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 December 31, 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 (IRS Employer Identification No.)
incorporation Or organization)
PO Box 445, Eldorado Springs, Colorado 80025
(Address of principal executive (Zip Code)
offices)
(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,
December 31, 1998 : 2,995,495.
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
INDEX
Page
Part I - Financial Information
Item 1 - Financial Statements
Balance Sheets December 31, 1998 (Unaudited) and
March 31, 1998......................................................F - 1
Unaudited Statements of Operations For the Three
and Nine Months Ended December 31, 1998 and
December 31, 1997...................................................F - 2
Unaudited Statements of Cash Flows For the Nine Months Ended
December 31, 1998 and December 31, 1997 ............................F - 3
Notes to Unaudited Financial Statements .............................F - 4
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................F - 6
Part II - Other Information ..............................................F - 10
Signature Page ...........................................................F - 11
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
----------- ----------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash .................................................. $ 208,861 $ 70,166
Accounts receivable
Trade, net .......................................... 570,669 498,320
Other ............................................... 9,193 5,506
Inventories ........................................... 246,704 122,701
Prepaid expenses and other ............................ 19,183 48,313
Deferred income taxes ................................. 4,633 16,829
---------- ----------
Total current assets ........................... 1,059,243 761,835
---------- ----------
Property, plant & equipment - net ....................... 1,763,230 1,525,370
---------- ----------
Other assets
Water rights - net .................................... 111,252 114,618
Restricted cash ....................................... 125,000 --
Deferred offering costs ............................... 41,493 --
Other, net ............................................ 63,946 54,898
---------- ----------
Total other assets ............................. 341,691 169,516
---------- ----------
$3,164,164 $2,456,721
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ...................................... $ 92,871 $ 129,747
Accrued expenses ...................................... 45,428 79,130
Line-of-credit ........................................ -- 40,000
Deposits .............................................. 44,136 49,178
Current maturities of long-term debt .................. 177,770 123,005
---------- ----------
Total current liabilities ...................... 360,205 421,060
Long-term liabilities
Long-term debt ........................................ 1,396,801 1,431,820
Deferred income taxes ................................. 54,795 52,921
---------- ----------
Total long-term liabilities
1,451,596 1,484,741
Total liabilities .............................. 1,811,801 1,905,801
---------- ----------
Stockholders' equity
Common stock, par value $.001 per share;
50,000,000 shares authorized; 2,995,495
(December 31, 1998) and 2,695,495
(March 31, 1998) issued and outstanding .............. 2,995 2,695
Additional paid-in capital ............................ 984,656 294,875
Retained earnings ..................................... 364,712 253,350
---------- ----------
1,352,363 550,920
$3,164,164 $2,456,721
========== ==========
</TABLE>
See notes to financial statements.
F - 1
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Water and related ........... $ 948,520 $ 763,217 $2,861,942 $2,351,148
Pool ........................ 0 0 83,030 68,350
Rentals ..................... 12,900 11,708 36,250 42,598
----------- ----------- ----------- -----------
Net revenue ................ 961,420 774,925 2,981,222 2,462,096
Cost of goods sold ............ 96,540 103,431 381,584 362,822
----------- ----------- ----------- -----------
Gross profit .................. 864,880 671,494 2,599,638 2,099,274
----------- ----------- ----------- -----------
Operating expenses
Salaries and related ........ 374,207 323,973 1,162,449 982,628
Administrative and general .. 215,264 107,766 580,970 341,988
Selling and delivery ........ 96,776 74,779 373,819 271,408
Depreciation and amortization 85,994 85,058 246,371 199,014
----------- ----------- ----------- -----------
772,241 591,576 2,363,609 1,795,038
----------- ----------- ----------- -----------
Operating Income .............. 92,639 79,918 236,029 304,236
----------- ----------- ----------- -----------
Other Income (expense)
Interest income ............. 4,084 744 14,078 3,711
Interest expense ............ (33,340) (37,285) (107,335) (108,066)
----------- ----------- ----------- -----------
(29,256) (36,541) (93,257) (104,355)
----------- ----------- ----------- -----------
Net income before income taxes 63,383 43,377 142,772 199,881
Provision for income taxes .... 13,564 13,008 31,410 41,140
----------- ----------- ----------- -----------
Net income and comprehensive
income ....................... $ 49,819 $ 30,369 $ 111,362 $ 158,741
=========== =========== =========== ===========
Basic earnings per common
share ........................ $ 0.02 $ 0.01 $ 0.04 $ 0.06
=========== =========== =========== ===========
Weighted average number of
shares outstanding ........... 2,995,495 2,695,495 2,972,586 2,695,495
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F - 2
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Cash Flows
Nine Months Ended
December 31,
----------------------------
1998 1997
----------- -----------
(Unaudited) (Unaudited)
Cash flows from activities
Net income ............................... $ 111,362 $ 158,741
----------- -----------
Adjustments to reconcile net income
to net cash provided by
operating activities
Depreciation and amortization ........... 246,371 199,014
Deferred income taxes ................... 14,070 --
Changes in certain assets and liabilities
Accounts receivable .................... (76,036) (197,642)
Inventories ............................ (124,003) (42,471)
Prepaid expenses and other ............. 19,130 1,126
Accounts payable ....................... (36,876) 52,213
Accrued expenses ....................... (33,702) (3,912)
Deposits ............................... (5,042) (2,564)
----------- -----------
3,912 5,764
----------- -----------
Net cash provided by operating
activities .......................... 115,274 164,505
----------- -----------
Cash flows from investing activities
Purchase of property and equipment ....... (365,091) (563,963)
----------- -----------
Net cash flows used in investing
activities .......................... (365,091) (563,963)
----------- -----------
Cash flows from financing activities
Proceeds from additions to long-term debt -- 1,500,000
Payments on long-term debt ............... (95,076) (1,261,320)
Payments on line-of-credit ............... (40,000) --
Proceeds from sale of common stock ....... 825,000 --
Loan fees and origination cost ........... -- (17,534)
Costs related to issuance of common stock (134,919) --
Restricted cash .......................... (125,000) --
Deferred offering costs .................. (41,493) --
----------- -----------
Net cash flows provided by financing
activities .......................... 388,512 221,146
----------- -----------
Net increase in cash ....................... 138,695 (178,312)
Cash-- beginning of period ................. 70,166 244,765
----------- -----------
Cash-- ending of period .................... $ 208,861 $ 66,453
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest for the nine months ended December 31, 1998 and 1997
was $107,335 and $108,066, respectively. Cash paid for income taxes for the
nine months ended December 31, 1998 and 1997 was $17,339 and $20,132,
respectively.
Supplemental disclosure of noncash investing and financing activities:
During the nine months ended December 31, 1998, equipment was acquired
through capital leases for $114,822.
F - 3
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to 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
nine months ended December 31, 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.
Certain amounts for the year ended March 31, 1997 and December 31, 1997 have
been reclassified to conform with the 1998 presentation.
Note 2 - Recently Issued Accounting Pronouncements
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 there are no potential dilutive common
shares.
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. SFAS No. 130 is required to be adopted for the Company's
1999 fiscal year end financial statements and, as a reporting standard, SFAS No.
130 will have no impact on the Company's financial position or results of
operations.
F - 4
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 2 - Recently Issued Accounting Pronouncements (continued)
In June 1997, FASB issued Statement of Financial Accounting Standards, No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131), effective for years beginning after December 15, 1997. Statement No. 131
establishes standards for reporting information about operating segments and the
methods by which such segments were determined. Currently, the Company only has
one significant operating segment. Therefore, this pronouncement poses no
significant changes in the Company's reporting methods.
Note 3 - Stockholders' Equity
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 interest of
the Company.
As of December 31, 1998, 343,500 options were outstanding that were issued to
employees, of which 111,500 are fully vested. All of the options were issued on
May 26, 1998 with an option price of $2.75 per share, fair market value at the
date of grant. Of the remaining 232,000 options, 31,200 vest in 1999, 34,400 in
2000, 37,600 in 2001, 41,800 in 2002, 45,000 in 2003, 13,000 in 2004, 14,000 in
2005 and 15,000 in 2006. 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.
F - 5
<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. (the Company) 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 $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 - 6
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Results of Operations
The Company's net revenues for the nine months ended December 31, 1998 increased
21.1% compared to the same period in 1997. Revenues for the three months ended
December 31, 1998 increased 24.1% compared to the same period ending December
31, 1997. This increase resulted from increased sales volumes to the Company's
existing customer base as well as from sales to new customers. In addition, on
October 1, 1998 the Company increased the selling price of the five gallon
products. This increase contributed to the increase in revenues by 1.3% and 4.2%
for the nine months and three months ended December 31, 1998. In November 1998,
the Company introduced a new 3 gallon product for delivery. Five gallon product
sales generated the majority of the increase in overall revenues compared to the
smaller size products. Revenues for the five gallon products increased $364,816
to $2,327,863 for the nine month period ending December 31, 1998 versus
$1,963,047 for the same period ending December 31, 1997. Sales of the one gallon
products increased 30.3% and sales of the smaller (1.5 liter and less) PET
packages increased by 46.2% for the nine months ended December 31, 1998 compared
to the same period ending December 31, 1997.
For the fist nine months of fiscal 1998, cost of goods sold was $381,584
compared to $362,822 for the same period of fiscal 1997. Gross profit increased
23.9% from $2,099,274 for the nine months ended December 31, 1997 to $2,599,638
for the same period in 1998. This represents an increase in gross profits from
85.3% of sales for the nine months ended December 1997 to 87.2% for the nine
months ended December 31, 1998. This increase in gross profits is attributable
to the decrease in production cost and cost of goods as well as the price
increase for the 5 gallon products.
Operating expenses for the nine months ended December 31, 1998 increased 31.7%
to $2,363,609 from $1,795,038 for the same period of fiscal 1997. Salaries and
related expenses increased 18.3% to $1,162,449 for the period ended December 31,
1998 versus $982,628 for the same period of fiscal 1997. Salaries and related
expenses are 39% and 40% for the nine months ended December 31, 1998 and 1997,
respectively.
General and administrative expenses increased to $580,970 or 19.5% of sales for
the nine months ended December 31, 1998 compared to $341,988 or 13.9% of sales
for the same period ending December 31, 1997. Officer liability insurance and
general insurance expenses increased 31% for the nine months ended December 31,
1998 versus December 31, 1997. The Company added coverage for additional
officers and directors. In addition, the Company added additional coverage for
new vehicles and employees. In September 1998, the Company leased a temporary
off-site warehouse in order to facilitate the delivery and shipment of goods
which also added to the increase in general and administrative expenses.
Selling and delivery expenses increased to $373,819 for the nine months ended
December 31, 1998 versus $271,408 for the same period of fiscal 1997. As a
percent of sales, this represents 12.6% and 11.1% for the nine months ended
December 31, 1998 and 1997, respectively. This increase is largely attributable
to the increase in promotions and advertising expenses through the nine months
ended December 31, 1998. Promotional and advertising expenses increased 58.2%
for nine months ended December 31, 1998 versus the same period ended December
31, 1997.
F - 7
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Depreciation and amortization was $246,371 for the nine months ended December
31, 1998 compared to $199,014 for the same period ended December 31, 1997. The
company added additional bottling equipment and improvements to the plant that
increased the amount of depreciation.
Interest income increased to $14,078 for the nine months ended December 31, 1998
from $3,711 for the same period ended December 31, 1997. This increase is due to
earnings on deposits of proceeds from the private placement that was completed
in April 1998.
The Company's net and comprehensive income for the first nine months of fiscal
1998 was $111,362 compared to $158,741 for the nine months ended December 31,
1997. Net and comprehensive income for the three months ended December 31, 1998
was $49,819 compared to $30,369 for the three months ended December 31, 1997.
Liquidity and Capital Resources
The Company's primary sources of capital have been cash flows from operations
and financing operations with debt. Primary uses of cash have been the financing
of the operations. In June 1997, the Company was able to restructure debt that
enabled the company to improve the bottling/warehouse facilities by expanding
floor space and adding high speed bottling equipment.
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. for a potential
secondary public stock offering. With the proceeds from the offering, the
Company was able to replace a five gallon bottling line to increase capacity
from 160 bottles to 600 bottles per hour. By the end of September 1998, 100% of
the bottling equipment was installed and being utilized. Proceeds from the
private placement are also being utilized to 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.
Accounts receivable increased 19.9% for the first nine months ended December 31,
1998 compared to the same period ending December 31, 1997. This represents 52
days sales in receivables for the nine months ended December 31, 1998 versus 53
days sales in receivable for the same period of 1997. The increase in accounts
receivable continues to be a concern for management as the targeted level for
days sales in receivables is 38 days. The Company has implemented new credit
policies as well as increasing efforts to collect from customers in a more
timely manner.
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. As of December 31, 1998, 343,500 options are outstanding that were
issued to employees.
F - 8
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
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. 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 June 1999. The Company has retained
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. The Company presently
believes that with successful system conversions, the year 2000 issue will not
pose significant operational problems for its systems. However, 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. If the Company does
not complete its planned conversions in a timely fashion, year 2000 could have a
material impact on the operations of the Company.
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, which 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.
The Company intends to obtain information from its suppliers and major customers
regarding their products' year 2000 compliance. The Company 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 the
Company's financial condition or overall trends in results of operations. Since
third party year 2000 compliance is not within the Company's control, and since
the Company has not yet obtained compliance information from its suppliers,
there can be no assurance that the failure by a supplier to achieve year 2000
compliance would not adversely affect the Company. Furthermore, the purchasing
patterns of the Company's clients may be affected by year 2000 issues. Although
the Company has formulated a contingency plan to date, it plans to continue to
assess year 2000 risks to determine whether it needs to alter that plan.
F - 9
<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 - 10
<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
F - 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 208,861
<SECURITIES> 0
<RECEIVABLES> 579,862
<ALLOWANCES> 10,000
<INVENTORY> 246,704
<CURRENT-ASSETS> 1,059,243
<PP&E> 3,613,996
<DEPRECIATION> 1,850,766
<TOTAL-ASSETS> 3,164,164
<CURRENT-LIABILITIES> 360,205
<BONDS> 0
0
0
<COMMON> 2,995
<OTHER-SE> 1,349,368
<TOTAL-LIABILITY-AND-EQUITY> 3,164,164
<SALES> 2,861,942
<TOTAL-REVENUES> 2,981,222
<CGS> 381,584
<TOTAL-COSTS> 381,584
<OTHER-EXPENSES> 2,363,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,335
<INCOME-PRETAX> 142,772
<INCOME-TAX> 31,410
<INCOME-CONTINUING> 111,362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,362
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
