United
States


Securities
andExchangeCommission





Washington,
D. C. 20549







FORM
10-Q





(Mark
One)


R
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934


for the
quarterly period ended June 30, 2008





OR





£
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934


for the
transition period from ......... to .........








Commission
File Number 0-12114







CadizInc.





(Exact
name of registrant specified in its charter)





DELAWARE
            77-0313235(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





550
      S. Hope Street, Suite 2850Los
      Angeles, California
            90071(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code:  (213) 271-1600





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


YesRNo£





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer £
            Accelerated
      filer R
            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
R





As of
August 1, 2008, the Registrant had 11,958,210 shares of common stock, par value
$0.01 per share, outstanding.












Cadiz
Inc.
 
 Index


For
      the Three and  Six months ended June 30, 2008
            PagePART
      I – FINANCIAL INFORMATIONITEM
      1.
            Financial
      StatementsCadiz
      Inc. Consolidated Financial StatementsUnaudited Statements of Operations for the three months ended
      June 30, 2008 and 2007
            1Unaudited Statements of Operations for the six months ended
      June 30, 2008 and 2007
            2Unaudited Balance Sheets as of June 30, 2008 and December 31,
      2007
            3Unaudited Statements of Cash Flows for the six months ended
      June 30, 2008 and 2007
            4Unaudited Statement of Stockholders’ Equity for the six
      months ended June 30, 2008
            5Unaudited Notes to the Consolidated Financial
      Statements
            6ITEM
      2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            15ITEM
      3.
            Quantitative and Qualitative Disclosures about Market
      Risk
            25ITEM
      4.
            Controls and Procedures
            25PART II – OTHER INFORMATION
            26




ii
 Index


Cadiz
Inc.
 
 Consolidated
Statements ofOperations (Unaudited)


For
      the Three MonthsEnded
      June 30,($
      in thousands except per share data)
            
            2008
            
            
            2007Revenues
            
            $
            16
            
            
            $
            5Costs
      and expenses:Cost
      of sales
            
            
            4
            
            
            
            -General
      and administrative
            
            
            2,568
            
            
            
            1,356Depreciation
      and amortization
            
            
            85
            
            
            
            39Total
      costs and expenses
            
            
            2,657
            
            
            
            1,395Operating
      loss
            
            
            (2,641
            )
            
            
            (1,390
            )Other
      income (expense)Interest
      expense, net
            
            
            (1,054
            )
            
            
            (765
            )Other
      (expense), net
            
            
            (1,054
            )
            
            
            (765
            )Loss
      before income taxes
            
            
            (3,695
            )
            
            
            (2,155
            )Income
      tax provision
            
            
            3
            
            
            
            3Net
      loss
            
            $
            (3,698
            )
            
            $
            (2,158
            )Net
      loss applicable to common stock
            
            $
            (3,698
            )
            
            $
            (2,158
            )Basic
      and diluted net loss per common share
            
            $
            (0.31
            )
            
            $
            (0.18
            )Basic
      and diluted weighted average shares outstanding
            
            
            11,958
            
            
            
            11,889





See accompanying notes to the
consolidated financial statements.


1
 Index




Cadiz
Inc.





Consolidated
Statements of Operations(Unaudited)





For
      the Six MonthsEnded
      June 30,($
      in thousands except per share data)
            
            2008
            
            
            2007Revenues
            
            $
            33
            
            
            $
            357Costs
      and expenses:Cost
      of sales
            
            
            17
            
            
            
            348General
      and administrative
            
            
            6,496
            
            
            
            3,131Depreciation
      and amortization
            
            
            169
            
            
            
            76Total
      costs and expenses
            
            
            6,682
            
            
            
            3,555Operating
      loss
            
            
            (6,649
            )
            
            
            (3,198
            )Other
      income (expense)Interest
      expense, net
            
            
            (2,024
            )
            
            
            (1,528
            )Other
      income (expense), net
            
            
            (2,024
            )
            
            
            (1,528
            )Loss
      before income taxes
            
            
            (8,673
            )
            
            
            (4,726
            )Income
      tax provision
            
            
            4
            
            
            
            8Net
      loss
            
            $
            (8,677
            )
            
            $
            (4,734
            )Net
      loss applicable to common stock
            
            $
            (8,677
            )
            
            $
            (4,734
            )Basic
      and diluted net loss per common share
            
            $
            (0.73
            )
            
            $
            (0.40
            )Basic
      and diluted weighted average shares outstanding
            
            
            11,957
            
            
            
            11,785





See
accompanying notes to the consolidated financial statements.


2
 Index
  Cadiz
Inc.
 Consolidated
Balance Sheets(Unaudited)






June 30,
            
            
            December 31,($
      in thousands)
            
            2008
            
            
            2007ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            4,258
            
            
            $
            8,921Accounts
      receivable
            
            
            21
            
            
            
            20Prepaid
      expenses and other
            
            
            876
            
            
            
            216Total
      current assets
            
            
            5,155
            
            
            
            9,157Property,
      plant, equipment and water programs, net
            
            
            35,940
            
            
            
            36,032Goodwill
            
            
            3,813
            
            
            
            3,813Other
      assets
            
            
            541
            
            
            
            570Total
      Assets
            
            $
            45,449
            
            
            $
            49,572LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            456
            
            
            $
            408Accrued
      liabilities
            
            
            641
            
            
            
            744Current
      portion of long term debt
            
            
            9
            
            
            
            9Total
      current liabilities
            
            
            1,106
            
            
            
            1,161Long-term
      debt
            
            
            31,716
            
            
            
            29,652Total
      Liabilities
            
            
            32,822
            
            
            
            30,813Commitments
      and contingenciesStockholders’
      equity:Common
      stock - $.01 par value; 70,000,000 shares authorized; shares issued and
      outstanding – 11,958,210 at June 30, 2008 and 11,903,611 at December 31,
      2007
            
            
            120
            
            
            
            119Additional
      paid-in capital
            
            
            256,527
            
            
            
            253,983Accumulated
      deficit
            
            
            (244,020
            )
            
            
            (235,343
            )Total
      stockholders’ equity
            
            
            12,627
            
            
            
            18,759Total
      Liabilities and Stockholders’ equity
            
            $
            45,449
            
            
            $
            49,572





See
accompanying notes to the consolidated financial statements.


3
 Index




Cadiz
Inc.
 Consolidated
Statements of Cash Flows(Unaudited)


For
      the Six MonthsEnded
      June 30,($
      in thousands except per share data)
            
            2008
            
            
            2007Cash
      flows from operating activities:Net
      loss
            
            $
            (8,677
            )
            
            $
            (4,734
            )Adjustments
      to reconcile net loss to net cash used for operating
      activities:Depreciation
      and amortization
            
            
            169
            
            
            
            76Amortization
      of debt discount & issuance costs
            
            
            1,112
            
            
            
            895Interest
      expense added to loan principal
            
            
            993
            
            
            
            938Compensation
      charge for stock awards and share options
            
            
            2,544
            
            
            
            102Changes
      in operating assets and liabilities:Decrease
      (increase) in accounts receivable
            
            
            (1
            )
            
            
            286Decrease
      (increase) in prepaid expenses and other
            
            
            (660
            )
            
            
            (275
            )Increase
      (decrease) in accounts payable
            
            
            48
            
            
            
            (101
            )Increase
      (decrease) in accrued liabilities
            
            
            (103
            )
            
            
            431Net
      cash used for operating activities
            
            
            (4,575
            )
            
            
            (2,382
            )Cash
      flows from investing activities:Investment
      in marketable securities
            
            
            -
            
            
            
            (8,658
            )Additions
      to property, plant and equipment
            
            
            (77
            )
            
            
            (176
            )Other
            
            
            (7
            )
            
            
            (250
            )Net
      cash used by investing activities
            
            
            (84
            )
            
            
            (9,084
            )Cash
      flows provided by (used by) financing activities:Net
      proceeds from exercise of stock options
            
            
            -
            
            
            
            140Net
      proceeds from exercise of warrants
            
            
            -
            
            
            
            5,031Debt
      issuance costs
            
            
            -
            
            
            
            -Principal
      payments on long-term debt
            
            
            (4
            )
            
            
            (4
            )Net
      cash provided by (used by) financing activities
            
            
            (4
            )
            
            
            5,167Net
      increase (decrease) in cash and cash equivalents
            
            
            (4,663
            )
            
            
            (6,299
            )Cash
      and cash equivalents, beginning of period
            
            
            8,921
            
            
            
            10,397Cash
      and cash equivalents, end of period
            
            $
            4,258
            
            
            $
            4,098





See
accompanying notes to the consolidated financial statements.


4
 Index
  Cadiz
Inc.
 Consolidated
Statement of Stockholders’ Equity  (Unaudited)






Additional
            
            
            
            TotalCommon Stock
            
            Paid-in
            
            Accumulated
            
            Stockholders’Shares
            
            Amount
            
            Capital
            
            Deficit
            
            EquityBalance
      as ofDecember 31,2007
            
            
            11,903,611
            
            
            $
            119
            
            
            $
            253,983
            
            
            $
            (235,343
            )
            
            $
            18,759Stock
      awards
            
            
            54,599
            
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            1Stock
      based compensation expense
            
            
            -
            
            
            
            -
            
            
            
            2,544
            
            
            
            -
            
            
            
            2,544Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8,677
            )
            
            
            (8,677
            )Balance
      as of June 30, 2008
            
            
            11,958,210
            
            
            $
            120
            
            
            $
            256,527
            
            
            $
            (244,020
            )
            
            $
            12,627




See
accompanying notes to the consolidated financial statements.


5
 Index




Cadiz
Inc.
 Notes To The Consolidated Financial Statements


NOTE 1 – DESCRIPTION OF
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Description
of Business





The
Consolidated Financial Statements have been prepared by Cadiz Inc., sometimes
referred to as “Cadiz” or “the Company”, without audit and should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Company’s Form 10-K for the year ended December 31,
2007.





The
foregoing Consolidated Financial Statements include the accounts of the Company
and contain all adjustments, consisting only of normal recurring adjustments,
which the Company considers necessary for a fair statement of the Company’s
financial position, the results of its operations and its cash flows for the
periods presented and have been prepared in accordance with generally accepted
accounting principles.  The year-end condensed balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by accounting principals generally accepted in the United States of
America.





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying
notes.  Actual results could differ from those estimates and such
differences may be material to the financial statements. This quarterly report
on Form 10-Q should be read in conjunction with the Company’s Form 10-K for the
year ended December 31, 2007.  The results of operations for the
six months ended June 30, 2008 are not necessarily indicative of results for the
entire fiscal year ended December 31, 2008.





Basis
of Presentation





The
financial statements of the Company have been prepared using accounting
principles applicable to a going concern, which assumes realization of assets
and settlement of liabilities in the normal course of business.  The
Company incurred losses of $8.7 million for the six months ended June 30, 2008
and $4.7 million for the six months ended June 30, 2007.  The Company
had working capital of $4.0 million at June 30, 2008 and used cash in operations
of $4.6 million for the six months ended June 30, 2008 and $2.4 million for the
six months ended June 30, 2007.  Currently, the Company's sole focus
is the development of its land and water assets.





In June
2006, the Company raised $36.4 million through the private placement of a five
year zero coupon convertible term loan with Peloton Partners LLP (“Peloton”), as
administrative agent, and an affiliate of Peloton and another investor, as
lenders (the “Term Loan”).  The proceeds of the new term loan were
partially used to repay the Company’s prior term loan facility with ING Capital
LLC (“ING”).  In September 2006, an additional $1.1 million was raised
when certain holders of warrants to purchase the Company’s common stock at
$15.00 per share chose to exercise the warrants and purchase 70,000 shares of
common stock.  A further $5.0 million was raised in February 2007,
when all remaining warrant holders chose to exercise their rights to purchase
335,440 shares of the Company’s common stock for $15.00 per share after
receiving a termination notice from the Company.


6
 Index




Cadiz
Inc.
 Notes
To The Consolidated Financial Statements


The
Company’s current resources do not provide the capital necessary to fund a water
or real estate development project on its land holdings.  There is no
assurance that additional financing (public or private) will be available to
fund such projects on acceptable terms or at all.  If the Company
issues additional equity or equity linked securities to raise funds, the
ownership percentage of the Company’s existing stockholders would be
reduced.  New investors may demand rights, preferences or privileges
senior to those of existing holders of common stock.  If the Company
cannot raise needed funds, it might be forced to make substantial reductions in
its operating expenses, which could adversely affect its ability to implement
its current business plan and ultimately its viability as a
company.





The
Chapter 11 Reorganization Plan of the Company’s Sun World International Inc.
subsidiary (“Sun World”) became effective in 2005, and the Company has no
further liabilities related to the business or operations of Sun
World.  Subsequent to the effective date of the Chapter 11
reorganization plan of Sun World, the Company’s primary activities are limited
to the development of its water resources and real estate
assets.  From the effective date of the reorganization plan through
June 30, 2008, the Company has incurred losses of approximately $41.4 million
and used cash in operations of $16.7 million.





Marketable
Securities





The
Company considers all highly liquid instruments with a maturity of three months
or less when purchased to be cash and cash equivalents.  2007
marketable security investments consisted of auction rate
securities.  Auction rate securities are long-term municipal bonds and
preferred stock with interest rates that reset periodically through an auction
process, which occurs in 7-, 28-, 35-, or 90-day periods.  There were
no cumulative gross unrealized holding gains or losses associated with these
investments, and all income was recorded as interest income during
2007.  The Company sold its position in these securities in late
2007.





Recent
Accounting Pronouncements





In September 2006, the FASB released
Statement of Financial Accounting Standards No. 157 (“SFAS No. 157”), “Fair Value
Measurements".  This statement defines fair value, establishes a
framework for measuring fair value and expands disclosures aboutfair value measurements. SFAS No. 157
clarifies the exchange price notion in the fair value definition to mean the
price that would be received to sell the asset or paid to transfer the liability
(an exit price), not the price that would be paid to acquirethe asset or received to assume the
liability (an entry price).  This statement also clarifies that market
participant assumptions should include assumptions about risk, should include
assumptions about the effect of a restriction on the sale or use of
anasset and should reflect its
nonperformance risk (the risk that the obligation will not be
fulfilled).  Nonperformance risk should include the reporting
entity’s credit risk. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning afterNovember 15,2007 except for nonfinancial
assets and nonfinancial liabilities that are not recognized or disclosed at fair
value on a recurring basis, for which the effective date is fiscal years
beginning after November 15, 2008.The Company partially adopted SFAS No. 157 effectiveJanuary 1, 2008, and it did not have a material impact
on the Company’s financial statements.




7
 Index




Cadiz
Inc.
 Notes
To The Consolidated Financial Statements


In February 2007, the FASB released
Statement of Financial Accounting Standards No. 159 (“SFAS No. 159”), “The Fair Value Option for Financial Assets and Liabilities
Including an Amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to
choose to measure certain financial assets and liabilities at fair value and is
effective for the first fiscal year beginning afterNovember 15, 2007.EffectiveJanuary 1, 2008, the financial statements reflect SFAS
No. 159.  The
Company did not choose to measure any additional financial assets and
liabilities at fair value, so the adoption of SFAS No. 159 did not have a
material impact on the Company's financial statements.




In
December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations”("SFAS 141(R)"), which establishes principles and requirements for how
the acquirer shall recognize and measure in its financial statements the
identifiable assets acquired, liabilities assumed, any noncontrolling interest
in the acquiree and goodwill acquired in a business combination.  This
statement is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008.  The Company does not expect that the
adoption of SFAS 141(R) will have a material impact on its financial position
and results of operations.





In
December 2007, the FASB issued Statement No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an Amendment of ARB No. 51”("SFAS 160"), which establishes and expands accounting and reporting
standards for minority interests, which will be recharacterized as
noncontrolling interests, in a subsidiary and the deconsolidation of a
subsidiary. SFAS 160 is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  This statement
is effective for fiscal years beginning on or after December 15,
2008.  The Company does not expect that the adoption of SFAS 160 will
have a material impact on its financial position and results of
operations.





In May
2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt Instruments
That May be Settled in Cash upon Conversion (Including Partial Cash
Settlement)."  FSP APB 14-1 specifies that issuers of convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) should separately account for the liability and equity components in
a manner that will reflect the entity's nonconvertible debt borrowing rate when
interest cost is recognized in subsequent periods.  FSP APB 14-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years, and will be
applied retrospectively to all periods presented.  Earlier application is
not permitted.  The Company is currently evaluating the impact of this
Statement on the Company’s financial results of operations and financial
position.





See Note
2 to the Consolidated Financial Statements included in the Company’s Form 10-K
for further discussion of the Company’s accounting policies.


8
 Index




Cadiz
Inc.
 Notes
To The Consolidated Financial Statements


NOTE 2 - PROPERTY, PLANT,
EQUIPMENT AND WATER PROGRAMS





Property,
plant, equipment and water programs consist of the following (in
thousands):






June 30,
            
            
            December 31,2008
            
            
            2007Land
      and land improvements
            
            $
            21,998
            
            
            $
            21,998Water
      programs
            
            
            14,274
            
            
            
            14,274Buildings
            
            
            1,161
            
            
            
            1,161Leasehold
      Improvements
            
            
            570
            
            
            
            570Furniture
      & Fixtures
            
            
            396
            
            
            
            334Machinery
      and equipment
            
            
            849
            
            
            
            807Construction
      in progress
            
            
            -
            
            
            
            2739,248
            
            
            
            39,171Less
      accumulated depreciation
            
            
            (3,308
            )
            
            
            (3,139
            )$
            35,940
            
            
            $
            36,032








Depreciation
expense totaled $85 thousand during the three  months ended June 30,
2008 and was $39 thousand during the prior year period.  Depreciation
expense totaled $169 thousand and $76 thousand for the six months ended June 30,
2008 and 2007, respectively.





NOTE 3 – LONG-TERM
DEBT





At June
30, 2008 and December 31, 2007, the carrying amount of the Company’s outstanding
debt is summarized as follows (dollars in thousands):






June 30,
            
            
            December 31,2008
            
            
            2007Zero
      coupon secured convertible term loan due June 29, 2011. Interest accruing
      at 5% per annum until June 29, 2009 and at 6% thereafter
            
            $
            40,236
            
            
            $
            39,244Other
      loans
            
            
            18
            
            
            
            22Debt
      Discount
            
            
            (8,529
            )
            
            
            (9,605
            )31,725
            
            
            
            29,661Less
      current portion
            
            
            9
            
            
            
            9$
            31,716
            
            
            $
            29,652





9
 Index




Cadiz
Inc.
 Notes
To The Consolidated Financial Statements




Pursuant
to the Company’s loan agreements, annual maturities of long-term debt
outstanding on June 30, 2008 are as follows:






12 Months
              Beginning
      June 30,
            
            $
            000’s2008
            
            
            92009
            
            
            92010
            
            
            -2011
            
            
            40,2362012
            
            
            -$
            40,254






In June
2006, the Company entered into a $36.4 million five year zero coupon convertible
term loan with Peloton Partners LLP, as administrative agent for the loan, and
with an affiliate of Peloton and another investor, as
lenders.  Certain terms of the loan were subsequently amended pursuant
to Amendment #1 to the Credit Agreement, which was effective September 29,
2006.  On April 16, 2008, the Company was advised that Peloton had
assigned its interest in the loan to an affiliate of Lampe Conway & Company
LLC (“Lampe Conway”) and agreed that Lampe Conway or a Lampe Conway affiliate
would replace Peloton as administrative agent of the loan.





Under the
terms of the loan, interest accrues at a 5% annual rate for the first 3 years
and 6% thereafter, calculated on the basis of a 360-day year and actual days
elapsed.  The entire amount of accrued interest is due at the final
maturity of the loan in June, 2011.  The term loan is collateralized
by substantially all the assets of the Company and contains representations,
warranties and covenants that are typical for agreements of this type, including
restrictions that would limit the Company’s ability to incur additional
indebtedness, incur liens, pay dividends or make restricted payments, dispose of
assets, make investments and merge or consolidate with another
person.  However, there are no financial maintenance covenants and no
restrictions on the Company’s ability to issue additional common stock to fund
future working capital needs.





At the
lender’s option, principal plus accrued interest is convertible into the
Company’s $0.01 par value common stock.  The loan is divided into two
tranches: the $10 million Tranche A is convertible at $18.15 per share, and the
$26.4 million Tranche B is convertible at $23.10 per share.  A maximum
of 2,221,909 shares are issuable pursuant to these conversion rights, with this
maximum number applicable if the loan is converted on the final maturity
date.  The Company has more than sufficient authorized common shares
available for this purpose and has filed a registration statement on Form S-3
covering the resale of all the securities issuable upon conversion of the
loan.





In the
event of a change in control, the conversion prices are adjusted downward by a
discount that declines over time such that, under a change in control scenario,
both the Tranche A and Tranche B conversion prices were initially $16.50 per
share and increase in a linear manner over time to the full $18.15 Tranche A
conversion price and $23.10 Tranche B conversion price on the final maturity
date.  In no event does the maximum number of shares issuable to
lenders pursuant to these revised conversion formulas exceed the 2,221,909
shares that would be issued to lenders pursuant to a conversion in full on the
final maturity date in the absence of a change in control.


10
 Index




Cadiz
Inc.
 Notes
To The Consolidated Financial Statements


Each of
the loan tranches can be prepaid if the price of the Company’s stock on the
NASDAQ Global Market exceeds the conversion price of the tranche by 40% for 20
consecutive trading days in a 30 trading day period or if the Company obtains a
certified environmental impact report for the Cadiz groundwater storage and dry
year supply program, a pipeline right-of-way and permits for pipeline
construction and financing commitments sufficient to construct the
project.





At June
30, 2008, the Company was in compliance with its debt covenants under the
loan.





NOTE 4 – COMMON
STOCK





On
October 1, 2007, the Company agreed to the conditional issuance of up to 300,000
shares to the former sole shareholder and successor in interest to Exploration
Research Associates, Inc. (“ERA”), who is now an employee of the
Company.  The shares will be issued if and when certain significant
milestones in the development of the Company’s properties are
achieved.  The Company acquired the assets of ERA in 1998, and the
original acquisition agreement provided for the conditional issuance of up to
600,000 shares of the Company’s common stock to ERA.  100,000 shares
were issued to ERA in 2003, and the remaining balance was reduced to 20,000 by
the 1:25 reverse split of the Company’s common stock in 2003.  The
October 1, 2007 agreement settled certain claims by ERA against the Company and
restored the value of contingent consideration provided to ERA in the original
acquisition agreement.  It further provides new milestones that are
better aligned with the Company’s current business plans.





NOTE 5 – STOCK-BASED
COMPENSATION PLANS AND WARRANTS





The
Company has issued options and has granted stock awards pursuant to its 2003 and
2007 Management Equity Incentive Plans.  The Company has also granted
stock awards pursuant to its Outside Director Compensation Plan.





Stock
Options Issued under the 2003 and 2007 Management Equity Incentive
Plans





The 2003
Management Equity Incentive Plan provided for the granting of options for the
purchase of up to 377,339 shares of common stock.  Options issued
under the plan were granted during 2005 and 2006.  The options have a
ten year term with vesting periods ranging from issuance date to three
years.  Certain of these options have strike prices that were below
the fair market value of the Company’s common stock on the date of
grant.  All options have been issued to officers, employees and
consultants of the Company.  365,000 options were granted under the
plan during 2005, and the remaining 12,339 options were granted in
2006.





The
Company also granted options to purchase 7,661 common shares at a price of
$20.00 per share under the 2007 Management Equity Incentive Plan on July 25,
2007 and options to purchase 10,000 common shares at a price of $18.99 on
January 9, 2008.  The options have strike prices that are at or
slightly above the fair market value of the Company’s common stock on the date
that the grants became effective.  The options have a ten year term
with vesting periods ranging from issuance date to two years.  All
options have been issued to officers, employees and consultants of the
Company.  In total, options to purchase 385,000 shares were
unexercised and outstanding on June 30, 2008 under the two management equity
incentive plans.


11
 Index




Cadiz
Inc.
 Notes
To The Consolidated Financial Statements


The
Company recognized stock option related compensation costs of $131,000 and
$75,000 in the six months ended June 30, 2008 and June 30, 2007,
respectively.  On June 30, 2008, the unamortized compensation expense
related to these options amounted to $16,000 and is expected to be fully
recognized in 2008.  No options were exercised during the six months
ended June 30, 2008.





Stock
Awards to Directors, Officers, Consultants and Employees





The
Company has granted stock awards pursuant to its 2007 Management Equity
Incentive Plan and Outside Director Compensation Plan.





A grant
of 950,000 shares under the 2007 Management Equity Incentive Plan became
effective on July 25, 2007.  The grant consists of three separate
awards.  Two of the awards are subject to market
conditions.





-
            A
      150,000 share award, that vests in three equal installments on January 1,
      2008, January 1, 2009 and January 1, 2010.  50,000 shares were
      issued pursuant to this award on January 3,
  2008.





-
            A
      400,000 share award, that is available if the trading price of the
      Company’s stock is at least $28 per share for 10 trading days within any
      period of 30 consecutive trading days on or before March 12,
      2009.  This award would vest in four equal installments on
      January 1, 2008, January 1, 2009, January 1, 2010 and January 1,
      2011.  The trading price condition was not satisfied during the
      six months ended June 30, 2008, and no shares were issuable under this
      grant.





-
            A
      400,000 share award, that is available if the trading price of the
      Company’s stock is at least $35 per share for 10 trading days within any
      period of 30 consecutive trading days on or before March 12,
      2009.  This award would also vest in four equal installments on
      January 1, 2008, January 1, 2009, January 1, 2010 and January 1,
      2011.  The trading price condition was not satisfied during the
      six months ended June 30, 2008, and no shares were issuable under this
      grant.





4,285
shares awarded under the Outside Director Compensation Plan for service in the
plan year ended June 30, 2006 vested and were issued on January 31, 2007, and
4,599 shares awarded for service during the plan year ended June 30, 2007 vested
and were issued on January 31, 2008.  A 7,026 share grant for service
during the plan year ended June 30, 2008 became effective on that
date.  The award will vest on January 31, 2009.


12
 Index




Cadiz
Inc.
 Notes
To The Consolidated Financial Statements


The
compensation cost of stock grants without market conditions is measured at the
quoted market price of the Company’s stock on the date of grant.  The
fair value of the two 2007 Management Equity Incentive Plan awards with market
conditions was calculated using a lattice model with the following weighted
average assumptions:






Risk
      free interest rate
            
            
            4.74
            %Current
      stock price
            
            $
            19.74Expected
      volatility
            
            
            38.0
            %Expected
      dividend yield
            
            
            0.0
            %Weighted
      average vesting period
            
            2.0
      years






The
lattice model calculates a derived service period, which is equal to the median
period between the grant date and the date that the relevant market conditions
are satisfied.  The derived service periods for the grants with $28
and $35 per share market conditions are 0.72 years and 1.01 years,
respectively.  The weighted average vesting period is based on the
later of the derived service period and the scheduled vesting dates for each
grant.





The
accompanying consolidated financial statements include $2,413,000 of stock based
compensation expense related to stock based awards in the six months ended June
30, 2008 and $27,000 in the six months ended June 30, 2007.  On June
30, 2008, there was $3.9 million of unamortized compensation expense relating to
stock awards.





Stock
Purchase Warrants Issued to Non-Employees





In
January 2007, the Company exercised a right to terminate certain warrants to
purchase the Company’s common stock for $15.00 per share on March 2, 2007,
subject to a 30-day notice period.  In response, the warrant holders
exercised their right to purchase 335,440 shares of the Company’s common stock
during the notice period, and the Company received $5.0 million from the sale of
these shares.  Following this exercise, no warrants remain
outstanding.





NOTE 6 – INCOME
TAXES





As of
June 30, 2008, the Company had net operating loss (NOL) carryforwards of
approximately $93.5 million for federal income tax purposes and $35.0 million
for California state income tax purposes.  Such carryforwards expire
in varying amounts through the year 2027.  Use of the carryforward
amounts is subject to an annual limitation as a result of ownership
changes.





In
addition, on August 26, 2005, a Settlement Agreement between Cadiz, on one hand,
and Sun World and three of Sun World’s subsidiaries, on the other hand, was
approved by the U.S. Bankruptcy Court, concurrently with the Court’s
confirmation of the amended Plan.  The Settlement Agreement provides
that following the September 6, 2005 effective date of Sun World’s plan of
reorganization, Cadiz will retain the right to utilize the Sun World net
operating loss carryovers (NOLs).  Sun World Federal NOLs are
estimated to be approximately $58 million.  If, in any year from
calendar year 2005 through calendar year 2011, the utilization of such NOLs
results in a reduction of Cadiz’ tax liability for such year, then Cadiz will
pay to the Sun World bankruptcy estate 25% of the amount of such reduction, and
shall retain the remaining 75% for its own benefit.  There is no
requirement that Cadiz utilize these NOLs during this reimbursement period, or
provide any reimbursement to the Sun World bankruptcy estate for any NOLs used
by Cadiz after this reimbursement period expires.  The Company has not
recognized any tax benefits from these NOLs.


13
 Index




Cadiz
Inc.


As of
June 30, 2008, the Company possessed unrecognized tax benefits totaling
approximately $3.3 million.  None of these, if recognized, would
affect the Company's effective tax rate because the Company has recorded a full
valuation allowance against these assets.  Additionally, as of that
date the Company had accrued approximately $200,000 for state taxes, interest
and penalties related to income tax positions in prior
returns.  Income tax penalties and interest are classified as general
and administrative expenses.  The Company was not subject to any
income tax penalties and interest during the six months ended June 30,
2008.





The
Company does not expect that the unrecognized tax benefits will significantly
increase or decrease in the next 12 months.





The
Company's tax years 2004 through 2007 remain subject to examination by the
Internal Revenue Service, and tax years 2003 through 2007 remain subject to
examination by California tax jurisdictions.  In addition, the
Company's loss carryforward amounts are generally subject to examination and
adjustment for a period of three years for federal tax purposes and four years
for California purposes, beginning when such carryovers are utilized to reduce
taxes in a future tax year.





Because
it is more likely than not that the Company will not realize its net deferred
tax assets, it has recorded a full valuation allowance against these
assets.  Accordingly, no deferred tax asset has been reflected in the
accompanying balance sheet.




NOTE 7 – NET LOSS PER COMMON
SHARE





Basic
earnings per share (EPS) is computed by dividing the net loss, after deduction
for preferred dividends either accrued or imputed, if any, by the
weighted-average common shares outstanding.  Options, deferred stock
units, warrants, convertible debt, and preferred stock that are convertible into
shares of the Company’s common stock were not considered in the computation of
diluted EPS because their inclusion would have been antidilutive.  Had
these instruments been included, the fully diluted weighted average shares
outstanding would have increased by approximately 2,334,000 and 2,125,000 shares
for the three months ended June 30, 2008 and 2007, respectively.  For
the six months ended June 30, 2008 and 2007, weighted averaged shares
outstanding would have increased by approximately 2,322,000 and 2,115,000
shares, respectively.


14
 Index




Cadiz
Inc.


ITEM 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the following discussion contains trend analysis
and other forward-looking statements.  Forward-looking statements can
be identified by the use of words such as "intends", "anticipates", "believes",
"estimates", "projects", "forecasts", "expects", "plans" and
"proposes".  Although we believe that the expectations reflected in
these forward-looking statements are based on reasonable assumptions, there are
a number of risks and uncertainties that could cause actual results to differ
materially from these forward-looking statements.  These include,
among others, our ability to maximize value from our Cadiz, California land and
water resources; and our ability to obtain new financings as needed to meet our
ongoing working capital needs.  See additional discussion under the
heading "Certain Trends and Uncertainties" in Item 7 of our Annual Report on
Form 10-K for the year ended December 31, 2007.





Overview





The
Company’s primary asset consists of 45,000 acres of land in three areas of
eastern San Bernardino County, California.  Virtually all of this land
is underlain by high-quality groundwater resources.  The properties
are located in proximity to the Colorado River and the Colorado River Aqueduct,
the major source of imported water for Southern California.  The
aquifer systems underlying the properties are suitable for a variety of water
storage and supply programs.





The value
of these assets derives from a combination of projected population increases and
limited water supplies throughout Southern California.  In addition,
most of the major population centers in Southern California are not located
where significant precipitation occurs, requiring the importation of water from
other parts of the state.  The Company therefore believes that a
competitive advantage exists for companies that can provide high-quality,
reliable, and affordable water to major population centers.





The
Company’s objective is to realize the highest and best use for these
assets.  In 1993, Cadiz acquired permits for up to 9,600 acres of
agricultural development in the Cadiz Valley and the withdrawal of more than 1
million acre-feet of groundwater from the aquifer system underlying the
property.  The Company believes that the location, geology and
hydrology of this property is uniquely suited for both agricultural development
and the development of a groundwater storage and dry-year supply program to
augment the water supplies available to Southern California.  To this
end, in 1997 Cadiz entered into the first of a series of agreements with the
Metropolitan Water District of Southern California (“Metropolitan”) to jointly
design, permit and build such a project (the “Cadiz Project” or
“Project”).  In general, several elements are needed to complete the
development: (1) federal and state environmental permits; (2) a pipeline
right-of-way from the Colorado River Aqueduct to the project area; (3) a storage
and supply agreement with one or more public water agencies or private water
utilities; and (4) construction and working capital financing.





Between
1997 and 2002, Metropolitan and the Company received substantially all of the
state and federal approvals required for the permits necessary to construct and
operate the Project, including a Record of Decision (“ROD”)from the U.S. Department
of the Interior, which endorsed the Cadiz Project and offered a right-of-way for
construction of project facilities.  The ROD also approved a Final
Environmental Impact Statement (“FEIS”) in compliance with the National
Environmental Policy Act (“NEPA”).


15
 Index




Cadiz
Inc.


Upon
completion of the federal environmental review and permitting process, Cadiz
expected Metropolitan to certify the completed Final Environmental Impact Report
(“FEIR”).  As California Environmental Quality Act (“CEQA”) lead
agency for the Project, Metropolitan had planned to hold a CEQA hearing, certify
the FEIR and accept the right-of-way offered to the Project by the U.S.
Department of the Interior.  In October 2002, prior to the CEQA
hearing, Metropolitan’s staff brought the right-of-way matter before the
Metropolitan Board of Directors.  By a very narrow margin, the
Metropolitan Board voted not to accept the right-of-way grant and not to proceed
with the Project.  The Metropolitan Board took this action before it
had certified the FEIR, which was a necessary action to authorize implementation
of the Cadiz Project in accordance with CEQA.  As a result, the CEQA
process for the Project was not completed by Metropolitan.





It is the
Company’s position that the actions by Metropolitan breached various contractual
and fiduciary obligations to the Company and interfered with the economic
advantage it would have obtained from the Cadiz Project.  In April
2003, Cadiz filed a claim against Metropolitan seeking compensatory
damages.  When settlement negotiations failed to produce a resolution,
the Company filed a lawsuit against Metropolitan in Los Angeles Superior Court
on November 17, 2005.  The claims for breach of fiduciaryduty, breach of express contract,
promissory estoppel, breach of impliedcontract andspecific performance were allowed by
the Court in its October 2006 rulings on Metropolitan’s motion for
demurrer.  On October 19, 2007, the Court issued a ruling on Motions
for Summary Judgment/Adjudication that upheld the Company’s claim for breach of
fiduciary duty and dismissed the other four contractual and related
claims.





In April,
2008, the Court ruled in the Company’s favor on a number of pre-trial motions
and denied Metropolitan’s motion to strike Cadiz’s jury demand.  As a
result, the upcoming trial will be held before a jury of Southern California
citizens.  At the same time, the Court ordered that the parties attend
a mandatory settlement conference before Judge Peter D. Lichtman.  An
initial settlement conference was held on April 30, 2008.  Following
the conference, the Court issued a stay of all proceedings while Judge Lichtman
continues his ongoing mediation.  If the parties do not ultimately
reach an agreement through the settlement conference process, the case will
proceed to trial.  The parties are scheduled to appear before the
Court on September 4, 2008 to report on the status of the settlement
negotiations.





Regardless
of the Metropolitan Board’s actions in October 2002, the need for new water
storage and dry-year supplies has not abated.  The population of
California continues to grow, while water supplies are being challenged by
drought, lack of infrastructure and environmental
protections.  Indeed, California is facing the very real possibility
that current and future supplies of water will not be able to meet
demand.  In 2007, a federal judge limited deliveries out of
California’s State Water Project, reducing Southern California’s water supplies
by nearly 30%.  Moreover, in 2007, cities throughout Southern
California endured one of the driest years in decades, while the Colorado River
continued to provide below average deliveries to the State.  These
conditions have greatly challenged California’s water supplies and led policy
leaders to seek improvements to the State’s water infrastructure, including the
pursuit of public financing for new groundwater storage and supply
projects.


16
 Index




Cadiz
Inc.


The
advantages of underground water storage projects are many.  These
include minimal surface environmental impacts, low capital investment, minimal
evaporative water loss and protection from airborne
contaminants.  Because the need for groundwater storage and dry-year
supplies continues to grow in California, the Company continues to pursue the
implementation of the Cadiz Project.





To that
end, Cadiz has filed permit applications with the County of San Bernardino in an
effort to complete the environmental review of the Cadiz Project according to
CEQA and to acquire any permits required under California law to construct and
operate the Project.  Upon completion of the CEQA process, the Company
plans to pursue an update to the FEIS and obtain renewed permits from the U.S.
Bureau of Land Management of the U.S. Department of the Interior. Additionally,
the Company will continue discussions with several other public agencies
regarding their interest in participating in the Cadiz Project.





In
addition to agriculture and water development, the rapid growth of nearby desert
communities in Southern California, Nevada and Arizona and rapidly rising energy
prices indicates that the Company’s land holdings may in time be suitable for
other types of development.  To this end, Cadiz has conducted a
detailed analysis of the Company’s land assets to assess the opportunities for
these properties.  Based on this analysis, the Company believes that
its properties have significant long-term potential for residential and
commercial development.  The Company is continuing to explore all land
use alternatives to maximize the value of its properties.





The
Company remains committed to its land and water assets and will continue to
explore all opportunities for development of these assets.  The
Company cannot predict with certainty which of these development initiatives
will ultimately be realized.





Results
of Operations





Three Months Ended June 30,
2008 Compared to Three Months Ended June 30, 2007





We have
not received significant revenues from our water resource activity to
date.  As a result, we have historically incurred a net loss from
operations.  We had revenues of $16 thousand for the three months
ended June 30, 2008 and $5 thousand for the three months ended June 30,
2007.  We incurred a net loss of $3.7 million in the three months
ended June 30, 2008 compared with a $2.2 million net loss during the three
months ended June 30, 2007.  The higher loss in the 2008 period is
primarily due to higher general and administrative expenses, including legal
expenses related to the Company’s lawsuit against the Metropolitan Water
District of Southern California and non-cash stock compensation costs related to
awards under the Company’s 2007 Management Equity Incentive Plan.





Our
primary expenses are our ongoing costs to develop our water and real estate
assets and to secure the remaining entitlements needed to continue developing
the Cadiz Program.  These costs consist primarily of project
management, legal, consulting, engineering and administrative expenses, which
are characterized as general and administrative expenses for financial statement
reporting purposes.  We also have expenses related to the farming
activities that we conduct at the Cadiz Ranch.  Other costs include
interest expense and compensation costs resulting from the grant of stock and
options under the Cadiz 2003 and 2007 Management Equity Incentive Plans and the
Outside Director Compensation Plan.


17
 Index




Cadiz
Inc.


We
conduct farming operations on our properties in the Cadiz and Fenner
Valleys.  In 2007, we farmed 260 acres of lemon groves and leased 700
acres of vineyards to a grower for $12,000.  The grower was
responsible for all cultivation and maintenance expenses associated with the
leased acreage.  We did not renew the vineyard lease for the 2008
growing season, and we will be farming an additional 160 acres of vineyards to
raisins in 2008.  As a result, we expect that 2008 agricultural
revenues and expenses will be higher than in the prior year
period.  We are removing approximately 540 acres of grape vines that
have reached the end of their productive lives and are evaluating several
options for redeveloping this acreage.





Revenues  Cadiz
had revenues of $16 thousand for the three months ended June 30, 2008 and $5
thousand for the three months ended June 30, 2007.  Agricultural
revenues during the period were not material due to the timing of our lemon and
raisin harvests.





General
and Administrative ExpensesGeneral
and administrative expenses during the three months ended June 30, 2008 totaled
$2.6 million compared to $1.4 million for the three months ended June 30,
2007.  Non-cash compensation costs for stock and option awards are
included in General and Administrative Expenses.





Compensation
costs from stock and option awards for the three months ended June 30, 2008 were
$839 thousand, compared with $37 thousand for the three months ended June 30,
2007.  The Company’s share based compensation plans include the 2007
Management Equity Incentive Plan, the 2003 Management Equity Incentive Plan and
the Outside Director Compensation Plan.  The higher expense in the
current quarter primarily reflects the new 2007 Management Equity Incentive Plan
stock awards that became effective in July 2007.  Shares and options
issued under the Plans vest over varying periods from the date of issue to
January 2011.  See Notes to the Consolidated Financial Statements:
Note 5 – Stock Based Compensation Plans and Warrants.





Other
General and Administrative Expenses, exclusive of stock based compensation
costs, totaled $1.7 million in the three months ended June 30, 2008 and $1.3
million in the three months ended June 30, 2007.  The increase in
expenses was primarily due to higher expenses related to the Company’s lawsuit
against the Metropolitan Water District of Southern California.





Depreciation
and AmortizationDepreciation
and amortization expense for the three months ended June 30, 2008 and 2007
totaled $85 thousand and $39 thousand, respectively.  The higher
expenses relate to 2007 capital expenditures.





Interest
Expense, net Net interest expense
totaled $1.1 million during the three months ended June 30, 2008, compared with
$765 thousand during the same period in 2007.  The following table
summarizes the components of net interest expense for the two periods (in
thousands):


18
 Index




Cadiz
Inc.


Three
      Months EndedJune 30,2008
            
            
            2007Interest
      on outstanding debt
            
            $
            508
            
            
            $
            483Amortization
      of financing costs
            
            
            18
            
            
            
            15Amortization
      of debt discount
            
            
            556
            
            
            
            445Interest
      income
            
            
            (28
            )
            
            
            (178
            )$
            1,054
            
            
            $
            765








The
increase in net interest expense is primarily due to the amortization of the
debt discount related to certain derivatives embedded to the new senior secured
convertible term loan.  2008 interest income decreased to $28 thousand
from $178 thousand in the prior year, due to lower cash balances, lower
short-term interest rates and a more conservative investment
policy.  See Notes to the Consolidated Financial Statements: Note 3 –
Long-term Debt.





Income
Taxes  Income tax expense for the three months ended June 30,
2008 and for the three months ended June 30, 2007 was $3
thousand.  See Note 6 of the Notes to the Consolidated Financial
Statements – Income Taxes.




Six Months Ended June 30,
2008 Compared to Six Months Ended June 30, 2007





We had
revenues of $33 thousand for the six months ended June 30, 2008 and $357
thousand for the six months ended June 30, 2007.  We incurred a net
loss of $8.7 million in the six months ended June 30, 2008, compared with a $4.7
million net loss during the six months ended June 30, 2007.  The
higher loss in the 2008 period primarily related to higher non-cash expenses
related to stock and option awards and higher expenses related to the Company’s
lawsuit against the Metropolitan Water District of Southern
California.





Revenues  Cadiz
had revenues of $33 thousand for the six months ended June 30, 2008 and $357
thousand for the six months ended June 30, 2007.  Lower revenues
resulted primarily from the smaller 2007-08 lemon crop.  2007-08 crop
yields were lower than the prior year due to freezing weather during the first
quarter of 2007.  2007-08 lemon harvesting activities were largely
complete at the end of December 2007, whereas the harvesting and marketing of
the 2006-07 lemon crop continued over year-end into the first few months of
2007.





Cost
of Sales  Cost of Sales totaled $17 thousand during the six
months ended June 30, 2008 and $348 thousand during the six months ended June
30, 2007.  The lower cost of sales in 2008 reflects lower lemon sales
in the period, due to the smaller size of the 2007-08 lemon crop.





General
and Administrative ExpensesGeneral
and administrative expenses during the six months ended June 30, 2008 totaled
$6.5 million compared to $3.1 million for the six months ended June 30,
2007.  Non-cash compensation costs for stock and option awards are
included in General and Administrative Expenses.


19
 Index




Cadiz
Inc.


Compensation
costs from stock and option awards for the six months ended June 30, 2008 were
$2.5 million, compared with $102 thousand for the six months ended June 30,
2007.  The Company’s share based compensation plans include the 2007
Management Equity Incentive Plan, the 2003 Management Equity Incentive Plan and
the Outside Director Compensation Plan.  The higher expense in the
current year primarily reflects the new 2007 Management Equity Incentive Plan
stock awards that became effective in July 2007.  Shares and options
issued under the Plans vest over varying periods from the date of issue to
January 2011.  See Notes to the Consolidated Financial Statements:
Note 5 – Stock Based Compensation Plans and Warrants.





Other General and Administrative
Expenses, exclusive of stock based compensation costs, totaled $4.0 million in
the six months ended June 30, 2008, compared with $3.0 million for the six
months ended June 30, 2007.  The increase in expenses is primarily due
to higher legal expenses related to the Company’s lawsuit against the
Metropolitan Water District of Southern California.





Depreciation
and AmortizationDepreciation
and amortization expense for the six months ended June 30, 2008 and 2007 totaled
$169 thousand and $76 thousand, respectively.  The higher expenses
relate to 2007 capital expenditures





Interest
Expense, net Net interest expense
totaled $2.0 million during the six months ended June 30, 2008, compared to $1.5
million during the same period in 2007.  The following table
summarizes the components of net interest expense for the two periods (in
thousands):





Six
      Months EndedJune 30,2008
            
            
            2007Interest
      on outstanding debt
            
            $
            993
            
            
            $
            939Amortization
      of financing costs
            
            
            36
            
            
            
            29Amortization
      of debt discount
            
            
            1,076
            
            
            
            866Interest
      income
            
            
            (81
            )
            
            
            (306
            )$
            2,024
            
            
            $
            1,528








The
increase in net interest expense is primarily due the amortization of the debt
discount related to certain derivatives embedded to the new senior secured
convertible term loan.  2007 interest income decreased to $81 thousand
from $305 thousand in the prior year, due to lower cash balances, lower
short-term interest rates and a more conservative investment
policy.  See Notes to the Consolidated Financial Statements: Note 3 –
Long-term Debt.





Income
Taxes  Income tax expense for the six months ended June 30,
2008 was $4 thousand, compared with $8 thousand of income tax expense during the
six months ended June 30, 2007.  See Note 6 of the Notes to the
Consolidated Financial Statements – Income Taxes.


20
 Index
  Cadiz
Inc.




LIQUIDITY
AND CAPITAL RESOURCES





Current Financing
Arrangements





As we
have not received significant revenues from our water resource and real estate
activity to date, we have been required to obtain financing to bridge the gap
between the time water resource and real estate development expenses are
incurred and the time that revenue will commence.  Historically, we
have addressed these needs primarily through secured debt financing
arrangements, private equity placements and the exercise of outstanding stock
options and warrants.





We have
worked with our secured lenders to structure our debt in a way which allows us
to continue our development of the Cadiz Project and minimize the dilution of
the ownership interests of common stockholders.  In June 2006, we
entered into a $36.4 million five year zero coupon senior secured convertible
term loan with Peloton Partners LLP (through an affiliate) and another lender
(the “Term Loan”).  The Term Loan provided for:





·
            a
      final maturity date of June 29,
2011;


·
            a
      zero coupon structure, which requires no cash interest payments prior to
      the final maturity date; and


·
            a
      5% interest rate for the first 3 years, with a 6% interest rate
      thereafter.





At each
lender’s option, principal plus accrued interest on each of the two loan
tranches is convertible into the Company’s $0.01 par value common stock at a
fixed conversion price per share.  The conversion prices are subject
to downward adjustment in the event of a change in control.





On or
after June 29, 2007, principal and interest accrued on each of the two loan
tranches can be prepaid on 30 days notice either if the Company’s stock price
exceeds the tranche’s conversion price by 40% for 20 consecutive trading days in
a 30 trading day period or if the Company completes the Cadiz Water Program
entitlement process, acquires a right-of-way for the project pipeline and
arranges sufficient financing to repay the loan and build the Cadiz
Project.  The conversion prices of the two loan tranches are $18.15
and $23.10, respectively, so the $10 million Tranche A prepayment option would
become available at a share price above $25.41 per share and the $26.4 million
Tranche B prepayment option would become available at a share price above $32.34
per share.





The debt
covenants associated with the loan were negotiated by the parties with a view
towards our operating and financial condition as it existed at the time the
agreements were executed.  At June 30, 2008, the Company was in
compliance with its debt covenants.





The Term
Loan provided us with $9.3 million of additional working capital and deferred
all interest payments until the June 29, 2011 final maturity
date.  Furthermore, the Term Loan permits us to retain any proceeds
received from the issuance of common stock including common stock issued
pursuant to the exercise of stock options and warrants.





On April
16, 2008, the Company was advised that Peloton had assigned its interest in the
Term Loan to an affiliate of Lampe Conway & Company LLC (“Lampe Conway”) and
agreed that Lampe Conway or a Lampe Conway affiliate would replace Peloton as
administrative agent of the loan.


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Cadiz
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A private
placement completed by the Company in November 30, 2004 included the issuance of
warrants to purchase shares of our common stock at an exercise price of $15.00
per share.  In January 2007, we exercised our right to terminate all
unexercised warrants on March 2, 2007, subject to a 30 days notice
period.  In response, holders of all 335,440 warrants then outstanding
exercised their warrants during February 2007.  As a result, we issued
335,440 shares of our common stock and received net proceeds of
$5,031,600.  Following these exercises, no warrants remain
outstanding.





As we
continue to actively pursue our business strategy, additional financing in
connection with our water programs will be required.  See “Outlook”,
below.  The covenants in the Term Loan do not prohibit our use of
additional equity financing and allow us to retain 100% of the proceeds of any
equity financing.  We do not expect the loan covenants to materially
limit our ability to finance our water development activities.





Cash Used
for Operating Activities.  Cash used for operating activities
was $4.6 million for the six months ended June 30, 2008, as compared to $2.4
million for the six months ended June 30, 2007.  The cash was
primarily used to fund general and administrative expenses related to the
Company’s water development efforts, including legal costs associated with the
Company’s lawsuit against the Metropolitan Water District of Southern California
(“Metropolitan”).  As discussed in the Overview, the Company is
preparing for a trial in the lawsuit against Metropolitan and is also engaged in
a series of mandatory settlement conferences.  The Company is
incurring significant litigation expenses, and we expect that these costs will
decline when the matter is resolved, either by trial or
settlement.  The Company also incurred higher farming costs at the
Cadiz Ranch.  The Company is farming a raisin crop in 2008 that had
been leased to a grower during 2007.





Cash Used
for Investing activities.  During the six months ended June 30,
2008, net cash flow used for investing activities was $84 thousand, compared
with $9.1 million in the prior year period.  The 2007 period included
$8.6 million of short-term investments in student loan backed auction rate
preferred securities, which are not considered cash
equivalents.  These investments were liquidated during the fourth
quarter of 2007, and there were no losses associated with the sale of these
securities.  In addition, capital expenditures declined $99
thousand.  2007 capital expenditures included certain leasehold
improvements, furniture and data processing equipment costs related to the
relocation of the Company’s corporate offices.





Cash
Provided by (Used for) Financing Activities.  Cash used for
financing activities totaled $4 thousand for the six months ended June 30, 2008,
compared with $5.2 million of cash provided by financing activities in the six
months ended June 30, 2007.  The 2007 results reflect $5.2 million of
net proceeds from the exercise of warrants to purchase 335,440 shares of our
common stock for $15.00 per share and the exercise of options to purchase 10,000
shares of our common stock for $13.95 per share by an employee.





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Cadiz
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Outlook





Short Term
Outlook.  Cash and cash equivalents were $4.3 million on June
30, 2008, compared with a $8.9 million balance on December 31,
2007.  Cash expenditures for the six months ending June 30, 2008
included significant legal and consulting expenses to prepare our lawsuit
against Metropolitan for trial and a seasonal investment in crops under
cultivation at the Cadiz Ranch.





As
discussed in the Overview, the Company is actively involved in court-ordered
settlement conferences, which could end the lawsuit and result in a financial
settlement with Metropolitan.  If the settlement negotiations are not
successful, we expect that our case to recover $397 to $673 million of damages
from Metropolitan will proceed to trial.  While we believe that the
balance of cash and cash equivalents at June 30, 2008 is sufficient to fund a
trial and minimum business operations for 12 months, the Company is fully
prepared to seek additional working capital, if necessary to continue funding
litigation and other development activities at the levels needed to maximize the
value of our assets.





If
additional financing is needed, we will continue our historical practice of
structuring our financing arrangements to match the anticipated needs of our
development activities and minimizing the dilution of the equity interests of
our current stockholders.See "Long Term Outlook",
below.  No assurances can be given, however, as to the availability or
terms of any new financing.





Long Term Outlook.In the longer term, we will
need to raise additional capital to finance working capital needs, capital
expenditures and any payments due under our senior secured convertible term loan
at maturity.  See “Current Financing Arrangements”
above.  Payments will be due under the term loan only to the extent
that lenders elect not to exercise equity conversion rights prior to the loan’s
final maturity date.  Our future working capital needs will depend
upon the specific measures we pursue in the entitlement and development of our
real estate and water resources.  Future capital expenditures will
depend primarily on the progress of the Cadiz Project.  We will
evaluate the amount of cash needed, and the manner in which such cash will be
raised, on an ongoing basis.  We may meet any future cash requirements
through a variety of means, including equity or debt placements, or through the
sale or other disposition of assets.  Equity placements would be
undertaken only to the extent necessary, so as to minimize the dilutive effect
of any such placements upon our existing stockholders.





Recent Accounting
Pronouncements





See Note 1 to the Consolidated Financial
Statements–Description of Business and Summary of
Significant Accounting Policies.


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Cadiz
Inc


Certain Known Contractual
Obligations





Payments Due by PeriodContractual Obligations
            
            Total
            
            
            1 year
      or less
            
            
            2-3 years
            
            
            4-5 years
            
            
            After 5 yearsLong
      term debt obligations
            
            $
            40,254
            
            
            $
            9
            
            
            $
            9
            
            
            $
            40,236
            
            
            $
            -Interest
      Expense
            
            
            7,511
            
            
            
            1
            
            
            
            -
            
            
            
            7,510
            
            
            
            -Operating
      leases
            
            
            768
            
            
            
            193
            
            
            
            346
            
            
            
            229
            
            
            
            -$
            48,533
            
            
            $
            203
            
            
            $
            355
            
            
            $
            47,975
            
            
            $
            -





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Cadiz
Inc






ITEM 3.
            Quantitative
      and Qualitative Disclosures about Market
Risk





Information
about market risks for the six months ended June 30, 2008 does not differ
materially from that discussed under Item 7A of Cadiz’ Annual Report on Form
10-K for the year ended December 31, 2007.





ITEM 4.
            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 consolidated entities, is
accumulated and communicated to senior management, including the Chairman and
Chief Executive Officer (the “Principal Executive Officer”) and Chief Financial
Officer (the “Principal Financial Officer”) and to our Board of
Directors.  Based on their evaluation as of June 30, 2008, our
Principal Executive Officer and Principal Financial Officer have concluded that
the Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure
that the information required to be disclosed by the Company in the reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and such information is
accumulated and communicated to management, including the principal executive
and principal financial officers as appropriate, to allow timely decisions
regarding required disclosures.





Changes
in Internal Controls Over Financial Reporting





In
connection with the evaluation required by paragraph (d) of Rule 13a-15 under
the Exchange Act, there was no change identified in the Company's internal
controls over financial reporting that occurred during the last fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.





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Cadiz
Inc






PART II  -  OTHER INFORMATION





ITEM
      1.
            Legal
      Proceedings





See
“Legal Proceedings” included in the Company’s latest Form 10-K, the Form 8-K
Current Report filed on April 21, 2008 and the Form 8-K Current Report filed on
May 6, 2008, for a complete discussion.





ITEM1A.
            Risk
  Factors





There have been no material changes to
the factors disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K
for the year endedDecember
31, 2007.





ITEM
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds





Not
applicable.





ITEM
      3.
            Defaults
      Upon Senior Securities





Not
applicable.





ITEM
      4.
            Submission
      of Matter to a Vote of Security
Holders








Our 2008
annual meeting was held on May 9, 2008.  The stockholders took the
following actions at the meeting:





1.           Elected
Messrs. Keith Brackpool, Stephen J. Duffy, Geoffrey Grant, Winston H. Hickox,
Murray H. Hutchison and Timothy J. Shaheen to the Company's Board of
Directors.  Mr. Brackpool was elected by the vote of 7,115,969 shares
in favor and 381,298 withheld and no broker non-votes.  Mr. Duffy was
elected by the vote of 6,148,993 shares in favor and 1,348,274 withheld and no
broker non-votes.  Mr. Grant was elected by the vote of 6,236,072
shares in favor and 1,261,195 withheld and no broker non-votes.  Mr.
Hickox was elected by the vote of 7,027,589 shares in favor and 469,678 withheld
and no broker non-votes.  Mr. Hutchison was elected by the vote of
6,147,554 shares in favor and 1,349,713 withheld and no broker
non-votes.  Mr. Shaheen was elected by the vote of 6,235,974 shares in
favor and 1,261,293 withheld and no broker non-votes.





Mr.
Raymond J. Pacini serves as a director of the Company by designation under our
credit agreement with our senior secured lenders, and thus was not subject to
election at the annual meeting.





2.           Ratified
the selection by our Board of Directors of PricewaterhouseCoopers LLP to
continue as our independent certified public accountants for fiscal year 2008 by
a vote of 7,480,352 in favor and 11,984 against, with 4,931 abstaining and no
broker non-votes.





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Cadiz
Inc





ITEM
      5.
            Other
      Information





Not
applicable.





ITEM
      6.
            Exhibits





The
following exhibits are filed or incorporated by reference as part of this
Quarterly Report on Form 10-Q.








31.1
            Certification
      of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc.
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002





31.2
            Certification
      of O’Donnell Iselin II, Chief Financial Officer and Secretary of Cadiz
      Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
    2002





32.1
            Certification
      of Keith Brackpool, Chairman and Chief Executive Officer of Cadiz Inc.
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002





32.2
            Certification
      of O'Donnell Iselin II, Chief Financial Officer and Secretary of Cadiz
      Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      906 of the Sarbanes-Oxley Act of
2002


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 Index
  Cadiz
Inc






SIGNATURE








Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.





Cadiz
Inc.








By:
            /s/ Keith Brackpool
            
            Date
            August 6, 2008Keith
      BrackpoolChairman
      of the Board and Chief Executive Officer(Principal
      Executive Officer)By:
            /s/ O’Donnell Iselin II
            
            Date
            August 6, 2008O’Donnell
      Iselin II,Chief
      Financial Officer and Secretary(Principal
      Financial Officer)




28