Two months ago, Santa Monica-based Cadiz Inc. was sitting pretty. It’s stock was trading at an all-time high of more than $12 a share. And it was nearing approval on its plan to set up a first-of-its-kind underground water storage and retrieval system beneath the eastern Mojave Desert in a joint venture with the Metropolitan Water District.

The deal with MWD was designed to give Cadiz a guaranteed revenue stream for up to 50 years and mark the first major return on its water assets since it was founded in 1983.

But in the past six weeks, Cadiz and its stock have been hit with a double-whammy. First came word that a federal government agency has raised serious objections to the Cadiz-MWD project. The United States Geological Survey said it has doubts that all the water taken out of the Mojave could be naturally replenished.

When word of the objections reached Wall Street, investors sent Cadiz stock plummeting more than 20 percent.

Then, less than 10 days later, Cadiz came out with a disappointing earnings report. For the fourth quarter, ended Dec. 31, 1999, the company reported a net loss of $2.3 million (6 cents a share) compared with a net profit of $7.7 million (23 cents) for the like period a year earlier. Revenue was $21.8 million vs. $32.8 million.

(The company’s extensive agricultural operations currently account for the bulk of Cadiz’s $115 million in annual revenues.)

After the fourth-quarter results were released, the stock price fell another 20 percent, to around $8 a share, wiping out most of the gains of the previous year. The stock took another, albeit more modest, hit in last week’s Nasdaq sell-off.

“People just freaked out when the story of the USGS objections first came out, and they have remained skittish about the stock,” said Debra Coy, an analyst with Charles Schwab & Co. in Washington, D.C. Charles Schwab is a market maker for Cadiz stock, as are the rest of the handful of firms that track the stock. (A market maker is a firm that stands ready to buy or sell over-the-counter stocks at publicly quoted prices, to facilitate trading.)

Coy and analyst Mike Crawford of Santa Monica-based B. Riley & Co. characterized the USGS objections as more of a speed bump along the way for Cadiz rather than a death knell for its ambitious joint venture with the MWD.

But, as with any project with major environmental issues, the objections have served to remind investors that nothing can be taken for granted. “There is, of course, a higher level of uncertainty now with Cadiz, and investors don’t like uncertainty,” Coy said.

Cadiz hopes to put to rest much of that uncertainty with the release of an additional environmental document in the next few months. Company officials said that document will answer many of the concerns raised in the USGS letter, and that they would closely monitor water levels in the aquifer underneath the eastern Mojave and halt water withdrawals if the levels got too low.

“Putting out this supplementary information will mean a delay of a couple months, but we believe it’s worth it to answer all the concerns up-front,” said Cadiz spokeswoman Fiona Hutton.

But the project still needs approval from the MWD’s board of directors, and that is no sure thing. The MWD has simultaneously been exploring two other options for dry-weather storage and retrieval of water near the Colorado River.

MWD and Cadiz officials say all of these options need to be pursued to offset federally mandated cutbacks in Southern California’s water draw from the Colorado River and to slake the thirst of the region’s growing population. But if any one of these options proves too controversial, the board could decide to abandon it.

Even if the project is ultimately approved, it would take at least another year or two before revenues start flowing to Cadiz. In the meantime, most of the company’s revenue will continue coming from its agricultural operations. In 1996, Cadiz purchased Sun World International Inc., a vertically integrated agricultural operator that was then in bankruptcy.

While Sun World has generated substantial operating revenues especially during the peak spring and summer growing seasons those have been offset by large debt payments. As of last Dec. 31, 1999, Cadiz was carrying $142 million in long-term debt.

Coy said she does not expect the firm to show a profit anytime soon. “If you need to have (positive) earnings in your portfolio right at this moment, Cadiz is not a good choice,” Coy said. “This is a play for the value of water assets going forward, not an immediate earnings story.”