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, 1997
[ ] 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$2,644,521
---------
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, 1997
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 share-holders 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
eman-ates 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 95.6% 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 sells its products in five gallon, one gallon, 1.5 liter, 1.0
liter, and 0.5 liter bottles. The Company operates its own fleet of delivery
vehicles selling all sizes off truck in quantities of less than full pallet
configuration to homes, offices, and retail outlets in the entire front range
area of Colorado. The Company also sells its products to major retail stores
directly through their warehouses and to several independent distributors who
service accounts located outside the area serviced by the Company fleet.
The five gallon sales and related cooler rentals represented approximately
79.5% of revenues and the smaller sizes accounted for 14.0% of revenues during
the most recent fiscal year. Of the five gallon accounts, approximately 80%
were home accounts and 20% were commercial establishments.
At present the Company's products are available primarily in Colorado, with a
few exceptions in regions of states bordering Colorado. The Company's
products are the number one selling brand of Natural Spring Water in the state
of Colorado.
Marketing
- ---------
The Company focuses on three major areas in marketing its products; five
gallon sales, small package products, and brand name recognition.
The five gallon products are primarily sold through the acquisition of new
accounts attracted by personal sales representatives strategically located
throughout the area at local events. The efforts of this staff are augmented
by yellow pages, radio, and occasional television advertisements.
The smaller packages that are sold principally through retail chain stores are
effectively marketed by using point of purchase inducements to gain new trial,
usually in the form of discounts in price in conjunction with signage.
The Company attempts to build brand name awareness by sponsoring or
participating in many local events. Eldorado Artesian Springs is the sponsor
of the Boulder, Colorado July 4th Fireworks celebration, the Eldorado Springs
Cancer Research Run, and participates in part in many other local events.
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 regulation by the Food and
Drug Administration of the federal government. These regulations are
administered by the Colorado Department of Public Health and Environment
Consumer Protection Division. Weekly product and source bacteriological tests
are required and annual inspections are performed.
The Company is also subject to regulation under the Colorado Primary Drinking
Water Regulations and the United States Safe Drinking Water Act. These
regulations pertain to the operation of the water utility system owned by the
Company that services the town of Eldorado Springs. These regulations are
also administered by the State of Colorado Health Department Drinking Water
Division. Regular periodic testing is also required for this operation.
Additionally, the Company operates the springs swimming pool which is also
subject to regulation by the State of Colorado. These regulations are
administered by the Boulder County Health Department and require periodic
daily testing and agency inspections.
It is the Company's understanding that it is in compliance with these
regulations as communicated by representatives of the responsible local
agencies.
Employees
- ---------
The Company employs 39 full-time employees and 10 to 11 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, 1997, there were 154 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 cash flow position of the Company improved significantly during the fiscal
year ended March 31, 1997. Year end cash position totaled $244,765 compared
to $89,289 at year end in 1996. More significantly, the cash increase was the
direct result of operations as opposed to increases in debt as was the case in
the year end March 31, 1996.
The Company has certain financial covenants related to its bank borrowing,
which the Company is in compliance with.
Revenues for the year ended March 31, 1997 increased by 23.5% from the
previous year, to $2,644,521. Consensus industry averages are being reported
by trade analysts as ranging from 8% to 10% for the year 1996.
The costs of goods sold increased 39.9% for the year ended March 31, 1997
compared to a year earlier. In addition to increases expected to accommodate
the growth experienced by the Company, management believes the additional
increases were incurred due to increases in the percentage of revenues
generated by the higher cost PET bottle products. As these products
contribute more to the Company's portfolio, it is expected that to restore
margins and remain competitive, the Company will have to invest in the
construction of a bottle production plant to manufacture its own bottles.
Operating expenses increased by 18.7% compared to a year ago. An amount that
is significantly lower than the growth in revenues. There were no price
increases during the year, therefore all revenue increases were the direct
result of increased volume. Increases in wages and salaries were only 18.5%
in spite of an across the board pay increase for all employees that became
effective on July 1, 1996. This is a result of improved production procedures
that increased line speeds thus lowering the labor cost on a per case basis.
These improvements in labor efficiency helped to offset above average
increases in the general and administrative expense and the selling and
delivery expense. These increases reflect overall increased expenditures for
advertising and promotions, insurance increases in proportion to volume on
product liability coverage and related vehicles, and increased charges for bad
debts written off during the year. The Company maintains as its target for
credit policy management a goal of 0.5% of revenues for bad debts. Bad debt
expense for the year ending March 31, 1997 were 1.03% of revenues, however
losses of this nature were influenced dramatically by an $11,734 loss to a
single company that went out of business. Management has taken steps in terms
of new credit policies to prevent this type of loss in the future. Without
this one large loss, bad debts would have been 0.59% of revenues, or very
close to the target goal.
Accounts receivable increased by 18.0% from year to year and totaled $282,346
at year end. This represents a total of 39.6 days sales in receivables based
upon sales made in the month of March 1997. The Company's goal or target
number is 38 days sales in receivables, less than that management believes
would indicate too stringent of a credit policy and could result in the
Company not achieving desired sales growth.
Management believes the restrictive covenants contained in its loan agreement
with its bank are not flexible enough to allow the Company to take advantage
of the growth opportunities that exist today in the bottled water market.
Therefore, the Company is currently engaged in negotiations which if
successful would remove the expenditure limit and provide additional funds for
capital improvements in the bottling plant and associated equipment. These
improvements are expected to cost $300,000. It is hoped that the funds will
be available so that the improvements can be completed before the end of July
1997.
Results of Operations
- -----------------------
For the year ended March 31, 1997, income before taxes increased 94.0% to
$187,214. Income taxes for the year were $63,062 resulting in net income of
$124,152, up 69.3% from a year ago. Management is pleased with the results in
so much as the improved performance and resulting cash available should help
the Company continue to grow and compete in the marketplace.
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 princi-ples 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 41 President, Treasurer and
Director 1983 to present
Kevin M. Sipple 41 Vice-President, Secretary
and Director 1983 to present
Jeremy S. Martin 42 Vice-President and
Director 1983 to present
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, 1997, no executive officer of the Company
received compensation exceeding $100,000. Jeremy Martin received a salary of
$63,775, and Kevin Sipple received a salary of $63,260 for fiscal year ended
March 31, 1997. The Company paid no comp-ensation other than salaries. The
Company's President, Douglas A. Larson, received compensation of $71,524 for
the fiscal year ended March 31, 1997. 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,
1997 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>
<TABLE>
<CAPTION>
Title Percent
of Name and Address of Amount and Nature of of
Class Beneficial Owners Beneficial 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.
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 Reorganization
dated April 10, 1987,
among Lexington Funding, Inc.,
Eldorado Artesian Springs, Inc., Incorporated by reference
and the shareholders of Eldorado to Exhibit No. 2 to Form
Artesian Springs, Inc. 8-K dated April 10, 1987
2.2 Articles of Merger dated June 11,
1988, between Lexington Funding, Incorporated by reference
Inc., and Eldorado Artesian to Exhibit No. 10.2 to
Springs, Inc. Form 8-K dated March 31,
1988
3 Articles of Incorporation and
Bylaws Incorporated by reference
to Exhibit No. 3 to the
Registration Statement
(No.33-6738-D)
10.1 Stock Purchase Agreement dated Incorporated by reference
November, 1991 by and among to Exhibit No. 2 to Form
Douglas A. Larson, Kevin M. 8-K dated April 10, 1987
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: /s/ Douglas A. Larson
Douglas A. Larson,
President and Principal
Executive Officer
Dated: June 27, 1997
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
------------------- ------
June 27, 1997
Douglas A. Larson, President,
Treasurer and Director
June 27, 1997
Kevin M. Sipple, Vice-President,
Secretary and Director
June 27, 1997
Jeremy S. Martin, Vice-President and Director
ELDORADO ARTESIAN SPRINGS, INC.
FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
ELDORADO ARTESIAN SPRINGS, INC.
TABLE OF CONTENTS
-----------------
Page
----
Independent Auditors' Report F - 2
Financial Statements
Balance Sheet F - 3
Statements of Operations F - 4
Statement 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, 1997, and the related statements of operations,
stockholders' equity and cash flows for the years ended March 31, 1997 and
1996. 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, 1997, and the results of its operations and its cash flows
for the years ended March 31, 1997 and 1996 in conformity with generally
accepted accounting principles.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
May 2, 1997
Denver, Colorado
ELDORADO ARTESIAN SPRINGS, INC.
BALANCE SHEET
MARCH 31, 1997
ASSETS
Current assets
<TABLE>
<CAPTION>
<S> <C>
Cash $ 244,765
Accounts receivable (Notes 2 and 3)
Trade - net 278,421
Employee 400
Other 3,525
Inventories (Note 3) 92,548
Prepaid expenses and other 10,893
Deferred income taxes (Note 4) 11,845
----------
Total current assets 642,397
----------
Property, plant and equipment - net (Notes 2 and 3) 1,212,535
----------
Other assets (Notes 2 and 3)
Water rights - net 119,106
Other - net 50,376
----------
Total other assets 169,482
----------
Total $2,024,414
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 97,803
Accrued expenses (Note 2) 82,230
Deposits 33,558
Current maturities of long-term debt (Note 3) 78,680
----------
Total current liabilities 292,271
Long-term liabilities
Long-term debt (Note 3) 1,223,569
Deferred income taxes (Note 4) 40,882
----------
Total liabilities 1,556,722
----------
Commitments (Notes 3 and 5)
Stockholders' equity (Note 6)
Common stock, par value $.001 per share; 50,000,000 shares
authorized; 32,344,948 issued and outstanding
Additional paid-in capital 265,225
Retained earnings 170,122
----------
467,692
----------
Total $2,024,414
==========
See notes to financial statements.
F-3
</TABLE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
March 31,
-------------
1997 1996
------------- ------------
<S> <C> <C>
Revenue
Water and related $ 2,527,866 $ 2,028,239
Rentals 47,460 39,397
Pool 75,419 78,420
Returns and allowances (6,224) (5,427)
------------- ------------
Net revenue 2,644,521 2,140,629
Cost of goods sold exclusive of depreciation and
amortization 415,263 296,703
------------- ------------
Gross profit 2,229,258 1,843,926
------------- ------------
Operating expenses
Salaries and related 987,703 833,158
Administrative and general 437,375 340,245
Selling and delivery 288,681 217,254
Depreciation and amortization 217,977 236,489
------------- ------------
1,931,736 1,627,146
------------- ------------
Operating income 297,522 216,780
------------- ------------
Other income (expense)
Interest income 1,000 2,967
Other income - 11,060
Interest expense (111,308) (134,326)
------------- ------------
(110,308) (120,299)
------------- ------------
Income before income taxes 187,214 96,481
------------- ------------
Provision (benefit) for income taxes (Note 4)
Current 46,133 27,801
Deferred 16,929 (4,647)
------------- ------------
63,062 23,154
------------- ------------
Net income $ 124,152 $ 73,327
============= ============
Net income per common share $ - $ -
============= ============
Weighted average number of shares outstanding 32,344,948 32,179,948
============= ============
See notes to financial statements.
F-4
</TABLE>
ELDORADO ARTESIAN SPRINGS, INC.
Statement of Stockholders' Equity
Years Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
--------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance - March
31, 1995 32,164,948 $ 32,165 $ 254,108 $ (27,357) $ 258,916
Common stock
issued for
cash (Note 6) 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
Net income
for the year - - - 124,152 124,152
---------- ------- -------- -------- --------
Balance - March
31, 1997 32,344,948 $32,345 $265,225 $170,122 $467,692
========== ======= ======== ======== ========
</TABLE>
See notes to financial statements.
F-5
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
March 31,
---------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 124,152 $ 73,327
Adjustments to reconcile net income to net
cash provided by
operating activities -
Depreciation and amortization 217,977 236,489
Deferred income taxes 16,929 16,559
Changes in certain assets and liabilities -
Accounts receivable (42,994) (38,601)
Inventories 3,662 (4,738)
Prepaid expenses and other 5,890 (348)
Accounts payable 44,205 12,558
Accrued expenses 8,942 20,059
Deposits 9,695 11,595
------------- -----------
264,306 253,573
------------- -----------
Net cash provided by operating activities 388,458 326,900
------------- -----------
Cash flows from investing activities
Purchase of property and equipment (176,207) (419,136)
Payments of note receivable - stockholder - 40,088
------------- ----------
Net cash flows used in investing
activities (176,207) (379,048)
------------- ----------
Cash flows from financing activities
Issuance of common stock - 11,297
Additions to long-term debt - 1,382,624
Loan fees and other assets - 19,091
Payments on long-term debt (56,775) (1,315,695)
------------- -----------
Net cash flows (used in) provided by financing
activities (56,775) 97,317
------------- -----------
Net increase in cash 155,476 45,169
Cash - beginning of year 89,289 44,120
------------- -----------
Cash - end of year $ 244,765 $ 89,289
============= ===========
</TABLE>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest was $111,308 (1997) and $123,266 (1996).
Cash paid during the year for income taxes was $44,445 (1997) and $5,111
(1996).
Supplemental disclosure of noncash investing activity:
During the year ended 1997, equipment was acquired through a capital lease for
$101,909.
See notes to financial statements.
F-6
ELDORADO ARTESIAN SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND 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 housing, 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 fifteen to thirty-nine 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.
Reclassification of Prior Year Amounts
- ------------------------------------------
Certain reclassifications have been made to the balances for the year ended
March 31, 1996 to make them comparable to those presented for the year ended
March 31, 1997, none of which change the previously reported net income or
total assets.
Concentration of Credit Risk
- -------------------------------
The Company places its cash with a high credit quality financial institution.
At March 31, 1997, the amounts deposited with the institution exceeded the
federally insured limit by approximately $142,000.
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.
Fair Value of Financial Instruments
- ---------------------------------------
The carrying amounts of financial instruments included cash, accounts
receivable, accounts payable, deposits and accrued expenses and long-term debt
approximated fair value as of March 31, 1997 because of the relatively short
maturity of these instruments.
NOTE 2 - SELECTED BALANCE SHEET INFORMATION
- -------------------------------------------------
Accounts receivable
<TABLE>
<CAPTION>
<S> <C>
Trade $ 288,421
Less allowance for doubtful accounts (10,000)
------------
$ 278,421
============
Property, plant and equipment
Land $ 225,194
Buildings and improvements 937,581
Machinery and equipment 1,327,915
Vehicles 17,830
Office furniture and fixtures 64,772
------------
2,573,292
Less accumulated depreciation (1,360,757)
------------
$ 1,212,535
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Other assets
Water rights $ 179,500
Less accumulated amortization (60,394)
------------
$ 119,106
============
Other $ 57,914
Less accumulated amortization (7,538)
------------
$ 50,376
============
Accrued expenses
Property taxes $ 26,236
Sales tax 6,953
Income taxes 23,093
Payroll and payroll taxes 25,948
------------
$ 82,230
============
</TABLE>
NOTE 3 - LONG-TERM DEBT
- ---------------------------
Note Payable to Bank
- -----------------------
<TABLE>
<CAPTION>
<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 substantially all assets of the Company. $1,046,259
Mortgage Note Payable
- -----------------------
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. 155,890
Capital Lease
- --------------
Capital lease for equipment. Monthly principal and interest
payments are due in the amount of $1,992, due February
2002. The cost of leased equipment at March 31, 1997
was $101,905 under depreciation of $3,397. 100,100
---------
1,302,249
Less current portion (78,680)
---------
$1,223,569
==========
</TABLE>
Future maturities of long-term debt at March 31, 1997 are:
<TABLE>
<CAPTION>
Notes Capital
Year Ending March 31, Payable Leases Total
- ----------------------------- ---------- ----------- --------
<S> <C> <C> <C>
1998 $ 60,866 $ 23,909 $ 84,775
1999 219,675 23,909 243,584
2000 71,226 23,909 95,135
2001 850,382 23,909 874,291
2002 - 21,913 21,913
---------- ----------- ----------
1,202,149 117,549 1,319,698
Less amount representing
interest - (17,449) (17,449)
---------- ----------- ----------
Total principal 1,202,149 100,100 1,302,249
Less current portion 60,866 17,814 78,680
---------- ----------- ----------
$1,141,283 $ 82,286 $1,223,569
========== =========== ==========
</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 net current and long-term deferred tax assets in the accompanying balance
sheet includes the following deferred tax assets and liabilities.
<TABLE>
<CAPTION>
March 31,
1997
-----------
<S> <C>
Current deferred tax asset $ 11,845
Current deferred tax liability -
-----------
Net current deferred tax asset $ 11,845
===========
Long-term deferred tax asset $ 879
Long-term deferred tax liability (41,761)
-----------
Net long-term deferred tax liability $ (40,882)
===========
</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 and amortization expense and leases.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended
March 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Current -
Federal $38,486 $24,935
State 7,647 2,866
------- -------
$46,133 $27,801
======= =======
Deferred -
Federal $14,123 $(4,051)
State 2,806 (596)
------- -------
$16,929 $(4,647)
======= =======
</TABLE>
The following is a reconciliation of income taxes at the Federal Statutory
rate with income taxes recorded by the Company.
<TABLE>
<CAPTION>
Years Ended
March 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Computed income taxes at statutory rate $52,610 $20,186
State income taxes, net of Federal income
tax benefit 10,452 2,968
------- -------
$63,062 $23,154
======= =======
</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,
1997
-----------
<S> <C>
Differences related to fixed assets $ 89,287
Differences related to other assets 25,663
Allowance for doubtful accounts (10,000)
Alternative minimum tax and ITC credit carryforward (9,091)
-----------
$ (95,859)
===========
</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>
Years Ended
March 31,
------------
1997 1996
------------ ------
<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 (3.6) (13.3)
------------ ------
Financial statement tax provision rate 33.7% 24.0%
============ ======
</TABLE>
NOTE 5 - COMMITMENTS
- ------------------------------------------------------
The Company has various long-term leases for delivery trucks. The following
is a schedule by year of future minimum lease payments as of March 31, 1997.
<TABLE>
<CAPTION>
Year Ending March 31,
------------------------
<S> <C>
1998 $ 95,028
1999 95,028
2000 74,418
2001 30,845
2002 21,550
Thereafter 15,210
--------
$332,079
========
</TABLE>
Total rental expense for 1997 and 1996 was $96,800 and $105,007, respectively.
NOTE 6 - RELATED PARTIES
- ------------------------
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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 244,765
<SECURITIES> 0
<RECEIVABLES> 292,346
<ALLOWANCES> 10,000
<INVENTORY> 92,548
<CURRENT-ASSETS> 642,397
<PP&E> 2,573,292
<DEPRECIATION> (1,360,757)
<TOTAL-ASSETS> 2,024,414
<CURRENT-LIABILITIES> 292,271
<BONDS> 0
0
0
<COMMON> 32,345
<OTHER-SE> 435,347
<TOTAL-LIABILITY-AND-EQUITY> 2,024,414
<SALES> 2,644,521
<TOTAL-REVENUES> 2,645,521
<CGS> 415,263
<TOTAL-COSTS> 415,263
<OTHER-EXPENSES> 2,043,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,308
<INCOME-PRETAX> 187,214
<INCOME-TAX> 63,062
<INCOME-CONTINUING> 124,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,152
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
