses, we have been unable to dateto pay dividends. Even if we post a profit in future years, wecurrently intend to retain all future earnings for the operationof our business. As a result, we do not anticipate that we willdeclare any dividends in the foreseeable future.(D) CRITICAL ACCOUNTING POLICIES ---------------------------- As discussed in Note 2 to the Consolidated FinancialStatements of Cadiz, the preparation of financial statements inconformity with accounting principles generally accepted in theUnited States requires management to make estimates andassumptions that affect amounts reported in the accompanyingconsolidated financial statements and related footnotes. Inpreparing these financial statements, management has made itsbest estimates and judgments of certain amounts included in thefinancial statements based on all relevant Page 31information available at the time and giving due to 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) INVENTORIES AND RELATED ALLOWANCE FOR OBSOLETE ANDEXCESS INVENTORY. Inventories are valued at the lower of cost ormarket. Management estimates what market conditions will be forproduce based on the age, size, quality and overall market forfresh product held in inventory at the end of each reportingperiod. When future market conditions indicate that the cost ofthe inventory plus any additional selling expenses exceed theexpected net revenues to be received, we provide a reserve forthe amount of estimated costs in excess of estimated netrevenues. Management also regularly conducts a review of non-product inventory that consists primarily of corrugated boxes,chemicals and seed. Appropriate allowances are made based onmanagement's review for all excess and obsolete inventorycompared to estimated future usage and sales. (2) INTANGIBLE AND OTHER LONG-LIVED ASSETS. Property,plant and equipment, intangible and certain other long-livedassets are amortized over their useful lives. Useful lives arebased on management's estimates of the period that the assetswill generate revenue. Long-lived assets are reviewed forimpairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. AtSun World, management regularly reviews crop portfolios in anattempt to identify crops that are underperforming generally atthe conclusion of each growing season. As a result of thesereviews, management determines which crops will be removedimmediately or at the conclusion of the next growing season. Assuch, appropriate writedowns and accruals for estimated removalcosts are made and where appropriate, remaining useful lives areshortened to correspond to the estimated period that the assetswill are expected to generate future revenues. As a result ofthe actions taken by Metropolitan in the fourth quarter of 2002as described in Note 1, the Company, with the assistance of anindependent valuation firm, evaluated the carrying value of itswater program and determined that the asset was not impaired andthat the costs will be recovered through sale or operation of theproject. (3) GOODWILL. As a result of a merger in May 1988 betweentwo companies, which eventually became known as Cadiz Inc.,Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.goodwill in the amount of $7,006,000 was recorded. This amountwas being amortized on a straight-line basis over thirty years.Accumulated amortization was $3,193,000 at December 31, 2001. InJune 2001, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards No. 142, ("SFAS No.142") "Goodwill and Other Intangible Assets". Under SFAS No. 142goodwill and intangible assets deemed to have indefinite livesare no longer amortized but will be subject to annual impairmenttests in accordance with the Statement. Upon adoption of SFASNo. 142, effective at the beginning of fiscal 2002, the Companyperformed a transitional fair value based impairment test anddetermined that its goodwill was not impaired. In addition,cessation of amortization of goodwill upon adoption of SFAS No.142 did not have a material impact upon the Company's financialposition or results of operations. Goodwill is tested forimpairment annually in the first quarter, or earlier if eventsoccur which require an impairment analysis be performed. As aresult of the actions taken by Metropolitan in the fourth quarterof 2002 as described in Note 1 to the financial statements, theCompany, with the assistance of an independent appraisal firm,performed an impairment test of its goodwill and determined thatits goodwill was not impaired. Page 32 (4) DEFERRED TAX ASSETS AND VALUATION ALLOWANCES. To date,we have had a history of net operating losses as we have notgenerated significant revenue from our water development programsand Sun World had experienced losses from its agriculturaloperations. As such, we have generated significant deferred taxassets, including large net operating loss carry forwards forfederal and state income taxes for which we have a full valuationallowance. Management is currently working on initiatives atCadiz that are designed to generate future taxable income,although there can be no guarantee that this will occur. Astaxable income is generated, some portion or all of the valuationallowance will be reversed and an increase in net income wouldconsequently be reported in future years.(E) NEW ACCOUNTING PRONOUNCEMENTS ----------------------------- Adoption of Statement of Financial Accounting Standard(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, SFAS No. 141, Accounting for Business Combinationsand SFAS No. 142, Goodwill and Other Intangible Assets did nothave a material impact on the Company's financial position,results of operations or cash flows for the year ended December31, 2002. In April 2002, the Financial Accounting Standards Board(FASB) issued Statement of Financial Accounting Standard (SFAS)No. 145, which rescinds FASB Statement No. 4, Reporting Gains andLosses from Extinguishment of Debt, FASB Statement No. 44,Accounting for Intangible Assets of Motor Carriers, and FASBStatement No. 64, Extinguishments of Debt Made to Satisfy SinkingFund Requirements as well as amends FASB No. 13, to make varioustechnical various corrections. The Statement is effective forfinancial statements issued after May 15, 2002. The adoption ofthis standard did not have a material impact on the Company'sfinancial position or results of operations. In June 2002, the FASB issued Statement of FinancialAccounting Standards No. 146, Accounting for Costs Associatedwith Exit or Disposal Activities ("SFAS 146"), which addressesfinancial accounting and reporting for costs associated with exitor disposal activities and supersedes Emerging Issues Task Force("EITF") Issue 94-3, Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring). SFAS 146requires that a liability for a cost associated with an exit ordisposal activity be recognized when the liability is incurred.Under EITF Issue 94-3, a liability for an exit cost as defined inEITF Issue 94-3 was recognized at the date of an entity scommitment to an exit plan. SFAS 146 also establishes that theSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.liability should initially be measured and recorded at fairvalue. The Company adopted the provisions of SFAS 146 effectiveJanuary 1, 2003 and such adoption did not have a material impacton the consolidated financial statements. In November 2002, the FASB issued Interpretation No. 45,Guarantor s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees and Indebtedness ofOthers ("FIN 45"). FIN 45 elaborates on the disclosures to bemade by the guarantor in its interim and annual financialstatements about its obligations under certain guarantees that ithas issued. It also requires that a guarantor recognize, at theinception of a guarantee, a liability for the fair value of theobligation undertaken in issuing the guarantee. The Companyadopted the disclosure provisions of FIN 45 during the fourthquarter of 2002 and the recognition provisions of FIN 45effective January 1, 2003. Such adoption did not have a materialimpact on the consolidated financial statements. In December 2002, the FASB issued SFAS No. 148, Accountingfor Stock-Based Compensation-Transition and Disclosure-anamendment of SFAS No. 123. This Statement Page 33amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments toStatement 123 in paragraphs 2(a)-2(e) of this Statement shall beeffective for financial statements for fiscal years ending afterDecember 15, 2002. Earlier application of the transitionprovisions in paragraphs 2(a)-2(d) is permitted for entities witha fiscal year ending prior to December 15, 2002, provided thatfinancial statements for the 2002 fiscal year have not beenissued as of the date this Statement is issued. Early applicationof the disclosure provisions in paragraph 2(e) is encouraged. Theamendment to Statement 123 in paragraph 2(f) of this Statementand the amendment to Opinion 28 in paragraph 3 shall be effectivefor financial reports containing condensed financial statementsfor interim periods beginning after December 15, 2002. Theadoption of SFAS No. 148 did not have a material impact on itsfinancial position or results of its operations. In January 2003, FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities ("FIN 46"). Ingeneral, a variable interest entity is a corporation,partnership, trust or any other legal structure used for businesspurposes that either (a) does not have equity investors withvoting rights or (b) has equity investors that do not providesufficient financial resources for the entity to support itsactivities. FIN 46 requires certain variable interest entities tobe consolidated by the primary beneficiary of the entity if theinvestors do not have the characteristics of a controllingfinancial interest or do not have sufficient equity at risk forthe entity to finance its activities without additionalsubordinated financial support from other parties. Theconsolidation requirements of FIN 46 apply immediately tovariable interest entities created after January 31, 2003. TheCompany adopted the provisions of FIN 46 effective February 1,2003 and such adoption did not have an impact on its consolidatedfinancial statements since it currently has no variable interestentities. In December 2003, the FASB issued FIN 46R with respectto variable interest entities created before January 31, 2003,which among other things, revised the implementation date to thefirst year or interim period ending after March 15, 2004, withthe exception of Special Purpose Entities ( SPE). Theconsolidation requirements apply to all SPE s in the first yearor interim period ending after December 15, 2003. The Company'sadoption of the provisions of FIN 46R is not expected to have amaterial impact on its consolidated financial statements.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In April 2003, FASB issued Statement of Financial AccountingStandards No. 149, Amendment of Statement 133 on DerivativeInstruments and Hedging Activities ("SFAS 149"). SFAS 149 amendsand clarifies accounting for derivative instruments, includingcertain derivative instruments embedded in other contracts, andfor hedging activities under SFAS 133. SFAS 149 is effective forcontracts and hedging relationships entered into or modifiedafter June 30, 2003. The Company adopted the provisions of SFAS149 effective June 30, 2003 and such adoption did not have animpact on its consolidated financial statements since the Companyhas not entered into any derivative or hedging transactions. In May 2003, FASB issued Statement of Financial AccountingStandards No. 150, Accounting for Certain Financial Instrumentswith Characteristics of Both Liabilities and Equity ("SFAS 150").SFAS 150 establishes standards for how an issuer classifies andmeasures certain financial instruments with characteristics ofboth debt and equity and requires an issuer to classify thefollowing instruments as liabilities in its balance sheet: Page 34 * a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specified or determinable date or upon an event that is certain to occur; * a financial instrument, other than an outstanding share, that embodies an obligation to repurchase the issuer s equity shares, or is indexed to such an obligation, and requires the issuer to settle the obligation by transferring assets; and * a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value of the issuer's equity shares, or (3) variations inversely related to changes in the fair value of the issuer s equity shares. In November 2003, FASB issued FASB Staff Position No. 150-3which deferred the effective dates for applying certainprovisions of SFAS 150 related to mandatorily redeemablefinancial instruments of certain non-public entities and certainmandatorily redeemable non-controlling interests for public andnon-public companies. For public entities, SFAS 150 is effectivefor mandatorily redeemable financial instruments entered into ormodified after May 31, 2003 and is effective for all otherfinancial instruments as of the first interim period beginningafter June 15, 2003. For mandatorily redeemable non-controllinginterests that would not have to be classified as liabilities bya subsidiary under the exception in paragraph 9 of SFAS 150, butwould be classified as liabilities by the parent, theclassification and measurement provisions of SFAS 150 aredeferred indefinitely. The measurement provisions of SFAS 150 arealso deferred indefinitely for other mandatorily redeemable non-controlling interests that were issued before November 4, 2003.For those instruments, the measurement guidance for redeemableshares and non-controlling interests in other literature shallapply during the deferral period. The Company adopted theprovisions of SFAS 150 effective June 30, 2003, and such adoptiondid not have an impact on our consolidated financial statements.(F) OFF BALANCE SHEET ARRANGEMENTS ------------------------------- Cadiz does not have any off balance sheet arrangements atthis time.(G) CERTAIN KNOWN CONTRACTUAL OBLIGATIONS -------------------------------------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PAYMENTS DUE BY PERIODCONTRACTUAL LESS THAN AFTER OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS------------- ----- --------- --------- --------- -------Cadiz Inc.----------Long term debt obligations (A) $ 35,000 $ - $ 35,000 $ - $ -Operating leases 262 112 150 - -Sun World International, Inc.-----------------------------Long term debt obligations (B) 121,697 6,250 115,442 5 -Operating leases 714 375 339 - - --------- --------- --------- --------- ---------Total contractual cash obligations $ 157,673 $ 6,737 $ 150,931 $ 5 $ - ========= ========= ========= ========= ========= Page 35(A) Cadiz long-term debt included in the table above reflectsthe debt restructuring which occurred in December 2003 asdescribed above in Item 7, Managements Discussion and Analysis ofFinancial Condition and Results of Operation; Liquidity andCapital Resources; Cadiz Obligations.(B) As a result of the Chapter 11 filing on January 30, 2003all required principal payments on this long-term debt aresuspended. Therefore the commitments shown above will not reflectITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rateson long-term debt obligations that impact the fair value of theseobligations. Our policy is to manage interest ratesfair values by year of scheduled maturities to evaluate theexpected cash flows and sensitivity to interest rate changes (inthousands of dollars). Circumstances could arise which may causeinterest rates and the timing and amount of actual cash flows todiffer materially from the schedule below: LONG-TERM DEBT -------------------------------------------------------- FIXED RATE AVERAGE VARIABLE RATE AVERAGEEXPECTED MATURITY MATURITIES INTEREST RATE MATURITIES INTEREST RATE----------------- ---------- ------------- ------------- -------------Sun World International, Inc. (A) 2003 $ 394 7.8% $ 5,856 6.0% 2004 115,419 11.2% - - 2005 23 8.8% - - 2006 5 10.2% - - --------- ----- --------- ----Subtotal 115,841 11.2% 5,856 6.0%Cadiz, Inc. (B) 2005 35,000 12.0% - - --------- ----- --------- ---- Total $ 150,841 11.4% $ 5,856 6.0% ========= ===== ========= ====(A) As a result of the Chapter 11 filing on January 30,2003 all required principal payments on this long-term debt areSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.suspended. Therefore the commitments shown above will not reflectcash outlays in future periods.(B) Cadiz long-term debt included in the table above reflectsthe debt restructuring which occurred in December 2003 asdescribed above in Item 7, Managements Discussion and Analysis ofFinancial Condition and Results of Operation; Liquidity andCapital Resources; Cadiz Obligations.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is submitted inresponse to Part IV below. See the Index to ConsolidatedFinancial Statements. Page 36ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.ITEM 9A. CONTROLS AND PROCEDURES We carried out an evaluation, under the supervision and withthe participation of our management, including our Chairman,Chief Executive Officer and Chief Financial Officer (PrincipalExecutive and Financial Officer), of the effectiveness of thedesign and operation of our disclosure controls and procedures asof December 31, 2002. As of the date of that evaluation, our Chairman, Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective in timely alerting him to material information relating to Cadiz (including our consolidated subsidiaries) required to be included in our periodic Securities and Exchange Commission filings. There was no significant change in our internal control over financial reporting that occurredduring the most recent fiscal quarter that materially affected,or is reasonably likely to affect, our internal control overfinancial reporting, and no corrective actions with regard tosignificant deficiencies or weaknesses. PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Name Age Position with Cadiz ---- --- ------------------- Keith Brackpool 47 Chairman of the Board, President, Chief Executive and Financial Officer Murray H. Hutchison 66 Director Timothy J. Shaheen 44 Director and President and Chief Executive Officer of Sun World International, Inc. Geoffrey Arens 40 Director Gregory Ritchie 40 Director Richard E. Stoddard 53 CEO and Chairman of the Board of Managers of Cadiz Real Estate LLC Keith Brackpool is a founder of Cadiz, has served as amember of Cadiz' Board of Directors since September 1986, and hasserved as President and Chief Executive Officer of Cadiz sinceDecember 1991. Mr. Brackpool assumed the role of Chairman of theBoard of Cadiz on May 14, 2001, and the role of Chief FinancialSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Officer on May 19, 2003. Mr. Brackpool has also been a principalof 1334 Partners L.P., a partnership that owns commercial realestate from 1989 to present. Page 37 Murray H. Hutchison was appointed a director of Cadiz inJune 1997. He is also a member of the Board of Managers (an LLC'sfunctional equivalent of a Board of Directors) of Cadiz'subsidiary, Cadiz Real Estate LLC. In his capacity as a managerof the LLC he performs essentially the same duties on behalf ofthe LLC as he would as an outside director for a corporation.Since his retirement in 1996 from International TechnologyCorporation, a publicly traded diversified environmentalmanagement company, Mr. Hutchison has been self-employed with hisbusiness activities involving primarily the management of aninvestment portfolio. From 1976 to 1994, Mr. Hutchison served asChief Executive Officer and Chairman of International Technology.Mr. Hutchison currently serves as a director of Jack in the Box,Inc., a publicly traded fast food restaurant chain. Additionally,Mr. Hutchison serves as Chairman of the Huntington HotelCorporation, a privately owned hotel and office building, and asa director of several other non-publicly traded U.S. companies. Timothy J. Shaheen was appointed a director of Cadiz inMarch 1999. Mr. Shaheen has also served as the President, ChiefExecutive Officer and a director of Cadiz' wholly-ownedsubsidiary, Sun World International, Inc., since September 1996.Mr. Shaheen has 18 years of experience in the produce industryand is active on several industry advisory committees. Prior tojoining Sun World, he served as a senior executive with AlbertFisher North America, a publicly traded domestic andinternational produce company from 1989 to 1996. While withAlbert Fisher, Mr. Shaheen also served as director of itsCanadian produce operations and as a director of Fresh WesternMarketing, one of the largest growers and shippers of freshvegetables in the Salinas Valley of California. Prior to hisemployment with Albert Fisher, Mr. Shaheen has seven years ofexperience with the accounting firm of Ernst & Young LLP. Mr.Shaheen is a certified public accountant. As described morefully in "Item 1 Description of Business - General Development ofBusiness" above, Sun World and its domestic subsidiaries filedfor bankruptcy on January 30, 2003. Geoffrey Arens was appointed a director of Cadiz on January30, 2004 as a nominee of ING pursuant to the rights of ING asholder of Cadiz' Series F preferred stock. Mr. Arens has beenwith ING since 1995 and is the co-Head of ING's Strategic TradingPlatform Americas group and as such is responsible for thatgroup's global proprietary investing business. He is also CEO ofING Capital Advisors, LLC, a registered investment advisorspecializing in the management of leveraged loan assets for largeinstitutional clients. In addition to his Board duties at Cadiz,Mr. Arens also serves on the Board of Directors of ING CapitalManagement, Ltd., and California Coastal Communities, Inc. Gregory Ritchie was appointed a director of Cadiz on March25, 2004 as a nominee of ING pursuant to the rights of ING asholder of Cadiz' Series F preferred stock. Mr. Ritchie has beenwith ING since 1995 and is a Managing Director and the co-head ofING's Strategic Trading Platform and as such is responsible forthe group's global proprietary investing business. He is alsohead of the Strategic Trading Platform's Equities team. Richard E. Stoddard serves as CEO and Chairman of the Board ofManagers of Cadiz Real Estate LLC, the subsidiary of Cadiz,directing the development of the Cadiz Groundwater StorageProgram and the other Cadiz real estate assets. In addition,since 1988, Mr. Stoddard has served as the Chairman and CEO ofKaiser Ventures LLC, an unrelated public entity involved inwater development, real estate development and waste managementprojects in southern California. Mr. Stoddard also serves as ageneral business consultant to Cadiz. Page 38Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The certificate of designation for our Series F preferredstock provides that the holder(s) of the Series F preferred stock(currently ING) have the right to elect two members of the Boardof Directors. Directors of Cadiz hold office until the next annual meetingof stockholders or until their successors are elected andqualified. There are no family relationships between anydirectors or current officers of Cadiz. Officers serve at thediscretion of the Board of Directors. The Board of Directors has determined that Mr. Hutchison, amember of the Company's Audit Committee, is an "audit committeefinancial expert" as that term is defined in Item 401(h) ofRegulation S-K under the Securities Act. The other members of theAudit Committee are Messrs. Arens and Ritchie. The Board hasdetermined that Messrs. Hutchison, Arens and Ritchie areindependent in accordance with the criteria and guidelinesestablished by Nasdaq. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires our directors andexecutive officers, and persons who beneficially own more than10% of a registered class of our equity securities ("reportingpersons"), to file with the SEC initial reports of ownership andreports of changes in ownership of common stock and other equitysecurities of Cadiz. Reporting persons are required by the SECregulations to furnish Cadiz with copies of all Section 16(a)forms they file. We have filed these forms on behalf of some ofour directors and officers in the past and have a power ofattorney to assist certain of them in the future. To Cadiz'knowledge, based solely on a review of the copies of reports andamendments thereto on Forms 3, 4 and 5 furnished to us byreporting persons and forms that we filed on behalf of certaindirectors and officers, during, and with respect to, Cadiz'fiscal year ended December 31, 2002, and on a review of writtenrepresentations from reporting persons to Cadiz that no otherreports were required to be filed for such fiscal year, the Forms4 filed in the third quarter for Mr. Hutchison, Mr. AnthonyCoehlo (who was then a director of Cadiz but resigned effectiveDecember 15, 2003) and Mr. Dwight Makins (who was then a directorof Cadiz but resigned effective December 15, 2003) which reportedeach of their grants of 580 stock options for services asdirectors, were inadvertently filed late, and all other Section16(a) filing requirements applicable to Cadiz' directors,executive officers and greater than 10% beneficial owners duringsuch period were satisfied in a timely manner. CODE OF ETHICS Cadiz has adopted a code of ethics that applies to all ofits employees, including its principal executive and financialofficer. A copy of the code of ethics may be found on Cadiz'website at www.cadizinc.com. Other information on this websiteis not incorporated as part of this filing. Page 39ITEM 11. EXECUTIVE COMPENSATION The tables and discussion below set forth information aboutthe compensation awarded to, earned by, or paid to Cadiz'executive officers during the years ended December 31, 2002, 2001and 2000. SUMMARY COMPENSATION TABLE ANNUAL OTHER LONG-TERMNAME AND FISCAL COMPENSATION(2) COMPENSATION AWARDSPRINCIPAL YEAR(1) SALARY BONUS(3) RESTRICTED STOCK POSITION AWARDS(4)(5)Keith Brackpool 12/31/02 $500,000 $ 233,124 $ -0-Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. President and 12/31/01 500,000 -0- -0- Chief Executive Officer(6) 12/31/00 500,000 150,000 150,000 Timothy J. Shaheen 12/31/02 300,000 -0- -0- President and 12/31/01 300,000 -0- -0- Chief Executive Officer 12/31/00 300,000 75,000 75,000 of Sun World Stanley E. Speer 12/31/02 260,000 -0- -0- Chief Financial Officer(6) 12/31/01 260,000 -0- -0- 12/31/00 260,000 65,000 65,000-------------------------------- (1) The information presented in this table is for the years ended December 31, 2002, 2001 and 2000. The executive officers for whose compensation has been disclosed for the year ended December 31, 2002 constituted all of Cadiz' executive officers as of December 31, 2002 and during the year ended December 31, 2002. (2) No column for "Other Annual Compensation" has been included to show compensation not properly categorized as salary or bonus, which consisted entirely during each fiscal year of perquisites and other personal benefits, because the aggregate amounts did not exceed the lesser of either $50,000 or 10% of the total of annual salary and bonus reported for each of the above named executive officers for each fiscal year. See "Employment Arrangements" below. (3) Bonuses were paid in February for the preceding calendar year. (4) Deferred stock units were granted to Messrs. Brackpool, Shaheen and Speer in February 2001 and May 2000, as part of their respective bonuses for the preceding calendar year. These deferred stock units vest three years from the date of issuance. The total number and value of deferred stock units outstanding at December 31, 2002 (based upon the Nasdaq National Stock Market closing sales price per share of $13.75 on that date) for Messrs. Brackpool, Shaheen and Speer was as follows: UNITS NAME FISCAL YEAR OUTSTANDING VALUE ---- ----------- ----------- ----- Brackpool 12/31/99 1,616 $ 22,220 12/31/00 615 8,456 Shaheen 12/31/99 873 12,003 12/31/00 308 4,235 Speer 12/31/99 776 10,670 12/31/00 267 3,671 All of the deferred stock units listed above vested prior to the date of this filing and the officers were issued shares of common stock accordingly, with the exception that the Cadiz' Board of Directors authorized the buyout of the tax withholding portion of the officers' deferred stock units for the February 2001 grant and therefore the number of shares of common stock issued to each for such grant was reduced by the tax withholding amount. (5) Deferred stock units, which were fully vested but cannot be exchanged for shares of common stock without restrictions until March 31, 2003, were issued to Messrs. Brackpool, Shaheen and Speer in March 2001 in exchange for fully vested and expiring options in amounts equaling the value of the expiring options in excess of their exerciseSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. price. The total number and value of these deferred stock units outstanding at December 31, 2002 (based upon the Nasdaq National Stock Market closing sales price per share of $13.75 on that date) for Messrs. Brackpool, Shaheen and Speer was as follows: # of Options Units Name Exchanged Awarded Value ---- ------------ ------- ----- Brackpool 12,000 5,415 $ 74,456 Shaheen 16,000 8,664 119,130 Speer 8,000 4,332 59,565 Page 40 All of the deferred stock units listed above vested without restriction in 2003 and the officers were issued shares of common stock accordingly. (6) Mr. Brackpool assumed the position of Chief Financial Officer of Cadiz on May 19, 2003 when Mr. Speer resigned from that position. Mr. Speer remains as the Chief Financial Officer of Sun World. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES NUMBER OF VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT OPTIONS AT FY-END (#) FY-END ($) SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)---- --------------- ----------- ------------- ----------------Keith Brackpool -0- -$0- 80,000(2)/-0- -$0-/-$0-Timothy J. Shaheen -0- -0- 3,000(3)/-0- -$0-/-$0-Stanley E. Speer -0- -0- 5,000(4)/-0- -$0-/-$0---------------------------------------- (1) Based upon the Nasdaq National Market closing sales price per share of Cadiz common stock at December 31, 2002 which was $13.75. (2) These options expired without exercise on January 15, 2004. (3) These options expired without exercise on February 12, 2004. (4) 2,000 of these options expired without exercise on February 13, 2003, and the remaining 3,000 options expired without exercise on February 12, 2004.COMPENSATION OF DIRECTORS In the fiscal year 2002, Messrs. Anthony Coelho, Murray H.Hutchison and Dwight W. Makins each received cash compensationfor their services as directors of Cadiz in the amount of $25,000per year, payable quarterly in advance in accordance with theiragreements with Cadiz. Messrs. Coelho and Makins served asdirectors for the fiscal year 2002, and subsequently resignedDecember 15, 2003. Messrs. Brackpool and Shaheen do not receive anycompensation for serving as directors of Cadiz or Sun World sincethey are otherwise paid as employees of Cadiz or Sun World. EMPLOYMENT ARRANGEMENTSSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Until February 1, 2003, Mr. Brackpool was employed pursuantto an Employment Agreement which provided for base compensationof $500,000 annually plus an annual incentive based bonus not toexceed 120% of his base compensation. This agreement providedthat in the event of a material change or reduction in Mr.Brackpool's responsibilities, he would be entitled to terminatethe agreement and continue to receive base compensation for theremainder of the term of the agreement, and also provided thatMr. Brackpool would be entitled to continue to receive basesalary and a deemed bonus equal to 60% of base salary in theevent of any other termination of the agreement by Cadiz companyother than for cause. Subsequent to February 1, 2003, Cadiz failed to makepayments of base compensation to Mr. Brackpool as and whenrequired under this agreement, thereby giving Mr. Brackpool theright to terminate the agreement, which was effectivelyterminated as of February 1, 2003. In accordance with thetermination provisions of the agreement governing terminationwithout cause, Mr. Brackpool became entitled to receive paymentof $800,000. Page 41 This $800,000 payment was made to Mr. Brackpool as part ofan overall settlement of obligations arising under a $1 millionloan entered into by Mr. Brackpool with Cadiz on July 5, 2002.See "Item 13. Certain Relationships and Related Transactions",below. This overall settlement with Mr. Brackpool was madeeffective July 5, 2003, by way of a corresponding reduction inMr. Brackpool's obligations to Cadiz under the loan. Thisreduction, along with cash payments by Mr. Brackpool in theamount of $181,013 and an application of $50,000 of accrued butunpaid compensation owed by Cadiz to Mr. Brackpool under his postFebruary 1, 2003 employment arrangements with Cadiz, resulted inthe settlement in full by Mr. Brackpool of his obligations underthis loan. Notwithstanding the agreed termination of Mr. Brackpool'sexisting employment agreement as of February 1, 2003, andnotwithstanding Mr. Brackpool's right to collect terminationpayments pursuant to that agreement without continuing to provideservices to Cadiz following that date, Cadiz had and continues tohave a need for Mr. Brackpool's services subsequent to February1, 2003. However, given our then existing circumstances andlimited financial resources, we agreed that it was necessary tochange certain of Mr. Brackpool's duties and responsibilities andto materially reduce his compensation. To this end, effective as of the first pay period afterFebruary 1, 2003 Mr. Brackpool has been compensated pursuant toan Agreement Regarding Employment pursuant to which Mr. Brackpoolreceives base compensation of $20,000 per month, plus the samefringe benefits that Mr. Brackpool had been receiving under hisprior employment agreement, including the use of a leasedautomobile and life and disability insurance benefits funded byus. While this Agreement requires Mr. Brackpool to perform hisservices in a satisfactory manner, it does not require that hisservices be provided on a full-time basis. Although the initialterm of the Agreement Regarding Employment ended September 30,2003, Mr. Brackpool continues to provide services to us upon theterms and conditions set forth in this Agreement. Mr. Shaheen was engaged by Cadiz to act as the President andChief Executive Officer of Sun World. In this capacity, Mr.Shaheen received an annual base salary from Sun World of$300,000. Mr. Shaheen was entitled to receive additionalcompensation in the form of bonuses at the sole discretion of theBoard of Directors, based primarily on the performance of SunWorld. Mr. Shaheen also received the use of a leased automobilefunded by Sun World. Mr. Speer was engaged by Cadiz to act as the Chief FinancialOfficer of both Cadiz and Sun World in 2002. In this capacity,Mr. Speer received an annual base salary of $260,000. A portionSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.of Mr. Speer's compensation was allowed to be paid by Sun Worldor other subsidiaries of Cadiz as determined periodically byCadiz. Mr. Speer was entitled to receive additional compensationin the form of bonuses at the sole discretion of the Board ofDirectors, based primarily on the performance of Cadiz. Mr. Speeralso received the use of a leased automobile funded by Cadiz. OnMay 19, 2003, Mr. Speer resigned as the Chief Financial Officerof Cadiz though he retained his position as the Chief FinancialOfficer of Sun World. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the year ended December 31, 2002, all decisions concerning executive officer compensation were made by the Compensation Committee of the Board of Directors. The members of the Compensation Committee were Messrs. Hutchison (Chairman), Makins and Coehlo, all of whom were non-employee directors. Mr. Coehlo replaced Mr. Mitt Parker as a member of the committee upon the resignation of Mr. Parker in March 2002. Page 42 BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Board of Directors has formed a Compensation Committee which is responsible for reviewing and establishing the compensation payable to Cadiz' executive officers, including the President and Chief Executive Officer. For executive officers other than the President and Chief Executive Officer, the Committee establishes compensation levels based, in part, upon the recommendations of the President and Chief Executive Officer. The Compensation Committee has furnished the following report on executive compensation:(1) Cadiz' executive compensation programs are designed to enhance operating performance and to maximize the long-term value of Cadiz' assets and stockholder value, by aligning the financial interest of the executive officers with those of the stockholders. Such a compensation program helps to achieve Cadiz' business and financial objectives and provide incentives needed to attract and retain well- qualified executives in a highly competitive marketplace. To this end, Cadiz has developed a compensation program with three primary components: base salary, performance-based cash awards and long-term incentives through stock awards. BASE SALARY. An effort is made to establish base salary levels for all executive officers so as to be competitive with the salaries of executives of other companies with similarly sized asset portfolios and to ensure the continued services of key individuals. No specific or set formula has been used to tie base salary levels to precise measurable factors. Adjustments to an executive officer's base salary, once established, can be made at the discretion of the Compensation Committee, based upon such factors as position and responsibility, salary history and cost of living increases. Where applicable, the Compensation Committee may also consider the past performance of the officer, both in adjusting base salary levels and in determining additional incentive compensation, such as the cash awards and long term incentives discussed below.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PERFORMANCE-BASED CASH AWARDS. The Compensation Committee believes that incentives should be offered to executives which are related to improvements in performance that yield increased value for stockholders. Although the Compensation Committee relies primarily upon the grant of incentive stock options or other stock awards to reward executive performance (see "Long- Term Incentives" below), under certain circumstances, the Compensation Committee will utilize performance-based cash awards from time to time to provide additional incentives. Page 43 As Chairman and Chief Executive Officer of Cadiz, Mr. Brackpool is charged with the overall responsibility for the performance of Cadiz, as well as Sun World. Mr. Brackpool is compensated pursuant to a written agreement effective as of February 1, 1998 which includes, in addition to base salary, an incentive bonus compensation component. Historically, the Compensation Committee has established bonus compensation for Mr. Brackpool pursuant to criteria established in his employment agreement. Due to the exceptional performance of Mr. Brackpool in furtherance of the Cadiz Program and his efforts with exploring water and agricultural projects in the Middle East, the Compensation Committee granted Mr. Brackpool a performance- based bonus of $233,124 in the first half of 2002. LONG-TERM INCENTIVES. The primary form of incentive compensation offered by Cadiz to executives consists of long-term incentives in the form of stock options or other stock awards. This form of compensation is intended to help retain executives and motivate them to improve Cadiz' long-term performance and hence long-term stock market performance. Stock options and other stock awards are granted at the prevailing market value and will only have added value if Cadiz' stock price increases. The Compensation Committee views the grant of stock awards as both a reward for past performance and an incentive for future performance. Stock options or other stock awards granted by Cadiz may vest immediately upon grant, with the passage of time, at the discretion of the Board, and/or upon the achievement of certain specific performance goals. Where performance is not readily measurable, the vesting of performance based options or other stock awards may be dependent upon the satisfaction of subjective performance criteria. Options previously granted by Cadiz, whether vesting immediately or contingently, are exercisable for a period of five to seven years from grant. The Compensation Committee anticipates that options or stock awards will continue to be granted in the future in order to provide executives with additional long- term incentives. Such options and stock awards may be granted to executives pursuant to the Cadiz 1996 Stock Option Plan or 2000Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Stock Award Plan. DEDUCTIBILITY OF CERTAIN EXECUTIVE COMPENSATION EXPENSES UNDER FEDERAL TAX LAWS The Compensation Committee has considered the impact of provisions of the Internal Revenue Code of 1986, specifically Code Section 162(m). Section 162(m) limits to $1 million Cadiz' deduction for compensation paid to each executive officer of Cadiz, which does not qualify as "performance based". While Cadiz expects that this provision will not limit its tax deductions for executive compensation in the near term, the Cadiz 1996 Stock Option Plan ?enables Cadiz to comply, to the extent deemed advisable, with the requirements of Section 162(m) for Page 44 performance based compensation to insure that Cadiz will be able to avail itself of all deductions otherwise available with respect to awards made under the 1996 Stock Option Plan. However, any shares of stock issued to executives under the Cadiz 2000 Stock Award Plan will not qualify as performance-based compensation and, therefore, will be counted in determining whether the $1 million limit has been reached. CONCLUSION Through the programs described above, a very significant portion of Cadiz' executive compensation is contemplated to be linked directly to corporate performance. The Compensation Committee intends to implement this policy of linking executive compensation to corporate performance in order to continue to align the interest of executives with those of Cadiz' stockholders. THE COMPENSATION COMMITTEE Murray H. Hutchison, Chairman------------------------------------(1) This report shall not be deemed incorporated by reference byany general statement incorporating by reference this annualreport on Form 10-K into any filing under the Securities Act of1933, except to the extent that Cadiz specifically incorporatesthis report by reference, and shall not otherwise be deemed filedunder such acts. Page 45STOCK PRICE PERFORMANCE The stock price performance graph below compares thecumulative total return of Cadiz common stock against thecumulative total return of the Standard & Poor's Small Cap 600and the Russell 2000r index for the past five fiscal years. Thegraph indicates a measurement point of December 31, 1997 andassumes a $100 investment on such date in Cadiz common stock, theStandard & Poor's Small Cap 600 and the Russell 2000r indices.With respect to the payment of dividends, Cadiz has not paid anydividends on its common stock, but the Standard & Poor's SmallCap 600 and the Russell 2000r indices assume that all dividendswere reinvested. The stock price performance graph shall not bedeemed incorporated by reference by any general statementSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.incorporating by reference this annual report on Form 10-K intoany filing under the Securities Act of 1933, as amended, exceptto the extent that Cadiz specifically incorporates this graph byreference, and shall not otherwise be deemed filed under suchacts. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN Assumes initial investment of $100.00 and re-investment of dividends------------------------------------------------------------------------------ 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02Cadiz 100 89.0458951 110.942427 104.373467 93.6587645 6.4229826 Share Value Russell 100 96.5539335 115.498147 110.642534 111.779781 87.6596037 2000 Index ValueS&P Small 100 64.7825127 109.179731 121.213292 128.16295 108.533893 Cap Index Value Page 46ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe following table provides information as of December 31, 2003with respect to shares of our common stock that may be issuedunder our existing compensation plans:EQUITY COMPENSATION PLAN INFORMATIONPlan Number of Weighted-average Number of Category securities to be exercise price securities remaining issued upon of outstanding available for exercise of options, warrants future issuance outstanding and rights under equity options, warrants compensation plans and rights (excluding securities reflected in column (a)) (A) (B) (C)Equity compensation 40,202 $ 184.66 35,756plans approved bystockholders(1)Equity compensation 16,500(2) $ 228.30(2) 1,487,611(3)plans not approved by stockholders TOTAL 56,702 $ 197.36 1,507,807(4)(1) Represents 37,450 share for the Cadiz Inc. 1996 Stock Option Plan, and 2,752 shares for the Cadiz Inc. 2000 Stock Award Plan.(2) Represents the Cadiz Inc. 1998 Stock Option Plan(3) Represents 15,560 shares for the 1998 Stock Option Plan and 1,472,051 shares for the Management Equity Incentive Plan(4) There is a cumulative cap on the 1996 Stock Option Plan, the 1998 Stock Option Plan and the 2000 Stock Award Plan of 160,000 shares.STOCK OPTION AND AWARD PLANS IN GENERAL The purpose of Cadiz' stock option and award plans is toprovide incentives to attract, retain and motivate eligiblepersons whose present and potential contributions are importantSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.to the success of Cadiz and its subsidiaries and affiliates, byoffering them an opportunity to participate in Cadiz futureperformance through awards of options, restricted stock grantsand other similar stock awards.1996 STOCK OPTION PLAN In 1996, our board of directors and stockholders approvedthe adoption of the Cadiz Inc. 1996 Stock Option Plan (the "1996Plan") to provide incentives to key employees of Cadiz and itssubsidiaries. Under the 1996 Plan, stock options may be grantedto directors, officers, employees, consultants, independentcontractors and advisors of Cadiz or its subsidiaries oraffiliates. The 1996 Plan is administered by a committee of the Board orthe Board acting as the committee. Grants under the Plan mayconsist of: (i) options intended to qualify as incentive Page 47stock options ("ISOs") within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), (ii) so-called "non-qualifiedstock options" ("NQSOs") that are not intended to so qualify, or(iii) a combination thereof. Directors who are not employees ofthe Company will be entitled to receive only NQSOs under thePlan. The 1996 Plan permits the governing committee to grantoptions either as ISOs or as NQSOs, and allows the committee toestablish, as to any participant, the number of options, exerciseprice, exercise term (subject to a maximum of ten years), andother terms and conditions. Subject to the foregoing, the optionexercise price may not be less than 85% of the fair market valueof a share of Cadiz common stock on the date of grant of suchoption; however, in the case of an ISO, the price shall be noless than 100% of the fair market value of a share of CommonStock at the time such option is granted; and in the case of anISO granted to a 10% stockholder, the exercise price will be noless than 110% of the fair market value of the common stock onthe date of grant. Upon a "change in control" (as defined in the1996 Plan), the Board has the right to accelerate vesting of alloptions so that they become exercisable within the 30-day periodpreceding the change in control. The Board may amend or terminate the Plan at any time;provided, however, that the Board may not, without the approvalof stockholders, amend the Plan in any manner that requires suchstockholder approval pursuant to the Code or pursuant to theSecurities Exchange Act of 1934, as amended (the "Exchange Act")or Rule 16b-3 thereunder. According to its terms, the 1996 Planwill terminate 10 years from its effective date. Originally, 120,000 shares of common stock were reserved andauthorized for issuance under the 1996 Plan. An additional 40,000shares (for an aggregate of 160,000 shares) were subsequentlyauthorized for issuance, however, the reservation andauthorization of 160,000 shares is cumulative of all three ofCadiz' stock option and award plans. Shares subject to a grant oraward under the 1996 Plan which are not issued or delivered byreason of the failure to vest or the expiration, termination,cancellation or forfeiture are again available for future grantsand awards. As of December 31, 2003, 35,756 shares remainedavailable for grant under the 1996 Plan (subject to thecumulative cap for issuance under all three stock option andaward plans).1998 STOCK OPTION PLAN In 1998, the Board approved a Non-Qualified Stock OptionPlan (the "1998 Plan") to provide grants of stock options tocertain employees, consultants, independent contractors andadvisors of Cadiz or its subsidiaries and affiliates, butexcluding any directors or officers including those who would berequired to file reports of beneficial ownership pursuant to theExchange Act.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The 1998 Plan is administered by a committee of the Board orthe Board acting as the committee. It permits the governingcommittee to establish, as to any participant, the number ofoptions, exercise price, exercise term (subject to a maximum often years), and other terms and conditions, however, the Board'sgeneral intent with the plan is to grant options at an exerciseprice equal to the fair market value of Cadiz common stock at thetime of grant, which options vest ratably over a five-year periodsubject to vesting acceleration for a change in control of theCompany or the Board's determination of satisfaction of certainspecified performance criteria. The Board may amend or terminate the Plan at any time;provided, however, that the Board may not, with respect to anyparticular option grant, without the consent of the holder ofthat outstanding option, amend or terminate such option ormaterially adversely affect the rights Page 48of the holder under such option. According to its terms, the 1998 Plan will terminate 10 years from its effective date. 31,700 shares are reserved and authorized for issuance underthe 1998 Plan, which amount may be decreased by the cumulativecap of 160,000 for issuance under all three stock option andaward plans. Shares subject to a grant or award under the 1998Plan which are not issued or delivered by reason of the failureto vest or the expiration, termination, cancellation orforfeiture are again available for future grants and awards. Asof December 31, 2003, 15,560 shares remained available for grantunder the 1998 Plan (subject to the cumulative cap for issuanceunder all three stock option and award plans).2000 STOCK AWARD PLAN In 2000, our board of directors and stockholders approvedthe adoption of the Cadiz Inc. 2000 Stock Award Plan (the "2000Plan") to add additional forms of stock awards (i.e., restrictedstock, deferred stock units, stock bonus and stock awards in lieuof cash) to the currently available stock option grants toprovide incentives to key employees of Cadiz and its subsidiarieswithout as significant a dilutive effect on the stockholders.Under the 2000 Plan, stock options may be granted to certaindirectors, officers, employees, consultants, independentcontractors and advisors of Cadiz or its subsidiaries andaffiliates. The 2000 Plan is administered by a committee of the Board orthe Board acting as the committee. It permits the governingcommittee to establish, as to any participant, the number andtype of options, stock awards, deferred stock units, stockbonuses or the like, exercise price, exercise term (subject to amaximum of ten years), and other terms and conditions. A changein control of the Company shall accelerate the vesting ofoutstanding, but unvested, stock awards under the 2000 Plan. The Board may amend or terminate the Plan at any time;provided, however, that the Board may not, without the approvalof stockholders, amend the Plan in any manner that requires suchstockholder approval pursuant to the Code or pursuant to theExchange Act or Rule 16b-3 thereunder. Further, the Board maynot, with respect to any particular stock grant, without theconsent of the holder of that outstanding grant, amend orterminate such grant or materially adversely affect the rights ofthe holder under such grant. According to its terms, the 2000Plan will terminate 10 years from its effective date. 40,000 shares are reserved and authorized for issuanceunder the 2000 Plan, which amount may be decreased by thecumulative cap of 160,000 for issuance under all three stockoption and award plans. Shares subject to a grant or award underthe 2000 Plan which are not issued or delivered by reason of thefailure to vest or the expiration, termination, cancellation orSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.forfeiture are again available for future grants and awards. Asof December 31, 2003, 10,596 shares remained available for grantunder the 2000 Plan (subject to the cumulative cap for issuanceunder all three stock option and award plans).MANAGEMENT EQUITY INCENTIVE PLAN In December 2003, concurrently with the completion of therestructuring of our financing arrangements with ING, our boardof directors authorized the adoption of a Management EquityIncentive Plan (the "Incentive Plan"). Under the Incentive Plan,a total of 1,472,051 shares of our common stock may be granted toour key personnel. Our Board has formed an initial allocationcommittee to direct the initial allocation of 717,373 of theseshares. This initial allocation committee consists of Mr.Hutchison (as Chairman of the Compensation Committee), Mr.Brackpool and Mr. Richard Stoddard (a consultant to Cadiz). TheBoard has authorized the Page 49initial allocation committee to award all or part of the initial allocation shares to key personnel (including members of such committee) without further approval of the Board. Any initial allocation shares so granted will be subject to vesting conditions. One-third of the shares granted will vest on the dated of the grant. The remaining two-thirds will vest in two equal installments on December 11, 2004 and December 11, 2005 (subject to continued status of the recipient as an employee or consultant to Cadiz as of the respective vesting date, but also subject to immediate vesting in full of any theretofore unvested shares upon any termination without cause). The 754,678 shares covered by the Incentive Plan which arenot part of the initial allocation are issuable pursuant to thedirection of, and upon such vesting and other conditions as maybe established by, the Compensation Committee. As of September 30, 2004, no shares have been granted or issued under the Incentive Plan. Page 50BENEFICIAL OWNERSHIP The following table sets forth, as of September 15, 2004, theownership of common stock of Cadiz by each stockholder who isknown by Cadiz to own beneficially more than five percent of theoutstanding common stock, by each director, by each executiveofficer listed in the summary compensation table above, and byall directors and executive officers as a group excluding, ineach case, rights under options or warrants not exercisablewithin 60 days. All persons named have sole voting power andinvestment power over their shares except as otherwise noted. CLASS OF COMMON STOCK AMOUNT AND NATURE OF BENEFICIAL PERCENT NAME AND ADDRESS OWNERSHIP OF CLASS ----------------- ----------------- -------- ING Groep N.V. 1,828,429 (1) 21.9% ING Capital LLC Amstelveenseweg 500 1081 KL Amsterdam SACC Partners LP 634,699(2) 9.6% Riley Investment Management LLC B. Riley & Co. Inc. B. Riley & Co. Retirement Trust 11100 Santa Monica Blvd., Suite 800 Los Angeles, CA 90025Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FMR Corp. 602,806(8) 9.1% 82 Devonshire Street Boston, MA 02109 Bedford Oak Partners, L.P. 601,500(4) 9.1% Bedford Oak Capital, L.P. Bedford Oak Offshore 100 South Bedford Road Mt. Kisco, NY 10549 Lloyd Miller MILGRAT I 501,400(3) 7.6% Lloyd I. Miller Fund C Lloyd Miller A4 Trust Lloyd Miller MILFAM II 4550 Gordon Drive Naples, Florida 34102-7914 Morgan Stanley & Co. 339,603(5) 5.1% International Limited 1585 Broadway New York, NY 10036 Keith Brackpool 127,223(6) 1.9% c/o 777 S. Figueroa St., Suite 4250 Los Angeles, CA 90017 Timothy J. Shaheen 10,109 * c/o 777 S. Figueroa St., Suite 4250 Los Angeles, CA 90017 Murray Hutchison 6,490(7) * c/o 777 S. Figueroa St., Suite 4250 Los Angeles, CA 90017 Geoffrey Arens 0 * c/o 777 S. Figueroa St., Suite 4250 Los Angeles, CA 90017 Gregory Ritchie 1,000 * c/o 777 S. Figueroa St., Suite 4250 Los Angeles, CA 90017 All directors and officers 144,822(6)(7) as a group (five individuals) -------------------------------------------------------------- * Represents less than one percent of the 6,612,665 outstanding shares of common stock of Cadiz as of June 30, 2004. Page 51 CLASS OF SERIES F PREFERRED STOCK AMOUNT AND NATURE OF BENEFICIAL PERCENT NAME AND ADDRESS OWNERSHIP OF CLASS ----------------- ----------------- -------- ING Groep N.V. 100,000(1) 100% ING Capital LLC Amstelveenseweg 500 1081 KL Amsterdam (1) Based upon a Schedule 13D filed on February 2, 2004 with the SEC by ING Groep N.V. on behalf of its wholly-owned subsidiary ING Capital LLC, and based on Cadiz corporateSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. records, the ING entities beneficially own 100,000 shares of Cadiz Series F Preferred Stock and have sole voting and dispositive power as to all of the shares. The preferred stock held by ING is initially convertible into 1,728,955 shares of Cadiz common stock. In addition to the preferred stock, ING holds 94,000 shares of Cadiz common stock, which were issued at the end of 2003 upon ING's exercise of warrants, and ING has sole voting and dispositive power as to the common stock. The principal office of ING Capital LLC is located at 1325 Avenue of the Americas, New York, NY 10019. (2) Based upon a Schedule 13G filed on May 12, 2004 with the SEC by SACC Partners LP and its affiliated entities, Cadiz corporate records of stock issuances and correspondence with Mr. Riley, the listed affiliated entities beneficially own an aggregate of 634,699 shares of Cadiz common stock, and have sole voting and dispositive power of the stock. (3) Based upon a Schedule 13G filed on May 17, 2004 with the SEC by Lloyd I. Miller, III, Cadiz corporate records of stock issuances and correspondence with Mr. Miller, the listed affiliated entities beneficially own an aggregate of 501,400 shares of Cadiz common stock. Mr. Miller has sole voting power of 300,000 of the shares, and sole dispositive power of 100,000 of the shares. The remaining shares beneficially owned by Mr. Miller are subject to shared voting and dispositive power. (4) Based upon a Schedule 13G filed on September 8, 2004 with the SEC, Cadiz corporate records of stock issuances and correspondence with Bedford Oak, the listed related funds beneficially own an aggregate of 339,603 shares of Cadiz common stock. (5) Based upon a Schedule 13G filed on February 18, 2004 with the SEC by Morgan Stanley & Co. International Limited and its affiliated entities, Cadiz corporate records of stock issuances and correspondence with Morgan Stanley, Morgan Stanley has shared voting rights and shared dispositive power over an aggregate of 339,603 shares of Cadiz common stock. (6) Includes 2,000 shares owned by a foundation of which Mr. Brackpool is a trustee, but in which Mr. Brackpool has no economic interest and 2,000 shares owned by his separated spouse. Mr. Brackpool disclaims any beneficial ownership of the 4,000 shares owned by the foundation and his spouse. (7) Includes 1,490 shares underlying presently exercisable options. (8) Based upon a Schedule 13G filed on October 14, 2004 with the SEC by FMR Corp. and its affiliated entities, Cadiz corporate records of stock issuances and correspondence with FMR Corp., the listed affiliated entities beneficially own an aggregate of 602,806 shares of Cadiz common stock, and have sole voting and dispositive power of the stock.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On July 5, 2002, we entered into an agreement with KeithBrackpool, our Chief Executive Officer, whereby we agreed to loanhim up to $1 million. The loan had a term of one year and bore aninterest rate of 6% per annum. As of December 31, 2002, themaximum $1 million amount of the loan was outstanding. The loanwas repaid in full by Mr. Brackpool in 2003 at the expiration ofthe loan term. Our loan with Mr. Brackpool was intended to be structuredwith terms no more favorable than those which Mr. Brackpool wouldhave been able to obtain from unrelated third parties, and theloan agreement therefore provided for the loan to be secured bycollateral with a value of at Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Page 52least 133% of the outstanding loan amount. Initially, the loan was secured by a portion of Mr. Brackpool's otherwise unencumbered equity holdings in our stock. In November 2002 Mr. Brackpool provided additional security for the loan in the form of a pledge of a portion of Mr. Brackpool's interests in a real estate limited partnership. This loan was authorized by our Board in May 2002. We werethen nearing final votes on the various approvals needed for theCadiz Program, and both the company and our executives were thesubject of intense media interest. At the same time, Mr.Brackpool required a source of funds to satisfy personalobligations incurred by him in 1999 in order to finance hispurchase that year, for $5.25 million, of 750,000 of our sharesupon the exercise of previously issued stock options. Our Boardwas concerned that the publicity accompanying a public sale ofCadiz stock by Mr. Brackpool, regardless of the reasons for thesale, at a time when the outcome of voting on the Cadiz Programwas not certain would significantly impair our ability to obtainthe approvals we needed. Given the importance to us of the CadizProgram, the Board approved the loan so as to provide Mr.Brackpool with funds without selling any of his Cadizshareholdings in the public markets. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES For the fiscal years ended December 31, 2002 and 2001,professional services were performed by PricewaterhouseCoopersLLC (PwC). Cadiz' audit committee annually approves theengagement of outside auditors for audit services in advance. Theaudit committee has also established complementary procedures torequire pre-approval of all audit-related, tax and permitted non-audit services provided by PwC, and to consider whether theoutside auditors' provision of non-audit services to Cadiz iscompatible with maintaining the independence of the outsideauditors. The audit committee may delegate pre-approval authorityto one or more of its members. Any such fees pre-approved in thismanner shall be reported to the audit committee at its nextscheduled meeting. All services described below were pre-approvedby the audit committee. All fees for services rendered by PwC aggregated $307,726and $280,630 for the fiscal years ended December 31, 2002 and2001, respectively, and were composed of the following: Audit Fees. The aggregate fees billed for the audit of theannual financial statements for the fiscal years ended December31, 2002 and 2001, for reviews of the financial statementsincluded in the Company's Quarterly Reports on Form 10Q, and forassistance with and review of documents filed with the SEC were$246,500 for 2002 and $249,930 for 2001. Audit Related Fees. The aggregate fees billed for audit-related services for the fiscal years ended December 31, 2002 and2001 were $48,976 and $18,000, respectively. These feesrelate to assurance and related services performed by PwC thatare reasonably related to the performance of the audit or reviewof the Company's financial statements. These services includeattest services that are not required by statute or regulation,internal control reviews and consultations concerning financialaccounting and reporting matters. Tax Fees. Fees billed for tax services for the fiscal years ended December 31, 2002 and 2001 were $12,250 and $12,700, respectively. All Other Fees. No other fees were billed by PwC to Cadizfor services other than as discussed above for the fiscal yearsended December 31, 2002 and 2001. Page 53Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) 1. Financial Statements. See Index to Consolidated Financial Statements. 2. Financial Statement Schedules. See Index to Consolidated Financial Statements. 3. Exhibits. The following exhibits are filed or incorporated byreference 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 Cadiz Certificate of Designations of Series A Junior Participating Preferred Stock(4) 3.5 Cadiz Certificate of Designations of Series D Convertible Preferred Stock dated December 28, 2000(5) 3.6 Cadiz Certificate of Correction filed to Correct the Certificate of Designations of Series D Preferred Stock dated December 28, 2000(5) 3.7 Certificate of Amendment of Certificate of Designations of Series D Preferred Stock of Cadiz Inc. dated December 31, 2002 3.8 Cadiz Certificate of Designations of Series E-1 Convertible Preferred Stock dated October 22, 2001(6) 3.9 Certificate of Amendment of Certificate of Designations of Series E-1 Preferred Stock of Cadiz Inc. dated December 31, 2002 3.10 Cadiz Certificate of Designations of Series E-2 Convertible Preferred Stock dated November 28, 2001(7) 3.11 Certificate of Amendment of Certificate of Designations of Series E-2 Preferred Stock of Cadiz Inc. dated December 31, 2002 3.12 Cadiz Bylaws, as amended (8) 4.1 Indenture, dated as of April 16, 1997 among Sun World as issuer, Sun World and certain subsidiaries of Sun World as guarantors, and IBJ Whitehall Bank & Trust Company as trustee, for the benefit of holders of 11.25% First Mortgage Notes due 2004 (including as Exhibit A to the Indenture, the form of the Global Note and the form of each Guarantee)(9) Page 54 4.2 Amendment to Indenture dated as of October 9, 1997(10) 4.3 Amendment to Indenture dated as of January 23, 1998(11) 10.1 Cadiz Inc. 1996 Stock Option Plan(8) 10.2 Amendment to the Cadiz Inc. 1996 Stock Option Plan(12)Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.3 Amended and Restated Cadiz Inc. 1998 Non- Qualified Stock Option Plan(12) 10.4 Cadiz Inc. 2000 Stock Award Plan(13) 10.5 Employment Agreement dated February 1, 1998 between Cadiz Inc. and Keith Brackpool (11) 10.6 Security Agreement between Cadiz Inc. and Keith Brackpool dated July 5, 2002(14) 10.7 Pledge Agreement between Keith Brackpool and Cadiz Inc. dated November 2002 10.8 Employment Agreement dated September 13, 1996 between Sun World International, Inc., Cadiz Inc. and Timothy J. Shaheen(15) 10.9 Employment Agreement dated September 13, 1996 between Sun World International, Inc., Cadiz Inc. and Stanley E. Speer(15) 10.10 Form of Sun World Executive Officer Employment Agreement (16) 10.11 Fifth Amended and Restated Credit Agreement, dated as of March 7, 2002, by and between Cadiz Inc. and ING Baring (U.S.) Capital LLC, as Administrative Agent, and the lenders party thereto (12) 10.12 Revolving Credit Note, dated as of November 25, 1997, by and between Cadiz Inc. and ING Baring (U.S.) Capital Corporation (11) 10.13 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(12) 21.1 Subsidiaries of the Registrant 31.1 Certification of Keith Brackpool, Chairman, Chief Executive Officer and Chief Financial Officer of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Keith Brackpool, Chairman, Chief Executive Officer and Chief Financial Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ---------------------- Page 55 (1) Previously filed as an Exhibit to our Registration Statement on 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 Report on Form 8-K dated May 10, 1999 filed on May 18, 1999 (5) Previously filed as an Exhibit to our Report onSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Form 8-K dated December 29, 2000 filed on January 3, 2001 (6) Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, filed on November 14, 2001 (7) Previously filed as an Exhibit to our Registration Statement on Form S-3 (Registration No. 333-75006) filed on December 13, 2001 (8) 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 (9) Previously filed as an Exhibit to Amendment No. 1 to our Registration Statement on Form S-3 (Registration No. 333-19109) filed on April 29, 1997 (10) Previously filed as an Exhibit to Amendment No. 2 to Sun World's Registration Statement on Form S-4 (Registration No. 333-31103) filed on October 14, 1997 (11) Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997 filed on March 26, 1998 (12) 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 (13) Previously filed as Appendix A to our Proxy Statement dated April 5, 2000, filed on March 29, 2000 (14) Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 filed on November 14, 2002 (15) Previously filed as an Exhibit to our Transition Report on Form 10-K for the nine months ended December 31, 1996 filed on April 14, 1997 (16) Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed on May 14, 1997 (17) Previously filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2001 filed on March 28, 2002. (B) REPORTS ON FORM 8-K We did not file any reports on Form 8-K in 2002 that werenot already previously reported on our Quarterly Reports on Form10-Q. Page 56 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned,thereto duly authorized. CADIZ INC. By: /s/ Keith Brackpool ------------------------------ Keith Brackpool,Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Chairman and Chief Executive and Financial Officer Date: November 1, 2004 Pursuant to the requirements of the Securities Exchange Act of1934, this report has been signed by the following persons in thecapacities and on the dates indicated. NAME AND POSITION DATE ----------------- ----/s/ Keith Brackpool November 1, 2004-----------------------------------------Keith Brackpool, Chairman and Chief Executive and Financial Officer(Principal Executive, Financial and Accounting Officer)/s/ Murray H. Hutchison November 1, 2004------------------------------------------Murray H. Hutchison, Director/s/ Timothy J. Shaheen November 1, 2004------------------------------------------Timothy J. Shaheen, Director/s/ Geoffrey Arens November 1, 2004------------------------------------------Geoffrey Arens, Director/s/ Gregory Ritchie November 1, 2004------------------------------------------Gregory Ritchie, Director Page 57CADIZ INC. FINANCIAL STATEMENTS------------------------------- PageReport of Independent Registered Public Accounting Firm . . . . 59Consolidated Statement of Operations for the three years endedDecember 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . 60Consolidated Balance Sheet as of December 31, 2002 and 2001 . . 61Consolidated Statement of Cash Flows for the three years endedDecember 31, 2002, 2001 and 2000 . . . . . . . . . . . . . . . .62Consolidated Statement of Stockholders' Equity for the threeyears ended December 31, 2002 , 2001, and 2000 . . . . . . . . .64Notes to the Consolidated Financial Statements . . . . . . . . .66CADIZ INC. FINANCIAL STATEMENT SCHEDULES----------------------------------------Schedule I - Condensed Financial Information of Registrant forthe three years ended December 31, 2002 . . . . . . . . . . . .102Schedule II - Valuation and Qualifying Accounts for the threeyears ended December 31, 2002 . . . . . . . . . . . . . . . . .105SUN WORLD INTERNATIONAL, INC. FINANCIAL STATEMENTSSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.--------------------------------------------------Report of Independent Registered Public Accounting Firm . . . .106Consolidated Statement of Operations for the three years ended December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . .107Consolidated Balance Sheet as of December 31, 2002 and 2001 . .108Consolidated Statement of Cash Flows for the three years endedDecember 31, 2002 . . . . . . . . . . . . . . . . . . . . . . .109Consolidated Statement of Stockholder's Equity for the three years ended December 31, 2002 . . . . . . . . . . . . . . . . .110Notes to the Consolidated Financial Statements . . . . . . . . 111(Schedules other than those listed above have been omitted sincethey are either not required, inapplicable, or the requiredinformation is included on the financial statements or notesthereto.) Page 58 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Cadiz Inc. In our opinion, the accompanying consolidated balance sheetand the related consolidated statements of operations, cash flowsand stockholders' equity present fairly, in all materialrespects, the financial position of Cadiz Inc. and itssubsidiaries at December 31, 2002 and 2001, and the results oftheir operations and their cash flows for each of the three yearsin the period ended December 31, 2002 in conformity withaccounting principles generally accepted in the United States ofAmerica. In addition, in our opinion, the financial statementschedules listed in the index appearing under Item 15(a)(2)present fairly, in all material respects, the information setforth therein when read in conjunction with the relatedconsolidated financial statements. These financial statementsand financial statement schedules are the responsibility of theCompany's management; our responsibility is to express an opinionon these financial statements and financial statement schedulesbased on our audits. We conducted our audits of these statementsin accordance with the standards of the Public Company AccountingOversight Board (United States). These standards require that weplan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used andsignificant estimates made by management, and evaluating theoverall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion. As discussed in Note 2 to the accompanying financialstatements, the Company incurred losses of approximately $22.2million and $25.7 million in 2002 and 2001, respectively, had aworking capital deficit of $34.0 million at December 31, 2002, and used cash for operating activities of $10.1 million and $4.3 millionin 2002 and 2001, respectively. In addition, the Company'swholly-owned subsidiary, Sun World International, Inc., andcertain of its subsidiaries ("Sun World") filed voluntarypetitions for reorganization under Chapter 11 of the UnitedStates Bankruptcy Code on January 30, 2003. Management of SunWorld continues to operate as debtor-in-possession until a Planof Reorganization is approved by its creditors and confirmed bythe Bankruptcy Court. The Company's and Sun World's objectivesin regard to this matter are also discussed in Note 2. TheSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.accompanying consolidated financial statements have been preparedusing accounting principles applicable to a going concern, whichassumes realization of assets and settlement of liabilities inthe normal course of business. The matters described above andthe uncertainties inherent in the bankruptcy process raisesubstantial doubt about the Company's ability to continue as agoing concern. The financial statements do not include anyadjustments that might result from the outcome of thisuncertainty./s/ PricewaterhouseCoopers LLP-------------------------------PricewaterhouseCoopers LLPLos Angeles, CaliforniaSeptember 18, 2004 Page 59 CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS-------------------------------------------------------------------- YEAR ENDED DECEMBER 31,(IN THOUSANDS, EXCEPT PER SHARE DATA) 2002 2001 2000--------------------------------------------------------------------Revenues $ 114,250 $ 92,402 $ 107,745Special litigation recovery - 7,929 - --------- --------- --------- Total revenues and special litigation recovery 114,250 100,331 107,745 --------- --------- ---------Costs and expenses: Cost of sales 86,356 79,108 87,925 General and administrative 16,953 12,913 12,576 Non-recurring compensation expense - 5,537 - Special litigation - - 424 Removal of underperforming crops 4,514 736 1,549 Depreciation and amortization 7,480 8,151 8,381 --------- --------- --------- Total costs and expenses 115,303 106,445 110,855 --------- --------- ---------Operating loss (1,053) (6,114) (3,110)Interest expense, net 21,172 19,551 19,188 --------- --------- ---------Net loss before income taxes (22,225) (25,665) (22,298)Income tax expense - 57 160 --------- --------- ---------Net loss (22,225) (25,722) (22,458)Less: Preferred stock dividends 1,125 591 - Imputed dividend on preferred stock 984 441 - --------- --------- ---------Net loss applicable to common stock $ (24,334) $ (26,754) $ (22,458) ========= ========= =========Basic and diluted net loss per share $ (16.76) $ (18.66) $ (15.88) ========= ========= =========Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Weighted-average shares outstanding 1,452 1,434 1,414 ========= ========= =========See accompanying notes to the consolidated financial statements. Page 60 CADIZ INC. CONSOLIDATED BALANCE SHEET----------------------------------------------------------------------- DECEMBER 31,($ IN THOUSANDS) 2002 2001-----------------------------------------------------------------------ASSETS Current assets:Cash and cash equivalents $ 3,229 $ 1,458Accounts receivable, net 6,732 6,326Note receivable from officer 1,022 -Inventories 13,513 13,027Prepaid expenses and other 1,166 789 --------- --------- Total current assets 25,662 21,600Property, plant, equipment and water programs, net 154,928 165,297Goodwill 3,813 3,813Other assets 7,480 7,565 --------- --------- $ 191,883 $ 198,275 ========= =========LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 7,394 $ 11,758 Accrued liabilities 6,816 5,680 Bank overdraft - 410 Revolving credit facility 4,400 - Long-term debt, current portion 41,019 4,960 --------- --------- Total current liabilities 59,629 22,808Long-term debt 115,447 141,429Deferred income taxes 5,447 5,447Other liabilities 1,539 930Contingencies (Note 16)Series D redeemable convertible preferred stock - $0.01 par value: 5,000 shares authorized; shares issued and outstanding - 5,000 at December 31, 2002 and December 31, 2001 4,536 4,243Series E-1 and E-2 redeemable convertible preferred stock - $0.01 par value: 7,500 shares authorized; shares issued and outstanding - 7,500 at December 31, 2002 and December 31, 2001 6,406 5,715Stockholders' equity: Common stock - $0.01 par value; 70,000,000 shares authorized; shares issued and outstanding 1,458,659 at December 31, 2002 and 1,442,833 at December 31, 2001 15 14Additional paid-in capital 156,151 152,751Accumulated deficit (157,287) (135,062) --------- ---------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Total stockholders' equity (1,121) 17,703 --------- --------- $ 191,883 $ 198,275 ========= =========See accompanying notes to the consolidated financial statements. Page 61 CADIZ INC. CONSOLIDATED STATEMENT OF CASH FLOWS-------------------------------------------------------------------- YEAR ENDED DECEMBER 31,($ IN THOUSANDS) 2002 2001 2000--------------------------------------------------------------------Cash flows from operating activities: Net loss $ (22,225) $ (25,722) $ (22,458) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 13,241 11,664 10,926 Loss (gain) on disposal of assets 346 (421) (96) Removal of underperforming crops 4,514 736 1,549 Land received in litigation recovery - (2,000) - Shares of KADCO stock earned for services (1,250) (1,250) (1,250) Compensation charge for deferred stock units 579 566 237 Non-recurring compensation expense - 5,537 - Accrued interest on note receivable from officer (22) - - Other - - (71) Changes in operating assets and liabilities: Decrease (increase) in accounts receivable (405) 1,557 552 Decrease (increase) in inventories (1,116) 1,830 2,740 (Increase) decrease in prepaid expenses and other (378) (157) 286 Increase (decrease) in accounts payable (4,365) 3,858 (133) (Decrease) increase in accrued liabilities 633 (551) (1,039) Increase (decrease) increase in other liabilities 315 51 (297) --------- --------- --------- Net cash used for operating activities (10,133) (4,302) (9,054) --------- --------- ---------Cash flows from investing activities: Additions to property, plant and equipment (638) (1,583) (1,252) Additions to water programs (643) (1,359) (1,595) Additions to developing crops (2,176) (3,124) (3,844) Proceeds from disposal of property, plant and equipment 2,463 452 2,956 Loan to officer (1,000) - - Decrease (increase) in other assets (95) 154 1,043 --------- --------- --------- Net cash used for investing activities (2,089) (5,460) (2,692) --------- --------- ---------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cash flows from financing activities: Net proceeds from issuance of stock 764 1,583 1,032 Proceeds from issuance of preferred stock - 7,500 5,000 Net proceeds from short-term borrowings 14,400 - - Proceeds from issuance of long-term debt - - 5,231 Principal payments on long-term debt (761) (1,564) (686) Bank overdraft (410) 410 - --------- --------- --------- Net cash provided by financing activities 13,993 7,929 10,577 --------- --------- ---------Net increase (decrease) in cash and cash equivalents 1,771 (1,833) (1,169)Cash and cash equivalents, beginning of period 1,458 3,291 4,460 --------- --------- ---------Cash and cash equivalents, end of period $ 3,229 $ 1,458 $ 3,291 ========= ========= ========= Non-cash financing and investing activities: Page 62 Exchange of deferred stock units for common stock $ 43 $ - $ -Payment of preferred stock dividends with common stock 908 245 -See accompanying notes to the consolidated financial statements. Page 63 CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY--------------------------------------------------------------------------------FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000($ IN THOUSANDS)-------------------------------------------------------------------------------- ADDITIONAL TOTAL COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY ------ ------ ------- ----------- -------------Balance as of December 31, 1999 1,406,666 $ 14 $ 136,538 $ (86,882) $ 49,670Exercise of stock options and warrants 9,846 - 1,032 - 1,032Issuance of warrants to lenders - - 2,126 - 2,126Interest paid with stock 4,475 - 832 - 832Stock issued for services 6,000 - 1,471 - 1,471Issuance of warrants and beneficial conversion feature for Series D convertible preferred stock - - 1,050 - 1,050Net loss - - - (22,458) (22,458) --------- ------ --------- ---------- ----------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Balance as of December 31, 2000 1,426,987 14 143,049 (109,340) 33,723Exercise of stock options and stock awards 13,247 - 1,583 - 1,583Issuance of warrants to lenders - - 1,435 - 1,435Payment of preferred stock dividends with common stock 999 - 245 - 245Preferred stock dividend - - (591) - (591)Non-recurring compensation - - 5,537 - 5,537Stock issued in connection with Series E-1 and E-2 convertible preferred stock 1,600 - 320 - 320Issuance of warrants and beneficial conversion feature for Series E-1 and E-2 convertible preferred stock - - 1,614 - 1,614Imputed dividend from warrants and deferred beneficial conversion feature - - (441) - (441)Net loss - - - (25,722) (25,722) --------- ------ --------- ---------- ----------Balance as of December 31, 2001 1,442,833 14 152,751 (135,062) 17,703 Page 64Exercise of stock options 5,741 1 763 - 764Issuances of common stock to lender 1,000 - 208 - 208Beneficial conversion feature for convertible notes payable - - 884 - 884Exchange of deferred stock units for common stock 3,482 - 43 - 43Issuance of warrants to lenders - - 2,703 - 2,703Payment of preferred stock dividends with common stock 5,603 - 908 - 908Preferred stock dividend - - (1,125) - (1,125)Imputed dividend from warrants and deferred beneficial conversion feature - - (984) - (984)Net loss - - - (22,225) (22,225) --------- ------ --------- ---------- ----------Balance as of December 31, 2002 1,458,659 $ 15 $ 156,151 $ (157,287) $ (1,121) ========= ====== ========= ========== ==========See accompanying notes to the consolidated financial statements. Page 65 CADIZ INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ==============================================NOTE 1 - DESCRIPTION OF BUSINESS--------------------------------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company had agricultural operations through its wholly-owned subsidiary, Sun World International, Inc. and itssubsidiaries, collectively referred to as "Sun World," and isdeveloping the water resource segment of its business. With SunWorld's filing of voluntary petitions for relief under Chapter 11of the Bankruptcy code as further described below, the primarybusiness of the Company is to acquire and develop waterresources. The Company has created a complementary portfolio ofassets encompassing undeveloped land with high-qualitygroundwater resources and/or storage potential, locatedthroughout central and southern California with valuable waterrights, and other contractual water rights. Management believesthat, with both the increasing scarcity of water supplies inCalifornia and an increasing population, the Company's access towater could provide it with a competitive advantage as a supplierof water. The Company's primary asset consists of three blocks oflargely contiguous land in eastern San Bernardino County,California. This land position totals approximately 45,000acres. Virtually all of this land is underlain by high-qualitygroundwater resources with demonstrated potential for variousapplications, including water storage and supply programs, andagricultural, municipal, recreational and industrial development.Two of the three blocks of land are located in proximity to theColorado River Aqueduct, the major source of imported water forsouthern California. The third block of land is located near theColorado River. The value of this asset arises from a combination ofconsiderable population increases and limited water suppliesthroughout southern California. In addition, most of thepopulation centers in southern California are not located wheresignificant precipitation occurs requiring the importation ofwater from other parts of the state. The Company thereforebelieves that a competitive advantage exists for those companiesthat possess or can provide high quality, reliable and affordablewater to major population centers. Therefore, notwithstanding certain actions taken in 2002 bythe Metropolitan Water District of Southern California("Metropolitan"), as described below, the Company continues toexpect to be able to use its water resources to participate in abroad variety of water storage and supply, transfer, exchange andconservation programs with public agencies and other parties. In 1997, the Company commenced discussions with Metropolitanin order to develop principles and terms for a long-termagreement for a joint venture water storage and supply program onand under its desert properties, sometimes referred to as the"Cadiz Program". Following extensive negotiations with theCompany, in April 2001 Metropolitan's Board of Directors approveddefinitive economic terms and responsibilities, which were toserve as the basis for a final agreement to be executed betweenthe Company and Metropolitan, subject to the then-ongoingenvironmental review process. The Cadiz Program would have provided Metropolitan with avaluable increase in water supply during periods of drought orother emergencies, as well as greater reliability and flexibilityin operation of its Colorado River Aqueduct. During wet years,surplus water from the Colorado River would be stored in theaquifer system underlying Cadiz' land. When needed, Page 66the stored water, together with indigenous groundwater, would be returned to the Colorado River Aqueduct for distribution to Metropolitan's member agencies throughout six southern California counties. On August 29, 2002, the U.S. Department of Interior approvedthe Final Environmental Impact Statement for the Cadiz Programand issued its Record of Decision, the final step in the federalSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.environmental review process for the Cadiz Program. The Record ofDecision amends the California Desert Conservation Area Plan foran exception to the utility corridor element and offered toMetropolitan a right-of-way grant necessary for the constructionand operation of the Cadiz Program. On October 8, 2002, Metropolitan's Board consideredacceptance of the Record of Decision and the terms and conditionsof the right-of-way grant. The Board voted not to adoptMetropolitan staff's recommendation to approve the terms andconditions of the right-of-way grant issued by the Department ofthe Interior for the Cadiz Program by a vote of 47.11% in favorand 47.36% against the recommendation. Instead, the Board votedfor an alternative motion to reject the terms and conditions ofthe right-of-way grant and to not proceed with the Cadiz Programby a vote of 50.25% in favor and 44.22% against. Irrespective of Metropolitan's actions, SouthernCalifornia's need for water storage and supply programs has notabated. The Company believes there are several differentscenarios to maximize the value of this water resource, all ofwhich are under current evaluation. The Company believes there are a variety of scenarios underwhich the value of the Cadiz Program may be realized.Exploratory discussions have been initiated with representativesof governmental organizations, water agencies, and private waterusers with regard to their expressed interest in implementationof the Cadiz Program. Several such discussions have been heldwith water agencies that are independently seeking reliability ofsupply. Other discussions have focused on the possibility ofexchanging water stored at the Cadiz Program with watercontractors in other regions in California. In addition, thecurrent drought within the Colorado River watershed has served asan impetus to cooperative discussions between states, with thegoal that interstate exchanges and transfers may also becomefeasible in the future. Because of the Company's long-term relationship withMetropolitan, the Company also intends to pursue discussions withthe agency in an effort to determine whether there are termsacceptable to both parties under which the Cadiz Program could beimplemented. With the recent finalization of the QuantificationSettlement Agreement (QSA), an agreement between the Secretary ofthe Interior, the State of California, Metropolitan and threeother southern California water agencies quantifying the amountof water California's Colorado River users could expect on anannual basis, Metropolitan's Colorado River supplies are nowspecified and limited only by the variable volume of flow on theriver. To meet the growing needs of its service area,Metropolitan must take advantage of all opportunities to storeavailable Colorado River water during periods of surplus. Withvirtually all environmental permits and approvals in place forthe Cadiz Program, except for those dependent upon Metropolitan'scertification of the Environmental Impact Report (EIR), theCompany believes a partnership with Metropolitan could be renewedin a timely manner if terms acceptable to both parties were to benegotiated. Page 67 Sun World is a large vertically integrated agriculturalcompany that owns more than 18,000 acres of land, primarilylocated in two major growing areas of California: the San JoaquinValley and the Coachella Valley. Fresh produce, including tablegrapes, stonefruit, citrus, peppers and watermelons, is marketedand shipped to food wholesalers and retailers throughout theUnited States and to more than 30 foreign countries. Sun Worldowns three cold storage and/or packing facilities in California,of which two are operated and one is leased to a third party. On January 30, 2003, Sun World and certain of itssubsidiaries (Sun Desert Inc., Coachella Growers, and SunWorld/Rayo) filed voluntary petitions for relief under Chapter 11of the Bankruptcy Code. The filing was made in the United StatesSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Bankruptcy Court, Central District of California, RiversideDivision. Sun World sought bankruptcy protection in order toaccess a seasonal financing package of up to $40 million toprovide working capital through the 2003-2004 growing seasons.Under the protection of Chapter 11, the Company is managing itsaffairs and operating its business as a debtor-in-possessionwhile it develops its Plan of Reorganization. Estimatedliabilities subject to compromise at January 30, 2003 (date offiling the Chapter 11) are summarized as follows (dollars inthousands): Pre-petition liabilities $ 7,502 Due to parent company 13,549 Unsecured notes payable 5,000 Secured notes payable 115,000 --------- Total $ 141,051 ========= As a debtor-in-possession, Sun World is authorized tocontinue to operate as an ongoing business, but may not engage intransactions outside the ordinary course of business without theapproval of the Bankruptcy Court. Under the Bankruptcy Code,actions to collect pre-petition indebtedness, as well as mostother pending litigation, are stayed and other contractualobligations against Sun World may not be enforced. In addition,under the Bankruptcy Code, Sun World may assume or rejectexecutory contracts, including lease obligations. Partiesaffected by these rejections may file claims with the Court inaccordance with the reorganization process. Absent an order ofthe Court, substantially all pre-petition liabilities are subjectto settlement under a plan of reorganization to be voted upon bycreditors and equity holders and approved by the BankruptcyCourt. The four Sun World entities are the joint proponents of theDebtors' Joint Plan of Reorganization Dated November 24, 2003(the "Plan"). Under the Plan, which is subject to amendment andmodification, the reorganized Sun World will continue to operateas a going concern on and after the Plan's effective date. ThePlan provides for the restructuring of Sun World's balance sheetby providing for Sun World to issue equity interests in thereorganized company to the holders of its First Mortgage Notes inpartial satisfaction of their mortgage note claims; for thepayment in full of convenience claims and trade claims; and forSun World to issue equity interests in the reorganized company toentities holding certain other unsecured claims in fullsatisfaction of those claims. Exit financing to be provided byan exit lender under the Plan should meet the reorganizedcompany's need for seasonal financing following the Page 68effective date. The hearing to consider the adequacy of the disclosure statement accompanying the Plan, most recently scheduled for June 11, 2004, has been subject to several postponements and nohearing date is currently scheduled. In Sun World's filings with the Bankruptcy Court, Sun World hasreported that it believes that the Plan likely cannot be confirmedabsent the acceptance of the holders of the First Mortgage Notes, in their capacity as secured creditors. Sun World has further reportedto the Bankruptcy Court that the holders of the First Mortgage Noteshave not reached a consensus with respect to certain corporate governanceissues relating to the reorganized company, and that they have beenunable to finalize a shareholder agreement term sheet. In the meantime,Sun World has, with Bankruptcy Court approval, expanded the scope of its engagement with Ernst & Young Corporate Finance LLC to include servicesrelated to (i) a sale of substantially all of its assets pursuant to amotion or a plan or reorganization, and (ii) obtaining an equity investorand financing under a plan of reorganization and is actively pursuing thesales/investment process. Sun World has chosen to delay the preparationof an amended Plan and disclosure statement and the scheduling of adisclosure statement hearing date pending the outcome of these most recentSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.developments. Sun World's exclusivity period (i.e. the period during whichonly Sun World may file a plan of reorganization) currently expires onDecember 31, 2004. The Company cannot predict at this time what changes, if any, will be made to the Plan as a result of the foregoing or whetheror not the Plan, as amended, will be approved. At January 30, 2003, due to the Company's loss of controlover the operations of Sun World, the financial statements are nolonger consolidated with those of Cadiz. Instead, Cadiz accountsfor its investment in Sun World on the cost basis of accounting. As aresult, the Company wrote off its net investments in Sun World of $195thousand at the Chapter 11 filing date because it does not anticipate beingable to recover its investment.NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES---------------------------------------------------BASIS OF PRESENTATION The financial statements of the Company have been preparedusing accounting principles applicable to a going concern, whichassumes realization of assets and settlement of liabilities inthe normal course of business. The Company incurred losses of$22.2 million and $25.7 million in 2002 and 2001, respectively,had a working capital deficit of $34.0 million at December 31, 2002, and used cash in operations of $10.1 million and $4.3 million in 2002 and 2001, respectively. In addition, Sun World filed for reorganization under Chapter 11 of the Bankruptcy Code. The financial statements of the Company do not purport to reflect or to provide for all of the consequences of an ongoing Chapter 11 reorganization. Specifically, but not all-inclusive, thefinancial statements of the Company do not present: (a) therealizable value of assets on a liquidation basis or theavailability of such assets to satisfy liabilities, (b) theamount which will ultimately be paid to settle liabilities andcontingencies which may be allowed in the Chapter 11reorganization, or (c) the effect of changes which may be maderesulting from a Plan of Reorganization. The appropriateness ofusing the going-concern basis is dependent upon, among otherthings, confirmation of a Plan of Reorganization, futureprofitable operations, Page 69the ability to comply with provisions of financing agreements and the ability to generate sufficient cash from operations to meet obligations. Inherent in a successful Plan of Reorganization is a capitalstructure that permits the Company to generate cash flows afterreorganization to meet its restructured obligations and fund thecurrent operations of the Company. There can be no assurancethat the Company will be able to attain these objectives orreorganize successfully. Because of the ongoing nature of thereorganization case, the financial statements contained hereinare subject to material uncertainties.PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accountsof the Company and Sun World. All material intercompany balancesand activity have been eliminated from the consolidated financialstatements.ONE-FOR-25 REVERSE STOCK SPLIT In December 2003, the Company effected a one-for-25 reversestock split. All share and per share information in theaccompanying financial statements have been retroactivelyrestated to reflect the effect of this stock split.RECLASSIFICATIONS These financial statements reflect certain reclassificationsSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.made to the prior period balances to conform to the current yearpresentation.USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity withgenerally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reportingperiod. In preparing these financial statements, management hasmade estimates with regard to revenue recognition and thevaluation of inventory, goodwill and other long-lived assets, anddeferred tax assets. Actual results could differ from thoseestimates.REVENUE RECOGNITION Sun World recognizes crop sale revenue upon shipment andtransfer of title to customers. Packing revenues and marketingcommissions from third party growers are recognized when therelated services are provided. Proprietary product developmentrevenues are recognized based upon product sales by licensees.Project development and management fees are recorded when earnedunder the terms of the related agreement. Revenues attributable to one national retailer totaled $9.6million (8.4%) in 2002, $7.9 million (8.5%) in 2001 and $12.8million (11.9%) in 2000. Export sales accounted for Page 70approximately 12.1%, 8.4% and 9.9% of the Company's revenues forthe years ended December 31, 2002, 2001 and 2000, respectively.Services and license revenues were less than 10% of totalrevenues for each of the years in the three-year period endedDecember 31, 2002.RESEARCH AND DEVELOPMENT Sun World incurs costs to research and develop new varietiesof proprietary products. Research and development costs areexpensed as incurred. Such costs were approximately $2,424,000for the year ended December 31, 2002, $2,023,000 for the yearended December 31, 2001, and $1,636,000 for the year endedDecember 31, 2000.NET LOSS PER COMMON SHARE Basic Earnings Per Share (EPS) is computed by dividing thenet loss, after deduction for preferred dividends either accruedor imputed, if any, by the weighted-average common sharesoutstanding. Options, deferred stock units, warrants andpreferred stock convertible into or exercisable for certainshares of the Company's common stock, were not considered in thecomputation of diluted EPS because their inclusion would havebeen antidilutive. Had these instruments been included, thefully diluted weighted average shares outstanding would haveincreased by approximately 333,000 shares, 92,000 shares, and60,000 shares for the years ended December 31, 2002, 2001 and2000, respectively.STOCK-BASED COMPENSATION As permitted under Statement of Financial AccountingStandards No. 123 ("SFAS 123"), "Accounting for Stock-BasedCompensation", the Company has elected to follow AccountingPrinciples Board Opinion No. 25, "Accounting for Stock Issued toEmployees" in accounting for its stock options and other stock-based employee awards. Pro forma information regarding net lossand loss per share, as calculated under the provisions of SFAS123, are disclosed in the table below. The Company accounts for equity securities issued to non-employees in accordance with the provision of SFAS 123 and Emerging Issues Task Force 96-18.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Had compensation cost for these plans been determined usingfair value the Company's net loss and net loss per common sharewould have increased to the following pro forma amounts (dollarsin thousands): YEAR ENDED DECEMBER 31, ----------------------- 2002 2001 2000 ---- ---- ----Net loss applicable to common stock: As reported $ (24,334) $ (26,754) $ (22,458) Expense under SFAS 123 (648) (949) (992) --------- --------- --------- Pro forma $ (24,982) $ (27,703) $ (23,450) ========= ========= =========Net loss per common share: As reported $ (16.76) $ (18.66) $ (15.88) Expense under SFAS 123 (0.45) (0.66) (0.70) --------- --------- --------- Pro forma $ (17.21) $ (19.32) $ (16.58) ========= ========= ========= Page 71CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with anoriginal maturity of three months or less to be cash equivalents.The Company invests its excess cash in deposits with majorinternational banks and, from time to time, in short-termcommercial paper and, therefore, bears minimal risk. Suchinvestments are stated at cost, which approximates fair value,and are considered cash equivalents for purposes of reportingcash flows.INVENTORIES Growing crops, harvested crops, and materials and suppliesare stated at the lower of cost or market, on a first-in, first-out (FIFO) basis. Growing and harvested crop inventory includesdirect costs and an allocation of indirect costs.PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS Property, plant, equipment and water programs are stated atcost. The Company capitalizes direct and certain indirect costs ofplanting and developing orchards and vineyards during thedevelopment period, which varies by crop and generally rangesfrom three to seven years. Depreciation commences in the yearcommercial production is achieved. Permanent land development costs, such as acquisition costs,clearing, initial leveling and other costs required to bring theland into a suitable condition for general agricultural use, arecapitalized and not depreciated since these costs have anindefinite useful life. Depreciation is provided using the straight-line method overthe 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 yearsfor permanent crops. Water rights and water storage and supply programs arestated at cost. All costs directly attributable to thedevelopment of such programs are being capitalized by theCompany. These costs, which are expected to be recovered throughfuture revenues, consist of direct labor, drilling costs,Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.consulting fees for various engineering, hydrological,environmental and feasibility studies, and other professional andlegal fees.IMPAIRMENT OF LONG-LIVED ASSETS The Company annually evaluates its long-lived assets,including intangibles, for potential impairment. Whencircumstances indicate that the carrying amount of the asset maynot be recoverable, as demonstrated by estimated future cashflows, an impairment loss would be recorded based on estimatedfair value. As a result of the actions taken by Metropolitan inthe fourth quarter of 2002 as described in Note 1, the Company,with the assistance of an independent valuation firm, evaluatedthe carrying value of its water program and determined that theasset was not impaired and that the costs will be recoveredthrough implementation of the Cadiz Program either with othergovernment organizations, water agencies and private Page 72water users, or through implementation of the Cadiz Program on terms acceptable to both Cadiz and Metropolitan. During the year ended December 31, 2002, 2001 and 2000, theCompany incurred costs to remove certain underperforming crops,primarily stonefruit, citrus, and wine grapes. The Companyrecorded a charge of $4,514,000, $736,000 and $1,549,000 in 2002,2001 and 2000, respectively, in connection with the removal costsand write off of capitalized costs related to these crops whichis shown under the heading "Removal of underperforming crops" onthe 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 theamount of $7,006,000 was recorded. This amount was beingamortized on a straight-line basis over thirty years.Accumulated amortization was $3,193,000 at December 31, 2001. InJune 2001, the Financial Accounting Standards Board (FASB) issuedStatement of Financial Accounting Standards No. 142, ("SFAS No.142") "Goodwill and Other Intangible Assets". Under SFAS No. 142goodwill and intangible assets deemed to have indefinite livesare no longer amortized but will be subject to annual impairmenttests in accordance with the Statement. Upon adoption of SFASNo. 142, effective at the beginning of fiscal 2002, the Companyperformed a transitional fair value based impairment test anddetermined that its goodwill was not impaired. In addition,cessation of amortization of goodwill upon adoption of SFAS No.142 did not have a material impact upon the Company's financialposition or results of operations. Goodwill is tested forimpairment annually in the first quarter, or earlier if eventsoccur which require an impairment analysis be performed. As aresult of the actions taken by Metropolitan in the fourth quarterof 2002 as described in Note 1, the Company, with the assistanceof an independent valuation firm, performed an impairment test ofits goodwill and determined that its goodwill was not impaired. Amortization expense on goodwill was $234,000 for each ofthe years ended December 31, 2001 and 2000. As required by SFASNo. 142, the results for the prior years have not been restated.Had the Company applied the non-amortization provisions relatedto goodwill under SFAS No. 142 for all periods presented, theCompany's net loss and net loss per share would have been asfollows (in thousands, except per share amounts): 2002 2001 2000 ---- ---- ----Reported net loss applicable to common stock $ (24,334) $ (26,754) $ (22,458)Goodwill amortization, net of tax - 234 234 --------- --------- ---------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Adjusted net loss $ (24,334) $ (26,520) $ (22,224) ========= ========= =========Basic and diluted net loss per share: As reported $ (16.76) $ (18.66) $ (15.88) Goodwill amortization - 0.16 0.17 --------- --------- ---------Adjusted basic and diluted net loss per share $ (16.76) $ (18.50) $ (15.71) ========= ========= ========= Page 73 Capitalized loan fees represent costs incurred to obtaindebt financing. Such costs are amortized over the life of therelated loan. At December 31, 2002, the majority of capitalizedloan fees relate to the issuance of the First Mortgage Notesdescribed in Note 10. Trademark development costs represent legal costs incurredto obtain and defend patents and trademarks related to theCompany's proprietary products throughout the world. Such costsare capitalized and amortized over their estimated useful life,which range from 10 to 20 years. In October 1999, Sun World entered into a managementagreement with Kingdom Agricultural Development Company (KADCO)to develop and manage up to 100,000 acres of agricultural land insouthern Egypt called the Tushka project. KADCO is controlled byHis Royal Highness Prince Alwaleed Bin Talal Bin AbdulazizAlsuad. As compensation for project development and management,Sun World earns a quarterly fee of $312,500 based upon meetingdevelopmental milestones to be paid through an equity interest inKADCO. The management agreement expired on September 30, 2003.Sun World will receive licensing revenues from KADCO in thefuture based upon planting of proprietary varieties at the Tushkaproject. KADCO is currently engaged in a private placement toraise the required funds to develop the project. Sun Worldanticipates receiving shares in KADCO for payment of its projectdevelopment and management fee in connection with the completionof the private placement. The amount of shares to be receivedwill be the current per share price used for the privateplacement divided into the total amount of management fee earnedwhich is shown under the heading, "Receivable from KADCO to bepaid in common shares" in Note 7.INCOME TAXES Income taxes are provided for using an asset and liabilityapproach which requires the recognition of deferred tax assetsand liabilities for the expected future tax consequences oftemporary differences between the financial statement and taxbases of assets and liabilities at the applicable enacted taxrates. A valuation allowance is provided when it is more likelythan not that some portion or all of the deferred tax assets willnot be realized.SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest during the years ended December 31,2002, 2001 and 2000 was $15,262,000, $16,020,000 and $16,328,000,respectively. Cash paid for income taxes during the years endedDecember 31, 2002, 2001 and 2000 was $71,000, $57,000 and $226,000,respectively.NEW ACCOUNTING PRONOUNCEMENTS Adoption of Statement of Financial Accounting Standard(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, SFAS No. 141, Accounting for Business Combinationsand SFAS No. 142, Goodwill and Other Intangible Assets did nothave a material impact on the Company's financial position,results of operations or cash flows for the year ended DecemberSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.31, 2002. Page 74 In April 2002, the Financial Accounting Standards Board(FASB) issued Statement of Financial Accounting Standard (SFAS)No. 145, which rescinds FASB Statement No. 4, Reporting Gains andLosses from Extinguishment of Debt, FASB Statement No. 44,Accounting for Intangible Assets of Motor Carriers, and FASBStatement No. 64, Extinguishments of Debt Made to Satisfy SinkingFund Requirements as well as amends FASB No. 13, to make varioustechnical various corrections. The Statement is effective forfinancial statements issued after May 15, 2002. The adoption ofthis standard did not have a material impact on the Company'sfinancial position or results of operations. In June 2002, the FASB issued Statement of FinancialAccounting Standards No. 146, Accounting for Costs Associatedwith Exit or Disposal Activities ("SFAS 146"), which addressesfinancial accounting and reporting for costs associated with exitor disposal activities and supersedes Emerging Issues Task Force("EITF") Issue 94-3, Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring). SFAS 146requires that a liability for a cost associated with an exit ordisposal activity be recognized when the liability is incurred.Under EITF Issue 94-3, a liability for an exit cost as defined inEITF Issue 94-3 was recognized at the date of an entity scommitment to an exit plan. SFAS 146 also establishes that theliability should initially be measured and recorded at fairvalue. The Company adopted the provisions of SFAS 146 effectiveJanuary 1, 2003 and such adoption did not have a material impacton the consolidated financial statements. In November 2002, the FASB issued Interpretation No. 45,Guarantor s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees and Indebtedness ofOthers ("FIN 45"). FIN 45 elaborates on the disclosures to bemade by the guarantor in its interim and annual financialstatements about its obligations under certain guarantees that ithas issued. It also requires that a guarantor recognize, at theinception of a guarantee, a liability for the fair value of theobligation undertaken in issuing the guarantee. The Companyadopted the disclosure provisions of FIN 45 during the fourthquarter of 2002 and the recognition provisions of FIN 45effective January 1, 2003. Such adoption did not have a materialimpact on the consolidated financial statements. In December 2002, the FASB issued SFAS No. 148, Accountingfor Stock-Based Compensation-Transition and Disclosure-anamendment of SFAS No. 123. This Statement amends FASB StatementNo. 123, Accounting for Stock-Based Compensation, to providealternative methods of transition for a voluntary change to thefair value based method of accounting for stock-based employeecompensation. In addition, this Statement amends the disclosurerequirements of Statement 123 to require prominent disclosures inboth annual and interim financial statements about the method ofaccounting for stock-based employee compensation and the effectof the method used on reported results. The amendments toStatement 123 in paragraphs 2(a)-2(e) of this Statement shall beeffective for financial statements for fiscal years ending afterDecember 15, 2002. Earlier application of the transitionprovisions in paragraphs 2(a)-2(d) is permitted for entities witha fiscal year ending prior to December 15, 2002, provided thatfinancial statements for the 2002 fiscal year have not beenissued as of the date this Statement is issued. Early applicationof the disclosure provisions in paragraph 2(e) is encouraged. Theamendment to Statement 123 in paragraph 2(f) of this Statementand the amendment to Opinion 28 in paragraph 3 shall be effectivefor financial reports containing condensed financial statementsfor interim periods beginning after December Page 7515, 2002. The adoption of SFAS No. 148 did not have a material Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.impact on the Company's financial position or results of its operations. In January 2003, FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities ("FIN 46"). Ingeneral, a variable interest entity is a corporation,partnership, trust or any other legal structure used for businesspurposes that either (a) does not have equity investors withvoting rights or (b) has equity investors that do not providesufficient financial resources for the entity to support itsactivities. FIN 46 requires certain variable interest entities tobe consolidated by the primary beneficiary of the entity if theinvestors do not have the characteristics of a controllingfinancial interest or do not have sufficient equity at risk forthe entity to finance its activities without additionalsubordinated financial support from other parties. Theconsolidation requirements of FIN 46 apply immediately tovariable interest entities created after January 31, 2003. TheCompany adopted the provisions of FIN 46 effective February 1,2003 and such adoption did not have an impact on its consolidatedfinancial statements since it currently has no variable interestentities. In December 2003, the FASB issued FIN 46R with respectto variable interest entities created before January 31, 2003,which among other things, revised the implementation date to thefirst year or interim period ending after March 15, 2004, withthe exception of Special Purpose Entities (SPE). Theconsolidation requirements apply to all SPE's in the first yearor interim period ending after December 15, 2003. The Company'sadoption of the provisions of FIN 46R is not expected to have amaterial impact on its consolidated financial statements since itcurrently has no SPE's. In April 2003, FASB issued Statement of Financial AccountingStandards No. 149, Amendment of Statement 133 on DerivativeInstruments and Hedging Activities ("SFAS 149"). SFAS 149 amendsand clarifies accounting for derivative instruments, includingcertain derivative instruments embedded in other contracts, andfor hedging activities under SFAS 133. SFAS 149 is effective forcontracts and hedging relationships entered into or modifiedafter June 30, 2003. The Company adopted the provisions of SFAS149 effective June 30, 2003 and such adoption did not have animpact on its consolidated financial statements since the Companyhas not entered into any derivative or hedging transactions. In May 2003, FASB issued Statement of Financial AccountingStandards No. 150, Accounting for Certain Financial Instrumentswith Characteristics of Both Liabilities and Equity ("SFAS 150").SFAS 150 establishes standards for how an issuer classifies andmeasures certain financial instruments with characteristics ofboth debt and equity and requires an issuer to classify thefollowing instruments as liabilities in its balance sheet: * a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specified or determinable date or upon an event that is certain to occur; * a financial instrument, other than an outstanding share, that embodies an obligation to repurchase the issuer s equity shares, or is indexed to such an obligation, and requires the issuer to settle the obligation by transferring assets; and * a financial instrument that embodies an unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the Page 76 obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value of the issuer s equity shares, or (3) variations inversely related to changes in the fair value of the issuer s equity shares.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In November 2003, FASB issued FASB Staff Position No. 150-3which deferred the effective dates for applying certainprovisions of SFAS 150 related to mandatorily redeemablefinancial instruments of certain non-public entities and certainmandatorily redeemable non-controlling interests for public andnon-public companies. For public entities, SFAS 150 is effectivefor mandatorily redeemable financial instruments entered into ormodified after May 31, 2003 and is effective for all otherfinancial instruments as of the first interim period beginningafter June 15, 2003. For mandatorily redeemable non-controllinginterests that would not have to be classified as liabilities bya subsidiary under the exception in paragraph 9 of SFAS 150, butwould be classified as liabilities by the parent, theclassification and measurement provisions of SFAS 150 aredeferred indefinitely. The measurement provisions of SFAS 150 arealso deferred indefinitely for other mandatorily redeemable non-controlling interests that were issued before November 4, 2003.For those instruments, the measurement guidance for redeemableshares and non-controlling interests in other literature shallapply during the deferral period. The Company adopted theprovisions of SFAS 150 effective June 30, 2003, and such adoptiondid not have an impact on its consolidated financial statements.NOTE 3 - NOTE RECEIVABLE FROM OFFICER------------------------------------- On July 5, 2002, the chief executive officer ("CEO") of theCompany issued a promissory note to the Company for a loan of upto $1,000,000 to be made by the Company to the CEO. Under theterms of the promissory note, the principal and unpaid interest,at 6% per annum, was due and payable on July 5, 2003. The notewas collateralized by a pledge of shares of common stock,restricted stock and deferred stock units so that the aggregatefair market value of the pledged collateral was equal to orgreater than 133% of the outstanding principal and accruedinterest due on the note. On July 5, 2003, the Company and CEO entered into an"Agreement Regarding Satisfaction of Note Obligation" (the"Agreement"). Under the terms of the Agreement, the Companydetermined that it was obligated to pay the CEO effectiveFebruary 1, 2003, $800,000 as a termination payment under apreviously existing employment agreement. This overallsettlement with Mr. Brackpool was made effective July 5, 2003, byway of a corresponding reduction in Mr. Brackpool's obligationsto Cadiz under the loan. This reduction, along with cashpayments by Mr. Brackpool in the amount of $181,013 and anapplication of $50,000 of accrued but unpaid compensation owed byCadiz to Mr. Brackpool under his post February 1, 2003 employmentarrangements with Cadiz, resulted in the settlement in full byMr. Brackpool of his obligations under this loan. The Agreement of Employment dated July 5, 2003, has aninitial term of February 1, 2003, through September 30, 2003;provides for a fixed amount of monthly compensation; and allowsfor a new employment agreement to be negotiated, if mutuallyagreeable, upon expiration of the term of the agreement. Althoughthe initial term of the agreement has expired the CEO continuesto provide services to the Company under the terms of theagreement. Page 77NOTE 4 - ACCOUNTS RECEIVABLE----------------------------- Accounts receivable consist of the following (dollars inthousands): DECEMBER 31, 2002 2001 ---- ----Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Trade receivables $ 4,303 $ 4,294 Due from unaffiliated growers 24 448 Other 2,952 2,090 --------- --------- 7,279 6,832 Less allowance for doubtful accounts (547) (506) --------- --------- $ 6,732 $ 6,326 ========= ========= Substantially all trade receivables are from large domesticnational and regional supermarket chain stores and producebrokers and are unsecured. Amounts due from unaffiliated growersrepresent receivables for harvest advances and for services(harvest, haul and pack) provided on behalf of growers underagreement with Sun World and are recovered from proceeds ofproduct sales. Other receivables primarily include wine grapeand raisin sales, proceeds due from third party marketers,receivables for international licensing, and other miscellaneousreceivables.NOTE 5 - INVENTORIES-------------------- Inventories consist of the following (dollars in thousands): DECEMBER 31, 2002 2001 ---- ---- Growing crops $ 10,702 $ 10,174 Materials and supplies 2,525 2,621 Harvested product 286 232 --------- --------- $ 13,513 $ 13,027 ========= =========NOTE 6 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS------------------------------------------------------ Property, plant, equipment and water programs consist of thefollowing (dollars in thousands): DECEMBER 31, 2002 2001 ---- ---- Land $ 66,372 $ 69,068 Permanent crops 61,994 66,300 Developing crops 11,624 12,997 Water programs 16,859 16,181 Buildings 22,620 22,544 Page 78 Machinery and equipment 20,818 20,588 --------- --------- 200,287 207,678 Less accumulated depreciation (45,359) (42,381) --------- --------- $ 154,928 $ 165,297 ========= ========= Depreciation expense during the years ended December 31,2002, 2001 and 2000 was $7,178,000, $7,699,000, and $7,971,000,respectively.NOTE 7 - OTHER ASSETSSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.--------------------- Other assets consist of the following (dollars inthousands): DECEMBER 31, 2002 2001 ---- ---- Deferred loan costs, net $ 1,156 $ 2,400 Long-term receivables 327 342 Capitalized trademark development, net 1,934 2,000 Receivable from KADCO to be paid in common shares 4,063 2,813 Other - 10 --------- --------- $ 7,480 $ 7,565 ========= ========= Amortization expense of deferred loan costs was $5,761,000,$3,748,000 and $2,546,000 in 2002, 2001, and 2000, respectively, and is included in interest expense in the statement of operations.Amortization expense for capitalized trademark development was$302,000, $219,000 and $176,000 in 2002, 2001, and 2000, respectively.Future amortization of capitalized trademark development is asfollows; $352,000 - 2003; $285,000 - 2004; $285,000 - 2005;$286,000 - 2006; $278,000 - 2007; $448,000 - 2008 and thereafter.NOTE 8 - ACCRUED LIABILITIES---------------------------- Accrued liabilities consist of the following (dollars inthousands): DECEMBER 31, 2002 2001 ---- ---- Interest $ 2,934 $ 2,736 Payroll and benefits 2,731 1,907 Preferred stock dividends 561 345 Other 590 692 --------- --------- $ 6,816 $ 5,680 ========= ========= Page 79NOTE 9 - REVOLVING CREDIT FACILITY---------------------------------- In November 2002, Sun World was notified by its seasonalrevolving lender that it would not renew Sun World's revolvingCredit Facility for the 2003 growing season. The seasonalrevolver expired on November 30, 2002. Sun World sought andobtained extensions from its lender through January 31, 2003.During the extension period, Sun World sought to obtain seasonalfinancing from several different lenders. Each of these lenderswanted to have a first position on all of Sun World's assets inorder to lend outside of a Chapter 11 proceeding. This requiredthe holders of the First Mortgage Notes to modify their agreementwith Sun World. As outlined in Note 1, Sun World was unable toprocure the financing with the consent of all parties. OnJanuary 30, 2003, Sun World and certain of its subsidiaries fileda voluntary petition for Chapter 11. On January 31, 2003, theBankruptcy Court approved an interim $15 million dollar debtor-in-possession ("DIP") financing facility. On March 3, 2003, theBankruptcy Court approved an additional $25 million with the samelender for a final approved DIP financing facility of $40million. The DIP financing expires on November 30, 2004, bearsinterest at the greater of Prime plus 4% or 8.25% , and is securedby substantially all of Sun World's assets. Borrowingavailability is determined based on the lesser of (1) eligibleSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.percentages of inventory and accounts receivable plus a specifiedamount starting at $15 million and reduced by $150,000 per month;(2) certain multiples of trailing 12 months EBITDA as defined inthe credit agreement; or (3) eligible percentage of the currentvalue of all real property. Sun World is required to meet certainfinancial covenants. At December 31, 2002, $4.4 million was outstanding under SunWorld's Revolving Credit Facility that was subsequently paid offwith proceeds from the DIP financing on January 30, 2003. Noamount was outstanding under the Revolving Credit Facility atDecember 31, 2001. Page 80NOTE 10 - LONG-TERM DEBT------------------------ At December 31, 2002 and December 31, 2001, the carryingamount of the Company's outstanding debt is summarized as follows(dollars in thousands): DECEMBER 31, 2002 2001 ----- ----Cadiz obligations: Senior term bank loan, interest payable quarterly, variable interest rate based upon LIBOR plus 3% (4.35% at December 31, 2002 and 5.6% at December 31, 2001), due January 31, 2003 $ 10,095 $ 10,095 $25 million revolving line of credit, interest payable quarterly, variable interest rate based upon LIBOR plus 3% (4.35% at December 31, 2002 and 5.6% at December 31, 2001), due January 31, 2003 (see Cadiz obligations below) 25,000 15,000 Debt discount (326) (363) --------- --------- 34,769 24,732 --------- ---------Sun World obligations: Series B First Mortgage Notes, interest payable semi-annually with principal due in April 2004, interest at 11.25% 115,000 115,000 Senior unsecured term loan, interest payable quarterly, due December 31, 2002, interest at (LIBOR plus 5% - 6.35% at December 31, 2002 and LIBOR plus 3% - 5.60% at December 31, 2001) 5,000 5,000 Note payable to bank, quarterly principal installments of $72 plus interest payable monthly, due December 31, 2003, interest at prime (4.25% at December 31, 2002 and 4.75% at December 31, 2001) 856 1,142 Note payable to insurance company, quarterly installments of $120 (including interest), due January 1, 2005, interest at 7.75% 654 945 Note payable to finance company, monthly installments of $18 (including interest), due July 1, 2002, interest at 7.50% - 103Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Other 187 269 Debt discount - (802) --------- --------- 121,697 121,657 --------- --------- 156,466 146,389Less current portion (41,019) (4,960) --------- --------- $ 115,447 $ 141,429 ========= ========= Page 81 Pursuant to the Company's various loan agreements, annualmaturities of long-term debt outstanding, excluding $326,000 representing the unamortized portion of warrants issued with debt, on December 31, 2002 are as follows: 2003 - $41,345,000; 2004 - $115,419,000; 2005 - $23,000; and 2006 - $5,000. As a resultof Sun World's Chapter 11 filing on January 30, 2003, allrequired principal payments on Sun World's long term debt aresuspended.CADIZ OBLIGATIONS The senior term bank loan of $10,095,000 is secured bysubstantially all of the Company's non-Sun World relatedproperty. In February 2002, the Company completed an extensionof the maturity date of the obligation to January 31, 2003. Theinterest rate is LIBOR plus 300 basis points, payable quarterly. The revolving credit facility was fully drawn at December31, 2002 and 2001, and is secured by a second lien onsubstantially all of the non-Sun World assets of the Company.During 2001, pursuant to the loan agreement, the Company repricedcertain warrants previously issued. In February 2002, theCompany completed an extension of the maturity date of theobligation to January 31, 2003. The interest rate can either beLIBOR plus 300 basis points if paid in cash or LIBOR plus 700basis points if paid in common stock. In March 2002, theCompany's revolving credit facility was increased from $15million to $25 million, with $10 million of the $25 millionrevolver initially convertible into 50,000 shares of theCompany's common stock any time prior to January 2003 at theelection of the lender. In connection with obtaining theextension of the term loan and revolver and the increase in therevolver, the Company repriced certain warrants previously issuedand issued certain additional warrants to purchase shares of theCompany's common stock. The estimated fair value of the warrantsissued and repriced was calculated using the Black Scholes optionpricing model and was recorded as a debt discount and is beingamortized over the remaining term of the loan. On February 13, 2003, the lender of both the Company'ssenior term loan and $25 million revolving credit facilitydelivered to the Company a Notice of Default and Demand forPayment. On December 15, 2003, the Company entered into an amendmentof its senior term loan and revolving credit facility to extendthe maturity date of each through March 31, 2005 and can obtainfurther extensions through September 30, 2006, by maintainingsufficient balances, among other conditions, in a cash collateralaccount with the lender. The maximum aggregate amount to beoutstanding under the amended credit facilities is $35 million.The amendment of these credit facilities did not constitute atroubled debt restructuring and was accounted for as a debtmodification under EITF 96-19. In connection with thisamendment, the Company; * paid the lender $2,425,034 representing; (i) accruedSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. interest through September 30, 2003 of $1,412,457 at the non default interest rate; (ii) accrued interest through September 30, 2003 of $612,577 at the default rate of interest; and (iii) $400,000 in fees; * issued to the lender 100,000 shares of series F Preferred stock initially convertible into 1,728,955 shares of common stock; and Page 82 * deposited $2,142,280 in a cash collateral account with the lender representing prepaid interest through March 31, 2005. Interest under the amended credit facilities is payablesemiannually at the Company's option in either cash at 8% perannum, or in cash and paid in kind ("PIK"), at 4% per annum forthe cash portion and 8% per annum for the PIK portion. The PIKportion will be added to the outstanding principal balance. The terms of the amended loan facilities also requirecertain mandatory prepayments from the cash proceeds of futureequity issuances by the Company.SUN WORLD OBLIGATIONS In April 1997, Sun World issued $115 million of Series AFirst Mortgage Notes through a private placement. The notes havesubsequently been exchanged for Series B First Mortgage Notes,which are registered under the Securities Act of 1933 and arepublicly traded. The First Mortgage Notes are secured by a firstlien (subject to certain permitted liens) on substantially all ofthe assets of Sun World and its subsidiaries other than growingcrops, crop inventories and accounts receivable and proceedsthereof, which secure Sun World's revolving credit facility.With the entering into the DIP Facility as described in Note 9,the note holders now have a second position on substantially allof Sun World's assets for so long as the DIP Facility isoutstanding. The First Mortgage Notes mature April 15, 2004, butare redeemable at the option of Sun World, in whole or in part,at any time prior to the maturity date. The First Mortgage Notesinclude covenants that do not allow for the payment of dividendsby the Company other than out of cumulative net income. As a resultof Sun World's Chapter 11 filing discussed in Note 2, principalpayment on the First Mortgage Notes was suspended until a finalplan of reorganization is approved. The First Mortgage Notes are also secured by the guaranteesof Coachella Growers, Inc., Sun Desert, Inc., Sun World/Rayo, andSun World International de Mexico S.A. de C.V. (collectively, the"Sun World Subsidiary Guarantors") and by Cadiz. Cadiz alsopledged all of the stock of Sun World as collateral for itsguarantee. The guarantees by the Sun World Subsidiary Guarantorsare full, unconditional, and joint and several. Sun World andthe Sun World Subsidiary Guarantors comprise all of the directand indirect subsidiaries of the Company other thaninconsequential subsidiaries. Additionally, management believesthat the direct and indirect non-guarantor subsidiaries of Cadizand Sun World Subsidiary Guarantors are inconsequential, bothindividually and in the aggregate, to the financial statements ofthe Company for all periods presented. In December 2000, Sun World entered into a two-year $5million senior unsecured term loan. In connection with obtainingthe loan, the Company issued 2,000 shares of Cadiz' common stockas well as certain warrants to purchase shares of Cadiz commonstock were issued. The fair value of the stock and the warrantswere recorded as a debt discount and were fully amortized overthe life of the loan through December 31, 2002. At December 31,2002, Sun World did not repay the loan and thus, Sun World was indefault. With the default, pursuant to the terms of theagreement, the interest rate was increased by 2%. In connectionwith Sun World's Chapter 11 filing, all principal and interest onthis obligation have been suspended.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Page 83CONDENSED CONSOLIDATING FINANCIAL INFORMATION Condensed consolidating financial information as of December31, 2002 and 2001 and for the three years ended December 31, 2002for the Company is as follows (in thousands):CONSOLIDATING STATEMENT OF OPERATIONS INFORMATIONYEAR ENDED DECEMBER 31, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Revenues $ 2,067 $ 114,234 $ (2,051) $ 114,250 --------- --------- --------- ---------Costs and expenses: Cost of sales 103 86,880 (627) 86,356 General and administrative 7,500 10,953 (1,500) 16,953 Removal of underperforming crops 1,017 3,497 - 4,514 Depreciation and amortization 1,022 6,458 - 7,480 --------- --------- --------- --------- Total costs and expenses 9,642 107,788 (2,127) 115,303 --------- --------- --------- ---------Operating profit (loss) (7,575) 6,446 76 (1,053)Loss from subsidiary (9,540) - 9,540 -Interest expense, net 5,108 16,299 (235) 21,172 --------- --------- --------- ---------Loss before income taxes (22,223) (9,853) 9,851 (22,225)Income tax expense 2 (2) - - --------- --------- --------- --------- Net loss (22,225) (9,851) 9,851 (22,225)Less: Preferred stock dividends (1,125) - - (1,125) Imputed dividend on preferred stock (984) - - (984) --------- --------- --------- ---------Net loss applicable to common stock $ (24,334) $ (9,851) $ 9,851 $ (24,334) ========= ========= ========= ========= Page 84CONSOLIDATING BALANCE SHEET INFORMATIONDECEMBER 31, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ASSETSCurrent assets: Cash and cash equivalents $ 189 $ 3,040 $ - $ 3,229 Accounts receivable, net - 6,732 - 6,732 Net investment in and advances and loans to affiliate 1,739 - (1,739) - Note receivable from officer 1,022 - - 1,022 Inventories - 13,638 (125) 13,513 Prepaid expenses and other 323 843 - 1,166 --------- --------- --------- --------- Total current assets 3,273 24,253 (1,864) 25,662Property, plant, equipment and water programs, net 40,076 114,852 - 154,928Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Other assets 3,981 7,312 - 11,293 --------- --------- --------- --------- $ 47,330 $ 146,417 $ (1,864) $ 191,883 ========= ========= ========= =========LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 1,142 $ 6,252 $ - $ 7,394 Accrued liabilities 987 5,829 - 6,816 Due to parent company - 13,546 (13,546) - Revolving credit facility - 4,400 - 4,400 Long-term debt, current portion 34,769 6,250 - 41,019 --------- --------- --------- --------- Total current liabilities 36,898 36,277 (13,546) 59,629Long-term debt - 115,447 - 115,447Deferred income taxes - 5,447 - 5,447Other liabilities 611 928 - 1,539Series D redeemable preferred stock 4,536 - - 4,536Series E-1 and E-2 redeemable preferred stock 6,406 - - 6,406Stockholders' equity:Common stock 15 - - 15Additional paid-in capital 156,151 38,508 (38,508) 156,151Accumulated deficit (157,287) (50,190) 50,190 (157,287) --------- --------- --------- --------- Total stockholders' equity (1,121) (11,682) 11,682 (1,121) --------- --------- --------- --------- $ 47,330 $ 146,417 $ (1,864) $ 191,883 ========= ========= ========= ========= Page 85CONSOLIDATING STATEMENT OFCASH FLOW INFORMATIONYEAR ENDED DECEMBER 31, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Net cash provided by (used for) operating activities $ (7,910) $ (4,205) $ 1,982 $ (10,133) --------- --------- --------- ---------Cash flows from investing activities: Additions to property, plant and equipment (138) (500) - (638) Additions to water programs (643) - - (643) Additions to developing crops (24) (2,152) - (2,176) Proceeds from disposal of property, plant and equipment 3 2,460 - 2,463 Loan to officer (1,000) - - (1,000) (Increase) decrease in other assets 124 (219) - (95) --------- --------- --------- ---------Net cash (used for) provided by investing activities (1,678) (411) - (2,089) --------- --------- --------- ---------Cash flows from financing activities: Net proceeds from issuance of stock 764 - - 764 Net proceeds from short-term borrowings 10,000 4,400 - 14,400Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Borrowings from intercompany revolver (977) 2,959 (1,982) - Principal payments on long-term debt - (761) - (761) Bank overdraft (410) - - (410) --------- --------- --------- ---------Net cash (used for) provided by financing activities 9,377 6,598 (1,982) 13,993 --------- --------- --------- ---------Net (decrease) increase in cash and cash equivalents (211) 1,982 - 1,771Cash and cash equivalents, beginning of period 400 1,058 - 1,458 --------- --------- --------- ---------Cash and cash equivalents, end of period $ 189 $ 3,040 $ - $ 3,229 ========= ========= ========= ========= Page 86CONSOLIDATING STATEMENTOF OPERATIONS INFORMATIONYEAR ENDED DECEMBER 31, 2001 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Revenues $ 1,903 $ 92,399 $ (1,900) $ 92,402Special litigation recovery 7,929 - - 7,929 --------- --------- --------- --------- Total revenues and special litigation recovery 9,832 92,399 (1,900) 100,331 --------- --------- --------- ---------Costs and expenses: Cost of sales 118 79,390 (400) 79,108 General and administrative 5,433 8,980 (1,500) 12,913 Non-recurring compensation 2,584 2,953 - 5,537 Removal of underperforming crops 222 514 - 736 Depreciation and amortization 1,137 7,014 - 8,151 --------- --------- --------- --------- Total costs and expenses 9,494 98,851 (1,900) 106,445 --------- --------- --------- ---------Operating profit (loss) 338 (6,452) - (6,114)Loss from subsidiary (22,342) - 22,342 -Interest expense, net 3,718 15,598 235 19,551 --------- --------- --------- ---------Loss before income taxes (25,722) (22,050) 22,107 (25,665)Income tax expense - 57 - 57 --------- --------- --------- ---------Net loss (25,722) (22,107) 22,107 (25,722)Less: Preferred stock dividends 591 - - 591 Imputed dividend on preferred stock 441 - - 441 --------- --------- --------- ---------Net loss applicable to common stock $ (26,754) $ (22,107) $ 22,107 $ (26,754)Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ========= ========= ========= ========= Page 87CONSOLIDATING BALANCE SHEET INFORMATIONDECEMBER 31, 2001 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ASSETSCurrent assets: Cash and cash equivalents $ 400 $ 1,058 $ - $ 1,458 Accounts receivable, net - 6,326 - 6,326 Net investment in and advances and loans to affiliate 8,986 - (8,986) - Inventories - 13,229 (202) 13,027 Prepaid expenses and other 211 578 - 789 --------- --------- --------- --------- Total current assets 9,597 21,191 (9,188) 21,600Property, plant, equipment and water programs, net 41,266 124,031 - 165,297Other assets 4,432 6,946 - 11,378 --------- --------- --------- --------- $ 55,295 $ 152,168 $ (9,188) $ 198,275 ========= ========= ========= =========LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 1,330 $ 10,428 $ - $ 11,758 Accrued liabilities 791 4,889 - 5,680 Due to parent company - 11,254 (11,254) - Bank overdraft 410 - - 410 Long-term debt, current portion - 4,960 - 4,960 --------- --------- --------- --------- Total current liabilities 2,531 31,531 (11,254) 22,808Long-term debt 24,732 116,697 - 141,429Deferred income taxes - 5,447 - 5,447Other liabilities 371 559 - 930Series D redeemable preferred stock 4,243 - - 4,243Series E-1 and E-2 redeemable preferred stock 5,715 - - 5,715Stockholders' equity:Common stock 14 - - 14Additional paid-in capital 152,751 38,273 (38,273) 152,751Accumulated deficit (135,062) (40,339) 40,339 (135,062) --------- --------- --------- --------- Total stockholders' equity 17,703 (2,066) 2,066 17,703 --------- --------- --------- --------- $ 55,295 $ 152,168 $ (9,188) $ 198,275 ========= ========= ========= ========= Page 88CONSOLIDATING STATEMENT OFCASH FLOW INFORMATIONYEAR ENDED DECEMBER 31, 2001 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Net cash provided by (used Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. for) operating activities $ 1,442 $ (5,509) $ (235) $ (4,302) --------- --------- --------- ---------Cash flows from investing activities: Additions to property, plant and equipment (88) (1,495) - (1,583) Additions to water programs (1,359) - - (1,359) Additions to developing crops (109) (3,015) - (3,124) Proceeds from disposal of property, plant and equipment 2 450 - 452 (Increase) decrease in other assets (575) 494 235 154 --------- --------- --------- ---------Net cash (used for) provided by investing activities (2,129) (3,566) 235 (5,460) --------- --------- --------- ---------Cash flows from financing activities: Net proceeds from issuance of stock 1,583 - - 1,583 Proceeds from issuance of preferred stock 7,500 - - 7,500 Borrowings from intercompany revolver (11,254) 11,254 - - Principal payments on long-term debt (251) (1,313) - (1,564) Bank overdraft 410 - - 410 --------- --------- --------- ---------Net cash (used for) provided by financing activities (2,012) 9,941 - 7,929 --------- --------- --------- ---------Net (decrease) increase in cash and cash equivalents (2,699) 866 - (1,833)Cash and cash equivalents, beginning of period 3,099 192 - 3,291 --------- --------- --------- ---------Cash and cash equivalents, end of period $ 400 $ 1,058 $ - $ 1,458 ========= ========= ========= ========= Page 89CONSOLIDATING STATEMENTOF OPERATIONS INFORMATIONYEAR ENDED DECEMBER 31, 2000 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------ Revenues $ 1,920 $ 107,727 $ (1,902) $ 107,745 --------- --------- --------- ---------Costs and expenses: Cost of sales 124 88,203 (402) 87,925 General and administrative 4,355 9,721 (1,500) 12,576 Special litigation 424 - - 424 Removal of underperforming crops - 1,549 - 1,549 Depreciation and amortization 1,174 7,207 - 8,381 --------- --------- --------- --------- Total costs and expenses 6,077 106,680 (1,902) 110,855 --------- --------- --------- ---------Operating profit (loss) (4,157) 1,047 - (3,110)Loss from subsidiary (14,216) - 14,216 -Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Interest expense, net 4,085 15,103 - 19,188 --------- --------- --------- ---------Loss before income taxes (22,458) (14,056) 14,216 (22,298)Income tax expense - 160 - 160 --------- --------- --------- ---------Net loss $ (22,458) $ (14,216) $ 14,216 $ (22,458) ========= ========= ========= ========= Page 90CONSOLIDATING STATEMENT OFCASH FLOW INFORMATIONYEAR ENDED DECEMBER 31, 2000 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Net cash used for operating activities $ (4,849) $ (4,205) $ - $ (9,054) --------- --------- --------- ---------Cash flows from investing activities: Additions to property, plant and equipment (293) (959) - (1,252) Additions to water programs (1,595) - - (1,595) Additions to developing crops (159) (3,685) - (3,844) Proceeds from disposal of property, plant and equipment 1 2,955 - 2,956 Increase in other assets (162) 1,205 - 1,043 --------- --------- --------- ---------Net cash used for investing activities (2,208) (484) - (2,692) --------- --------- --------- ---------Cash flows from financing activities: Net proceeds from issuance of stock 1,032 - - 1,032 Proceeds from issuance of preferred stock 5,000 - - 5,000 Proceeds from issuance of long-term debt - 5,231 - 5,231 Principal payments on long-term debt (21) (665) - (686) --------- --------- --------- ---------Net cash provided by financing activities 6,011 4,566 - 10,577 --------- --------- --------- ---------Net decrease in cash and cash equivalents (1,046) (123) - (1,169)Cash and cash equivalents, beginning of period 4,145 315 - 4,460 --------- --------- --------- ---------Cash and cash equivalents, end of period $ 3,099 $ 192 $ - $ 3,291 ========= ========= ========= ========= Page 91NOTE 11 - INCOME TAXES----------------------- The tax provision in 2001 and 2000 consists primarily offoreign tax withholdings and state taxes in 2000.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Deferred taxes are recorded based upon differences betweenthe financial statement and tax bases of assets and liabilitiesand available carryforwards. Temporary differences andcarryforwards which gave rise to a significant portion ofdeferred tax assets and liabilities as of December 31, 2002 and2001 are as follows (in thousands): DECEMBER 31, 2002 2001 ---- ---- Deferred tax liabilities: Fixed asset basis difference $ 8,792 $ 7,987 Other 48 48 --------- --------- Total deferred tax liabilities 8,840 8,035 --------- --------- Deferred tax assets: Net operating losses 56,840 49,437 Fixed asset basis difference 6,849 6,300 State taxes 1,855 1,855 Reserves and accruals 1,508 3,466 Other 1,359 935 --------- --------- Total deferred tax assets 68,411 61,993 Valuation allowance for deferred tax assets (65,018) (59,405) --------- --------- Net deferred tax liability $ 5,447 $ 5,447 ========= ========= The valuation allowance increased by $5,613,000, $11,756,000 and $7,894,000 in 2002, 2001 and 2000, respectively. As of December 31, 2002, the Company had net operating loss(NOL) carryforwards of approximately $157.3 million for federalincome tax purposes. Such carryforwards expire in varyingamounts through the year 2022. At December 31, 2002, the Companyhas state NOL carryforwards of $37.9 million. These NOLcarryforwards expire in varying amounts through the year 2013. Due to the fact that it is more likely than not that theCompany will not realize its net deferred tax assets, it hasrecorded a full valuation allowance against these assets.Accordingly, no deferred tax asset has been recorded in theaccompanying balance sheet. Section 382 of the Internal Revenue Code imposes an annuallimitation on the utilization of net operating loss carryforwardsbased on a statutory rate of return (usually the "applicablefederal funds rate", as defined in the Internal Revenue Code) andthe value of the corporation at the time of a "change ofownership" as defined by Section 382. Due to past equityissuances and equity issuances in 2003, and due to the Chapter 11filing by Sun World, the Company's Page 92ability to utilize net operating loss carryforwards may be limited. A reconciliation of the income tax benefit to the statutoryfederal income tax rate is as follows (dollars in thousands): YEAR ENDED DECEMBER 31, 2002 2001 2000 ---- ---- ---- Expected federal income tax benefit at 34% $ (7,557) $ (8,726) $ (7,581)Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Loss with no tax benefit provided 7,440 8,541 7,380 Federal AMT refund (73) - - State income tax 5 6 147 Foreign withholding taxes 68 51 79 Amortization - 79 79 Other non-deductible expenses 117 106 56 --------- --------- --------- Income tax expense $ - $ 57 $ 160 ========= ========= =========NOTE 12 - EMPLOYEE BENEFIT PLANS-------------------------------- The Company has a 401(k) Plan for its salaried employees.Employees must work 1,000 hours and have completed one year ofservice to be eligible to participate in this plan. The Companymatches 75% of the first four percent deferred by an employee upto $1,600 per year. In addition, Sun World maintains a definedcontribution pension plan covering its employees who (i) are notcovered by a collective bargaining agreement, (ii) have at leastone year of service and (iii) have worked at least 1,000 hoursper year. Contributions are 2% of each covered employee'ssalary. For those hourly employees covered under a collectivebargaining agreement, contributions are made to a multi-employerpension plan in accordance with negotiated labor contracts andare generally based on the number of hours worked. The Companycontributed $322,000, $300,000 and $199,000 to the plans for fiscal years 2002, 2001 and 2000, respectively.NOTE 13 - PREFERRED AND COMMON STOCK------------------------------------SERIES D CONVERTIBLE PREFERRED STOCK The Company has an authorized class of 100,000 shares ofpreferred stock. On December 29, 2000, the Company issued 5,000shares of Series D Convertible Preferred Stock ("Series DPreferred Stock") for $5,000,000. The holders of the PreferredStock were entitled to receive dividends, payable semi-annually,at a rate of 7% if paid in cash or 9% if paid in the Company'scommon stock. The Series D Preferred Stock was initiallyconvertible into 25,000 shares of the Company's common stock anytime prior to July 2004 at the election of the holder. TheCompany also had the right to convert the Series D PreferredStock, but only when the closing price of the Company's commonstock had exceeded $300 per share for 30 consecutive tradingdays. Holders were entitled to a liquidation preference equal tothe initial purchase of $1,000 per share plus any accrued andunpaid dividends. The Series D Preferred Stock would beredeemable in July 2004 if still outstanding. Page 93 The Company issued certain warrants to purchase shares ofthe Company's common stock in connection with the issuance of theSeries D Preferred Stock. The fair market value of the Company'scommon stock at the time of issuance was above the accountingconversion price resulting in an imputed dividend (beneficialconversion feature). The estimated fair value of the warrantsissued (calculated using the Black Scholes option pricing model)and the imputed dividend totaled $1,050,000 which was recorded asa discount to the Series D Preferred Stock. The discount isbeing amortized through the redemption date of the stock andtreated as a reduction to earnings for earnings per sharecalculations.SERIES E-1 AND E-2 CONVERTIBLE PREFERRED STOCK During the fourth quarter of 2001, the Company issued 3,750shares of Series E-1 Convertible Preferred Stock and 3,750 sharesof Series E-2 Convertible Preferred Stock (the "Series EPreferred Stock") for an aggregate of $7,500,000. The holders ofSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the Series E Preferred Stock are entitled to receive dividends,payable semi-annually, at a rate of 7% if paid in cash or 9% ifpaid in the Company's common stock. The Series E Preferred Stockwas convertible into 40,000 shares of the Company's common stockany time prior to July 2004 at the election of the holder. TheCompany also had the right to convert the Series E PreferredStock, but only when the closing price of the Company's commonstock had exceeded $262 per share for 30 consecutive tradingdays. Holders were entitled to a liquidation preference equal tothe initial purchase of $1,000 per share plus any accrued andunpaid dividends. The Series E Preferred Stock would beredeemable in July 2004 if still outstanding. The Company issued 1,600 shares of the Company's commonstock and certain warrants to purchase shares of the Company'scommon stock in connection with the issuance of the Series EPreferred Stock. The fair market value of the Company's commonstock at the time of issuance was above the accounting conversionprice resulting in an imputed dividend (beneficial conversionfeature). The estimated fair value of the warrants issued(calculated using the Black Scholes option pricing model) and theimputed dividend totaled $1,614,000 which was recorded as adiscount to the Series E-1 and Series E-2 Preferred Stock. Thediscount is being amortized through the redemption date of thestock and treated as a reduction to earnings for earnings pershare calculations. On October 15, 2002, the Company and preferred stockholdersagreed to amend the Certificates of Designations of Series D,Series E-1 and Series E-2 Preferred Stock to (i) reduce theconversion price from $200 per share for the Series D PreferredStock and from $187.50 per share for Series E Preferred Stock to$131.25 per share for both Series D and Series E Preferred Stock;and (ii) extend the redemption date to July 16, 2006. With theassistance of an independent valuation firm, the Companydetermined that the additional value associated with thereduction in the conversion price was offset by the extension ofthe redemption date and that there was no loss or gainattributable to the amendment to the Certificates ofDesignations. On October 20, 2003, the Company and the referredstockholders entered into an agreement to (i) exchange alloutstanding shares of Series D Preferred Stock, plus accrued andunpaid dividends, for an aggregate of 320,000 shares of commonstock; and (ii) exchange all outstanding shares of series EPreferred Stock, plus accrued and unpaid dividends, for an Page 94aggregate of 80,000 shares of common stock. In connection withthis conversion, the Company recorded a charge of $42,000 againstpaid in capital as an inducement to convert. At this time theCompany also recorded the unamortized beneficial conversionfeature of the Series D and Series E Preferred Stock as a chargeagainst paid in capital.COMMON STOCK Subsequent to December 31, 2002, the Company issued commonstock as follows: * In March 2003, 8,000 shares of common stock were issued in connection with the issuance of $200,000 of convertible notes payable; * In June 2003, the Company sold 672,000 shares of common stock at $2.50 per share; * In June, July, and October 2003, the Company issued 128,000 shares of common stock for services at $2.50 per share; * In October 2003, the Company issued 400,000 shares of common stock for all outstanding shares of Series D and ESource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Preferred Stock; * In December 2003, the Company sold 3,440,000 shares of common stock for $2.50 per share; * In December 2003, the Company issued 94,000 shares of common stock upon exercise of outstanding warrants; * In December 2003, the Company issued 84,699 shares of common stock on conversion of $212,000 in convertible notes payable and accrued interest; * In December 2003, the Company issued 160,000 shares of common stock as part of a settlement agreement with a potential claimant; and * In December 2003, the Company implemented a one for twenty- five reverse split of our common stock, and * In February 2004, the Company issued 140,000 shares of common stock for settlement of a $200,000 executive bonus and a $150,000 consulting fee.NOTE 14 - STOCK-BASED COMPENSATION PLANS AND WARRANTS-----------------------------------------------------STOCK OPTIONS AND WARRANTS The Company issues options pursuant to its 1996 Stock OptionPlan (the "1996 Plan") and the 1998 Non-Qualified Stock OptionPlan (the "1998 Plan") approved by the Board of Page 95Directors in February 1998. The Company also grants stock awards pursuant to its 2000 Stock Award Plan described below. Collectively, the plans provide for the granting of up to 160,000 shares. AtDecember 31, 2002, the Company has approximately 27,858 sharesremaining that can be granted under the plans. All options aregranted at a price approximating fair market value at the date ofgrant, have vesting periods ranging from issuance date to fiveyears, have maximum terms ranging from five to seven years andare issued to directors, officers, consultants and employees ofthe Company. Compensation cost for stock options is measured as theexcess, if any, of the quoted market price of the Company's stockat the date of the grant over the amount an employee must pay toacquire the stock. The Company has adopted the disclosure-only provisions ofStatement of Financial Accounting Standards No. 123, ("SFAS 123"),"Accounting for Stock-Based Compensation." Accordingly, nocompensation cost has been recognized for the stock-basedcompensation other than for non-employees. The fair value of each option granted during the periodsreported was estimated on the date of grant using the BlackScholes option pricing model based on the weighted-averageassumptions of: risk-free interest rate of 4.08% for 2002, 4.54%for 2001, and 4.94% for 2000; expected volatility of 57.2% for2002, 40.0% for 2001, and 66.7% for 2000; expected life of threeyears for 2002, 2001 and 2000; and an expected dividend yield ofzero for all three years. The following table summarizes stock option activity for theperiods noted. All options listed below were issued to officers,directors, employees and consultants. WEIGHTED- AVERAGE AMOUNT EXERCISE PRICE ------ --------------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Outstanding at December 31, 1999 124,510 $ 155.25 Granted 5,300 $ 244.00 Expired or canceled (780) $ 214.00 Exercised (8,606) $ 120.00 --------- -------- Outstanding at December 31, 2000 120,424 $ 161.25 Granted 10,650 $ 240.50 Expired or canceled (43,840) $ 119.00 Exercised (13,204) $ 119.50 --------- -------- Outstanding at December 31, 2001 74,030 $ 201.25 Granted 3,700 $ 183.75 Expired or canceled (10,280) $ 189.25 Exercised (5,740) $ 132.75 --------- -------- Outstanding at December 31, 2002 61,710(a) $ 207.43 ========= ======== Options exercisable at December 31, 2000 101,964 $ 149.50 ========= ======== Page 96 Options exercisable at December 31, 2001 57,870 $ 196.50 ========= ======== Options exercisable at December 31, 2002 54,690 $ 238.25 ========= ======== Weighted-average years of remaining contractual life of options outstanding at December 31, 2002 1.89 ========= (a) Exercise prices vary from $102.50 to $293.75 and expiration dates vary from March 2003 to October 2008. The weighted-average fair value of options granted duringthe years 2002, 2001 and 2000 were $83.22, $86.00, and $134.25,respectively. The Company accounts for equity securities issued to non-employees in accordance with the provisions of SFAS 123 andEmerging Issues Task Force 96-18. During the years endedDecember 31, 2002, 2001 and 2000, the Company issued warrants topurchase 64,000, 8,600, and 14,000 shares with weighted-averageexercise prices of $50.75, $189.75, and $161.50, respectively.During the year ended December 31, 2000, warrants with a weighted-average exercise price of $125.75 were exercised in a cashlesstransaction resulting in the issuance of 1,240 shares of commonstock. No warrants expired or were canceled during any of thethree periods discussed. During 2002, in connection with theloan amendments for the Cadiz obligations described in Note 10,the Company repriced certain warrants previously issued resultingin a reduction in the weighted-average exercise price. AtDecember 31, 2002, there were 113,600 warrants outstanding with aweighted-average exercise price of $58.50 per share, which expirethrough 2006. In connection with the Company's default in February 2003 onits senior term loan and $25 million revolving credit facility,as described in Note 10; (i) warrants held by the lender topurchase 40,000 shares of the Company's common stock vested at anexercise price of $0.25 per share; and (ii) the exercise price onwarrants held by the lender to purchase 57,000 shares of theCompany's common stock were automatically reset to $0.25 per share. As a result, the weighted average exercise price of the113,600 warrants outstanding at December 31, 2002 decreased to$28.25 per share.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In December 2003, warrants to purchase 94,000 shares ofcommon stock were exercised for $23,500 in total cash proceeds.At June 30, 2004, warrants to purchase 8,600 shares of commonstock of the Company at a weighted average exercise price of $190per share remained outstanding.2000 STOCK AWARD PLAN The Cadiz Inc. 2000 Stock Award Plan ("Stock Award Plan")was approved by the Company's shareholders in May 2000. Underthe Stock Award Plan, the Company may issue various forms ofstock awards including restricted stock and deferred stock unitsto attract, retain and motivate key employees or other eligiblepersons. As of December 31, 2002, the Company had outstanding28,917 deferred stock units granted under the Stock Award Plan of Page 97which 9,680 deferred stock units entitle the holder to receiveone share of the Company's common stock for each deferred stockunit three years from the date of grant and 19,237 deferred stockunits were granted pursuant to the exchange noted under Non-Recurring Compensation Expense below. During the year endedDecember 31, 2002, 3,482 stock units were exchanged for shares ofthe Company's common stock. The Company charged $579,000,$566,000 and $237,000 to expense during the years ended December31, 2002, 2001 and 2000, respectively, in connection with theStock Award Plan.NON-RECURRING COMPENSATION EXPENSE In 2001, the Company issued 22,567 deferred stock units tocertain senior managers of Cadiz and Sun World. These deferredstock units were issued in exchange for the cancellation of42,200 fully vested options to purchase the Company's commonstock held by senior managers. In accordance with the terms ofStock Option Exchange Agreements, the number of the deferredstock units issued was calculated based on the average closingprice for the 10 business days following the filing of theCompany's Annual Report on Form 10-K for the year ended December31, 2000 on March 29, 2001. Each deferred stock unit isexchangeable for one share of the Company's common stock at theend of the deferral period elected by the holder. The Companyrecorded a charge of $5,537,000 in 2001 and no cash was expendedin connection with the issuance of the deferred stock units.NOTE 15 - SEGMENT INFORMATION----------------------------- The Company has agricultural operations throughits wholly-owned subsidiary, Sun World, and is developing thewater resource segment of its business, which is not yetsignificant to the operations of the Company. With Sun World'sfiling of voluntary petitions for relief under Chapter 11 of theBankruptcy code as further described in Note 1, the primarybusiness of the Company is to acquire and develop waterresources. The Company's has two reportable segments; waterresources (Cadiz) and agriculture (Sun World). The accountingpolicies of the segments are the same as those described in thesummary of significant accounting polices. The Company'soperations are reported in the following businesses segments: Financial information by reportable business segment isreported in the following tables: 2002 2001 2000 ---- ---- ---- ($ in thousands)External sales: Water Resources $ 16 $ 3 $ 18 Agricultural 114,234 92,399 107,727 --------- --------- ---------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Consolidated $ 114,250 $ 92,402 $ 107,745 ========= ========= =========Inter-segment sales: Water Resources $ 2,051 $ 1,900 $ 1,902 Page 98 Agricultural (2,051) (1,900) (1,902) --------- --------- ---------Consolidated $ - $ - $ - ========= ========= =========Total sales: Water Resources $ 2,067 $ 1,903 $ 1,920 Agricultural 114,234 92,399 107,727 Other (2,051) (1,900) (1,902) --------- --------- ---------Consolidated $ 114,250 $ 92,402 $ 107,745 ========= ========= =========Profit (loss) before income taxes: Water Resources $ (7,575) $ 338 $ (4,157) Agricultural 6,446 (6,452) 1,047 Other 76 - - Interest expense (21,172) (19,551) (19,188) --------- --------- ---------Consolidated $ (22,225) $ (25,665) $ (22,298) ========= ========= =========Assets: Water Resources $ 45,591 $ 46,309 Agricultural 146,417 152,168 Other (125) (202) --------- --------- Consolidated $ 191,883 $ 198,275 ========= ========= Capital expenditures: Water Resources $ 805 $ 1,556 $ 2,047 Agricultural 2,652 4,510 4,644 --------- --------- ---------Consolidated $ 3,457 $ 6,066 $ 6,691 ========= ========= =========Depreciation and amortization: Water Resources $ 1,022 $ 1,137 $ 1,174 Agricultural 6,458 7,014 7,207 --------- --------- ---------Consolidated $ 7,480 $ 8,151 $ 8,381 ========= ========= =========Interest expense, net: Water Resources $ 5,108 $ 3,718 $ 4,085 Agricultural 16,299 15,598 15,103 Other (235) 235 - --------- --------- ---------Consolidated $ 21,172 $ 19,551 $ 19,188 ========= ========= ========= Page 99NOTE 16 - CONTINGENCIESSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.----------------------- In December 1995, the Company filed an action relative tothe proposed construction and operation of a landfill (the "Rail-Cycle Project") which was to be located adjacent to the Company'sCadiz property with the Superior Court in San Bernardino County,California. The action challenged the various decisions by theCounty of San Bernardino relative to the proposed Rail-CycleProject and sought compensatory damages. In September 1998, theCourt granted defendants' motion for summary judgment. TheCompany appealed this decision and in August 2000, the CaliforniaCourt of Appeals granted, in part, the Company's appeal. TheCourt's decision revoked all environmental and land-useapprovals, and thus effectively terminated the Rail-CycleProject, as proposed. The Company filed other civil actions against WasteManagement, Inc., which asserted claims arising from allegedcriminal and fraudulent conduct against the Company engaged in byWaste Management in connection with the Rail-Cycle Project. In March 2001, the Company and Waste Management executed asettlement agreement intended to fully and finally compromise andsettle the claims asserted by the Company against WasteManagement in all of the outstanding civil actions. Pursuant tothe Settlement Agreement, Waste Management paid the Company $6million in cash and granted to the Company an exclusive option toreceive, at no cost to the Company, up to approximately 7,000acres of real property in eastern San Bernardino County primarilyadjacent to the Cadiz Program property. In April 2001, theCompany exercised the option and has acquired the subjectproperty. Net proceeds from the settlement are included in theCompany's statement of operations under the caption "SpecialLitigation Recovery". In the normal course of its agricultural operations, theCompany handles, stores, transports and dispenses productsidentified as hazardous materials. Regulatory agenciesperiodically conduct inspections and, currently, there are nopending claims with respect to hazardous materials. The Company is involved in other legal and administrativeproceedings and claims. In the opinion of management, theultimate outcome of each proceeding or all such proceedingscombined will not have a material adverse impact on the Company'sfinancial statements. Page 100NOTE 17 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)-----------------------------------------------------(In thousands except per share data) QUARTER ENDED ------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2002 2002 2002 2002 ---- ---- ---- ----Revenues $ 7,750 $ 23,063 $ 64,280 $ 19,157Gross profit (loss) 1,497 6,215 16,820 3,362Net loss applicable to common stock (7,800) (5,962) (950) (9,622)Net loss per common share $ (5.40) $ (4.11) $ (.65) $ (6.60) QUARTER ENDED ------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2001 2001 2001 2001 ---- ---- ---- ----Revenues $ 7,371 $ 20,371 $ 48,683 $ 15,977Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Gross profit (loss) (570) 4,927 7,611 1,326Net loss applicable to common stock (7,165) (5,030) (5,267) (9,292)Net loss per common share $ (5.02) $ (3.51) $ (3.67) $ (6.50) Page 101 CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT-------------------------------------------------------------------- DECEMBER 31,BALANCE SHEET ($ IN THOUSANDS): 2002 2001--------------------------------------------------------------------ASSETS Current assets: Cash and cash equivalents $ 189 $ 400 Net investment in and advances to subsidiary 1,739 8,986 Note receivable from officer 1,022 - Prepaid expenses and other 323 211 --------- --------- Total current assets 3,273 9,597Property, plant, equipment and water programs, net 40,076 41,266Goodwill 3,813 3,813Other assets 168 619 --------- --------- $ 47,330 $ 55,295 ========= =========LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 1,142 $ 1,330 Accrued liabilities 987 791 Bank overdraft - 410 Long-term debt, current portion 34,769 - --------- --------- Total current liabilities 36,898 2,531Long-term debt - 24,732Other liabilities 611 371ContingenciesSeries D redeemable convertible preferred stock - $0.01 par value: 5,000 shares authorized; shares issued and outstanding - 5,000 at December 31, 2002 and December 31, 2001 4,536 4,243Series E-1 and E-2 redeemable convertible preferred stock - $0.01 par value: 7,500 shares authorized; shares issued and outstanding - 7,500 at December 31, 2002 and none at December 31, 2001 6,406 5,715Stockholders' equity: Common stock - $0.01 par value; 70,000,000 shares authorized; shares issued and outstanding 1,458,659 at December 31, 2002 and 1,442,833 at December 31, 2001 15 14Additional paid-in capital 156,151 152,751Accumulated deficit (157,287) (135,062) --------- ---------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Total stockholders' equity (1,121) 17,703 --------- --------- $ 47,330 $ 55,295 ========= ========= Page 102 CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT-----------------------------------------------------------------------STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31,($ IN THOUSANDS) 2002 2001 2000-----------------------------------------------------------------------Revenues $ 2,067 $ 1,903 $ 1,920Special litigation recovery - 7,929 - --------- --------- ---------Total revenues and special litigation recovery 2,067 9,832 1,920 --------- --------- ---------Costs and expenses: Cost of sales 103 118 124 General and administrative 7,500 5,433 4,355 Special litigation - - 424 Non-recurring compensation expense - 2,584 - Removal of underperforming crops 1,017 222 - Depreciation and amortization 1,022 1,137 1,174 --------- --------- --------- Total costs and expenses 9,642 9,494 6,077 --------- --------- ---------Operating profit (loss) (7,575) 338 (4,157)Loss from subsidiaries (9,540) (22,342) (14,216)Interest expense, net 5,108 3,718 4,085 --------- --------- ---------Net loss before income taxes (22,223) (25,722) (22,458)Income taxes 2 - - --------- --------- ---------Net loss (22,225) (25,722) (22,458)Less: Preferred stock dividends 1,125 591 - Imputed dividend on preferred stock 984 441 - --------- --------- ---------Net loss applicable to common stock $ (24,334) $ (26,754) $ (22,458) ========= ========= ========= Page 103 CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT----------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ----------------------STATEMENT OF CASH FLOWS ($ IN THOUSANDS) 2002 2001 2000-----------------------------------------------------------------------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cash flows from operating activities: Net loss $ (22,225) $ (25,722) $ (22,458) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 5,181 3,521 2,956 Loss from subsidiary 9,540 22,342 14,216 (Gain) loss on disposal of assets (3) 5 (1) Removal of underperforming crops 1,017 222 - Land received from litigation settlement - (2,000) - Compensation charge for deferred stock units 272 271 100 Non-recurring compensation expense - 2,584 - Accrued interest on note receivable from officer (22) - - Changes in operating assets and liabilities: Increase in due to subsidiary (1,360) - - Decrease (increase) in prepaid expenses and other (112) 8 183 Increase in accounts payable (189) 121 504 Increase (decrease) in accrued liabilities (9) 97 (356) (Decrease) increase in other liabilities - (7) 7 --------- --------- --------- Net cash provided by (used for) operating activities (7,910) 1,442 (4,849) --------- --------- ---------Cash flows from investing activities: Additions to property, plant and equipment (138) (88) (293) Additions to developing crops (24) (109) (159) Additions to water programs (643) (1,359) (1,595) Proceeds from disposal of property, plant and equipment 3 2 1 Loan to officer (1,000) - - Increase in other assets 124 (575) (162) --------- --------- --------- Net cash used for investing activities (1,678) (2,129) (2,208) --------- --------- ---------Cash flows from financing activities: Net proceeds from issuance of stock 764 1,583 1,032 Net proceeds from short-term borrowings 10,000 - - Proceeds from issuance of preferred stock - 7,500 5,000 Intercompany revolver with subsidiary (977) (11,254) - Principal payments on long-term debt - (251) (21) Bank overdraft (410) 410 - --------- --------- --------- Net cash (used for) provided by financing activities 9,377 (2,012) 6,011 --------- --------- ---------Net decrease in cash and cash equivalents (211) (2,699) (1,046)Cash and cash equivalents, beginning of period 400 3,099 4,145 --------- --------- ---------Cash and cash equivalents, end of period $ 189 $ 400 $ 3,099 ========= ========= ========= Page 104Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS--------------------------------------------------------------------------FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000($ IN THOUSANDS)-------------------------------------------------------------------------- BALANCE AT ADDITIONS CHARGED TO BALANCEYEAR ENDED BEGINNING COSTS AND INCOME TAX AT ENDDECEMBER 31, 2002 OF PERIOD EXPENSES PROVISION DEDUCTIONS OF PERIOD----------------- --------- -------- --------- ---------- ---------Allowance for doubtful accounts $ 506 $ 200 $ - $ 159 $ 547 ========= ========= ========= ========= =========Tax valuation allowance $ 59,405 $ - $ 5,613 $ - $ 65,018 ========= ========= ========= ========= =========YEAR ENDEDDECEMBER 31, 2001-----------------Allowance for doubtful accounts $ 522 $ - $ - $ 16 $ 506 ========= ========= ========= ========= =========Tax valuation allowance $ 47,649 $ - $ 11,756 $ - $ 59,405 ========= ========= ========= ========= =========YEAR ENDEDDECEMBER 31, 2000-----------------Allowance for doubtful accounts $ 224 $ 308 $ - $ 10 $ 522 ========= ========= ========= ========= =========Tax valuation allowance $ 39,665 $ - $ 7,984 $ - $ 47,649 ========= ========= ========= ========= ========= Page 105 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholder ofSun World International, Inc. In our opinion, the accompanying consolidated balance sheetand the related consolidated statements of operations, cash flowsand stockholder's equity present fairly, in all materialrespects, the financial position of Sun World International,Inc., a wholly-owned subsidiary of Cadiz Inc., and itssubsidiaries at December 31, 2002 and 2001 and the results oftheir operations and their cash flows for each of the three yearsin the period ended December 31, 2002 in conformity withaccounting principles generally accepted in the United States ofAmerica. These financial statements are the responsibility ofthe Company's management; our responsibility is to express anopinion on these financial statements based on our audits. Weconducted our audits of these statements in accordance with thestandards of the Public Company Accounting Oversight Board(United States). These standards require that we plan andperform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. AnSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements,assessing the accounting principles used and significantestimates made by management, and evaluating the overallfinancial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. As discussed in Note 1 to the accompanying financialstatements, Sun World International, Inc. and certain of itssubsidiaries filed voluntary petitions for reorganization underChapter 11 of the United States Bankruptcy Code on January 30,2003. Management continues to operate the Company as a debtor-in-possession until a Plan of Reorganization is approved by itscreditors and confirmed by the Bankruptcy Court. The Company'sobjectives in regard to this matter are also discussed in Note 1.The accompanying financial statements have been prepared usingaccounting principles applicable to a going concern, whichassumes realization of assets and settlement of liabilities inthe normal course of business. The uncertainties inherent in thebankruptcy process raise substantial doubt about the Company'sability to continue as a going concern. The financial statementsdo not include any adjustments that might result from the outcomeof this uncertainty./s/ PricewaterhouseCoopers LLP------------------------------- PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 14, 2003 Page 106SUN WORLD INTERNATIONAL, INC.(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)------------------------------------------------------------------------CONSOLIDATED STATEMENT OF OPERATIONS------------------------------------------------------------------------YEAR ENDED DECEMBER 31,($ IN THOUSANDS) 2002 2001 2000------------------------------------------------------------------------Revenues $ 114,583 $ 91,973 $ 107,632 --------- --------- ---------Costs and expenses: Cost of sales 86,880 79,390 88,203 General and administrative 10,953 8,980 9,721 Non-recurring compensation expense - 2,953 - Removal of underperforming crops 3,497 514 1,549 Depreciation and amortization 6,458 7,014 7,207 --------- --------- --------- 107,788 98,851 106,680 --------- --------- ---------Operating income (loss) 6,795 (6,878) 952(Gain) loss on sale of property 349 (426) (95)Interest expense, net 16,299 15,598 15,103 --------- --------- ---------Net loss before income taxes (9,853) (22,050) (14,056)Income tax (benefit) expense (2) 57 160 --------- --------- ---------Net loss $ (9,851) $ (22,107) $ (14,216) ========= ========= =========See accompanying notes to the consolidated financial statements.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Page 107SUN WORLD INTERNATIONAL, INC.(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)---------------------------------------------------------------------CONSOLIDATED BALANCE SHEET--------------------------------------------------------------------- DECEMBER 31,($ IN THOUSANDS) 2002 2001---------------------------------------------------------------------ASSETSCurrent assets: Cash and cash equivalents $ 3,040 $ 1,058 Accounts receivable, net 6,732 6,326 Inventories 13,638 13,229 Prepaid expenses and other 843 578 --------- --------- Total current assets 24,253 21,191Property, plant, equipment, net 112,293 121,506Intangible assets 1,934 2,000Other assets 7,937 7,471 --------- --------- Total assets $ 146,417 $ 152,168 ========= =========LIABILITIES AND STOCKHOLDER'S EQUITYCurrent liabilities: Accounts payable $ 6,252 $ 10,428 Accrued liabilities 5,829 4,889 Due to parent company 13,546 11,254 Revolving credit facility 4,400 - Long-term debt, current portion 6,250 4,960 --------- --------- Total current liabilities 36,277 31,531Long-term debt 115,447 116,697Deferred income taxes 5,447 5,447Other liabilities 928 559 --------- --------- Total liabilities 158,099 154,234 --------- ---------ContingenciesStockholder's equity: Common stock, $0.01 par value, 300,000 shares authorized; 42,000 shares issued and outstanding - - Additional paid-in capital 38,508 38,273 Accumulated deficit (50,190) (40,339) --------- --------- Total stockholder's equity (11,682) (2,066) --------- --------- Total liabilities and stockholder's equity $ 146,417 $ 152,168 ========= =========See accompanying notes to the consolidated financial statements. Page 108SUN WORLD INTERNATIONAL, INC.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)----------------------------------------------------------------------CONSOLIDATED STATEMENT OF CASH FLOWS---------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -----------------------($ IN THOUSANDS) 2002 2001 2000----------------------------------------------------------------------Cash flows from operating activities:Net loss $ (9,851) $ (22,107) $ (14,216)Adjustments to reconcile net loss to netcash used for operating activities: Depreciation and amortization 8,295 8,143 7,970 Loss (gain) on disposal of assets 349 (426) (95) Removal of underperforming crops 3,497 514 1,549 Shares of KADCO stock earned for services (1,250) (1,250) (1,250) Share of partnership operations - - (71) Compensation charge for deferred stock units 307 296 137 Non-recurring compensation expense - 2,953 - Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (406) 1,553 552 (Increase) decrease in inventories (1,039) 1,830 2,740 (Increase) decrease in prepaid expenses and other (265) (160) 112 (Decrease) increase in accounts payable (4,176) 3,734 (645) Increase (decrease) in accrued liabilities 687 (647) (683) (Decrease) increase in due to parent (668) 1,983 - Increase (decrease) in other liabilities 315 58 (305) --------- --------- --------- Net cash used for operating activities (4,205) (3,526) (4,205) --------- --------- ---------Cash flows from investing activities:Additions to property, plant, equipment and water programs (500) (1,495) (959)Additions to developing crops (2,152) (3,015) (3,685)Proceeds from disposal of property, plant and equipment 2,460 450 2,955Partnership distributions - - 1,568(Increase) decrease in other assets (219) 494 (363) --------- --------- --------- Net cash used for investing activities (411) (3,566) (484) --------- --------- ---------Cash flows from financing activities:Proceeds from issuance of long-term debt - - 5,231Principal payments on long-term debt (762) (1,313) (665)Net proceeds from short-term borrowings 4,400 - -Intercompany revolver with parent 2,960 9,271 - --------- --------- --------- Net cash provided by financing activities 6,598 7,958 4,566 --------- --------- ---------Net increase (decrease) in cash and cash equivalents 1,982 866 (123)Cash and cash equivalents at beginning of period 1,058 192 315Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. --------- --------- ---------Cash and cash equivalents at end of period $ 3,040 $ 1,058 $ 192 ========= ========= =========See accompanying notes to the consolidated financial statements. Page 109SUN WORLD INTERNATIONAL, INC.(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)-----------------------------------------------------------------------------CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY($ IN THOUSANDS)----------------------------------------------------------------------------- ADDITIONAL TOTAL COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDER'S SHARES AMOUNT CAPITAL DEFICIT EQUITY ------ ------ ------- ------- ------Balance as of December 31, 1999 42,000 $ - $ 34,183 $ (4,016) $ 30,167Capital contribution from parent for the value of shares and warrants issued in connection with obtaining the senior unsecured term loan financing - - 1,142 - 1,142Net loss - - - (14,216) (14,216) --------- ----- --------- --------- ---------Balance as of December 31, 2000 42,000 - 35,325 (18,232) 17,093Capital contribution from parent for the value of the non-recurring compensation - - 2,953 - 2,953Revaluation of derivative for warrants issued by parent - - (235) - (235)Capital contribution from parent for warrants issued relating to senior unsecured term loan - - 230 - 230Net loss - - - (22,107) (22,107) --------- ----- --------- --------- ---------Balance as of December 31, 2001 42,000 - 38,273 (40,339) (2,066)Revaluation of derivative for warrants issued by parent - - 235 - 235Net loss - - - (9,851) (9,851) --------- ----- --------- --------- ---------Balance as of December 31, 2002 42,000 $ - $ 38,508 $ (50,190) $ (11,682) ========= ===== ========= ========= =========Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.See accompanying notes to the consolidated financial statements. Page 110SUN WORLD INTERNATIONAL, INC.(A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.)NOTES TO CONSOLIDATED FINANCIAL STATEMENTS==========================================NOTE 1 - NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11----------------------------------------------------------------- Founded in 1975, Sun World International, Inc. ("SWII" or"Sun World") and its subsidiaries (collectively, the "Company")operate as the agricultural segment of Cadiz Inc. ("Cadiz"). TheCompany is an integrated agricultural operation that ownsapproximately 18,400 acres of land, primarily located in twomajor growing areas of California: the San Joaquin Valley and theCoachella Valley. Fresh produce, including table grapes,stonefruit, citrus, peppers and watermelons is marketed, packedand shipped to food wholesalers and retailers located throughoutthe United States and to more than 30 foreign countries. TheCompany owns and operates three cold storage and/or packingfacilities located in California, of which two are operated andone is leased to a third party. On January 30, 2003, SWII and certain of its subsidiaries(Sun Desert Inc., Coachella Growers, and Sun World/Rayo) filedvoluntary petitions for relief under Chapter 11 of the BankruptcyCode. The filing was made in the United States Bankruptcy Court,Central District of California, Riverside Division. SWII soughtbankruptcy protection in order to access a seasonal financingpackage of up to $40 million to provide working capital throughthe 2003-2004 growing seasons. Under the protection of Chapter11, the Company is managing its affairs and operating itsbusiness as a debtor-in-possession while it develops its Plan ofReorganization. Liabilities subject to compromise at January 30,2003 (date of filing the Chapter 11) are summarized as follows(dollars in thousands): Pre-petition liabilities $ 7,502 Due to parent company 13,549 Unsecured notes payable 5,000 Secured notes payable 115,000 --------- Total $ 141,051 ========= Historically, Cadiz has supplemented the annual workingcapital requirements of Sun World. Cadiz determined it would notbe in a position to supplement the revolving credit facility forthis forthcoming season, thereby requiring Sun World to access alarger facility than in the past. Sun World was able to obtainthis larger facility, however the new loan was conditioned onreaching an arrangement with the holders ("Noteholders") of SunWorld Series B First Mortgage Notes ("First Mortgage Notes").Sun World ultimately was unable to procure the financing with theconsent of all parties. Therefore, the only way to complete thisnew financing on a timely basis was to seek Court approval,pursuant to Chapter 11, under a Debtor in Possession ("DIP")facility. Effective March 3, 2003, the Bankruptcy Court issuedapproval on a DIP financing facility of up to $40 million. SeeNote 8 for more detail on the Company's DIP financing facility. The financial statements of the Company have been preparedusing accounting principles applicable to a going concern, whichassumes realization of assets and settlement of liabilities inthe normal course of business. The financial statements of theCompany do not purport to reflect or to provide for all of theconsequences of an ongoing Chapter 11 reorganization.Specifically, but not all-inclusive, the financial statements ofSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the Company do not present: (a) the realizable value of assets ona liquidation basis or the availability of such assets to satisfyliabilities, (b) the amount which will ultimately be paid tosettle liabilities and contingencies which Page 111may be allowed in the Chapter 11 reorganization, or (c) the effect of changes which may be made resulting from a Plan of Reorganization. The appropriateness of using the going-concern basis is dependentupon, among other things, confirmation of a Plan ofReorganization, future profitable operations, the ability tocomply with debtor-in-possession financing agreements and theability to generate sufficient cash from operations to meetobligations. Inherent in a successful Plan of Reorganization is a capitalstructure that permits the Company to generate cash flows afterreorganization to meet its restructured obligations and fund thecurrent operations of the Company. The Company's objective inthe Chapter 11 proceeding is to achieve the highest possiblerecovery for all creditors and shareholders consistent with theCompany's ability to pay and the continuation of its business.There can be no assurance that the Company will be able to attainthese objectives or reorganize successfully. Because of theongoing nature of the reorganization case, the financialstatements contained herein are subject to materialuncertainties. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES---------------------------------------------------PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts ofSWII and its subsidiaries, all of which are wholly-owned. Allsignificant intercompany transactions have been eliminated.RECLASSIFICATIONS These financial statements reflect certain reclassificationsmade to the prior period balances to conform to the current yearpresentation.USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity withgenerally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reportingperiod. In preparing these financial statements, management hasmade estimates with regard to revenue recognition and valuationof inventory, long-lived assets, and deferred tax assets. Actualresults could differ from those estimates.REVENUE RECOGNITION The Company recognizes crop sale revenue upon shipment andtransfer of title to customers. Packing revenues and marketingcommissions from third party growers are recognized when therelated services are provided. Proprietary product developmentrevenues are recognized based upon product sales by licensees.Project development and management fees are recorded when earnedunder the terms of the related agreement. Revenues attributable to one national retailer totaled $9.6million in 2002, $7.9 million in 2001 and $12.8 million in 2000.Export sales accounted for approximately 12.1%, 8.4% and 9.9%, ofthe Company's revenues for the years ended December 31, 2002,2001 and 2000, Page 112Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.respectively. Service revenues and license revenues were less than 10% of total revenues for each of the years in the three-year period ended December 31, 2002.RESEARCH AND DEVELOPMENT The Company incurs costs to research and develop newvarieties of proprietary products. Research and developmentcosts are expensed as incurred. Such costs were approximately$2,424,000 for the year ended December 31, 2002, $2,023,000 forthe year ended December 31, 2001 and $1,636,000 for the yearended December 31, 2000.CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with anoriginal maturity of three months or less to be cash equivalents.The Company invests its excess cash in deposits with majorinternational banks and short-term commercial paper and,therefore, bears minimal risk. At times these deposits exceedfederally insured limits. Such investments are stated at cost,which approximates fair value, and are considered cashequivalents for purposes of reporting cash flows.INVENTORIES Growing crops, harvested crops, and materials and suppliesare stated at the lower of cost or market, on a first-in, first-out (FIFO) basis. Growing and harvested crops inventory includesdirect costs and an allocation of indirect costs.PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost. The Company capitalizes direct and certain indirect costsof planting and developing orchards and vineyards during thedevelopment period, which varies by crop and usually ranges fromthree to seven years. Depreciation commences in the yearcommercial production is achieved. Permanent land development costs, such as acquisition costs,clearing, initial leveling and other costs required to bring theland into a suitable condition for general agricultural use, arecapitalized and not depreciated since these costs have anindefinite useful life. Depreciation is provided using the straight-line method overthe 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 yearsfor permanent crops.IMPAIRMENT OF LONG-LIVED ASSETS The Company annually evaluates its long-lived assets,including intangibles, for potential impairment. Whencircumstances indicate that the carrying amount of the asset maynot be recoverable, as demonstrated by estimated future cashflows, an impairment loss would be recorded based on fair value. Page 113 During the year ended December 2002, 2001 and 2000, theCompany incurred costs to remove certain underperforming crops,primarily stonefruit, citrus, and wine grapes. The Companyrecorded charges of $3,497,000, $514,000 and $1,549,000 in 2002,2001 and 2000, respectively, in connection with the removal ofthese crops which is shown under the heading "Removal ofunderperforming crops" on the Consolidated Statement ofOperations.INTANGIBLE AND OTHER ASSETSSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Water programs are stated at cost. All costs directlyattributable to the development of such programs are beingcapitalized by the Company. Capitalized loan fees represent costs incurred to obtain debtfinancing. Such costs are amortized over the life of the relatedloan. At December 31, 2002, the majority of capitalized loanfees relate to the issuance of the First Mortgage Notes describedin Note 9. Trademark development costs represent legal costs incurred toobtain and defend patents and trademarks related to the Company'sproprietary products throughout the world. Such costs arecapitalized and amortized over their estimated useful life, whichranges from 10 to 20 years. In October 1999, the Company entered into a managementagreement with Kingdom Agricultural Development Company (KADCO)to develop and manage up to 100,000 acres of agricultural land insouthern Egypt called the Tushka project. KADCO is controlled byHis Royal Highness Prince Alwaleed Bin Talal Bin AbdulazizAlsaud. As compensation for project development and management,the Company earns a quarterly fee of $312,500 based upon meetingdevelopmental milestones to be paid through an equity interest inKADCO. KADCO is currently engaged in a private placement to raisethe required funds to develop the project. The Companyanticipates receiving shares in connection with the completion ofthe private placement. The amount of shares to be received willbe the current per share price used for the private placementdivided into the total amount of management fee earned which isshown under the heading, "Receivable from KADCO to be paid incommon shares" in Note 6.INCOME TAXES The Company is included in the consolidated federal andcombined state tax returns of Cadiz. The Company and Cadiz have atax sharing agreement which provides that the Company's currenttax liability is determined as though the Company filed its ownreturns. Income taxes are provided for using an asset andliability approach which requires the recognition of deferred taxassets and liabilities for the expected future tax consequencesof temporary differences between the financial statement and taxbases of assets and liabilities at the applicable enacted taxrates. A valuation allowance is provided when it is uncertainthat some portion or all of the deferred tax assets will berealized. Page 114SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest for the years ended December31, 2002, 2001 and 2000 were $14,484,000, $14,660,000 and$14,497,000, respectively.RECENT ACCOUNTING PRONOUNCEMENTS Adoption of Statement of Financial Accounting Standard(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, SFAS No. 141, Accounting for Business Combinationsand SFAS No. 142, Goodwill and Other Intangible Assets did nothave a material impact on the Company's financial position,results of operations or cash flows for the year ended December31, 2002. In April 2002, the Financial Accounting Standards Board(FASB) issued Statement of Financial Accounting Standard (SFAS)No. 145, which rescinds FASB Statement No. 4, Reporting Gains andLosses from Extinguishment of Debt, FASB Statement No. 44,Accounting for Intangible Assets of Motor Carriers, and FASBStatement No. 64, Extinguishments of Debt Made to Satisfy SinkingFund Requirements as well as amends FASB No. 13, to make varioustechnical various corrections. The Statement is effective forfinancial statements issued after May 15, 2002. The adoption ofSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.this standard did not have a material impact on the Company'sfinancial position or results of operations. In June 2002, the Financial Accounting Standards Board(FASB) issued Statement of Financial Accounting Standard (SFAS)No. 146, Accounting for Costs Associated with Exit or DisposalActivities. This Statement addresses financial reporting forcosts associated with exits or disposal activities and nullifiesEmerging Issues Task Force (EITF) Issue No. 94-3, LiabilityRecognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs in aRestructuring). The provisions of this Statement are effectivefor exit or disposal activities initiated after December 31,2002. The Company does not believe the adoption of this Standardwill have a material impact on its financial position or resultsof operations. In December 2002, the Financial Accounting StandardsBoard (FASB) issued Statement of Financial Accounting Standard(SFAS) No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure - an amendment of SFAS No. 123. ThisStatement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transitionfor a voluntary change to the fair value based method ofaccounting for stock-based employee compensation. In addition,this Statement amends the disclosure requirements of SFAS No. 123to require prominent disclosure in both annual and interimfinancial statements about the method of accounting for stock-based employee compensation and the effect of the method used onreported results. The Statement is effective for fiscal yearsending after December 15, 2002. The adoption of this Standardwill not have a material impact on the Company's financialposition or results of operations. In November 2002, the Financial Accounting StandardsBoard (FASB) issued FASB Interpretation Number 45, or FIN 45,Guarantor's Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness ofOthers (an interpretation of SFAS No. 5, 57, and 107 andrecission of FIN 34). FIN 45 clarifies the requirements of SFASNo. 5, Accounting for Contingencies, relating to a guarantor'saccounting for, and disclosure of, the Page 115issuance of certain types of guarantees. FIN 45 is effective January 1, 2003 and its adoption is not expected to have a significant effect on the Company's financial position or results of operations. In January 2003, the FASB issued FIN 46, Consolidationof Variable Interest Entities, and Interpretation of ARB 51. Theprimary objectives of FIN 46 are to provide guidance on theidentification of variable interest entities ("VIE's") for whichcontrol is achieved through means other than through votingrights and to determine when and which business enterprise shouldconsolidate the VIE (the "primary beneficiary'"). FIN 46 iseffective January 1, 2003 and the Company does not believe theadoption of FIN 46 will have a significant effect on itsfinancial position or results of operations.NOTE 3 - ACCOUNTS RECEIVABLE---------------------------- Accounts receivable consist of the following (dollars inthousands): DECEMBER 31, 2002 2001 ---- ---- Trade receivables $ 4,303 $ 4,294 Due from unaffiliated growers 24 448 Other 2,952 2,090Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. --------- --------- 7,279 6,832 Less allowance for doubtful accounts (547) (506) --------- --------- $ 6,732 $ 6,326 ========= ========= Substantially all trade receivables are from large domesticnational and regional supermarket chain stores and producebrokers and are unsecured. Amounts due from unaffiliated growersrepresent receivables for harvest advances and for services(harvest, haul and pack) provided on behalf of growers underagreement with the Company and are recovered from proceeds ofproduct sales. Other receivables primarily include wine grapeand raisin sales, proceeds due from third party marketers,receivables for international licensing, and other miscellaneousreceivables.NOTE 4 - INVENTORIES--------------------- Inventories consist of the following (dollars in thousands): DECEMBER 31, 2002 2001 ---- ---- Growing crops $ 10,702 $ 10,376 Materials and supplies 2,525 2,635 Harvested product 411 218 --------- --------- $ 13,638 $ 13,229 ========= ========= Page 116 Depreciation related to permanent crops and related farmingequipment included in growing crop inventory totaled $2,131,$1,848 and $1,992 at December 31, 2002, 2001 and 2000,respectively.NOTE 5 - PROPERTY, PLANT, AND EQUIPMENT--------------------------------------- Property, plant, equipment and water programs consist of thefollowing (dollars in thousands): DECEMBER 31, 2002 2001 ---- ---- Land $ 46,482 $ 49,178 Permanent crops 55,500 58,489 Developing crops 11,466 12,486 Buildings 21,212 21,182 Machinery and equipment 14,927 14,760 --------- --------- 149,587 156,095 Less accumulated depreciation (37,294) (34,589) --------- --------- $ 112,293 $ 121,506 ========= ========= Depreciation expense for 2002, 2001 and 2000 was $6,156,$6,795 and $7031, respectively.NOTE 6 - INTANGIBLE AND OTHER ASSETSSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.------------------------------------ Intangible and other assets consist of the following(dollars in thousands): DECEMBER 31, 2002 2001 ---- ---- Water programs $ 2,559 $ 2,525 Deferred loan costs, net 988 1,781 Long-term receivables 327 342 Capitalized trademark development, net 1,934 2,000 Receivable from KADCO to be paid in common shares 4,063 2,813 Other - 10 --------- --------- $ 9,871 $ 9,471 ========= ========= Amortization expense of deferred loan costs was $802, $793and $763 in 2002, 2001 and 2000, respectively, and is included ininterest expense in the statement of operations. Amortizationexpense for capitalized trademark development was $302, $219 and$176 in 2002, 2001, and 2000, respectively. Page 117NOTE 7 - ACCRUED LIABILITIES---------------------------- Accrued liabilities consist of the following (dollars inthousands): DECEMBER 31, 2002 2001 ---- ---- Interest $ 2,695 $ 2,695 Payroll and benefits 2,587 1,743 Other 547 451 --------- --------- $ 5,829 $ 4,889 ========= =========NOTE 8 - REVOLVING CREDIT FACILITIES------------------------------------ In November 2002, Sun World was notified by its seasonalrevolving lender that it would not renew the Revolving CreditFacility for the 2003 growing season. The seasonal revolverexpired on November 30, 2002. The Company sought and obtainedextensions from its lender through January 31, 2003. During theextension period, the Company sought to obtain seasonal financingfrom several different lenders. Each of these lenders wanted tohave a first position on all of the Company's assets in order tolend outside of a Chapter 11 proceeding. This required theholders of the First Mortgage Notes to modify their agreementwith the Company. As outlined in Note 1, the Company was unableto procure the financing with the consent of all parties. OnJanuary 30, 2003, Sun World and certain of its subsidiaries fileda voluntary petition for Chapter 11. On January 31, 2003, theBankruptcy Court approved an interim $15 million dollar DIPfinancing facility. On March 3, 2003, the Bankruptcy Courtapproved a final $40 million DIP financing facility agreementwith the same lender. The DIP financing expires on July 30, 2004,bears interest at the greater of Prime plus 4% or 8.25%, and issecured by substantially all of the Company's assets. Borrowingavailability is determined based on the lesser of (1) eligiblepercentages of inventory and accounts receivable plus a specifiedamount starting at $15 million and reduced by $150,000 per month;(2) certain multiples of trailing 12 months EBITDA as defined inthe credit agreement; or (3) eligible percentage of the currentvalue of all real property. The Company is required to meetcertain financial covenants.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. At December 31, 2002, $4.4 million was outstanding under theRevolving Credit Facility that was subsequently paid off withproceeds from the DIP financing on January 30, 2003. No amountwas outstanding under the Revolving Credit Facility at December31, 2001. Page 118NOTE 9 - LONG-TERM DEBT----------------------- At December 31, 2002 and December 31, 2001, the carryingamount of the Company's outstanding debt is summarized as follows(dollars in thousands): DECEMBER 31, 2002 2001 ---- ----Series B First Mortgage Notes, interest payable semi-annually, with principal due in April 2004, interest at 11.25% $ 115,000 $ 115,000Senior unsecured term loan, interest payable quarterly, due December 31, 2002, interest at (LIBOR plus 5% - 6.35% at December 31, 2002 and LIBOR plus 3% - 5.60% at December 31, 2001) 5,000 5,000Note payable to bank, quarterly principal installments of $72 plus interest payable monthly, due December 31, 2003, interest at prime (4.25% at December 31, 2002 and 4.75% at December 31, 2001) 856 1,142Note payable to insurance company, quarterly installments of $120 (including interest), due January 1, 2005, interest at 7.75% 654 945 Note payable to finance company, monthly installments of $18 (including interest), due July 1, 2002, interest at 7.50% - 103Other 187 269Debt discount - (802) --------- --------- 121,697 121,657 Less: current portion (6,250) (4,960) --------- --------- $ 115,447 $ 116,697 ========= ========= Pursuant to the Company's various loan agreements, annualmaturities of long-term debt outstanding (in thousands) atDecember 31, 2002 are as follows: 2003 - $6,250; 2004 - $115,419,2005 - $23, and 2006 - $5. As a result of the Chapter 11 filingon January 30, 2003, all required principal payments on this long-term debt are suspended. In April 1997, the Company issued $115 million of Series AFirst Mortgage Notes through a private placement. The notes havesubsequently been exchanged for Series B First Mortgage Notes,which are registered under the Securities Act of 1933 and arepublicly traded. The First Mortgage Notes are secured by a firstlien (subject to certain permitted liens) on substantially all ofthe assets of the Company and its subsidiaries other than growingcrops, crop inventories and accounts receivable and proceedsthereof, which secure the Revolving Credit Facility. With theentering into the DIP Facility as described in Note 8, the noteholders now have a second position on substantially all of theCompany's assets for so long as the DIP Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Page 119Facility is outstanding. The First Mortgage Notes mature April 15, 2004, but are redeemable at the option of the Company, in whole or in part, at any time prior to the maturity date. The First Mortgage Notes include covenants that do not allow for the payment of dividendsby the Company other than out of cumulative net income. The First Mortgage Notes are also secured by the guaranteesof Coachella Growers, Inc., Sun Desert, Inc., Sun World/Rayo, andSun World International de Mexico S.A. de C.V. (collectively, the"Sun World Subsidiary Guarantors") and by Cadiz. Cadiz alsopledged all of the stock of Sun World as collateral for itsguarantee. In December 2000, Sun World entered into a two-year $5million senior unsecured term loan. In connection with obtainingthe loan, 2,000 shares of Cadiz' common stock as well as certainwarrants to purchase shares of Cadiz' common stock were issued.The fair value of the stock and the warrants were recorded as adebt discount and were fully amortized over the life of the loanthrough December 31, 2002. At December 31, 2002, the Company didnot repay the loan and thus, the Company was in default. Withthe default, pursuant to the terms of the agreement, the interestrate was increased by 2%. In connection with the Company'sChapter 11 filing, all principal and interest payments on thisobligation have been suspended.NOTE 10 - INCOME TAXES---------------------- Significant components of the Company's deferred income taxassets and liabilities as of December 31, 2002 and 2001 are asfollows (dollars in thousands): DECEMBER 31, 2002 2001 ---- ---- Deferred tax liabilities: Net fixed assets basis difference $ 8,792 $ 8,490 Other 48 48 --------- --------- Total deferred tax liabilities 8,840 8,538 --------- --------- Deferred tax assets: Net operating losses 23,551 19,280 State taxes 1,854 1,854 Reserves and accruals 1,473 2,098 Other 943 894 --------- --------- Total deferred tax assets 27,821 24,126 Valuation allowance for deferred tax assets (24,428) (21,035) --------- --------- Net deferred tax liability $ 5,447 $ 5,447 ========= ========= As of December 31, 2002, the Company has net operating loss(NOL) carryforwards of approximately $60.4 million for federalincome tax purposes. Such carryforwards expire in varyingamounts through the year 2022. As of December 31, 2002, theCompany has state NOL carryforwards of approximately $34.1million. These NOL carryforwards expire in varying Page 120amounts through the year 2013.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. A reconciliation of the income tax (benefit) expense to thestatutory federal income tax rate is as follows (dollars inthousands): YEAR ENDED DECEMBER 31, 2002 2001 2000 ---- ---- ---- Expected federal income tax benefit at 34% $ (3,350) $ (7,497) $ (4,779)Loss with no tax benefit provided 3,322 7,531 4,663Federal AMT refund (73) - -State income tax 3 6 147Foreign withholding taxes 68 51 79Other non-deductible expenses 28 (34) 50 --------- --------- --------- Income tax (benefit) expense $ (2) $ 57 $ 160 ========= ========= =========NOTE 11 - EMPLOYEE BENEFIT PLANS-------------------------------- The Company participates in the Cadiz Inc. 401(k) Plan for itssalaried employees. Employees must work 1,000 hours annually andhave completed one year of service to be eligible to participatein this plan. The Company matches 75% of the first four percentdeferred by an employee up to $1,600 per year. In addition, theCompany maintains a defined contribution pension plan coveringits employees who (i) are not covered by a collective bargainingagreement, (ii) have at least one year of service and (iii) haveworked at least 1,000 hours annually. Contributions are 2% ofeach covered employee's salary. For those hourly employeescovered under a collective bargaining agreement, contributionsare made to a multi-employer pension plan in accordance withnegotiated labor contracts and are generally based on the numberof hours worked. The Company contributed $266, $243 and $244 forfiscal years 2002, 2001 and 2000, respectively. Effective January 1, 2003, the Company eliminated the definedcontribution plan and allowed those employees that were eligiblefor the plan to begin participating in the Cadiz Inc. 401(k)Plan. With this change, in order to meet the statutoryrequirements, the plan was amended to eliminate the $1,600matching cap per year for each covered employee and the Companymatch was increased to 100% for the first three percent deferredand 50% of the next two percent deferred.NOTE 12 - RELATED PARTY TRANSACTIONS------------------------------------ Cadiz owns approximately 1,600 acres of irrigated farmland inSan Bernardino County consisting primarily of citrus and grapes.Pursuant to a 10-year lease entered into as of the acquisitiondate, the Company is responsible for the production, packing,handling, and marketing of the products on the Cadiz property.Through December 31, 2001, pursuant to the lease as amended inApril 1997, Cadiz received annual land rent of $250 per acre, or$400,000. In 2002, the annual land rent was reduced to $250,000as certain underperforming crops at the Cadiz ranch were removed. In addition, the Company entered into a service agreementwith Cadiz in which Cadiz Page 121provides management and financial services to the Company. The term of the agreement is 10 years with an annual fee of $1.5 million. The agreement also provides for certain other reimbursement of expenses incurred on behalf of the Company. The Company made payments to Cadiz of $1.8 million for 2002, $2.4 million for 2001, and $2.3 million for 2000 pursuant to the services agreement and the lease agreement mentioned above. The Company is precluded Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.from paying any further amounts under the services agreement pursuant to the Company's DIP Financing agreement more fully described in Note 8. The Company has intercompany revolving credit agreementswhereby the Company can borrow from Cadiz as needed. Under theintercompany revolving credit agreement, $12.2 million wasoutstanding as of December 31, 2002 and $9.3 million wasoutstanding as of December 31, 2001. Additional amounts payableto Cadiz representing amounts owed pursuant to the services andlease agreement as well as the reimbursement of certain other netexpenses were $1.3 million and $2.0 million at December 31, 2002and 2001, respectively.NOTE 13 - NON-RECURRING COMPENSATION EXPENSE--------------------------------------------- In 2001, Cadiz issued 12,034 deferred stock units to certainsenior managers of Sun World. These deferred stock units wereissued in exchange for the cancellation of 22,600 fully vestedoptions to purchase the Cadiz common stock held by seniormanagers. In accordance with the terms of the Stock OptionExchange Agreements, the number of the deferred stock unitsissued was calculated based on the average closing price for the10 business days following the filing of the Cadiz Annual Reporton Form 10-K for the year ended December 31, 2000 on March 29,2001. Each deferred stock unit is exchangeable for one share ofCadiz common stock at the end of the deferral period elected bythe holder. The Company recorded a one-time charge of $2,953,000in 2001 and no cash was expended in connection with the issuanceof the deferred stock units.NOTE 14 - UNUSUAL ITEMS------------------------- The Company is involved with various litigation proceedingsboth domestically and internationally to protect its proprietaryfruit varieties from unauthorized use. The Company is currentlyinvolved in proceedings with domestic growers to enjoin theirunauthorized production of one of the Company's proprietarygrapevines. During 2002, a California state court issued aruling adverse to Sun World in one of these proceedings. InMarch 2003, the appeals court upheld the decision reached by theCalifornia state court. The Company is appealing this ruling andwill continue to vigorously pursue its claims. The Company wroteoff capitalized legal costs related to defending its intellectualproperty rights to this variety as of December 31, 2002 resultingin a charge of $1,097,000. An ultimate unfavorable outcome inthis matter could have a material adverse impact on the Company'sfuture financial performance. As described in Note 1, the Company tried unsuccessfully torestructure its debt and ultimately filed for Chapter 11 onJanuary 30, 2003. In connection with these efforts, the Companyincurred $614,000 of professional fees. As a result of theunsuccessful debt restructuring, these costs have been writtenoff as of December 31, 2002. Page 122NOTE 15 - CONTINGENCIES------------------------ In the normal course of its agricultural operations, theCompany handles, stores, transports and dispenses productsidentified as hazardous materials. Regulatory agenciesperiodically conduct inspections and, currently, there are nopending claims with respect to hazardous materials. The Company is involved in various other legal andadministrative proceedings and claims. In the opinion ofmanagement, the ultimate outcome of each proceeding or all suchproceedings combined will not have a material adverse impact onSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.the Company's financial statements. Page 123Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER I, Keith Brackpool, herby certify that, to myknowledge, that: 1. the accompanying Annual Report on Form 10-K ofCadiz Inc. for the year ended December 31, 2002 (the"Report") fully complies with the requirements of Section13(a) or 15(d), as applicable, of the Securities andExchange Act of 1934, as amended; and 2. the information contained in the Report fairlypresents, in all material respects, the financial conditionand results of operations of Cadiz Inc. IN WITNESS WHEREOF, the undersigned has executed thisStatement as of the date first written above.Dated: November 1, 2004 /s/ Keith Brackpool ---------------------------------- Keith Brackpool Chairman, Chief Executive Officer and Chief Financial OfficerSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 3.7 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF DESIGNATIONS OF SERIES D PREFERRED STOCK OF CADIZ INC. CADIZ INC., a corporation organized and existing under the GeneralCorporation Law of the State of Delaware (the "Corporation"), does herebycertify: FIRST: That on December 28, 2000, the Certificate of Designations ofSeries D Preferred Stock of the Corporation was filed in the Office of theSecretary of State of Delaware; SECOND: That on December 28, 2000, a "Certificate of Correction Filedto Correct a Certain Error in the Certificate of Designations of Series DPreferred Stock of Cadiz Inc. Filed in the Office of the Secretary of the Stateof Delaware on December 28, 2000" was filed in the Office of the Secretary ofState of Delaware. THIRD: That on November 4, 2002, at a meeting of the Board of Directorsof the Corporation, the following resolutions were duly adopted: RESOLVED, that the Board of Directors hereby declares it advisable andin the best interests of the Corporation and its stockholders that theCertificate of Designations of Series D Preferred Stock of the Corporation (the"Series D Certificate of Designations") be amended as follows: 1. The first sentence of Section 5 of the Series D Certificate ofDesignations (entitled "CONVERSION") is hereby amended to delete the referenceto "$8.00" in the third line thereof and to insert in lieu thereof a referenceto "$5.25." 2. Paragraph (a) of Section 7 of the Series D Certificate ofDesignations (entitled "MANDATORY REDEMPTION") is hereby amended and restated toread in its entirety as follows: "(a) The Corporation shall redeem on July 16, 2006, and notprior to said date (the "Redemption Date") all shares of Series D PreferredStock outstanding as of such date from any source of funds legally availabletherefor." FOURTH: That all of the holders of the Corporation's Series D PreferredStock have consented in writing to the aforesaid amendment. FIFTH: That said amendment was duly adopted in accordance with theprovisions of Section 242 of the General Corporation Law of the State ofDelaware. IN WITNESS WHEREOF, CADIZ INC., has caused this Certificate to besigned by Stanley E. Speer, its Chief Financial Officer, and attested byJennifer Hankes Painter, its Secretary, this _31_th day of December, 2002. CADIZ INC. By: /s/ Stanley E. Speer --------------------------------- Chief Financial OfficerATTEST:By: /s/ Jennifer Hankes Painter ----------------------------------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SecretarySource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 3.9 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF DESIGNATIONS OF SERIES E-1 PREFERRED STOCK OF CADIZ INC. CADIZ INC., a corporation organized and existing under the GeneralCorporation Law of the State of Delaware (the "Corporation"), does herebycertify: FIRST: That on October 22, 2001, the Certificate of Designations ofSeries E-1 Preferred Stock of the Corporation was filed in the Office of theSecretary of State of Delaware; SECOND: That on November 4, 2002, at a meeting of the Board ofDirectors of the Corporation, the following resolutions were duly adopted: RESOLVED, that the Board of Directors hereby declares it advisable andin the best interests of the Corporation and its stockholders that theCertificate of Designations of Series E-1 Preferred Stock of the Corporation(the "Series E-1 Certificate of Designations") be amended as follows: 1. The first sentence of Section 5 of the Series E-1 Certificate ofDesignations (entitled "CONVERSION") is hereby amended and restated to read inits entirety as follows: "Each share of Series E-1 Preferred Stock shall be convertibleinto shares of Common Stock both (i) at the option of the holder thereof at anytime following issuance, and (ii) at the option of the Corporation providedthat: (A) the Corporation converts all shares of Series E-1 Preferred Stockoutstanding and that (B) the closing bid price for the Corporation's CommonStock for any thirty consecutive trading day period ending not more than five(5) trading days prior to submission of notice of conversion has exceeded $10.50(the "Mandatory Conversion Minimum")." 2. The third sentence of Section 5 of the Series E-1 Certificate ofDesignations (entitled "CONVERSION") is hereby amended and restated to read inits entirety as follows: "The Conversion Price shall be equal to $5.25, subject toadjustment as set forth in this Certificate of Designations." 3. Paragraph (a) of Section 7 of the Series E-1 Certificate ofDesignations (entitled "MANDATORY REDEMPTION") is hereby amended and restated toread in its entirety as follows: "(a) The Corporation shall redeem on July 16, 2006, and notprior to said date (the "Redemption Date") all shares of Series E-1 PreferredStock outstanding as of such date from any source of funds legally availabletherefor." THIRD: That all of the holders of the Corporation's Series E-1Preferred Stock have consented in writing to the aforesaid amendment. FOURTH: That said amendment was duly adopted in accordance with theprovisions of Section 242 of the General Corporation Law of the State ofDelaware. IN WITNESS WHEREOF, CADIZ INC., has caused this Certificate to besigned by Stanley E. Speer, its Chief Financial Officer, and attested byJennifer Hankes Painter, its Secretary, this _31_th day of December, 2002. CADIZ INC. By: /s/ Stanley E. SpeerSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. -------------------------------- Chief Financial OfficerATTEST:By: /s/ Jennifer Hankes Painter -------------------------------Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 3.11 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF DESIGNATIONS OF SERIES E-2 PREFERRED STOCK OF CADIZ INC. CADIZ INC., a corporation organized and existing under the GeneralCorporation Law of the State of Delaware (the "Corporation"), does herebycertify: FIRST: That on November 28, 2001, the Certificate of Designations ofSeries E-2 Preferred Stock of the Corporation was filed in the Office of theSecretary of State of Delaware; SECOND: That on November 4, 2002, at a telephonic meeting of the Boardof Directors of the Corporation, the following resolutions were duly adopted: RESOLVED, that the Board of Directors hereby declares it advisable andin the best interests of the Corporation and its stockholders that theCertificate of Designations of Series E-2 Preferred Stock of the Corporation(the "Series E-2 Certificate of Designations") be amended as follows: 1. The first sentence of Section 5 of the Series E-2 Certificate ofDesignations (entitled "CONVERSION") is hereby amended to delete the referenceto "$7.50" in the third line thereof and to insert in lieu thereof a referenceto "$5.25." 2. Paragraph (a) of Section 7 of the Series E-2 Certificate ofDesignations (entitled "MANDATORY REDEMPTION") is hereby amended and restated toread in its entirety as follows: "(a) The Corporation shall redeem on July 16, 2006, and notprior to said date (the "Redemption Date") all shares of Series E-2 PreferredStock outstanding as of such date from any source of funds legally availabletherefor." THIRD: That all of the holders of the Corporation's Series E-2Preferred Stock have consented in writing to the aforesaid amendment. FOURTH: That said amendment was duly adopted in accordance with theprovisions of Section 242 of the General Corporation Law of the State ofDelaware. IN WITNESS WHEREOF, CADIZ INC., has caused this Certificate to besigned by Stanley E. Speer, its Chief Financial Officer, and attested byJennifer Hankes Painter, its Secretary, this 31st day of December, 2002. CADIZ INC. By: /s/ 31Stanley E. Speer --------------------------------- Chief Financial OfficerATTEST:By: /s/ Jennifer Hankes Painter ------------------------------ SecretarySource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 10.7 PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of November __, 2002 (this "Agreement"),made by Keith Brackpool ("Pledgor"), as the obligor hereunder, to Cadiz Inc., aDelaware corporation ("Secured Party"). W I T N E S S E T H: WHEREAS, Pledgor and Secured Party are parties to that SecurityAgreement dated as of July 5, 2002 ("Security Agreement") securing a loan fromSecured Party to Pledgor in a principal amount up to $1,000,000 (the "Loan")represented by a Promissory Note of even date therewith (the "PromissoryNote")(the Security Agreement and the Promissory Note are hereinaftercollectively referred to as the "Loan Documents"); WHEREAS, the Loan Documents provide for a pledge of collateral in theform of certain of Pledgor's stock in the Secured Party (the "Pledged Stock")equal to or greater than 133% of the outstanding principal and the then-accruedinterest due on the Loan (the "Collateral Minimum Amount"); WHEREAS, the value of the Pledgor's Pledged Stock has fallen below theCollateral Minimum Amount and Pledgor is executing and delivering this Agreementin order to provide collateral to Secured Party with an agreed upon value inexcess of the Collateral Minimum Amount; WHEREAS, Pledgor is the owner of a limited partnership interest in 1334Partners, L.P., a California limited partnership ("1334 Partners, L.P.") asdescribed on Schedule A attached hereto and made a part hereof; WHEREAS, by means of this Agreement, Pledgor is pledging, as additionalcollateral for the Loan, 25% of Pledgor's limited partnership interest in 1334Partners, L.P. equating to a 24.60682% limited partnership interest in 1334Partners, L.P., as described on Schedule A attached hereto and made a parthereof (the "Pledged Partnership Interest"); WHEREAS, based up the most recent independent appraisal of the assetsof 1334 Partners, L.P., a 24.60682% interest in 1334 Partners, L.P. has a netequity value of approximately $1 million to $1.5 million dollars, which whencombined with the value of the Pledged Stock will exceed the Collateral MinimumAmount; NOW, THEREFORE, in consideration of the foregoing, Pledgor herebyagrees as follows: SECTION 1. PLEDGE; ASSIGNMENT; GRANT OF SECURITY INTEREST. Pledgorhereby pledges, hypothecates and assigns to the Secured Party, and hereby grantsto the Secured Party, a pledge and assignment of, and a security interest in, all of his right,title and interest in and to the following (the "Collateral"): (a) All interests now owned or hereafter acquired by Pledgorin and to the Pledged Partnership Interest and all rights related thereto,including, without limitation, (i) all rights of Pledgor as an owner of thePledged Partnership Interest under the partnership agreement of 1334 Partners,L.P. (the "Partnership Agreement") and all rights to receive distributions,cash, instruments and other property from time to time receivable or otherwisedistributable in respect of the Pledged Partnership Interest, (ii) all rights ofPledgor to receive proceeds of any insurance, indemnity, warranty or guarantywith respect to the Pledged Partnership Interest, (iii) all claims of Pledgorfor damages arising out of or for breach of or default under the PartnershipAgreement with respect to the Pledged Partnership Interest, (iv) any and allrights of Pledgor to terminate the Partnership Agreement, to perform andexercise consensual or voting rights thereunder and to compel performance andotherwise exercise all remedies thereunder with respect to the PledgedPartnership Interest, (v) all rights of Pledgor as a holder of the PledgedPartnership Interest to any property and assets of the 1334 Partners, L.P.(whether real property, inventory, equipment, contract rights, accounts,Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.receivables, general intangibles, securities, instruments, chattel paper,documents, chooses in action or otherwise), and (vi) all certificates orinstruments evidencing ownership of the Pledged Partnership Interest; and (b) to the extent not included in the foregoing, all proceedsof any and all of the foregoing (including, without limitation, proceeds thatconstitute property of the types described above). SECTION 2. SECURITY FOR SECURED OBLIGATIONS. This Agreement secures theprompt and complete payment of the Loan and the performance of all obligationsof the Pledgor now or hereafter existing under the Loan Documents (the "SecuredObligations"). SECTION 3. PLEDGOR REMAINS LIABLE. Anything herein to the contrarynotwithstanding, (a) Pledgor shall remain liable under the Partnership Agreementand the other contracts and agreements included in the Collateral to the extentset forth therein to perform all of his duties and obligations thereunder to thesame extent as if this Agreement had not been executed, (b) the exercise by theSecured Party of any of the rights hereunder shall not release Pledgor from anyof his duties or obligations under the contracts and agreements included in theCollateral and (c) the Secured Party shall not have any obligation or liabilityunder the contracts and agreements included in the Collateral or otherwise byreason of this Agreement, nor shall the Secured Party be obligated to performany of the obligations or duties of Pledgor thereunder or to take any action tocollect or enforce any claim assigned hereunder. SECTION 4. DELIVERY OF COLLATERAL. All certificates or instrumentsrepresenting or evidencing the Collateral at any time shall be delivered to andheld by or on behalf of the Secured Party pursuant hereto and shall be insuitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment inblank, all in form and substance satisfactory to the Secured Party. The SecuredParty shall have the right, upon the occurrence and continuance of a defaultunder the Loan Documents or this Agreement, which default has not been curedwithin the applicable cure period, in its discretion, to transfer to or toregister in the name of the Secured Party or any of its nominees any or all ofthe Collateral, subject only to compliance with requirements of law, the termsand conditions of the Loan Documents and the provisions applicable to a transferof a limited partnership interest set forth in Section 14.2.3; provided,however, that Secured Party shall not become a substituted limited partner of1334 Partners L.P. unless the provisions of Section 14.3(b), in addition to theprovisions of Section 14.2.3, of the Partnership Agreement are also met. SECTION 5. REPRESENTATIONS AND WARRANTIES. Pledgor represents andwarrants as follows: (a) Pledgor is the sole legal and beneficial owner of thePledged Partnership Interest assigned by him hereunder, which he owns free andclear of any liens, encumbrances and other security interests, except suchliens, encumbrances and other security interests as (i) arise under thisAgreement or (ii) are disclosed in writing and approved by the Secured Party("Permitted Liens"). (b) Subject to the consent of the general partner of 1334Partners L.P. to the (i) pledge of the security interest hereunder as requiredby Section 14.2.1 of the Partnership Agreement and (ii) any later sale ortransfer of the Pledged Partnership Interest as required by Sections 14.2.1 and14.2.2, which consents are set forth on the signature page of this Agreement,Pledgor has the authority to execute, deliver and perform the obligations ofpledgor under this Agreement and Pledgor's execution of this Agreement will notconflict with the terms, covenants, conditions or provisions of, or constitute adefault under any contract to which Pledgor is a party or violate any lawsaffecting Pledgor. (c) Pledgor has duly executed and delivered this Agreement andthis Agreement constitutes the legal, valid and binding obligation of Pledgor,enforceable against Pledgor in accordance with its terms, except as enforcementthereof may be subject to (i) the effect of any applicable bankruptcy,insolvency, reorganization, moratorium or similar laws affecting creditors'rights generally and (ii) general principles of equity.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (d) Subject to the consent of the general partner of 1334Partners L.P. to the (i) pledge of the security interest hereunder as requiredby Section 14.2.1 of the Partnership Agreement and (ii) any later sale ortransfer of the Pledged Partnership Interest as required by Sections 14.2.1 and14.2.2, which consents are set forth on the signature page of this Agreement, nogovernmental approval or approval of any other person (except such as have beenduly obtained, made or given, and are in full force and effect) is required toauthorize, or is required in connection with (i) the execution, delivery orperformance of this Agreement by Pledgor or the consummation of any of thetransactions contemplated hereby, (ii) the legality, validity, binding effect orenforceability of this Agreement or the perfection and maintenance of thesecurity interest created hereby (including the first priority nature of suchsecurity interest) or (iii) for the exercise by the Secured Party of the votingor other rights provided for in this Agreement or the remedies in respect of theCollateral pursuant to this Agreement. (e) The Partnership Agreement, a true and complete copy ofwhich has been furnished to the Secured Party, has been duly authorized,executed and delivered by Pledgor and is in full force and effect and is bindingupon and enforceable against Pledgor in accordance with its terms. There existsno default under the Partnership Agreement. (f) This Agreement creates a valid security interest in theCollateral purported to be pledged and assigned by Pledgor hereunder securingthe payment of the Secured Obligations. (g) The security interest created by this Agreement in theCollateral described in clause (a) of Section 1 hereof has been registered inthe name of the Secured Party in the register maintained for such purpose at thechief executive office and principal place of business of 1334 Partners, L.P.and, to the extent that such Collateral constitutes "uncertificated securities"(as defined in the UCC), such security interest is perfected under the UCC and,as so perfected, is a first priority security interest. (h) Pledgor's principal residence is in the State ofCalifornia and his address for purposes of notices under this Agreement is theaddress shown on the signature page hereof. (i) There are no conditions precedent to the effectiveness ofthis Agreement that have not been satisfied or waived. (j) No part of the Collateral is subject to the terms of anyagreement restricting the sale or transfer of such Collateral, except for thePartnership Agreement and the Loan Documents. (k) There is no (i) injunction, writ, preliminary restrainingorder or order of any nature issued by an arbitrator, court or othergovernmental authority against Pledgor in connection with the transactionsprovided for herein, or (ii) action, suit, arbitration, litigation,investigation or proceeding of or before any arbitrator or governmentalauthority pending against Pledgor or, to Pledgor's knowledge, threatened againstPledgor which would reasonably be expected to materially adversely affect theright or ability of Pledgor to fulfill his obligations under this Agreement. SECTION 6. COVENANT AS TO COLLATERAL. Pledgor agrees that, during theduration of the Secured Party's security interest, he shall not sell, assign (byoperation of law or otherwise) or otherwise dispose of any of the Collateral, orcreate or suffer to exist anylien upon or with respect to any of the Collateral, except for the pledge,assignment, hypothecation and security interest created by this Agreement andany Permitted Liens. SECTION 7. VOTING RIGHTS; DISTRIBUTIONS, ETC. So long as no defaultshall occur and be continuing under the Loan Documents and this Agreement,Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Pledgor shall be entitled to receive free and clear of the interest of theSecured Party granted under this Agreement all payments and other distributionsreceivable by it under the Partnership Agreement pertaining to the PledgedPartnership Interest, and shall be entitled to exercise any and all management,voting and other partnership rights pertaining to any Collateral including butnot limited to the Pledged Partnership Interest for any purpose not inconsistentwith the terms of this Agreement or the Loan Documents; provided, however, thatPledgor shall exercise, or refrain from exercising, any such right if suchaction or inaction would have a material adverse effect on the attachment,perfection, creation or priority of the security interest in the Collateral orany part thereof as herein granted. SECTION 8. RECORDS. Pledgor shall keep his records concerning theCollateral and original copies of the Partnership Agreement and of all otherchattel paper which evidence the Collateral, at his address specified on thesignature page hereof. Pledgor will hold and preserve such records and willpermit representatives of the Secured Party at any time, upon reasonable priornotice, during normal business hours to inspect and make abstracts from suchrecords. SECTION 9. AS TO THE PARTNERSHIP AGREEMENT. (a) Pledgor shall at hisexpense perform and observe all the terms and provisions to be performed orobserved by him under the Partnership Agreement, maintain the PartnershipAgreement in full force and effect, enforce the Partnership Agreement inaccordance with its terms, and take all such action to such end as may be fromtime to time reasonably requested by the Secured Party. (b) Pledgor shall not: (i) cancel or terminate the Partnership Agreement orconsent to or accept anycancellation or termination thereof; (ii) amend or otherwise modify in a material respectthe Partnership Agreement; or (iii) waive any material default under or materialbreach of the PartnershipAgreement. SECTION 10. SECURED PARTY. Pledgor hereby appoints the Secured Party asPledgor's attorney in fact, with full authority in the place and stead ofPledgor and in the name of Pledgor or otherwise, from time to time in theSecured Party's discretion at any time that a default under the Loan Documentsor this Agreement shall have occurred and be continuing and not cured within theapplicable cure period, to take any action and toexecute any instrument which the Secured Party may deem necessary or advisableto accomplish the purposes of this Agreement, including, without limitation, toask, demand, collect, sue for, recover, compound, receive and give acceptanceand receipts for moneys due and to become due under or in connection with theCollateral, to receive, indorse, and collect any drafts or other instruments,documents and chattel paper in connection therewith, and to file any claims orfinancing statements under the Uniform Commercial Code or otherwise or take anyaction or institute any proceedings which the Secured Party may deem to benecessary or desirable for the collection thereof or to enforce compliance withthe terms and conditions of the Partnership Agreement. Such appointment iscoupled with an interest and is irrevocable. Prior to the time a default underthe Loan Documents or this Agreement shall have occurred and be continuing afterthe expiration of any applicable cure period, the Secured Party may file one ormore financing statements under the Uniform Commercial Code provided that thePledgor has provided his prior written consent to the filing thereof. SECTION 11. SECURED PARTY MAY PERFORM. If Pledgor fails to perform anyagreement contained herein, the Secured Party may itself perform, or causeperformance of, such agreement, and the expenses of the Secured Party incurredin connection therewith shall be payable by Pledgor under Section 16(b). SECTION 12. SECURED PARTY'S DUTIES. The powers conferred on the SecuredParty hereunder are solely to protect its interest in the Collateral and shallnot impose any duty upon it to exercise any such powers. Except for the safeSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.custody of any Collateral in its possession and the accounting for moneysactually received by it hereunder, the Secured Party shall have no duty as toany Collateral or as to the taking of any necessary steps to preserve rightsagainst prior parties or any other rights pertaining to any Collateral and nosuch duties shall be implied as arising hereunder. SECTION 13. REMEDIES. Upon the occurrence of a default under the LoanDocuments or this Agreement, which default has not been cured after 10 daysnotice thereof to Pledgor, one or more of the following remedies may be applied,which application is at the discretion of the Secured Party: (a) All rights of Pledgor to exercise or refrain fromexercising the voting and other consensual rights which he would otherwise beentitled to exercise under Section 7 shall thereupon become exercisable by theSecured Party, acting in good faith, who shall have the sole right to exerciseor refrain from exercising such voting and other consensual rights unless anduntil such default ceases to exist. (b) All rights of Pledgor to receive the distributions whichhe would otherwise be authorized to receive and retain pursuant to under Section7 shall become exercisable by the Secured Party who shall thereupon have thesole right to receive and hold as Collateral such distributions unless and untilsuch default ceases to exist. (c) All distributions which are received by Pledgor contraryto the provisions of clause (b), above, shall be received in trust for thebenefit of the Secured Party, shall be segregated from other funds of Pledgor and shall be forthwithpaid over to the Secured Party as Collateral in the same form as so received(with any necessary endorsement) for application to the Secured Obligations. (d) The Secured Party may exercise any and all rights andremedies of Pledgor under or in connection with the Partnership Agreement, thePledged Partnership Interest or otherwise in respect of the Collateral,including, without limitation, any and all rights of Pledgor to demand orotherwise require payment of any amount pertaining to the Pledged PartnershipInterest under, or performance of any provision of, the Partnership Agreementand all rights of Pledgor to control the operation of 1334 Partners, L.P. to theextent of the Pledged Partnership Interest. (e) The Secured Party may sell or otherwise assign orotherwise dispose of under one or more contracts or as an entirety, and withoutthe necessity of gathering at the place of sale the property to be sold, and ingeneral in such manner, at such time or times, at such place or places and onsuch terms as the Secured Party may, upon written direction in compliance withany mandatory requirements of any requirement of law, determine to becommercially reasonable subject to the securities law compliance requirements ofSection 14.2.3 and provided, however, that any transferee of the Collateralshall not become a substituted limited partner of 1334 Partners L.P. (but ratheronly an assignee of the economic interest of the Pledged Partnership Interest)unless the provisions of Section 14.3(b) of the Partnership Agreement, inaddition to the requirements of Section 14.2.3, are also met. Any suchdisposition which shall be a private sale or other private proceeding permittedby such requirements shall be made upon not less than 10 days' written notice toPledgor specifying the time at which such disposition is to be made and theintended sale price or other consideration therefor, and shall be subject, forthe 10 days after the giving of such notice, to the right of the Pledgor or anynominee of Pledgor to acquire the Collateral involved at a price or for suchother consideration at least equal to the lesser of the intended sale price orother consideration so specified or the amount owed by Pledgor under the LoanDocuments or this Agreement. To the extent permitted by requirements of law, theSecured Party may bid for and become the purchaser of the Collateral or any itemthereof, offered for sale in accordance with this Section 13. If, undermandatory requirements of any requirement of law, the Secured Party shall berequired to make disposition of the Collateral within a period of time whichdoes not permit the giving of notice to Pledgor as hereinabove specified, theSecured Party need give Pledgor only such notice of disposition as shall bereasonably practicable in view of such mandatory requirements of any requirementof law.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (f) All payments made under or in connection with, or proceedsrealized from, the Partnership Agreement, the Pledged Partnership Interests, orotherwise in respect of the Collateral and received by the Secured Party shallbe applied in whole or in part by the Secured Party against the SecuredObligations. (g) The Secured Party may exercise any one or more of therights and remedies available under the California Uniform Commercial Code andother applicablelaw in any order determined by Secured Party in its discretion consistent withthe requirements of this Agreement and such applicable law. SECTION 14. REMEDIES CUMULATIVE. The rights, powers and remedies hereinor in any of the Loan Documents expressly provided are cumulative and notexclusive of any rights, powers or remedies which the Secured Party wouldotherwise have. SECTION 15. DISCONTINUANCE OF PROCEEDINGS. In case the Secured Partyshall have instituted any proceeding to enforce any right, power or remedy underthis Agreement by foreclosure, sale or otherwise, and such proceeding shall havebeen discontinued or abandoned for any reason, then and in every such casePledgor, the Secured Party shall be restored to their former positions andrights hereunder with respect to the Collateral subject to the security interestcreated under this Agreement, and all rights, remedies and powers of the SecuredParty shall continue as if no such proceeding had been instituted. SECTION 16. INDEMNITY AND EXPENSES. (a) Pledgor agrees to indemnify and hold harmless the Secured Partyfrom and against any and all claims, losses and liabilities arising out of orresulting from the Collateral or Pledgor's pledge and assignment under thisAgreement (including, without limitation, enforcement against Pledgor of thisAgreement), except claims, losses or liabilities resulting from the SecuredParty's negligence or willful misconduct. (b) Pledgor will upon demand pay to the Secured Party the amount of anyand all reasonable expenses, including the reasonable fees and expenses of itscounsel and of any experts and agents, which the Secured Party may incur inconnection with (i) the sale of, collection from, or other realization upon, anyof the Collateral of Pledgor, (ii) the exercise or enforcement (whether throughnegotiations, legal proceedings or otherwise) of any of the rights of theSecured Party hereunder against Pledgor or (iii) the failure by Pledgor toperform or observe any of the provisions hereof. SECTION 17. SECURITY INTEREST ABSOLUTE. All rights of the Secured Partyand the assignment, hypothecation and security interest hereunder, and allobligations of Pledgor hereunder, shall be absolute and unconditional, to theextent permitted by applicable law. SECTION 18. AMENDMENT; WAIVER. No amendment or waiver of any provisionof this Agreement shall be effective unless the same shall be undertaken andaccomplished in accordance with the requirements of the Loan Documents. No delayon the part of the Secured Party in the exercise of any right, power or remedyshall operate as a waiver thereof, nor shall any single or partial waiver bysuch Secured Party of any right, power or remedy preclude any further exercisethereof, or the exercise of any other right, power or remedy. SECTION 19. ADDRESSES FOR NOTICES. All notices, requests and othercommunications to Pledgor or the Secured Party shall be in writing (includingtelecopy or similar teletransmission or writing) and shall be given, in the case of Pledgorto his address, or telecopy number set forth on the signature page hereof with aconcurrent copy to Fredric A. Rollman, Esq., Donfeld, Kelly & Rollman, 11845West Olympic Boulevard, Suite 1245, Los Angeles, CA 90064, and in the case ofthe Secured Party, at its principal place of business located at 100 WilshireSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Boulevard, 16th Floor, Santa Monica, CA 90401 or such other address or telecopynumber as each party may hereafter specify by notice to such other party. Eachsuch notice, request or other communication shall be effective (i) if given bytelecopy, when such telecopy is transmitted to the telecopy number specified onthe signature page hereof and receipt thereof is confirmed in writing, or (ii)if given by any other means (including, without limitation, by air courier),when delivered at the address specified herein. SECTION 20. CONTINUING ASSIGNMENT, PLEDGE AND SECURITY INTEREST. ThisAgreement shall create a continuing pledge, assignment of, hypothecation of andsecurity interest in the Collateral and shall (i) remain in full force andeffect until the earlier of (A) the Loan, together with interest, and any otherSecured Obligations are paid in full, or (B) the fair market value of thePledged Stock for 20 consecutive trading days is in excess of 175% of the amountdue under the Loan (valuing each share of Pledged Stock or unit at the quotedclosing price of the Secured Party's shares of common stock on the NasdaqNational Stock Market for any given trading day), (ii) be binding upon Pledgor,his successors and assigns, provided, that Pledgor may not transfer or assignany or all of his rights or obligations hereunder without the prior writtenconsent of the Secured Party, and (iii) inure to the benefit of, and beenforceable by, the Secured Party, and its successors, transferees and assigns.Upon the payment in full of the Secured Obligations, the security interestgranted hereby shall terminate and all rights to the Collateral shall revert toPledgor, subject to the provisions for prior release of the Collateral asprovided in (i)(B) above. Upon any such termination, the Secured Party will, atPledgor's expense, execute and deliver to Pledgor such documents including UCCtermination statements as Pledgor shall reasonably request to evidence suchtermination. SECTION 21. SEVERABILITY. Any provision hereof that is prohibited orunenforceable in any jurisdiction shall, as to such jurisdiction, be ineffectiveto the extent of such prohibition or unenforceability without invalidating theremaining provisions hereof and without affecting the validity or enforceabilityof any provision in any other jurisdiction. SECTION 22. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BYAND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, EXCEPTTO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION ARE MANDATORILY APPLICABLEAND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITYINTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULARCOLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OFCALIFORNIA. UNLESS OTHERWISE DEFINED HEREIN OR IN THE LOAN DOCUMENTS, TERMS USEDIN ARTICLE 9 OF THE CALIFORNIA UCC ARE USED HEREIN AS THEREINDEFINED. ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTALTO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR AND THE SECURED PARTY INCONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND WHETHER ARISINGIN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THEINTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OFTHE STATE OF CALIFORNIA. SECTION 23. EXECUTION IN COUNTERPARTS. This Agreement may be executedin any number of counterparts and by different parties hereto in separatecounterparts, each of which when so executed shall be deemed to be an originaland all of which taken together shall constitute one and the same instrument. SECTION 24. REPRESENTATION BY COUNSEL. Pledgor acknowledges that he hasbeen advised, and has had ample opportunity, to obtain his own independentcounsel in order to review with him the legal consequences and implications ofentering into this Agreement. [BALANCE OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, each party hereto has caused this Agreement to beduly executed and delivered by its officer thereunto duly authorized as of thedate first above written.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PLEDGOR /s/ Keith Brackpool --------------------------- Name: Keith Brackpool Address: 1330 Park View Avenue Manhattan Beach, CA 90266 SECURED PARTY Cadiz Inc., a Delaware corporation /s/ Murray H. Hutchison --------------------------- Name: Murray H. Hutchison______ Title: Director & Chairman of the Compensation Committee CONSENT OF GENERAL PARTNER OF 1334 PARTNERS, L.P., A CALIFORNIA LIMITED PARTNERSHIP The undersigned, general partner of 1334 Partners, L.P., a Californialimited partnership, hereby consents, in accordance with Section 14.2 of thePartnership Agreement, to (i) the pledge by the Pledgor under the foregoingPledge Agreement, of a security interest in the limited partnership interestrepresented by the Pledged Partnership Interest, and (ii) to the sale ortransfer of the Pledged Partnership Interest or part of that interest inaccordance with the terms of the Pledge Agreement. Said consent is pursuant toSections 14.2.1 and 14.2.2 of the Partnership Agreement. Any transferee of allor a part of the Pledged Partnership Interest is still required to meet thesecurities law requirements of Section 14.2.3, and, should that transferee seekto become a substituted limited partner of 1334 Partners, L.P., such transfereemust meet the requirements of Section 14.3(b) in addition to the requirements ofSection 14.2.3 of the Partnership Agreement. Parkview Properties, Inc., a California corporation /s/ Keith Brackpool --------------------------- Name: Keith Brackpool Title: President SCHEDULE A Pledgor's Total Limited Partnership Interest in 1334 Partners, L.P.: 98.42728% 25% of Pledgor's Total Limited Partnership Interest pledged pursuant to this Agreement: 24.60682% PLEDGED PARTNERSHIP INTEREST: 24.60682% INTEREST IN 1334 PARTNERS, L.P.Source: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 21.1 CADIZ INC. SUBSIDIARIES OF THE COMPANYRancho Cadiz Mutual Water CompanySun World International, Inc.Cadiz Real Estate LLCSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I , Keith Brackpool, certify that: 1. I have reviewed this annual report on Form 10-K of Cadiz Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.Dated: November 1, 2004 /s/ Keith BrackpoolSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. --------------------------------- Keith Brackpool Chairman, Chief Executive Officer and Chief Financial OfficerSource: CADIZ INC, 10-K, November 02, 2004Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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