Form 10Q for quarter ended 3-31-07
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, 2007
OR
[
] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for
the
transition period from …… to …….
Commission
File Number 0-12114
Cadiz Inc.
(Exact
name of registrant specified in its charter)
DELAWARE
77-0313235
(State
or
other jurisdiction of (I.R.S. Employer
incorporation
or organization) Identification No.)
|
777
S. Figueroa Street, Suite
4250
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Los
Angeles,
California
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90017
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(Address
of principal executive
offices)
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(Zip
Code)
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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, or a non-accelerated filer (as defined in Exchange Act Rule
12b-2).
Large
accelerated filer ___ Accelerated filer √
Non-accelerated filer ___
Indicate
by check mark whether the Registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
Yes___
No √
As
of
April 20, 2007, the Registrant had 11,886,322 shares of common stock, par value
$0.01 per share, outstanding.
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For
the Three Months ended March 31, 2007
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Page
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PART
I - FINANCIAL INFORMATION
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ITEM
1. Financial Statements
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Cadiz
Inc. Consolidated Financial Statements
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1
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2
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3
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4
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5
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15
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23
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23
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24
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For
the Three Months
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Ended
March 31,
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($
in thousands except per share data)
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2007
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2006
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Revenues
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$
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352
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$
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252
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Costs
and expenses:
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Cost
of Sales
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348
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211
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General
and administrative
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1,775
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2,096
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Depreciation
and amortization
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37
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40
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Total
costs and expenses
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2,160
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2,347
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Operating
loss
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(1,808)
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(2,095)
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Other
income (expense)
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Interest
expense, net
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(763)
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(481)
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Other
income
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-
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350
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Other
(expense), net
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(763)
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(131)
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Loss
before income taxes
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(2,571)
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(2,226)
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Income
tax provision
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5
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-
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Net
loss
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$
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(2,576)
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$
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(2,226)
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Net
loss applicable to common stock
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$
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(2,576)
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$
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(2,226)
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Basic
and diluted net loss per common share
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$
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(0.22)
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$
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(0.20)
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Basic
and diluted weighted average shares outstanding
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11,680
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11,330
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See
accompanying notes to the consolidated financial statements.
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March
31,
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December
31,
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($
in thousands)
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2007
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2006
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$
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5,632
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$
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10,397
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Marketable
Securities
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8,540
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-
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Accounts
receivable
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45
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301
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Prepaid
expenses and other
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390
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243
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Total
current assets
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14,607
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10,941
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Property,
plant, equipment and water programs, net
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35,154
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35,190
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Goodwill
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3,813
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3,813
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Other
assets
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368
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382
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Total
Assets
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$
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53,942
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$
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50,326
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$
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381
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$
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444
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Accrued
liabilities
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524
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380
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Current
portion of long term debt
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9
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9
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Total
current liabilities
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914
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833
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Long-term
debt
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26,756
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25,881
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Total
Liabilities
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27,670
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26,714
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Commitments
and contingencies
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Stockholders’
equity:
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Series
F convertible preferred stock - $.01 par value:
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100,000
shares authorized; shares issued and outstanding - 1,000 at March
31, 2007
and December 31, 2006
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-
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-
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Common
stock - $.01 par value; 70,000,000 shares authorized; shares issued
and
outstanding - 11,886,322 at March 31, 2007 and 11,536,597 at December
31, 2006
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119 |
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116 |
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Additional
paid-in capital
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250,439
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245,206
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Accumulated
deficit
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(224,286)
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(221,710)
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Total
stockholders’ equity
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26,272
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23,612
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Total
Liabilities and Stockholders’ equity
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$
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53,942
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$
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50,326
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See
accompanying notes to the consolidated financial statements.
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For
the Three Months
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Ended
March 31,
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($
in thousands except per share data)
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2007
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2006
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Cash
flows from operating activities:
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Net
loss
Adjustments
to reconcile net loss to
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$
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(2,576)
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$
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(2,226)
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net
cash used for operating activities:
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Depreciation
and amortization
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37
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40
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Amortization
of debt discount & issuance costs
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435
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7
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Interest
expense added to loan principal
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456
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522
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Compensation
charge for stock awards and share options
Changes
in operating assets and liabilities:
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65
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529
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Decrease
(increase) in accounts receivable
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256
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144
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Decrease
(increase) in prepaid borrowing expense
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-
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258
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Decrease
(increase) in prepaid expenses and other
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(147)
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(184)
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Increase
(decrease) in accounts payable
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(63)
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(33)
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Increase
(decrease) in accrued liabilities
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144
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56
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Net
cash used for operating activities
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(1,393)
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(887)
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Cash
flows from investing activities:
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Investment
in marketable securities
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(8,540)
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-
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Additions
to property, plant and equipment
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(1)
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(18)
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Net
cash used by investing activities
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(8,541)
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(18)
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Cash
flows from financing activities:
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Net
proceeds from exercise of stock options
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140
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-
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Net
proceeds from exercise of warrants
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5,031
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-
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Principal
payments on long-term debt
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(2)
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(2)
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Net
cash provided by (used by) financing activities
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5,169
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(2)
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Net
decrease in cash and cash equivalents
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(4,765)
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(907)
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Cash
and cash equivalents, beginning of period
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10,397
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5,302
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Cash
and cash equivalents, end of period
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$
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5,632
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$
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4,395
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See
accompanying notes to the consolidated financial statements.
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For
the Three months ended March 31, 2007
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($
in thousands)
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Additional
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Total
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Preferred
Stock
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Common
Stock
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Paid-in
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Accumulated
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Stockholders’
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Shares
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Amount
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Shares
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Amount
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Capital
|
Deficit
|
Equity
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Balance
as of
|
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December
31, 2006
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1,000
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$
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-
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11,536,597
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$
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116
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$
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245,206
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$
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(221,710)
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$
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23,612
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Warrants
exercised
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-
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-
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335,440
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3
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5,028
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-
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5,031
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Stock
awards and options exercised
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-
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-
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14,285
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-
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140
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-
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140
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Stock
compensation expense
|
-
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|
-
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|
-
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-
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65
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-
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6
5
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|
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Net
loss
|
-
|
|
|
-
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,576)
|
|
|
(2,576)
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| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balance
as of March 31, 2007
|
1,000
|
|
$
|
-
|
|
11,886,322
|
|
$
|
119
|
|
$
|
250,439
|
|
$
|
(224,286)
|
|
$
|
26,272
|
See
accompanying 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, 2006.
The
foregoing Consolidated Financial Statements include the accounts of the Company
and contain all adjustments, consisting only of normal recurring adjustments,
which the Company considers necessary for a fair presentation of the Company’s
financial position, the results of its operations and its cash flows for the
periods presented and have been prepared in accordance with generally accepted
accounting principles.
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from those estimates and such differences
may
be material to the financial statements. This quarterly report on Form 10-Q
should be read in conjunction with the Company’s Form 10-K for the year ended
December 31, 2006. The results of operations for the three months ended
March 31, 2007 are not necessarily indicative of results for the entire fiscal
year ended December 31, 2007.
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 $2.6 million for the three months ended March 31, 2007 and
$2.2 million for the three months ended March 31, 2006. The Company had working
capital of $13.7 million at March 31, 2007 and used cash in operations of $1.4
million for the three months ended March 31, 2007 and $0.9 million for the
three
months ended March 31, 2006. Currently, the Company's sole focus is the
development of its land and water assets.
In
2006,
the Company refinanced its long term debt with a new $36.4 million zero coupon
senior secured convertible term loan that matures on June 29, 2011. The new
loan
provided $9.3 million of additional funds after repayment of the Company’s prior
credit facility and certain transaction fees. The Company also received $1.1
million in 2006 when certain holders of warrants issued in 2004 exercised their
right to purchase 70,000 common shares at $15.00 per share. In 2007, the Company
exercised its right to terminate the remaining warrants on March 2, 2007,
subject to a 30 day notice period. In response, the remaining warrant holders
exercised their right to purchase 335,440 shares of the Company’s common stock
during the notice period, and the Company received an additional $5.0 million
from the sale of these shares. Following this exercise, no Warrants remain
outstanding.
Based on current forecasts, the Company believes it has sufficient resources
to
fund operations for more than one year. The Company’s current resources do not
provide the capital necessary to fund a water or real estate development project
should the Company be required to do so. There is no assurance that additional
financing (public or private) will be available on acceptable terms or at all.
If the Company issues additional equity securities to raise funds, the ownership
percentage of the Company’s existing stockholders would be reduced. New
investors may demand rights, preferences or privileges senior to those of
existing holders of common stock. If the Company cannot raise needed funds,
it
might be forced to make further substantial reductions in its operating
expenses, which could adversely affect its ability to implement its current
business plan and ultimately its viability as a company. These financial
statements do not include any adjustments that might result from these
uncertainties.
Subsequent
to the effective date of the Chapter 11 reorganization plan of Sun World, the
Company’s primary activities are limited to the development of its water
resources and related assets. From the effective date of the plan through March
31, 2007, the Company has incurred losses of approximately $21.7 million and
used cash in operations of $7.9 million.
Principles
of Consolidation
In
December 2003, the Company transferred substantially all of its assets with
the
exception of its office sublease, certain office furniture and equipment and
the
investment in Sun World International Inc.(“Sun World”) to Cadiz Real Estate
LLC, a Delaware limited liability company (“Cadiz Real Estate”). The Company
holds 100% of the equity interests of Cadiz Real Estate, and therefore continues
to hold 100% beneficial ownership of the properties that it transferred to
Cadiz
Real Estate. Because the transfer of the Company’s properties to Cadiz Real
Estate has no effect on its ultimate beneficial ownership of these properties,
the properties owned of record either by Cadiz Real Estate or by the Company
are
treated as belonging to the Company.
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. Marketable securities
consist 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 are no cumulative gross unrealized holding gains or losses associated
with
these investments and all income is recorded as interest income.
Goodwill
The
Company has $3.8 million of goodwill which resulted from a merger in May 1988
between two companies, which eventually became known as Cadiz Inc. Goodwill
is
not amortized but is tested for impairment annually in the first quarter, or
earlier if events occur which require an impairment analysis be performed.
The
Company performed an impairment test of its goodwill at December 31, 2006 and
determined that its goodwill was not impaired.
Intangible
and Other Long-Lived Assets
Property,
plant and equipment, intangible and certain other long-lived assets are
amortized over their useful lives. Useful lives are based on management’s
estimates of the period that the assets will generate revenue. Long-lived assets
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recent
Accounting Pronouncements
In
June
2006, the FASB issued FSP FIN 48 which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes.” This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken on
a tax
return. This Interpretation also provides guidance on derecognition,
classification, interest, penalties, accounting in interim periods,
disclosure and transition. The evaluation of a tax position in accordance
with this Interpretation is a two-step process. The first step
is
to determine if it is more likely than not that a tax position will be
sustained upon examination and should therefore be recognized. The second
step is to measure a tax position that meets the more likely than
not recognition
threshold to determine the amount of benefit to recognize in the
financial statements. Effective January 1, 2007, the Company’s financial
statements reflect FSP FIN 48. The
adoption of FSP
FIN
48
did not
have a material impact on the Company’s financial statements.
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,
|
| |
2007
|
|
2006
|
| |
|
|
|
|
Land
and land improvements
|
$
|
21,9866
|
|
$
|
21,986
|
|
Water
programs
|
|
14,274
|
|
|
14,274
|
|
Buildings
|
|
1,191
|
|
|
1,191
|
|
Machinery
and equipment
|
|
727
|
|
|
726
|
| |
|
38,178
|
|
|
38,177
|
| |
|
|
|
|
|
|
Less
accumulated depreciation
|
|
(3,024)
|
|
|
(2,987)
|
| |
|
|
|
|
|
| |
$
|
35,1545
|
|
$
|
35,190
|
Depreciation
expense totaled $37 thousand and $40 thousand during the three months ended
March 31, 2007 and 2006, respectively.
NOTE
3 - LONG-TERM DEBT
At
March
31, 2007 and December 31, 2006, the carrying amount of the Company’s outstanding
debt is summarized as follows (dollars in thousands):
| |
March
31,
|
|
December
31,
|
| |
2007
|
|
2006
|
| |
|
|
|
|
Zero
coupon secured convertible term loan due June 29, 2011. Interest
accruing at 5% per annum until June 29, 2009 and at 6% thereafter
|
$
|
37,772
|
|
$
|
37,316
|
|
Other
loans
|
|
29
|
|
|
31
|
|
Debt
Discount
|
|
(11,036)
|
|
|
(11,457)
|
| |
|
26,765
|
|
|
25,890
|
| |
|
|
|
|
|
|
Less
current portion
|
|
9
|
|
|
9
|
| |
|
|
|
|
|
| |
$
|
26,756
|
|
$
|
25,881
|
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 secured 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.
The
Company has filed a registration statement on Form S-3 covering the resale
of
all the securities issuable upon conversion of the loan.
The
Company has analyzed all of the above provisions of the convertible loan and
related agreements for embedded derivatives under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities and related
Emerging Issues Task Force (EITF) interpretations and SEC rules. The Company
concluded that certain provisions of the convertible loan agreement, which
were
in effect prior to the first amendment date, may be deemed to be derivatives
for
purposes of the application of FASB Statement No. 133 and EITF 00-19: Accounting
for Derivative Financial Instruments to, and Potentially Settled in, a Company’s
Own Stock. Therefore, in accordance with FASB Statement No. 133, these embedded
instruments were bifurcated from the host debt instrument and classified as
a
liability in the Company’s financial statements. The Company prepared valuations
for each of the deemed derivatives using a Black-Scholes option pricing model
and recorded a liability of approximately $12.2 million on the June 30 loan
funding date, with an offsetting discount to the convertible term
loan.
On
June
30, 2006, the derivative liability was classified and recorded as part of long
term debt in the balance sheet. The debt discount will be amortized to interest
expense over the life
of
the
loan using the interest amortization method. The principal valuation assumptions
are as follows:
| |
Loan
balance available for conversion:
|
$36.4
million
|
| |
Expected
term:
|
5
years
|
| |
Cadiz
common share price:
|
$17.01
|
| |
Volatility:
|
46%
|
| |
Risk-free
Interest Rate:
|
5.18%
|
| |
Change
in control probability:
|
10%
|
On
September 29, 2006 the terms of the loan were amended to modify the repayment
and conversion options available to lenders upon a change in control of the
Company, to clarify that the conversion feature was an unsecured obligation
of
the Company and to specifically limit the maximum number of shares to be issued
upon conversion of the loan. With these modifications, it was determined that
the requirement for bifurcation under SFAS 133 was no longer met and that the
carrying value of the embedded derivatives should be reclassified to
stockholder’s equity under EITF 06-7. The derivative liability was adjusted to
fair value on the amendment date, and the $2,919,000 increase in fair value
was
recorded as an “Other Expense” item in the Consolidated Statement of Operations.
The $15.2 million fair value of the derivative liability was then transferred
to
the Additional Paid-in Capital component of Stockholder’s Equity
The
Company incurred $408,000 of outside legal expenses related to the negotiation
and documentation of the loan, which will be amortized over the life of the
loan
using the interest amortization method.
The
proceeds of the Peloton Loan were applied to repay in full the Company’s term
loan facility with ING described below. As a result, ING retained the $762,000
remaining balance of the prepaid interest credit account described below, and
the write-off of this asset was reflected in the “Other Expense” caption of the
Statement of Operations in the fiscal quarter ended June 30, 2006. The write-off
of $106,000 of unamortized debt issuance costs related to the ING loan was
also
reflected under “Other Expense” in the same fiscal period.
On
November 30, 2004 the Company entered into an amendment of its senior term
loan
agreement with ING whereby it repaid in full the senior term loan portion of
the
facility with ING of $10 million and reduced to $25 million the outstanding
principal balance under the existing revolving portion of the loan. The terms
and conditions of the loan facility with ING were amended in order to extend
the
maturity date of the debt until March 31, 2010, with a $10 million mandatory
principal repayment due on or before March 31, 2008, and an interest rate
through March 31, 2008 of 4% cash plus 4% paid in kind (“PIK”) increasing to 4%
cash plus 6% PIK for interest periods commencing on and after April 1, 2008.
No
balance was outstanding after the ING loan repayment in June 2006.
At
March
31, 2007 the Company was in compliance with its debt covenants under the Peloton
Loan.
NOTE
4 - STOCK-BASED COMPENSATION PLANS AND WARRANTS
The
Company has issued options and has granted stock awards pursuant to its 2003
Management Equity Incentive Plan. The Company also has granted stock awards
pursuant to its Outside Director Compensation Plan.
Stock
Options Issued under the 2003 Management Equity Incentive
Plan
The
2003
Management Equity Incentive Plan provides for the granting of options for the
purchase of 377,339 shares of common stock. Options issued under the Management
Equity Incentive Plan were granted during 2005 and 2006. The options have a
ten
year term with vesting periods ranging from issuance date to three years.
Certain of these options had strike prices that were below the fair market
value
of the Company’s common stock on the date of grant. All options have been issued
to officers, employees and consultants of the Company. 365,000 options were
granted under the plan during 2005, and the remaining 12,339 options were
granted in 2006. Options to purchase 367,339 shares were unexercised and
outstanding on March 31, 2007.
The
Company recognized stock option related compensation costs of $38,000 and
$221,000 in the three months ended March 31, 2007 and March 31, 2006,
respectively. On March 31, 2007, the unamortized compensation expense related
to
these options amounted to $106,000 and is expected to be recognized in 2007
and
2008. Options to purchase 10,000 shares of stock for $13.95 per share were
exercised during the three months ended March 31, 2007.
Stock
Awards to Directors, Officer, Consultants and
Employees
The
Company has also granted stock awards pursuant to its Management Equity
Incentive Plan and Outside Director Compensation Plan. All
of
the shares issuable under the 2003 Management Equity Incentive Plan were awarded
in May 2005. On March 31, 2007, there were no additional shares issuable under
the 2003 Management Equity Incentive Plan.
The
initial Outside Director Compensation Plan award was made on November 14, 2006
and included 10,416 shares for service rendered during the 12 month service
period ended June 30, 2004 and 2005, and 4,285 shares for services rendered
during the 12 month service period ended June 30, 2006. The 10,416 shares for
services rendered were issued immediately upon shareholder approval in November
2006. The 4,285 shares awarded for the 12 month service period ended June 30,
2006 were issued on January 31, 2007.
The
accompanying consolidated financial statements include $27,000 and $308,000
of
stock based compensation expense related to stock awards in the three months
ended March 31, 2007 and March 31, 2006, respectively. There was no stock award
activity under the plans during the quarter ended March 31, 2007, and there
was
no unamortized compensation expense relating to stock awards in prior periods
on
March 31, 2007.
Stock
Purchase Warrants Issued to Non-Employees
The
Company accounts for equity securities issued to non-employees in accordance
with the provisions of SFAS 123 and Emerging Issues Task Force 96-18. On
November 30, 2004 the Company completed a private placement of 400,000 units,
each Unit consisting of five (5) shares of the Company’s common stock and one
(1) common stock purchase warrant. Each of the 400,000 warrants entitle the
holder to purchase one (1) share of common stock at an exercise price of $15.00
per share. An additional 5,440 warrants were issued to an individual who
assisted the company in identifying participants in the November 30, 2004
private placement and elected to receive a commission for the services in stock
rather than cash. Each Warrant has a term of three (3) years and was callable
at
the Company’s option.
During
2006, certain warrant holders exercised their rights to purchase 70,000 shares,
and the Company received $1,050,000 from the sale of that common stock. In
2007,
the Company exercised a right to terminate the remaining warrants on March
2,
2007, subject to a 30-day notice period. In response, the remaining warrant
holders exercised their rights to purchase 335,440 shares of the Company’s
common stock during the notice period, and the Company received $5.0 million
from the sale of these shares. Following this exercise, no Warrants remain
outstanding.
NOTE
5 - INCOME TAXES
As
of
March 31, 2007, the Company had net operating loss (NOL) carryforwards of
approximately $72.2 million for federal income tax purposes and $22.8 million
for California state income tax purposes. Such carryforwards expire in varying
amounts through the year 2026. These amounts reflect the effective reduction
of
the NOL carryforwards as a result of ownership change annual limitation
amounts.
On
August
26, 2005, a Settlement Agreement between Cadiz, on the one hand, and Sun World
and three of Sun World’s subsidiaries, on the other hand, was approved by the
U.S. 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 $57.8 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 related to these NOLs.
Section
382 of the Internal Revenue Code imposes an annual limitation on the utilization
of net operating loss carryforwards based on a statutory rate of return (usually
the “applicable federal funds rate”, as defined in the Internal Revenue Code)
and the value of the corporation at the time of a “change of ownership” as
defined by Section 382. Due to past equity issuances and equity issuances in
2005, and due to the Chapter 11 filing by Sun World, the Company’s
ability
to utilize net operating loss carryforwards is limited to approximately $6.6
million annually, potentially adjusted by built-in gain items.
The
Company is required to include certain financial statement disclosures with
the
interim period report for the quarter in which FSP FIN 48 is adopted. These
disclosures reflect specific Company policies and amounts related to its
accounting for uncertain tax positions. The Company's policy on the
classification of income tax related interest and penalties is disclosed in
Note
1 to these financial statements.
As
of the
January 1, 2007, adoption of FSP FIN 48, 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 a total of $200,000 for state taxes, interest and penalties
related to income tax positions in prior returns. In connection with the
adoption of FIN 48, the Company elected to classify income tax penalties and
interest as general and administrative expenses. For the three months ended
March 31, 2007, general and administrative expenses included approximately
$40,000 of income tax penalties and interest.
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 recorded in the accompanying balance
sheet.
NOTE
6 - NET LOSS PER COMMON SHARE
Basic
earnings per share (EPS) is computed by dividing the net loss, after deduction
for preferred dividends either accrued or imputed, if any, by the
weighted-average common shares outstanding. Options, deferred stock units,
warrants, convertible debt, and preferred stock that are convertible into shares
of the Company’s common stock were not considered in the computation of diluted
EPS because their inclusion would have been antidilutive. Had these instruments
been included, the fully diluted weighted average shares outstanding would
have
increased by approximately 2,121,000 and 908,000 shares for the three months
ended March 31, 2007 and 2006, respectively.
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,
2006.
Overview
The
Company’s primary assets are 45,000 acres of land in three areas of eastern San
Bernardino County, California. Virtually all of this land is underlain by
high-quality groundwater resources with demonstrated potential for recreational,
residential, and agricultural development. The properties are also located
in
proximity to the Colorado River and the Colorado River Aqueduct, the major
source of imported water for southern California. The aquifer systems underlying
the properties contain large amounts of water and are suitable for water storage
and supply programs.
The
value
of these assets derives from a combination of projected population increases
and
limited water supplies throughout southern California. In addition, most of
the
major population centers in southern California are not located where
significant precipitation occurs, requiring the importation of water from other
parts of the state. The Company therefore believes that a competitive advantage
exists for companies that can provide high quality, reliable, and affordable
water to major population centers.
In
1993
the Company secured permits for up to 9,600 acres of agricultural development
in
the Cadiz Valley and the withdrawal of more than 1 million acre-feet of ground
water from the aquifer system underlying the property. In 1997, the Company
entered into the first of a series of agreements with the Metropolitan Water
District of Southern California (“Metropolitan”) to jointly design, permit and
build an aquifer storage and supply program on the Company’s land in the Cadiz
and Fenner Valleys (the “Cadiz Project” or the “Project”). Under the Cadiz
Project, surplus water from the Colorado River would be stored in the aquifer
system underlying our land during wet years. When needed, the stored water
and
temporary withdrawals of indigenous groundwater, could be distributed through
the Colorado River Aqueduct to Metropolitan's member agencies throughout six
southern California counties.
Between
1997 and 2002, Metropolitan and the Company received substantially all of the
various state and federal approvals required for permits to construct and
operate the project and received a federal Record
of Decision (“ROD”) from
the
U.S. Department of the Interior, which endorsed the Cadiz Project and offered
a
right of way grant for the construction of project facilities. The federal
government also approved a Final Environmental Impact Statement (“FEIS”) in
compliance with the National Environmental Policy Act (“NEPA”).
Despite
the significant progress made in the federal environmental review process,
in
October 2002 Metropolitan’s Board voted not to accept the right of way grant
offered by the U.S. Department of the Interior and refused to consider whether
or not to certify the Final Environmental Impact Report (“FEIR”), which was a
necessary action to authorize implementation of the Cadiz Project in accordance
with the California Environmental Quality Act (“CEQA”).
When
Metropolitan’s Board declined to proceed with the Cadiz Project, the FEIR was
complete and awaiting certification at a hearing scheduled for late October
2002. It is the Company’s position that these actions by Metropolitan breached
various contractual and fiduciary obligations to the Company, and interfered
with the economic advantage it would have obtained from the Cadiz Project.
In
April 2003 the Company filed a claim against Metropolitan seeking compensatory
damages. When settlement negotiations failed to produce a resolution, the
Company filed a lawsuit against Metropolitan in Los Angeles Superior Court
on
November 17, 2005. The claims for breach
of
fiduciary duty, breach of express contract, promissory estoppel, breach of
implied contract and specific performance have all been allowed by the Court
and
are scheduled for trial in late 2007.
Meanwhile,
the need for water storage and supply programs has not abated. Moreover, the
advantages of underground water storage facilities are increasingly evident.
These include minimal surface environmental impacts, lower capital investment,
protection from airborne contaminants and minimal evaporative water loss.
Therefore the Company continues to pursue the completion of the environmental
review process for the Cadiz Project.
To
address the concerns expressed during the initial environmental review process
for the Project, certain elements of the Project have been restructured. These
operational changes concentrate on public concerns regarding the potential
transfer and sale of indigenous groundwater and the potential replenishment
of
temporary withdrawals of indigenous groundwater. No changes are proposed to
any
of the physical facilities required to implement and operate the Cadiz
Project.
To
that
end, the County of San Bernardino has agreed to serve as the CEQA lead agency
for the completion of the environmental review of the Cadiz Project and issue
any permits required under California law once the review is completed. The
Company is also working with the U.S. Department of the Interior to have the
permits that were approved during the federal environmental review process,
including the right of way granted in the ROD, issued directly to the Company
for the benefit of any participating public agency. Additionally,
the Company is in discussions with several other public agencies regarding
their
interest in participating in the Cadiz Project. These agencies have access
to
sources of water that can be stored in the Cadiz Project.
In
addition to agriculture and water development, the rapid growth of nearby desert
communities in southern California, Nevada and Arizona indicates that the
Company’s land holdings may be suitable for other types of development. To this
end, the Company has conducted a detailed analysis of the Company’s land assets
to assess the opportunities for these properties. Based on this analysis, the
Company believes that its properties have significant long-term potential for
residential and commercial development. The Company is continuing to explore
alternative land uses to maximize the value of its properties.
In
2006,
the Company refinanced its long term debt with a new $36.4 million zero coupon
senior secured convertible term loan that matures on June 29, 2011. The Company
also received $1.1 million in 2006 when certain holders of warrants issued
in
2004 exercised their right to purchase 70,000 common shares at $15.00 per share.
In 2007, the Company exercised its right to terminate the remaining warrants
on
March 2, 2007, subject to a 30 day notice period. In response, the remaining
warrant holders exercised their right to purchase 335,440 shares of the
Company’s common stock during the notice period, and the Company received an
additional $5.0 million from the sale of these shares. Following this exercise,
no Warrants remain outstanding.
The
Company remains committed to its land and water assets and continues 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, 2007 Compared to Three Months Ended March 31,
2006
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 $352 thousand for the three months ended March 31, 2007 and $252
thousand for the three months ended March 31, 2006. We incurred a net loss
of
$2.6 million in the three months ended March 31, 2007 compared with a $2.2
million net loss during the three months ended March 31, 2006. The higher loss
in the 2007 period primarily related to non-recurring other income that was
received during the first quarter of 2006.
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 options under the Cadiz 2003 Management Equity
Incentive Plan and the Outside Director Compensation Plan. We expect to incur
additional non-cash expenses in future periods in connection with new management
and director equity incentive compensation plans.
Revenues
Cadiz
had revenues of $352 thousand for the three months ended March 31, 2007 and
$252
thousand for the three months ended March 31, 2006. Higher revenues resulted
primarily from the timing of the sale of citrus crops, as the start of the
smaller 2006 lemon harvest was delayed into December, and all related revenues
were recognized during first quarter of 2007. The 2005 lemon harvest started
in
October, and $1.1 million of revenues were recognized in December
2005.
Cost
of Sales
Cost of
Sales totaled $348 thousand during the three months ended March 31, 2007 and
$211 thousand during the three months ended March 31, 2006. The higher cost
of
sales in 2007 reflects the production, harvesting and marketing costs associated
with higher citrus crop sales during the period.
General and Administrative Expenses General
and administrative expenses during the three months ended March 31, 2007 totaled
$1.8 million compared to $2.1 million for the three months ended March 31,
2006.
Non-cash compensation costs for stock and option awards is included in General
and Administrative Expenses.
Compensation
costs from stock and option awards for the three months ended March 31, 2007
were $65 thousand, compared with $529 thousand for the three months ended March
31, 2006. The expenses primarily relate to stock and options issued under the
Cadiz 2003 Management Equity Incentive Plan and the Outside Director
Compensation Plan described in Note 4 of Notes to the Consolidated Financial
Statements. The declining expense reflects a lower balance of unvested stock
and
option grants in March 31, 2007. There were no stock or option grants under
these plans during the three months ended March 31, 2007. Shares and options
issued under the Plans vest over varying periods from the date of issue to
December 2008. We expect to incur additional non-cash expenses in connection
with future management and director equity incentive compensation
plans.
Other
General and Administrative Expenses, exclusive of stock based compensation
costs, totaled $1.7 million in the three months ended March 31, 2007, compared
with $1.6 million for the three months ended March 31, 2006. The increase in
expenses is primarily due to higher payroll costs.
Depreciation
and Amortization Depreciation
and amortization expense for the three months ended March 31, 2007 and 2006
totaled $37 thousand and $40 thousand, respectively.
Interest
Expense, net
Net
interest expense totaled $763 thousand during the three months ended March
31,
2007, compared to $481 thousand during the same period in 2006. The following
table summarizes the components of net interest expense for the two periods
(in
thousands):
| |
Three
Months Ended
|
| |
March
31,
|
| |
2007
|
|
2006
|
| |
|
|
|
|
|
Interest
on outstanding debt
|
$
|
456
|
|
$
|
518
|
|
Amortization
of financing costs
|
|
14
|
|
|
7
|
|
Amortization
of debt discount
|
|
421
|
|
|
-
|
|
Interest
income
|
|
(128)
|
|
|
(44)
|
| |
|
|
|
|
|
| |
$
|
763
|
|
$
|
481
|
The
increase in net interest expense is primarily due the amortization of the debt
discount related to certain derivatives embedded to the new senior secured
convertible term loan. 2007 interest income increased to $128 thousand from
$44
thousand in the prior year, due to higher cash balances and higher short-term
interest rates. See Notes to the Consolidated Financial Statements: Note 3
-
Long-term Debt.
Other
Income
During
the three month period ended March 31, 2006, one of our stockholders determined
that it had, at a time when it was the beneficial holder of more
than
10%
of
our outstanding equity securities, inadvertently engaged in trades which
resulted in automatic short swing profit liability to the Company pursuant
to
Section 16(b) of the Securities Exchange Act of 1934. After becoming aware
of
the situation, the stockholder promptly made payments totaling $350,000 to
the
Company to settle the entire short swing profit liability owed as a consequence
of these trades.
Income
Taxes
Income
tax expense for the three months ended March 31, 2007 was $5 thousand. No income
tax expense was recognized in the prior year period. See Note 5 of the Notes
to
the Consolidated Financial Statements - 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.
Subsequent
to the vote of Metropolitan’s Board in October 2002 to not proceed with the
Cadiz Project and Sun World’s January 2003 bankruptcy filing, we have worked
with our primary secured lenders to structure our debt in a way which allows
us
to continue our development of the Cadiz Project and minimize the dilution
of
the ownership interests of common stockholders. We entered into a series of
agreements with ING Capital LLC and then refinanced the ING loan with a new
$36.4 million five year zero coupon senior secured convertible term loan with
Peloton Partners LLP (through an affiliate) and another lender (the “Peloton
Loan”) in June 2006. The Peloton loan provided for:
| · |
the
repayment in full of our senior secured term loan with ING;
|
| · |
a
final maturity date of June 29,
2011;
|
| · |
a
zero coupon structure, which requires no cash interest payments prior
to
the final maturity date; and
|
| · |
a
5% interest rate for the first three (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 $10 million Tranche A conversion price
is
$18.15 per share, and the $26.4 million Tranche B conversion price is $23.10
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, secures a right-of-way for the project pipeline and
arranges sufficient financing to repay the loan and build the Cadiz Project.
The
$10 million Tranche A prepayment option would become available at a share price
above
$25.41 per share and the 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, 2007, the Company was in compliance
with
its debt covenants.
In
addition to allowing us to repay our former credit facility with ING, the
Peloton Loan provided us with $9.3 million of additional working capital and
deferred all interest payments until the June 29, 2011 final maturity date.
Furthermore, the Peloton Loan, unlike the ING facility, permitted us to retain
the proceeds received from the exercise of warrants issued by us in 2004 as
part
of a $24 million private equity placement.
A
private
placement completed by the Company in November 30, 2004 included the issuance
of
warrants to purchase 405,440 shares of our common stock at an exercise price
of
$15.00 per share. During 2006, holders of 70,000 of the warrants exercised
their
warrants, resulting in the issuance by us of 70,000 shares of common stock
with
net proceeds of $1,050,000. In February 2007, we exercised our right to
terminate the remaining warrants upon 30 days notice, and holders of all the
remaining 335,440 warrants exercised their warrants. As a result, we issued
335,440 shares of our common stock and received net proceeds of $5,031,600
during February 2007. Following these exercises, no Warrants remain
outstanding.
During
February 2007, an employee elected to exercise options to purchase 10,000 shares
of our common stock for $13.95 per share, and we received proceeds of
$139,500.
As
we
continue to actively pursue our business strategy, additional financing in
connection with our water programs will be required. See “Outlook”, below. The
covenants in the credit facility do not prohibit our use of additional equity
financing and allow us to retain 100% of the proceeds of any equity financing.
We do not expect the loan covenants to materially limit our ability to finance
our water development activities.
We
issued
100,000 shares of Series F preferred stock to ING as part of our agreements
in
December 2003 (the “ING Preferred Stock”), of which 1,000 shares remain
outstanding. The preferred shares are convertible into 17.28955 shares of common
stock for each share of Series F Preferred Stock converted.
At
March
31, 2007, we have no outstanding credit facilities or preferred stock other
than
the Peloton Loan and ING Preferred Stock described in our 10K for the year
ended
December 31, 2006.
Cash
Used for Operating Activities.
Cash
used for operating activities was $1.4 million for the three months ended March
31, 2007, as compared to $887 thousand for the three months ended March 31,
2006. The increased cash usage is primarily due to higher general and
administrative expenses, which are primarily due to higher legal and consulting
costs related to the entitlement of the Cadiz Program.
Cash
Used for Investing activities.
During
the three months ended March 31, 2007, net cash flow used for investing
activities was $8.5 million, reflecting investments in marketable securities
and
the acquisition of computing equipment at the Company’s administrative offices.
During
the three months ended March 31, 2006, net cash flow for investing activities
was $18 thousand, primarily for the acquisition of plant and equipment at
the
Cadiz Ranch.
Cash
Provided by (Used for) Financing Activities.
Cash
provided by financing activities totaled $5.2 million for the three months
ended
March 31, 2007, compared with $2 thousand used for certain principal payments
on
long-term debt in the three months ended March 31, 2006. The 2007 results
reflect $5.2 million of net proceeds from the exercise of warrants to purchase
335,440 shares of our common stock for $15.00 per share and the exercise of
options to purchase 10,000 shares of our common stock for $13.95 per share
by an
employee. There was no material financing activity in 2006.
Outlook
Short
Term Outlook.
The
proceeds of our new $36.4 million senior secured convertible term loan and
the
$6.1 million received upon the sale of common shares in 2007 and 2006 pursuant
to the exercise of certain warrants issued in November 2004 provide us with
sufficient funds to meet our expected working capital needs for the next 12
months. The Company expects to continue its historical practice of structuring
its financing arrangements to match the anticipated needs of its development
activities.
See
"Long Term Outlook", below. No assurances can be given, however, as to the
availability or terms of any new financing.
Long
Term Outlook.
In
the
longer term, we will need to raise additional capital to finance working capital
needs and any payments due under our senior secured convertible term loan at
maturity. See “Current Financing Arrangements” above. Payments will be due under
the term loan only to the extent that lenders elect not to exercise equity
conversion rights prior to the loan’s final maturity date. Our future working
capital needs will depend upon the specific measures we pursue in the
entitlement and development of our real estate and water resources. We will
evaluate the amount of cash needed, and the manner in which such cash will
be
raised, on an ongoing basis. We may meet any future cash requirements through
a
variety of means, including equity or debt placements, or through the sale
or
other disposition of assets. Equity placements would be undertaken only to
the
extent necessary, so as to minimize the dilutive effect of any such placements
upon our existing stockholders.
Recent
Accounting Pronouncements
In
June
2006, the FASB issued FSP FIN 48 which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes.” This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken on
a tax
return. This Interpretation also provides guidance on derecognition,
classification, interest, penalties, accounting in interim periods,
disclosure and transition. The evaluation of a tax position in accordance
with this Interpretation is a two-step process. The first step
is
to determine if it is more likely than not that a tax position will be
sustained upon examination and should therefore be recognized. The second
step is to measure a tax position that meets the more likely than
not recognition
threshold to determine the amount of benefit to recognize in the
financial statements. Effective, January 1, 2007, the Company’s financial
statements reflect FSP FIN 48. The
adoption of FSP
FIN
48
did not
have a material impact on the Company’s financial statements.
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
|
$
|
37,8011
|
|
$
|
9
|
|
$
|
20
|
|
$
|
37,772
|
|
$
|
-
|
|
Interest
Expense
|
|
9,9766
|
|
|
1
|
|
|
1
|
|
|
9,974
|
|
|
-
|
|
Operating
leases
|
|
699
|
|
|
46
|
|
|
23
|
|
|
-
|
|
|
-
|
| |
$
|
47,8466
|
|
$
|
56
|
|
$
|
44
|
|
$
|
47,746
|
|
$
|
-
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information
about market risks for the three months ended March 31, 2007 does not differ
materially from that discussed under Item 7A of Cadiz’ Annual Report on Form
10-K for the year ended December 31, 2006.
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, 2007, 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.
ITEM
1. Legal
Proceedings
See
“Legal Proceedings” included in the Company’s latest Form 10-K for a complete
discussion.
ITEM
1A. Risk
Factors
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,
2006.
ITEM
2. Unregistered
Sales of Equity Securities and Use of Proceeds
As
indicated above under Part 1, Item 2 (Management's Discussion and Analysis
of
Financial Condition and Results of Operations), in 2007 the holders of 335,440
common stock warrants that we had issued in November 30, 2004 as part of a
previously disclosed private placement exercised their right to purchase a
like
number of shares of our common stock at an exercise price of $15 per share.
In
our Current Report on Form 8-K dated February 21, 2007, we disclosed that we
had, as of February 26, 2007, issued 326,440 of these shares, and that we
expected that the remaining 9,000 warrants would be exercised on or before
March
2, 2007. Subsequent to the filing of this Form 8-K, these 9,000 warrants were
exercised, as a result of which on or before March 2, 2007 we issued an
additional 9,000 shares of common stock (constituting less than 1% of the
Company's then outstanding common stock).
The
issuance of the common stock underlying these 9,000 warrants was not registered
under the Securities Act of 1933, as amended (the "Securities Act"), but was
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) of the Securities Act as the transactions (including the issuance
of the warrants) did not involve public offerings, the number of investors
was
limited, the investors were provided with information about us, and we placed
restrictions on the resale of the securities.
ITEM
3. Defaults
Upon Senior Securities
Not
applicable.
ITEM
4. Submission
of Matter to a Vote of Security Holders
Not
applicable.
ITEM
5. Other Information
Not applicable.
ITEM
6. Exhibits
The
following exhibits are filed or incorporated by reference as part of this
Quarterly Report on Form 10-Q.
10.1 2007
Management Equity Incentive Plan (1)
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
__________________
| |
(1)
|
Previously
filed as appendix A to our definitive proxy dated April 27, 2007
as filed
April 27, 2007.
|
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
10, 2007
Keith
Brackpool Date
Chairman
of the Board and Chief Executive Officer
(Principal
Executive Officer)
By:
/s/
O’Donnell Iselin II
May
10, 2007
O’Donnell
Iselin II
Date
Chief
Financial Officer and Secretary
(Principal
Financial Officer)