FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1999
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 (IRS Employer Identification No.)
incorporation) Or organization)
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, 1999 : 2,995,495.
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
INDEX
Page
Part I - Financial Information
Item 1 - Financial Statements
Balance Sheets June 30, 1999 (Unaudited) and March 31, 1999 F - 1
Unaudited Statements of Operations For the Three Months Ended
June 30, 1999 and June 30, 1998............................ F - 2
Unaudited Statements of Cash Flows For the Three Months Ended
June 30, 1999 and June 30, 1998 ........................... F - 3
Notes to Unaudited Financial Statements .................... F - 4
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... F - 5
Part II - Other Information ..................................... F - 9
Signature Page .................................................. F - 10
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Balance Sheets
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
---------- ----------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash .................................................. $ 354,035 $ 361,439
Accounts receivable
Trade, net .......................................... 627,963 615,969
Other ............................................... 14,279 16,326
Inventories ........................................... 184,085 205,264
Prepaid expenses and other ............................ 26,871 33,106
Deferred income taxes ................................. 18,169 18,169
---------- ----------
Total current assets ........................... 1,225,402 1,250,273
---------- ----------
Property, plant & equipment - net ....................... 1,744,036 1,773,327
---------- ----------
Other assets
Water rights - net .................................... 109,008 110,130
Deferred offering costs ............................... 201,506 199,327
Other, net ............................................ 78,552 53,317
---------- ----------
Total other assets ............................. 389,066 362,774
---------- ----------
$3,358,504 $3,386,374
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ...................................... $ 122,477 $ 152,557
Accrued expenses ...................................... 144,114 134,005
Deposits .............................................. 73,114 74,757
Current maturities of long-term debt .................. 188,188 167,385
---------- ----------
Total current liabilities ...................... 527,893 528,704
Long-term liabilities
Long-term debt ........................................ 1,357,511 1,417,336
Deferred income taxes ................................. 61,219 61,219
---------- ----------
Total long-term liabilities .................... 1,418,730 1,478,555
---------- ----------
Total liabilities .............................. 1,946,623 2,007,259
---------- ----------
Stockholders' equity
Common stock, par value $.001 per share;
50,000,000 shares authorized; 2,995,495
issued and outstanding .............................. 2,995 2,995
Additional paid-in capital ............................ 984,656 984,656
Retained earnings ..................................... 424,230 391,464
---------- ----------
1,411,881 1,379,115
---------- ----------
$3,358,504 $3,386,374
========== ==========
</TABLE>
See notes to financial statements.
F - 1
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Operations
Three Months Ended
June 30,
----------------------------
1999 1998
----------- -----------
(Unaudited)
Revenue
Water and related ......................... $ 1,223,622 $ 878,463
Pool ...................................... 18,259 23,329
Rentals ................................... 12,900 10,900
----------- -----------
Net revenue .............................. 1,254,781 912,692
Cost of goods sold .......................... 211,605 123,837
----------- -----------
Gross profit ................................ 1,043,176 788,855
----------- -----------
Operating expenses
Salaries and related ...................... 449,365 347,276
Administrative and general ................ 196,138 163,186
Selling and delivery ...................... 243,233 156,164
Depreciation and amortization ............. 78,070 64,309
----------- -----------
966,806 730,935
----------- -----------
Operating income ............................ 76,370 57,920
----------- -----------
Other income (expense)
Interest income ........................... 1,697 4,574
Loss on sale of asset ..................... -- --
Interest expense .......................... (26,871) (38,066)
----------- -----------
(25,174) (33,492)
----------- -----------
Income before income taxes .................. 51,196 24,428
Provision for income taxes .................. 18,430 7,144
----------- -----------
Net income .................................. $ 32,766 $ 17,284
=========== ===========
Basic earnings per common share ............. $ 0.01 $ 0.01
=========== ===========
Weighted average number of shares outstanding 2,995,495 2,923,756
=========== ===========
See notes to financial statements.
F - 2
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Cash Flows
Three Months Ended
June 30,
------------------------
1999 1998
--------- ---------
(Unaudited)
Cash flows from operating activities
Net income ................................... $ 32,766 $ 17,284
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization ............... 78,070 64,309
Changes in certain assets and liabilities
Accounts receivable ........................ (9,947) (21,037)
Inventories ................................ 21,179 13,973
Prepaid expenses and other ................. 6,235 40,000
Accounts payable ........................... (30,080) 40,278
Accrued expenses ........................... 10,109 18,519
Deposits ................................... (1,643) (2,176)
Other ...................................... (17,400) --
--------- ---------
56,523 153,866
--------- ---------
Net cash provided by operating activities 89,289 171,150
--------- ---------
Cash flows from investing activities
Purchase of property and equipment ........... (46,206) (300,629)
Purchases of other assets .................... (9,286) --
--------- ---------
Net cash flows used in investing
activities .............................. (55,492) (300,629)
--------- ---------
Cash flows from financing activities
Proceeds from additions to long-term debt .... -- 41,050
Payments on long-term debt ................... (39,022) (61,086)
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)
Deferred offering costs ...................... (2,179) --
--------- ---------
Net cash flows (used in) provided
by financing activites .................. (41,201) 480,045
--------- ---------
Net (decrease) increase in cash ................ (7,404) 350,566
Cash-- beginning of period ..................... 361,439 70,166
--------- ---------
Cash-- ending of period ........................ $ 354,035 $ 420,732
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest for the three months ended June 30, 1999 and 1998 was
$26,781 and $38,066, respectively. Cash paid for income taxes for the three
months ended June 30, 1999 and 1998 was $0 and $14,011, respectively.
See notes to financial statements.
F - 3
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Unaudited Financial Statements
Note 1 - Summary of Significant Accounting Policies
Interim Unaudited Financial Statements
The interim 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, 1999 and 1998 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, 1999.
Note 2 - Recently Issued Accounting Pronouncements
During April 1998, Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" was issued. SOP 98-5 requires costs of start-up activities
and organization costs to be expensed as incurred and is effective for financial
statements for fiscal years beginning after December 15, 1998. SOP 98-5 is not
expected to have an impact on the Company's financial position or results of
operations as the Company currently has no such cost capitalized.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires all derivatives be
recognized as either assets or liabilities in the statement of financial
position and requires that those assets and liabilities be measured at fair
value. FAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Early application of all provisions of this statement is
permitted but only as of the beginning of any fiscal quarter beginning after
issuance of the statement. FAS 133 is not expected to have an impact on the
Company's financial position or results of operations as the Company has not
been involved in derivative activities.
Note 3 - Stockholders' Equity
Stock Option Plan
On May 1, 1999, the Company granted 11,000 options to employees under the
Company's 1997 Stock Option Plan to purchase common stock at $4.25 per share,
fair market value at the date of the grant.
F - 4
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
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: availability of debt
and equity financing, interest rate fluctuations, effects of regional economic
and market conditions, ability to obtain additional water rights, 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 and 3
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 $930 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.
F - 5
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Results of Operations
The Company's net revenues for the three months ended June 30, 1999 increased
$342,089 or 37.5% compared to the same period in 1998. This increase resulted
from increased sales volumes to the Company's existing customer base as well as
from sales to new customers. Five and three gallon product sales generated the
majority of the increase in overall revenues compared to the smaller size
products. Revenues for the five and three gallon products increased 27.4% for
the three month period ending June 30, 1999 versus the same period ending June
30, 1998. Sales of the one gallon products increased 42.4% and sales of the
smaller (1.5 liter and less) PET packages increased by 134.9% for the three
months ended June 30, 1999 compared to the same period ending June 30, 1998.
For the first three months of fiscal 1999, cost of goods sold was $211,605
compared to $123,837 for the same period of fiscal 1998. Gross profit increased
32.2% from $788,855 for the three months ended June 30, 1998 to $1,043,176 for
the same period in 1999.
Operating expenses for the three months ended June 30, 1999 increased 32.3% to
$966,806 from $730,935 for the same period of fiscal 1998. Salaries and related
expenses increased 29.4% to $449,365 for the period ended June 30, 1999 versus
$347,276 for the same period of fiscal 1998. Salaries and related expenses are
36% and 38% of sales for the three months ended June 30, 1999 and 1998,
respectively.
General and administrative expenses increased to $196,138 or 15.6% of sales for
the three months ended June 30, 1999 compared to $163,186 or 17.9% of sales for
the same period ending June 30, 1998. Selling and delivery expenses increased to
$243,233 for the three months ended June 30, 1999 versus $156,164 for the same
period of fiscal 1998. As a percent of sales, this represents 19.4% and 17.1%
for the three months ended June 30, 1999 and 1998, respectively.
Depreciation and amortization was $78,070 for the three months ended June 30,
1999 compared to $64,309 for the same period ended June 30, 1998. The company
added additional bottling equipment and improvements to the plant that increased
the amount of depreciation.
Interest income decreased from $4,574 for the three months ended June 30, 1998
to $1,697 for the same period ended June 30, 1999.
The Company's net income for the first three months of fiscal 1999 was $32,766
compared to $17,284 for the three months ended June 30, 1998. This represents an
increase in net income of 89.6% for the three months ended June 30, 1999.
F - 6
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Liquidity and Capital Resources
The Company has filed a registration statement on Form SB-2 with the Securities
and Exchange Commission for a secondary public offering of 700,000 shares of
common stock. There is an extremely limited and very sporadic public market for
Eldorado's common stock at the present time. 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
rather than upon current market prices of the common stock. Eldorado intends to
file for listing on the NASDAQ Small Cap Market at the completion of the
proposed public offering. 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. The
Company has $201,506 in deferred offering costs related to the secondary public
offering which have been recorded as an other asset. 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.
Accounts receivable increased 1.9% for the first three months ended June 30,
1999 compared to the same period ending June 30, 1998. This represents 47 days
sales in receivables for the three months ended June 30, 1999 versus 54 days
sales in receivable for the same period of 1998. The Company has implemented new
credit policies as well as increasing efforts to collect from customers in a
more timely manner. Management believes the investment in receivables should be
under 40 days sales outstanding, more in line with industry averages.
Year 2000 Issues
The year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system failure
of miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Currently, our bottling production facilities are not dependent on any computer
systems. Therefore, any potential year 2000 problem that Eldorado faces will not
affect our bottling lines. Any future purchases of equipment will be analyzed
for year 2000 compliance.
F - 7
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
In anticipation of potential year 2000 problems, the Company has begun to
replace and upgrade its management information systems to be year 2000
compliant. The Company expects to complete this process by the quarter ending
September 1999. Eldorado has consultants to coordinate successful system
implementation, including testing of year 2000 related problems. Testing for
year 2000 compliance will commence upon system implementation and will continue
throughout 1999. Eldorado presently believes that with successful system
conversions, the year 2000 issue will not pose significant operational problems
for its systems. Although the Company's new software is designed to be year 2000
compliant, there can be no assurance that it contains all necessary data code
changes. The reasonably likely worst case scenario would be that we are unable
to complete our planned conversions of our management information systems in a
timely fashion. In such case, year 2000 could have a material impact on our
operations by requiring us to convert the data to a new system that is year 2000
compliant. The time requirements and cost to do this could be substantial.
The Company expects that assessment, remediation and contingency planning
activities for its internal systems will be ongoing through 1999. The Company
currently expects the total cost for these activities to be approximately
$15,000. This total cost estimate does not include replacement of internal
software and hardware in the normal course of business. The costs of the project
and the date established for completion of year 2000 modifications are based on
managements best estimates. These estimates were derived using numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area and the ability to locate and correct all
relevant computer codes. Eldorado does not currently have any information that
would lead it to believe that year 2000 issues relating to its internal systems
will have a material adverse impact on Eldorado's financial condition or overall
trends in results of operations.
The Company intends to obtain information from its suppliers and major customers
regarding their products' year 2000 compliance by September 1999. Third party
year 2000 compliance is not within Eldorado's control and we have not yet
received compliance information from all of our suppliers. There can be no
assurance that the failure by a supplier to achieve year 2000 compliance would
not adversely affect us. Based on the information we receive from third party
suppliers, we can decide if it will be reliable to continue to do business with
the third party. If we decide the relationship is unsatisfactory based on our
supplier's inability to deal with the year 2000 issues, our contingency plan
would be to have sufficient inventory on hand for a period of time to allow us
to look elsewhere for another supplier. No assurances can be made that we will
be able to find another supplier with similar terms and pricing.
F - 8
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
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
None
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
F - 9
<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
By: /s/Cathleen Collins
Cathleen Collins, Chief Financial Officer
August 13, 1999
F - 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 354,035
<SECURITIES> 0
<RECEIVABLES> 645,969
<ALLOWANCES> 30,000
<INVENTORY> 184,085
<CURRENT-ASSETS> 1,225,402
<PP&E> 3,689,950
<DEPRECIATION> (1,916,623)
<TOTAL-ASSETS> 3,358,504
<CURRENT-LIABILITIES> 527,893
<BONDS> 0
0
0
<COMMON> 2,995
<OTHER-SE> 1,408,886
<TOTAL-LIABILITY-AND-EQUITY> 3,358,504
<SALES> 1,254,781
<TOTAL-REVENUES> 1,254,781
<CGS> 211,605
<TOTAL-COSTS> 211,605
<OTHER-EXPENSES> 966,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,871
<INCOME-PRETAX> 51,196
<INCOME-TAX> 18,430
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,430
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
