**FORM      10-K**

**FOR        ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)**

**OF      THE SECURITIES EXCHANGE ACT OF 1934**

**DELAWARE**
**77-0313235**

**777      S. Figueroa Street, Suite 4250**

**Los      Angeles, CA**
**90017**

**(213)      271-1600**

**Common      Stock, par value $0.01 per      share                           Th**
**e      NASDAQ Stock Market LLC**

**Yes      **
** **
**      No **
**_**
**_**

**Yes      **
** **
**      No **
**_**
**_**

**Yes      **
**_**
**_**
**      No ___**

**Large      accelerated filer ___ Accelerated filer **
**_**
**_**
**      Non-accelerated filer ___**

**Yes___      No **
**_**
**_**

**Documents      Incorporated by Reference**

----

**TABLE      OF CONTENTS **

**Part      I**

| Item              1.        | Business                                                                       | 1      |
|-----------------------------|-------------------------------------------------------------------------------------|--------|
|                        |                                                                                |   |
| Item              1A.  | Risk              Factors                                                      | 8      |
|                        |                                                                                |   |
| Item              1B.  | Unresolved              Staff Comments                                         | 10     |
|                        |                                                                                |   |
| Item              2.   | Properties                                                                     | 10     |
|                        |                                                                                |   |
| Item              3.   | Legal              Proceedings                                                 | 12     |
|                        |                                                                                |   |
| Item 4.           | Submission              of Matters to a Vote of Security              Holders  | 12     |
|                        |                                                                                |   |

**Part      II**

| Item              5.        | Market              for Registrant's Common Equity and Related              Stockholder Matters                 | 14     |
|-----------------------------|-----------------------------------------------------------------------------------------------------------------|--------|
|                        |                                                                                                            |   |
| Item              6.   | Selected              Financial Data                                                                            | 15     |
|                        |                                                                                                            |   |
| Item              7.   | Management's              Discussion and Analysis of Financial Condition              and Results of Operations | 16     |
|                        |                                                                                                            |   |
| Item              7A.       | Quantitative              and Qualitative Disclosures about              Market Risk                            | 27     |
|                        |                                                                                                            |   |
| Item              8.   | Financial              Statements and Supplementary Data                                                        | 27     |
|                        |                                                                                                            |   |
| Item 9.           | Changes              in and Disagreements with Accountants on Accounting              and Financial Disclosures | 27     |
|                        |                                                                                                            |   |
| Item              9A.       | Controls              and Procedures                                                                            | 27     |
|                        |                                                                                                            |   |
| Item              9B.       | Other              Information                                                                                  | 28     |

**Part      III**

| Item              10.       | Directors,              Executive Officers and Corporate              Governance                                         | 29     |
|-----------------------------|--------------------------------------------------------------------------------------------------------------------------|--------|
|                        |                                                                                                                     |   |
| Item              11.  | Executive              Compensation                                                                                      | 29     |
|                        |                                                                                                                     |   |
| Item              12.  | Security              Ownership of Certain Beneficial Owners and              Management and Related Stockholder Matters | 29     |
|                        |                                                                                                                     |   |
| Item              13.       | Certain              Relationships and Related Transactions, and              Director Independence                      | 29     |
|                        |                                                                                                                     |   |
| Item              14.       | Principal              Accountant Fees and Services                                                                      | 29     |

**Part      IV**

| Item              15. | Exhibits              and Financial Statement Schedules | 30 |
|-----------------------|---------------------------------------------------------|----|

**ii**

----

**PART      I**

**ITEM      1.****         Business**

***Overview***

**1**

----

*Record        of Decision (“ROD”)*
*** ***

**2**

----

**(a)**
**General      Development of**
** Business**

**3**

----

**(b)**
**Financial      Information about Industry Segments**

**(c)**
**Narrative      Description of Business**

**W**
***ater      Resource Development***

**The      Cadiz Valley Aquifer Storage Project**

**4**

----

*Groundwater      Monitoring & Management Plan (“Management Plan”)*
*** ***
*ROD*
*Management      Plan*

| ·   | Spreading                basins, which are shallow ponds that percolate water from the ground                surface to the water table; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | High                yield extraction wells designed to extract stored Colorado River                water and                indigenous groundwater from beneath the Cadiz Project                area; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A                35-mile conveyance pipeline to connect the spreading basins and wellfield                to the Colorado River Aqueduct near the Iron Mountain pumping plant;                and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A                pumping plant to pump water through the conveyance pipeline from                the                Colorado River Aqueduct near the Iron Mountain pumping plant to the                Cadiz                Project spreading basins. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*ROD*
*ROD*

*      ROD*

**5**

----

**6**

----

**                       Other Eastern Mojave Properties**

***Agricultural      Operations***

***Seasonality***

***Competition***

***Employees***

**7**

----

***Regulation***

***Access      To Our Information***

**ITEM      1A.     Risk      Factors**

**Our      Development Activities Have Not Generated Significant      Revenues**

**We      May Never Generate Significant Revenues Or Become Profitable Unless We Are      Able      To Successfully Implement Programs To Develop Our Land Assets And Related Water      Resources**

**8**

----

**Our      Failure To Make Timely Payments Of Principal And Interest On Our Indebtedness      May Result In A Foreclosure On Our Assets**

**The      Conversion Of Our Outstanding Senior Indebtedness Into Common Stock Would Dilute      The Percentage Of Our Common Stock Held By Current      Stockholders**

**The      Issuance Of Equity Securities Under Management Equity Incentive Plans Will      Impact Earnings**

**We      May Not Be Able To Obtain the Financing We Need To Implement Our Asset      Development Programs**

**9**

----

**We      Are Restricted By Contract from Paying Dividends and We Do Not Intend To Pay      Dividends In The Foreseeable Future**

**ITEM      1B.     Unresolved Staff      Comments**

**ITEM      2.   **** Properties**

**The      Cadiz/Fenner Valley Property**

**10**

----

***Other      Eastern Mojave Properties***

***Farm***
**Property**

***Executive      Offices***

***Cadiz      Real Estate***

**11**

----

***Debt      Secured by Properties***

**ITEM      3.****          Legal Proceedings**

***Claim      Against Metropolitan***

***Other      Proceedings***

**ITEM      4.     Submission of Matters to a Vote of      Security Holders**

**12**

----

**13**

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**PART      II**

**ITEM      5.     Market for Registrant's Common      Equity and Related Stockholder Matters**

|                             |   |   | **High**                  |   |   | **Low**                        |   |
|----------------------------------|--------|--------|--------------------------------|--------|--------|--------------------------------|--------|
| **Quarter                Ended** |   |   | **Sales                Price** |   |   | **Sales                Price** |   |
|                             |   |   |                           |   |   |                           |   |
| ***2005:***                      |   |   |                           |   |   |                           |   |
| March                31          |   | $      | 15.40                          |   | $      | 11.50                          |   |
| June                30           |   | $      | 19.00                          |   | $      | 14.25                          |   |
| September                30      |   | $      | 19.50                          |   | $      | 16.00                          |   |
| December                31       |   | $      | 22.00                          |   | $      | 18.00                          |   |
|                             |   |   |                           |   |   |                           |   |
| ***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                          |   |

**14**

----

**ITEM      6.     Selected Financial      Data**

| ($                  in thousands, except for per share data)                                                                                         |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                 |   | **Year                  Ended December 31,**  |   |
|                                                                                                                                                 |   | **2006** |   | **2005** |   | **2004** |   | **2003** |   | **2002** |   |
| Statement                  of Operations Data:                                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  revenues                                                                                                                      |   | $ | 614 |   | $ | 1,197 |   | $ | 47 |   | $ | 3,162 |   | $ | 114,250 |   |
| Net                  loss                                                                                                                            |   |   | (13,825 | ) |   | (23,025 | ) |   | (16,037 | ) |   | (11,536 | ) |   | (25,225 | ) |
| Less:                  Preferred stock dividends                                                                                                     |   |   | - |   |   | - |   |   | - |   |   | 918 |   |   | 1,125 |   |
|                Imputed                  dividend on  preferred stock |   |   |                            - |   |   |                            - |   |   |                            - |   |   |                                     1,600 |   |   |                                        984 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  loss applicable to                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common                  stock                                                                                                                        |   | $ | (13,825 | ) | $ | (23,025 | ) | $ | (16,037 | ) | $ | (14,054 | ) | $ | (24,334 | ) |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Per                  share:                                                                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  loss (basic and diluted)                                                                                                        |   | $ | (1.21 | ) | $ | (2.14 | ) | $ | (2.32 | ) | $ | (6.39 | ) | $ | (16.76 | ) |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average                  common                                                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| shares                  outstanding                                                                                                                  |   |   | 11,381 |   |   | 10,756 |   |   | 6,911 |   |   | 2,200 |   |   | 1,452 |   |
|                                                                                                                                                 |
|                                                                                                                                                      |   | **December                  31,**   |
|                                                                                                                                                 |   |   | **2006** |   |   | **2005** |   |   | **2004** |   |   | **2003** |   |   | **2002** |   |
| Balance                  Sheet Data:                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  assets                                                                                                                        |   | $ | 50,326 |   | $ | 46,046 |   | $ | 51,071 |   | $ | 49,526 |   | $ | 191,883 |   |
| Long-term                  debt                                                                                                                      |   | $ | 25,881 |   | $ | 25,883 |   | $ | 25,000 |   | $ | 30,253 |   | $ | 115,447 |   |
| Redeemable                  preferred stock                                                                                                          |   | $ | - |   | $ | - |   | $ | - |   | $ | - |   | $ | 10,942 |   |
|                      Preferred                  stock, common stock and additional paid-in capital                                    |   | $ | 245,322 |   | $ | 226,852 |   | $ | 209,718 |   | $ | 185,040 |   | $ | 156,166 |   |
| Accumulated                  deficit                                                                                                                 |   | $ | (221,710 | ) | $ | (207,885 | ) | $ | (184,860 | ) | $ | (168,823 | ) | $ | (157,287 | ) |
| Stockholders'                  equity (deficit)                                                                                                      |   | $ | 23,612 |   | $ | 18,967 |   | $ | 24,858 |   | $ | 16,217 |   | $ | (1,121 | ) |

**15**

----

**ITEM      7.     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 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 "Risk Factors” above.*

***Overview***

*Record      of Decision (“ROD”)*
*** ***

**16**

----

**17**

----

**Results      of Operations**

**(a)**
***Year      Ended December 31, 2006 Compared to Year Ended December 31,      2005***

***Revenues.***

***Cost      of Sales.***

**18**

----

***General      and Administrative Expenses.***
*** ***

***Depreciation      and Amortization.***

***Interest      Expense, net***
*.*

|                                               |  **Year                    Ended**   |
|----------------------------------------------------|-------------------------------------------|
|                                               |  **December                    31,** |
|                                               |                                      | **2006** |   | **2005** |   |
|                                               |                                      |   |   |   |   |   |   |
| Interest                    on outstanding debt    |                                      | $ | 1,987 |   | $ | 2,062 |   |
| Amortization                    of debt discount   |                                      |   | 783 |   |   | - |   |
| Amortization                    of financing costs |                                      |   | 40 |   |   | 28 |   |
| Interest                    income                 |                                      |   | (376 | ) |   | (159 | ) |
|                                               |                                      |   |   |   |   |   |   |
|                                               |                                      | $ | 2,434 |   | $ | 1,931 |   |

**19**

----

***                       Loss on Extinguishment of Debt and Debt        Refinancing.***

***Change      in Fair Value of Derivative Liability.***

***Other      Income.***

***(b)***
***Year      Ended December 31, 2005 Compared to Year Ended December 31,      2004***

**20**

----

***Revenues.***

***Cost      of Sales.***

***General      and Administrative Expenses.***

***Depreciation      and Amortization.***

***Interest      Expense, net***
*.*

**21**

----

|                                             | **Year                  Ended**   |
|--------------------------------------------------|-----------------------------------|
|                                             | **December                  31,** |
|                                             |                              |   | **2005** |   |   | **2004** |   |
|                                             |                              |   |   |   |   |   |   |
| Interest                  on outstanding debt    |                              | $ | 2,062 |   | $ | 3,970 |   |
| Amortization                  of financing costs |                              |   | 28 |   |   | 3,767 |   |
| Interest                  income                 |                              |   | (159 | ) |   | (42 | ) |
|                                             |                              |   |   |   |   |   |   |
|                                             |                              | $ | 1,931 |   | $ | 7,695 |   |

***Loss      on Extinguishment of Debt and Debt Refinancing.***

**Liquidity      and Capital Resources**

**(a)**
***Current      Financing Arrangements***

| ·   | 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. |
|--------------------|-------------------------------------------------------------------------------------------------------------|

**22**

----

**23**

----

**Cash      Used for Operating Activities**

**Cash      Provided By (Used for) Investing Activities**

**Cash      Provided by Financing Activities**

***(b)***
***Outlook***

**Short      Term Outlook**
*.*

**Long      Term Outlook**
*.      *

**(c)**
***Critical      Accounting Policies***

**24**

----

***(1)      Principles of Consolidation***

**(2)      *Intangible and Other Long-Lived Assets***

***(3)      Goodwill***

***(4)      Deferred Tax Assets and Valuation Allowances.***

**25**

----

**(d)**
***New      Accounting Pronouncements***

**(e)**
***Off      Balance Sheet Arrangements***

**(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  |   | $                                           | 37,347    |   | $ | 9 |   | $ | 19 |   | $ | 37,319 |   | $ | - |   |
|                                         |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  payable            |   |                                        | 10,433    |   |   | 1 |   |   | 1 |   |   | 10,431 |   |   | - |   |
|                                         |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                  leases            |   |                                        | 102       |   |   | 74 |   |   | 28 |   |   | - |   |   | - |   |
|                                         |   | $                                           | 47,882    |   | $ | 84 |   | $ | 48 |   | $ | 47,750 |   | $ | - |   |

**26**

----

**ITEM      7A.     Quantitative and Qualitative      Disclosures about Market Risk**

|                                   |   | **Long-Term                  Debt**  |                            |
|----------------------------------------|--------|-------------------------------------------|---------------------------------|
|                                        |   |                                      | **Fixed                  Rate** |   |   | **Average                  Interest** |   |   | **Variable                  Rate** |   |   | **Average                  Interest** |   |
| **Expected                  Maturity** |   |                                      | **Maturities**                  |   |   | **Rate** |   |   | **Maturities** |   |   | **Rate** |   |
|                                   |   |                                      |                            |   |   |   |   |   |   |   |   |   |   |
| 2011                                   |   | $                                         | 37,347                          |   |   | 5.4 | % | $ | - |   | $ | - |   |

**ITEM      8.    ****Financial      Statements and Supplementary Data**

**ITEM      9.    ****Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure**

**ITEM      9A.     Controls And Procedures**

**Disclosure      Controls and Procedures**

**27**

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**Management’s      Report on Internal Control Over Financial Reporting **

**Changes      in Internal Control Over Financial Reporting **

**ITEM      9B.     Other      Information**

**28**

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**PART      III**

**ITEM      10.****          Directors, Executive Officers and Corporate Governance**

**ITEM      11.     Executive      Compensation**

**ITEM      12.     Security Ownership of Certain      Beneficial Owners and Management and Related Stockholder      Matters**

**ITEM      13.     Certain Relationships and Related      Transactions, and Director Independence**

**ITEM      14****.          Principal Accountant Fees and Services**

**29**

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**PART      IV**

**ITEM      15.     Exhibits and Financial Statement      Schedules**

** **

|   |    | 1. | Financial              Statements.  See Index Consolidated Financial              Statements. |
|--------|--------------|----|----------------------------------------------------------------------------------------------------|
|   |   |   |   |
|--------|--------|--------|--------|
|   |   | 2. | Financial                Statement Schedule. See Index to Consolidated Financial                Statements. |
|--------|--------|----|-------------------------------------------------------------------------------------------------------------|

|   |   | 3. | Exhibits. |
|--------|--------|----|-----------|

**30**

----

**31**

----

|   | (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 November 13,                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 Form S-8 Registration Statement No. 333-124626                filed on May 4, 2005 |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | (11) | Previously                filed as an Exhibit to our Current Report on Form 8-K dated October                3,                2005 filed on October 3, 2005 |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (12) | Previously                filed as an Exhibit to our Report on Form 10-Q for the quarter ended                September 30, 2005 filed on November 14,                2005 |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  (13) | Previously              filed as an exhibit to our registration statement on Form S-3              (Registration No. 333-126117) filed on July 28,              2006 |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  (14)  | Previously              filed as an exhibit to our current report on Form 8-K dated October              4,              2006 and filed October 4, 2006  |
|--------|------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |  (15) | Previously              filed as appendix B to our definitive proxy dated October 10, 2006              and              filed October 10, 2006 |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

**32**

----

***INDEX      TO FINANCIAL STATEMENTS***

**CADIZ      INC. CONSOLIDATED FINANCIAL STATEMENTS **

|                                                                                                                        | Page  |
|-----------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                        |       |
| Report              of Independent Registered Public Accounting              Firm                                      | 34         |
|                                                                                                                        |       |
| Consolidated              Statements of Operations for              the three years ended December 31, 2006            | 36         |
|                                                                                                                        |       |
| Consolidated              Balance Sheets as of December 31, 2006              and 2005                                 | 37         |
|                                                                                                                        |       |
| Consolidated              Statements of Cash Flows for the              three years ended December 31, 2006            | 38         |
|                                                                                                                        |       |
| Consolidated              Statements of Stockholders'              Equity for the three years ended December 31, 2006  | 39         |
|                                                                                                                        |       |
| Notes              to the Consolidated Financial              Statements                                               | 40         |
|                                                                                                                        |       |
| Financial              Statement Schedule                                                                              | 62         |

**33**

----

**Report      of Independent Registered Public Accounting Firm**

*Internal      Control - Integrated Framework*
*Internal      Control - Integrated Framework*

**34**

----

** **

**35**

----

***CADIZ      INC.***

***CONSOLIDATED      STATEMENTS OF OPERATIONS***

|                                                                     |   | **Year                    Ended December 31,**   |    |
|--------------------------------------------------------------------------|--------|------------------------------------------------------------|---------|
| ***(In                    thousands, except per share data)***           |   | **2006**                                                   |    | **2005** |   | **2004** |   |
|                                                                     |   |                                                       |    |   |   |   |   |
| Total                    revenues                                        |   | $                                                          | 614     |   | $ | 1,197 |   | $ | 47 |   |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Costs                    and expenses:                                   |   |                                                       |    |   |   |   |   |   |   |   |
| Cost                    of sales (exclusive of depreciation shown below) |   |                                                       | 721     |   |   | 994 |   |   | - |   |
| General                    and administrative                            |   |                                                       | 7,710   |   |   | 20,732 |   |   | 3,050 |   |
| Write-off                    of permanent and developing crops (Note 2)  |   |                                                       | -       |   |   | - |   |   | 3,443 |   |
| Depreciation                    and amortization                         |   |                                                       | 154     |   |   | 229 |   |   | 527 |   |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
|                         Total costs and expenses     |   |                                                       | 8,585   |   |   | 21,955 |   |   | 7,020 |   |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Operating                    loss                                        |   |                                                       | (7,971  | ) |   | (20,758 | ) |   | (6,973 | ) |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Interest                    expense, net                                 |   |                                                       | (2,434  | ) |   | (1,931 | ) |   | (7,695 | ) |
| Loss                    on extinguishment of debt and debt refinancing   |   |                                                       | (868    | ) |   | - |   |   | (1,369 | ) |
| Change                    in fair value of derivative liability          |   |                                                       | (2,919  | ) |   | - |   |   | - |   |
| Other                    income                                          |   |                                                       | 373     |   |   | - |   |   | - |   |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Other                    income (expense), net                           |   |                                                       | (5,848  | ) |   | (1,931 | ) |   | (9,064 | ) |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Net                    loss before income taxes                          |   |                                                       | (13,819 | ) |   | (22,689 | ) |   | (16,037 | ) |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Income                    tax expense                                    |   |                                                       | 6       |   |   | 336 |   |   | - |   |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Net                    loss                                              |   |                                                       | (13,825 | ) |   | (23,025 | ) |   | (16,037 | ) |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Net                    loss applicable to common stock                   |   | $                                                          | (13,825 | ) | $ | (23,025 | ) | $ | (16,037 | ) |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Basic                    and diluted net loss per share                  |   | $                                                          | (1.21   | ) | $ | (2.14 | ) | $ | (2.32 | ) |
|                                                                     |   |                                                       |    |   |   |   |   |   |   |   |
| Weighted-average                    shares outstanding                   |   |                                                       | 11,381  |   |   | 10,756 |   |   | 6,911 |   |

**36**

----

***CADIZ      INC.***

***CONSOLIDATED        BALANCE SHEET***

|                                                                                                               |   | **December                    31,** |     |
|--------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|
| ***($                    in thousands)***                                                                          |   | **2006**                            |     | **2005** |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| **ASSETS**                                                                                                         |   |                                |     |   |   |   |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Current                    assets:                                                                       |   |                                |     |   |   |   |   |
| Cash                    and cash equivalents                                                                       |   | $                                   | 10,397   |   | $ | 5,302 |   |
| Accounts                    Receivable                                                                             |   |                                | 301      |   |   | 170 |   |
| Prepaid                    interest expense                                                                        |   |                                | -        |   |   | 740 |   |
| Prepaid                    expenses and other                                                                      |   |                                | 243      |   |   | 34 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Total                    current assets                                                                            |   |                                | 10,941   |   |   | 6,246 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Property,                    plant, equipment and water programs, net                                              |   |                                | 35,190   |   |   | 35,323 |   |
| Goodwill                                                                                                           |   |                                | 3,813    |   |   | 3,813 |   |
| Other                    assets                                                                                    |   |                                | 382      |   |   | 664 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Total                    assets                                                                                    |   | $                                   | 50,326   |   | $ | 46,046 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| **LIABILITIES                    AND STOCKHOLDERS' EQUITY**                                                        |   |                                |     |   |   |   |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Current                    liabilities:                                                                            |   |                                |     |   |   |   |   |
| Accounts                    payable                                                                                |   | $                                   | 444      |   | $ | 369 |   |
| Accrued                    liabilities                                                                             |   |                                | 380      |   |   | 819 |   |
| Current                    portion of long term debt                                                               |   |                                | 9        |   |   | 8 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Total                    current liabilities                                                                       |   |                                | 833      |   |   | 1,196 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Long-term                    debt                                                                                  |   |                                | 25,881   |   |   | 25,883 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Total                    liabilities                                                                               |   |                                | 26,714   |   |   | 27,079 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Contingencies                    (Note 12)                                                                         |   |                                |     |   |   |   |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Stockholders'                    equity:                                                                           |   |                                |     |   |   |   |   |
|                         Series F convertible preferred stock - $.01 par value:                 |   |                                |     |   |   |   |   |
|                           100,000 shares authorized, shares issued and outstanding - |   |                                |     |   |   |   |   |
|                           1,000 at December 31, 2006 and 1,000 at December 31, 2005  |   |                                | -        |   |   | - |   |
|                         Common stock - $0.01 par value; 70,000,000 shares                      |   |                                |     |   |   |   |   |
|                           authorized; shares issued and outstanding: 11,536,597 at   |   |                                |     |   |   |   |   |
|                           December 31, 2006 and 11,330,463 at December 31, 2005      |   |                                | 116      |   |   | 114 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Additional                    paid-in capital                                                                      |   |                                | 245,206  |   |   | 226,738 |   |
| Accumulated                    deficit                                                                             |   |                                | (221,710 | ) |   | (207,885 | ) |
| Total                    stockholders' equity                                                                      |   |                                | 23,612   |   |   | 18,967 |   |
|                                                                                                               |   |                                |     |   |   |   |   |
| Total                    liabilities and stockholders' equity                                                      |   | $                                   | 50,326   |   | $ | 46,046 |   |

**37**

----

***CADIZ      INC.***

***CONSOLIDATED      STATEMENT OF CASH FLOWS***

|                                                                                                           |   |                                                     |
|----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|
|                                                                                                                |   | **Year                  Ended December 31,**   |
| **(*****$                  in thousands)***                                                                    |   |                                                     | **2006** |   |   | **2005** |   |   | **2004** |   |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Cash                  flows from operating activities:                                                         |   |                                                     |   |   |   |   |   |   |   |   |
| Net                  loss                                                                                      |   | $                                                        | (13,825 | ) | $ | (23,025 | ) | $ | (16,037 | ) |
| Adjustments                  to reconcile net loss to net cash used for operating                  activities: |   |                                                     |   |   |   |   |   |   |   |   |
| Depreciation                  and amortization                                                                 |   |                                                     | 154 |   |   | 229 |   |   | 527 |   |
| Amortization                  of debt issuance costs                                                           |   |                                                     | 40 |   |   | 28 |   |   | 286 |   |
| Amortization                  of debt discount                                                                 |   |                                                     | 783 |   |   | - |   |   | 3,481 |   |
| Loss                  on extinguishment of debt and debt refinancing                                           |   |                                                     | 868 |   |   | - |   |   | 1,369 |   |
| Interest                  added to loan principalNet                  (gain)/loss on disposal of assets        |   |                                                     | 1,463(21 | ) |   | 85142 |   |   | -- |   |
| Write-off                  of permanent and developing crops                                                   |   |                                                     | - |   |   | - |   |   | 3,443 |   |
| Change                  in value of derivative liability                                                       |   |                                                     | 2,919 |   |   | - |   |   | - |   |
| Compensation                  charge for stock awards and share options                                        |   |                                                     | 2,260 |   |   | 16,687 |   |   | - |   |
| Changes                  in operating assets and liabilities:                                                  |   |                                                     |   |   |   |   |   |   |   |   |
| Decrease                  (increase) in accounts receivable                                                    |   |                                                     | (131 | ) |   | (170 | ) |   | - |   |
| Decrease                  (increase) in prepaid borrowing expense                                              |   |                                                     | 523 |   |   | - |   |   | - |   |
| Decrease                  (increase) in prepaid expenses and other                                             |   |                                                     | (209 | ) |   | 1,236 |   |   | 122 |   |
| (Decrease)                  increase in accounts payable                                                       |   |                                                     | 75 |   |   | (101 | ) |   | (386 | ) |
| (Decrease)                  increase in accrued liabilities                                                    |   |                                                     | (175 | ) |   | 522 |   |   | (454 | ) |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Net                  cash used for operating activities                                                        |   |                                                     | (5,276 | ) |   | (3,701 | ) |   | (7,649 | ) |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Cash                  flows from investing activities:                                                         |   |                                                     |   |   |   |   |   |   |   |   |
| Deconsolidation                  of subsidiary                                                                 |   |                                                     | - |   |   | - |   |   | - |   |
| Additions                  to property, plant and equipment                                                    |   |                                                     | (22 | ) |   | (68 | ) |   | (8 | ) |
| Proceeds                  from asset disposition                                                               |   |                                                     | 22 |   |   | - |   |   | - |   |
| Decrease                  (increase) in restricted cash                                                        |   |                                                     | - |   |   | - |   |   | 2,142 |   |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Net                  cash provided by (used for) investing activities                                          |   |                                                     | - |   |   | (68 | ) |   | 2,134 |   |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Cash                  flows from financing activities:                                                         |   |                                                     |   |   |   |   |   |   |   |   |
| Net                  proceeds from issuance of common stock                                                    |   |                                                     | 1,050 |   |   | - |   |   | 21,274 |   |
| Proceeds                  from issuance of long-term debt                                                      |   |                                                     | 36,375 |   |   | 44 |   |   | - |   |
| Debt                  issuance costs                                                                           |   |                                                     | (408 | ) |   | - |   |   | (150 | ) |
| Principal                  payments on long-term debt                                                          |   |                                                     | (26,646 | ) |   | (4 | ) |   | (10,000 | ) |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Net                  cash provided by financing activities                                                     |   |                                                     | 10,371 |   |   | 40 |   |   | 11,124 |   |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Net                  increase in cash and cash equivalents                                                     |   |                                                     | 5,095 |   |   | (3,729 | ) |   | 5,609 |   |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents, beginning of period                                                |   |                                                     | 5,302 |   |   | 9,031 |   |   | 3,422 |   |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents, end of period                                                      |   | $                                                        | 10,397 |   | $ | 5,302 |   | $ | 9,031 |   |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Non-cash                  financing and investing activities                                                   |   |                                                     |   |   |   |   |   |   |   |   |
|                                                                                                           |   |                                                     |   |   |   |   |   |   |   |   |
| Settlement                  of note receivable from officer                                                    |   | $                                                        | - |   | $ | - |   | $ | 1 |   |
| Issuance                  of common stock to prepay interest on term loan                  obligations         |   |                                                     |   |   |   |   |   |   |   |   |
| Issuance                  of common stock for services accrued in prior year                                   |   |                                                     | - |   |   | 447 |   |   | 350 |   |
| Exchange                  of deferred stock units for common stock                                             |   |                                                     | - |   |   | - |   |   | 654 |   |

**38**

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***CADIZ      INC.***

***CONSOLIDATED      STATEMENT OF STOCKHOLDERS' EQUITY***
|  ***For                  the Years Ended December 31, 2006, 2005 and                  2004***                      |
|------------------------------------------------------------------------------------------------------------------------------|
| ***($                  in thousands****)*                                                                                    |
|                                                                                                                         |
|                                                                                                                              |   | **Additional**  |   |   |  |   |   | **Total** |   |
|                                                                                                                         |   | **Preferred                  Stock**  | **Common                  Stock** |   | **Paid-in** |   |   | **Accumulated** |   |   | **Stockholders’** |   |
|                                                                                                                              |   |   | **Shares**  |   |   | **Amount** |   |   | **Shares** |   |   | **Amount** |   |   | **Capital** |   |   | **Deficit** |   |   | **Equity** |   |
|                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  as of December 31, 2003                                                                             |   |   | 100,000 |   | $ | 1 |   |   | 6,471,385 |   | $ | 65 |   | $ | 184,974 |   |   | (168,823 | ) | $ | 16,217 |   |
|                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Exchange                  of deferred stock units for common stock                                                           |   |   | - |   |   | - |   |   | 1,289 |   |   | - |   |   | 654 |   |   | - |   |   | 654 |   |
| Issuance                  of common stock for cash                                                                           |   |   | - |   |   | - |   |   | 2,000,000 |   |   | 20 |   |   | 23,654 |   |   | - |   |   | 23,674 |   |
| Issuance                  of common stock for services                                                                       |   |   | - |   |   | - |   |   | 140,000 |   |   | 1 |   |   | 349 |   |   | - |   |   | 350 |   |
| Conversion                  of Series F convertible preferred stock                                                          |   |   | (99,000 | ) |   | (1 | ) |   | 1,711,665 |   |   | 17 |   |   | (16 | ) |   | - |   |   | - |   |
| Net                  loss                                                                                                    |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (16,037 | ) |   | (16,037 | ) |
|                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  as of December 31, 2004                                                                             |   |   | 1,000 |   |   | - |   |   | 10,324,339 |   |   | 103 |   |   | 209,615 |   |   | (184,860 | ) |   | 24,858 |   |
|                                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                  of common stock for services                                                                       |   |   | - |   |   | - |   |   | 37,200 |   |   | 1 |   |   | 446 |   |   | - |   |   | 447 |   |
| Issuance                  of management incentive shares 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 conversion option                                                                     |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 15,160 |   |   | - |   |   | 15,160 |   |
| Stock                  compensation expense and issuance of managementincentive                  and outside director shares |   |   | - |   |   | - |   |   | 136,195 |   |   | 1 |   |   | 2,259 |   |   | - |   |   | 2,260 |   |
| Common                  stock issued due to warrant exercise                                                                 |   |   | - |   |   | - |   |   | 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 |   |

**39**

----

***CADIZ      INC.***

***NOTES        TO THE CONSOLIDATED FINANCIAL        STATEMENTS***

**NOTE      1 - DESCRIPTION OF BUSINESS**

*Record      of Decision (“ROD”)*
*** ***

**40**

----

**41**

----

**NOTE      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

***Basis      of Presentation***

**42**

----

***Reclassifications***

***Principles      of Consolidation***

***Use      of Estimates in Preparation of Financial Statements***

***Revenue      Recognition***

***Stock-Based      Compensation***

**43**

----

|                                                        |                                                   |   | **Year                    Ended December 31, **  |
|-------------------------------------------------------------|--------------------------------------------------------|--------|------------------------------------------------------------|
|                                                        |                                                   |   |                                                       | **2005** |   |   | **2004** |   |
|                                                        |                                                   |   |                                                       |   |   |   |   |   |
|  Net loss applicable to common                  stock: | As                    reported                         |   | $                                                          | (23,025 | ) | $ | (16,037 | ) |
|                                                        | Additional                      expense under SFAS 123 |   | $                                                          | (3,096 | ) |   | - |   |
|                                                        | Pro                    forma                           |   | $                                                          | (26,121 | ) | $ | (16,037 | ) |
|                                                        |                                                   |   |                                                       |   |   |   |   |   |
|  Net loss per common share:                            | As                    reported                         |   | $                                                          | (2.14 | ) | $ | (2.32 | ) |
|                                                        | Additional                      expense under SFAS123  |   | $                                                          | (0.29 | ) | $ | - |   |
|                                                        | Pro                    forma                           |   | $                                                          | (2.43 | ) | $ | (2.32 | ) |
|                                                        |                                                   |   |                                                       |   |   |   |   |   |

**44**

----

***Net      Loss Per Common Share***

***Cash      and Cash Equivalents***

***Prepaid      Interest Expense***

***Property,      Plant, Equipment and Water Programs***

**45**

----

***Impairment      of Long-Lived Assets***

***Goodwill      and Other Assets***

**46**

----

***Income      Taxes***

***Fair      Value of Financial Instruments***

***Supplemental      Cash Flow Information***

***Recent      Accounting Pronouncements***

**47**

----

**NOTE      3 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS**

|                                                |   | **December                  31,** |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              | **2006** |   |   | **2005** |   |
|                                           |   |                              |   |   |   |   |   |
| Land                  and land improvements    |   | $                                 | 21,986 |   | $ | 21,986 |   |
| Water                  programs                |   |                              | 14,274 |   |   | 14,274 |   |
| Buildings                                      |   |                              | 1,191 |   |   | 1,191 |   |
| Machinery                  and equipment       |   |                              | 726 |   |   | 2,103 |   |
|                                           |   |                              | 38,177 |   |   | 39,554 |   |
| Less                  accumulated depreciation |   |                              | (2,987 | ) |   | (4,231 | ) |
|                                           |   |                              |   |   |   |   |   |
|                                           |   | $                                 | 35,190 |   | $ | 35,323 |   |

**NOTE      4 - OTHER ASSETS**

|                                      |   | **December                  31,**  |
|-------------------------------------------|--------|-----------------------------------------|
|                                      |   |                                    | **2006** |   |   | **2005** |   |
|                                      |   |                                    |   |   |   |   |   |
| Deferred                  loan costs, net |   | $                                       | 382 |   | $ | 120 |   |
| Prepaid                  interest         |   |                                    | - |   |   | 544 |   |
|                                      |   | $                                       | 382 |   | $ | 664 |   |

**48**

----

**NOTE      5 - ACCRUED LIABILITIES**

|                                           |   | December                  31,  |
|------------------------------------------------|--------|-------------------------------------|
|                                           |   |                                | **2006** |   |   | **2005** |   |
|                                           |   |                                |   |   |   |   |   |
| Interest                                       |   | $                                   | - |   | $ | 264 |   |
| Payroll,                  bonus, and benefits  |   |                                | 10 |   |   | 4 |   |
| Consulting                  and Legal expenses |   |                                | 72 |   |   | 65 |   |
| Income                  & other taxes      |   |                                | 238 |   |   | 336 |   |
| Other                  expenses                |   |                                | 60 |   |   | 150 |   |
|                                           |   | $                                   | 380 |   | $ | 819 |   |

**NOTE      6 - LONG-TERM DEBT**

|                                                                                                                                                                                                                                                         |   | **December                  31,**  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|
|                                                                                                                                                                                                                                                         |   |                                    | **2006** |   |   | **2005** |   |
|                                                                                                                                                                                                                                                         |   |                                    |   |   |   |   |   |
| Zero                  coupon secured convertible term loan due June 29, 2011.                   Interest accruing at 5% per annum until June 29, 2009 and at                  6%                   thereafter                                      |   | $                                       | 37,316 |   | $ | - |   |
| Senior                  term loan due March 31, 2010, interest payable semi-annually,                   at 4% in cash plus 4% paid in kind until March 31, 2008 and 4%                                     in cash plus 6% paid in kind thereafter |   |                                    | - |   |   | 25,851 |   |
| Other                  loans                                                                                                                                                                                                                                 |   |                                    | 31 |   |   | 40 |   |
| Debt                  Discount                                                                                                                                                                                                                               |   |                                    | (11,457 | ) |   | - |   |
|                                                                                                                                                                                                                                                         |   |                                    | 25,890 |   |   | 25,891 |   |
|                                                                                                                                                                                                                                                         |   |                                    |   |   |   |   |   |
| Less                  current portion                                                                                                                                                                                                                        |   |                                    | 9 |   |   | 8 |   |
|                                                                                                                                                                                                                                                         |   |                                    |   |   |   |   |   |
|                                                                                                                                                                                                                                                         |   | $                                       | 25,881 |   | $ | 25,883 |   |

|   | **Year** |   | ** $000’s**                                                                |  |
|--------|----------|--------|---------------------------------------------------------------------------------------|--|
|   | 2007     |   | $                           9                 |  |
|   | 2008     |   |                              9 |  |
|   | 2009     |   |                              9 |  |
|   | 2010     |   |        4                                           |  |
|   | 2011     |   |                     37,316                                                  |  |
|   |     |   | $ 37,347                                                                         |  |

**49**

----

**50**

----

|   | Loan                    balance available for conversion: | $36.4                    million |
|--------|-----------------------------------------------------------|----------------------------------|
|   | Expected                    term:                         | 5                    years       |
|   | Cadiz                    common share price:              | $17.01                           |
|   | Volatility:                                               | 46%                              |
|   | Risk-free                    Interest Rate:               | 5.18%                            |
|   | Change                    in control probability:         | 10%                              |

-  repaid          in full the senior term loan portion of the facility with ING of $10 million          and reduced to $25 million the oustanding principal balance under the existing          revolving portion of the loan; 
-  amended          the terms and conditions of the loan facility with ING in order          to: 

|                   | (i) | extend                the maturity date of the debt until March 31, 2010, conditioned upon                a                further principal reduction of $10 million on or before March 31,                2008,                and |
|--------------------------------------------------------------------------------------------------------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**51**

----

|            | (ii) | reduce                the interest rate through March 31, 2008 on the new outstanding balance                to                4% cash plus 4% PIK (increasing to 4% cash plus 6% PIK for interest                periods commencing on and after April 1,                2008). |
|--------------------------------------------------------------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

-   wrote          off of the remaining $1.4 million in unamortized financing costs associated          with the loan under the terms applicable as of the previous, December 2003,          amendment. 

**NOTE      7 - INCOME TAXES**

|                                                         |   | **December                  31,**  |
|--------------------------------------------------------------|--------|-----------------------------------------|
|                                                         |   |                                    | **2006** |   |   | **2005** |   |
|                                                         |   |                                    |   |   |   |   |   |
| Deferred                  tax assets:                        |   |                                    |   |   |   |   |   |
| Net                  operating losses                        |   | $                                       | 25,501 |   | $ | 22,763 |   |
| Fixed                  asset basis difference                |   |                                    | 7,645 |   |   | 8,037 |   |
| Contributions                  carryover                     |   |                                    | 6 |   |   | - |   |
| Accrued                  liabilities and other               |   |                                    | 1,049 |   |   | 814 |   |
|                                                         |   |                                    |   |   |   |   |   |
| Total                  deferred tax assets                   |   |                                    | 34,201 |   |   | 31,614 |   |
|                                                         |   |                                    |   |   |   |   |   |
| Valuation                  allowance for deferred tax assets |   |                                    | (34,201 | ) |   | (31,614 | ) |
|                                                         |   |                                    |   |   |   |   |   |
| Net                  deferred tax asset                      |   | $                                       | - |   | $ | - |   |

**52**

----

|                                                        |   | **Year                  Ended December 31,**  |
|-------------------------------------------------------------|--------|----------------------------------------------------|
|                                                        |   |                                               | **2006** |   |   | **2005** |   |   | **2004** |   |
|                                                        |   |                                               |   |   |   |   |   |   |   |   |
| Expected                  federal income tax benefit at 34% |   | $                                                  | (4,700 | ) | $ | (7,714 | ) | $ | (5,453 | ) |
| Loss                  with no tax benefit provided          |   |                                               | 3,426 |   |   | 1,672 |   |   | 1,993 |   |
| State                  income tax                           |   |                                               | 6 |   |   | 336 |   |   | 2 |   |
| Stock                  Options                              |   |                                               | (21 | ) |   | 4,020 |   |   | - |   |
| Losses                  utilized against unconsolidated     |   |                                               |   |   |   |   |   |   |   |   |
| subsidiary                  taxable income                  |   |                                               | - |   |   | 2,012 |   |   | 1,837 |   |
| Non-deductible                  expenses and other          |   |                                               | 1,295 |   |   | 10 |   |   | 1,621 |   |
|                                                        |   |                                               |   |   |   |   |   |   |   |   |
| Income                  tax expense (benefit)               |   | $                                                  | 6 |   | $ | 336 |   | $ | - |   |

**NOTE      8 - EMPLOYEE BENEFIT PLANS**

**53**

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**NOTE      9 - PREFERRED AND COMMON STOCK**

***Series      F Convertible Preferred Stock***

***Common      Stock and Warrants***

**54**

----

**NOTE      10 - STOCK-BASED COMPENSATION PLANS AND WARRANTS**

***1996,      1998 and 2000 Stock Option Plans***

***2003      Management Equity Incentive Plan***
* *

***2004      Management Bonus Plan***

**55**

----

***2006        Outside Director Compensation Plan***

***Stock      Options Issued under the 2003 Management Equity Incentive      Plan***

|   | Risk                free interest rate         | 4.21%                    |
|--------|------------------------------------------------|--------------------------|
|   | Expected                life                   | 9.5                years |
|   | Expected                volatility   | 46%                      |
|   | Expected                dividend yield         | 0.0%                     |
|   | Weighted                average vesting period | 0.8                years |

**56**

----

|                                              | ** ** | ** ** |       |       |       | **Weighted ** |       | ** ** | **Average**     | ** ** | ** ** | **Aggregate**      | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|--------------------|------------|------------|-----------------|------------|------------|--------------------|------------|
|                                              | ** ** | ** ** | ** ** | ** ** | ** ** | **Average **  | ** ** | ** ** | **Remaining**   | ** ** | ** ** | **Intrinsic**      | ** ** |
|                                              | ** ** | ** ** | ** ** | ** ** | ** ** | **Exercise ** | ** ** | ** ** | **Contractual** | ** ** | ** ** | **Value**          | ** ** |
| **Options**                                       | ** ** | ** ** | **Shares** | ** ** | ** ** | **Price**          | ** ** | ** ** | **Term**        | ** ** | ** ** | **($000’s)** |       |
|                                              |       |       |       |       |       |               |       |       |            |       |       |               |       |
| Outstanding                  January 1, 2006      |       |       | 365,000    |       | $          | 12.71              |       |       | 9.4             |       |       |               |       |
| Granted                                           |       |       | 12,339     |       | $          | 20.00              |       |       | 10.0            |       |       |               |       |
| Exercised                                         |       |       | -          |       |       | -                  |       |       | -               |       |       |               |       |
| Forfeited                  or expired             |       |       | -          |       |       | -                  |       |       | -               |       |       |               |       |
| Outstanding                  at December 31, 2006 |       |       | 377,339    |       | $          | 12.95              |       |       | 8.4             |       | $          | 3,966              |       |
| Exercisable                  at December 31, 2006 |       |       | 351,667    |       | $          | 12.62              |       |       | 8.4             |       | $          | 3,667              |       |

**57**

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|                                                                                                                                                      |       |       |             |       |       | **Weighted- **                 | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------------|------------|------------|-------------------------------------|------------|
|                                                                                                                                                      | ** ** | ** ** | ** **       | ** ** | ** ** | **Average**                    |       |
|                                                                                                                                                      |       |       | **Amount**  |       |       | **Exercise                  Price** |       |
|                                                                                                                                                      |       |       |             |       |       |                                |       |
| Outstanding                  at December 31, 2003                                                                                                         |       |       | 53,950           |       | $          | 207.43                              |       |
| Granted                                                                                                                                                   |       |       | -                |       |       | -                                   |       |
| Expired                  or canceled                                                                                                                      |       |       | (39,270          | )          | $          | 198.54                              |       |
| Exercised                                                                                                                                                 |       |       | -                |       |       | -                                   |       |
|                                                                                                                                                      |       |       |             |       |       |                                |       |
| 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          | (a)        | $          | 12.95                               |       |
|                                                                                                                                                      |       |       |             |       |       |                                |       |
| Options                  exercisable at December 31, 2006                                                                                                 |       |       | 355,780          |       | $          | 12.62                               |       |
|                                                                                                                                                      |       |       |             |       |       |                                |       |
| Weighted-average                    years of remaining contractual life of options outstanding at                    December 31,                    2006 |       |       | 8.4              |       |       |                                |       |

| (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 Employees**

**58**

----

|                                            | ** ** | ** ** | ** ** | ** ** | ** ** | **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                              |       |

***Issuance      of Common Stock for Services***

***Stock      Purchase Warrants Issued to Non-Employees***

**59**

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**NOTE      11 - SEGMENT INFORMATION**

**NOTE      12 - CONTINGENCIES **

**NOTE      13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED**
**)**

| (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 | ) |
| 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 | ) |
| Net                loss per common share            |   | $ | (0.15 | ) | $ | (1.18 | ) | $ | (0.35 | ) | $ | (0.46 | ) |

**60**

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**NOTE      14 - SUBSEQUENT EVENTS**

**61**

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***CADIZ      INC.***

***SCHEDULE      1 - VALUATION AND QUALIFYING ACCOUNT***

| ***For                    the years ended December 31, 2006, 2005 and 2004 ($ in                    thousands)*** |
|-------------------------------------------------------------------------------------------------------------------|
|                                                                                                              |
|                                                                                                              |   |   |   |   |   |   |   |
|                                                                                                              |   |   | **Balance                    at**  |   | **Additions                    Charged to** |   |   |   |   | **Balance** |   |
| **Year                    ended**                                                                                 |   |   | **Beginning** |   |   | **Costs                    and** |   |   | **Other** |   |   |   |   |   | **at                    End** |   |
| **December                    31, 2006**                                                                          |   |   | **of                    Period** |   |   | **Expenses** |   |   | **Accounts** |   |   | **Deductions** |   |   | **of                    Period** |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax                    valuation allowance                                                                        |   | $ | 31,614 |   | $ | 2,587 |   | $ | - |   | $ | - |   | $ | 34,201 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Year                    ended**                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **December                    31, 2005**                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax                    valuation allowance                                                                        |   | $ | 44,383 |   | $ | - |   | $ | - |   | $ | 12,769 |   | $ | 31,614 |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Year                    ended**                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **December                    31, 2004**                                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax                    valuation allowance                                                                        |   | $ | 43,760 |   | $ | - |   | $ | 623 |   | $ | - |   | $ | 44,383 |   |

**62**

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**SIGNATURES**

**CADIZ      INC.**

| **Name                  and Position**                        | **Date**                                    |
|---------------------------------------------------------------|---------------------------------------------|
|                                                          |                                        |
| /s/                  Keith Brackpool                          | March                  16, 2007   |
| Keith                  Brackpool, Chairman and                |                                        |
| Chief                  Executive Officer                      |                                        |
| (Principal                  Executive Officer)                |                                        |
|                                                          |                                        |
| /s/                  O'Donnell Iselin II                      | March                  16, 2007   |
| O'Donnell                  Iselin II, Chief Financial Officer |                                        |
| (Principal                  Financial and Accounting Officer) |                                        |
|                                                          |                                        |
| /s/                  Stephen J. Duffy                         | March                  16, 2007   |
| Stephen                  J. Duffy, Director                   |                                        |
|                                                          |                                        |
| /s/                  Geoffrey Grant                           | March                  16, 2007   |
| Geoffrey                  Grant, Director                     |                                        |
|                                                          |                                        |
| /s/                  Winston H. Hickox                        | March                  16, 2007   |
| Winston                  H. Hickox, Director                  |                                        |
|                                                          |                                        |
| /s/                  Murray H. Hutchison                      | March                  16, 2007   |
| Murray                  H. Hutchison, Director                |                                             |
|                                                          |                                        |
| /s/                  Raymond J. Pacini                        | March                  16, 2007   |
| Raymond                  J. Pacini, Director                  |                                        |
|                                                          |                                        |
| /s/                  Timothy J. Shaheen                       | March                  16, 2007   |
| Timothy                  J. Shaheen, Director                 |                                             |

**63**

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