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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
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.... $4,036,822 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 2,995,495
Class Outstanding at June 15, 1999
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.
<PAGE>
PART I
Item 1. Description of Business.
General
Eldorado Artesian Springs, Inc.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 208,333
shares of its $.001 par value common stock at $1.20 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 2,340,000 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 95.6% 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 products have ozone added to comply
with FDA standards.
Sales and Distribution
The Company sells its products in five gallon, three 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 and three gallon sales and related cooler rentals represented
approximately 79% of revenues and the smaller sizes accounted for 18% 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
and three gallon sales, small package products, and brand name recognition.
The five gallon and three 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 organizations 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 47 full-time employees, 2 part-time employees and 14
seasonal employees during the summer resort months.
Item 2. Description of Property.
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 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 June 15, 1999, there were 95 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 or Plan of Operation.
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. 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.
The Company is currently in the process of completing a secondary public
offering of 700,000 shares of common stock. The anticipated offering price of $6
to $7 has been determined by Eldorado and the underwriter based upon Eldorado's
financial condition and prospects and certain other information. Eldorado
intends to use the proceeds from the public offering to acquire additional water
rights in order to provide for anticipated growth in water sales; for the lease
or construction of a warehouse/distribution facility in Denver, Colorado; and
for marketing of its products, including the pursuit of distribution agreements
with distributors of bottled water. Eldorado intends to file for listing on the
NASDAQ Small Cap Market at the completion of the proposed public offering.
Results of Operations
Revenues for the year ended March 31, 1999 increased 21.3% from the previous
year to $4,036,822. This increase resulted from increased sales to Eldorado's
existing customer base as well as from sales to new customers. In addition, on
October 1, 1998, Eldorado increased the selling price of the five gallon
products.
The costs of goods sold increased 9.1% for the year ended March 31, 1999
compared to a year earlier. This increase in cost is primarily due to the
overall increase in volume. Cost of goods sold represented 13.6% of sales for
the year ended March 31, 1999 compared to 15.1% of sales for the year ended
March 31, 1998. The company has received more favorable purchasing agreements
because of the ability to buy goods in larger volumes.
Operating expenses for the year ended March 31, 1999 increased 22.3%. This
overall increase is consistent with the increase in revenues for the year.
Salaries and related expenses increased 17.5% for the year ended March 31, 1999.
This increase is due to the increase in sales for the year resulting in higher
commissions and additional employees. Administrative and general expenses
increased 20.3% for the year ended March 31, 1999 consistent with the increase
in revenues. Selling and delivery expenses increased 45.8% for the year ended
March 31, 1999. Much of the increase in selling and delivery expenses is due to
the increased expense for advertising and promotions. Advertising and promotion
expenses increased approximately 56% for the year ended March 31, 1999. For the
year ended March 31, 1999 advertising and promotion expenses were 8.9% of sales
compared to 6.9% of sales for the year ended March 31, 1998. Depreciation and
amortization increased 13.3% for the year ended March 31, 1999. This increase is
due to the purchase of new equipment over the last year.
Interest income for the year ended March 31, 1999 increased to $16,242 from
$3,720 for the previous year ended March 31, 1998. This increase is primarily
due to the interest on the proceeds from the private placement completed in
April 1998. Interest expense increased 3.3% for the year ended March 31, 1999.
The increase in interest expense was due to the purchase of additional machinery
and equipment.
For the year ended March 31, 1999, income before taxes increased 85.2% to
$217,850. Income taxes for the year were $79,736 resulting in net income and
comprehensive income of $138,114. Net income and comprehensive income increased
66.0% from the same period a year ago.
Liquidity and Capital Resource
Accounts receivable for the year ended March 31, 1999 were 27.7% higher than at
year ended March 31, 1998. This resulted from the 21.3% increase in revenues for
the year ended March 31, 1999. Days sales outstanding was approximately 56 days
for March 31, 1999. Days sales outstanding was approximately 55 days for March
31, 1998. Management has implemented new credit policies to manage the accounts
more effectively.
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 approximately $690,000 from the private placement. In connection with
the offering, the company issued to Mills Financial Services, Inc. a warrant to
purchase 30,000 shares of common stock at an exercise price of $3.30 per share.
In addition, the company issued a warrant to purchase 250,000 shares at an
exercise price of $11.00 per share.
The company utilized the proceeds of the offering to replace a five gallon
bottling line to increase capacity from 160 bottles per hour to 600 bottles per
hour. By September 1998, 100% of the bottling equipment was fully utilized. In
addition, the company utilized the proceeds to increase advertising and
promotional activities.
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 provides for the grant
of stock options to employees, directors and consultants of the company. As of
March 31, 1999, 493,000 options were outstanding, of which 111,000 are fully
vested. 343,000 of the options were issued on May 26, 1998 and 150,000 were
issued on December 7, 1998, with an option price of $2.75 per share, fair market
value at the date of the grant. Of the remaining 382,000 shares, 68,700 vest in
fiscal 2000, 71,900 in 2001, 75,100 in 2002, 79,300 in 2003, 45,000 in 2004,
13,000 in 2005, 14,000 in 2006 and 15,000 in 2007. Options will terminate no
later than the expiration of ten years from the date of grant, subject to
earlier termination due to termination of service.
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.
Item 7. Financial Statements.
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
<PAGE>
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, 1999, and the related statements of operations,
stockholders' equity and cash flows for the years ended March 31, 1999 and 1998.
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, 1999, and the results of its operations and its cash flows for the
years ended March 31, 1999 and 1998 in conformity with generally accepted
accounting principles.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
May 5, 1999
Denver, Colorado
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Balance Sheet
March 31, 1999
Assets (Notes 3 and 4)
Current assets
Cash .................................................. $ 361,439
Accounts receivable (Note 2)
Trade - net ........................................ 615,969
Other .............................................. 16,326
Inventories ........................................... 205,264
Prepaid expenses and other ............................ 33,106
Deferred income taxes (Note 5) ........................ 18,169
----------
Total current assets ............................. 1,250,273
----------
Property, plant and equipment - net (Note 2) ............. 1,773,327
Other assets
Deferred offering costs ............................... 199,327
Water rights - net (Note 2) ........................... 110,130
Other - net (Note 2) .................................. 53,317
----------
Total other assets ............................... 362,774
----------
$3,386,374
==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ...................................... $ 152,557
Accrued expenses (Note 2) ............................. 134,005
Deposits .............................................. 74,757
Current maturities of long-term debt (Note 3) ......... 167,385
----------
Total current liabilities ........................ 528,704
----------
Long-term liabilities
Long-term debt (Note 3) ............................... 1,417,336
Deferred income taxes (Note 5) ........................ 61,219
----------
Total liabilities ................................ 2,007,259
----------
Commitments (Notes 3, 4 and 6)
Stockholders' equity (Note 7)
Common stock, par value $.001 per share;
50,000,000 shares authorized; 2,995,495 .............. 2,995
issued and outstanding
Additional paid-in capital ............................ 984,656
Retained earnings ..................................... 391,464
----------
1,379,115
----------
$3,386,374
==========
See notes to financial statements.
F - 3
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Operations
Years Ended
March 31,
------------------------
1999 1998
----------- ----------
Revenue
Water and related ........................ $ 3,901,836 $ 3,222,396
Rentals .................................. 48,944 49,288
Pool ..................................... 99,435 68,349
Returns and allowances ................... (13,393) (10,589)
----------- -----------
Net revenue .............................. 4,036,822 3,329,444
Cost of goods sold exclusive of depreciation
and amortization ........................... 546,900 501,288
----------- -----------
Gross profit ................................ 3,489,922 2,828,156
----------- -----------
Operating expenses
Salaries and related ..................... 1,539,275 1,310,303
Administrative and general ............... 670,854 557,892
Selling and delivery ..................... 615,853 422,462
Depreciation and amortization ............ 314,800 277,914
----------- -----------
3,140,782 2,568,571
----------- -----------
Operating income ............................ 349,140 259,585
----------- -----------
Other income (expense)
Interest income .......................... 16,242 3,720
Loss on sale of asset .................... -- (2,871)
Interest expense ......................... (147,532) (142,803)
----------- -----------
(131,290) (141,954)
----------- -----------
Income before income taxes .................. 217,850 117,631
----------- -----------
Provision for income taxes (Note 5)
Current .................................. 72,778 19,683
Deferred ................................. 6,958 14,720
----------- -----------
79,736 34,403
Net income .................................. $ 138,114 $ 83,228
=========== ===========
Basic earnings per common share ............. $ .05 $ .03
=========== ===========
Weighted average number of shares outstanding 2,995,495 2,695,495
=========== ===========
See notes to financial statements.
F - 4
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statement of Stockholders' Equity
Years Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance - March 31, 1997 2,695,495 $ 2,695 $ 294,875 $ 170,122 $ 467,692
Net income for the year -- -- -- 83,228 83,228
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1998 2,695,495 2,695 294,875 253,350 550,920
Sale of common stock 300,000 300 689,781 -- 690,081
Net income for the year -- -- -- 138,114 138,114
---------- ---------- ---------- ---------- ----------
Balance - March 31, 1999 2,995,945 $ 2,995 $ 984,656 $ 391,464 $1,379,115
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F - 5
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended
March 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income .................................. $ 138,114 $ 83,228
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization ............. 314,800 277,914
Loss on sale of asset ..................... -- 2,871
Deferred income taxes ..................... 6,958 14,720
Changes in certain assets and liabilities -
Accounts receivable ..................... (128,469) (221,480)
Inventories ............................. (82,563) (30,153)
Prepaid expenses and other .............. 15,207 (37,420)
Accounts payable ........................ 22,810 31,944
Accrued expenses ........................ 54,875 (10,765)
Deposits ................................ 25,579 15,620
----------- -----------
229,197 43,251
----------- -----------
Net cash provided by operating ........ 367,311 126,479
----------- -----------
activities
Cash flows from investing activities
Purchase of property, plant and equipment ... (388,161) (535,578)
Proceeds from sale of asset ................. -- 2,750
Purchase of other assets .................... (4,221) --
----------- -----------
Net cash flows used in investing
activities ........................... (392,382) (532,828)
----------- -----------
Cash flows from financing activities
Net (payments) proceeds from line-of-credit . (40,000) 40,000
Additions to long-term debt ................. -- 1,500,000
Payments on long-term debt .................. (134,410) (1,288,474)
Loan fees and origination cost .............. -- (19,776)
Proceeds from sale of common stock .......... 825,000 --
Costs related to issuance of common stock ... (134,919) --
Deferred offering costs ..................... (199,327) --
----------- -----------
Net cash flows provided by financing
activities ........................... 316,344 231,750
----------- -----------
Net increase (decrease) in cash ............... 291,273 (174,599)
Cash - beginning of year ...................... 70,166 244,765
----------- -----------
Cash - end of year ............................ $ 361,439 $ 70,166
=========== ===========
</TABLE>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest was $147,532 (1999) and
$142,803 (1998).
Cash paid during the year for income taxes was $34,426 (1999) and
$33,844 (1998).
Supplemental disclosure of noncash investing activity: During the years ended
1999 and 1998, equipment was acquired through capital leases for
$164,306 and $41,050, respectively.
See notes to financial statements.
F - 6
<PAGE>
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. The
Company 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.
Cash
The Company places its cash with high credit quality financial institutions. On
occasion, the amount in the bank may exceed the Federal Deposit Insurance
Corporation's (FDIC) insurance limit.
Inventories
Inventories consist primarily of water bottles and packaging 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 which range from three to seven years. Buildings and
improvements are depreciated using the straight-line method over their estimated
useful lives which range from fifteen to thirty-nine years.
Deferred Offering Costs
As of March 31, 1999, the Company was attempting to complete a secondary public
offering. Expenses related to this offering have been accounted for as deferred
offering costs. If the offering is successful, such costs will be charged
against the gross proceeds received. If at any time it becomes probable that the
offering will not be consummated or after an unreasonable postponement, such
costs will be expensed.
Other Assets
Other assets consisting of water rights, customer list, loan fees and plate
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.
Stock Based Compensation
The Company has adopted SFAS 123 "Accounting for Stock-Based Compensation" (SFAS
123), which requires disclosure of the fair value and other characteristics of
stock options (Note 7). The Company has chosen under the provisions of SFAS 123
to continue using the intrinsic-value method of accounting for employee
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees" (APB 25).
Basic Earnings Per Share
During the year ended March 31, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
No. 128). SFAS 128 established new definitions for calculating and disclosing
basic and diluted earnings per share. Basic earnings per share is based upon the
weighted average number of shares outstanding as defined in SFAS 128. No diluted
earnings per share is presented as no there are no potential dilutive common
shares. As required by SFAS 128, disclosure of subsequent events which would
have had an effect on the number of shares outstanding is contained in Note 7.
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.
Concentration of Credit Risk
The Company maintains cash in bank accounts which, at times may exceed FDIC
insurance limits. Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable. The
Company grants credit to customers located primarily in Colorado. The Company
periodically performs credit analysis and monitors the financial condition of
its clients in order to minimize credit risk.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, line-of-credit, accounts payable, deposits and accrued expenses
approximated fair value as of March 31, 1998 because of the relatively short
maturity of these instruments.
Due to rates currently available to the Company for debt which are similar to
terms on the remaining maturities, the fair value of existing debt approximates
carrying value.
Advertising Costs
Advertising costs are expensed as incurred.
Note 2 - Selected Balance Sheet Information
March 31,
1999
-----------
Accounts receivable
Trade .............................. $ 645,969
Less allowance for doubtful accounts (30,000)
-----------
$ 615,969
===========
Property, plant and equipment
Land ............................... $ 225,194
Buildings and improvements ......... 1,166,289
Machinery and equipment ............ 2,128,575
Vehicles ........................... 19,831
Office furniture and fixtures ...... 150,061
-----------
3,689,950
Less accumulated depreciation ...... (1,916,623)
-----------
$ 1,773,327
===========
Other assets
Water rights ....................... $ 179,500
Less accumulated amortization ...... (69,370)
-----------
$ 110,130
===========
March 31,
1999
---------
Customer lists, loan fees and other $ 70,892
Less accumulated amortization ..... (17,575)
---------
$ 53,317
=========
Accrued expenses
Property taxes .................... $ 17,194
Sales tax ......................... 12,217
Income taxes ...................... 54,946
Payroll and payroll taxes ......... 49,648
---------
$ 134,005
=========
Note 3 - Long-Term Debt
March 31,
Notes Payable 1999
-----------
Note payable to bank due June 20, 2012, interest at
bank prime (8% at March 31, 1999) adjusted bi-annually.
Monthly principal and interest payments of $12,244
with all unpaid principal and interest due at
maturity. Collateralized by $1,126,050 substantially
all assets of the Company. $1,126,050
Note payable to bank due June 20, 2002, interest at bank
prime plus 1.25% (9% at March 31, 1999). Monthly
principal and interest payments of $6,346 with all
unpaid principal and interest due at maturity.
Collateralized by 211,208 substantially all assets
of the Company. 211,208
Capital Leases
Capital lease for equipment. Monthly minimum lease
payments of $3,159, due April 1, 2002. 102,633
Capital leases for equipment. Combined monthly minimum lease
payments of approximately $5,000, maturing over various
dates from June 2001 through April 2002. 144,830
-----------
$1,584,721
===========
The cost of equipment under capital lease at March 31, 1999 was $307,612 with
accumulated depreciation of $24,180.
Future maturities of long-term debt at March 31, 1999 are:
Notes Capital
Year Ending March 31, Payable Leases Total
---------------------- ---------- --------- ----------
2000 $ 105,928 $ 100,339 $ 206,267
2001 116,341 100,339 216,680
2002 127,778 81,270 209,048
2003 80,564 15,286 95,850
2004 68,289 - 68,289
Thereafter 838,358 - 838,358
---------- ---------- ----------
1,337,258 297,234 1,634,492
Less amount
representing interest - (49,771) (49,771)
---------- ---------- ----------
Total principal 1,337,258 247,463 1,584,721
Less current portion (105,928) (61,457) (167,385)
---------- ---------- ----------
$1,231,330 $ 186,006 $1,417,336
========== ========== ==========
Note 4 - Line-of-Credit
The Company entered into an agreement with a bank for a line-of-credit of
$500,000 due November 3, 1999. The interest rate is calculated at prime plus
0.5% which was 8.25% at March 31, 1999. Interest is payable monthly and the line
is collateralized by substantially all of the assets of the Company. There was
no outstanding balance at March 31, 1999.
Note 5 - 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 statement 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 in the accompanying balance sheet
includes the following deferred tax assets and liabilities.
March 31,
1999
---------
Current deferred tax asset $ 18,169
Current deferred tax liability -
--------
Net current deferred tax asset $ 18,169
========
Long-term deferred tax asset $ -
Long-term deferred tax liability 61,219
--------
Net long-term deferred tax liability $ 61,219
========
The provision for income taxes is summarized as follows:
For the Years Ended
March 31,
---------------------
1999 1998
--------- --------
Current $ 72,778 $ 19,683
Deferred 6,958 14,720
-------- --------
$ 79,736 $ 34,403
======== ========
The following is a reconciliation of income taxes at the Federal Statutory rate
with income taxes recorded by the Company.
For the Years Ended
March 31,
---------------------
1999 1998
--------- --------
Computed income taxes at statutory rate - net $ 73,036 $ 31,503
of surtax
State income taxes, net of Federal income tax
benefit and other 6,700 2,900
-------- --------
$ 79,736 $ 34,403
======== ========
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:
March 31,
1999
--------
Differences related to fixed assets $(56,624)
Differences related to other assets (4,595)
Allowance for doubtful accounts 10,899
Alternative minimum tax and ITC credit carryforward 7,270
--------
$(43,050)
========
Note 6 - Commitments
The Company has various long-term leases for delivery trucks, vehicles equipment
and property. The following is a schedule by year of approximate future minimum
lease payments as of March 31, 1999.
Year Ending March 31,
2000 $199,000
2001 144,000
2002 105,000
2003 95,000
2004 85,000
Thereafter 93,000
--------
$721,000
========
Total rental expense for 1999 and 1998 was approximately $222,000 and $134,000,
respectively.
Note 7 - 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. Accordingly, all weighted average share
and per share information throughout the financial statements has been restated
for periods prior to the reverse 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 approximately $690,000 from the private placement.
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 are exercisable beginning on April 22, 1999
and expire on April 22, 2003.
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.
As of March 31, 1999, 493,000 options were outstanding, of which 111,000 are
fully vested. 343,000 of the options were issued on May 26, 1998 and 150,000
were issued on December 7, 1998, with an option price of $2.75 per share, fair
market value at the date of grant. Of the remaining 382,000 options, 68,700 vest
in fiscal 2000, 71,900 in 2001, 75,100 in 2002, 79,300 in 2003, 45,000 in 2004,
13,000 in 2005, 14,000 in 2006 and 15,000 in 2007. Options will terminate not
later than the expiration of ten years from the date of grant, subject to
earlier termination due to termination of service. The weighted average exercise
price and remaining contractual life of the options and warrants is $8.03 per
share and 110 months, respectively.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
Accordingly, no compensation cost has been recognized for the stock option
plans.
Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant date for awards consistent with the provisions of
SFAS No. 123, the Company's net income and income per share would have been
decreased to the pro forma amounts indicated below:
For the Nine
Months Ended
December 31
1998
--------------
Net income - as reported 138,114
Net income - pro forma 16,470
Basic income per share - as reported .05
Basic loss per share - pro forma .01
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumption: dividend yield of 0%; expected volatility of 1%; discount rate of
5.0% and expected lives of 10 years.
Note 8 - Profit Sharing Plan
The Company has adopted a 401(k) profit sharing plan for its employees.
Employees become eligible to participate in the plan once they have completed
one year of service and have reached 21 years of age. Contributions by the
Company and employees vest immediately. The Company matches 100% of employees
contributions up to 3% of the employees gross pay. During the years ended March
31, 1999 and 1998, the Company matched approximately $24,000 and $13,000,
respectively. No profit sharing contributions were approved by the Board of
Directors for the years ended March 31, 1999 and 1998.
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, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
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.
Tenure as
Name Age Position(s) Officer or Director
------------ ------ -------------- -------------------
Douglas A. 44 President and 1986 to present
Larson* Director
Kevin M. Sipple 43 Vice President, 1986 to present
Secretary and
Director
Jeremy S. 44 Vice President and 1986 to present
Martin Director
Robert E. 53 Vice President 1998 to present
Weidler
Cathleen M. 30 Chief Financial 1998 to present
Collins Officer
George J. 67 Director 1998 to present
Schmitt*
Don P. Van 42 Director 1998 to present
Winkle*
* Audit Committee
Douglas A. Larson was a co-founder of Eldorado and has been President of
Eldorado since 1991. Mr. Larson's responsibilities include corporate strategy
and administration of all operating activities at Eldorado. Before his
association with Eldorado, Mr. Larson worked as a stock broker with
Richey-Frankel and Co. from 1981 to 1983 and with B.J. Leonard, Inc. from 1980
to 1981. Mr. Larson holds a Bachelor of Science Degree in Business Finance from
the University of Colorado.
Kevin M. Sipple was a co-founder of Eldorado and has served as Vice President
and Secretary of Eldorado since 1991. Mr. Sipple's responsibilities include
management of the wholesale products division. In addition, he is also
responsible for quality control, testing, source protection and is a licensed
Water Plant operator and manages the utility productions. Before his association
with Eldorado, Mr. Sipple worked for King Soopers, Inc. from 1972 to 1983,
serving in a variety of positions including inventory ordering and control. Mr.
Sipple attended the University of Colorado from 1973 to 1977.
Jeremy S. Martin was a co-founder of Eldorado and has served as Vice President
since 1985. Mr. Martin's responsibilities include management of the 5 gallon
sales and service business. In addition, he is also responsible for special
event promotions and public relations. Before his association with Eldorado, Mr.
Martin was an independent distributor for Sunasu International, a nutritional
products manufacturer. Mr. Martin holds a Bachelor of Science Degree in Business
from the University of Colorado.
Robert E. Weidler joined Eldorado in 1990 and has served as Production Manager
from 1991 to 1998. Currently, Mr. Weidler is Vice President and his
responsibilities include inventory management, daily operations for finished
goods and conforming to safety standards, health department standards and other
governmental requirements. Mr. Weidler holds a Bachelor of Science Degree in
Sociology from Michigan State University. Cathleen M. Collins joined Eldorado in
1990 and has served as Assistant Treasurer from 1991 to 1998. Currently, Ms.
Collins is Chief Financial Officer and her responsibilities include the
procurement of financing for growth of operations of Eldorado as well as
overseeing the accounting functions for Eldorado including the annual audit and
corporate reporting. Ms. Collins holds a Bachelor of Science Degree in Economics
and a Masters of Business Administration from the University of Colorado.
George J. Schmitt has been a director of Eldorado since December 1998. From 1968
to 1996, Mr. Schmitt was CEO and President of Hinckley & Schmitt Bottled Water
Group. Mr. Schmitt was a founding member of the American Bottled Water
Association, now called the International Bottled Water Association, in 1959 and
was inducted into the Industry Hall of Fame in 1991. Mr. Schmitt is a director
of Eureka Bottled Water Co. and National Fuel Corporation. Mr. Schmitt holds a
Bachelor of Arts degree from Dartmouth.
Don P. Van Winkle has been a director of Eldorado since December 1998. From 1996
to present, Mr. Van Winkle has served as President and CEO of Van Winkle's IGA,
a family owned six store retail supermarket chain in New Mexico. From 1991 to
1996, he resided in Colorado where he provided contract chief financial officer
and advisory services to a wide range of companies which included Eldorado. From
1980 to 1991, Mr. Van Winkle was a corporate banker with the two largest
Colorado based bank holding companies, formerly United Banks and First National
Bancorporation. Mr. Van Winkle is a director of The Great Divide Brewing Company
in Denver, CO and Fresh Produce Sportswear, Inc. in Boulder, CO. He holds a
Bachelor of Science Degree in Finance from New Mexico State University.
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, 1999, no executive officer of the Company
received compensation exceeding $100,000. The Company's President, Douglas A.
Larson, received compensation of $77,759 plus other annual compensation of
$13,107 for the fiscal year ended March 31, 1999. Other annual compensation
includes $5,616 for annual health care premiums, $2,333 for a 3% match for all
contributions to the 401(k) plan and $5,158 for a car allowance.
<PAGE>
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, 1999
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.
<PAGE>
Number
Name and Address of Beneficial Owners of Percent
Shares Owned
- ---------------------------------------- --------- -------
Kevin M. Sipple 763,674 25.5%
43 Fowler Lane
Eldorado Springs, CO 80025
Douglas A. Larson 772,873 (1) 25.8%
12 Baldwin Circle
Eldorado Springs, CO 80025
Jeremy S. Martin 771,060 25.7%
2707 - 4th Street
Boulder, CO 80302
George J. Schmitt 0 ---
11 Castle Pines N.
Castle Rock, CO 80104
Don P. Van Winkle 0 ---
1600 Indian Wells
Alamogordo, NM 88310
All Officers and Directors as a Group, 2,377,607 79.4%
7 persons
(1) Mr. Larsons's shares include options to buy 7,000 shares held by Mr.
Larson's spouse. The shares owned by all officers and directors as a group
include options to buy 35,000 shares each held by Ms. Collins and Mr.
Weidler.
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.
<PAGE>
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:
Exhibit
No. Description Location
- ------- --------------------------- ----------------
2.1 Agreement and Plan of Incorporated by
Reorganization dated April referenced to Exhibit
10, 1987, among Lexington No. 2 to Form 8-K dated
Funding, April 10, 1987
Inc., Eldorado Artesian
Springs, Inc., and the
shareholders of Eldorado
Artesian Springs, Inc.
2.2 Articles of Merger dated June Incorporated by reference
11, 1988, between Lexington to Exhibit No. 10.2 to
Funding, Inc., and Eldorado Form 10-K dated March 31, 1988
Artesian Springs, Inc.
3 Articles of Incorporation and Incorporated by
Bylaws reference to Exhibit No.
3 to the Registration
Statement (No. 33-6738-D)
3.1 Amended Articles of Incorporated by
Incorporation reference to Exhibit 3.1
filed with Eldorado's
Form 10-KSB for the
fiscal year ended March
31, 1998
10.1 1997 Stock Option Plan Incorporated by
reference to Exhibit
10.1 to Registration
Statement No. 333-68553
10.2 Promissory Note with First Incorporated by
National Bank of Boulder reference to Exhibit No.
County dated June 27, 1997 10.2 to Registration
Statement No. 333-68553
10.3 Deed of Trust dated June 27, Incorporated by
1997 reference to Exhibit No.
10.3 to Registration
Statement No. 333-68553
27.1 Financial Data Schedule
(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.
<PAGE>
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 21, 1999
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 June 21, 1999
Douglas A. Larson, President
and Director
/s/ Kevin M. Sipple June 21, 1999
Kevin M. Sipple, Vice-President,
Secretary and Director
/s/ Jeremy S. Martin June 21, 1999
Jeremy S. Martin, Vice-President
and Director
/s/ George J. Schmitt June 21, 1999
George J. Schmitt, Director
/s/ Don P. Van Winkle June 21, 1999
Don P. Van Winkle, Director
/s/ Cathleen Collins June 21, 1999
Cathleen Collins, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 361,439
<SECURITIES> 0
<RECEIVABLES> 645,969
<ALLOWANCES> 30,000
<INVENTORY> 205,264
<CURRENT-ASSETS> 1,250,273
<PP&E> 3,689,950
<DEPRECIATION> 1,916,623
<TOTAL-ASSETS> 3,386,374
<CURRENT-LIABILITIES> 2,007,259
<BONDS> 0
0
0
<COMMON> 2,995
<OTHER-SE> 1,376,120
<TOTAL-LIABILITY-AND-EQUITY> 3,386,374
<SALES> 4,050,215
<TOTAL-REVENUES> 4,036,822
<CGS> 546,900
<TOTAL-COSTS> 546,900
<OTHER-EXPENSES> 3,140,782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,532
<INCOME-PRETAX> 217,850
<INCOME-TAX> 79,736
<INCOME-CONTINUING> 138,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,114
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
