Cadiz Inc.
Annual Report 2007

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KCADIZ INC - CDZIFiled: March 14, 2008 (period: December 31, 2007)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549FORM 10-KFOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934(Mark One)[√] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the fiscal year ended December 31, 2007 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the transition period from . . . . . to . . . . . COMMISSION FILE NUMBER 0-12114 CADIZ INC.(Exact name of registrant specified in its charter)DELAWARE77-0313235(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)550 S. Hope Street, Suite 2850 Los Angeles, CA90071(Address of principal executive offices)(Zip Code)(213) 271-1600(Registrant’s telephone number, including area code)Securities Registered Pursuant to Section 12(b) of the Act:Title of Each ClassName of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per shareThe NASDAQ Stock Market LLC(Title of Class)(Exchange)Securities Registered Pursuant to Section 12(g) of the Act:Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in rule 405 under the Securities Act of 1933.Yes __ No _√_ Indicate by a check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.Yes __ No _√_ Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during 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 filingrequirements for the past 90 days.Yes _√_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§220.405 of this chapter) is not contained herein, and willnot be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K orany amendment of this Form 10-K. □Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (asdefined in Exchange Act Rule 12b-2).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 March 3, 2008, the Registrant had 11,958,210 shares of common stock outstanding. The aggregate market value of the common stock held bynonaffiliates as of June 30, 2007 was approximately $234,078,821 based on 10,417,393 shares of common stock outstanding held by nonaffiliates and theclosing price on that date. Shares of common stock held by each executive officer and director and by each entity that owns more than 5% of the outstandingcommon stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusivedetermination for other purposes.Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Documents Incorporated by ReferencePortions of the Registrant's definitive Proxy Statement to be filed for its 2008 Annual Meeting of Stockholders are incorporated by reference into Part III ofthis Report. The Registrant is not incorporating by reference any other documents within this Annual Report on Form 10-K except those footnoted in Part IVunder the heading “Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K”. iiSource: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.TABLE OF CONTENTSPart I Item 1.Business1 Item 1A.Risk Factors8 Item 1B.Unresolved Staff Comments10 Item 2.Properties11 Item 3.Legal Proceedings12 Item 4.Submission of Matters to a Vote of Security Holders13 Part II Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters14 Item 6.Selected Financial Data16 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations17 Item 7A.Quantitative and Qualitative Disclosures about Market Risk30 Item 8.Financial Statements and Supplementary Data30 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure30 Item 9A.Controls and Procedures30 Item 9B.Other Information31 Part III Item 10.Directors, Executive Officers and Corporate Governance32 Item 11.Executive Compensation32 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters32 Item 13.Certain Relationships and Related Transactions, and Director Independence32 Item 14.Principal Accountant Fees and Services32 Part IV Item 15.Exhibits and Financial Statement Schedules33 iiiSource: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART I ITEM1. BusinessThis Form 10-K presents forward-looking statements with regard to financial projections, proposed transactions such as those concerning the furtherdevelopment of our land and water assets, information or expectations about our business strategies, results of operations, products or markets, or otherwisemakes statements about future events. Such forward-looking statements can be identified by the use of words such as “intends”, “anticipates”, “believes”,“estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations reflected in these forward-lookingstatements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from theseforward-looking statements. These include, among others, the cautionary statements under the caption “Risk Factors”, as well as other cautionary languagecontained in this Form 10-K. These cautionary statements identify important factors that could cause actual results to differ materially from those describedin the forward-looking statements. When considering forward-looking statements in this Form 10-K, you should keep in mind the cautionary statementsdescribed above.OverviewOur primary assets consist of 45,000 acres of land in three areas of eastern San Bernardino County, California. Virtually all of this land is underlainby high-quality groundwater resources with demonstrated potential for recreational, residential and water resource development. The properties are locatedin proximity to the Colorado River and the Colorado River Aqueduct, the major source of imported water for Southern California. The aquifer systemsunderlying 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 SouthernCalifornia. In addition, most of the major population centers in Southern California are not located where significant precipitation occurs, requiring theimportation of water from other parts of the state. We therefore believe that a competitive advantage exists for companies that can provide high-quality,reliable, and affordable water to major population centers.Our objective is to realize the highest and best use for these assets. In 1993 we secured permits for up to 9,600 acres of agricultural development inthe Cadiz Valley and the withdrawal of more than 1 million acre-feet of groundwater from the aquifer system underlying the property. We believe that thelocation, geology and hydrology of this property is uniquely suited for development of a groundwater storage and dry-year supply program to augment thewater supplies available to Southern California. To this end, in 1997 we entered into the first of a series of agreements with the Metropolitan Water District ofSouthern 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 permitsnecessary to construct and operate the project, including a Record of Decision (“ROD”) from the U.S. Department of the Interior, which endorsed the CadizProject and offered a right-of-way for construction of project facilities. The ROD also approved a Final Environmental Impact Statement (“FEIS”) incompliance with the National Environmental Policy Act (“NEPA”).1Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Upon completion of the federal environmental review and permitting process, Cadiz expected Metropolitan to certify the completed FinalEnvironmental Impact Report (“FEIR”). As California Environmental Quality Act (“CEQA”) lead agency for the Project, Metropolitan had planned to hold aCEQA 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 CEQAhearing, Metropolitan’s staff brought the right-of-way matter before the Metropolitan Board of Directors. By a very narrow margin, the Metropolitan Boardvoted 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, inaccordance with CEQA. As a result, the CEQA process for the Project was not completed by Metropolitan.It is our position that the actions by Metropolitan breached various contractual and fiduciary obligations to the Company and interfered with theeconomic advantage it would have obtained from the Cadiz Project. In April 2003, the Company filed a claim against Metropolitan seeking compensatorydamages. When settlement negotiations failed to produce a resolution, the Company filed a lawsuit against Metropolitan in Los Angeles Superior Court onNovember 17, 2005. The claims for breach of fiduciary duty, breach of express contract, promissory estoppel, breach of implied contract and specificperformance 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 onMotions for Summary Judgment/Adjudication that upheld the Company’s claim for breach of fiduciary duty and dismissed the other four contractual andrelated claims. The case is currently scheduled for trial in April 2008.Regardless of the Metropolitan Board’s actions in October 2002, the need for new water storage and dry-year supplies has not abated. Thepopulation of California continues to grow rapidly, while water supplies are being challenged by drought, lack of infrastructure and environmentalprotections. 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 federaljudge limited deliveries out of California’s State Water Project, reducing Southern California’s water supplies by nearly 30%. Moreover, in 2007, citiesthroughout Southern California endured one of the driest years in decades, while the Colorado River continued to provide below average deliveries to theState. 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 togrow in California, we continue to pursue the implementation of the Cadiz Project.To that end, we have filed permit applications with the County of San Bernardino in an effort to complete the environmental review of the CadizProject according to CEQA and to acquire any permits required under California law to construct and operate the Project. Upon completion of the CEQAprocess, we plan 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 theInterior. Additionally, we will continue discussions with several other public agencies regarding their interest in participating in the Cadiz Project.2Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In addition to agriculture and water development, the rapid growth of nearby desert communities in Southern California, Nevada and Arizonaindicates that the Company’s land holdings may in time be suitable for other types of development. To this end, we have conducted a detailed analysis ofour land assets to assess the opportunities for these properties. Based on this analysis, we believe that our properties have significant long-term potential forresidential and commercial development. We are continuing to explore alternative land uses to maximize the value of our properties.However, we cannot predict with certainty which of these various opportunities will ultimately be utilized.(a) General Development of BusinessWe are a Delaware corporation formed in 1992 to act as the surviving corporation in a Delaware reincorporation merger between us and ourpredecessor, Pacific Agricultural Holdings, Inc., a California corporation formed in 1983.As part of our historical business strategy, we have conducted our land acquisition, water development activities, agricultural operations, search forinternational water and agricultural opportunities and real estate development initiatives to maximize the long-term value of our properties and futureprospects. See “Narrative Description of Business” below.Our initial focus was on the acquisition of land and the assembly of contiguous land holdings through property exchanges to prove the quantity andquality of water resources in the region. We subsequently established agricultural operations on our properties in the Cadiz Valley and sought to develop thewater resources underlying that site.The focus of our water development activities has been the Cadiz Project. The Metropolitan Board’s decision in late 2002 delayed implementationof the Cadiz Project. When we were unable to make further progress with Metropolitan, we began to take steps to complete the environmental review processand implement the Project independently. To that end, in 2006 we commenced work with San Bernardino County to complete the CEQA environmentalreview for the Project. We filed applications with the County in early 2007 for permits necessary to construct and operate the Cadiz Project and to initiate theCEQA review. The County is now completing a schedule for review of the Project’s existing and updated environmental documents.At the same time we have pursued a claim against Metropolitan, seeking compensatory damages for what we believe is a breach of variouscontractual and fiduciary obligations to us, and interference with the economic advantage we would have obtained from the Cadiz Project.In 2006, we refinanced our long term debt with a new $36.4 million zero coupon senior secured convertible term loan that matures on June 29, 2011and received $1.1 million when certain holders of warrants issued in 2004 exercised their right to purchase 70,000 common shares at $15.00 per share. In2007, we exercised our right to terminate the remaining warrants on March 2, 2007, subject to a 30 day notice period. In response, the remaining warrantholders exercised their right to purchase 335,440 shares of our common stock during the notice period, and we received an additional $5.0 million from thesale of these shares. Following this exercise, no warrants remain outstanding. These transactions are described in more detail in Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operation.”3Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Chapter 11 Reorganization Plan of our Sun World International Inc. subsidiary became effective in 2005, and the Company has no furtherliabilities related to the business or operations of Sun World. (b) Financial Information about Industry SegmentsThe primary business of the Company is to acquire and develop land and water resources. Our agricultural operations are confined to limitedfarming activities at the Cadiz Valley property. As a result, the Company’s financial results are reported in a single segment. See Consolidated FinancialStatements. See also Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.(c) Narrative Description of BusinessOur business strategy is the development of our land holdings for their highest and best uses. At present, our development activities are focused onwater resource development.Water Resource DevelopmentOur portfolio of water resources are located in proximity to the Colorado River and the Colorado River Aqueduct, the principal source of importedwater for Southern California, and provide us with the opportunity to participate in a variety of water storage and supply programs, exchanges andconservation programs with public agencies and other partners.The Cadiz Valley Groundwater Storage and Dry-Year Supply ProjectThe Company owns approximately 35,000 acres of land and related high-quality groundwater resources in the Cadiz and Fenner valleys of easternSan Bernardino County. The aquifer system underlying this property is naturally recharged by precipitation (both rain and snow) within a watershed ofapproximately 1,300 square miles. See Item 2, “Properties – The Cadiz/Fenner Property”.In 1997 we commenced discussions with Metropolitan in order to develop a joint venture groundwater storage and dry-year supply program on thisland (the “Cadiz Project”). The Cadiz Project would provide Southern California with a valuable increase in water supply during periods of drought or otheremergencies. Additionally, exchange agreements could be used to transfer water from the Cadiz Project to California communities in the Central andNorthern portions of the Sate.During wet years, surplus water from the Colorado River would be stored in the aquifer system that underlies the Cadiz property. When needed, thestored water and indigenous groundwater could be returned to the Colorado River Aqueduct for distribution to water agencies throughout six SouthernCalifornia counties. The Colorado River Aqueduct provides water to public water agencies and utilities serving approximately 18 million people.4Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Indigenous groundwater would also be available from the Cadiz Project during dry years. The use of indigenous groundwater would be strictlymonitored in accordance with provisions of the Groundwater Monitoring & Management Plan (“Management Plan”) endorsed by the U.S. Department of theInterior in its 2002 ROD. This Management Plan was created during the Cadiz Project’s extensive environmental review process to ensure long-termprotection of the aquifer system and related environmental resources in and surrounding the area in which the Cadiz Project is located. The Companyremains committed to the Management Plan, which is an important component of our current permit applications with the County of San Bernardino.Cadiz Project facilities would include, among other things:· Spreading basins, which are shallow ponds that percolate water from the ground surface down to the water table;· High yield wells designed to efficiently extract stored Colorado River water and indigenous groundwater from beneath the Cadiz Projectarea;· A 35-mile conveyance pipeline to connect the spreading basins and well field to the Colorado River Aqueduct near the Iron Mountainpumping plant; and· A pumping plant to pump water through the conveyance pipeline from the Colorado River Aqueduct near the Iron Mountain pumpingplant to the Cadiz Project spreading basins.In October 2001, the Final Environmental Impact Statement (“FEIS”) and Final Environmental Impact Report (“FEIR”) were issued by Metropolitanand the U.S. Bureau of Land Management, in collaboration with the U.S. Geological Survey and the National Park Service. On August 29, 2002, the U.S.Department of Interior approved the FEIS for the Cadiz Project and issued its Record of Decision (“ROD”), the final step in the federal environmental reviewprocess for the Cadiz Project. The ROD amended the California Desert Conservation Area Plan for an exception to the utility corridor element and offered toMetropolitan a right-of-way grant for the pipeline from the Colorado River Aqueduct to the Cadiz Project.With all federal approvals in place, on October 8, 2002, Metropolitan’s Board considered acceptance of the terms and conditions of the right-of-waygrant pursuant to the published ROD. By a very narrow margin, the Board voted not to adopt Metropolitan staff’s recommendation to approve the terms andconditions of the right-of-way grant issued by the Department of the Interior. Instead, the Board voted for an alternative motion to reject the terms andconditions of the right-of-way grant and to not proceed with the Cadiz Project. Subsequent to the Metropolitan Board’s action, negotiations toward a finalagreement for the Cadiz Project on the basis of the previously approved definitive economic terms ceased.When Metropolitan’s Board declined to proceed with the Cadiz Project, the FEIR was complete and awaiting certification at a hearing scheduled forlate October 2002. It is our position that Metropolitan’s actions on October 8, 2002, breached various contractual and fiduciary obligations of Metropolitanto us, and interfered with the economic advantage we would have obtained from the Cadiz Project. Therefore, in April 2003 we filed a claim againstMetropolitan seeking compensatory damages. When settlement negotiations failed to produce a resolution, we filed a lawsuit against Metropolitan in LosAngeles Superior Court on November 17, 2005. On October 19, 2007, the Court issued a ruling on Motions for Summary Judgment/Adjudication that upheldour claim for breach of fiduciary duty and dismissed the other four contractual and related claims. The case is currently scheduled for trial in April 2008. SeeItem 3 - “Legal Proceedings”.5Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Meanwhile, the need for new water storage and dry-year supplies has not abated. The population of California continues to grow rapidly, whilewater supplies are being challenged by drought, lack of infrastructure and environmental protections. Indeed, California is facing the very real possibilitythat 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 indecades, while the Colorado River continued to provide below average deliveries to the State. These conditions have greatly challenged California’s watersupplies and led policy leaders to seek improvements to the State’s water infrastructure, including the pursuit of public financing for new groundwaterstorage and supply projects. Had the Cadiz Project already been built, it could have delivered much needed dry-year supplies to Southern California in2007. Therefore, we are committed to the implementation of the Cadiz Project.To that end, we commenced work with the County of San Bernardino to complete the CEQA environmental review for the Project. In 2007, we filedapplications with the County for the permits necessary to construct and operate the Cadiz Project and to initiate the CEQA review. As CEQA lead agency,the County is now completing a schedule for review of the Project’s existing and updated environmental documents.Once the CEQA review is complete, we plan to pursue and update of the FEIS and obtain renewed permits from the U.S. Bureau of LandManagement of the Department of the Interior. Additionally, we will continue discussions with several other public agencies regarding their interest inparticipating in the Cadiz Project.Other Eastern Mojave PropertiesOur second largest landholding is approximately 9,000 acres in the Piute Valley of eastern San Bernardino County. This landholding is locatedapproximately 15 miles from the resort community of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles, California. Extensivehydrological studies, including the drilling and testing of a full-scale production well, have demonstrated that this landholding is underlain by high-qualitygroundwater. The aquifer system underlying this property is naturally recharged by precipitation (both rain and snow) within a watershed of approximately975 square miles. Discussions with potential partners have commenced with the objective of developing our Piute Valley assets.Additionally, we own additional acreage located near Danby Dry Lake, approximately 30 miles southeast of our landholdings in the Cadiz andFenner valleys. Our Danby Lake property is located approximately 10 miles north of the Colorado River Aqueduct. Initial hydrological studies indicate thatit has excellent potential for a groundwater storage and supply project.6Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Agricultural OperationsThe Company has developed approximately 1,600 acres of its Cadiz Valley landholding for agriculture. We are currently farming 960 acres of grapevineyards and lemon groves on the property. Additional land was dedicated to row crop production in prior years. We contract all of our farming activitiesto third parties, either leasing an entire crop to a grower or subcontracting cultivation labor, harvesting and marketing to suppliers. In 2007, we leasedapproximately 700 acres of organic table grape vineyards to a grower for $12,000 and farmed 260 acres of Lisbon and Eureka lemons. 2007 revenues fromour agricultural operations were $413,000. We did not reach an agreement to renew the vineyard lease in 2008 and will be farming a raisin crop on theproperty.SeasonalityOur water resource development activities are not seasonal in nature.With the 2003 bankruptcy and 2005 sale of the assets of our agricultural subsidiary, Sun World International, Inc. (“Sun World”), our farmingoperations are limited to the cultivation of lemons and grapes/raisins on the Cadiz Valley properties. These operations are subject to the general seasonaltrends that are characteristic of the agricultural industry.CompetitionWe face competition for the acquisition, development and sale of our properties from a number of competitors. We may also face competition in thedevelopment of water resources associated with our properties. Since California has scarce water resources and an increasing demand for available water, webelieve that location, price and reliability of delivery are the principal competitive factors affecting transfers of water in California.EmployeesAs of December 31, 2007, we employed 9 full-time employees (i.e. those individuals working more than 1,000 hours per year). We believe that ouremployee relations are good.RegulationOur operations are subject to varying degrees of federal, state and local laws and regulations. As we proceed with the development of our properties,including the Cadiz Project, we will be required to satisfy various regulatory authorities that we are in compliance with the laws, regulations and policiesenforced by such authorities. Groundwater development, and the export of surplus groundwater for sale to entities such as public water agencies, is subject toregulation by specific existing statutes, in addition to general environmental statutes applicable to all development projects. Additionally, we must obtain avariety of approvals and permits from state and federal governments with respect to issues that may include environmental issues, issues related to specialstatus species, issues related to the public trust, and others. Because of the discretionary nature of these approvals and concerns which may be raised byvarious governmental officials, public interest groups and other interested parties during both the development and approval process, our ability to developproperties and realize income from our projects, including the Cadiz Project, could be delayed, reduced or eliminated.7Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Access To Our Information We are subject to the information and reporting requirements of the Securities Exchange Act and file annual, quarterly and current reports, proxystatements and other information with the SEC. You can request copies of these documents, for a copying fee, by writing to the SEC. We furnish ourstockholders with annual reports containing financial statements audited by our independent auditors.We also make available on our website www.cadizinc.com copies of our annual, quarterly and special reports, proxy and information statements andother information.ITEM1A. Risk FactorsOur business is subject to a number of risks, including those described below.Our Development Activities Have Not Generated Significant RevenuesAt present, our development activities are focused on water resource and real estate development at our San Bernardino County properties. We havenot received significant revenues from our development activities to date and we do not know when, if ever, we will receive operating revenues from theseactivities. As a result, we continue to incur a net loss from operations.We May Never Generate Significant Revenues Or Become Profitable Unless We Are Able To Successfully Implement Programs To Develop Our LandAssets And Related Water ResourcesWe do not know the terms, if any, upon which we may be able to proceed with our water and real estate development programs. Regardless of theform of our water development programs, the circumstances under which transfers or storage of water can be made and the profitability of any transfers orstorage are subject to significant uncertainties, including the risk of variable water supplies and changing water allocation priorities. Both water and realestate development programs are subject to the risk of adverse changes in public policies and changes to or interpretations of U.S. federal, state and locallaws, regulations and policies. Additional risks include our ability to obtain all necessary regulatory approvals and permits, possible litigation byenvironmental or other groups, unforeseen technical difficulties, general market conditions for real estate and water supplies, and the time needed to generatesignificant operating revenues from such programs after operations commence.The Development of our Properties is Heavily Regulated and Requires Governmental Approvals And Permits That Could Be DeniedIn developing our land assets and related water resources, we are subject to local, state, and federal statutes, ordinances, rules and regulationsconcerning zoning, resource protection, environmental impacts, infrastructure design, subdivision of land, construction and similar matters. Ourdevelopment activities are subject to the risk of adverse interpretations or changes to these laws and policies. Further, our development activities requiregovernmental approvals and permits that, if denied or granted subject to unfavorable conditions or restrictions, would adversely impact our ability tosuccessfully implement our development programs. The opposition of government officials may adversely affect our ability to obtain needed governmentapprovals and permits upon satisfactory terms in a timely manner. In this regard, 2008 fiscal year federal government appropriations did not include fundingto allow for Cadiz Project permit work at the U.S. Department of the Interior.8Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Moreover, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge proposedplans and approvals. In California third parties have the ability to file litigation challenging the approval of a project, which they usually do by alleginginadequate disclosure and mitigation of the environmental impacts of the project. Opposition from environmental groups could cause delays and increasethe costs of our development efforts or preclude such development entirely. While we have worked with representatives of various environmental interestsand agencies to minimize and mitigate the impacts of our planned projects, certain groups may remain opposed to our development plans.Our Failure To Make Timely Payments Of Principal And Interest On Our Indebtedness May Result In A Foreclosure On Our AssetsAs of December 31, 2007, we had indebtedness outstanding to our senior secured lenders of approximately $39.3 million. Our assets have been putup as collateral for this debt. If we cannot generate sufficient cash flow to make principal and interest on this indebtedness when due, or if we otherwise failto comply with the terms of agreements governing our indebtedness, we may default on our obligations. If we default on our obligations, our lenders may selloff the assets that we have put up as collateral. This, in turn, would result in a cessation or sale of our operations.The Conversion Of Our Outstanding Senior Indebtedness Into Common Stock Would Dilute The Percentage Of Our Common Stock Held By CurrentStockholdersOur senior indebtedness is convertible into common stock at the election of our lenders. As of December 31, 2007, our senior indebtedness was convertibleinto 1,825,731 shares of our common stock, an amount equal to approximately 15.3% of the number of shares of our common stock outstanding as of thatdate. An election by our lenders to convert all or a portion of our senior secured indebtedness into common stock will dilute the percentage of our commonstock held by current stockholders.We May Not Be Able To Obtain the Financing We Need To Implement Our Asset Development ProgramsWe will require additional capital to finance our operations until such time as our asset development programs produce revenues. We cannot assureyou that our current lenders, or any other lenders, will give us additional credit should we seek it. If we are unable to obtain additional credit, we may engagein further equity financings. Our ability to obtain equity financing will depend, among other things, on the status of our asset development programs andgeneral conditions in the capital markets at the time funding is sought. Any further equity financings would result in the dilution of ownership interests ofour current stockholders.9Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Issuance Of Equity Securities Under Management Equity Incentive Plans Will Impact EarningsOur compensation programs for management emphasize long-term incentives, primarily through the issuance of equity securities and options topurchase equity securities. It is expected that plans involving the issuance of shares, options, or both will be submitted from time to time to our stockholdersfor approval. In the event that any such plans are approved and implemented, the issuance of shares and options under such plans may result in the dilutionof the ownership interest of other stockholders and will, under currently applicable accounting rules, result in a charge to earnings based on the value of ourcommon stock at the time of issue and the fair value of options at the time of their award. The expense would be recorded over the vesting period of eachstock and option grant.We Are Restricted By Contract from Paying Dividends and We Do Not Intend To Pay Dividends In The Foreseeable FutureAny return on investment on our common stock will depend primarily upon appreciation in the price of our common stock. To date, we have never paid acash dividend on our common stock. The loan documents governing our credit facilities with our senior secured lenders prohibit the payment of dividendswhile such facilities are outstanding. As we have a history of operating losses, we have been unable to pay dividends to date. Even if we post a profit infuture years, we currently intend to retain all future earnings for the operation of our business. As a result, we do not anticipate that we will declare anydividends in the foreseeable future.ITEM1B. Unresolved Staff CommentsNot applicable at this time.10Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ITEM2. PropertiesFollowing is a description of our significant properties.The Cadiz/Fenner Valley PropertySince 1982, we have acquired approximately 34,500 acres of largely contiguous land in the Cadiz and Fenner Valleys of eastern San BernardinoCounty, California. This area is located approximately 30 miles north of the Colorado River Aqueduct. In 1984, we conducted investigations of thefeasibility of agricultural development of this land. These investigations confirmed the availability of high-quality groundwater in quantities appropriate foragricultural development.Additional independent geotechnical and engineering studies conducted since 1985 have confirmed that the Cadiz/Fenner property overlies anaquifer system that is ideally suited for underground water storage and temporary withdrawals of native groundwater, as contemplated in the CadizProject. See Item 1, “Business – Narrative Description of Business – Water Resource Development”.In November 1993, the San Bernardino County Board of Supervisors unanimously approved a General Plan Amendment establishing an agriculturalland use designation for 9,600 acres in the Cadiz Valley, of which approximately 1,600 acres have been developed for agriculture. This action also allows forthe withdrawal of more than 1,000,000 acre-feet of groundwater from the aquifer system underlying our property. Approximately 960 acres are currentlyfarmed as grape vineyards and citrus orchards.Other Eastern Mojave PropertiesWe also own approximately 10,800 additional acres in the eastern Mojave Desert, including the Piute and Danby Lake properties.Our second largest property consists of approximately 9,000 acres in the Piute Valley of eastern San Bernardino County. This landholding islocated approximately 15 miles from the resort community of Laughlin, Nevada, and about 12 miles from the Colorado River town of Needles,California. Extensive hydrological studies, including the drilling and testing of a full-scale production well, have demonstrated that this landholding isunderlain by high-quality groundwater. The aquifer system underlying this property is naturally recharged by precipitation (both rain and snow) within awatershed of approximately 975 square miles. Discussions with potential partners have commenced with the objective of developing our Piute Valley assets.Additionally, we own additional acreage located near Danby Dry Lake, approximately 30 miles southeast of our landholdings in the Cadiz andFenner valleys. Our Danby Lake property is located approximately 10 miles north of the Colorado River Aqueduct. Initial hydrological studies indicate thatit has excellent potential for a groundwater storage and supply project.Farm PropertyApproximately 1,600 acres of our Cadiz Valley landholdings have been developed for agricultural use. We are currently farming approximately 960acres of grape vineyards and lemon groves on the property. Additional land was dedicated to row crop production in prior years. We contract all of ourfarming activities to third parties, either leasing an entire crop to a grower or subcontracting cultivation labor, harvesting and marketing to suppliers. In2007, we leased approximately 700 acres of organic table grape vineyards to a grower, and farmed 260 acres of Lisbon and Eureka lemons. We did not renewthe vineyard lease for the 2008 crop year.11Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Executive OfficesWe lease approximately 7,169 square feet of office space in Los Angeles, California for our executive offices. The lease terminates on October 28,2012. Current base rent under the lease is approximately $13,143 per month.Cadiz Real EstateIn December 2003, we transferred substantially all of our assets (with the exception of our office sublease, certain office furniture and equipment andany Sun World related assets) to Cadiz Real Estate LLC, a Delaware limited liability company (“Cadiz Real Estate”). We hold 100% of the equity interests ofCadiz Real Estate, and therefore we continue to hold 100% beneficial ownership of the properties that we transferred to Cadiz Real Estate. Cadiz Real Estatewas created at the behest of our then existing senior secured lender, ING Capital LLC (“ING”). The Board of Managers of Cadiz Real Estate currently consistsof two managers appointed by us. Our senior secured lender, Peloton, has the right to appoint one independent manager.Cadiz Real Estate is a co-obligor under our senior secured convertible term loan, for which assets of Cadiz Real Estate have been pledged assecurity.Because the transfer of our properties to Cadiz Real Estate has no effect on our ultimate beneficial ownership of these properties, we refer throughoutthis Report to properties owned of record either by Cadiz Real Estate or by us as “our” properties.Debt Secured by PropertiesOur assets (including properties held of record by Cadiz Real Estate) have been pledged as collateral for $39.3 million of debt outstanding onDecember 31, 2007. Information regarding interest rates and principal maturities is provided in Note 6 to the consolidated financial statements.ITEM3. Legal ProceedingsClaim Against MetropolitanOn April 7, 2003, we filed an administrative claim against The Metropolitan Water District of Southern California (“Metropolitan”), asserting thebreach by Metropolitan of various obligations specified in our 1998 Principles of Agreement with Metropolitan and other related contracts. We believe thatby failing to complete the environmental review process for the Cadiz Project, failing to accept the right-of-way grant offered by the U.S. Department ofthe Interior and for taking other actions inconsistent with their obligations, Metropolitan violated the contracts between the parties, breached its fiduciaryduties to us and interfered with our prospective economic advantages. The filing was made with the Executive Secretary of Metropolitan.12Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.When settlement negotiations failed to produce a resolution, we filed a lawsuit against Metropolitan in Los Angeles Superior Court on November17, 2005 seeking recovery of damages. Metropolitan counsel responded with a demurrer, seeking to have certain claims disallowed. In an October 2006ruling, the Court allowed the claims for breach of fiduciary duty, breach of express contract, promissory estoppel, breach of implied contract and specificperformance. On October 19, 2007, the Court issued a ruling on Motions for Summary Judgment/Adjudication that upheld our claim for breach of fiduciaryduty and dismissed the other four contractual and related claims. The case is currently scheduled for trial in April 2008. See Item 1, “Business – NarrativeDescription of Business – Water Resource Development”Other ProceedingsThere are no other material pending legal proceedings to which we are a party or of which any of our property is the subject.ITEM4. Submission of Matters to a Vote of Security HoldersNo matters were submitted to a vote of our stockholders during the fourth quarter of 2007.13Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IIITEM5. Market for Registrant's Common Equity and Related Stockholder MattersThe Company's common stock is currently traded on The NASDAQ Global Market ("NASDAQ") under the symbol "CDZI." The following tablereflects actual sales transactions for the dates that the Company was trading on NASDAQ, as reported by Bloomberg LP. High Low Quarter Ended Sales Price Sales Price 2006: March 31 $21.00 $16.00 June 30 $18.01 $15.75 September 30 $21.37 $17.00 December 31 $22.95 $18.30 2007: March 31 $26.98 $22.01 June 30 $26.13 $20.95 September 30 $23.00 $16.22 December 31 $21.00 $17.02 On March 3, 2008, the high, low and last sales prices for the shares, as reported by Bloomberg, were $15.00, $13.40, and $13.98, respectively.We also had an authorized class of 100,000 shares of Series F preferred stock. All 1,000 shares of Series F Preferred Stock issued and outstandingwere converted into 17,289 shares of our common stock in June 2007, and we subsequently filed a Certification of Elimination of Series F ConvertiblePreferred Stock with the State of Delaware. As a result, no Series F Preferred Stock was issued or outstanding on December 31, 2007.As of March 3, 2008, the number of stockholders of record of our common stock was 179.To date, we have not paid a cash dividend on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Oursenior secured convertible term loan has covenants that prohibit the payment of dividends.All securities sold by us during the three years ended December 31, 2007 which were not registered under the Securities Act have previously beenreported in our Annual, Quarterly, and Current Reports on Forms 10K, 10-Q and 8K, respectively.14Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.STOCK PRICE PERFORMANCEThe stock price performance graph below compares the cumulative total return of Cadiz common stock against the cumulative total return of the Standard &Poor’s Small Cap 600 NASDAQ U.S. index and the Russell 2000® index for the past five fiscal years. The graph indicates a measurement point of December31, 2002 and assumes a $100 investment on such date in Cadiz common stock, the Standard & Poor’s Small Cap 600 and the Russell 2000® indices. Withrespect to the payment of dividends, Cadiz has not paid any dividends on its common stock, but the Standard & Poor’s Small Cap 600 and the Russell 2000®indices assume that all dividends were reinvested. The stock price performance graph shall not be deemed incorporated by reference by any general statementincorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933, as amended, except to the extent that Cadizspecifically incorporates this graph by reference, and shall not otherwise be deemed filed under such acts. 15Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ITEM6. Selected Financial DataThe following selected financial data insofar as it relates to the years ended December 31, 2007, 2006, 2005, 2004 and 2003 has been derived fromour audited financial statements. The information that follows should be read in conjunction with the audited consolidated financial statements and notesthereto for the period ended December 31, 2007 included in Part IV of this Form 10-K. See also Item 7, "Management's Discussion and Analysis of FinancialCondition and Results of Operations". ($ in thousands, except for per share data) Year Ended December 31, 2007 2006 2005 2004 2003 Statement of Operations Data: Total revenues $426 $614 $1,197 $47 $3,162 Net loss (13,633) (13,825) (23,025) (16,037) (11,536)Less: Preferred stock dividends - - - - 918 Imputed dividend on preferred stock - - - - 1,600 Net loss applicable to common stock $(13,633) $(13,825) $(23,025) $(16,037) $(14,054)Per share: Net loss (basic and diluted) $(1.15) $(1.21) $(2.14) $(2.32) $(6.39)Weighted-average common shares outstanding 11,845 11,381 10,756 6,911 2,200 December 31, 2007 2006 2005 2004 2003 Balance Sheet Data: Total assets $49,572 $50,326 $46,046 $51,071 $49,526 Long-term debt $29,652 $25,881 $25,883 $25,000 $30,253 Preferred stock, common stock and additional paid-incapital $254,102 $245,322 $226,852 $209,718 $185,040 Accumulated deficit $(235,343) $(221,710) $(207,885) $(184,860) $(168,823)Stockholders' equity $18,759 $23,612 $18,967 $24,858 $16,217 On January 30, 2003, Sun World filed voluntary petitions under Chapter 11 of the Bankruptcy Code. Since that date, the financial statements of SunWorld are no longer consolidated with those of Cadiz due to the Company’s loss of control over the operations of Sun World.On October 20, 2003, the Company and holders of Series D and Series E Preferred Stock entered into an agreement to exchange all outstandingshares of Series D and Series E Preferred Stock, plus accrued and unpaid dividends, for an aggregate of 400,000 shares of common stock. Holders of theremaining 100,000 shares of Series F Preferred Stock, which was convertible into our common stock, were only entitled to dividends if common stockdividends are paid. At the holder’s election, 99,000 shares of Series F Preferred Stock were converted into our common stock in 2004, and the remaining1,000 shares were converted in 2007. On December 31, 2007, there were no shares of preferred stock issued or outstanding.16Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Common shares issued and outstanding have increased from 6,471,000 in 2003 to 11,904,000 in 2007. The increase is primarily due to the issuanceof 2,000,000 shares to investors in private placements, the issuance of 2,134,000 shares to investors upon the conversion of preferred stock and warrantexercises, and the issuance of 1,298,000 shares to employees, vendors and lenders.ITEM7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsIn connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the following discussion contains trendanalysis 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 materiallyfrom these forward-looking statements. These include, among others, our ability to maximize value from our land and water resources and our ability toobtain new financings as needed to meet our ongoing working capital needs. See additional discussion under the heading "Risk Factors” above.OverviewOur operations (and, accordingly, our working capital requirements) relate primarily to our water and real estate development activities.Our primary assets consist of 45,000 acres of land in three areas of eastern San Bernardino County, California. Virtually all of this land is underlainby high-quality groundwater resources with demonstrated potential for recreational, residential and water resource development. The properties are locatedin proximity to the Colorado River and the Colorado River Aqueduct, the major source of imported water for Southern California. The aquifer systemsunderlying 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 SouthernCalifornia. In addition, most of the major population centers in Southern California are not located where significant precipitation occurs, requiring theimportation of water from other parts of the state. We therefore believe that a competitive advantage exists for companies that can provide high-quality,reliable, and affordable water to major population centers.Our objective is to realize the highest and best use for these assets. In 1993 we acquired permits for up to 9,600 acres of agricultural development inthe Cadiz Valley and the withdrawal of more than 1 million acre-feet of groundwater from the aquifer system underlying the property. We believe that thelocation, geology and hydrology of this property is uniquely suited for development of a groundwater storage and dry-year supply program to augment thewater supplies available to Southern California. To this end, in 1997 we entered into the first of a series of agreements with the Metropolitan Water District ofSouthern California (“Metropolitan”) to jointly design, permit and build such a project (the “Cadiz Project” or “Project”).17Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Between 1997 and 2002, Metropolitan and the Company received substantially all of the state and federal approvals required for the permitsnecessary to construct and operate the project, including a Record of Decision (“ROD”) from the U.S. Department of the Interior, which endorsed the CadizProject and offered a right-of-way for construction of project facilities. The ROD also approved a Final Environmental Impact Statement (“FEIS”) incompliance with the National Environmental Policy Act (“NEPA”).Upon completion of the federal environmental review and permitting process, Cadiz expected Metropolitan to certify the completed FinalEnvironmental Impact Report (“FEIR”). As California Environmental Quality Act (“CEQA”) lead agency for the Project, Metropolitan had planned to hold aCEQA 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 CEQAhearing, Metropolitan’s staff brought the right-of-way matter before the Metropolitan Board of Directors. By a very narrow margin, the Metropolitan Boardvoted 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 wasnot completed by Metropolitan.It is our position that the actions by Metropolitan breached various contractual and fiduciary obligations to the Company and interfered with theeconomic advantage it would have obtained from the Cadiz Project. In April 2003, the Company filed a claim against Metropolitan seeking compensatorydamages. When settlement negotiations failed to produce a resolution, the Company filed a lawsuit against Metropolitan in Los Angeles Superior Court onNovember 17, 2005. The claims for breach of fiduciary duty, breach of express contract, promissory estoppel, breach of implied contract and specificperformance 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 onMotions for Summary Judgment/Adjudication that upheld the Company’s claim for breach of fiduciary duty and dismissed the other four contractual andrelated claims. The case is currently scheduled for trial in April 2008.Regardless of the Metropolitan Board’s actions in October 2002, the need for new water storage and dry-year supplies has not abated. Thepopulation of California continues to grow rapidly, while water supplies are being challenged by drought, lack of infrastructure and environmentalprotections. 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 federaljudge limited deliveries out of California’s State Water Project, reducing Southern California’s water supplies by nearly 30%. Moreover, in 2007, citiesthroughout Southern California endured one of the driest years in decades, while the Colorado River continued to provide below average deliveries to theState. 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.18Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The 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 togrow in California, we continue to pursue the implementation of the Cadiz Project.To that end, we have filed permit applications with the County of San Bernardino in an effort to complete the environmental review of the CadizProject according to CEQA and to acquire any permits required under California law to construct and operate the Project. Upon completion of the CEQAprocess, we plan 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 theInterior. Additionally, we will continue discussions with several other public agencies regarding their interest in participating in the Cadiz Project. See Item1(c) - “Water Resource Development”, above.In addition to agriculture and water development, the rapid growth of nearby desert communities in Southern California, Nevada and Arizonaindicates that the Company’s land holdings may in time be suitable for other types of development. To this end, we have conducted a detailed analysis ofour land assets to assess the opportunities for these properties. Based on this analysis, we believe that our properties have significant long-term potential forresidential and commercial development. We are continuing to explore alternative land uses to maximize the value of our properties.In 2006, we refinanced our long-term debt with the proceeds of a new $36.4 million zero coupon senior secured convertible term loan that matureson June 29, 2011. Interest accrues on the principal balance of the loan at 5 percent per annum for the first 3 years and 6 percent thereafter. No interest andprincipal payments are due prior to the final maturity date. Each of the two loan tranches is convertible into the Company’s $0.01 par value common stock ata fixed conversion price per share, subject to downward adjustment in the event a change in control. The conversion prices of the $10 million Tranche Aloan and $26.4 million Tranche B loan are $18.15 and $23.10 per share, respectively. See “Liquidity and Capital Resources” below.In 2003 and 2004, we raised approximately $35 million of equity through private placements, including a $24 million private placement completedon November 30, 2004. The November 30, 2004 private placement included the issuance of warrants to purchase 405,440 shares of our common stock at anexercise 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 ofcommon stock. On January 31, 2007, we exercised a cancellation option and notified holders that the warrants would expire on March 2, 2007 unlessexercised by the warrant holder prior to that date. All of the remaining warrant holders exercised their warrants following receipt of this notice, resulting inthe issuance by us of 335,440 shares of common stock and receipt by us of $5,031,600 of net cash proceeds. Under the terms of our current loan agreement,we have retained all proceeds associated with the exercise of these warrants. As of March 2, 2007, no warrants remain outstanding.19Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.We remain committed to our land and water assets and we continue to explore all opportunities for development of these assets. We cannot predictwith certainty which of these various opportunities will ultimately be utilized.Results of Operations(a) Year Ended December 31, 2007 Compared to Year Ended December 31, 2006We have not received significant revenues from our water resource and real estate development activity to date. As a result, we continue to incur anet loss from operations. We had revenues of $0.4 million for the year ended December 31, 2007 and $0.6 million for the year ended December 31,2006. The lower revenues were due to a smaller lemon harvest. Our net loss totaled $13.6 million for the year ended December 31, 2007, compared with anet loss of $13.8 million for the year ended December 31, 2006. The lower loss in 2007 period resulted primarily from a $2.9 million expense incurred in2006 related to a change in the fair value of certain derivatives embedded in our long-term debt. This reduction was partially offset by $2.3 million highergeneral and administrative expenses relating to the Company’s lawsuit against the Metropolitan Water District of Southern California and stock basedcompensation in 2007.Our primary expenses are our ongoing overhead costs (i.e. general and administrative expense) and our interest expense. We will continue to incurnon-cash expenses in connection with our management and director equity incentive compensation plans.Revenues. Revenue totaled $0.4 million during the year ended December 31, 2007 compared to $0.6 million during the year ended December 31,2006. 2007 revenues included $0.4 million of revenues related to citrus crop sales, which were down $0.2 million from the prior year. Lemon crop yieldswere adversely affected by a severe freeze during the winter of 2007. When possible, we prefer to lease our vineyards and citrus groves to third parties so thatwe can focus our resources on our water and real estate development programs.Cost of Sales. Cost of Sales totaled $0.6 million during the year ended December 31, 2007, compared with $0.7 million during the year endedDecember 31, 2006. The lower cost of sales in 2007 reflected lower lemon harvesting and processing costs, due to a smaller lemon crop. There was no cost ofsales relating to raisin farming activities in 2007. In 2007, Cadiz leased the raisin crop to Sun View Vineyards of California. The raisin crop lease has notbeen renewed for the 2008 crop year. Cadiz is evaluating different strategies for the management of its agricultural assets, and the Company will becultivating a raisin crop in the vineyard in 2008.General and Administrative Expenses. General and administrative expenses during the year ended December 31, 2007 totaled $10.0 millioncompared with $7.7 million for the year ended December 31, 2006. Non-cash compensation costs related to stock and option awards are included in Generaland Administrative Expenses.Compensation costs from stock and option awards for the year ended December 31, 2007 totaled $3.6 million compared with $2.3 million for theyear ended December 31, 2006. The expenses primarily relate to stock and options issued under the Cadiz 2007 and 2003 Management Equity IncentivePlans and the Outside Director Compensation Plan. 7,661 options and 954,559 shares were granted under the Plans in 2007, compared with 12,339 optionsand 14,701 shares in 2006. Shares and options issued under the Plans vest over varying periods from the date of issue to December 2011.20Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Other General and Administrative Expenses, exclusive of stock based compensation costs, totaled $6.4 million in the year ended December 31,2007, compared with $5.5 million for the year ended December 31, 2006. Higher 2007 expenses were primarily due to additional legal and consulting feesrelated to water development efforts, including the Company’s lawsuit against the Metropolitan Water District of Southern California.Depreciation and Amortization. Depreciation and amortization totaled $0.3 million for the year ended December 31, 2007 compared to $0.2million for 2006. The higher expense related to 2007 capital expenditures.Interest Expense, net. Net interest expense totaled $3.2 million during the year ended December 31, 2007, compared to $2.4 million during2006. Higher interest expense was primarily due to the amortization of the debt discount related to the new senior secured convertible term loan arranged inJune 2006. 2007 interest income increased to $605 thousand from $376 thousand in the prior year due to higher short-term interest rates. The following tablesummarizes the components of net interest expense for the two periods (in thousands): Year EndedDecember 31, 2007 2006 Interest on outstanding debt $1,929 $1,987 Amortization of debt discount 1,852 783 Amortization of deferred loan costs 62 40 Interest income (605) (376) $3,238 $2,434 Loss on Extinguishment of Debt and Debt Refinancing. Deferred loan costs, which are primarily legal fees, are amortized over the life of each loanagreement. In June, 2006 we refinanced our term loan with ING Capital LLC (“ING”) with a new senior secured convertible term loan with Peloton PartnersLLP (“Peloton”), as administrative agent for the loan, and with an affiliate of Peloton and another investor, as lenders. As a result, $408 thousand of legal feeswere capitalized and will be amortized over the 5 year life of the loan agreement. At the same time, $868 thousand of deferred financing costs and prepaidinterest associated with the prior loan agreement with ING were fully expensed. No comparable expense was incurred in fiscal 2007.Change in Fair Value of Derivative Liability. The Company prepaid its existing indebtedness with ING in June, 2006 with the proceeds of a newsenior secured convertible term loan. The new loan contained certain “embedded derivatives” which were bifurcated from the host debt instrument and wererecorded at fair values on the Company’s consolidated balance sheet under GAAP. These embedded derivatives were subject to periodic revaluation basedon changes in the fair market value of our common stock. On September 29, 2006, certain terms and conditions of the credit agreement and embeddedderivatives were amended. The fair value of the equity conversion options were recalculated, and a $2.9 million expense was recognized due to an increasein fair value. The primary reason for the increase in fair value was the increase in the trading price of our common stock from June 30, 2006 to September 29,2006. Following the September 29, 2006 amendment, bifurcation of the embedded equity conversion option was no longer required, and the fair value of theembedded derivatives was transferred from the liability accounts to stockholder’s equity. No further fair value adjustments were required after September 30,2006. As a result, there was no comparable expense in the year ending December 31, 2007.21Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Other Income (expense). Cadiz incurred other expense of $2 thousand related to losses on the disposition of assets in the year ended December 31,2007, compared with $373 thousand of income during the year ended December 31, 2006. The 2006 income primarily related to payments received from astockholder. In March, 2006, one of our stockholders determined that it had, at a time when it was the beneficial holder of more than 10% of our outstandingequity securities, inadvertently engaged in trades which resulted in automatic short swing profit liability to the Company pursuant to Section 16(b) of theSecurities Exchange Act of 1934. After becoming aware of the situation, the stockholder promptly made payments totaling $350 thousand to the Companyto settle the entire short swing profit liability owed as a consequence of these trades. (b) Year Ended December 31, 2006 Compared to Year Ended December 31, 2005We had revenues of $0.6 million for the year ended December 31, 2006 and $1.2 million for the year ended December 31, 2005. The lower revenueswere due to a below average lemon harvest. Our net loss totaled $13.8 million for the year ended December 31, 2006, compared with a net loss of $23.0million for the year ended December 31, 2005. The lower loss in 2006 period resulted primarily from $14.4 million lower non-cash compensation expensesfrom stock and option awards under our Management Equity Incentive Plan, partially offset by $1.4 million higher other general and administrative expensesrelating to the Cadiz Project and the Company’s lawsuit against the Metropolitan Water District of Southern California. Other expenses were higher,primarily due to $0.5 million of additional interest expense and a $2.9 million expense related to a change in the value of certain bifurcated derivativeinstruments imbedded in our senior secured convertible term loan.Revenues. Revenue totaled $0.6 million during the year ended December 31, 2006 compared to $1.2 million during the year ended December 31,2005. 2006 revenues included $0.6 million of revenues related to citrus crop sales, which were down $0.6 million from the prior year. The lemon grove waspruned extensively in early 2006, which limited the growth of fruit during the early spring. The crop was also affected by unusually hot summer weather anda winter freeze. Crop rental revenues also declined to $12 thousand in 2006 from $35 thousand in 2005.22Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cost of Sales. Cost of Sales totaled $0.7 million during the year ended December 31, 2006, compared with $1.0 million during the year endedDecember 31, 2005. The lower cost of sales in 2006 reflected lower lemon harvesting and processing costs, due to a smaller lemon crop. This was partiallyoffset by additional irrigation and cultivation expenses associated with the juice grape crop. Cadiz leased the juice grape crop to Sun View Vineyards ofCalifornia in 2005.General and Administrative Expenses. General and administrative expenses during the year ended December 31, 2006 totaled $7.7 millioncompared with $20.7 million for the year ended December 31, 2005. Non-cash compensation costs related to stock and option awards are included inGeneral and Administrative Expenses.Compensation costs from stock and option awards for the year ended December 31, 2006 totaled $2.3 million compared with $16.7 million for theyear ended December 31, 2005. The expenses primarily relate to stock and options issued under the Cadiz 2003 Management Equity Incentive Plan and theOutside Director Compensation Plan. 12,339 options and 14,701 shares were granted under the Management Equity Incentive Plan and the Outside DirectorsCompensation Plan, respectively, in 2006, compared with 1,094,712 shares and 365,000 options granted under the Management Equity Incentive Plan in2005. Shares and options issued under the Plans vest over varying periods from the date of issue to December 2008. $877 thousand of the 2006 expense is aresult of the adoption and application of Statement of Financial Accounting Standards No. 123(R), “Share-Based Payments” effective January 1, 2006.Other General and Administrative Expenses, exclusive of stock based compensation costs, totaled $5.5 million in the year ended December 31,2006, compared with $4.1 million for the year ended December 31, 2005. Higher 2006 expenses were primarily due to additional legal and consulting feesrelated to water development efforts, including the Company’s lawsuit against the Metropolitan Water District of Southern California, and accountingexpenses related to Sarbanes Oxley compliance.Depreciation and Amortization. Depreciation and amortization totaled $0.2 million for the year ended December 31, 2006 compared to $0.2million for 2005.Interest Expense, net. Net interest expense totaled $2.4 million during the year ended December 31, 2006, compared to $1.9 million during2005. Higher interest expense was primarily due to the amortization of the debt discount related to certain derivatives imbedded in the new senior securedconvertible term loan. 2006 interest income increased to $376 thousand from $159 thousand in the prior year due to higher cash balances and higher short-term interest rates. The following table summarizes the components of net interest expense for the two periods (in thousands): Year EndedDecember 31, 2006 2005 Interest on outstanding debt $1,987 $2,062 Amortization of debt discount 783 - Amortization of deferred loan costs 40 28 Interest income (376) (159) $2,434 $1,931 Loss on Extinguishment of Debt and Debt Refinancing. Deferred loan costs, which are primarily legal fees, are amortized over the life of each loanagreement. In June, 2006 we entered into a new loan agreement with Peloton Partners LLP (“Peloton”), as administrative agent for the loan, and with anaffiliate of Peloton and another investor, as lenders. As a result, $408 thousand of legal fees were capitalized and will be amortized over the 5 year life of theloan agreement. At the same time, $868 thousand of deferred loan costs and prepaid interest associated with the prior loan agreement with ING Capital LLC(“ING”) were fully expensed.23Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Change in Fair Value of Derivative Liability. The Company prepaid its existing indebtedness with ING in June, 2006 with the proceeds of a newsenior secured convertible term loan. The new loan contained certain “embedded derivatives” which were bifurcated from the host debt instrument and wererecorded at fair values on the Company’s consolidated balance sheet under GAAP. These embedded derivatives were subject to periodic revaluation basedon changes in the fair market value of our common stock. On September 29, 2006, certain terms and conditions of the credit agreement and embeddedderivatives were amended. The fair value of the equity conversion options were recalculated, and a $2.9 million expense was recognized due to an increasein fair value. The primary reason for the increase in fair value was the increase in the trading price of our common stock from June 30, 2006 to September 29,2006. Following the September 29, 2006 amendment, bifurcation of the embedded equity conversion option is no longer required. As a result, the fair valueof the embedded derivatives has been transferred from the liability accounts to stockholder’s equity, and no further fair value adjustments were required afterSeptember 30, 2006. There was no comparable expense in the prior year ending December 31, 2005.Other Income. Other Income during the year ended December 31, 2006 totaled $373 thousand, primarily related to payments from a stockholder. InMarch, 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 equitysecurities, inadvertently engaged in trades which resulted in automatic short swing profit liability to the Company pursuant to Section 16(b) of the SecuritiesExchange Act of 1934. After becoming aware of the situation, the stockholder promptly made payments totaling $350 thousand to the Company to settle theentire short swing profit liability owed as a consequence of these trades. Liquidity and Capital Resources(a) Current Financing ArrangementsAs we have not received significant revenues from our water resource and real estate activity to date, we have been required to obtain financing tobridge the gap between the time water resource and real estate development expenses are incurred and the time that revenue will commence. Historically, wehave addressed these needs primarily through secured debt financing arrangements, private equity placements and the exercise of outstanding stock optionsand 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 andminimize the dilution of the ownership interests of common stockholders. We entered into a series of agreements with ING Capital LLC, and we refinancedthe ING loan with a new $36.4 million five year zero coupon senior secured convertible term loan with Peloton Partners LLP (through an affiliate) andanother lender (the “Peloton Loan”) in June 2006. The Peloton loan provided for:24Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.· the repayment in full of our senior secured term loan with ING;· a final maturity date of June 29, 2011;· a zero coupon structure, which requires no cash interest payments prior to the final maturity date; and· a 5% interest rate for the first 3 years, with a 6% interest rate thereafter.At each lender’s option, principal plus accrued interest on each of the two loan tranches is convertible into the Company’s $0.01 par value commonstock 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’sstock 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 CadizWater Program entitlement process, acquires a right-of-way for the project pipeline and arranges sufficient financing to repay the loan and build the CadizProject. The conversion prices of the two loan tranches are $18.15 and $23.10, respectively, so the $10 million Tranche A prepayment option would becomeavailable 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 $32.34per 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 atthe time the agreements were executed. At December 31, 2007, the Company was in compliance with its debt covenants.The Peloton Loan provided us with $9.3 million of additional working capital and deferred all interest payments until the June 29, 2011 finalmaturity date. Furthermore, the Peloton Loan, unlike the prior ING facility, permits us to retain any proceeds received from the issuance of common stockincluding common stock issued pursuant to the exercise of stock options and warrants.A private placement completed by the Company in November 30, 2004 included the issuance of warrants to purchase 405,440 shares of our commonstock 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 of70,000 shares of common stock with net proceeds of $1,050,000. On January 31, 2007, we exercised our right to terminate the remaining warrants upon 30days 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 andreceived net proceeds of $5,031,600 during February 2007. Following these exercises, no warrants remain outstanding.As we continue to actively pursue our business strategy, additional financing in connection with our water programs will be required. See“Outlook”, below. The covenants in the credit facility do not prohibit our use of additional equity financing and allow us to retain 100% of the proceeds ofany 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”). EffectiveNovember 30, 2004, 99,000 shares of Series F Preferred Stock were converted to 1,711,665 shares of our common stock leaving 1,000 shares of Series FPreferred Stock issued and outstanding. In June 2007, the remaining 1,000 preferred shares were converted into 17,289 shares of our common stock, and wesubsequently filed a Certification of Elimination of Series F Convertible Preferred Stock with the State of Delaware.25Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.At December 31, 2007, we had no outstanding credit facilities other than the Peloton Loan, and we had no preferred stock issued or outstanding.Cash Used for Operating Activities. Cash used for operating activities totaled $5.3 million for the years ended December 31, 2007 and December31, 2006. The cash was primarily used to fund general and administrative expenses related to the Company’s water development efforts, including legalcosts associated with the Company’s lawsuit against the Metropolitan Water District of Southern California.Cash Provided By (Used for) Investing Activities. Cash used for investing activities in the year ended December 31, 2007 was $1.4 million,compared with no cash used for investing activities during the same period in 2006. 2007 capital expenditures were $1.1 million higher than the prior year,primarily for machinery and equipment at the Cadiz Ranch and for furniture and fixtures at the Company’s corporate offices. Other assets increased $250thousand, primarily due to a lease security deposit.Cash Provided by Financing Activities. Cash provided by financing activities totaled $5.2 million for the year ended December 31, 2007,compared with $10.4 million for the year ended December 31, 2006. The 2007 result reflects $5.0 million of proceeds from the issuance of 335,440 shares of$0.01 par value common stock at $15.00 per share when certain holders chose to exercise their warrants. The higher 2006 result reflects $9.3 million of netproceeds from the placement of a new $36.4 million senior secured convertible term loan and $1.1 million of proceeds from the issuance of 70,000 shares of$0.01 par value common stock at $15.00 per share when certain warrant holders chose to exercise their warrants.(b) OutlookShort Term Outlook. The proceeds remaining from our $36.4 million senior secured convertible term loan and the sale of common shares, pursuantto 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. TheCompany expects to continue its historical practice of structuring its financing arrangements to match the anticipated needs of its developmentactivities. 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 anypayments due under our senior secured convertible term loan at maturity. See “Current Financing Arrangements” above. Payments will be due under theterm 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 needswill depend upon the specific measures we pursue in the entitlement and development of our real estate and water resources. Future capital expenditures willdepend 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 anongoing basis. We may meet any future cash requirements through a variety of means, including equity or debt placements, or through the sale or otherdisposition of assets. Equity placements would be undertaken only to the extent necessary, so as to minimize the dilutive effect of any such placements uponour existing stockholders.26Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(c) Critical Accounting Policies As discussed in Note 2 to the Consolidated Financial Statements of Cadiz, the preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in the accompanyingconsolidated financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments ofcertain amounts included in the financial statements based on all relevant information available at the time and giving due consideration to materiality. Wedo not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However,application of these policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differfrom these estimates. Management has concluded that the following critical accounting policies described below affect the most significant judgments andestimates used in the preparation of the consolidated financial statements.(1) Intangible and Other Long-Lived Assets. Property, plant and equipment, intangible and certain other long-lived assets are depreciated oramortized over their useful lives. Useful lives are based on management’s estimates of the period over which the assets will generate revenue. Long-livedassets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. TheCompany reevaluates the carrying value of its water program annually during the first quarter of each year and has confirmed that the carrying value of thewater program is not impaired as of December 31, 2007.(2) Goodwill. As a result of a merger in May 1988 between two companies, which eventually became known as Cadiz Inc., goodwill in the amount of$7,006,000 was recorded. Approximately $3,193,000 of this amount was amortized until the adoption of Financial Accounting Standards No. 142, (“SFASNo. 142”) “Goodwill and Other Intangible Assets” on January 1, 2002. Goodwill is tested for impairment annually in the first quarter, or if events occurwhich require an impairment analysis be performed. The Company has confirmed that the carrying value of the goodwill is not impaired as of December 31,2007.(3) Deferred Tax Assets and Valuation Allowances. To date we have not generated significant revenue from our water development programs, andwe have had a history of net operating losses. As such, we have generated significant deferred tax assets, including large net operating loss carry forwards forfederal and state income taxes for which we have recorded a full valuation allowance. Management is currently working on water and real estatedevelopment projects, including the Cadiz Project, that are designed to generate future taxable income, although there can be no guarantee that this willoccur. If taxable income is generated in future years, some portion or all of the valuation allowance will be reversed, and an increase in net income wouldconsequently be reported.27Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(d) New Accounting Pronouncements In September 2006, the FASB released Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value Measurements". Thisstatement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 clarifiesthe 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 participantassumptions should include assumptions about risk, should include assumptions about the effect of a restriction on the sale or use of an asset and shouldreflect its nonperformance risk (the risk that the obligation will not be fulfilled). Nonperformance risk should include the reporting entity’s credit risk. SFASNo. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 except for nonfinancial assets and nonfinancialliabilities 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 will adopt SFAS No. 157 on January 1, 2008, as required, and management is still evaluating the impact on the Company’sconsolidated financial statements.In February 2007, the FASB released Statement of Financial Accounting Standards No. 159 (“SFAS No. 159), “The Fair Value Option for FinancialAssets and Liabilities Including an Amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure certain financial assets andliabilities at fair value and is effective for the first fiscal year beginning after November 15, 2007. The Company will adopt SFAS No. 159 on January 1,2008, as required, and management is still evaluating the impact on the Company’s consolidated financial statements.In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” ("SFAS 141(R)"), which establishes principles andrequirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, anynoncontrolling interest in the acquiree and goodwill acquired in a business combination. This statement is effective for business combinations for which theacquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currentlyassessing the potential impact that the adoption of SFAS 141(R) will have 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 ARBNo. 51” ("SFAS 160"), which establishes and expands accounting and reporting standards for minority interests, which will be recharacterized asnoncontrolling interests, in a subsidiary and the deconsolidation of a subsidiary. SFAS 160 is effective for business combinations for which the acquisitiondate 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 yearsbeginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 160 will have on its financialposition and results of operations.(e) Off Balance Sheet ArrangementsCadiz does not have any off balance sheet arrangements at this time.28Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.(f) Certain Known Contractual Obligations Payments Due by Period Contractual Obligations Total Less than 1 year 1-3 years 3-5 years After 5 years Long term debt obligations $39,266 $9 $13 $39,244 $- Interest payable 8,504 1 1 8,502 - Operating leases 843 179 346 318 - $48,613 $189 $360 $48,064 $- Long-term debt included in the table above primarily reflects the Peloton Loan, which is described above in Item 7, Managements Discussion and Analysis ofFinancial Condition and Results of Operation; Liquidity and Capital Resources. Operating leases include the lease of the Company’s executive offices, asdescribed in Item 2, Properties.29Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.ITEM7A. Quantitative and Qualitative Disclosures about Market Risk We are exposed to market risk from changes in interest rates on long-term debt obligations that affect the fair value of these obligations. Our policyis to manage interest rate exposure by year of scheduled maturities and to evaluate expected cash flows and sensitivity to interest rate changes (in thousandsof dollars). A 1% change in interest rate on the Company long term debt obligation would have resulted in interest expense fluctuating by approximately$383 thousand and $316 thousand during the years ended December 31, 2007 and 2006, respectively. Circumstances could arise which may cause interestrates and the timing and amount of actual cash flows to differ materially from the schedule below: Long-Term Debt Fixed Rate Average Variable Rate Average Expected Maturity Maturities Interest Rate Maturities Interest Rate 2008 $ 9 3.9% - - 2009 $ 9 3.9% - - 2010 $ 4 3.9% - - 2011 $ 39,244 5.6% $ - $ - Cadiz long-term debt included in the table above reflects the debt restructuring which occurred in June 2006, as described above in Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations; Liquidity and Capital Resources; Cadiz Obligations. ITEM8. Financial Statements and Supplementary Data The information required by this item is submitted in response to Part IV below. See the Index to Consolidated Financial Statements.ITEM9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable. ITEM9A. Controls And Procedures Disclosure Controls and Procedures We have established disclosure controls and procedures to ensure that material information related to the Company, including its consolidatedentities, 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 December 31, 2007, ourPrincipal 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 thereports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms, and such information is accumulated and communicated to management, including the principalexecutive and principal financial officers as appropriate, to allow timely decisions regarding required disclosures.30Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inExchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and PrincipalFinancial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the criteria in the Internal Control-IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under that framework, ourmanagement concluded that our internal control over financial reporting was effective as of December 31, 2007. The effectiveness of our internal controlover financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, asstated in their report which is included herein. Changes in Internal Control Over Financial Reporting In connection with the evaluation required by paragraph (d) of Rule 13a-15 under the Exchange Act, there was no change identified in theCompany's internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, the Company's internal control over financial reporting. ITEM9B. Other Information Not applicable.31Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART III ITEM10. Directors, Executive Officers and Corporate Governance The information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which weintend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2007.ITEM11. Executive CompensationThe information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which weintend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2007.ITEM12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which weintend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2007.ITEM13. Certain Relationships and Related Transactions, and Director IndependenceThe information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directors which weintend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31, 2007.ITEM14. Principal Accountant Fees and ServicesThe information called for by this item is incorporated herein by reference to the definitive proxy statement involving the election of directorswhich we intend to file with the SEC pursuant to Regulation 14A under the Securities and Exchange Act of 1934 not later than 120 days after December 31,2007.32Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.PART IVITEM15. Exhibits and Financial Statement Schedules 1.Financial Statement. See Index to Consolidated Financial Statements. 2.Financial Statement Schedule. See Index to Consolidated Financial Statements. 3.Exhibits.The following exhibits are filed or incorporated by reference as part of this Form 10-K. 3.1Cadiz Certificate of Incorporation, as amended(1) 3.2Amendment to Cadiz Certificate of Incorporation dated November 8, 1996(2) 3.3Amendment to Cadiz Certificate of Incorporation dated September 1, 1998(3) 3.4Amendment to Cadiz Certificate of Incorporation dated December 15, 2003(4) 3.5Certificate of Elimination of Series D Preferred Stock, Series E-1 Preferred Stock and Series E-2 Preferred Stock of Cadiz Inc. datedDecember 15, 2003(4) 3.6Certificate of Elimination of Series A Junior Participating Preferred Stock of Cadiz Inc., dated March 25, 2004(4) 3.7Amended and Restated Certificate of Designations of Series F Preferred Stock of Cadiz Inc.(5) 3.8Cadiz Bylaws, as amended (6) 3.9Second Amended and Restated Certificate of Designations of Series F Preferred Stock of Cadiz Inc. dated June 30, 2006, as correctedby Certificate of Correction dated March 14, 2007(15) 3.10Certificate of Elimination of Series F Preferred Stock of Cadiz Inc. (as filed August 3, 2007)(17) 10.1Agreement Regarding Employment Between Cadiz Inc. and Keith Brackpool dated July 5, 2003(7) 10.2Limited Liability Company Agreement of Cadiz Real Estate LLC dated December 11, 2003(4) 33Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.3Amendment No. 1, dated October 29, 2004, to Limited Liability Company Agreement of Cadiz Real Estate LLC.(8) 10.4The Cadiz Groundwater Storage and Dry-Year Supply Program Definitive Economic Terms and Responsibilities betweenMetropolitan Water District of Southern California and Cadiz dated March 6, 2001(9) 10.5Consulting Agreement dated August 1, 2002 by and between Richard Stoddard and Cadiz Inc., and Extension of ConsultingAgreement dated January 1, 2004 by and between Richard Stoddard and Cadiz Inc.(8) 10.6Employment Agreement dated September 12, 2005 between O'Donnell Iselin II and Cadiz Inc.(10) 10.7Settlement Agreement dated as of August 11, 2005 by and between Cadiz Inc., on the one hand, and Sun World International, Inc.,Sun Desert, Inc., Coachella Growers and Sun World/Rayo, on the other hand(11) 10.8$36,375,000 Credit Agreement among Cadiz Inc. and Cadiz Real Estate LLC, as Borrowers, the Several Lenders from time to timeparties thereto, and Peloton Partners LLP, as Administrative Agent, dated as of June 26, 2006(12) 10.9Amendment No. 1 dated September 29, 2006 to the $36,375,000 Credit Agreement among Cadiz Inc. and Cadiz Real Estate LLC, asBorrowers, the Several Lenders from time to time parties thereto and Peloton Partners LLP, as Administrative Agent, dated as of June26, 2006 (13) 10.10Outside Director Compensation Plan(14) 10.11Resolutions adopted by the Cadiz Inc. Board of Directors on March 13, 2007, increasing the annual salary paid to Keith Brackpooland the monthly consulting fees paid to Richard E. Stoddard(15) 10.122007 Management Equity Incentive Plan(16) 10.13Amendment No. 2 dated October 1, 2007 to Reorganization Plan and Agreement for Purchase and Sale of Assets dated as of February18, 1998 among Cadiz Inc. and Mark A. Liggett in his capacity as successor in interest to Exploration Research Associates,Incorporated., a California corporation (“ERA”) and in his individual capacity as former sole shareholder of ERA and as thesuccessor in interest to ERA. 10.14Amendment dated October 1, 2007 to Employment Agreement between O'Donnell Iselin II and Cadiz Inc. 10.15Consulting Agreement dated January 1, 2008 by and between Timothy J. Shaheen and Cadiz Inc.34Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 21.1Subsidiaries of the Registrant 23.1Consent of Independent Registered Public Accounting Firm 31.1Certification of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc. pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 31.2Certification of O'Donnell Iselin II, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to Section 302 of the Sarbanes-OxleyAct of 2002 32.1Certification of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2Certification of O'Donnell Iselin II, Chief Financial Officer and Secretary of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002________________________________________________________________________35Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (1)Previously filed as an Exhibit to our Registration Statement of Form S-1 (Registration No. 33-75642) declared effective May 16,1994 filed on February 23, 1994 (2)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 1996 filed on November 14, 1996 (3)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 filed on November13, 1998 (4)Previously filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2003 filed on November 2,2004. (5)Previously filed as an Exhibit to our Current Report on Form 8-K dated November 30, 2004 filed on December 2, 2004. (6)Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 filed on August 13, 1999 (7)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 2003 filed on November 2, 2004 (8)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed on March 31,2005 (9)Previously filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 filed on March 28,2002 (10)Previously filed as an Exhibit to our Current Report on Form 8-K dated October 3, 2005 filed on October 3, 2005 (11)Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 2005 filed on November 14, 2005 (12)Previously filed as an Exhibit to our registration statement on Form S-3 (Registration No. 333-126117) filed on July 28, 2006 (13)Previously filed as an Exhibit to our current report on Form 8-K dated October 4, 2006 and filed October 4, 2006 (14)Previously filed as appendix B to our definitive proxy dated October 10, 2006 and filed October 10, 2006 (15)Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed on March 16,2007 (16)Previously filed as appendix A to our definitive proxy dated April 27, 2007 and filed April 27, 2007 (17) Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended June 30, 2007 filed on August 6, 2007 36Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CADIZ INC. CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm38 Consolidated Statements of Operations for the three years ended December 31, 200740 Consolidated Balance Sheets as of December 31, 2007 and 200641 Consolidated Statements of Cash Flows for the three years ended December 31, 200742 Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 200743 Notes to the Consolidated Financial Statements44 Financial Statement Schedule67 (Schedules other than those listed above have been omitted since they are either not required, inapplicable, or the required information is included on thefinancial statements or notes thereto.)37Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Report of IndependentRegistered Public Accounting FirmTo the Board of Directors and Stockholders of Cadiz Inc.:In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of CadizInc. and its subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2007 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financialstatement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction withthe related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financialreporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statementschedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financialreporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to expressopinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on ourintegrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatementand whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements includedexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reportingincluded obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.As discussed in Note 2 to the accompanying consolidated financial statements, the Company changed the manner in which it accounts for share-basedcompensation in 2006.38Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 14, 200839Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CADIZINC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, (In thousands, except per share data) 2007 2006 2005 Total revenues $426 $614 $1,197 Costs and expenses: Cost of sales (exclusive of depreciation shown below) 566 721 994 General and administrative 9,988 7,710 20,732 Depreciation and amortization 261 154 229 Total costs and expenses 10,815 8,585 21,955 Operating loss (10,389) (7,971) (20,758) Interest expense, net (3,238) (2,434) (1,931)Loss on extinguishment of debt and debt refinancing - (868) - Change in fair value of derivative liability - (2,919) - Other income (expense) (2) 373 - Other income (expense), net (3,240) (5,848) (1,931) Net loss before income taxes (13,629) (13,819) (22,689) Income tax expense 4 6 336 Net loss (13,633) (13,825) (23,025) Net loss applicable to common stock $(13,633) $(13,825) $(23,025) Basic and diluted net loss per share $(1.15) $(1.21) $(2.14) Weighted-average shares outstanding 11,845 11,381 10,756 See accompanying notes to the consolidated financial statements.40Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CADIZINC. CONSOLIDATED BALANCE SHEETS December 31, ($ in thousands) 2007 2006 ASSETS Current assets: Cash and cash equivalents $8,921 $10,397 Accounts Receivable 20 301 Prepaid expenses and other 216 243 Total current assets 9,157 10,941 Property, plant, equipment and water programs, net 36,032 35,190 Goodwill 3,813 3,813 Other assets 570 382 Total assets $49,572 $50,326 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $408 $444 Accrued liabilities 744 380 Current portion of long term debt 9 9 Total current liabilities 1,161 833 Long-term debt 29,652 25,881 Total liabilities 30,813 26,714 Contingencies (Note 12) Stockholders' equity: Series F convertible preferred stock – $.01 par value: - 1,000 shares issued and outstanding at December 31, 2006 and none at and December 31, 2007 - - Common stock - $0.01 par value; 70,000,000 shares authorized; shares issued and outstanding: 11,903,661 at December 31, 2007 and 11,536,597 at December 31, 2006 119 116 Additional paid-in capital 253,983 245,206 Accumulated deficit (235,343) (221,710)Total stockholders' equity 18,759 23,612 Total liabilities and stockholders' equity $49,572 $50,326 See accompanying notes to the consolidated financial statements.41Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CADIZINC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ($ in thousands) 2007 2006 2005 Cash flows from operating activities: Net loss $(13,633) $(13,825) $(23,025)Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 261 154 229 Amortization of deferred loan costs 62 40 28 Amortization of debt discount 1,852 783 - Loss on extinguishment of debt and debt refinancing - 868 - Interest added to loan principal 1,928 1,463 851 Net (gain)/loss on disposal of assets 2 (21) 42 Change in value of derivative liability - 2,919 - Compensation charge for stock awards and share options 3,609 2,260 16,687 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 281 (131) (170)Decrease (increase) in prepaid borrowing expense - 523 - Decrease (increase) in prepaid expenses and other 27 (209) 1,236 (Decrease) increase in accounts payable (36) 75 (101)(Decrease) increase in accrued liabilities 364 (175) 522 Net cash used for operating activities (5,283) (5,276) (3,701) Cash flows from investing activities: Investment in marketable securities (8,819 ) - - Additions to property, plant and equipment (1,105) (22) (68) Proceeds from sale of marketable securities 8,819 - - Proceeds from asset disposition - 22 - (Increase) in other assets (250) - - Net cash provided by (used for) investing activities (1,355) - (68) Cash flows from financing activities: Proceeds from exercise of stock options 139 - - Net proceeds from issuance of common stock 5,032 1,050 - Proceeds from issuance of long-term debt - 36,375 44 Deferred loan costs - (408) - Principal payments on long-term debt (9) (26,646) (4) Net cash provided by financing activities 5,162 10,371 40 Net increase/(decrease) in cash and cash equivalents (1,476) 5,095 (3,729) Cash and cash equivalents, beginning of period 10,397 5,302 9,031 Cash and cash equivalents, end of period $8,921 $10,397 $5,302 Non-cash financing and investing activities: Issuance of common stock for services accrued in prior year - - 447 See accompanying notes to the consolidated financial statement.42Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CADIZINC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYFor the Years Ended December 31, 2007, 2006, and 2005 ($ in thousands) Additional Total Preferred Stock Common Stock Paid-in Accumulated Stockholders’ Shares Amount Shares Amount Capital Deficit Equity Balance as of December 31, 2004 1,000 - 10,324,339 103 209,615 (184,860) 24,858 Issuance of common stock forservices - - 37,200 1 446 - 447 Issuance of management incentiveshares and options - - 968,933 10 16,677 - 16,687 Fractional shares retired - - (9) - - - - Net loss - - - - - (23,025) (23,025) Balance as of December 31, 2005 1,000 $- 11,330,463 $114 $226,738 $(207,885) $18,967 Convertible term loan conversionoption - - - - 15,160 - 15,160 Stock compensation expense andissuance of management incentiveand outside director shares - - 136,195 1 2,259 - 2,260 Common stock issued due to warrantexercise - - 70,000 1 1,049 - 1,050 Fractional shares retired - - (61) - - - - Net Loss - - - - - (13,825) (13,825) Balance as of December 31, 2006 1,000 $- 11,536,597 $116 $245,206 $(221,710) $23,612 Issuance of shares pursuant towarrant exercise - - 335,440 3 5,029 - 5,032 Issuance of shares pursuant to stockawards and option exercise - - 14,285 - 139 - 139 Issuance of shares upon conversionof Series F Preferred Stock (1,000) - 17,289 - - - - Stock compensation expense - - - - 3,609 - 3,609 Net Loss - - - - - (13,633) (13,633) Balance as of December 31, 2007 - $- 11,903,611 $119 $253,983 $(235,343) $18,759 See accompanying notes to the consolidated financial statements43Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CADIZINC. NOTES TO THE CONSOLIDATES FINANCIAL STATEMENTS NOTE 1 – DESCRIPTION OF BUSINESSThe Company’s primary asset consists of 45,000 acres of land in three areas of eastern San Bernardino County, California. Virtually all of this landis underlain by high-quality groundwater resources. The properties are located in proximity to the Colorado River and the Colorado River Aqueduct, themajor source of imported water for Southern California. The aquifer systems underlying the properties are suitable for a variety of water storage and supplyprograms.The value of these assets derives from a combination of projected population increases and limited water supplies throughout SouthernCalifornia. In addition, most of the major population centers in Southern California are not located where significant precipitation occurs, requiring theimportation 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 agriculturaldevelopment in the Cadiz Valley and the withdrawal of more than 1 million acre-feet of groundwater from the aquifer system underlying the property. TheCompany believes that the location, geology and hydrology of this property is uniquely suited for development of a groundwater storage and dry-yearsupply program to augment the water supplies available to Southern California. To this end, in 1997 Cadiz entered into the first of a series of agreementswith 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 permitsnecessary to construct and operate the project, including a Record of Decision (“ROD”) from the U.S. Department of the Interior, which endorsed the CadizProject and offered a right-of-way for construction of project facilities. The ROD also approved a Final Environmental Impact Statement (“FEIS”) incompliance with the National Environmental Policy Act (“NEPA”).Upon completion of the federal environmental review and permitting process, Cadiz expected Metropolitan to certify the completed FinalEnvironmental Impact Report (“FEIR”). As California Environmental Quality Act (“CEQA”) lead agency for the Project, Metropolitan had planned to hold aCEQA 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 CEQAhearing, Metropolitan’s staff brought the right-of-way matter before the Metropolitan Board of Directors. By a very narrow margin, the Metropolitan Boardvoted 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 wasnot completed by Metropolitan.It is the Company’s position that the actions by Metropolitan breached various contractual and fiduciary obligations to the Company and interferedwith the economic advantage it would have obtained from the Cadiz Project. In April 2003, Cadiz filed a claim against Metropolitan seeking compensatorydamages. When settlement negotiations failed to produce a resolution, the Company filed a lawsuit against Metropolitan in Los Angeles Superior Court onNovember 17, 2005. The claims for breach of fiduciary duty, breach of express contract, promissory estoppel, breach of implied contract and specificperformance 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 onMotions for Summary Judgment/Adjudication that upheld the Company’s claim for breach of fiduciary duty and dismissed the other four contractual andrelated claims. The case is currently scheduled for trial in April 2008.44Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Regardless of the Metropolitan Board’s actions in October 2002, the need for new water storage and dry-year supplies has not abated. Thepopulation of California continues to grow, while water supplies are being challenged by drought, lack of infrastructure and environmentalprotections. 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 federaljudge limited deliveries out of California’s State Water Project, reducing Southern California’s water supplies by nearly 30%. Moreover, in 2007, citiesthroughout Southern California endured one of the driest years in decades, while the Colorado River continued to provide below average deliveries to theState. 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 togrow 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 CadizProject according to CEQA and to acquire any permits required under California law to construct and operate the Project. Upon completion of the CEQAprocess, 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 ofthe Interior. Additionally, the Company will continue discussions with several other public agencies regarding their interest in participating in the CadizProject.In addition to agriculture and water development, the rapid growth of nearby desert communities in Southern California, Nevada and Arizonaindicates 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 ofthe Company’s land assets to assess the opportunities for these properties. Based on this analysis, the Company believes that its properties have significantlong-term potential for residential and commercial development. The Company is continuing to explore alternative land uses to maximize the value of itsproperties.The Company remains committed to its land and water assets and will continue to explore all opportunities for development of these assets. TheCompany cannot predict with certainty which of these various opportunities will ultimately be utilized.45Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of PresentationThe financial statements of the Company have been prepared using accounting principles applicable to a going concern, which assumes realizationof assets and settlement of liabilities in the normal course of business. The Company incurred losses of $13.6 million, $13.8 million and $23.0 million for theyears ended December 31, 2007, 2006 and 2005, respectively. The Company had working capital of $8.0 million at December 31, 2007 and used cash inoperations of $5.3 million for the year ended December 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 PelotonPartners LLP (“Peloton”), as administrative agent, and an affiliate of Peloton and another investor, as lenders. The proceeds of the new term loan werepartially 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 whencertain 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 ofcommon stock. A further $5.0 million was raised in February 2007, when all remaining warrant holders chose to exercise their rights to purchase 335,440shares 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 should the Company berequired 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 issuesadditional equity or equity linked securities to raise funds, the ownership percentage of the Company’s existing stockholders would be reduced. Newinvestors may demand rights, preferences or privileges senior to those of existing holders of common stock. If the Company cannot raise needed funds, itmight be forced to make further substantial reductions in its operating expenses, which could adversely affect its ability to implement its current businessplan 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 nofurther liabilities related to the business or operations of Sun World. Subsequent to the effective date of the Chapter 11 reorganization plan of Sun World, theCompany’s primary activities are limited to the development of its water resources and related assets. From the effective date of the reorganization planthrough December 31, 2007, the Company has incurred losses of approximately $32.7 million and used cash in operations of $12.0 million. Principles of ConsolidationIn December 2003, the Company transferred substantially all of its assets (with the exception of an office sublease, certain office furniture andequipment and any Sun World related assets) to Cadiz Real Estate LLC, a Delaware limited liability company (“Cadiz Real Estate”). The Company holds100% of the equity interests of Cadiz Real Estate, and therefore continues to hold 100% beneficial ownership of the properties that it transferred to CadizReal Estate. Because the transfer of the Company’s properties to Cadiz Real Estate has no effect on its ultimate beneficial ownership of these properties, theproperties owned of record either by Cadiz Real Estate or by the Company are treated as belonging to the Company.46Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Use of Estimates in Preparation of Financial StatementsThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. In preparing these financial statements, management has made estimateswith regard to revenue recognition, goodwill and other long-lived assets, and deferred tax assets. Actual results could differ from those estimates.Revenue RecognitionThe Company recognizes crop sale revenue upon shipment and transfer of title to customers.Stock-Based CompensationGeneral and administrative expenses include $3.6 million, $2.3 million and $16.7 million of stock based compensation expenses in the fiscal yearsending December 31, 2007, 2006 and 2005, respectively.Prior to the January 2006 adoption of SFAS 123R, the Company accounted for grants of options to employees to purchase its common stock usingthe intrinsic value method in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and FIN No. 44, “Accounting for CertainTransactions Involving Stock Compensation”. As permitted by SFAS 123 and as amended by SFAS No. 148, the Company chose to continue to account forsuch option grants under APB Opinion No. 25 and provide the expanded disclosures specified in SFAS 123, as amended by SFAS No. 148.Had compensation cost for the Company’s option grants been determined based on their fair value at the grant date for awards consistent with theprovisions of SFAS 123R, the Company’s net loss per share for the twelve months ended December 31, 2005 would have been the adjusted pro formaamounts indicated below (dollars in thousands): Year Ended December 31, 2005 Net loss applicable to common stock:As reported $(23,025) Additional expense under SFAS 123 $(3,096) Pro forma $(26,121) Net loss per common share:As reported $(2.14) Additional expense under SFAS 123 $(0.29) Pro forma $(2.43) 47Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.For purposes of computing the pro forma disclosures required by SFAS 123, the fair value of each option granted to employees and directors isestimated using the Black-Scholes option pricing model.In December 2004, the FASB issued SFAS No. 123R (revised 2004), “Share-Based Payment”, which requires all share-based payments to employees,including grants of employee stock options, be recognized in the financial statements based on their grant date fair values. SFAS No. 123R replaces SFASNo. 123, “Accounting for Stock-based Compensation,” (“SFAS 123”) and supercedes APB Opinion No. 25. The Company adopted the new requirementsusing the modified prospective transition method during the first quarter of 2006, and as a result, will not retroactively adjust results from priorperiods. Under this transition method, compensation expense associated with stock options recognized in fiscal 2006 included: 1) expenses related to theremaining unvested portion of all stock option awards granted prior to January 1, 2006, based on the grant date fair value estimated in accordance with theoriginal provisions of SFAS No. 123; and 2) expenses related to all stock option awards granted or modified subsequent to January 1, 2006, based on thegrant date fair value estimated in accordance with the provisions of SFAS No. 123R.The Company applies the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which is thenamortized on a straight-line basis over the requisite service period. 365,000 options were granted under the Company’s 2003 Management Equity IncentivePlan in 2005, and 12,339 options were granted in 2006. An additional 7,661 options were granted under the Company’s 2007 Management Equity IncentivePlan in 2007. The Options have a 10 year term with vesting periods ranging from the issuance date to three years. The 2006 and 2007 options had strikeprices equal to the fair market value of the Company’s common stock on the respective grant dates.As a result of the adoption of SFAS 123R, the Company recorded expense in the amount of $877,000 in 2006 related to the fair value ofoptions. $831,000 of this amount was related to options granted in 2005. SFAS 123R also requires the Company to estimate forfeitures in calculating theexpense related to stock-based compensation as opposed to only recognizing these forfeitures and the corresponding reduction in expense as they occur. Theremaining vesting periods are relatively short, and the potential impact of forfeitures is not material. The Company is in a tax loss carryforward position andis not expected to realize a benefit from any additional compensation expense recognized under SFAS 123R. See Note 7 – Income Taxes.Net Loss Per Common ShareBasic Earnings Per Share (EPS) is computed by dividing the net loss, after deduction for preferred dividends either accrued or imputed, if any, by theweighted-average common shares outstanding. Options, deferred stock units, warrants, participating and redeemable preferred stock and the zero couponterm loan convertible into or exercisable for certain shares of the Company’s common stock were not considered in the computation of diluted EPS becausetheir inclusion would have been antidilutive. Had these instruments been included, the fully diluted weighted average shares outstanding would haveincreased by approximately 2,208,000 shares, 1,583,000 shares and 725,000 shares for the years ended December 31, 2007, 2006 and 2005, respectively.48Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cash and Cash EquivalentsThe Company considers all short-term deposits with an original maturity of three months or less to be cash equivalents. The Company invests itsexcess cash in deposits with major international banks, government agency notes and short-term commercial paper and, therefore, bears minimal risk. Suchinvestments are stated at cost, which approximates fair value, and are considered cash equivalents for purposes of reporting cash flows.Property, Plant, Equipment and Water ProgramsProperty, plant, equipment and water programs are stated at cost. Permanent land development costs, such as acquisition costs, clearing, initialleveling and other costs required to bring land into a suitable condition for general agricultural use, have been capitalized and not depreciated, since thesecosts were determined to have an indefinite useful life.Depreciation is provided using the straight-line method over the estimated useful lives of the assets, generally ten to forty-five years for landimprovements and buildings and five to fifteen years for machinery and equipment. Leasehold improvements are depreciated over the shorter of the initialterm of the relevant lease agreement or the estimated useful life of the asset.Water rights and water storage and supply programs are stated at cost. Certain costs directly attributable to the development of such programs havebeen capitalized by the Company. These costs, which are expected to be recovered through future revenues, consist of direct labor, drilling costs, consultingfees for various engineering, hydrological, environmental and feasibility studies, and other professional and legal fees.Impairment of Long-Lived AssetsThe Company evaluates its long-lived assets, including intangibles, for potential impairment when circumstances indicate that the carrying amountof the asset may not be recoverable. This evaluation is based upon estimated future cash flows. In the event that the undiscounted cash flows are less than thenet book value of the assets, the carrying value of the assets will be written down to their estimated fair value. As a result of the actions taken byMetropolitan in the fourth quarter of 2002 as described in Note 1, the Company evaluated the carrying value of its water program and determined that theasset was not impaired and that the costs were estimated to be recovered through implementation of the Cadiz Project with other government organizations,water agencies and private water users. Beginning in 2004, the Company has reviewed the valuation of the water program annually and has concluded thatthe carrying amount of the program was not impaired. The Company’s analysis could be impacted by changes in plans related to the Cadiz Project.49Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Goodwill and Other AssetsAs a result of a merger in May 1988 between two companies which eventually became known as Cadiz Inc., goodwill in the amount of $7,006,000was recorded. Approximately $3,193,000 of this amount was amortized prior to the adoption of Statement of Financial Accounting Standards No. 142,(“SFAS No. 142”) “Goodwill and Other Intangible Assets” on January 1, 2002. Goodwill is tested for impairment annually in the first quarter of each year, orif events occur which require an impairment analysis be performed. As a result of the actions taken by Metropolitan in the fourth quarter of 2002 as describedin Note 1, the Company performed an impairment test of its goodwill and determined that its goodwill was not impaired. Beginning in 2004, the Companyhas performed an annual impairment test of goodwill in the first quarter of each year and has determined that the goodwill was not impaired.Deferred loan costs represent costs incurred to obtain debt financing. Such costs are amortized over the life of the related loan. At December 31,2007, the capitalized loan fees relate to the zero coupon secured convertible term loan with Peloton Partners LLP, as described in Note 6.Income TaxesIncome taxes are provided for using an asset and liability approach which requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of temporary differences between the financial statement and tax bases of assets and liabilities at the applicable enacted taxrates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.Effective January 1, 2007, the Company adopted FIN 48 “Accounting for Uncertainty in Income Taxes.” The adoption of FIN 48 did not have asignificant impact on the financial statements of the Company. In connection with the adoption of FIN 48, the Company elected to classify income taxpenalties and interest as general and administrative and interest expenses, respectively. See Note 7 – Income Taxes.Fair Value of Financial InstrumentsFinancial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities withcarrying values approximating fair value include accounts payable and accrued liabilities due to their short-term nature. The carrying value of theCompany's debt, before discount, approximates fair value, based on interest rates available to the Company for debt with similar terms.Supplemental Cash Flow InformationCash interest payments due on the ING loan during 2006 and 2005 were credited against a $2.4 million prepaid interest account that had beenestablished for this purpose. No cash payments are due on the new Peloton Loan prior to the June 29, 2011 final maturity date.50Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Cash payments for income taxes were $7,300 and $128,200 in the years ended December 31, 2007 and 2006, respectively. No cash was paid forincome taxes during the year ended December 31, 2005.Recent Accounting PronouncementsIn September 2006, the FASB released Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value Measurements". Thisstatement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 clarifiesthe 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 participantassumptions should include assumptions about risk, should include assumptions about the effect of a restriction on the sale or use of an asset and shouldreflect its nonperformance risk (the risk that the obligation will not be fulfilled). Nonperformance risk should include the reporting entity’s credit risk. SFASNo. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 except for nonfinancial assets and nonfinancialliabilities 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 will adopt SFAS No. 157 on January 1, 2008, as required, and management is still evaluating the impact on the Company’sconsolidated financial statements.In February 2007, the FASB released Statement of Financial Accounting Standards No. 159 (“SFAS No. 159), “The Fair Value Option for FinancialAssets and Liabilities Including an Amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure certain financial assets andliabilities at fair value and is effective for the first fiscal year beginning after November 15, 2007. The Company will adopt SFAS No. 159 on January 1,2008, as required, and management is still evaluating the impact on the Company’s consolidated financial statements.In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations” ("SFAS 141(R)"), which establishes principles andrequirements for how the acquirer shall recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed, anynoncontrolling interest in the acquiree and goodwill acquired in a business combination. This statement is effective for business combinations for which theacquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currentlyassessing the potential impact that the adoption of SFAS 141(R) will have 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 ARBNo. 51” ("SFAS 160"), which establishes and expands accounting and reporting standards for minority interests, which will be recharacterized asnoncontrolling interests, in a subsidiary and the deconsolidation of a subsidiary. SFAS 160 is effective for business combinations for which the acquisitiondate 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 yearsbeginning on or after December 15, 2008. The Company is currently assessing the potential impact that the adoption of SFAS 160 will have on its financialposition and results of operations.51Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.NOTE 3 – PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMSProperty, plant, equipment and water programs consist of the following (dollars in thousands): December 31, 2007 2006 Land and land improvements $21,998 $21,986 Water programs 14,274 14,274 Buildings 1,161 1,191 Leasehold Improvements 570 - Furniture & Fixtures 334 45 Machinery and equipment 807 681 Construction in progress 27 - 39,171 38,177 Less accumulated depreciation (3,139) (2,987) $36,032 $35,190 Depreciation expense during the years ended December 31, 2007, 2006 and 2005 was $261,000, $154,000 and $229,000 respectively.NOTE 4 – OTHER ASSETSOther assets consist of the following (dollars in thousands): December 31, 2007 2006 Deferred loan costs, net $320 $382 Office lease security deposit 250 - $570 $382 Deferred loan costs consist of legal and other fees incurred to obtain debt financing. Amortization of deferred loan costs was $62,000, $40,000 and$28,000 in 2007, 2006 and 2005, respectively, and is included in interest expense in the statement of operations.52Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.NOTE 5 – ACCRUED LIABILITIESAccrued liabilities consist of the following (dollars in thousands): December 31, 2007 2006 Payroll, bonus, and benefits 24 10 Consulting and Legal expenses 102 72 Income & other taxes 221 238 Deferred rent 224 - Other accrued expenses 173 60 $744 $380 NOTE 6 – LONG-TERM DEBTAt December 31, 2007 and 2006, the carrying amount of the Company’s outstanding debt is summarized as follows (dollars in thousands): December 31, 2007 2006 Zero coupon secured convertible term loan due June 29, 2011. Interest accruing at 5% perannum until June 29, 2009 and at 6% thereafter $39,244 $37,316 Other loans 22 31 Debt Discount (9,605) (11,457) 29,661 25,890 Less current portion 9 9 $29,652 $25,881 Pursuant to the Company’s loan agreements, annual maturities of long-term debt outstanding on December 31, 2007 are as follows:Year $000’s 2008 9 2009 9 2010 4 2011 39,244 2012 - $39,266 53Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.In June 2006, the Company entered into a $36.4 million five year zero coupon convertible term loan with Peloton Partners LLP, as administrativeagent for the loan, and with an affiliate of Peloton and another investor, as lenders (the “Peloton Loan”). Certain terms of the loan were subsequentlyamended pursuant to Amendment #1 to the Credit Agreement, which was effective September 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 isdue at the final maturity of the loan in June, 2011. Substantially all the assets of the Company have been pledged as collateral for the term loan, whichcontains representations, warranties and covenants that are typical for agreements of this type, including restrictions that would limit the Company’s abilityto incur additional indebtedness, incur liens, pay dividends or make restricted payments, dispose of assets, make investments and merge or consolidate withanother person. However, there are no financial maintenance covenants and no restrictions on the Company’s ability to issue additional common stock tofund 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 intotwo 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 maximumof 2,221,909 shares are issuable pursuant to these conversion rights, with this maximum number applicable if the loan is converted on the final maturitydate. The Company has more than sufficient authorized common shares available for this purpose.In the event of a change in control, the conversion prices are adjusted downward by a discount that declines over time such that, under a change incontrol scenario, both the Tranche A and Tranche B conversion prices are initially $16.50 per share and increase in a linear manner over time to the full$18.15 Tranche A conversion price and $23.10 Tranche B conversion price on the final maturity date. In no event does the maximum number of sharesissuable 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 fullon 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 thetranche by 40% or if the Company obtains a certified environmental impact report for the Cadiz groundwater storage and dry year supply program, a pipelineright-of-way and permits for pipeline construction and financing commitments sufficient to construct the project. The Company has filed a registrationstatement 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 FASBStatement No. 133, Accounting for Derivative Instruments and Hedging Activities and related Emerging Issues Task Force (EITF) interpretations and SECrules. The Company concluded that certain provisions of the convertible loan agreement, which were in effect prior to the first amendment date, may bedeemed to be derivatives for purposes of the application of FASB Statement No. 133 and EITF 00-19: Accounting for Derivative Financial InstrumentsIndexed to, and Potentially Settled in, a Company’s Own Stock. Therefore, in accordance with FASB Statement No. 133, these embedded instruments werebifurcated from the host debt instrument and classified as a liability in the Company’s financial statements. The Company prepared valuations for each of thedeemed derivatives using a Black-Scholes option pricing model and recorded a liability of approximately $12.2 million on the June 30, 2006 loan fundingdate, with an offsetting discount to the convertible term loan.54Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.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 beamortized to interest expense over the life of the loan using the effective interest amortization method. The principal valuation assumptions are as follows:Loan balance available for conversion:$36.4 millionExpected term:5 yearsCadiz common share price:$17.01Volatility:46%Risk-free Interest Rate:5.18%Change in control probability:10%On September 29, 2006 the terms of the loan were amended, and it was determined that bifurcation of the embedded equity conversion option is nolonger required. The derivative liability was adjusted to fair value on the amendment date, and the $2,919,000 increase in fair value was recorded as an“Other Expense” item in the Consolidated Statement of Operations. The $15.2 million fair value of the derivative liability was then transferred to theAdditional 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 overthe life of the loan using the interest amortization methodThe proceeds of the Peloton Loan were applied to repay in full the Company’s term loan facility with ING on June 29, 2006. As a result, INGretained the $762,000 remaining balance of the prepaid interest credit account described below, and the write-off of this asset was reflected in the “OtherExpense” caption of the Statement of Operations. The write-off of $106,000 of unamortized debt issuance costs related to the ING loan was also reflectedunder “Other Expense”.At December 31, 2007 the Company was in compliance with its debt covenants under the Peloton Loan.55Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.NOTE 7 – INCOME TAXESDeferred taxes are recorded based upon differences between the financial statement and tax bases of assets and liabilities and availablecarryforwards. Temporary differences and carryforwards which gave rise to a significant portion of deferred tax assets and liabilities as of December 31, 2007and 2006 are as follows (in thousands): December 31, 2007 2006 Deferred tax assets: Net operating losses $32,345 $25,501 Fixed asset basis difference 7,484 7,645 Contributions carryover 3 6 Accrued liabilities and other 2,348 1,049 Total deferred tax assets 42,180 34,201 Valuation allowance for deferred tax assets (42,180) (34,201) Net deferred tax asset $- $- The valuation allowance increased $7,979,000 and $2,587,000 in 2007 and 2006, respectively, due to an increase in the net operating loss categoryof deferred tax assets. The change in deferred tax assets resulted from current year net operating losses, expiration of prior year loss carryovers and newannual limitation amounts.As of December 31, 2007, the Company had net operating loss (NOL) carryforwards of approximately $87.6 million for federal income tax purposesand $29.1 million for California income tax purposes. Such carryforwards expire in varying amounts through the year 2027. Use of the carryforward amountsis subject to an annual limitation as a result of ownership changes.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 otherhand, was approved by the U.S. Bankruptcy Court, concurrently with the Court’s confirmation of the amended Plan. The Settlement Agreement provides thatfollowing 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 losscarryovers (NOLs). Sun World Federal NOLs are estimated to be approximately $58 million. If, in any year from calendar year 2005 through calendar year2011, 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% ofthe amount of such reduction, and shall retain the remaining 75% for its own benefit. There is no requirement that Cadiz utilize these NOLs during thisreimbursement period, or provide any reimbursement to the Sun World bankruptcy estate for any NOLs used by Cadiz after this reimbursement periodexpires.56Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.As of the January 1, 2007, adoption of FIN 48, the Company possessed unrecognized tax benefits totaling approximately $3.3 million. A scheduleof changes for the 12 months ended December 31, 2007 is shown below: Amounts (in millions) Balance, January 1, 2007 $ 3.3 Additions or reductions for tax positions of prior years - Additions or reductions for tax positions of current year - Changes related to current year settlements - Changes due to expirations of the statute of limitations - Balance, December 31, 2007 $3.3 None of these tax benefits, if recognized, would affect the Company's effective tax rate because the Company has recorded a full valuationallowance against these assets. Additionally, as of that date the Company had accrued a total of $200,000 for state taxes, interest and penalties related toincome tax positions in prior returns. In connection with the adoption of FIN 48, the Company elected to classify income tax penalties and interest as generaland administrative and interest expenses, respectively. For the twelve months ended December 31, 2007, general and administrative expenses includedapproximately $40,000 of income tax penalties.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 2004 through 2007 remain subject to examination by the Internal Revenue Service, and tax years 2003 through 2007remain subject to examination by California tax jurisdictions. In addition, the Company's loss carryforward amounts are generally subject to examinationand adjustment for a period of three years for federal tax purposes and four years for California purposes, beginning when such carryovers are utilized toreduce taxes in a future tax year.A reconciliation of the income tax benefit to the statutory federal income tax rate is as follows (dollars in thousands):57Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Year Ended December 31, 2007 2006 2005 Expected federal income tax benefit at 34% $(4,638) $(4,700) $(7,714)Loss with no tax benefit provided 3,983 3,426 1,672 State income tax 4 6 336 Stock Options - (21) 4,020 Losses utilized against unconsolidated subsidiary taxable income - - 2,012 Non-deductible expenses and other 655 1,295 10 Income tax expense $4 $6 $336 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 againstthese assets. Accordingly, no deferred tax asset has been recorded in the accompanying balance sheet. NOTE 8 – EMPLOYEE BENEFIT PLANSThe Company has a 401(k) Plan for its salaried employees. The Company matches 100% of the first three percent of annual base salary and 50% ofthe next two percent of annual base salary contributed by an employee to the plan. The Company contributed $38,000, $20,000, and $22,000 to the plansfor fiscal years 2007, 2006 and 2005, respectively.NOTE 9 – PREFERRED AND COMMON STOCKSeries F Convertible Preferred StockOn December 15, 2003, the Company issued 100,000 shares of Series F Convertible Preferred Stock in conjunction with the extension of theCompany’s senior term loan maturity date. The 100,000 preferred shares were initially convertible into 1,728,955 shares of common stock of theCompany. The estimated value of the Series F Preferred Stock was recorded as a debt discount and was amortized over the initial term of the senior term loansthrough March 31, 2005.On November 30, 2004, the senior term loans were amended. 99,000 shares of the Series F Preferred Stock were converted into 1,711,665 shares ofcommon stock of the Company, and the remaining debt discount of $1.4 million was written off. In June 2007, ING elected to covert the remaining 1,000preferred shares into 17,289 shares of the Company’s common stock, and the Company subsequently filed a Certification of Elimination of Series FConvertible Preferred Stock with the State of Delaware. As a result, no Series F Preferred Stock was issued or outstanding on December 31, 2007.58Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Common Stock and WarrantsOn November 30, 2004, the Company completed a private placement of 400,000 Units at the price of $60.00 per Unit. Each Unit consisted of five(5) shares of the Company’s common stock and one (1) common stock purchase warrant. Each Warrant entitled the holder to purchase, commencing 180 daysfrom the date of issuance, one (1) share of common stock at an exercise price of $15.00 per share. Each Warrant had a term of three (3) years. In September2006, certain warrant holders exercised their right to purchase 70,000 common shares. In 2007, the Company exercised its right to terminate the remainingwarrants 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 ofthe Company’s common stock during the notice period. Following this exercise, no warrants remain outstanding.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 interestto Exploration Research Associates, Inc. (“ERA”), who is now an employee of the Company. The shares will be issued if and when certain significantmilestones in the development of the Company’s properties are achieved. The Company acquired the assets of ERA in 1998, and the original acquisitionagreement 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 in2003, 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 agreementsettled certain claims by ERA against the Company and restored the value of contingent consideration provided to ERA in the original acquisitionagreement. It further provides new milestones that are better aligned with the Company’s current business plans.As discussed in Note 6, principal and accrued interest on the Peloton Loan is convertible into common shares of the Company at the Lender’soption. The terms of the loan include optional prepayment provisions that could result in an early conversion of the loan under certain circumstances, and apreferred conversion formula is provided upon a change in control of the Company.NOTE 10 – STOCK-BASED COMPENSATION PLANS AND WARRANTSThe Company has issued options pursuant to its 2003 and 2007 Management Equity Incentive Plans. The Company also has granted stock awardspursuant to its 2003 Management Equity Incentive Plan, 2007 Management Equity Incentive Plan and Outside Director Compensation Plan, as describedbelow.2003 Management Equity Incentive PlanIn December 2003, concurrently with the completion of the Company’s then current financing arrangements with ING, the Company’s board ofdirectors authorized the adoption of a Management Equity Incentive Plan (the “Incentive Plan”). Under the Incentive Plan, a total of 1,472,051 shares ofcommon stock and common stock options were granted to key personnel. The Board formed allocation committees to direct the initial allocation of 717,373of these shares and a subsequent allocation of 377,339 shares of common stock and 377,339 options to purchase common stock. All the stock and optionswere granted prior to December 31, 2006, and all vesting conditions were satisfied prior to December 31, 2007.59Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Outside Director Compensation PlanThe Cadiz Inc. Outside Director Compensation Plan was approved by Cadiz shareholders in November 2006. Under the plan, each outside directorreceives $30,000 of cash compensation and receives a deferred stock award consisting of shares of the Company’s common stock with a value equal to$20,000 on June 30th of each year. The award accrues on a quarterly basis, with $7,500 of cash compensation and $5,000 of stock earned for each fiscalquarter in which a director serves. The deferred stock award vests automatically on the January 31st which first follows the award date.2007 Management Equity Incentive PlanThe 2007 Management Equity Incentive Plan was approved by stockholders at the June 15, 2007 Annual Meeting. The plan provides for the grantand issuance of up to 1,050,000 shares and options to the Company’s employees and consultants. The plan became effective when the Company filed aregistration statement on Form S-8 on July 25, 2007, and grants of 950,000 shares of common stock and options to purchase 7,661 shares of common stockbecame effective on that date. As discussed below, all grants are subject to vesting conditions, and certain grants are subject to additional market conditions.Stock Options Issued under the 2003 and 2007 Management Equity Incentive PlansThe 2003 Management Equity Incentive Plan provides for the granting of 377,339 options for the purchase of one share of common stock. Optionsissued under the Management Equity Incentive Plan were granted during 2005 and 2006. The options have a ten year term with vesting periods ranging fromissuance 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 ofgrant. All options have been issued to officers, employees and consultants of the Company. 365,000 options were granted under the plan during 2005, andthe 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 Planon July 25, 2007. The options have strike prices that were slightly above the fair market value of the Company’s common stock on the date that the grantbecame effective. The options have a ten year term with vesting periods ranging from issuance date to two years.The fair value of each option was estimated on the date of grant using the Black Scholes option pricing model based on the following weightedaverage assumptions:Risk free interest rate4.21%Expected life9.5 yearsExpected volatility46%Expected dividend yield0.0%Weighted average vesting period0.8 years60Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The risk free interest rate was assumed to be equal to the yield of a U.S. Treasury bond of comparable maturity, as published in the Federal ReserveStatistical Release for the relevant date. The expected life estimate is based on an analysis of the employees receiving option grants and the expectedbehavior of each employee. The expected volatility was derived from an analysis of the historical volatility of the trading price per share of the Company’scommon stock on the NASDAQ Global Market. The Company does not anticipate that it will pay dividends to common shareholders in the future, and theweighted average vesting period is based on the option vesting schedule, assuming no options are forfeit prior to the initial vesting date.The Company recognized stock option related compensation costs of $180,000 and $877,000 in fiscal 2007 and 2006, respectively, relating tothese options. $848,000 of stock option related compensation costs were recognized in fiscal 2005 under APB-25. On December 31, 2007, the unamortizedcompensation expense related to these options amounted to $35,000 and is expected to be recognized in 2008. Options to purchase 10,000 shares wereexercised in February 2007. No stock options were exercised during fiscal 2006.A summary of option activity under the plans as of December 31, 2007 and changes during the current fiscal year is presented below: Weighted- Average Aggregate Average Remaining Intrinsic Exercise Contractual Value Options Shares Price Term ($000’s) Outstanding January 1, 2007 377,339 $12.95 7.4 3,966 Granted 7,661 $20.00 9.0 73 Exercised (10,000) - - (69)Forfeited or expired - - - Outstanding at December 31, 2007 375,000 $13.06 7.5 $3,970 Exercisable at December 31, 2007 368,334 $12.94 7.4 $3,904 61Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The weighted-average grant-date fair value of options granted during the years ended December 31, 2007, 2006 and 2005 were $9.43, $10.08 and$10.80 per share, respectively. The following table summarizes stock option activity for the periods noted. Weighted- Average Amount Exercise Price Outstanding at December 31, 2004 14,680 $231.22 Granted 365,000 $12.71 Expired or canceled (14,680) $231.22 Exercised - - Outstanding at December 31, 2005 365,000 $12.71 Granted 12,339 $20.00 Expired or canceled - $- Exercised - - Outstanding at December 31, 2006 377,339 $12.95 Granted 7,661 $20.00 Expired or canceled - $- Exercised (10,000) 13.95 Outstanding at December 31, 2007 375,000(a) $13.06 Options exercisable at December 31, 2007 368,334 $12.94 Weighted-average years of remaining contractual life of options outstanding atDecember 31, 2007 7.5 (a) Exercise prices vary from $12.00 to $20.00, and expiration dates vary from May 2015 to December 2016.Stock Awards to Directors, Officer, Consultants and EmployeesThe Company has also granted stock awards pursuant to its 2003 and 2007 Management Equity Incentive Plans and its Outside DirectorCompensation Plan.The 2003 Management Equity Incentive Plan provided for the granting of 1,094,712 shares of common stock in May 2005, the 2007 ManagementEquity Incentive Plan provides for the granting of up to 1,050,000 shares of stock and stock options, and the Outside Director Compensation Plan providesfor the granting of up to 50,000 shares. Compensation cost for stock granted to employees and directors is measured at the quoted market price of theCompany's stock on the date of grant.All of the shares issuable under the 2003 Management Equity Incentive Plan were awarded in May 2005. At that time, 717,373 initial allocationshares and 377,339 subsequent allocation shares were awarded. 604,029 shares were issued on the award date, 364,904 shares were issued in December 2005,and the remaining 125,779 shares were issued in December 2006. On December 31, 2006, no additional shares were issuable under the 2003 ManagementEquity Incentive Plan.62Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.A grant of 950,000 shares under the 2007 Management Equity Incentive Plan became effective on July 25, 2007. The grant consists of threeseparate 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.- 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 periodof 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.- 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 periodof 30 consecutive trading days on or before March 12, 2009. This award would also vest in four equal installments on January 1, 2008, January1, 2009, January 1, 2010 and January 1, 2011.The initial Outside Director Compensation Plan award was made on November 14, 2006 and included 10,416 shares for service rendered during the12 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. 10,416 shares were issued immediately upon shareholder approval in November 2006, and the remaining 4,285 shares vested and were issued inJanuary 2007. A 4,599 share award for service during the plan year ended June 30, 2007 became effective on that date, and this award will vest on January31, 2008.The compensation cost of stock grants without market conditions is measured at the quoted market price of the Company’s stock at the date ofgrant. The fair value of the two 2007 Management Equity Incentive Plan awards with market conditions was calculated using a lattice model using thefollowing 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 risk free interest rate was assumed to be equal to the yield of a U.S. Treasury bond of comparable maturity, as published in the Federal ReserveStatistical Release for the relevant date. The current stock price is the closing price of the Company’s common stock quoted on the NASDAQ Global Marketon the grant date. The expected volatility was derived from an analysis of the historical volatility of the trading price per share of the Company’s commonstock on the NASDAQ Global Market. The Company does not anticipate that it will pay dividends in the future.63Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The lattice model calculates a derived service period, which is equal to the median period between the grant date and the date that the relevantmarket 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 statements include approximately $3,429,000 and $1,383,000 of stock based compensation expense related tothese stock awards in the fiscal year ended December 31, 2007 and 2006, respectively. In the fiscal year ended December 31, 2005 $15,839,000 wasrecognized under APB-15. On December 31, 2007, the unamortized compensation expense relating to these stock awards was $6,219,000.A summary of stock awards activity under the plans during the fiscal year ended December 31, 2007 and 2006 is presented below: Weighted- Average Grant-date Shares Fair Value ($000’s) Nonvested at December 31, 2005 125,779 $1,950 Granted 14,701 282 Forfeited or canceled - - Vested (136,195) (2,150) Nonvested at December 31, 2006 4,285 $82 Granted 954,599 9,620 Forfeited or canceled - - Vested (4,285) (82) Nonvested at December 31, 2007 954,599 $9,620 Stock Purchase Warrants Issued to Non-EmployeesThe Company accounts for equity securities issued to non-employees in accordance with the provisions of SFAS 123 and Emerging Issues TaskForce 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’scommon 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 anexercise price of $15.00 per share. An additional 5,440 warrants were issued to an individual who assisted the company in identifying participants in theNovember 30, 2004 private placement and elected to receive a commission for the services in stock rather than cash. Each Warrant had a term of three (3)years and was callable at the Company’s option.64Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.During 2006, certain warrant holders exercised their rights to purchase 70,000 shares, and the Company received $1,050,000 from the sale of thatcommon 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 Companyreceived $5.0 million from the sale of these shares. Following this exercise, no Warrants remain outstanding.NOTE 11 – SEGMENT INFORMATIONWith Sun World’s 2003 filing of voluntary petitions for relief under Chapter 11 of the bankruptcy code as further described in Note 1, the primarybusiness of the Company is to acquire and develop land and water resources. As a result, the Company’s financial results are reported in a single segment.NOTE 12 – COMMITMENTS AND CONTINGENCIESThe Company leases equipment and office facilities under operating leases that expire through 2012. Aggregate rental expense under all operatingleases was $140 thousand, $116 thousand and $110 thousand in the years ended December 31, 2007, 2006 and 2005, respectively. At December 31, 2007,the future minimum rental commitments under existing non-cancelable operating leases are as follows:Year $000’s 2008 179 2009 174 2010 172 2011 179 2012 139 $843 In the normal course of its agricultural operations, the Company handles, stores, transports and dispenses products identified as hazardousmaterials. Regulatory agencies periodically conduct inspections and, currently, there are no pending claims with respect to hazardous materials.The Company is involved in other legal and administrative proceedings and claims. In the opinion of management, the ultimate outcome of eachproceeding or all such proceedings combined will not have a material adverse impact on the Company's financial statements.65Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.NOTE 13 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)(In thousands except per share data) Quarter Ended March 31, June 30, September 30, December 31, 2007 2007 2007 2007 Revenues $352 $5 $6 $63 Operating loss (1,808) (1,390) (3,399) (3,792)Net loss applicable to common stock (2,576) (2,158) (4,218) (4,681)Basic and diluted net loss per common share $(0.22) $(0.18) $(0.35) $(0.40) (In thousands except per share data) Quarter Ended March 31, June 30, September 30, December 31, 2006 2006 2006 2006 Revenues $252 $157 $37 $168 Operating loss (2,095) (1,786) (2,086) (2,004)Net loss applicable to common stock (2,226) (3,150) (5,684) (2,765)Basic and diluted net loss per common share $(0.19) $(0.28) $(0.50) $(0.24) Quarter Ended March 31, June 30, September 30, December 31, 2005 2005 2005 2005 Revenues $15 $15 $15 $1,152 Operating loss (1,006) (12,178) (3,411) (4,163)Net loss applicable to common stock (1,569) (12,625) (3,863) (4,968)Basic and diluted net loss per common share $(0.15) $(1.18) $(0.35) $(0.46) 66Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.CADIZINC. SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTSFor the years ended December 31, 2007, 2006 and 2005 ($ in thousands) Balance at Additions Charged to Balance Year ended Beginning Costs and Other at End December 31, 2007 of Period Expenses Accounts Deductions of Period Tax valuation allowance $34,201 $7,979 $- $- $42,180 Year ended December 31, 2006 Tax valuation allowance $31,614 $2,587 $- $- $34,201 Year ended December 31, 2005 Tax valuation allowance $44,383 $- $- $12,769 $31,614 67Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereto duly authorized.CADIZ INC. By:/s/ Keith Brackpool Keith Brackpool, Chairman and Chief Executive Officer Date:March 14, 2008Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the datesindicated.Name and PositionDate /s/ Keith BrackpoolMarch 14, 2008Keith Brackpool, Chairman and Chief Executive Officer (Principal Executive Officer) /s/ O'Donnell Iselin IIMarch 14, 2008O'Donnell Iselin II, Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Stephen J. DuffyMarch 14, 2008Stephen J. Duffy, Director /s/ Geoffrey GrantMarch 14, 2008Geoffrey Grant, Director /s/ Winston H. HickoxMarch 14, 2008Winston H. Hickox, Director /s/ Murray H. HutchisonMarch 14, 2008Murray H. Hutchison, Director /s/ Raymond J. PaciniMarch 14, 2008Raymond J. Pacini, Director /s/ Timothy J. ShaheenMarch 14, 2008Timothy J. Shaheen, Director 68Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 10.13 AMENDMENT NO. 2 TO REORGANIZATION PLANAND AGREEMENT FOR PURCHASE AND SALE OF ASSETS This AMENDMENT NO. 2 TO REORGANIZATION PLAN AND AGREEMENT FOR PURCHASE AND SALE OF ASSETS (“Amendment No. 2”) is enteredinto as of October 1, 2007 among Cadiz Inc., a Delaware corporation (“Cadiz”), and Mark A. Liggett (“Liggett”), in his capacity as successor in interest toExploration Research Associates, Incorporated., a California corporation (“ERA”) and in his individual capacity as former sole shareholder of ERA and as thesuccessor in interest to ERA. The parties to this Amendment No. 2 are hereinafter sometimes referred to collectively as the "Parties". RECITALS: WHEREAS, Cadiz, ERA and Liggett entered into a Reorganization Plan and Agreement for Purchase and Sale of Assets dated as of February 18, 1998,pursuant to which Cadiz purchased the assets of ERA. ERA subsequently liquidated, with Liggett, as the sole shareholder of ERA, becoming the successor ininterest to ERA. In March 2000, subsequent to such liquidation, Cadiz and Liggett entered into an Amendment to the Reorganization Plan and Agreementfor Purchase and Sale of Assets (“Amendment No. 1”). Such Reorganization Plan and Agreement for Purchase and Sale of Assets, as amended, shall bereferred to as the "Reorganization Plan and Agreement"; and WHEREAS, concurrently herewith, the Parties are entering into a Settlement Agreement and Release (“Settlement Agreement”) by which the Parties will fullyand finally settle, terminate and resolve any and all disputes, claims, demands and causes of action, whether known or unknown, contingent or certain, past,present or future, which they may have had in any way related to the Reorganization Plan and Agreement; and WHEREAS, the Settlement Agreement requires that the Parties execute and deliver this Amendment No. 2; NOW THEREFORE, in consideration of the above recitals, the promises and the mutual representations, warranties, covenants and agreements hereincontained, the Parties hereby agree as follows. Defined terms used herein shall, if not otherwise defined in this Amendment No. 2, have the same meaning asset forth in the Reorganization Plan and Agreement. 1. Contingent Shares. The first paragraph of Section 2.01(b) is hereby deleted and replaced in its entirety with the following: "(b) Up to 300,000 additional shares of Cadiz Common Stock shall be contingently issuable to the Shareholder as set forth below. The CadizCommon Stock to be delivered to the Shareholder pursuant to this subsection (b) shall be referred to herein as the "Contingent Shares". One Hundred Twenty Five Thousand (125,000) Contingent Shares shall be issued to Shareholder if, on or prior to October 1, 2013, any one of thefive conditions set forth on Schedule A is satisfied; The remaining One Hundred Seventy Five Thousand (175,000) Contingent Shares shall be issued to Shareholder if, on or prior to October 1, 2013,any one of the three conditions set forth on Schedule B is satisfied. In the event that the number of outstanding shares of Cadiz Common Stock is changed by a stock dividend, recapitalization, stock split, reversestock split, subdivision, combination, reclassification or similar change in the capital structure of the Cadiz without consideration, then the number ofContingent Shares shall be proportionately adjusted. 2. Extension of Agreement. The first sentence of the third paragraph of Section 2.01(b) is hereby amended by replacing the phrase "within thefirst ten years following the Closing Date" with the phrase "on or before October 1, 2013." 3. Definitions. A. The third sentence of the third paragraph of Section 2.01(b) is hereby deleted and replaced with the following sentence: "For purposes of this subsection (b), the term “Change in Control” shall mean the occurrence of any of the following: (a) when the Companyacquires actual knowledge that any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner (asdefined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities of the Company representing 50% or more of the combined voting power ofthe Company's then-outstanding securities; (b) upon the first purchase of Common Stock pursuant to a tender or exchange offer (other than a tender orexchange offer made by the Company); (c) upon the approval by the Company's shareholders of: (i) a merger or consolidation of the Company with or intoanother corporation (other than an Affiliate of the Company), which does not result in any capital reorganization or reclassification or other change in theCompany's then-outstanding shares of Common Stock, (ii) a sale or disposition of all or substantially all of the Company's assets, or (iii) a plan of liquidationor dissolution of the Company; or (d) if during any period of two consecutive years, the individuals who at the beginning of such period constitute the Boardof Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Company'sshareholders, of each new director is approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of theperiod. B. The third sentence of the fourth paragraph of Section 2.01(b) is hereby deleted. 4. Successors and Assigns. A new Section 14.12 is hereby added to read in its entirety as follows: "14.12 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors,heirs, personal representatives and assigns." 5. Counterparts; Effectiveness. This Amendment No. 2 may be executed in any number of counterparts, each of which, when executed anddelivered, shall be deemed to be an original. All of such counterparts, taken together, shall constitute but one and the same agreement. This Amendment No.2 shall become effective upon the execution of a counterpart of this Amendment No. 2 by each of the parties hereto.Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 6. Existing Agreement. Except as otherwise amended or modified herein or hereby, the provisions of the Reorganization Plan and Agreementare hereby reaffirmed and shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed and delivered by their proper and dulyauthorized officers as of the day and year first above written. CADIZ INC. By: Name: Keith BrackpoolTitle: Chairman and Chief Executive Officer Mark A. Liggett SETTLEMENT AGREEMENT AND RELEASE This Settlement Agreement and Release ("Agreement") is made and entered into as of October 1, 2007 among Cadiz Inc., a Delaware corporation (“Cadiz”),and Mark A. Liggett (“Liggett”), in his capacity as successor in interest to Exploration Research Associates, Incorporated, a California corporation (“ERA”)and in his individual capacity as former sole shareholder of ERA and as the successor in interest to ERA. Liggett and Cadiz are sometimes individuallyreferred to herein as "Party" and are sometimes referred to herein collectively as "Parties." RECITALS A. Cadiz, ERA and Liggett entered into a Reorganization Plan and Agreement for Purchase and Sale of Assets dated as of February 18, 1998, pursuantto which Cadiz purchased the assets of ERA. Such Reorganization Plan and Agreement for Purchase and Sale of Assets, as amended, shall be referredto in this Agreement as the "Reorganization Plan and Agreement". ERA subsequently liquidated, with Liggett, as the sole shareholder of ERA,becoming the successor in interest to ERA. In March 2000, subsequent to such liquidation, Cadiz and Liggett entered into an Amendment to theReorganization Plan and Agreement for Purchase and Sale of Assets (“Amendment No. 1”). B. By entering into this Agreement, it is the intention of the Parties to fully and finally settle, terminate and resolve any and all disputes, claims,demands and causes of action, whether known or unknown, contingent or certain, past, present or future, which they may have had in any wayrelated to the Reorganization Plan and Agreement. C. Prior to the execution of the Reorganization Plan and Agreement, Cadiz and Liggett were parties to certain agreements (the "Royalty Agreements")pursuant to which, among other things, Cadiz granted to Liggett participation rights and fee rights (collectively, the "Royalty Rights") relating tothe acquisition and/or disposition by Cadiz of certain property rights (including water rights). Prior to the execution of the Reorganization Plan andAgreement, all of the rights of Liggett under such Royalty Agreements were assigned by Liggett to ERA and, as assets of ERA, were assigned andtransferred to Cadiz pursuant to the Reorganization Plan and Agreement. D. The Reorganization Plan and Agreement provides for the contingent issuance to Liggett of up to 600,000 shares of the common stock of Cadiz(before giving effect to the 1 for 25 reverse split of Cadiz' common stock in 2003) (the “Contingent Shares”), of which 100,000 shares were issued toLiggett in 2000 pursuant to Amendment No. 1. E. The conditions provided in the Reorganization Plan and Agreement for the issuance of the Contingent Shares to Liggett were designed in large partto replace the Royalty Rights previously held by Liggett and/or ERA, and were crafted with a view to the reasonable expectations of the Partiesconcerning the process and timing by which Cadiz would be developing its land and water resources, including the Cadiz Groundwater Storage andDry-Year Supply Program in the Cadiz and Fenner Valleys (the “Cadiz Project”). F. Due to, among other things, certain actions taken by the Metropolitan Water District of Southern California (the “MWD”) in 2002, Cadiz was notable to proceed with the Cadiz Project and its other land and water resource development programs as originally anticipated by the parties to theReorganization Plan and Agreement and, as a consequence, the benchmarks provided in the Reorganization Plan and Agreement for the issuance ofContingent Shares to Liggett became no longer meaningful or practical as a means for measuring Liggett's entitlement to the considerationoriginally intended by the parties to the Reorganization Plan and Agreement to be associated with the sale to Cadiz of the assets of ERA. G. Cadiz believes that the assertion by Liggett, following the actions of the MWD in 2002, of any claims against Cadiz or any third party that he hasbeen unduly deprived of the economic benefits of the Reorganization Plan and Agreement would not then have been, nor would it presently be, inthe best interests of Cadiz, the Cadiz Project, or development of other Cadiz properties subject to the Reorganization Plan and Agreement. Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.H. Liggett believes that the Reorganization Plan and Agreement included an implied provision that the number of Contingent Shares beproportionately adjusted for the number of outstanding shares of Cadiz Common Stock changed by a stock dividend, recapitalization, stock split,reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of Cadiz. I. Liggett has not, to date, exercised any legal right he may have to formally assert such claims. J. Cadiz desires to derive the full benefit of the assets acquired by Cadiz. K. In order to avoid litigation, attorneys' fees and aggravation, and in order to avoid any controversy which may adversely affect the Cadiz Project andCadiz' other land and water resource development programs, it is in the best interests of the Parties that the Reorganization Plan and Agreement befurther amended so as to enable Liggett to receive substantially the same economic benefit intended by the parties to the Reorganization Plan andAgreement. AGREEMENT NOW, THEREFORE, for and in consideration of the foregoing promises/recitals, and the mutual undertakings set forth below, and for good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: 1. Recitals The recitals are incorporated herein as though fully set forth in the Agreement.2. Settlement Considerationb In consideration of the covenants, undertakings, and releases given herein by the Parties, and in full and complete satisfaction of all disputesbetween them with respect to the Reorganization Plan and Agreement: A. Amendment No. 2 to Reorganization Plan and Agreement. The Parties shall, concurrently herewith, execute and deliver to each other "AmendmentNo. 2 to Reorganization Plan and Agreement for Purchase and Sale of Assets" in the form of Exhibit A hereto ("Amendment No. 2"); and B. Covenant Not to Assert Claims. Liggett agrees that neither Liggett nor any of his agents, successors, assigns, subsidiaries, partners or affiliates shall,without the express prior written consent of Cadiz, assert any right, claim, demand, action, cause of action, or suit against any person or entity not a party tothis Agreement ("Third Party") seeking damages or any other remedy with respect, generally, to the subject matter of the Reorganization Plan and Agreementor this Agreement or, specifically, to any action which such Third Party has taken or failed to take which may have adversely impacted the ability of Liggettor any of his agents, successors, assigns, subsidiaries, partners or affiliates to receive or otherwise realize any anticipated benefits under the ReorganizationPlan and Agreement. 3. No Admission of Liability This Agreement constitutes a compromise and settlement of disputed claims which are denied and contested and nothing in this Agreement, or anydocument referred to herein, nor any act (including, but not limited to, the execution of this Agreement) of any Party hereto, nor any transaction occurringbetween any Parties hereto prior to the date hereof is or shall be treated, construed or deemed as an admission by any Party hereto of any liability, fault,responsibility, or guilt of any kind to any other Party hereto or to any person. All such liability, fault, responsibility and guilt of any kind is hereby expresslydenied. 4. Limited ReleaseIn consideration of the recitals, the execution by the Parties of Amendment No. 2, and the promises, warranties and covenants contained in this Agreement,each Party hereto, on behalf of itself, his or its agents, successors, assigns, subsidiaries, partners and affiliates hereby fully releases and forever discharges eachother Party hereto and each of their agents, consultants, heirs, successors, assigns, affiliates, directors, officers, employees, shareholders, executives, attorneys,accountants, representatives and other related persons (collectively, the "Released Parties") from any and all rights, claims, demands, actions, causes of action,costs, losses, suits, liens, debts, damages, judgments, executions and demands of every nature, kind and description whatsoever, whether known or unknown,either at law, in equity or otherwise, which any Party hereto or any of his or its agents, successors, assigns, subsidiaries, partners and/or affiliates ever had ormay have against the Released Parties, and which arise under or in connection with the Reorganization Plan and Agreement or the subject matter thereof,and/or in connection with the dealings between the Parties with respect to the subject matter of the Reorganization Plan and Agreement up to and includingthe closing of the transactions contemplated in the Agreement; provided that nothing herein shall be deemed to release any Released Party from any liabilityor obligations arising in connection with facts or circumstances which occur or arise for the first time after the effective date of Amendment No. 2. 5. Waiver of Civil Code Section 1542 Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.The Parties hereby waive any and all rights or benefits which they may have under Section 1542 of the California Civil Code, which provides: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HISFAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HISSETTLEMENT WITH THE DEBTOR. The Parties represents and warrant that they understand the effect of this waiver of Section 1542 of the California Civil Code. It is expressly understood andagreed that the possibility that unknown claims exist has been explicitly taken into account in determining the consideration to be given for this Agreementand that a portion of that consideration, having been bargained for in full knowledge of the possibility of such unknown claims, was given in exchange forthe release and discharge of claims covered by this waiver. 6. Authority The Parties, and each of them, represent and warrant that they have the full power and authority to execute, deliver and perform under thisAgreement, and that any needed consent or approval from any other person has been obtained. 7. Voluntary Agreement/Understanding of the Terms of the AgreementThe Parties, and each of them, enter into this Agreement and any documents referred to herein, knowingly and voluntarily. By signing thisAgreement and any of the documents referred to herein, the Parties acknowledge that: (a) they have been furnished with copies of, and have read, thisAgreement, (b) they have relied upon their own judgment, belief, knowledge, understanding and expertise (after having had the opportunity to consult withlegal counsel) concerning the terms, conditions and legal effects of this Agreement, (c) they fully understand and agree to the terms, conditions and effects ofthis Agreement and their rights and obligations hereunder, (d) they have freely and voluntarily entered into this Agreement without duress or undueinfluence, and (e) they hereby agree to be fully bound by the terms of the Agreement. Each Party hereby acknowledges that it has not relied upon the other Party or the other Party's attorneys or advisors for legal or tax advice, and has, ifdesired, in all cases sought the advice of such Party's own legal counsel and tax advisers. 8. Waranty of RepresentationThe Parties hereto and the individuals executing this document warrant that all factual statements and representations contained in this Agreementare true and correct and that no material information has been omitted or concealed from them that would render such statements or representations false ormaterially misleading. 9. No Other Actions - Convenant Not to SueThe Parties, and each of them, represent and warrant to one another that no Party has commenced or prosecuted (and will not commence orprosecute) any other action or proceeding for recovery of damages or for any form of equitable relief, declaratory relief or any other form of action orproceeding or arbitration against one another based upon the claims, damages, causes of action, obligations, damages and/or liabilities released in thisAgreement including, but not limited to, the claims that are the subject of this Agreement. The Parties, and each of them, expressly agree that this Agreementshall constitute a complete defense to any action or other proceeding related to the matters herein released and a judicial bar to the institution of any suchaction or proceeding. 10.No Assignment, Liens or Subrogation Claims The Parties, and each of them, represent and warrant that no portion of any claim, right, demand, action or cause of action which they have or mighthave arising out of the matters referred to herein, nor any portion of any recovery or settlement to which they might be entitled, has been assigned ortransferred to any other person, including by way of subrogation or operation of law or otherwise, and that they are the legal and beneficial owner of suchclaims free and clear of all liens, claims, encumbrances and charges. The Parties, and each of them agree to indemnify, defend, and hold all other Partiesharmless from any liability, claims, demands, damages, costs, expenses or attorneys’ fees incurred by any Party as a result of any persons asserting any suchassignment or transfer of any rights or claims under such assignment or transfer. 11.Additional Documents — Duty to Cooperate The Parties, and each of them, shall execute and deliver such other and further instruments, documents and papers, and shall perform any and all actsnecessary to give full force and effect to all of the terms and provisions of this Agreement. 12.Binding Effect The Agreement and all documents referred to herein, shall bind and inure to the benefit of each of the Parties hereto and their respective successorsin interest. Except as expressly provided herein, this Agreement is not for the benefit of any person not a Party hereto or specifically identified as abeneficiary herein or not specifically identified as a person or entity released hereby, and is not intended to constitute a third party beneficiary contract. 13.Governing Law This Agreement shall be interpreted, enforced and construed in accordance with the laws of the State of California. Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 14.Enforceability — Severable Provisions If any provision of this Agreement shall be found by a court to be void, voidable, invalid, or unenforceable, the remaining portions shall remain infull force and effect except in the event of a material failure of consideration. 15.No Violation of Law Nothing herein shall be construed as an agreement by any party to do anything which is in violation of California law or in violation of the publicpolicy of California. 16.Integration This Agreement, and the documents and instruments referred to herein, constitute a single, integrated written contract expressing the entireagreement and understanding of the Parties relative to the subject matter hereof. No covenants, agreements, representations or warranties of any kindwhatsoever have been made by any party hereto, except as specifically set forth in this Agreement. All prior commitments, discussions, understandings andnegotiations, whether written or oral, express or implied, have been, and are, merged and integrated into, and are superseded by, this Agreement. 17.Fees and Costs All Parties, and each of them, shall bear their own costs and attorneys' fees incurred in connection with this Agreement. 18.Waiver, Modification and Amendments No breach of this Agreement or of any provision herein can be waived except by an express written waiver executed by the Party waiving suchbreach. Waiver of any one breach shall not be deemed a waiver of any other breach of the same or other provisions of this Agreement. Moreover, thisAgreement may be amended, altered, modified or otherwise changed in any respect or particular only by a writing duly executed by the Parties hereto or theirauthorized representative. 19.Neutral Interpretation — Ambiguities or Uncertainties In any action to construe the terms of this Agreement, this Agreement shall be considered the product of negotiation by and among the Parties. Anyambiguities or uncertainties contained in this Agreement shall be equally and fairly interpreted and construed. No clause or provision shall be interpretedmore strongly in favor of or against one party or the other, based upon the source of the draftsmanship, but shall be interpreted in a neutralmanner. Accordingly, the Parties hereby waive the benefit of California Civil Code Section 1654 and any successor or amended statute, providing that incases of uncertainty, language of a contract should be interpreted most strongly against the drafter of the contract. 20.Counterparts This Agreement may be executed by facsimile transmission and in counterpart originals by each Party, which, when taken together, shall constitutethe whole of the agreement as between the Parties. True and correct copies of the fully executed Agreement will be effective to enforce the terms andprovisions set forth herein. 21.Survival of the Executory Provisions Any and all executory provisions under this Agreement and the documents referred to herein shall survive the consummation of this Agreement andshall continue in full force and effect until fully performed and satisfied. 22.Captions Section, paragraph and other captions or headings contained in this Agreement are inserted as a matter of convenience and for reference, and in noway define, limit, extend or otherwise describe the scope or intent of this Agreement. IN WITNESS WHEREOF, the Parties execute this Agreement. ____________________________________Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ____________________________________ Mark A. Liggett CADIZ, INC. By:Keith Brackpool Its:Chairman and Chief Executive OfficerSource: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 10.15 CONSULTING AGREEMENTTHIS CONSULTING AGREEMENT (the "Agreement") is entered into as of January 1, 2008, by and between Ag Derivatives, L.L.C., a California limitedliability company ("Consultant") and Cadiz Inc., a Delaware corporation ("Cadiz").WHEREAS, Consultant desires to provide to Cadiz, and Cadiz desires to obtain from Consultant, consulting services relating to the business operations ofCadiz; andWHEREAS, Consultant and Cadiz desire that the consulting services to be provided in accordance with this Consulting Agreement be provided on behalf ofConsultant by Timothy J. Shaheen ("Shaheen"), acting in his capacity as the sole member and manager of Consultant; andWHEREAS, Shaheen is, in his personal capacity, a member of the Board of Directors of Cadiz; andWHEREAS, any consulting services which may be provided to Cadiz by Shaheen, acting on behalf of Consultant, shall be in addition to, and not in lieu of,any services provided by Shaheen to Cadiz as a member of the Board of Directors of Cadiz;NOW, THEREFORE, the parties agree as follows:1. TERM. Cadiz hereby engages Consultant to provide consulting services to Cadiz, and Consultant accepts such engagement, commencing onJanuary 1, 2008 (the "Commencement Date").2. DUTIES. During the Term, Consultant shall furnish to Cadiz the consulting services of Shaheen. Consultant shall cause Shaheen, on behalf ofConsultant, to render advisory and consulting services to Cadiz of the type customarily performed by persons serving in similar limited consulting capacities,consistent with the knowledge and experience possessed by Shaheen. The consulting services to be provided by Shaheen, on behalf of Consultant, shallinclude advising Cadiz with respect to farming activities on Cadiz' ranch property, providing advice and assistance to Cadiz management regarding strategicalternatives for utilization of the ranch property, and providing such other advice and assistance as the Board of Directors or the Chief Executive Officer ofCadiz may reasonably request.3. PERFORMANCE OF DUTIES. Consultant shall cause Shaheen to perform Consultant's duties hereunder in a diligent and reasonable mannerconsistent with professional standards in the field. Consultant shall cause Shaheen to devote such time to the performance of duties hereunder as is necessaryto complete such duties in a timely fashion. Consultant's services shall be non-exclusive, and nothing in this Agreement shall preclude Consultant or anyaffiliate of Consultant from acting as a consultant to or employee of any other business or entity, except that neither Consultant nor any affiliate ofConsultant may engage in any activity which materially detracts from the performance of Consultant's duties hereunder.4. FEE. In consideration of the services to be provided by Consultant pursuant to this Agreement, Cadiz shall pay to Consultant a fee of $12,500 permonth. Such fee shall be in addition to, and not in lieu of, any compensation payable directly to Shaheen by Cadiz for Shaheen's service, in his individualcapacity, on the Board of Directors of Cadiz.5. PAYMENT OF TAXES. In light of Consultant’s status as an independent contractor to Cadiz, the parties acknowledge that no payroll or employmenttaxes of any kind shall be withheld or paid by Cadiz with respect to payments to Consultant during the Term, and that Cadiz shall make no additionalbenefits available to Consultant. Consultant acknowledges and agrees that Consultant is obligated to report as income all compensation received byConsultant pursuant to this Agreement and Consultant acknowledges the obligation to pay all taxes thereon and that neither Consultant nor any affiliate ofConsultant will be eligible for any employee benefits. Consultant further agrees to indemnify Cadiz and hold it harmless to the extent of any obligationimposed on Cadiz: (i) to pay withholding taxes or similar items; or (ii) resulting from Consultant’s being determined not to be an independent contractor. Asmay be appropriate, Cadiz shall report the payments made hereunder by (a) filing the appropriate 1099 forms and (b) making any other reports required bylaw.6. REIMBURSEMENT OF EXPENSES. Cadiz will reimburse Consultant during the Term for any appropriately documented, reasonable and necessarytravel and other business expenses incurred by or on behalf of Consultant in the course of providing services pursuant to this Agreement. Consultantconfirms and agrees that Consultant will only seek reimbursement for reasonable and necessary expenses consistent with Cadiz's expense reimbursementpolicies and procedures.7. INDEPENDENT CONTRACTOR. Cadiz and Consultant agree that the relationship among the parties shall be that of independent contractor. Cadizand Consultant acknowledge that during the term of this Agreement, neither Consultant nor any affiliate of Consultant will be acting as an officer oremployee of Cadiz, although the parties acknowledge and agree that Shaheen shall continue to serve as a director of Cadiz in his individualcapacity. However, neither Consultant nor any affiliate of Consultant shall, in the performance of Consultant's consulting duties hereunder, be responsiblefor any management decisions on behalf of Cadiz, and may not commit Cadiz to any action. Consultant understands and acknowledges that this Agreementshall not create or imply any agency relationship among the parties, and neither Consultant nor any affiliate of Consultant will commit Cadiz in any mannerexcept when a commitment has been specifically authorized in writing by Cadiz or, solely with respect to Shaheen, to the extent Shaheen is acting in hisauthorized capacity as a member of the Cadiz Board of Directors.8. TERMINATION. This Agreement shall be subject to termination by either Party upon giving of thirty (30) days' written notice to the other. If theAgreement is terminated, Consultant’s fee shall be prorated and paid through the effective date of termination, and Cadiz shall have no obligation to makepayments to, or bestow benefits upon, Consultant after the date of termination (otherwise than as required by law).9. ADDITIONAL ACKNOWLEDGMENTS.a. Consultant understands that the terms of this Agreement may be required to be disclosed in, or filed as an exhibit to, Cadiz’ annual proxy statement orother reports filed publicly with the U.S. Securities and Exchange Commission.Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.b. Consultant acknowledges and agrees that Consultant has fully read and understands this Agreement, has been advised to and has been given theopportunity to consult with Consultant's attorney concerning this Agreement, has had any questions regarding its effect or the meaning of its terms answeredto Consultant's satisfaction and, intending to be legally bound hereby, has freely and voluntarily executed this Agreement.c. Cadiz and Consultant acknowledge and agree that Consultant is serving as a consultant to Cadiz at the request of Cadiz and as such Consultant andany affiliate of Consultant providing services to Cadiz hereunder on behalf of Consultant are to be deemed an “Agent” of Cadiz for purposes of theindemnity provisions set forth in Article VI of the Bylaws of Cadiz. Accordingly, Consultant and any such affiliate of Consultant shall be entitled toindemnification from Cadiz to the full extent to which an Agent is entitled to indemnification pursuant to the provisions of Article VI of the Bylaws of Cadiz.10. GENERAL PROVISIONS.a. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. However, neither partymay assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party hereto.b. This Agreement is the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior oral andwritten agreements and negotiations between the parties.c. The headings of the several paragraphs in this Agreement are inserted solely for the convenience of the parties and are not a part of and arenot intended to govern, limit or aid in the construction of any term or provision hereof.d. This Agreement may not be modified except by a written instrument signed by all parties hereto.e. All clauses and covenants contained in this Agreement are severable, and in the event any of them shall be held to be invalid by any court,such clauses or covenants shall be limited as permitted under applicable law, or, if the same are not susceptible to such limitation, this Agreement shall beinterpreted as if such invalid clauses or covenants were not contained herein.f. This Agreement is made with reference to the laws of the State of California and shall be governed by and construed in accordancetherewith. Any litigation concerning or to enforce the provisions of this Agreement shall be brought in the courts of the State of California.IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Cadiz: Consultant Cadiz Inc. Ag Derivatives, L.L.C. By: By: Keith Brackpool Timothy J. Shaheen Chief Executive Officer Manager Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 21.1CADIZ INC.SUBSIDIARIES OF THE COMPANYCadiz Real Estate LLCRancho Cadiz Mutual Water CompanySW Estate, Inc.Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.1STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER I, Keith Brackpool, herby certify, to my knowledge, that: 1. the accompanying Annual Report on Form 10-K of Cadiz Inc. for the year ended December 31, 2007 (the "Report") fully complies with therequirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc. IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.Dated: March 14, 2008/s/ Keith BrackpoolKeith BrackpoolChairman, Chief Executive OfficerSource: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.1CERTIFICATION PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002I , Keith Brackpool, certify that: 1. I have reviewed this annual report on Form 10-K of Cadiz Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, theregistrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting.Dated: March 14, 2008 /s/Keith BrackpoolKeith BrackpoolChairman and Chief Executive OfficerSource: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.2CERTIFICATION PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002I , O'Donnell Iselin, II, certify that: 1. I have reviewed this annual report on Form 10-K of Cadiz Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscalquarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, theregistrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control overfinancial reporting.Dated: March 14, 2008 /s/O'Donnell Iselin, IIO'Donnell Iselin, IIChief Financial Officer & SecretarySource: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.2STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER I, O'Donnell Iselin II, herby certify, to my knowledge, that: 1. the accompanying Annual Report on Form 10-K of Cadiz Inc. for the year ended December 31, 2007 (the "Report") fully complies with therequirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934, as amended; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Cadiz Inc. IN WITNESS WHEREOF, the undersigned has executed this Statement as of the date first written above.Dated: March 14, 2008/s/ O'Donnell Iselin IIO'Donnell Iselin IIChief Financial Officer and SecretarySource: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-130338 and No. 333-136117) and Form S-8 (No.333-144862, No. 333-124626 and No. 333-138674) of Cadiz Inc. of our report dated March 14, 2008 relating to the financial statements, financial statementschedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 14, 2008Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 10.14 AMENDMENT TO EMPLOYMENT AGREEMENTThis AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into as of October 1, 2007 among Cadiz Inc., a Delaware corporation (the“Company”) and O'Donnell Iselin, II (“Iselin”). The parties to this Amendment are hereinafter sometimes referred to collectively as the "Parties".RECITALS:WHEREAS, the Parties have entered into an Employment Agreement as of September 12, 2005 (the "Agreement"), with a commencement date of October 3,2005 (the "Commencement Date"); andWHEREAS, the Parties desire to amend the Agreement in certain respects;NOW THEREFORE, in consideration of the above recitals, the promises and the mutual representations, warranties, covenants and agreements hereincontained, the Parties hereby agree as follows. Defined terms used herein shall, if not otherwise defined in this Amendment, have the same meaning as setforth in the Agreement.1. Payments following Termination. Section 6(b)(ii) of the Agreement is hereby amended in its entirety to read as follows:"ii.In the event of termination of this Agreement by the Company following a Change in Control pursuant to Section (a)(ii) above, which Change in Controloccurs within forty-eight (48) months of the Commencement Date, Iselin shall be entitled to receive for a period of twelve (12) months following the effectivedate of termination, as though Iselin were continuing to provide services to the Company under this Agreement (i) base compensation as set forth in Section 4above and (ii) all fringe benefits as described in Section 5(d) above to the extent that such benefits can then lawfully be made available by the Company (orthe Company’s successor in interest) to Iselin."2. Existing Agreement. Except as otherwise amended or modified herein or hereby, the provisions of the Agreement are hereby reaffirmed and shallremain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and dulyauthorized officers as of the day and year first above written. CADIZ INC. By: Keith Brackpool, Chief Executive Officer ISELIN By: O'Donnell Iselin II Source: CADIZ INC, 10-K, March 14, 2008Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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