form10q_3-08.htm
United
States
Securities
and Exchange Commission
Washington,
D. C. 20549
FORM
10-Q
(Mark
One)
[√]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the
quarterly period ended March 31, 2008
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 incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
550
South Hope Street, Suite 2850, Los Angeles, California
|
90071
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (213) 271-1600
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes √
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer ___ Accelerated filer √
Non-accelerated
filer ___ Smaller Reporting Company ___
Indicate
by check mark whether the Registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
Yes___ No √
As of May
2, 2007, the Registrant had 11,958,210 shares of common stock, par value $0.01
per share, outstanding.
CADIZ
INC.
INDEX
For
the Three Months ended March 31, 2008
|
Page
|
|
|
PART
I – FINANCIAL INFORMATION
|
|
|
|
ITEM
1. Financial Statements
|
|
|
|
Cadiz Inc. Consolidated Financial
Statements
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
14
|
|
|
|
22
|
|
|
|
22
|
|
|
|
|
|
23
|
CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
|
For
the Three Months
|
|
Ended
March 31,
|
($
in thousands except per share data) |
2008 |
|
2007 |
|
|
|
|
Revenues
|
$ |
17 |
|
$ |
352 |
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
Cost of Sales
|
|
13 |
|
|
348 |
|
General and
administrative
|
|
3,928 |
|
|
1,775 |
|
Depreciation and
amortization
|
|
84 |
|
|
37 |
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
4,025 |
|
|
2,160 |
|
|
|
|
|
|
|
|
Operating
loss
|
|
(4,008 |
) |
|
(1,808 |
) |
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
Interest expense, net
|
|
(970 |
) |
|
(763 |
) |
Other (expense), net
|
|
(970 |
) |
|
(763 |
) |
|
|
|
|
|
|
|
Loss
before income taxes
|
|
(4,978 |
) |
|
(2,571 |
) |
Income
tax provision
|
|
1 |
|
|
5 |
|
|
|
|
|
|
|
|
Net
loss
|
$ |
(4,979 |
) |
$ |
(2,576 |
) |
|
|
|
|
|
|
|
Net
loss applicable to common stock
|
$ |
(4,979 |
) |
$ |
(2,576 |
) |
|
|
|
|
|
|
|
Basic
and diluted net loss per common share
|
$ |
(0.42 |
) |
$ |
(0.22 |
) |
|
|
|
|
|
|
|
Basic
and diluted weighted average shares outstanding
|
|
11,957 |
|
|
11,680 |
|
|
|
See
accompanying notes to the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
($
in thousands)
|
2008
|
|
2007
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and cash
equivalents
|
$ |
6,697 |
|
$ |
8,921 |
|
Accounts
receivable
|
|
31 |
|
|
20 |
|
Prepaid expenses and
other
|
|
749 |
|
|
216 |
|
|
|
|
|
|
|
|
Total current
assets
|
|
7,477 |
|
|
9,157 |
|
|
|
|
|
|
|
|
Property,
plant, equipment and water programs, net
|
|
36,008 |
|
|
36,032 |
|
Goodwill
|
|
3,813 |
|
|
3,813 |
|
Other
assets
|
|
553 |
|
|
570 |
|
|
|
|
|
|
|
|
Total
Assets
|
$ |
47,851 |
|
$ |
49,572 |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts payable
|
$ |
747 |
|
$ |
408 |
|
Accrued
liabilities
|
|
954 |
|
|
744 |
|
Current portion of long term
debt
|
|
9 |
|
|
9 |
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
1,710 |
|
|
1,161 |
|
|
|
|
|
|
|
|
Long-term
debt
|
|
30,655 |
|
|
29,652 |
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
32,365 |
|
|
30,813 |
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
Common
stock - $.01 par value; 70,000,000 shares
|
|
|
|
|
|
|
authorized;
shares issued and outstanding – 11,958,210 at
|
|
|
|
|
|
|
March
31, 2008 and 11,903,611 at December 31, 2007
|
|
120 |
|
|
119 |
|
Additional
paid-in capital
|
|
255,688 |
|
|
253,983 |
|
Accumulated
deficit
|
|
(240,322 |
) |
|
(235,343 |
) |
Total
stockholders’ equity
|
|
15,486 |
|
|
18,759 |
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ equity
|
$ |
47,851 |
|
$ |
49,572 |
|
|
See
accompanying notes to the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
For
the Three Months
|
|
|
Ended
March 31,
|
|
($
in thousands except per share data)
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net loss
Adjustments to reconcile net loss
to
|
$ |
(4,979 |
) |
|
$ |
(2,576 |
) |
net cash used for operating
activities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
84 |
|
|
|
37 |
|
Amortization of debt discount
& issuance costs
|
|
538 |
|
|
|
435 |
|
Interest expense added to loan
principal
|
|
485 |
|
|
|
456 |
|
Compensation charge for stock
awards and share options
Changes in operating assets and
liabilities:
|
|
1,705 |
|
|
|
65
|
|
Decrease (increase) in accounts
receivable
|
|
(11 |
) |
|
|
256 |
|
Decrease (increase) in prepaid
expenses and other
|
|
(533 |
) |
|
|
(147 |
) |
Increase (decrease) in accounts
payable
|
|
339 |
|
|
|
(63 |
) |
Increase (decrease) in accrued
liabilities
|
|
210 |
|
|
|
144 |
|
Net cash used for operating
activities
|
|
(2,162 |
) |
|
|
(1,393 |
) |
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Investment in marketable
securities
|
|
- |
|
|
|
(8,540 |
) |
Additions to property, plant and
equipment
|
|
(60 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Net cash used by investing
activities
|
|
(60 |
) |
|
|
(8,541 |
) |
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net proceeds from exercise of
stock options
|
|
- |
|
|
|
140 |
|
Net proceeds from exercise of
warrants
|
|
- |
|
|
|
5,031 |
|
Principal payments on long-term
debt
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Net cash provided by (used by)
financing activities
|
|
(2 |
) |
|
|
5,169 |
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
(2,224 |
) |
|
|
(4,765 |
) |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
8,921 |
|
|
|
10,397 |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
$ |
6,697 |
|
|
$ |
5,632 |
|
See
accompanying notes to the consolidated financial statements.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
|
11,903,611 |
|
|
$ |
119 |
|
|
$ |
253,983 |
|
|
$ |
(235,343 |
) |
|
$ |
18,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
awards
|
|
|
54,599 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation expense
|
|
|
- |
|
|
|
- |
|
|
|
1,705 |
|
|
|
- |
|
|
|
1,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,979 |
) |
|
|
(4,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2008
|
|
|
11,958,210 |
|
|
$ |
120 |
|
|
$ |
255,688 |
|
|
$ |
(240,322 |
) |
|
$ |
15,486 |
|
See
accompanying notes to the consolidated financial statements.
NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description
of Business
The
Consolidated Financial Statements have been prepared by Cadiz Inc., sometimes
referred to as “Cadiz” or “the Company”, without audit and should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Company’s Form 10-K for the year ended December 31,
2007.
The
foregoing Consolidated Financial Statements include the accounts of the Company
and contain all adjustments, consisting only of normal recurring adjustments,
which the Company considers necessary for a fair statement of the Company’s
financial position, the results of its operations and its cash flows for the
periods presented and have been prepared in accordance with generally accepted
accounting principles.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates and such
differences may be material to the financial statements. This quarterly report
on Form 10-Q should be read in conjunction with the Company’s Form 10-K for the
year ended December 31, 2007. The results of operations for the
three months ended March 31, 2008 are not necessarily indicative of results for
the entire fiscal year ended December 31, 2008.
Basis
of Presentation
The
financial statements of the Company have been prepared using accounting
principles applicable to a going concern, which assumes realization of assets
and settlement of liabilities in the normal course of business. The
Company incurred losses of $5.0 million for the three months ended March 31,
2008 and $2.6 million for the three months ended March 31, 2007. The
Company had working capital of $5.8 million at March 31, 2008 and used cash in
operations of $2.2 million for the three months ended March 31, 2008 and $1.4
million for the three months ended March 31, 2007. Currently, the
Company's sole focus is the development of its land and water
assets.
In June
2006, the Company raised $36.4 million through the private placement of a five
year zero coupon convertible term loan with Peloton Partners LLP (“Peloton”), as
administrative agent, and an affiliate of Peloton and another investor, as
lenders (the “Term Loan”). The proceeds of the new term loan were
partially used to repay the Company’s prior term loan facility with ING Capital
LLC (“ING”). In September 2006, an additional $1.1 million was raised
when certain holders of warrants to purchase the Company’s common stock at
$15.00 per share chose to exercise the warrants and purchase 70,000 shares of
common stock. A further $5.0 million was raised in February 2007,
when all remaining warrant holders chose to exercise their rights to purchase
335,440 shares of the Company’s common stock for $15.00 per share after
receiving a termination notice from the Company.
The
Company’s current resources do not provide the capital necessary to fund a water
or real estate development project on its land holdings. There is no
assurance that additional financing (public or private) will be available to
fund such projects on acceptable terms or at all. If the Company
issues additional equity or equity linked securities to raise funds, the
ownership percentage of the Company’s existing stockholders would be
reduced. New investors may demand rights, preferences or privileges
senior to those of existing holders of common stock. If the Company
cannot raise needed funds, it might be forced to make substantial reductions in
its operating expenses, which could adversely affect its ability to implement
its current business plan and ultimately its viability as a
company.
The
Chapter 11 Reorganization Plan of the Company’s Sun World International Inc.
subsidiary became effective in 2005, and the Company has no further liabilities
related to the business or operations of Sun World. Subsequent to the
effective date of the Chapter 11 reorganization plan of Sun World, the Company’s
primary activities are limited to the development of its water resources and
related assets. From the effective date of the reorganization plan
through March 31, 2008, the Company has incurred losses of approximately $37.4
million and used cash in operations of $14.2 million.
Principles of
Consolidation
Effective
December 2003, all of the Company’s assets, with the exception of its office
sublease, certain office furniture and equipment and the investment in Sun World
International Inc.(“Sun World”), are held by Cadiz Real Estate LLC, a Delaware
limited liability company (“Cadiz Real Estate”). The Company holds
100% of the equity interests of Cadiz Real Estate, and therefore continues to
hold 100% beneficial ownership of the properties that it transferred to Cadiz
Real Estate. Because the transfer of the Company’s properties to
Cadiz Real Estate has no effect on its ultimate beneficial ownership of these
properties, the properties owned of record either by Cadiz Real Estate or by the
Company are treated as belonging to the Company.
Marketable
Securities
The
Company considers all highly liquid instruments with a maturity of three months
or less when purchased to be cash and cash equivalents. 2007
marketable security investments consisted of auction rate
securities. Auction rate securities are long-term municipal bonds and
preferred stock with interest rates that reset periodically through an auction
process, which occurs in 7-, 28-, 35-, or 90-day periods. There were
no cumulative gross unrealized holding gains or losses associated with these
investments, and all income was recorded as interest income during
2007. The Company sold its position in these securities in late
2007.
Recent
Accounting Pronouncements
In
September 2006, the FASB released Statement of Financial Accounting Standards
No. 157 (“SFAS No. 157”), “Fair Value Measurements". This statement
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 clarifies the exchange
price notion in the fair value definition to mean the price that would be
received to sell the asset or paid to transfer the liability (an exit price),
not the price that would be paid to acquire the asset or received to assume
the liability (an entry price). This statement also clarifies
that market participant assumptions should include assumptions about risk,
should include assumptions about the effect of a restriction on the sale or use
of an asset and should reflect its nonperformance risk (the risk that the
obligation will not be fulfilled). Nonperformance risk should include
the reporting entity’s credit risk. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 except for
nonfinancial assets and nonfinancial liabilities that are not recognized or
disclosed at fair value on a recurring basis, for which the effective date is
fiscal years beginning after November 15, 2008. The Company partially
adopted SFAS No. 157 effective January 1, 2008, and it did not have a material
impact on the Company’s financial statements.
In
February 2007, the FASB released Statement of Financial Accounting Standards No.
159 (“SFAS No. 159), “The Fair Value Option for Financial Assets and Liabilities
Including an Amendment of FASB Statement No. 115”. SFAS No. 159 permits entities
to choose to measure certain financial assets and liabilities at fair value and
is effective for the first fiscal year beginning after November 15,
2007. Effective January 1, 2008, the financial statements reflect
SFAS No. 159. The Company did not choose to measure any additional
financial assets and liabilities at fair value, so the adoption of SFAS No. 159
did not have a material impact on the Company’s financial
statements.
In
December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations”
("SFAS 141(R)"), which establishes principles and requirements for how
the acquirer shall recognize and measure in its financial statements the
identifiable assets acquired, liabilities assumed, any noncontrolling interest
in the acquiree and goodwill acquired in a business combination. This
statement is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company does not expect that the adoption of SFAS 141(R)
will have a material
impact on its financial
position and results of operations.
In
December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an Amendment of ARB No. 51”
("SFAS 160"), which establishes and expands accounting and reporting
standards for minority interests, which will be recharacterized as
noncontrolling interests, in a subsidiary and the deconsolidation of a
subsidiary. SFAS 160 is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. This statement
is effective for fiscal years beginning on or after December 15,
2008. The Company does not expect that the adoption of SFAS 160 will have
a material impact
on its financial position
and results of operations.
See Note 2 to the Consolidated
Financial Statements included in the Company’s Form 10-K for further discussion
of the Company’s accounting policies.
NOTE 2 - PROPERTY, PLANT,
EQUIPMENT AND WATER PROGRAMS
Property, plant, equipment and water
programs consist of the following (in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Land
and land improvements
|
|
$ |
21,998 |
|
|
$ |
21,998 |
|
Water
programs
|
|
|
14,274 |
|
|
|
14,274 |
|
Buildings
|
|
|
1,161 |
|
|
|
1,161 |
|
Leasehold
Improvements
|
|
|
570 |
|
|
|
570 |
|
Furniture &
Fixtures
|
|
|
379 |
|
|
|
334 |
|
Machinery and
equipment
|
|
|
849 |
|
|
|
807 |
|
Construction in
progress
|
|
|
- |
|
|
|
27 |
|
|
|
|
39,231 |
|
|
|
39,171 |
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
(3,223 |
) |
|
|
(3,139 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
36,008 |
|
|
$ |
36,032 |
|
Depreciation expense totaled $84
thousand and $37 thousand during the three months ended March 31, 2008 and 2007,
respectively.
NOTE 3 – LONG-TERM
DEBT
At March
31, 2008 and December 31, 2007, the carrying amount of the Company’s outstanding
debt is summarized as follows (dollars in thousands):
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Zero
coupon secured convertible term loan due June 29,
2011. Interest
accruing at 5% per annum until June 29, 2009 and at 6% thereafter
|
|
$ |
39,729 |
|
|
$ |
39,244 |
|
Other
loans
|
|
|
20 |
|
|
|
22 |
|
Debt
Discount
|
|
|
(9,085 |
) |
|
|
(9,605 |
) |
|
|
|
30,664 |
|
|
|
29,661 |
|
|
|
|
|
|
|
|
|
|
Less
current portion
|
|
|
9 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,655 |
|
|
$ |
29,652 |
|
Pursuant to the Company’s loan
agreements, annual maturities of long-term debt outstanding on March 31, 2008
are as follows:
12
Months
Beginning
March 31,
|
|
$
|
000’s
|
|
|
|
|
|
|
2008
|
|
|
9
|
|
2009
|
|
|
9
|
|
2010
|
|
|
2
|
|
2011
|
|
|
39,729
|
|
2012
|
|
|
-
|
|
|
|
$
|
39,749
|
|
In June
2006, the Company entered into a $36.4 million five year zero coupon convertible
term loan with Peloton Partners LLP, as administrative agent for the loan, and
with an affiliate of Peloton and another investor, as
lenders. Certain terms of the loan were subsequently amended pursuant
to Amendment #1 to the Credit Agreement, which was effective September 29,
2006. Under the terms of the loan, interest accrues at a 5% annual
rate for the first 3 years and 6% thereafter, calculated on the basis of a
360-day year and actual days elapsed. The entire amount of accrued
interest is due at the final maturity of the loan in June, 2011. The
term loan is collateralized by substantially all the assets of the Company and
contains representations, warranties and covenants that are typical for
agreements of this type, including restrictions that would limit the Company’s
ability to incur additional indebtedness, incur liens, pay dividends or make
restricted payments, dispose of assets, make investments and merge or
consolidate with another person. However, there are no financial
maintenance covenants and no restrictions on the Company’s ability to issue
additional common stock to fund future working capital needs.
At the
lender’s option, principal plus accrued interest is convertible into the
Company’s $0.01 par value common stock. The loan is divided into two
tranches: the $10 million Tranche A is convertible at $18.15 per share, and the
$26.4 million Tranche B is convertible at $23.10 per share. A maximum
of 2,221,909 shares are issuable pursuant to these conversion rights, with this
maximum number applicable if the loan is converted on the final maturity
date. The Company has more than sufficient authorized common shares
available for this purpose and has filed a registration statement on Form S-3
covering the resale of all the securities issuable upon conversion of the
loan.
In the
event of a change in control, the conversion prices are adjusted downward by a
discount that declines over time such that, under a change in control scenario,
both the Tranche A and Tranche B conversion prices were initially $16.50 per
share and increase in a linear manner over time to the full $18.15 Tranche A
conversion price and $23.10 Tranche B conversion price on the final maturity
date. In no event does the maximum number of shares issuable to
lenders pursuant to these revised conversion formulas exceed the 2,221,909
shares that would be issued to lenders pursuant to a conversion in full on the
final maturity date in the absence of a change in control.
Each of
the loan tranches can be prepaid if the price of the Company’s stock on the
NASDAQ Global Market exceeds the conversion price of the tranche by 40% for 20
consecutive trading days in a 30 trading day period or if the Company obtains a
certified environmental impact report for the Cadiz groundwater storage and dry
year supply program, a pipeline right-of-way and permits for pipeline
construction and financing commitments sufficient to construct the
project.
At March
31, 2008, the Company was in compliance with its debt covenants under the
loan.
On April
16, 2008, the Company was advised that Peloton had assigned its interest in the
loan to an affiliate of Lampe Conway & Company LLC (“Lampe Conway”) and
agreed that Lampe Conway or a Lampe Conway affiliate would replace Peloton as
administrative agent of the loan.
NOTE 4 – COMMON
STOCK
On
October 1, 2007, the Company agreed to the conditional issuance of up to 300,000
shares to the former sole shareholder and successor in interest to Exploration
Research Associates, Inc. (“ERA”), who is now an employee of the
Company. The shares will be issued if and when certain significant
milestones in the development of the Company’s properties are
achieved. The Company acquired the assets of ERA in 1998, and the
original acquisition agreement provided for the conditional issuance of up to
600,000 shares of the Company’s common stock to ERA. 100,000 shares
were issued to ERA in 2003, and the remaining balance was reduced to 20,000 by
the 1:25 reverse split of the Company’s common stock in 2003. The
October 1, 2007 agreement settled certain claims by ERA against the Company and
restored the value of contingent consideration provided to ERA in the original
acquisition agreement. It further provides new milestones that are
better aligned with the Company’s current business plans.
NOTE 5 – STOCK-BASED
COMPENSATION PLANS AND WARRANTS
The
Company has issued options and has granted stock awards pursuant to its 2003 and
2007 Management Equity Incentive Plans. The Company has also granted
stock awards pursuant to its Outside Director Compensation Plan.
Stock
Options Issued under the 2003 and 2007 Management Equity Incentive
Plans
The 2003
Management Equity Incentive Plan provided for the granting of options for the
purchase of up to 377,339 shares of common stock. Options issued
under the plan were granted during 2005 and 2006. The options have a
ten year term with vesting periods ranging from issuance date to three
years. Certain of these options have strike prices that were below
the fair market value of the Company’s common stock on the date of
grant. All options have been issued to officers, employees and
consultants of the Company. 365,000 options were granted under the
plan during 2005, and the remaining 12,339 options were granted in
2006.
The
Company granted options to purchase 7,661 common shares at a price of $20.00 per
share under the 2007 Management Equity Incentive Plan on July 25, 2007 and
options to purchase 10,000 common shares at a price of $18.99 on January 9,
2008. The options have strike prices that are at or slightly above
the fair market value of the Company’s common stock on the date that the grants
became effective. The options have a ten year term with vesting
periods ranging from issuance date to two years. All options have
been issued to officers, employees and consultants of the Company. In
total, options to purchase 385,000 shares were unexercised and outstanding on
March 31, 2008 under the two management equity incentive plans.
The
Company recognized stock option related compensation costs of $112,000 and
$38,000 in the three months ended March 31, 2008 and March 31, 2007,
respectively. On March 31, 2008, the unamortized compensation expense
related to these options amounted to $35,000 and is expected to be fully
recognized in 2008. No options were exercised during the three months
ended March 31, 2008.
Stock
Awards to Directors, Officers, Consultants and Employees
The
Company has granted stock awards pursuant to its 2007 Management Equity
Incentive Plan and Outside Director Compensation Plan.
A grant
of 950,000 shares under the 2007 Management Equity Incentive Plan became
effective on July 25, 2007. The grant consists of three separate
awards. Two of the awards are subject to market
conditions.
-
|
A
150,000 share award, that vests in three equal installments on January 1,
2008, January 1, 2009 and January 1, 2010. 50,000 shares were
issued pursuant to this award on January 3,
2008.
|
-
|
A
400,000 share award, that is available if the trading price of the
Company’s stock is at least $28 per share for 10 trading days within any
period of 30 consecutive trading days on or before March 12,
2009. This award would vest in four equal installments on
January 1, 2008, January 1, 2009, January 1, 2010 and January 1,
2011. The trading price condition was not satisfied during the
three months ended March 31, 2008, and no shares were issuable under this
grant.
|
-
|
A
400,000 share award, that is available if the trading price of the
Company’s stock is at least $35 per share for 10 trading days within any
period of 30 consecutive trading days on or before March 12,
2009. This award would also vest in four equal installments on
January 1, 2008, January 1, 2009, January 1, 2010 and January 1,
2011. The trading price condition was not satisfied during the
three months ended March 31, 2008, and no shares were issuable under this
grant.
|
4,285
shares awarded under the Outside Director Compensation Plan for service in the
plan year ended June 30, 2006 vested and were issued on January 31,
2007. A 4,599 share grant for service during the plan year ended June
30, 2007 was awarded on that date, and the grant vested on January 31,
2008.
The
compensation cost of stock grants without market conditions is measured at the
quoted market price of the Company’s stock on the date of grant. The
fair value of the two 2007 Management Equity Incentive Plan awards with market
conditions was calculated using a lattice model with the following weighted
average assumptions:
Risk
free interest rate
|
4.74%
|
Current
stock price
|
$19.74
|
Expected
volatility
|
38.0%
|
Expected
dividend yield
|
0.0%
|
Weighted
average vesting period
|
2.0
years
|
The
lattice model calculates a derived service period, which is equal to the median
period between the grant date and the date that the relevant market conditions
are satisfied. The derived service periods for the grants with $28
and $35 per share market conditions are 0.72 years and 1.01 years,
respectively. The weighted average vesting period is based on the
later of the derived service period and the scheduled vesting dates for each
grant.
The
accompanying consolidated financial statements include $1,593,000 of stock based
compensation expense related to stock based awards in the three months ended
March 31, 2008 and $27,000 in the three months ended March 31,
2007. On March 31, 2008, there was $4.6 million of unamortized
compensation expense relating to stock awards.
Stock
Purchase Warrants Issued to Non-Employees
In
January 2007, the Company exercised a right to terminate certain warrants to
purchase the Company’s common stock for $15.00 per share on March 2, 2007,
subject to a 30-day notice period. In response, the warrant holders
exercised their right to purchase 335,440 shares of the Company’s common stock
during the notice period, and the Company received $5.0 million from the sale of
these shares. Following this exercise, no warrants remain
outstanding.
NOTE 6 – INCOME
TAXES
As of
March 31, 2008, the Company had net operating loss (NOL) carryforwards of
approximately $90.5 million for federal income tax purposes and $32.0 million
for California state income tax purposes. Such carryforwards expire
in varying amounts through the year 2027. Use of the carryforward
amounts is subject to an annual limitation as a result of ownership
changes.
In
addition, on August 26, 2005, a Settlement Agreement between Cadiz, on one hand,
and Sun World and three of Sun World’s subsidiaries, on the other hand, was
approved by the U.S. Bankruptcy Court, concurrently with the Court’s
confirmation of the amended Plan. The Settlement Agreement provides
that following the September 6, 2005 effective date of Sun World’s plan of
reorganization, Cadiz will retain the right to utilize the Sun World net
operating loss carryovers (NOLs). Sun World Federal NOLs are
estimated to be approximately $58 million. If, in any year from
calendar year 2005 through calendar year 2011, the utilization of such NOLs
results in a reduction of Cadiz’ tax liability for such year, then Cadiz will
pay to the Sun World bankruptcy estate 25% of the amount of such reduction, and
shall retain the remaining 75% for its own benefit. There is no
requirement that Cadiz utilize these NOLs during this reimbursement period, or
provide any reimbursement to the Sun World bankruptcy estate for any NOLs used
by Cadiz after this reimbursement period expires. The Company has not
recognized any tax benefits from these NOLs.
As of
March 31, 2008, the Company possessed unrecognized tax benefits totaling
approximately $3.3 million. None of these, if recognized, would
affect the Company's effective tax rate because the Company has recorded a full
valuation allowance against these assets. Additionally, as of that
date the Company had accrued approximately $200,000 for state taxes, interest
and penalties related to income tax positions in prior
returns. Income tax penalties and interest are classified as general
and administrative expenses. The Company was not subject to any
income tax penalties and interest during the three months ended March 31,
2008.
The
Company does not expect that the unrecognized tax benefits will significantly
increase or decrease in the next 12 months.
The
Company's tax years 2003 through 2006 remain subject to examination by the
Internal Revenue Service, and tax years 2002 through 2006 remain subject to
examination by California tax jurisdictions. In addition, the
Company's loss carryforward amounts are generally subject to examination and
adjustment for a period of three years for federal tax purposes and four years
for California purposes, beginning when such carryovers are utilized to reduce
taxes in a future tax year.
Because
it is more likely than not that the Company will not realize its net deferred
tax assets, it has recorded a full valuation allowance against these
assets. Accordingly, no deferred tax asset has been reflected in the
accompanying balance sheet.
NOTE 7 – NET LOSS PER COMMON
SHARE
Basic earnings per share (EPS) is
computed by dividing the net loss, after deduction for preferred dividends
either accrued or imputed, if any, by the weighted-average common shares
outstanding. Options, deferred stock units, warrants and convertible
debt were not considered in the computation of diluted EPS because their
inclusion would have been antidilutive. Had these instruments been
included, the fully diluted weighted average shares outstanding would have
increased by approximately 2,310,000 and 2,121,000 for the three months ended
March 31, 2008 and 2007, respectively.
ITEM 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the following discussion contains trend analysis
and other forward-looking statements. Forward-looking statements can
be identified by the use of words such as "intends", "anticipates", "believes",
"estimates", "projects", "forecasts", "expects", "plans" and
"proposes". Although we believe that the expectations reflected in
these forward-looking statements are based on reasonable assumptions, there are
a number of risks and uncertainties that could cause actual results to differ
materially from these forward-looking statements. These include,
among others, our ability to maximize value from our Cadiz, California land and
water resources; and our ability to obtain new financings as needed to meet our
ongoing working capital needs. See additional discussion under the
heading "Certain Trends and Uncertainties" in Item 7 of our Annual Report on
Form 10-K for the year ended December 31, 2007.
Overview
The
Company’s primary asset consists of 45,000 acres of land in three areas of
eastern San Bernardino County, California. Virtually all of this land
is underlain by high-quality groundwater resources. The properties
are located in proximity to the Colorado River and the Colorado River Aqueduct,
the major source of imported water for Southern California. The
aquifer systems underlying the properties are suitable for a variety of water
storage and supply programs.
The value
of these assets derives from a combination of projected population increases and
limited water supplies throughout Southern California. In addition,
most of the major population centers in Southern California are not located
where significant precipitation occurs, requiring the importation of water from
other parts of the state. The Company therefore believes that a
competitive advantage exists for companies that can provide high-quality,
reliable, and affordable water to major population centers.
The
Company’s objective is to realize the highest and best use for these
assets. In 1993 Cadiz acquired permits for up to 9,600 acres of
agricultural development in the Cadiz Valley and the withdrawal of more than 1
million acre-feet of groundwater from the aquifer system underlying the
property. The Company believes that the location, geology and
hydrology of this property is uniquely suited for development of a groundwater
storage and dry-year supply program to augment the water supplies available to
Southern California. To this end, in 1997 Cadiz entered into the
first of a series of agreements with the Metropolitan Water District of Southern
California (“Metropolitan”) to jointly design, permit and build such a project
(the “Cadiz Project” or “Project”).
Between
1997 and 2002, Metropolitan and the Company received substantially all of the
state and federal approvals required for the permits necessary to construct and
operate the Project, including a Record of Decision (“ROD”) from the U.S. Department
of the Interior, which endorsed the Cadiz Project and offered a right-of-way for
construction of project facilities. The ROD also approved a Final
Environmental Impact Statement (“FEIS”) in compliance with the National
Environmental Policy Act (“NEPA”).
Upon
completion of the federal environmental review and permitting process, Cadiz
expected Metropolitan to certify the completed Final Environmental Impact Report
(“FEIR”). As California Environmental Quality Act (“CEQA”) lead
agency for the Project, Metropolitan had planned to hold a CEQA hearing, certify
the FEIR and accept the right-of-way offered to the Project by the U.S.
Department of the Interior. In October 2002, prior to the CEQA
hearing, Metropolitan’s staff brought the right-of-way matter before the
Metropolitan Board of Directors. By a very narrow margin, the
Metropolitan Board voted not to accept the right-of-way grant and not to proceed
with the Project. The Metropolitan Board took this action before it
had certified the FEIR, which was a necessary action to authorize implementation
of the Cadiz Project in accordance with CEQA. As a result, the CEQA
process for the Project was not completed by Metropolitan.
It is the
Company’s position that the actions by Metropolitan breached various contractual
and fiduciary obligations to the Company and interfered with the economic
advantage it would have obtained from the Cadiz Project. In April
2003, Cadiz filed a claim against Metropolitan seeking compensatory
damages. When settlement negotiations failed to produce a resolution,
the Company filed a lawsuit against Metropolitan in Los Angeles Superior Court
on November 17, 2005. The claims for breach of fiduciary duty, breach
of express contract, promissory estoppel, breach of implied contract and
specific performance were allowed by the Court in its October 2006 rulings on
Metropolitan’s motion for demurrer. On October 19, 2007, the Court
issued a ruling on Motions for Summary Judgment/Adjudication that upheld the
Company’s claim for breach of fiduciary duty and dismissed the other four
contractual and related claims.
In April, 2008, the Court ruled in the
Company’s favor on a number of pre-trial motions and denied Metropolitan’s
motion to strike Cadiz’s jury demand. As a result, the upcoming trial
will be held before a jury of Southern California citizens. At the
same time, the Court set a trial date for May 5, 2008 and ordered that the
parties attend a mandatory settlement conference before Judge Peter D.
Lichtman. An initial
settlement conference was held on April 30, 2008. Following the
conference, the Court issued a 30 day stay of all proceedings while Judge
Lichtman continues his ongoing mediation. If the parties do not
ultimately reach an agreement through the settlement conference process and
Judge Lichtman declares an impasse, the Court will set a new trial
date.
Regardless
of the Metropolitan Board’s actions in October 2002, the need for new water
storage and dry-year supplies has not abated. The population of
California continues to grow, while water supplies are being challenged by
drought, lack of infrastructure and environmental
protections. Indeed, California is facing the very real possibility
that current and future supplies of water will not be able to meet
demand. In 2007, a federal judge limited deliveries out of
California’s State Water Project, reducing Southern California’s water supplies
by nearly 30%. Moreover, in 2007, cities throughout Southern
California endured one of the driest years in decades, while the Colorado River
continued to provide below average deliveries to the State. These
conditions have greatly challenged California’s water supplies and led policy
leaders to seek improvements to the State’s water infrastructure, including the
pursuit of public financing for new groundwater storage and supply
projects.
The
advantages of underground water storage projects are many. These
include minimal surface environmental impacts, low capital investment, minimal
evaporative water loss and protection from airborne
contaminants. Because the need for groundwater storage and dry-year
supplies continues to grow in California, the Company continues to pursue the
implementation of the Cadiz Project.
To that
end, Cadiz has filed permit applications with the County of San Bernardino in an
effort to complete the environmental review of the Cadiz Project according to
CEQA and to acquire any permits required under California law to construct and
operate the Project. Upon completion of the CEQA process, the Company
plans to pursue an update to the FEIS and obtain renewed permits from the U.S.
Bureau of Land Management of the U.S. Department of the Interior. Additionally,
the Company will continue discussions with several other public agencies
regarding their interest in participating in the Cadiz Project.
In
addition to agriculture and water development, the rapid growth of nearby desert
communities in Southern California, Nevada and Arizona indicates that the
Company’s land holdings may in time be suitable for other types of
development. To this end, Cadiz has conducted a detailed analysis of
the Company’s land assets to assess the opportunities for these
properties. Based on this analysis, the Company believes that its
properties have significant long-term potential for residential and commercial
development. The Company is continuing to explore alternative land
uses to maximize the value of its properties.
The
Company remains committed to its land and water assets and will continue to
explore all opportunities for development of these assets. The
Company cannot predict with certainty which of these various opportunities will
ultimately be utilized.
Results
of Operations
Three Months Ended March 31,
2008 Compared to Three Months Ended March 31, 2007
We have
not received significant revenues from our water resource activity to
date. As a result, we have historically incurred a net loss from
operations. We had revenues of $17 thousand for the three months
ended March 31, 2008 and $352 thousand for the three months ended March 31,
2007. We incurred a net loss of $5.0 million in the three months
ended March 31, 2008 compared with a $2.6 million net loss during the three
months ended March 31, 2007. The higher 2008 loss was primarily due
to higher stock based compensation expenses related to the 2007 Management
Equity Incentive Plan and higher general and administrative expenses associated
with the Company’s lawsuit against the Metropolitan Water District of Southern
California.
Our
primary expenses are our ongoing costs to develop our real estate and water
assets and to secure the remaining entitlements needed to continue developing
the Cadiz Program. These costs consist primarily of project
management, legal, consulting, engineering and administrative expenses, which
are characterized as general and administrative expenses for financial statement
reporting purposes. We also have expenses related to the limited
farming activities that we conduct at the Cadiz Ranch. Other costs
include interest expense and compensation costs resulting from the grant of
stock and options under our management and director equity incentive plans,
namely the 2003 Management Equity Incentive Plan, 2007 Management Equity
Incentive Plan, and the Outside Director Compensation Plan.
We
conduct limited farming operations on our properties in the Cadiz and Fenner
Valleys. In 2007, we farmed 260 acres of lemon groves and leased 700
acres of vineyards to a grower for $12,000. The grower was
responsible for all cultivation and maintenance expenses associated with the
leased acreage. We did not renew the vineyard lease for the 2008
growing season, and we will be farming an additional 160 acres of vineyards to
raisins in 2008. In addition, we will be removing approximately 540
acres of grape vines that have reached the end of their productive
lives. As a result, we expect that 2008 agricultural revenues and
expenses will be higher than in the prior year period.
Revenues Cadiz
had revenues of $17 thousand for the three months ended March 31, 2008 and $352
thousand for the three months ended March 31, 2007. Lower revenues
were due to the smaller 2007-08 lemon crop. 2007-08 lemon crop yields
were lower due to freezing weather in the first quarter of 2007.
Cost
of Sales Cost of Sales totaled $13 thousand during the three
months ended March 31, 2008 and $348 thousand during the three months ended
March 31, 2007. The lower cost of sales reflects lower lemon
harvesting and marketing costs due to the smaller size of the 2007-08 lemon
crop. Lemon harvesting activities were largely complete at the end of
December 2007, whereas the harvesting and marketing process extends over fiscal
year-end under normal circumstances.
General
and Administrative Expenses General
and administrative expenses during the three months ended March 31, 2008 totaled
$3.9 million compared to $1.8 million for the three months ended March 31,
2007. Non-cash compensation costs for stock and option awards are
included in General and Administrative Expenses.
Compensation
costs from stock and option awards for the three months ended March 31, 2008
were $1.7 million, compared with $65 thousand for the three months ended March
31, 2007. The Company’s share based compensation plans include the
2007 Management Equity Incentive Plan, the 2003 Management Equity Incentive Plan
and the Outside Director Compensation Plan. The higher expense in the
current quarter primarily reflects the new Management Equity Incentive Plan
stock awards that became effective in July 2007. Shares and options
issued under the Plans vest over varying periods from the date of issue to
January 2011. See Notes to the Consolidated Financial Statements:
Note 5 – Stock Based Compensation Plans and Warrants.
Other General and Administrative
Expenses, exclusive of stock based compensation costs, totaled $2.2 million in
the three months ended March 31, 2008, compared with $1.7 million for the three
months ended March 31, 2007. The increase in expenses is primarily
due to higher legal expenses related to the Company’s lawsuit against the
Metropolitan Water District of Southern California.
Depreciation
and Amortization Depreciation
and amortization expense for the three months ended March 31, 2008 and 2007
totaled $84 thousand and $37 thousand, respectively. The higher
expenses relate to 2007 capital expenditures.
Interest
Expense, net Net interest expense totaled $970 thousand during
the three months ended March 31, 2008, compared to $763 thousand during the same
period in 2007. The following table summarizes the components of net
interest expense for the two periods (in thousands):
|
Three
Months Ended
|
|
|
March 31,
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Interest on outstanding
debt
|
|
$ |
485 |
|
|
$ |
456 |
|
Amortization of financing
costs
|
|
|
18 |
|
|
|
14 |
|
Amortization of debt
discount
|
|
|
520 |
|
|
|
421 |
|
Interest income
|
|
|
(53 |
) |
|
|
(128 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
970 |
|
|
$ |
763 |
|
The increase in net interest expense is
primarily due the amortization of the debt discount related to the zero coupon
secured convertible term loan and interest on the loan. 2008 interest
income decreased from $128 thousand in 2007 to $53 thousand in 2008, due to
lower cash balances, lower short-term interest rates and a more conservative
investment strategy. See Notes to the Consolidated Financial
Statements: Note 3 – Long-term Debt.
Income
Taxes Income tax expense for the three months ended March 31,
2008 was $1 thousand, compared with $5 thousand during the prior year
period. See Notes to the Consolidated Financial Statements: Note 6 –
Income Taxes.
LIQUIDITY
AND CAPITAL RESOURCES
Current Financing
Arrangements
As we
have not received significant revenues from our water resource and real estate
activity to date, we have been required to obtain financing to bridge the gap
between the time water resource and real estate development expenses are
incurred and the time that revenue will commence. Historically, we
have addressed these needs primarily through secured debt financing
arrangements, private equity placements and the exercise of outstanding stock
options and warrants.
We have
worked with our secured lenders to structure our debt in a way which allows us
to continue our development of the Cadiz Project and minimize the dilution of
the ownership interests of common stockholders. In June 2006, we
entered into a $36.4 million five year zero coupon senior secured convertible
term loan with Peloton Partners LLP (through an affiliate) and another lender
(the “Term Loan”). The Term Loan provided for:
·
|
a
final maturity date of June 29,
2011;
|
·
|
a
zero coupon structure, which requires no cash interest payments prior to
the final maturity date; and
|
·
|
a
5% interest rate for the first 3 years, with a 6% interest rate
thereafter.
|
At each
lender’s option, principal plus accrued interest on each of the two loan
tranches is convertible into the Company’s $0.01 par value common stock at a
fixed conversion price per share. The conversion prices are subject
to downward adjustment in the event of a change in control.
On or
after June 29, 2007, principal and interest accrued on each of the two loan
tranches can be prepaid on 30 days notice either if the Company’s stock price
exceeds the tranche’s conversion price by 40% for 20 consecutive trading days in
a 30 trading day period or if the Company completes the Cadiz Water Program
entitlement process, acquires a right-of-way for the project pipeline and
arranges sufficient financing to repay the loan and build the Cadiz
Project. The conversion prices of the two loan tranches are $18.15
and $23.10, respectively, so the $10 million Tranche A prepayment option would
become available at a share price above $25.41 per share and the $26.4 million
Tranche B prepayment option would become available at a share price above $32.34
per share.
The debt
covenants associated with the loan were negotiated by the parties with a view
towards our operating and financial condition as it existed at the time the
agreements were executed. At March 31, 2008, the Company was in
compliance with its debt covenants.
The Term
Loan provided us with $9.3 million of additional working capital and deferred
all interest payments until the June 29, 2011 final maturity
date. Furthermore, the Term Loan permits us to retain any proceeds
received from the issuance of common stock including common stock issued
pursuant to the exercise of stock options and warrants.
On April
16, 2008, the Company was advised that Peloton had assigned its interest in the
Term Loan to an affiliate of Lampe Conway & Company LLC (“Lampe Conway”) and
agreed that Lampe Conway or a Lampe Conway affiliate would replace Peloton as
administrative agent of the loan.
A private
placement completed by the Company in November 30, 2004 included the issuance of
warrants to purchase shares of our common stock at an exercise price of $15.00
per share. In January 2007, we exercised our right to terminate all
unexercised warrants on March 2, 2007, subject to a 30 days notice
period. In response, holders of all 335,440 warrants then outstanding
exercised their warrants during February 2007. As a result, we issued
335,440 shares of our common stock and received net proceeds of
$5,031,600. Following these exercises, no warrants remain
outstanding.
As we
continue to actively pursue our business strategy, additional financing in
connection with our water programs will be required. See “Outlook”,
below. The covenants in the Term Loan do not prohibit our use of
additional equity financing and allow us to retain 100% of the proceeds of any
equity financing. We do not expect the loan covenants to materially
limit our ability to finance our water development activities.
Cash Used
for Operating Activities. Cash used for operating activities
totaled $2.2 million and $1.4 million for the three months ended March 31, 2008
and March 31, 2007, respectively. The cash was primarily used to fund
general and administrative expenses related to the Company’s water
development efforts, including legal costs associated with the Company’s lawsuit
against the Metropolitan Water District of Southern California. As
discussed in the Overview, the Company has been preparing for a trial in its
lawsuit against Metropolitan and is currently engaged in a mandatory settlement
conference process. We expect that the significant litigation
expenses being incurred by the Company will decline when the matter is resolved,
either by trial or settlement.
Cash
Provided By (Used for) Investing Activities. Cash used for
investing activities in the three months ended March 31, 2008 was $60 thousand,
compared with $8.5 million during the same period in 2007. The 2007
period included $8.5 million of short-term investments in student loan backed
auction rate preferred securities, which are not considered cash
equivalents. These investments were liquidated during the fourth
quarter of 2007, and there were no losses associated with the sale of these
securities. 2008 capital expenditures were $59 thousand higher than
the prior year and included equipment purchases to support expanded farming
activities at the Cadiz Ranch.
Cash
Provided by (Used for) Financing Activities. Cash used for
financing activities was $2 thousand during the three months ended March 31,
2008, compared with $5.2 million of cash provided by financing activities during
the prior year period. The 2007 result reflects $5.1 million of
proceeds from the exercise of warrants and employee stock options.
Outlook
Short Term Outlook. The proceeds
remaining from our $36.4 million Term Loan and the sale of common shares,
pursuant to the exercise of certain warrants in 2006 and 2007, provide us with
sufficient funds to meet our expected working capital needs for the next 12
months. The Company expects to continue its historical practice of
structuring its financing arrangements to match the anticipated needs of its
development activities. See "Long Term Outlook", below. No
assurances can be given, however, as to the availability or terms of any new
financing.
Long Term Outlook. In the longer term, we will
need to raise additional capital to finance working capital needs, capital
expenditures and any payments due under our senior secured convertible term loan
at maturity. See “Current Financing Arrangements”
above. Payments will be due under the term loan only to the extent
that lenders elect not to exercise equity conversion rights prior to the loan’s
final maturity date. Our future working capital needs will depend
upon the specific measures we pursue in the entitlement and development of our
real estate and water resources. Future capital expenditures will
depend primarily on the progress of the Cadiz Project. We will
evaluate the amount of cash needed, and the manner in which such cash will be
raised, on an ongoing basis. We may meet any future cash requirements
through a variety of means, including equity or debt placements, or through the
sale or other disposition of assets. Equity placements would be
undertaken only to the extent necessary, so as to minimize the dilutive effect
of any such placements upon our existing stockholders.
Recent Accounting
Pronouncements
See Note
1 to the Consolidated Financial Statements – Description of Business and Summary
of Significant Accounting Policies.
Certain Known Contractual
Obligations
|
|
Payments Due by Period
|
|
Contractual Obligations
|
|
Total
|
|
|
1 year or less
|
|
|
2-3 years
|
|
|
4-5 years
|
|
|
After 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term debt obligations
|
|
$ |
39,749 |
|
|
$ |
9 |
|
|
$ |
11 |
|
|
$ |
39,729 |
|
|
$ |
- |
|
Interest
Expense
|
|
|
8,018 |
|
|
|
1 |
|
|
|
- |
|
|
|
8,017 |
|
|
|
- |
|
Operating
leases
|
|
|
799 |
|
|
|
181 |
|
|
|
345 |
|
|
|
273 |
|
|
|
- |
|
|
|
$ |
48,566 |
|
|
$ |
191 |
|
|
$ |
356 |
|
|
$ |
48,019 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 3. Quantitative and
Qualitative Disclosures about Market Risk
Information about market risks for the
three months ended March 31, 2008 does not differ materially from that discussed
under Item 7A of Cadiz’ Annual Report on Form 10-K for the year ended December
31, 2007.
Disclosure
Controls and Procedures
We have established disclosure controls
and procedures to ensure that material information related to the Company,
including its consolidated entities, is accumulated and communicated to senior
management, including the Chairman and Chief Executive Officer (the “Principal
Executive Officer”) and Chief Financial Officer (the “Principal Financial
Officer”) and to our Board of Directors. Based on their evaluation as
of March 31, 2008, our Principal Executive Officer and Principal Financial
Officer have concluded that the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) are effective to ensure that the information required to be disclosed by
the Company in the reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms,
and such information is accumulated and communicated to management, including
the principal executive and principal financial officers as appropriate, to
allow timely decisions regarding required disclosures.
Changes
in Internal Controls Over Financial Reporting
In connection with the evaluation
required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no
change identified in the Company's internal controls over financial reporting
that occurred during the last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
b
ITEM
1.
|
Legal
Proceedings
|
See “Legal Proceedings” included in the
Company’s latest Form 10-K, the Form 8-K Current Report filed on April 21, 2008
and the Form 8-K Current Report filed on May 6, 2008, for a complete
discussion.
There have been no material changes to
the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K
for the year ended December 31, 2007.
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Not
applicable.
ITEM
3.
|
Defaults
Upon Senior Securities
|
Not
applicable.
ITEM
4.
|
Submission
of Matter to a Vote of Security
Holders
|
Not applicable.
ITEM
5.
|
Other
Information
|
Not applicable.
The following exhibits are filed or
incorporated by reference as part of this Quarterly Report on Form
10-Q.
|
31.1
|
Certification
of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc.
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
Certification
of O’Donnell Iselin II, Chief Financial Officer and Secretary of Cadiz
Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1
|
Certification
of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc.
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification
of O'Donnell Iselin II, Chief Financial Officer and Secretary of Cadiz
Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
|
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Cadiz
Inc.
By:
|
/s/ Keith Brackpool |
May
8, 2008 |
|
Keith
Brackpool |
Date |
|
Chairman of the
Board and Chief Executive Officer |
|
|
(Principal Executive
Officer) |
|
|
|
|
By:
|
/s/
O'Donnell Iselin II |
May
8, 2008 |
|
O'Donnell
Iselin II |
Date |
|
Chief Fiancial
Officer and Secretary |
|
|
(Principal Financial
Officer) |
|
25