FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1998
Commission File Number: 33-6738-D
Eldorado Artesian Springs, Inc.
(Exact name of registrant as specified in its charter as amended)
Colorado 84-0907853
-------- ------------------------------
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
PO Box 445, Eldorado Springs, Colorado 80025
------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303)499-1316
-------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
-
Number shares of common stock outstanding at the latest practicable date, June
30, 1998: 2,995,495.
ELDORADO ARTESIAN SPRINGS, INC.
INDEX
-----
Page
----
Part I - Financial Information
Item 1 - Financial Statements
Balance Sheets June 30, 1998 (Unaudited) and March 31,1998 3
Unaudited Statements of Operations For the Three
Months Ended June 30, 1998 and June 30, 1997 4
Unaudited Statements of Cash Flows For the
Three Months Ended June 30, 1998 and June 30, 1997 5
Notes to Unaudited Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition & Results of Operations 8
Part II - Other Information 10
Signature page 11
ELDORADO ARTESIAN SPRINGS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 420,732 $ 70,166
Accounts receivable
Trade - net 519,665 498,320
Other 5,198 5,506
Inventories 108,728 122,701
Prepaid expenses and other 8,313 48,313
Deferred income taxes 16,829 16,829
--------- ---------
Total current assets 1,079,465 761,835
--------- ---------
Property, plant and equipment - net 1,762,812 1,525,370
--------- ---------
Other assets
Water rights - net 113,496 114,618
Restricted cash 150,000 -
Other - net 53,447 54,898
--------- ---------
Total other assets 316,943 169,516
--------- ---------
Total $3,159,220 $2,456,721
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 170,025 $ 129,747
Accrued expenses 96,198 79,130
Line-of-credit - 40,000
Deposits 47,002 49,178
Current maturities of long-term debt 128,383 123,005
--------- --------
Total current liabilities 441,608 421,060
Long-term liabilities
Long-term debt 1,406,406 1,431,820
Deferred income taxes 52,921 52,921
--------- --------
Total liabilities 1,900,935 1,905,801
--------- ---------
Stockholders' equity
Common stock, par value $.001
per share; 50,000,000 shares authorized;
2,995,495 issued and outstanding 2,995 2,695
Additional paid-in capital 984,656 294,875
Retained earnings 270,634 253,350
--------- ---------
1,258,285 550,920
--------- ---------
$3,159,220 $2,456,721
========= =========
</TABLE>
See notes to financial statements.
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
--------------------------
1998 1997
------------ ----------
(Unaudited)
<S> <C> <C>
Revenue
Water and related $ 881,057 $ 736,905
Rentals 10,900 11,865
Pool 23,329 21,740
Returns and allowances (2,594) (1,656)
----------- ----------
Net revenue 912,692 768,854
Cost of goods sold exclusive
of depreciation and amortization
123,837 118,866
----------- ---------
Gross profit 788,855 649,988
----------- ---------
Operating expenses
Salaries and related 347,276 295,978
Administrative and general 163,186 99,510
Selling and delivery 156,164 112,205
Depreciation and amortization 64,309 57,093
---------- --------
730,935 564,786
---------- ---------
Operating income 57,920 85,202
---------- ---------
Other income (expense)
Interest income 4,574 1,281
Interest expense (38,066) (34,754)
---------- ---------
(33,492) (33,473)
---------- ---------
Net income before income taxes 24,428 51,729
---------- ---------
Provision for income taxes (Note 5) 7,144 -
---------- ----------
Net income and comprehensive income $ 17,284 $ 51,729
========== =========
Basic earnings per common share $ .01 $ .02
=========== =========
Weighted average number of shares outstanding 2,995,495 2,695,495
=========== =========
</TABLE>
See notes to financial statements.
ELDORADO ARTESIAN SPRINGS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
--------------------------
1998 1997
----------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 17,284 $ 51,729
----------- -----------
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities -
Depreciation and amortization 64,309 57,093
Amortization of loan fees and
origination costs 1,451 -
Changes in certain assets and liabilities -
Accounts receivable (21,037) (148,588)
Inventories 13,973 (212)
Prepaid expenses and other 40,000 3,248
Accounts payable 40,278 24,050
Accrued expenses 17,068 5,714
Deposits (2,176) (2,776)
-------- --------
153,866 (61,471)
-------- ---------
Net cash provided by (used in)
operating activities 171,150 (9,742)
-------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (300,629) (70,345)
--------- --------
Net cash flows used in investing
activities (300,629) (70,345)
--------- ---------
Cash flows from financing activities
Additions to long-term debt 41,050 1,500,000
Loan fees and origination cost - (19,771)
Payments on long-term debt (61,086) (1,049,715)
Payments on line-of-credit (40,000) -
Proceeds from sale of common stock 825,000 -
Costs related to issuance of common stock (134,919) -
Restricted cash (150,000) -
---------- ------------
Net cash flows provided by financing
activities 480,045 430,514
---------- ------------
Net increase in cash 350,566 350,427
Cash - beginning of period 70,166 244,765
-------- ------------
Cash - end of period $ 420,732 $ 595,192
============ ==========
</TABLE>
Supplemental disclosures of cash flow information:
Cash paid for interest for the three months ended June 30, 1998 and 1997
was $38,066 and $34,754, respectively.
Cash paid for income taxes for the three months ended June 30, 1998 and
1997 was $14,011 and $16,000, respectively.
See notes to financial statements.
ELDORADO ARTESIAN SPRINGS, INC.
Notes to financial statements.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------
Interim Unaudited Financial Statements
- -----------------------------------------
The financial statements are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. The results of operations for the three
months ended June 30, 1998 and 1997 are not necessarily indicative of the
results of the entire year. The financial statements included herein are
presented in accordance with the requirements of Form 10-QSB and consequently
do not include all of the disclosures normally made in the registrant's annual
Form 10-KSB filing. These financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company's
Form 10-KSB for the year ended March 31, 1998.
NOTE 2 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes
in equity except those resulting from investments by owners and distributions
to owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements. Currently the
Company's only component, which would comprise comprehensive income, is its
results of operations. SFAS 130 is effective for financial statements for
periods beginning after December 15, 1997, and requires comparative
information for earlier periods to be restated.
NOTE 3 - STOCKHOLDERS' EQUITY
- ---------------------------------
Reverse Stock Split
- ---------------------
On April 1, 1998, the Company filed with the state to amend its articles of
incorporation to reflect a 12 to 1 reverse stock split that was previously
approved by a vote of the shareholders. All prior period comparative
information has been restated to reflect the reverse stock split.
Private Placement
- ------------------
On April 22, 1998, the Company completed a private placement of 300,000 shares
of common stock at $2.75 per share. The Company received proceeds net of
offering costs of $688,750 from the private placement of which $150,000 was
placed in a joint account with the placement agent for a potential additional
private placement.
<PAGE>
NOTE 3 - STOCKHOLDERS' EQUITY (CONTINUED)
- ----------------------------------------------
Stock Option Plan
- -------------------
On May 19, 1998, the Company registered 875,000 shares of common stock of the
Company pursuant to the 1997 stock option plan (the Plan). The Plan provides
for the grant of stock options to employees, directors and consultants of the
Company. From time to time, the board may grant options to advance the
interest of the Company.
In connection with the private placement, the Company issued a warrant to
purchase 30,000 and 250,000 shares of common stock at $3.30 and $11.00 per
share, respectively. Both warrants expire on April 22, 2003.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This filing contains certain 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 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to services offered
by and future economic performance of the Company.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties that might
adversely affect the Company's operating results in the future in a material
way. Such risks and uncertainties include but are not limited to the
following: interest rate fluctuations, effects of regional economic and market
conditions, labor and marketing costs, operating costs, packaging costs,
intensity of competition, legal claims and the contingencies associated with
year 2000 compliance.
OVERVIEW
Eldorado Artesian Springs, Inc. (Eldorado) is a Colorado based company that is
primarily involved in the bottling and marketing of "natural" artesian spring
water. The spring is located in the foothills of the Colorado Rocky Mountains
and is surrounded by thousands of acres of state and city park land, assuring
a well protected source. The artesian springs located on the Company's
property, emanate from one of the most unique geologic sources in the world.
The water is naturally purified as it rises up through many layers of
sandstone under its own artesian pressure. Eldorado Artesian Spring water is
bottled at the source in its natural state and is not chemically treated in
any way. Currently, Eldorado's operations consist of its home/commercial
delivery business (5 gallon bottles) and the PET (polyethylene terephtalate, a
premium clear plastic container) consumer business.
Beverage industry analysts reveal that bottled water is the fastest growing
major category in the entire industry. The bottled water industry as whole is
a $3.9 billion business and is currently growing at a rate of 9% to 10% per
year. The PET segment of the bottled water industry is currently a $600
million business and is growing at a much faster rate (at an estimated 20% to
30% per year) than the industry as a whole. Analysts expect just the PET
segment of the industry to reach $3 billion in wholesale sales over the next
ten years, which is an indicated rate of growth of 17% annually.
RESULTS OF OPERATIONS
Revenues for the three months ended June 30, 1998 increased 18.7% to $912,692
versus $768,854 for the same period in 1997. This increase resulted
principally from increased sales volume to the Company's existing customer
base as well as from sales to new customers. Sales of five gallon products
increased by 15.2%, one gallon sales increased by 30.8% and sales of the
smaller PET packages increased by 59.3%.
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
Cost of goods sold increased 4.2% for the first three months ended June 30,
1998 which was attributable to the increase in sales. The costs of goods
relative to sales decreased from 15.4% for the quarter ended June 1997 to
13.6% for the quarter ended June 1998. This decrease in costs in relation to
sales is due to more efficient production procedures resulting in fewer
damaged goods. In addition, more efficient purchasing practices have resulted
in improved prices from suppliers.
Operating expenses increased 29.4% for the three months ended June 30, 1998.
Wages, salaries and related items increased 17.3% which is consistent with the
increase in revenues during the same period. Administrative and general
expenses increased 63.9% for the three months ended June 30,1998. This larger
than normal increase was expected due to the increase in promotional and
advertising expenses and product giveaways that occurred during this quarter.
Due to the foregoing, net income for the three months ended June 30, 1998 was
$17,284 versus $51,729 for the same period one year ago. This represents a
decrease of 52.7%. This decrease is due in large part to the aforementioned
increase in operating expenses for the quarter ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
On April 22, 1998, the Company completed a private placement of 300,000 shares
of common stock at $2.75 per share. The Company received proceeds net of
offering costs of $688,750 from the private placement of which $150,000 was
placed in a joint account with Mills Financial Services, Inc. (the "Agent")
for a potential additional secondary stock offering. The intention for the
use of proceeds of the private placement include replacing a five gallon
bottling line to increase capacity from 160 bottles to 600 bottles per hour.
By the end of June 1998, 50% of the bottling equipment was installed and being
utilized. The remaining equipment is anticipated to be fully utilized by
August 1998. In addition, the company is pursuing a distribution agreement
with a major distributor of bottled water. The proceeds from the private
placement are being utilized to pursue such a relationship and expand the
Company's internal sales and distribution capabilities. In addition, the
Company is actively looking to lease or construct a warehouse/distribution
facility in the Denver, Colorado area in order to add additional warehouse
space.
On May 19, 1998, the company registered 875,000 shares of common stock of the
Company pursuant to the 1997 Stock Option Plan (the "Plan"). The Plan
provides for the grant of stock options to employees, directors and
consultants of the Company.
The Company has traditionally financed operations with debt. With the
restructuring of debt in June 1997, the Company has been able to improve the
bottling/warehouse facilities by expanding floor space and adding additional
high speed bottling equipment. With the proceeds from a secondary public
offering as well as additional debt the company plans to continue to finance
capital expenditures. No assurance of acquiring additional debt or equity can
be made and this could have a negative effect on future operations if it is
not successful.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Accounts receivable increased 4.3% to $519,665 for the three months ended June
30, 1998. This represents 51.2 days sales in receivables. This increase is
due in part to the effects of the installation of a new computer system in May
1997. While the system will decrease the costs for delivery and
administrative expenses there were initial delays in billing customers that
caused a delay in receivables. Management has made serious efforts to bring
receivables back to the targeted level of 38 days. Expenses for bad debts are
expected to be .07% of revenues for the year end March 31, 1999 and management
has taken this into account for the three months ended June 30, 1998.
Management has implemented a water rights augmentation program to acquire
additional water rights in order to provide for a forecasted increase in water
sales resulting from the expected increase in sales. Management is currently
in negotiations to acquire additional water rights. The acquisition of these
water rights will be at a significant cost to the Company and there can be no
assurance that such water rights can be obtained. The failure to augment the
Company's water rights could have an adverse effect on the Company's financial
condition and results of operations.
The Company also plans to lease or purchase a plastics molding facility and
the necessary molds to produce their own supply of PET bottles and to sell the
bottles to other companies. In order to handle the increase in business, the
Company will need to acquire additional off-site warehouse space. The Company
is looking to either lease or construct space in order to store raw materials
and finished goods. In addition, the Company will be improving the existing
bottling and office facilities.
The Company is poised to achieve significant growth via the expansion of its
retail PET business into new geographic markets. The PET segment of the
bottled water business is the fastest growing segment of the bottled water
market. In order to accomplish broader distribution of the PET products, the
Company will need additional working capital for marketing investments for
such things as slotting fees and marketing promotions. As the Company grows
and expands its retail distribution there will be a need to add an additional
brand marketing executive.
YEAR 2000 COMPLIANCE
The Company is in the process of developing and finalizing plans to address
the Year 2000 computer problem and to begin converting their computer systems
to be Year 2000 compliant. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. The Company presently believes that with upgrades to
existing software and possibly some replacement, the Year 2000 problem will
not pose significant operational problems for their computer systems.
However, if such upgrades and replacements are not completed timely or
effectively implemented, the Year 2000 problem could have a material impact on
the operations of the Company. The Company expects to incur internal staff
costs, as well as the cost of the software upgrades and replacement as a part
of this effort. However, until the Company's plans are finalized, management
is not able to reasonably estimate the costs of achieving Year 2000
compliance.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------------------------------
No legal proceedings have been filed on behalf of or against the Company, nor
have any claims been made.
Item 2. Changes in Securities
- -----------------------------------
As discussed in Note 3 to the Financial Information contained in Part I to
this Form 10-QSB, the Company had a 12 to 1 reverse stock split, completed a
private placement of 300,000 shares of common at $2.75 per share, established
a stock option plan and issued warrants. Use of proceeds from the private
placement were primarily used or will be used for fixed asset purchases to
increase production capacity and pursuing a major distribution agreement.
This is more fully described in Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in Part I Item 2 to
this Form 10-QSB.
Item 3. Defaults Upon Senior Securities
- ------------------------------------------------
There have been no defaults on any securities. The Company has no obligations
with regard to dividends and no preferred stock.
Item 4. Submission of Matters to a Vote of the Security Holders
- ----------------------------------------------------------------------------
None
- ----
Item 5. Other Information
- ------------------------------
None
- ----
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------------
None
- ----
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ELDORADO ARTESIAN SPRINGS, INC.
By: /s/ Douglas Larson Douglas A. Larson, President
--- --------------
By: /s/ Kevin M. Sipple Kevin M. Sipple, Secretary
--- ----------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 420,732
<SECURITIES> 0
<RECEIVABLES> 524,863
<ALLOWANCES> 0
<INVENTORY> 108,728
<CURRENT-ASSETS> 1,079,465
<PP&E> 1,762,812
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,159,220
<CURRENT-LIABILITIES> 441,608
<BONDS> 0
0
0
<COMMON> 2,995
<OTHER-SE> 1,255,290
<TOTAL-LIABILITY-AND-EQUITY> 3,159,220
<SALES> 912,692
<TOTAL-REVENUES> 912,692
<CGS> 123,837
<TOTAL-COSTS> 854,772
<OTHER-EXPENSES> (33,492)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (38,066)
<INCOME-PRETAX> 24,428
<INCOME-TAX> 7,144
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,284
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
