U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended March 31, 1996
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the fiscal year ended ___________________
Commission File No. 0-18235
ELDORADO ARTESIAN SPRINGS, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-0907853
(State or other jurisdiction of (I.R.S. Identification Number
incorporation or organization)
P.O. Box 445, Eldorado Springs, Colorado 80025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 499-1316
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value Per Share
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes X No ___
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge. In definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[X]
State issuer's revenues for its most recent fiscal year....
$2,140,629
State the aggregate market value of the voting stock held by
nonaffiliates of the Registrant. The aggregate market value will
be computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such stock, as of a
specified date within the past 60 days. (See definition of
affiliated in Rule 12b-2 of the Exchange Act)
Not available.
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.001 par value 32,344,948
Class Outstanding at June 26, 1996
DOCUMENTS INCORPORATED BY REFERENCE
(If the following documents are incorporated by reference,
briefly describe them and identify the part of the Form 10-KSB
(e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any
proxy or information statement: and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933
("Securities Act"). The listed documents should be clearly
described for identification purposes.
None.
PART I
Item 1. Business.
General
Eldorado Artesian Springs, Inc. (the "Company") was formed under
the laws of the State of Colorado on April 15, 1986, under the
name Lexington Funding, Inc. ("Lexington"). Lexington was
organized for the primary purpose of seeking selected mergers or
acquisitions with a small number of business entities expected to
be private companies, partnerships, or sole proprietorships.
Prior to April 1987, the primary activity of the Company was
directed to organizational efforts and obtaining initial
financing. The Company sold 2,500,000 shares of its $.001 par
value common stock at $.10 per share for total proceeds of
$250,000 in a public offering which closed on December 17, 1986.
Effective April 10, 1987, the Company acquired all of the shares
of Eldorado Artesian Springs, Inc. ("Eldorado") of Eldorado
Springs, Colorado. Eldorado, a Colorado corporation, was formed
in 1983. The acquisition was accomplished by the exchange of
Company stock for all of the outstanding shares of Eldorado from
its shareholders, Douglas A. Larson, Jeremy S. Martin, Kevin M.
Sipple, Raymond Kerbaugh and Melvin Larson. Pursuant to the
acquisition of Eldorado, Eldorado shareholders received an
aggregate of 28,080,000 shares of the Company's Common Stock,
representing 90% of outstanding shares of the Company after the
acquisition. The number of Company shares of stock exchanged in
the acquisition was determined through arms-length negotiations.
In June 1988, Eldorado was merged into Lexington pursuant to a
statutory merger, and Lexington changed its name to Eldorado
Artesian Springs, Inc.
As a result of the Eldorado acquisition and subsequent merger,
the primary business of the Company is the bottling and sale of
pure spring water which emanates from springs located on property
owned by the Company. In addition to real property and the wells
and springs thereon, and water rights, the Company owns a
bottling plant (including building and bottling equipment),
delivery trucks, associated containers and equipment, resort
buildings, a mobile home park, and an outdoor swimming pool which
are located on the property.
Products
The Company's principal business is bottling and selling Artesian
Spring Water. The Company also owns and operates a resort/spa on
its property during the summer months and rents four single-
family homes and mobile home spaces on the property. The
Company's water bottling operations account for 94.5% of revenues
of the Company's revenues.
Bottling
The Company owns and operates its bottling facilities. Total
production and warehousing space is approximately 12,000 square
feet. There are three separate fill lines in the facility.
Water is produced at two springs and eleven wells on the
Company's property. The well heads are in close proximity to the
bottling operation. The source water is bacteria-free as it
emanates from the earth, and nothing is added to or removed from
the water during the bottling process. As safeguard to any
contamination, the water passes through a protective filter and
an ultra-violet light. The product is packaged only in glass or
high quality plastic bottles, and each one is sealed with a
tamper evident cap. The PET bottle products have ozone added to
comply with FDA standards.
Sales and Distribution
The Company has historically sold its water in five gallon
containers delivered to homes and businesses, and in one gallon
containers which are sold to the public through most retail food
stores in the area.
The five gallon delivery service encompasses the Denver
Metropolitan area. At present, approximately 82% of the delivery
customers are residential and the remaining 18% are commercial
accounts. Dispensers which hold the water bottles are owned by
the Company and leased to customers. Revenues from sales of five
gallon bottles and cooler rentals comprised 81% of the Company's
total revenues.
The one gallon containers are distributed through a dual delivery
system, utilizing distributors and direct deliveries to retail
chain store warehouses. The Company's product is available at
almost all retail food chain stores in Colorado and is also
available in parts of all states bordering Colorado. Revenues
from one gallon sales contributed 7% of fiscal year revenues.
During the fiscal year ended March 31, 1996 the Company added
three sizes of containers to the product line. These are PET
bottles in one liter, one and one-half liter, and one-half liter
convenience packages. Wholesale revenues from these items
contributed 3.2% of revenues.
Marketing
The Company currently markets its products through a combination
of direct mail, Yellow Pages advertising, trade shows, direct
sales personnel, radio, television, and in-store sales
promotions. Management believes this combination to be
effective, but intends to increase the frequency and expenditures
associated with radio and in-store sales promotions.
In addition to these traditional advertising avenues, the Company
is active in donating products and services and sponsoring
numerous events in the local area. These events include, but are
not limited to, The Bolder Boulder 10-K Race, Jose Cuervo
Volleyball and Eldorado Springs Cancer Research Run.
Supplies
Water bottled by the Company comes from springs located on the
Company's property which have been flowing for many years. The
Company does not foresee any disruption of its operations as a
result of supply problems. Suppliers of the bottles do
experience seasonal shortages resulting from resin shortages
which may increase prices. These shortages must be anticipated
by management and inventory safety stocks must be sufficient so
as not to interrupt production.
Seasonality of Business
Sales tend to be mildly seasonal in the bottled water business.
A ten to fifteen percent differential in sales is normally
experienced between the peak summer months and the low winter
months.
Competition
There is active competition in the bottled water market. The
Company's competitors include more diversified corporations
having substantially greater assets and larger sales organiza
tions than the Company, as well as other small firms. The
Company competes on the basis of customer service, product
quality and price. Management believes that the products'
superior taste, competitive pricing and unique packaging are
significant factors in maintaining the Company's competitive
position.
Environment
The Company's bottling operations are subject to several new
regulations designed to protect the environment and the quality
of the Company's bottled water. The industry has come under
extreme scrutiny from several branches of regulators during the
past several months. Management has reviewed the proposed
regulations and believes the impact on the Company would be
minimal since the Company regularly tests its product and affixes
accurate labeling. New regulations may have a beneficial effect
on the Company by forcing less scrupulous operators to comply
with more strict labeling requirements. The legislation may
require the Company to change its bottling procedures to include
ozonation. Installation of the required equipment was completed
in February 1996. In January 1993, the FDA adopted new
regulations pertaining to labeling and contents of bottled water.
Changes were in maximum contaminant levels of volatile organics,
inorganics, pesticides, synthetic organic chemicals, copper, and
lead.
Employees
The Company employs 34 full-time employees and 8 to 9 seasonal
employees during the summer resort months.
Item 2. Properties.
The Company owns approximately 26 acres of land in Eldorado
Springs, Colorado. In addition to real property and the wells
and springs thereon, and water rights, the Company owns a
bottling plant (including building and bottling equipment),
delivery trucks, associated containers and equipment, resort
buildings, a mobile home park, and an outdoor swimming pool which
are located on the property. Total production and warehousing
space is approximately 12,000 square feet.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year covered by
this report.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The outstanding registered securities of the Company are
currently quoted in the "Pink Sheets" maintained by members of
the National Association of Securities Dealers, Inc., and are
traded in the over-the-counter market.
Since the Securities and Exchange Commission's rules applicable
to "penny stocks" went into effect in 1990, there have been no
market makers in the Company's stock, so no quotes are available.
Management is actively seeking market makers for its stock, but
the rules which restrict trading in "Pink Sheet" stocks have had
the effect of diminishing market makers in the stock.
As of May 31, 1996, there were 155 holders of the Company's
common stock.
No dividends have been declared or paid by the Company since
inception and none are contemplated at any time in the
foreseeable future.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Financial Condition - Liquidity and Capital Resources
The most significant development in the financial condition of
the Company during the fiscal year ended March 31, 1996 was a
restructuring of the Company debt. On March 8, 1996 the Company
completed a debt financing agreement with Bank One, wherein the
bank provided $1,100,000 in new debt financing that is secured by
the corporate assets. The proceeds of this borrowing were used
to retire a variety of notes totaling the same amount of
indebtedness. The new note has a twelve year amortization
schedule with a five year call, and bears an interest rate of 9%.
Because of the longer term of the new note and a lowering of the
average interest rate by approximately 4%, the Company will
increase cash flow by $205,000 the first year due to lower debt
service requirements. The increase in available cash should
allow the Company to fund growth internally rather than
continually borrowing as in the past.
The above-mentioned note does contain some significant financial
covenants. These include: current ratio of at least 1.5:1; debt
service coverage of at least 1.25:1; liabilities/tangible net
worth ratio of 5:1 by March 31, 1996, 4:1 by March 31, 1997, and
3:1 by March 31, 1998 and each year thereafter. Additionally,
the Company cannot exceed $150,000 of capital expenditures or
enter into other debt obligations without approval of the bank.
The current ratio at year end was 2.24:1 and the debt/equity
ratio was 4.18:1, both are well within the bank guidelines.
Revenues increased 18.7% for the year ended March 31, 1996 over
the prior year, to $2,140,629. Consensus industry averages are
being reported as an increase of 9% to 11% for the time period
covering calendar 1996.
Costs of goods sold increased 39.5% for the year ended March 31,
1996. This cost increase is due to a combination of three
factors. They are: 1) the increase in overall volume; 2) the
greater percentage of that volume being sold in smaller more
costly packaging and, 3) supplier price increases on the
materials used for packaging. Management concedes the cost
increases of items one and two are being beneficial, but firmly
believes item number three can be mitigated with more efficient
buying programs instituted in March 1996.
Operating expenses increased for the year March 31, 1996 by 19.2%
over the previous fiscal year. This increase is extremely close
to the increase in the revenue/volume of business and it is worth
noting that the debt restructuring resulted in a charge off of
prior loan fees, origination costs, and lease payments totaling
$48,500. Without these one time expenses, operating expenses
would have increased by only 15.7%, demonstrating an overall
operating efficiency improvement in the Company.
Accounts receivable increased from $195,673 to $234,543, an
increase of 19.9%. This increase is slightly greater than
revenue increase and resulted in an increase in the number of
days sales in receivables from 39 to 40 days. Company philosophy
is to manage credit policies to produce 38 days sales in
receivables on average.
The Company is planning capital expenditures of $150,000 during
the fiscal year ending March 31,1997. This will consist
primarily of bottled water dispensers ($100,000) and additions to
plant and bottling equipment ($50,000). Because of the debt
structuring the Company anticipates being able to fund these
capital additions from internally generated funds.
Results of Operations
For the twelve months ending March 31, 1996 net income before
taxes was $96,481, down 17.8% from the year ended March 31, 1995.
Income taxes for the year were $23,154, resulting in net income
of $73,327, down 16.9% from the same period a year ago. Had it
not been for the charge-offs associated with the debt
restructuring, pre-tax income would have been approximately
$145,000, or an increase of 23.5% from the $117,344 pre-tax
income recorded in the fiscal year ended March 31, 1995.
Certain oral and written statements of management of the Company
included in the Form 10-KSB and elsewhere may contain forward-
looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, which are intended to be covered by the safe harbors
created thereby. These statement include the plans and
objectives of management for future operations. The forward-
looking statements included herein and elsewhere are based on
current expectations that involve judgments which are difficult
or impossible to predict accurately an many of which are beyond
the control of the Company. In particular the assumptions assume
continued popularity of bottled water, no significant adverse
restrictions mandated by regulators of the industry, the
uninterupted supply of quality water and packaging supplies,
economic, competitive and market conditions for the Company
business operations. Although the Company believes that the
assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward-looking
statements will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking
statement, the inclusion of such information should not be
regarded as a representation by the Company or any other person
that the objectives and plans of the company will be achieved.
Item 7. Financial Statements and Supplemental Data.
Please see pages F-1 through F-14.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
There have been no disagreements between the Company and its
independent accountants on any matter of accounting principles or
practices or financial statement disclosure since the Company's
inception.
PART III
Item 9. Directors and Executive Officers of the Registrant.
The following table sets forth information with respect to
directors, executive officers, and significant employees of the
Company. Directors serve for one year terms. Each director is
also a nominee for election to the Board of Directors.
<TABLE>
<CAPTION>
Tenure as Officer or
Name Age Position(s) Director
<S> <C> <C> <C>
Douglas A. Larson 40 President, Treasurer 1983 to present
and Director
Kevin M. Sipple 40 Vice-President, 1983 to present
Secretary and Director
Jeremy S. Martin 41 Vice-President and 1983 to present
Director
</TABLE>
Business Experience
Douglas A. Larson was a co-founder of Eldorado Artesian Springs,
Inc. in 1983. He served as Secretary and Treasurer of the
Company from 1983 until 1991, at which time he became the
President and Treasurer and continues to serve in those
capacities. Mr. Larson has been a member of the Board of
Directors of the Company since its founding. He is responsible
for the oversight of financing and accounting matters, corporate
strategy, and corporate reports.
Kevin M. Sipple was a co-founder of Eldorado Artesian Springs,
Inc. in 1983. Mr. Sipple has served as Vice President and
Secretary of the Company since 1991. Prior thereto, he was
President from 1985 to 1991 and Vice President from 1985 to 1991
and Vice President from 1983 - 1985. He has served on the Board
of Directors of the Company since 1983. Mr. Sipple is
responsible for advertising and marketing of the "PET" bottled
water products.
Jeremy S. Martin was a co-founder of Eldorado Artesian Springs,
Inc. in 1983. He served as President of the Company from
Company's founding until June 1985. He has served as Vice-
President since June, 1985 and has been a member of the Board of
Directors since the Company's founding. Mr. Martin is
responsible for overseeing service and deliveries of the
Company's products, promotions and public relations.
Family Relationships
There are no family relationships between any directors or
executive officers of the Company.
Item 10. Executive Compensation.
In the fiscal year ended March 31, 1996, no executive officer,
other than the President, of the Company received compensation
exceeding $100,000. Jeremy Martin and Kevin Sipple received
salaries of $52,723 and $52,343, respectively, for fiscal year
ended March 31, 1996. The Company paid no compensation other
than salaries. The Company's President, Douglas A. Larson,
received compensation of $102,618 for the fiscal year ended March
31, 1996 during this period. Directors of the Company are not
compensated for their services as such.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth certain data with respect to the
only persons known by the Company to be the beneficial owners of
more than five percent (5%) of the outstanding shares of common
stock of the Company as of March 31, 1996 and for all Officers
and Directors as a group. The persons indicated are the sole
beneficial owners of the stock and possess sole voting and
investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
Amount and
Nature of
Title of Name and Address of Beneficial Percent of
Class Beneficial Owners Ownership Class
<S> <C> <C> <C>
Common Kevin M. Sipple 8,588,642(1) 26.7%
43 Fowler Lane
Eldorado Springs, CO 80025
Douglas A. Larson 8,588,642(1) 26.7%
12 Baldwin Circle
Eldorado Springs, CO 80025
Jeremy S. Martin 8,588,642(1) 26.7%
2707 - 4th Street
Boulder, CO 80302
All Officers and
Directors as a
Group (three persons) 25,765,926(2) 80.1%
</TABLE>
____________________
(1) Does not include 575,404 shares held in escrow which are
the subject of a Stock Purchase Agreement with a principal
shareholder.
(2) Does not include 1,726,213 shares held in escrow which are
the subject of a Stock Purchase Agreement with a principal
shareholder.
Item 12. Certain Relationships and Related Transactions.
During the period covered by this Report, there were no
transactions in which the amount involved exceeded $60,000
between the Company and any director or executive officer or any
security holder known to own more than five percent of the
Company's stock, or any immediate family member of any of the
foregoing persons, and no such transactions are currently
proposed, except as follows:
(a) During the year ended March 31, 1996, proceeds
from the bank note were used to pay off the note payable of
$158,000 to a relative of a stockholder. The relative of the
stockholder used the payment received on the note to gift $90,485
back to the stockholders' to pay off notes payable to the
Company. Additionally, the relative purchased 180,000 shares of
common stock for $11,297.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Documents filed as a part of this Report.
The following Exhibits and financial statement schedules are
filed as exhibits to this Report:
<TABLE>
<CAPTION>
Exhibit
No. Description Location
<S> <C> <C>
2.1 Agreement and Plan of Incorporated by reference to
Reorganization dated Exhibit No.
April 10, 1987, among 2 to Form 8-K dated April
Lexington Funding, 10, 1987
Inc., Eldorado Artesian
Springs, Inc., and
the shareholders of Eldorado
Artesian
Springs, Inc.
2.2 Articles of Merger dated Incorporated by Reference to
June 11, 1988, Exhibit No.
between Lexington Funding, 10.2 to Form 10-K dated
Inc., and March 31, 1988
Eldorado Artesian Springs,
Inc.
3 Articles ofIncorporation Incorporated by reference to
and Bylaws Exhibit No. 3 to the
Registration Statement (No.
33-6738-D)
10.1 Stock Purchase Agreement Incorporated by reference to
dated Exhibit No.
November, 1991 by and among 2 to the Form 8-K dated
April 10, 1987
Douglas A. Larson, Kevin M.
Sipple,
Jeremy S. Martin
(collectively
"Purchasers") Raymond W.
Kerbaugh
("Seller") and Eldorado
Artesian
Springs, Inc. ("Company")
</TABLE>
(b) Reports on Form 8-K.
No report on Form 8-K was filed during the last quarter of the
period covered by this report.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ELDORADO ARTESIAN SPRINGS,
INC.
By:
Douglas A. Larson,
President and Principal
Executive Officer
Dated: June 28, 1996
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report is signed below by the following persons on
behalf of the Company in the capacities and on the dates
indicated.
Name and Capacity Date
/s/Douglas A. Larson, President June 28, 1996
Douglas A. Larson, President,
Treasurer and Director
/s/Keviin M. Sipple, Vice President June 28, 1996
Kevin M. Sipple, Vice-President,
Secretary and Director
/s/Jeremy S. Martin, Vice-President and Director June 28, 1996
Jeremy S. Martin, Vice-President and Director
ELDORADO ARTESIAN SPRINGS, INC.
Financial Statements
March 31, 1996 and 1995
Table of Contents
Page
Independent Auditors' Report F - 2
Financial Statements
Balance Sheet F - 3
Statements of Operations F - 4
Statements of Stockholders' Equity F - 5
Statements of Cash Flows F - 6
Notes to Financial Statements F - 7
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Eldorado Artesian Springs, Inc.
Eldorado Springs, Colorado
We have audited the accompanying balance sheet of Eldorado Artesian
Springs, Inc. as of March 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eldorado
Artesian Springs, Inc. at March 31, 1996, and the results of its
operations and its cash flows for the two years then ended in
conformity with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
May 7, 1996
Denver, Colorado
Balance Sheets
March 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Current assets
Cash $89,289
Accounts receivable (Note 2)
Trade - net 234,543
Employee 473
Other 4,336
Inventories 96,210
Prepaid expenses and other 16,783
Deferred income taxes (Note 4) 18,251
Total current assets 459,885
Property, plant and equipment - net
(Notes 2 and 3) 1,144,308
Other assets (Note 2)
Water rights - net 123,593
Other - net 53,977
Total other assets 177,570
Total $1,781,763
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $53,598
Accrued expenses (Note 2) 73,288
Deposits 23,863
Current maturities of long-term
debt Note 3) 54,148
Total current liabilities 204,897
Long-term liabilities
Long-term debt (Note 3) 1,202,967
Deferred income taxes (Note 4) 30,359
Total liabilities 1,438,223
Commitments (Notes 3 and 5)
Stockholders' equity
Common stock, par value $.00 per share;
50,000,000 shares authorized; 32,344,948
(1996) and 32,164,948 (1995) shares
issued and outstanding 32,345
Additional paid-in capital 265,225
Retained earnings (accumulated deficit) 45,970
343,540
$1,781,763
Statements of Operations
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended
March 31,
1996 1995
<S> <C> <C>
Revenue
Water and related $2,028,239 $1,687,324
Rentals 39,397 40,310
Pool 78,420 79,954
Returns and allowances (5,427) (3,528)
Net revenue 2,140,629 1,804,060
Cost of goods sold exclusive of
depreciation and amortization 296,703 212,723
Gross profit 1,843,926 1,591,337
Operating expenses
Salaries and related 833,158 715,671
Administrative and general 340,245 292,636
Selling and delivery 217,254 201,735
Depreciation and amortization 236,489 154,812
1,627,146 1,364,854
Operating income 216,780 226,483
Other income (expense)
Interest income 2,967 3,029
Other income 11,060 10,849
Interest expense (134,326) (123,017)
(120,299) (109,139)
Income before income taxes 96,481 117,344
Provision (benefit) for income taxes
Current 27,801 2,717
Deferred (4,647) 26,398
23,154 29,115
Net income $73,327 $ 88,229
Net income per common share $ - $ -
Weighted average number of shares 32,179,948 32,164,948
Statements of Stockholders' Equity
Years Ended March 31, 1996 and 1995
</TABLE>
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated)
Shares Amount Capital Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance - March 31,
1994 32,164,948 $32,165 $ 254,108 $(115,586) $170,687
Net income for the
year - - - 88,229 88,229
Balance - March 31,
1995 32,164,948 32,165 254,108 (27,357) 258,916
Common stock issued
for cash 180,000 180 11,117 - 11,297
Net income for the
year - - - 73,327 73,327
Balance - March 31,
1996 32,344,948 $32,345 $ 265,225 $45,970 $343,540
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $73,327 $88,229
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 236,489 154,812
Deferred income taxes 16,559 26,398
Changes in certain assets and
liabilities -
Accounts receivable (38,601) (36,521)
Inventories (4,738) (35,666)
Prepaid expenses and other (348) (5,351)
Accounts payable 12,558 17,877
Accrued expenses 20,059 13,667
Deposits 11,595 1,964
253,573 137,180
Net cash provided by operating
activities 326,900 225,409
Cash flows from investing activities
Purchase of property and equipment (419,136) (124,708)
Payments of note receivable -
stockholder 40,088 (2,223)
Net cash flows used in investing
activities (379,048) (126,931)
Cash flows from financing activities
Issuance of common stock 11,297 -
Additions to long-term debt 1,382,624 59,999
Loan fees and other assets 19,091 (31,626)
Payments on long-term debt (1,315,695) (124,693)
Net cash flows provided by (used in)
financing activities 97,317 (96,320)
Net increase in cash 45,169 2,158
Cash - beginning of year 44,120 41,962
Cash - end of year $89,289 $44,120
Supplemental disclosures of cash flow information:
Cash paid during the year for interest was $123,266 (1996) and
$111,956 (1995).
Cash paid for income taxes during 1996 was $5,111.
Note 1 - Summary of Significant Accounting Policies
Organization
Eldorado Artesian Springs Inc. (the "Company") is a Colorado
corporation which primarily sells bottled artesian spring water and
rents water dispensers. Eldorado also rents house trailers, and
during the summer months, it operates a natural artesian spring pool.
The Company grants credit to its customers, substantially all of whom
are located in Colorado.
Inventories
Inventories consist primarily of water bottles and crates and are
stated at the lower of cost or market, on a first-in, first-out
basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Machinery,
equipment, furniture and fixtures are depreciated using various
methods over their estimated useful lives of three to seven years.
Buildings and improvements are depreciated using the straight-line
method over their estimated useful lives of ten to thirty-one and a
half years.
Other Assets
Other assets consisting of water rights, customer list, loan fees and
organization costs are carried at cost and are being amortized on the
straight-line basis over five to forty years.
Deposits
Deposits consist primarily of deposits on bottles.
Revenue and Expense
Revenue is recognized on the sale of its products as customer
shipments are made. Returns are recognized when the product is
received. Rental revenue is recognized on a monthly basis upon
commencement of the lease agreement.
Income Per Common Share
Income per common share is computed by dividing the net income by the
weighted average number of shares of common stock outstanding during
the period.
Note 1 - Summary of Significant Accounting Policies (continued)
Reclassification of Prior Year Amounts
Certain reclassifications have been made to the balances for the year
ended March 31, 1995 to make them comparable to those presented for
the year ended March 31, 1996, none of which change the previously
reported net income or total assets. Under Colorado law, a
corporation cannot own treasury stock. The treasury stock as of
March 31, 1995 has been offset against additional paid-in capital.
Concentration of Credit Risk
The Company places its cash with a high credit quality financial
institution. At March 31, 1996, the amounts deposited with the
institution exceeded the federally insured limit by approximately
$8,000.
Accounting Standards Not Yet Adopted
Statement of Financial Accounting Standards No. 121 - Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of is effective for fiscal years beginning after December
15, 1995. This Statement establishes standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of.
Management believes the adoption of these standards will not have a
material impact on the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2 - Selected Balance Sheet Information
</TABLE>
<TABLE>
<CAPTION>
March 31,
1996 1995
<S> <C> <C>
Accounts receivable
Trade $239,543 $200,673
Less allowance for doubtful accounts (5,000) (5,000)
$234,543 $195,673
Property, plant and equipment
Land $225,194 $225,194
Buildings and improvements 912,408 718,462
Machinery and equipment 1,094,784 881,225
Equipment leased under capital leases 8,891 -
Office furniture and fixtures 56,849 54,108
2,298,126 1,878,989
Less accumulated depreciation (1,153,818) (960,211)
$1,144,308 $ 918,778
Other assets
Water rights $ 179,500 $ 179,500
Less accumulated amortization (55,907) (51,419)
$ 123,593 $ 128,081
Other $ 57,914 $ 85,614
Less accumulated amortization (3,937) (9,701)
$ 53,977 $ 75,913
Accrued expenses
Property taxes $ 20,593 $ 20,538
Sales tax 5,690 5,204
Income taxes 21,405 2,717
Payroll and payroll taxes 25,600 24,770
$ 73,288 $ 53,229
</TABLE>
Note 3 - Long-Term Debt
<TABLE>
<CAPTION>
March 31,
1996
<S> <C>
Note payable to bank due March 8, 2001, interest at 9%.
Monthly principal and interest payments of $12,602 with
all unpaid principal and interest due at maturity.
Secured by first deed of trust on property and title
and interest in and to rents. $ 1,100,000
Mortgage note payable due November 30, 1998, interest
at 8.5%, monthly principal and interest payments of
$1,211 with all unpaid principal and interest due at
maturity. Secured by the deed of trust on rental
property. 157,115
1,257,115
Less current maturities (54,148)
$ 1,202,967
</TABLE>
Future maturities of long-term debt at March 31, 1996 are:
<TABLE>
<CAPTION>
Notes
Year Ending March 31, Payable
<S> <C>
1997 $ 54,148
1998 60,866
1999 221,179
2000 71,226
2001 849,696
$1,257,115
</TABLE>
Note 4 - Income Taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in
the financial statements or tax returns. Deferred tax liabilities
and assets are determined based on the difference between the
financial statements and tax basis of assets and liabilities using
the enacted tax rates in effect for the year in which the differences
are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based
on available evidence, are not expected to be realized.
The Company's 1996 and 1995 taxable income has been offset against
net operating loss carryforwards resulting in a 1996 and 1995 tax
benefit of approximately $50,900 and $26,800, respectively.
Note 4 - Income Taxes (continued)
The net current and long-term deferred tax assets in the accompanying
balance sheet includes the following deferred tax assets.
<TABLE>
<CAPTION>
March 31,
1996
<S> <C>
Current deferred tax asset $ 18,251
Current deferred tax liability -
Net current deferred tax asset $ 18,251
Long-term deferred tax asset $ -
Long-term deferred tax liability (30,359)
Net long-term deferred tax liability $(30,359)
</TABLE>
The principal temporary differences that result in a deferred tax
asset and liability are due to the method of recording the allowance
for doubtful accounts, depreciation expense and leases.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended
March 31,
1996 1995
<S> <C> <C>
Current -
Federal $24,935 $2,717
State 2,866 -
$27,801 $2,717
Deferred -
Federal $(4,051) $23,172
State (596) 3,226
$(4,647) $26,398
</TABLE>
Note 4 - Income Taxes (continued)
The following is a reconciliation of income taxes at the Federal
Statutory rate with income taxes recorded by the Company.
<TABLE>
<CAPTION>
For the Years Ended
March 31,
1996 1995
<S> <C> <C>
Computed income taxes at statutory rate $20,186 $25,557
State income taxes, net of Federal income
tax benefit 2,968 3,558
$23,154 $29,115
</TABLE>
Deferred taxes are recorded based upon differences between the
financial statement and tax basis of assets and liabilities and
available tax credit carryforwards. Temporary differences and
carryforwards which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
March 31,
1996
<S> <C>
Differences related to fixed assets $66,361
Differences related to other assets 22,363
Allowance for doubtful accounts (5,000)
Alternative minimum tax credit
carryforward (50,407)
$33,317
</TABLE>
A reconciliation of the provision for income taxes by applying the
Federal statutory rate to the financial statement provision for
income taxes is as follows:
<TABLE>
<CAPTION>
For the Year Ended
March 31,
1996 1995
<S> <C> <C>
Federal statutory rate 34.0% 34.0%
State tax on income net of federal
income tax benefit 3.3 3.3
Federal surtax exemption
(13.3) (12.5)
Financial statement tax provision rate 24.0% 24.8%
</TABLE>
Note 5 - Commitments
The Company entered into long-term leases for delivery trucks
throughout 1996 and 1995. The following is a schedule by year of
future minimum lease payments as of March 31, 1996.
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1997 $75,745
1998 78,468
1999 70,416
2000 45,138
Thereafter 26,200
$295,967
</TABLE>
Total rental expense for 1996 and 1995 was $73,078 and $68,218,
respectively.
Note 6 - Related Parties
The Company owns property which it rents to a shareholder for $5,400
per year. At March 31, 1996 and 1995 the amount due to the Company
was $0 and $35,550, respectively.
During the year ended March 31, 1996, proceeds from the bank note
were used to pay off the note payable of $158,000 to a relative of
stockholder. The relative of the stockholder used the payment
received on the note to gift $90,485 back to the stockholders' to pay
off notes payable to the Company. Additionally, the relative
purchased 180,000 shares of common stock for $11,297.
