<PAGE>
As filed with the Securities and Exchange Commission on July 29, 1999
SEC Registration No. 333-68553
================================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ELDORADO ARTESIAN SPRINGS, INC.
-----------------------------------
(Name of small business issuer in its charter)
Colorado 2086 84-0907853
- ------------------------------ ---------------------------- --------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
P.O. Box 445, Eldorado Springs, Colorado 80025 (303)499-1316
-----------------------------------------------------------------
(Address and telephone number of principal executive
offices and principal place of business)
Douglas A. Larson
Eldorado Artesian Springs, Inc.
P.O. Box 445
Eldorado Springs, Colorado 80025
(303) 499-1316
-------------------------------------
(Name, address and telephone number of agent for service)
Copies to:
----------
Laurie P. Glasscock, Esq.
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, CO 80302
(303) 546-1300
================================================================================
Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
according to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed according to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made according to Rule 434,
please check the following box. [_]
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting according to said Section 8(a),
may decide.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Title of each class of Proposed maximum Proposed maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered share price registration fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 805,000 shares/(1)/ $6.00/(2)/ $4,830,000 $1,342.74
$0.001 par value
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 105,000 shares issuable upon exercise of the underwriter's over-
allotment option.
(2) The proposed maximum offering price per share and the proposed maximum
aggregate offering price are computed solely for the purpose of determining
the registration fee according to Rule 457 under the Securities Act of
1933. These amounts are determined using a price of $6.00 per share which
represents the low end of the range of prices to be determined by Eldorado
and the underwriter before the offering. The trading market for Eldorado's
common stock is sporadic.
<PAGE>
(LEGEND)
ELDORADO ARTESIAN SPRINGS, INC.
700,000 shares of Common Stock
Expected Offering Price.............. $6.00 to $7.00 per share
Proposed Trading Symbol Nasdaq
Small Cap Market..................... ELDO
The Offering Per Share Total
--------- ----------
Public Price $6.00 $4,200,000
Underwriting discounts $0.60 $ 420,000
Proceeds to Eldorado $5.40 $3,780,000
(before expenses payable
by Eldorado)
Eldorado bottles and markets natural artesian spring water from a natural spring
located in the foothills of the Colorado Rocky Mountains. Before this offering,
Eldorado common stock has traded on the OTC Bulletin Board. Upon completion of
this offering, Eldorado expects that the securities will trade on the Nasdaq
Small Cap Market(SM).
The offering price information in this table assumes that the option granted to
the underwriter of this offering has not been exercised.
--------------
This investment involves a high degree of risk and the possibility of
substantial dilution. We strongly urge you to read the entire prospectus. You
should review the section titled Risk Factors, for a description of the risks
involved in Eldorado's business, beginning on page 3 and Dilution, for a
description of the dilution to new investors, on page 9, before making any
investment decisions.
--------------
The information in this prospectus is not finished and may be changed. Eldorado
may not sell these securities until the registration statement filed with the
SEC is effective. This prospectus is not an offer to sell or a solicitation of
an offer to buy these securities in any state in which the offer or solicitation
is not permitted.
Neither the SEC or any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
--------------
Mills Financial Services, Inc.
We expect that delivery of the common stock will be made in
_______________________, on or about ______, 1999. The underwriter will receive
an option, exercisable within 30 days after the date of this prospectus, to buy
up to 105,000 additional shares of common stock. See the section Underwriting,
beginning on page 26, for a more detailed description of the underwriting
agreement.
--------------
The date of this prospectus is ________, 1999
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus and
may not contain all the information that is important to you. We strongly urge
you to read the entire prospectus which contains more detailed information about
Eldorado, its finances, products and financial statements. All information in
this prospectus, unless otherwise shown, assumes no exercise of any outstanding
options or warrants. All references to shares of common stock described in this
prospectus have been adjusted to give effect to a twelve for one reverse stock
split that occurred April 1, 1998. We have not authorized anyone to provide you
with information that is different from what is contained in this prospectus.
ELDORADO ARTESIAN SPRINGS
Eldorado is a Colorado based company primarily engaged in the bottling
and marketing of natural artesian spring water. Over 90 years ago, the artesian
springs, which are the source for Eldorado's water, were the center of Eldorado
Springs resort where prominent people of the day traveled to "take the waters."
Today, the springs, located in the foothills of the Colorado Rocky Mountains,
are surrounded by thousands of acres of state and city park land, providing a
well protected source. The water is naturally purified as it rises through
layers of sandstone under its own artesian pressure. The water is bottled at the
source in its natural state and is not chemically treated in any way.
Eldorado has focused on developing and expanding the business of
bottling Eldorado Spring water. Currently, Eldorado's operations consist of its
home and commercial delivery business of five and three gallon bottles. In
addition, Eldorado also bottles and delivers smaller bottles in sizes of .5
liter, 1.0 liter and 1.5 liter. Bottles used for the smaller packaging are made
of polyethylene terephtalate, a premium clear plastic. These bottles are
commonly referred to in the beverage industry as PET bottles. Eldorado's PET
products have been well received by grocery retailers and these products have
earned retail market shares ranging from 3% to 29%, depending on the size of the
bottle.
The demand for bottled water has increased due to concerns with the
quality of municipal tap waters, consumer demands for a natural, healthy
beverage, and the convenience of the PET segment of the bottled water market. In
1997, the bottled water industry achieved solid growth with wholesale revenues
topping $3.9 billion and bottled water consumption reaching nearly 13 gallons a
year for an individual consumer. Through 1998, bottled water sales were up
nearly 10 percent, providing further evidence of the significant growth
remaining in the bottled water market.
Eldorado's goal is to expand its operations based on the continued
success of its PET bottled water products. Eldorado's strategy initially calls
for expanding the distribution of its PET products into new markets that are
geographically near its Colorado operations. By penetrating new markets for its
PET bottled waters, Eldorado expects to solidly increase revenues and earnings.
Once Eldorado has achieved its market share goals, it plans to further expand
distribution in other regions.
Our principal business address is 294 Artesian Drive, Eldorado Springs,
CO 80025 and our phone number is (303) 499-1316. We began our business in April
1983 as a privately-held Colorado company and merged with Lexington Funding,
Inc., a publicly-traded company, in April 1987.
<PAGE>
KEY FACTS
Shares to be sold to the
public by Eldorado......................... 700,000 shares
Common stock outstanding before offering... 2,995,495 shares
Common stock outstanding after offering.... 3,695,495 shares
Use of proceeds............................ Acquisition of additional water
rights, expansion of facilities,
marketing programs and general
working capital purposes
Proposed Nasdaq symbol..................... ELDO
The reference to common stock outstanding before and after this
offering in the table does not include a total of 875,000 shares that are
reserved for options under Eldorado's 1997 stock option plan or a total of
280,000 shares that are reserved for outstanding warrants. Refer to the section
Management - Stock Option Plan, on page 21, for a more detailed description of
Eldorado's stock option plan. Also, the section Description of Securities,
beginning on page 23, contains a more complete description of certain warrants
that were issued by Eldorado.
SUMMARY OF FINANCIAL INFORMATION
This prospectus contains audited financial statements for the fiscal
years ended March 31, 1996, 1997, 1998 and 1999. The following table highlights
some of the financial and operating information of Eldorado. For more detailed
financial and operating information, including the related notes, see the
Financial Statements, beginning on page F-1, and Management's Discussion and
Analysis of Financial Condition and Results of Operations, beginning on page 10.
<TABLE>
<CAPTION>
As of and for the
Year Ended
March 31
---------------------------------------------------------------------
1996 1997 1998 1999
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Statement of operations data:
Total revenues ................... $2,140,629 $2,644,521 $3,329,444 $4,036,822
Total operating expenses ......... 1,923,849 2,346,999 3,069,859 3,687,682
Earnings before taxes ............ 96,481 187,214 117,631 217,850
Net income ....................... 73,327 124,152 83,228 138,114
Earnings per share ..................... .03 .05 .03 .05
Weighted average of number of
shares outstanding ..................... 2,687,912 2,695,495 2,695,495 2,995,495
Balance sheet data:
Total assets ..................... 1,781,763 2,024,414 2,456,721 3,386,374
Total liabilities ................ 1,438,223 1,556,722 1,905,801 2,007,259
Stockholders' equity ............. 343,540 467,692 550,920 1,379,115
</TABLE>
2
<PAGE>
RISK FACTORS
This investment involves a high degree of risk. You should carefully
consider the following risk factors as well as all the information in this
prospectus before buying shares of Eldorado's common stock.
Because Water Available for Production May be Limited, We May Be Unable to
Acquire Enough Water To Satisfy Demand for Our Products and to Meet Our
Expansion Goals.
We do not have the right to use all the water which flows from our
springs. Persons downstream from us have water rights which must be satisfied in
full before we can use all the water from our springs. If there is not enough
water flow from the stream to satisfy the downstream water rights, we would have
to stop taking water from our springs. Under Colorado law, we can only avoid a
restriction on our use of the water flowing from our springs by acquiring
additional sources of water to meet the demands of downstream users. These
sources would replace the water we use from our springs and would be used to
satisfy the requirements of down-stream users. Therefore, unless we are able to
obtain replacement water sources to satisfy downstream water rights, our water
supply will be limited. Because we would always only bottle water from our
springs and would not use any additional water for our product, we may not have
enough water to meet demand for our products or to support our plans to expand
our business.
Our Ability to Expand Our Business is Restricted Because We Do Not Have a
Permanent Source of Replacement Water.
We do not have a permanent source of additional water to replace the
water we use from our springs in the event additional water is required to
satisfy the water rights of persons downstream from us. We lease rights to
additional water on a year-to-year basis. We believe that the lack of a
permanent source of replacement water will restrict our ability to implement our
plans for increasing our business.
For more details about our permanent replacement plan, see Use of
Proceeds on page 7 and Eldorado and its Business-Strategy on page 13.
Because We Are Significantly Smaller Than Our National Competitors, We May Not
Have The Financial Resources and Name Recognition to Capture Additional Market
Share.
We face significant competition in the bottled water industry from
national brands which can compete on a lower price basis and often are given
premium shelf space from the retailers. The trend in recent years in the bottled
water industry has been toward the development of national brands of natural
spring water. Barriers to entry increase significantly at the national level
because of large marketing and distribution costs associated with getting and
maintaining a presence at such distribution levels. In addition, many companies
are now bottling water exclusively for retailers. As a result, we face
significant hurdles to increasing our market share in the bottled water
industry. For more detailed information about our competitors and our
competitive strategy, see Eldorado and Its Business - Competition on page
17.
Our Inventory Levels May Not Be Sufficient to Fill Customer Orders Which Could
Reduce Revenues and Impair Customer Relations.
We maintain a limited amount of finished product inventory. If an event
caused our facilities to shut down, even for a short period, we might be unable
to fill customer orders, which could reduce revenues and damage customer
relations. For more detailed information about our competitors and our
competitive strategy, see Eldorado and Its Business-Strategy-Warehouse and
Distribution Facility on page 14.
Because Eldorado's Current Officers and Directors will Continue to Have Majority
Control of Eldorado after this Offering, They Will Control Matters Submitted for
Shareholder Approval if They act Together.
Our officers and directors currently own a total of about 80% of the
outstanding shares and after this offering will continue to own 65% of the
outstanding shares. These shareholders, individually and as a group, will be
able to influence the outcome of shareholder votes, including votes concerning
the election of directors and the approval of mergers and other significant
corporate transactions. If they act together, our officers and directors will be
in a position to control all matters requiring shareholder approval after the
offering.
The Sale of Other Shares of Our Stock May Reduce the Market Price of
Your Shares.
Sales of substantial amounts of common stock in the public market
following this offering could lower the market price of the shares you are
purchasing. It is likely that market sales of large amounts of our shares or
other shares after this offering, or the potential for those sales even if they
do not actually occur, will depress the market price of our shares.
3
<PAGE>
We cannot predict the effect that any such sales would have on the then
prevailing market price of our shares. See Shares Eligible for Future Sale, on
page 24, for a more detailed description of the shares that may be sold into the
market in the future.
As a Result of This Offering, the Value of Your Shares Will Be Diluted
Immediately.
Purchasers of shares in this offering will experience immediate
dilution of $4.68 per share or 78% of the offering price of $6.00 per share.
The Lack of An Established Trading Market and the Underwriter's Limited
Experience May Adversely Affect the Price of Your Shares.
You should consider the limited experience of Mills Financial Services,
Inc., the underwriter in this offering, in evaluating an investment in the
common stock. Mills Financial Services, Inc. was the lead underwriter in one
initial public offering finished in 1998. This offering was Mills' only
particiaption in a firm commitment offering. In addition, in 1994, Mills
Financial Services, Inc. attempted an initial public offering for another
company on a best efforts - minimum or none basis. Mills Financial Services,
Inc. was not successful in completing the minimum sales amount and the offering
was withdrawn. In addition, Mills Financial Services, Inc. has advised Eldarado
that it does not intend to make a market in our shares after the offering. In
the event that the underwriter's customers purchase a substantial percentage of
this offering, the decision by the underwriter not to make a market may
adversely affect the establishment and maintenance of a trading market by other
broker-dealers.
Before this offering there has been a limited and sporadic public
market for our common stock. We cannot assure you that a trading market for our
shares will exist or be maintained following the offering. You may not be able
to resell your shares if an active trading market does not develop. See Price
Range of Common Stock, on page 8, for more detailed information about the
trading market for our shares.
You may Have Difficulty Selling Your Shares if We Fail to List Our Common Stock
on the Nasdaq Small Cap Market Because of the Limited Trading Volume on the Over
the Counter Bulletin Board or if Our Stock Becomes Subject to the SEC's Penny
Stock Regulations.
If we cannot maintain the standards for continued listing on the Nasdaq
Small Cap Market, our common stock could be subject to delisting. Trading, if
any, in our common stock would then be conducted in the over-the-counter market
on the OTC Bulletin Board or in what are commonly referred to as the pink
sheets. As a result, you may find it more difficult to sell your shares or to
obtain accurate quotations as to the price of our shares.
In addition, if our shares were delisted from the Nasdaq Small Cap
Market, our common stock could become subject to the penny stock rules of the
SEC. These rules impose additional sales practice requirements on broker-dealers
before our stock could be sold to the customers of the broker-dealers. The
additional sales practice requirements could materially adversely affect the
willingness or ability of broker-dealers to sell our common stock. This would
reduce the market liquidity for our shares and therefore adversely affect your
ability to sell shares in the secondary market.
Because The Offering Price Was Arbitrarily Set Price Higher Than Recent Trades,
the Price of Your Shares May Decrease and Be Subject to Volatility.
The public offering price of the shares being sold in this offering
resulted from negotiations between Eldorado and the underwriter. The price was
not based on selling prices in the public market for our common stock as
4
<PAGE>
is normally the case with a second offering of stock by a public company. Since
the offering price is not based on trading of our common stock, the market for
the common stock after the offering may be volatile. In particular, the offering
price is not based upon the $2.75 sales price for 300,000 shares in a private
offering in April 1998 or upon a recent trading price of our common stock of
$4.25 on April 15, 1999. See Underwriting, on page 26, for a description of the
factors used to determine the offering price.
Effects of the Year 2000 Could Adversely Impact Future Business
An assessment of our year 2000 exposure includes an analysis of third
party supplier information systems and production facilities to see if they will
be able to handle the affects of the year 2000. We have not yet determined if
our suppliers have systems that will handle the year 2000 problem. If we decide
that any supplier relationship is unsatisfactory based on the supplier's lack of
ability to deal with the year 2000 issue, we will look elsewhere for a supplier.
No assurance can be made that we will be able to find another supplier with
similar terms and pricing. Please see Management Discussion and Analysis of
Financial Condition and Results of Operation - Year 2000 Compliance Issues, on
page 11, for a more detailed discussion.
5
<PAGE>
FORWARD-LOOKING INFORMATION AND ASSOCIATED RISKS
This prospectus contains forward-looking statements, and statements
regarding, among other things, our growth strategy, expected trends in the
industry in which we operate, water availability and our ability to enter into
contracts with distributors. These forward-looking statements are based largely
on Eldorado's expectations and are subject to a number of risks and
uncertainties, which may be beyond our control. The forward-looking statements
included in this prospectus are based on current expectations that involve a
number of risks and uncertainties that might negatively affect Eldorado's
operating results in the future. 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 purchase additional water rights;
- labor and marketing costs;
- operating and packaging costs;
- intensity of competition;
- legal claims; and
- the contingencies associated with year 2000 compliance.
Actual results could differ from these forward-looking statements as a
result of the factors described in this prospectus, or other regulatory or
economic influences. In light of these risks and uncertainties, we cannot assure
that the forward-looking statements in this prospectus will in fact transpire or
prove to be accurate.
ADDITIONAL INFORMATION
Eldorado is subject to the reporting requirements of the Securities
Exchange Act of 1934 and files quarterly and annual reports, proxy statements
and other information with the SEC. Eldorado intends to furnish its shareholders
with annual reports containing audited financial statements and such other
periodic reports as Eldorado considers appropriate or as may be required by law.
You may read and copy any materials Eldorado files with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may get information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC. The address of the site is http://www.sec.gov.
Eldorado maintains an internet site at http://www.eldoradosprings.com.
Eldorado has filed a registration statement on Form SB-2 with the
office of the SEC in accordance with the provisions of the Securities Act. This
prospectus does not contain all the information included in the registration
statement. Certain parts have been omitted as permitted by the registration
statement rules and regulations of the SEC. For further information with respect
to Eldorado and the offered shares, refer to the registration statement and the
accompanying exhibits. Statements in this prospectus concerning the provisions
of any document are not necessarily complete and you should refer to the copy of
the document for more information filed as an exhibit to the registration
statement. The registration statement and the exhibits may be inspected or
copied, without charge, from:
Public Reference Section Public Reference Section
Securities and Exchange Commission Midwest Regional Office
Judiciary Plaza or 500 West Madison Avenue
450 Fifth Street, NW, Room 1024 Room 1400
Washington, DC 20549 Chicago, Illinois 60661-2511
6
<PAGE>
USE OF PROCEEDS
The net proceeds to Eldorado from the sale of the shares offered in
this prospectus will be $3,515,000, assuming a per share offering price of $6.00
and deducting the underwriting expenses and other expenses of the offering
estimated at $685,000. We expect that we will use the net proceeds of this
offering during the next twelve month period as follows:
<TABLE>
<CAPTION>
Approximate
Description Dollar Amount Percent
------------------------------------------------------------ ---------
<S> <C> <C>
Water rights.................................. $ 680,000 19.3%
Offsite facilities............................ 750,000 21.4%
Onsite improvements........................... 600,000 17.1%
Marketing expenses
Advertising fees and broker commission.... 370,000 10.5%
Media campaign............................ 200,000 5.7%
Special events and promotions............. 120,000 3.4%
Slotting fees and in-store promotions..... 315,000 9.0%
Other marketing expenses.................. 245,000 7.0%
Additional working capital.................... 235,000 6.6%
--------------- ---------
TOTAL......................................... $ 3,515,000 100%
</TABLE>
This represents Eldorado's present intention with respect to the use of
the offering proceeds. Capital requirements or business opportunities, which are
not currently expected, could cause management to elect to use proceeds for
other general corporate purposes and for other purposes not contemplated at this
time. Until we use the net proceeds, we will invest them in money market
accounts and short-term certificates of deposit. Management believes that cash
flow from operations, together with the net proceeds of this offering, will meet
Eldorado's cash requirements for at least the next 12 months.
If the underwriter exercises its overallotment option, any additional
proceeds will be used for working capital and general corporate purposes. See
Eldorado and Its Business - Strategy, on page 14, for more detailed information
about Eldorado's planned use of proceeds, including specific application of the
amounts described above and the time frame over which Eldorado will use the
proceeds.
DETERMINATION OF THE OFFERING PRICE
The public offering price of the shares has been determined between
Eldorado and the underwriter. Eldorado and the underwriter considered, in
addition to prevailing market conditions, Eldorado's historical performance,
estimates of the business potential and earnings prospects of Eldorado and an
assessment of Eldorado's management.
7
<PAGE>
PRICE RANGE OF COMMON STOCK
Eldorado's common stock is traded in the over-the-counter market on the
OTC Bulletin Board. The quotations presented below reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions. The following table sets forth for the periods
shown, the quotations for the common stock:
Calendar 1999 High Low
------------ -----------
First quarter through March 31, 1999...... $ 3.25 $0.63
Second quarter through June 30, 1999...... 2.50 1.06
Third quarter through July 24, 1999....... 1.75 1.25
Calendar 1998
First quarter through March 31, 1998...... 2.64 0.48
Second quarter through June 30, 1998...... 2.50 0.25
Third quarter through September 30, 1998.. 0.75 0.50
Fourth quarter through December 31, 1998.. 0.63 0.50
Calendar 1997
First quarter through March 31, 1997...... -- --
Second quarter through June 30, 1997...... 0.12 0.12
Third quarter through September 30, 1997.. 1.08 0.72
Fourth quarter through December 31, 1997.. 1.08 0.84
The latest closing bid quotation of the common stock, as reported by
Nasdaq, was $4.25 per share on April 15, 1999. As of June 15, 1999, there were
95 record holders of the common stock, which does not reflect shareholders who
own their shares in nominee or street name through their brokers. For the first
quarter of 1997, there was no bidding information. For the period June 1, 1997
through July 31, 1998, only one market maker posted quotes for the common stock.
Eldorado has not paid cash dividends in the past and does not intend to
pay cash dividends in the future. Eldorado presently intends to keep earnings
for use in its business, with any future decision to pay cash dividends
dependent upon Eldorado's growth, profitability, financial condition, and other
factors as decided by the board of directors.
8
<PAGE>
DILUTION
At March 31, 1999, Eldorado had outstanding a total aggregate of
2,995,495 shares of common stock. The aggregate net tangible book value of these
shares was $1,179,788 or about $.39 per share. Net tangible book value per share
consists of total assets less intangible assets and liabilities, divided by the
total number of shares of common stock outstanding.
The pro forma net tangible book value of the common stock at March 31,
1999 would be $4,894,115, or about $1.32 per share. This gives effect to the
sale of 700,000 shares of common stock at an assumed public offering price of
$6.00 per share and receipt of the net proceeds of the offering. This represents
an immediate increase in pro forma net tangible book value of $0.93 per share to
the present shareholders and an immediate dilution of $4.68 per share to the
public purchasers. The following table illustrates the dilution which investors
participating in this offering will incur and the benefit to current
shareholders as a result of this offering:
<TABLE>
<S> <C> <C>
Assumed public offering price per share......................................... $6.00
Net tangible book value per share before offering....................... $0.39
Increase per share due to offering...................................... .93
-------
Pro forma net tangible book value per share after offering...................... 1.32
----------
Dilution of net tangible book value per share to purchasers in this offering.... $4.68
==========
Dilution per share as a percentage of offering.................................. 78.0%
</TABLE>
CAPITALIZATION
The following table sets forth the capitalization of Eldorado as of
March 31, 1999, and as adjusted, to give effect to the receipt of the net
proceeds of this offering based upon the assumed public offering price of $6.00
per share.
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------
Actual As Adjusted
------------- --------------
<S> <C> <C>
Long term debt (including current maturities) $1,584,721 $1,584,721
------------- --------------
Stockholders' equity
Common stock, $0.001 par value; authorized-50,000,000 shares; 2,995 3,695
issued and outstanding- 2,995,495 actual; and 3,695,495 as adjusted
Additional paid-in capital................................... 984,656 4,498,956
Retained earnings............................................ 391,464 391,464
------------- --------------
Total stockholders' equity................................. 1,379,115 4,894,115
------------- --------------
Total capitalization....................................... $2,963,836 $6,478,836
============= ==============
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Comparison of Fiscal Years Ended March 31, 1999 and 1998
- --------------------------------------------------------
Revenues: 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.
Gross Profit: 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. Eldorado has received more favorable purchasing agreements
because of the ability to buy goods in larger volumes.
Operating Expenses: 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 (Expense): 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.
Net Income and Comprehensive Income: 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.
Comparison of Fiscal Years Ended March 31, 1998 and 1997
- --------------------------------------------------------
Revenues: Revenues increased 25.9% to $3,329,444 for the year ended
March 31, 1998 from $2,644,521 for the same period in fiscal 1997. This increase
is primarily due to the increased volume of the 5 gallon products to existing
customers as well as sales to new customers. Industry averages in the entire
bottled water market were up between 9% and 10% in 1997 by trade analysts.
Gross Profit: Costs of goods sold increased 20.7% from $415,263 in
fiscal 1997 to $501,288 in fiscal 1998. This resulted in gross profits of
$2,828,156 for fiscal 1998 versus $2,229,258 for fiscal 1997. As a percent of
sales, gross profit increased to 84.9%, in fiscal 1998, from 84.3%, in fiscal
1997. This increase is primarily due to the increased sales of the 5 gallon
product and the addition of more efficient bottling equipment.
Operating Expenses: For the fiscal year ended March 31, 1998 total
operating expenses were $2,568,571 and for the fiscal year ended March 31, 1997
total operating expenses were $1,931,736, an increase of $636,835 or 33.0%. As a
percent of sales, operating expenses increased to 77.2% in fiscal 1998 from
73.1% in 1997. This is primarily due to the increase in advertising and
promotional expenses and selling and delivery expenses in nine months for new
accounts as well as establishing brand name awareness in the highly competitive
bottled water market. Increases in salaries and wages were 32.7% for the year
ended March 31, 1998. This increase is due in part to the additional commissions
for the new revenues generated. Part of the increase is also due to an across
the board pay increase, for all employees, that became effective January 1998.
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Interest Income and Expense: Interest expense increased $31,495 for the
year ended March 31, 1998. The increase in interest expense was a result of
increased levels of debt acquired to finance additional machinery and equipment.
Interest income was not material.
Net Income and Comprehensive Income: Eldorado's net and comprehensive
income decreased from $124,152 in fiscal 1997 to $83,228 in fiscal 1998 due to
the previously described operations.
Liquidity and Capital Resources
Eldorado has a bank line of credit of $500,000 which is 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 Eldorado's assets. There was no outstanding balance at
March 31, 1999.
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, Eldorado completed a private placement of 300,000
shares of common stock at $2.75 per share. Eldorado received proceeds, net of
offering costs, of approximately $690,000 from the private placement. In
connection with the offering, Eldorado 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, Eldorado issued a warrant to purchase 250,000
shares to Mills at an exercise price of $11.00 per share.
Eldorado 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, Eldorado utilized the proceeds to increase advertising and promotional
activities.
On May 19, 1998, Eldorado registered 875,000 shares of common stock
pursuant to the 1997 stock option plan. The plan provides for the grant of stock
options to employees, directors and consultants. As of March 31, 1999, 493,000
options were outstanding, of which 111,000 are fully vested. Of the options
outstanding, 343,000 were issued on May 26, 1998 and 150,000 were issued on
December 7, 1998, with an option price of $2.75 per share, which represents the
fair market value at the date of the grant as determined by the board of
directors. 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 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.
In expectation of potential year 2000 problems, Eldorado has begun to
replace and upgrade its management information systems to be year 2000
compliant. We expect to finish this process by the quarter ending June 1999.
Eldorado has consultants to coordinate successful system implementation,
including testing of year 2000 related problems. Testing for year 2000
compliance will continue throughout 1999. Eldorado presently
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believes that with successful system conversions, the year 2000 issue will not
pose significant operational problems for its systems. However, although
Eldorado'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.
Eldorado expects that assessment, remediation and contingency planning
activities for its internal systems will be ongoing through 1999. We currently
expect the total cost for these activities to be about $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 many 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 expected.
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.
Eldorado intends to get written verification 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.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130), which establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards are components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements. Currently, Eldorado'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 Eldorado's
1999 fiscal year end financial statements and, as a reporting standard, SFAS No.
130 will have no impact on Eldorado's financial position or results of
operations.
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 decided. Currently, Eldorado only
has one significant operating segment. Therefore, this pronouncement poses no
significant changes in Eldorado's reporting methods.
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ELDORADO AND ITS BUSINESS
Eldorado bottles, markets and distributes non-sparkling natural spring
water to regional and national customers. Eldorado and the spring are located at
the base of a six hundred foot deep canyon in Eldorado Springs, Colorado. The
history of Eldorado Springs dates back generations. The property was developed
in 1905 as a Colorado resort that attracted famous guests from across the
country.
The artesian springs which are located on Eldorado's property flow from
a unique geologic source. The source of Eldorado's water is rain and snow which
has fallen on the Continental Divide in the Rocky Mountains and which then
passes through multiple geologic formations and aquifers before finally reaching
the surface at Eldorado. Due to this circulation process, the resulting spring
water is renowned as being from a pure, natural artesian spring.
In 1983, Messrs. Larson, Sipple and Martin bought the Eldorado Springs
property from the founders of the resort. Eldorado operated as a private company
until 1986 when it merged with Lexington Funding, Inc. Eldorado has focused on
developing and expanding the business of bottling Eldorado Spring water.
Eldorado bottles the water at the source in PET bottles and 3 and 5 gallon
bottles. Eldorado has expanded the business by focusing its marketing efforts on
the 5 gallon delivery business. As this business has grown and gained in
profitability, management has had the chance to introduce the PET bottles to
grocery retailers and these products have gained significant market shares among
the large retail grocery chains. Current retail market shares for Eldorado's PET
bottles range from 3% to 29%, depending on the size of the bottle.
Eldorado has met all FDA requirements for the labeling of its water as
natural and bottled at the source. Bottled at the source signifies that the
water is pumped directly from the source to the bottling facility. This removes
handling and transportation procedures which might lead to contamination.
Natural signifies that the chemical composition and mineral content of the
bottled water are the same as those at the source. This contrasts with purified
water, from which certain chemicals and minerals are removed by filtration.
Eldorado's goal is to become a leading provider of premium quality
bottled water on a national level. Eldorado's strategy includes:
- increasing sales to existing customers;
- broadening its current customer base;
- expanding its product line;
- establishing distributor relationships;
- establishing strategic distribution alliances with other national
beverage companies.
Industry Overview
- -----------------
The bottled water industry is considered by many analysts to be the
fastest growing major market in the beverage industry. The bottled water
industry has exhibited consistent annual growth over the last twenty years and
grew at a rate of 9% to 10% for 1997. According to a major reporter of bottled
water statistics, bottled water sales increased to a $3.9 billion dollar
business. Along with sales and volume, per person consumption has increased to
nearly 13 gallons, up from 11.7 gallons in 1996. Driving the market's growth is
the premium PET bottle segment which was up 30% in 1997, accounting for
two-thirds of the market's overall growth. In 1981, bottled water consumption
represented 1.8% of the U.S. consumption of total beverage sales. In 1997, that
percentage had increased to 6.9%. Non-sparkling water comprises over 87% of the
U.S. bottled water market and generated $3.4 billion of wholesale sales in 1997.
PET bottles sales in 1997 reached $930 million and the segment is expected to
double in 3 years.
The bottled water industry is generally broken down into two segments:
sparkling and non-sparkling waters. Non-sparkling waters dominate the industry
with an estimated 87% share of total market volume. Non-sparkling water
gallonage has in fact realized uninterrupted growth every year since statistics
have been kept on the bottled water industry when a major industry analyst began
following this market in 1977.
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Strategy
- --------
Eldorado's goal is to expand its operations based on the continued
success of its PET bottled water products. Eldorado's plan consists of multiple
phases that ultimately are targeted to expand distribution of Eldorado's retail
products to regional and national markets. Aspects of Eldorado's strategy,
utilizing the proceeds of this offering, include the following:
Our current production uses about 3,200,000 gallons from the springs.
Because we only sell water bottled from our springs, we believe that to
implement our business plan, it is necessary for us to acquire water rights
which will permit us to use substantially more water from our springs.
Therefore, we seek to acquire rights to water which also flows into the same
stream system to which our spring water would flow if not bottled by us. By
acquiring rights to this additional water, we would increase our right to use
our own spring water by close to an equal amount. We have entered into an
agreement that provides us the option to buy water that we believe meets these
quantity and availability requirements. If we decide to complete this purchase,
it will require a cash payment to the seller of $680,000. More detail of this
transaction and our other water rights is discussed in Eldorado and Its
Business-Water Rights, on page 16.
Additional Facilities and Improvements. Eldorado has plans to improve
its production facilities and increase its production capacity to facilitate
expansion into new geographic markets. Over the next two years, plans initially
call for remodeling the warehouse and adding additional office space. Additional
improvements of the area surrounding the warehouse will modernize the current
facilities and services.
Warehouse and Distribution Facility. Eldorado will need additional
off-site warehouse facilities to store raw materials and finished goods awaiting
delivery to the regional warehouses of its customers. Within the next two years,
Eldorado plans to buy or construct a warehouse in the Denver, Colorado area and
relocate the distribution operations to that facility. This would provide
Eldorado with the additional warehouse space to accommodate the future growth of
the delivery and retail business.
Plastics Molding Facility-Molds. The second phase of the warehouse
facility would be to operate a plastics facility for the PET bottles. This would
include the equipment and the molds for the Eldorado brand. This facility can be
included into the warehouse/distribution facility. This would provide Eldorado
with a more stable supply of the PET bottles and insure availability of the
products in the future.
Marketing Expenses. Eldorado believes that building its brand awareness
and consumer loyalty will allow Eldorado to expand distribution. Utilizing the
proceeds from the offering, Eldorado intends to hire advertising experts and
agencies to establish brand awareness and corporate image through media
campaigns and special events. Proceeds will also be used for slotting fees and
in-store promotions.
Enter New Distribution Channels. Eldorado's chance for growth lies in
the ability of Eldorado to expand into additional distribution channels. This
would involve agreements with distributors in the Colorado area. In addition,
Eldorado may try to acquire other companies currently involved in the 5 gallon
distribution business. This will allow Eldorado to build brand awareness and
consumer loyalty by incorporating current operating procedures and sales
strategies into the acquired companies. Any acquisitions will need additional
debt or equity financing. At this time, Eldorado has no agreements or
understandings to acquire additional companies.
Consumer Trends
- ---------------
Much of the demand for bottled water is driven by consumer demand for
pure, quality bottled water. The growth in consumption of non-sparkling water is
attributed to consumer trends, including increased health and fitness awareness,
concerns for municipal tap water quality and demand for convenience and
innovative packaging. Generally, bottled water is perceived as being a natural,
caffeine and sodium free beverage at a time when more and more consumers are
health conscious. These attributes and the increased availability of convenient
packaging for natural spring water have contributed to the increase in bottled
water consumption. The perception of bottled water has increased the demand for
this product. The bottled water industry is considered by many analysts to be
the fastest growing major market in the beverage industry.
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The introduction of bottled water in convenience packaging has recently
driven the explosive growth of the retail segment of the bottled water market.
This market has been driven by manufacturers who have begun bottling their water
in smaller, more portable sizes, which are sold at retail and which are intended
to fit the active lifestyles of bottled water consumers. Manufacturers have
created a new subsegment of the bottled water market that is now growing at a
30% rate for water in 1.5 liters bottles and smaller.
Consolidation
- -------------
The bottled water industry as a whole remains highly fragmented with
over 780 companies in the industry. Recent consolidation in the industry has
created six large bottled water companies that, when combined, account for
roughly 50% of industry sales. These six companies are composed of over 25
different brands of water with no single brand accounting for more than 7.6% of
total bottled water sales. Based on 1997 wholesale figures from a major industry
analyst, the top 10 companies in the industry range in sales from $1,104 million
for Perrier Group to $41 million for AquaPenn which has since been purchased by
Dannone.
Products
- --------
Historically, sales of Eldorado's water have been made by selling 5
gallon bottles of water directly to home and business customers. More recently,
Eldorado began selling its water at wholesale to retail grocery food stores with
Eldorado's water packaged in smaller, more convenient sizes which are suitable
for retail distribution. The products offered by Eldorado and their respective
target markets are listed below:
Product Target market
------- -------------
Five gallon bottles and three gallon bottles Home/commercial delivery
One gallon bottles Retail food stores
PET consumer packaging Retail food stores
Distribution Channels
- ---------------------
Home/Commercial Delivery Business The delivery market, generally
consisting of the delivery of 5 gallon bottles of water to residential and
commercial customers, provided the greatest amount of growth for the industry
throughout the 1970's and the 1980's. Direct delivery of bottled water to homes
and businesses has historically been the focus of Eldorado's business.
Eldorado's bottled water delivery business primarily consists of the sale of 5
gallon containers of water to customers who lease water dispensers from
Eldorado. Eldorado delivers these 5 gallon bottles directly to customers using
its own fleet of trucks. Delivery sales are made primarily in the Denver/Boulder
metropolitan area, but also include selected other cities along the front range
in Colorado. Currently, Eldorado has about 10,000 active delivery accounts and
the delivery business currently accounts for about 80% of Eldorado's revenues.
PET Packaging/Retail Distribution Business Sales of bottled water
through retail grocery outlets has become an increasingly important channel of
distribution for bottled water. Historically, retail outlets have sold bottled
water in one and two gallon containers. While the delivery segment of the
bottled water market was the chief driver of bottled water growth in the 1980's,
the 1990's became the decade of the PET bottles sold at retail. In 1994,
Eldorado introduced its water packaged in convenient consumer-sized or PET
bottles. The first PET product introduced was the 1.5 liter bottle. This product
was followed, in 1995, with 1.0 liter and 0.5 liter bottles.
The sale of Eldorado's artesian spring water in PET bottles consists of
the wholesale distribution of PET products to grocery store chains for retail
sales located primarily in Colorado. Eldorado uses its own trucks to deliver its
PET water products to grocery chain warehouses in the Denver metropolitan area.
From there, Eldorado's water is shipped to grocery stores throughout Colorado.
In addition, because some of the grocery chains distribution extends beyond
Colorado, Eldorado's products are sold in grocery stores which are located in
New Mexico, Wyoming, Kansas, Oklahoma and Texas.
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The key retail customers for Eldorado's PET products include Kroger's,
the largest grocery chain in Colorado, and Rainbow Natural Foods, one of the
largest wholesale food distributors in the state. Eldorado's product is also
sold to retail customers at Safeway and Albertsons stores.
Bottling
- --------
Eldorado's artesian spring water is bottled naturally at Eldorado's
bottling facilities located at the source. Eldorado does not chemically treat
the water and no chlorine, fluoride, calcium or other minerals or chemicals are
added to, and nothing is removed from, the water during the bottling process.
Eldorado's bottling facilities are located on a portion of about 26
acres of land owned by Eldorado in Eldorado Springs, Colorado. Eldorado's
bottling process uses several quality control precautions built in to keep
product integrity. The spring water is bacteria free as it emanates from the
earth due to the fact that the water is naturally lightly carbonated. The spring
water originates 70 feet from the bottling plant and travels through an entirely
closed system. Once at the plant, the water passes through a protective filter
and an ultra-violet light which is required by local government regulations to
safeguard against any contamination. The water is then treated with ozone for
further protection against bacteria.
The bottling process is conducted in a separate, sanitized fill room,
where the bottles are filled utilizing a closed system. While still in the fill
room, the bottles travel a few inches to the capper where they are sealed with a
tamper evident plastic closure. The sealed bottles then exit the fill room and
are labeled and date coded. They are then packaged in reshipper cases that are
also date/run coded to assist in disaster recall planning. At no time in the
bottling process is anything added to or removed from the water so that
Eldorado's product is bottled naturally at the source.
With regard to the bottling process and Eldorado's facilities, it
should also be noted that Eldorado recently added significant pieces of new
equipment that will increase production efficiencies. Specifically, Eldorado
added new filler/capper, case packer, bottle rinser, 3 and 5 gallon bottle
stacker/racker, and bottle sorter to its production line. By adding this
equipment, Eldorado expects that it will realize significant labor savings over
its previous production cost structure.
Water Rights
- ------------
When Eldorado's founders bought the property in 1983, included in the
purchase were certain water rights for Eldorado. These water rights were decreed
by the District Court, Water Division No. 1 in Greeley, Colorado, on July 11,
1973. In that decree, the court decided that our water rights would allow us to
withdraw water from several points on our property with priority dates ranging
from December 1901 to December 1960. At that time, the court also decided that
all water from the springs and wells on our property was tributary to the South
Boulder Creek stream system. Under Colorado law, we have the right to
beneficially use all the water physically available from the springs and wells
on our property, if all downstream users with priority dates before ours are
being satisfied with water available in the stream system. In the event these
downstream users are not being satisfied with water in the stream system, we
would have to stop using our water and let it flow downstream, or we could
provide replacement water to the stream from an additional source.
We currently lease water, to be used for replacement purposes, from an
organization with other water sources, on an annual basis. That organization
then makes water available to the stream system at various locations on behalf
of their subscribers as may be needed to replace water being used.
To remove this year to year uncertainty, we are taking steps to acquire
ownership of our own source of replacement water. We have signed an agreement
with the owner of a reservoir that gets water from and can return water to the
South Boulder Creek stream system. This agreement would allow us to buy water
from another source and place it into the reservoir by a pipeline. There the
water would be stored in the stream system until needed by downstream users. At
that time the owner of the reservoir would release enough water into the stream
system to replace what we use. It is expected that these releases would be done
at locations on the stream system that would allow for an almost gallon for
gallon exchange. We estimate our costs to include about $20,000 per year for
operation and upkeep charges and a one time fee of about $500,000 for the
operation of the reservoir. Our
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agreement provides that the $500,000 fee will be paid with $150,000 down and the
balance payable in ten equal annual installments, including principal and
interest at the rate of 9% per year.
Under the terms of the agreement, approval of our inclusion within the
boundaries of the Northern Colorado Water Conservancy District may be required.
It is expected that such approval or denial would be known by December 31, 1999.
Our use of this water as a replacement source will also need a decree from the
water court. This process requires that we file a request for such decree with
the court. Other water users then have time for objections. If any issues or
objections remain after negotiations with the objectors, the matter then
proceeds to court where, after trial, a decision is made. It is expected that
this process could take from 12 to 30 months. We expect to file this request
within ninety days of the determination of our inclusion in the Northern
Colorado Water Conservancy District.
If all district and court decisions are favorable, this new source of
water for stream flow replacements could enable us to bottle up to 32 million
gallons of water per year without the threat of having to stop operations. We
currently bottle about 3,200,000 gallons per year of the spring's annual flow
rate of 105,000,000 gallons.
Marketing
- ---------
Eldorado focuses on three major areas in marketing its products: 3 and
5 gallon sales, small PET package product sales, and brand name
recognition.
The 3 and 5 gallon products are sold primarily 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 sold through retail chain stores are effectively
marketed by using point of purchase offers or incentives to gain new trial,
usually in the form of discounts.
Eldorado tries to build brand name awareness by sponsoring or
participating in many local events. Eldorado Artesian Springs has sponsored the
Boulder, Colorado July 4th Fireworks celebration, Eldorado Springs Cancer
Research Run, 1999 World Alpine Ski Championship and takes part in many other
local events.
Supplies
- --------
Water bottled by Eldorado comes from springs located on Eldorado's
property which have been flowing for many years. Eldorado 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. Management has expected these shortages by implementing
plans to inventory sufficient safety stocks and not interrupt production.
Seasonality of Business
- -----------------------
Sales tend to be seasonal in the bottled water business. A 10 to 15%
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. Eldorado's
competitors include more diversified companies, having substantially greater
assets and larger sales organizations than Eldorado, as well as other small
companies. Eldorado competes on the basis of customer service, product quality
and price. Management believes that the products' superior taste, competitive
pricing and attractive packaging are significant factors in maintaining
Eldorado's competitive position.
Environment
- -----------
Eldorado's bottling operations are subject to regulation by the Food
and Drug Administration. These regulations are administered by the Colorado
Department of Public Health and Environment Consumer Protection
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Division. An independent, state-approved laboratory conducts weekly product and
source bacteriological tests and annual inspections.
Eldorado 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
Eldorado 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 needed for this operation and is tested by
independent labs.
Additionally, Eldorado operates the company's public swimming pool
which is regulated by Colorado. These regulations are administered by the
Boulder County health department and require daily testing by Eldorado and
periodic inspections by the health department.
Other Businesses
- ----------------
Eldorado's principal business is bottling and selling spring water.
Eldorado also owns and operates a swimming pool on its property during the
summer months. This part of the business accounts for about 2 to 3% of total
revenues. Eldorado also owns rental units on the property and supplies water to
some of the residential homes in Eldorado Springs. This part of the business
accounts for about 2% of revenues. Neither of these businesses represent a
significant part of Eldorado's results of operations.
Employees
- ---------
Eldorado employs 47 full-time employees, 2 part-time employees and 14
seasonal employees during the summer resort months.
Properties
- ----------
Eldorado owns about 26 acres of land in Eldorado Springs, Colorado. In
addition to real property, wells and springs, and water rights, Eldorado owns a
bottling plant, including building and bottling equipment, three buildings with
a total of 2,000 square feet of office space, seven single family homes, a
mobile home park with a maximum of 12 spaces, and an outdoor swimming pool which
are located on the property. Eldorado uses the total production and warehousing
space of about 12,000 square feet. Eldorado also leases 14 delivery trucks for
use in its delivery business. Most of the buildings were built in the 1950's and
improvements have been made over the years to keep the buildings up to current
standards. Eldorado's bottling equipment and vehicles are less than ten years
old and are in good working condition.
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<PAGE>
MANAGEMENT
The following table includes information about the directors and
executive officers of Eldorado. Directors serve for one year terms. Each
director is also a nominee for election to the board of directors.
<TABLE>
<CAPTION>
Tenure as Officer
Name Age Position(s) or Director
---- --- ----------- -----------
<S> <C> <C> <C>
Douglas A. Larson* 44 President and Director 1986 to present
Kevin M. Sipple 43 Vice President, Secretary and 1986 to present
Director
Jeremy S. Martin 44 Vice President and Director 1986 to present
Robert E. Weidler 53 Vice President 1998 to present
Cathleen M. Collins 30 Chief Financial Officer 1998 to present
George J. Schmitt* 67 Director 1998 to present
Don P. Van Winkle* 42 Director 1998 to present
*Audit Committee Member.
</TABLE>
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 stockbroker 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 and 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
19
<PAGE>
advisory services to a wide range of companies including 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,
Colorado and Fresh Produce Sportswear, Inc. in Boulder, Colorado. He holds a
Bachelor of Science Degree in Finance from New Mexico State University.
Committee of the Board of Directors
The board of directors has elected Messrs. Larson, Schmidt and Van Winkle
to the audit committee which will serve until the next annual meeting. Among
other functions, the audit committee will make recommendations to the board of
directors regarding the selection of independent auditors. The committee will
also review the results and scope of the audit and other services provided by
Eldorado's independent auditors. In addition, the committee will review
Eldorado's financial statements and review and evaluate Eldorado's internal
control functions.
Compensation of Outside Directors
Each outside director receives compensation totaling $1,000 for each
annual or special meeting of the board he attends in person or by qualified
electronic means. In addition, each outside director will receive compensation
totaling $500 for each committee meeting he attends in person or by electronic
means. On December 7, 1998, Eldorado granted a total of 150,000 ten-year options
to its outside directors which are exercisable at $2.75 per share. Assuming the
outside directors remain directors of Eldorado, the options vest at the rate of
25% each year beginning one year after the date of grant.
In addition, if Eldorado engages an outside director as an independent
consultant, for such duties and responsibilities as the president determines,
the outside director will be compensated at the rate of $150 per hour, plus
nominal travel expenses as agreed upon if needed.
There are no family relationships between any directors or executive
officers of Eldorado.
Summary Compensation Table
The following table sets forth the compensation of Eldorado's President,
Douglas A. Larson, for the fiscal years ended March 31, 1997, 1998 and 1999 No
executive officer receives annual compensation in excess of $100,000 per year.
Annual Compensation
<TABLE>
<CAPTION>
Other Annual
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Douglas A. Larson, President 1999 $77,759 -- $13,107
1998 66,832 -- 9,848
1997 71,524 -- 4,690
</TABLE>
Other annual compensation in the table above includes, for the fiscal
year ended March 31, 1999, $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.
In 1992, Eldorado went through a restructuring of debt. The lender
offering the debt would not assume all corporate debt outstanding. To finish the
restructuring, a part of Eldorado's debt was replaced by Mr. Larson, who assumed
this obligation personally and his salary was increased from 1992-1997 to cover
the cost of the note.
20
<PAGE>
Stock Option Plan
On September 10, 1997, Eldorado adopted a stock option plan which set
aside 875,000 shares for the grant of stock options. Of this amount, no more
than 300,000 non-statutory options may be granted in the one year after the
completion of this offering. There is no limit on the number of incentive stock
options that may be granted during the one year after the completion of this
offering. The stock option plan is administered by the board of directors.
All officers, employees and directors of Eldorado and any subsidiaries
are eligible to receive options under the stock option plan. The stock option
plan will terminate by its terms on September 10, 2007, and may be terminated at
any time by the exercise of all outstanding options.
Options granted may be exercisable for up to ten years. If any options
granted under the stock option plan expire, terminate or are canceled for any
reason without having been exercised in full, shares reserved for those options
will again be available for the purposes of the stock option plan. The purchase
price of the common stock under each option will not be less than the fair
market value of the common stock on the date on which the option is granted. The
option price is payable either in cash, by the delivery of shares, or a
combination of cash and shares.
Options will be exercisable immediately, after a period of time or in
installments at the discretion of the board of directors. Options will
terminate no later than the expiration of ten years from the date of grant, or
will terminate due to the end of service. Where termination of service is due
to retirement or death, options may be exercised for an additional period of
time following such termination of service. Otherwise, the option may be
exercised only while the employee remains in the employ of Eldorado or one of
its subsidiaries.
As of March 31, 1999, 493,000 options were outstanding, of which 111,000
are fully vested. Of the options outstanding, 343,000 were issued on May 26,
1998 and 150,000 were issued on December 7, 1998, with an option price of $2.75
per share, which represents the fair market value at the date of the grant as
determined by the board of directors. 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. Eldorado will not grant
options in excess of 15% of its outstanding shares for the one year period after
the closing of this offering.
Profit Sharing Plan
Eldorado 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 Eldorado
and the employees vest immediately. Eldorado matches 100% of employee
contributions, up to 3% of employee gross pay. Eldorado matched approximately
$24,000 during the year ended March 31, 1999 and $13,000 during the year ended
March 31, 1998. No profit sharing contributions were approved by the board of
directors for the years ended March 31, 1999 and 1998.
21
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to Eldorado
regarding the beneficial ownership of Eldorado's common stock at the date of
this prospectus and adjusted to reflect the sale of the common stock offered in
this prospectus. The table includes:
- each person known by Eldorado to beneficially own more than 5% of
Eldorado's common stock;
- Eldorado's directors; and
- the officers and directors of Eldorado as a group.
<TABLE>
<CAPTION>
Percent Owned
----------------------------------------------
Number of Before After
Name and Address of Beneficial Owners Shares Offering Offering
- ----------------------------------------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Kevin M. Sipple 763,674 25.4% 20.6%
43 Fowler Lane
Eldorado Springs, CO 80025
Douglas A. Larson 775,073 25.9% 21.0%
12 Baldwin Circle
Eldorado Springs, CO 80025
Jeremy S. Martin 771,060 25.7% 20.9%
2707 - 4th Street
Boulder, CO 80302
George J. Schmitt 0 --- ---
11 Castle Pines North
Castle Rock, CO 80104
Don P. Van Winkle 0 --- ---
1600 Indian Wells
Alamogordo, NM 88310
All Officers and Directors as a Group, 7 persons 2,401,807 80.2% 65.0%
</TABLE>
- ---------------
Mr. Larsons's shares include options to buy 9,200 shares held by his spouse. The
shares owned by all officers and directors as a group include options to buy
46,000 shares each, held by Ms. Collins and Mr. Weidler.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the three years ended March 31, 1999, there were no transactions
in which the amount involved exceeded $60,000 between Eldorado and any director,
executive officer, any security holder known to own more than 5% of Eldorado's
stock, or any immediate family member of any of the foregoing persons.
All future material affiliated transactions and loans, and any
forgiveness of loans, must be made or entered into on terms that are no less
favorable to Eldorado than those that can be obtained from unaffiliated third
parties. All future material affiliated transactions and loans, and any
forgiveness of loans, must be approved by a majority of Eldorado's independent
directors who do not have an interest in the transactions and who had access, at
Eldorado's expense, to Eldorado's or independent legal counsel.
LEGAL PROCEEDINGS
Eldorado is not involved in any material legal proceedings.
22
<PAGE>
HISTORY OF SECURITY PLACEMENTS
12 for 1 Reverse Stock Split
In February 1998, Eldorado's board of directors approved a 12 for 1
reverse stock split. This reverse stock split was submitted to shareholder vote
in March 1998, and was effective on April 1, 1998.
Historical Stock Issuances
The founders of Eldorado operated the company as a private company from
April 1983 until April 1987 when it was merged into Lexington Funding, Inc.
Lexington Funding, Inc. 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. Before
April 1987, the primary activity of Lexington Funding, Inc. was directed to
organizational efforts and getting initial financing. Lexington Funding, Inc.
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.
Lexington Funding, Inc. acquired all the shares of Eldorado through a
stock exchange. According to the merger of Eldorado and Lexington, Eldorado
shareholders received an aggregate of 2,340,000 shares of Lexington Funding,
Inc.'s common stock, representing 90% of the outstanding shares of Lexington
Funding, Inc. after the acquisition. The number of shares of stock exchanged in
the acquisition was determined through arms-length negotiations. In June 1988,
Lexington changed its name to Eldorado Artesian Springs, Inc.
1998 Private Placement
In April 1998, Eldorado closed on a private placement of 300,000 shares
of its common stock, at $2.75 per share, to accredited investors through Mills
Financial Services, Inc. Gross proceeds from the private placement were
$825,000. Of the net proceeds of $690,000, $662,000 was applied to:
- purchase of machinery and equipment -$250,000;
- PET distribution expenses - $150,000;
- working capital -$112,000; and
- an escrow for public offering expenses -$150,000.
DESCRIPTION OF SECURITIES
General
Eldorado is authorized to issue 50,000,000 shares of common stock,
$0.001 par value. As of the date of this prospectus and before the closing of
this offering, 2,995,495 shares of common stock were issued and outstanding. The
outstanding common stock is fully paid and non-assessable.
Common Stock
The holders of common stock are entitled to one vote per share. No
cumulative voting is required or permitted. Therefore, the holders of a majority
of shares voting for the election of directors can elect all directors, if they
vote the same, and the remaining holders will not be able to elect any
directors.
Holders of common stock are entitled to receive such dividends, if any,
as the board of directors may from time to time declare, out of funds Eldorado
has legally available for the payment of dividends. Holders of the common stock
are entitled to share pro rata in any dividends declared. It is not expected
that dividends will be paid in the near future. Future dividend policy will
depend upon conditions existing at that time, including Eldorado's earnings and
financial condition.
Upon liquidation, dissolution or winding-up of Eldorado, stockholders
are entitled to receive pro rata all the assets of Eldorado available for
distribution to stockholders. Stockholders of Eldorado do not have preemptive
rights or other rights to subscribe for or buy any stock, options, warrants or
other securities offered by Eldorado.
23
<PAGE>
Warrants
1998 Warrants
In connection with the 1998 private placement, Eldorado issued to Mills
Financial Services, Inc., for a price of $100.00, a warrant to buy 250,000
shares of common stock at an exercise price of $11.00 per share. The warrant
will be exercisable at any time after October 22, 1999, but no later than April
22, 2003. The warrant provides for a single demand right of registration for the
shares underlying the warrant. It also provides for additional rights to
register the underlying shares on registration statements filed by Eldorado.
In connection with the 1998 private placement, Eldorado issued to Mills
Financial Services, Inc. for a price of $100, a warrant to buy 30,000 shares of
common stock at an exercise price of $3.30 per share. The warrant will be
exercisable at any time after October 22, 1999, but no later than April 22,
2003. The warrant provides for a single demand right of registration for the
shares underlying the warrant. It also provides for additional rights to
register the underlying shares on registration statements filed by Eldorado.
Representative's warrant
Eldorado has agreed to issue, for $700, a warrant entitling the
underwriter to buy shares of Eldorado's common stock in an amount equal to 10%
of the shares sold in this offering, not including any shares sold according to
the over-allotment option. The warrant is exercisable at 165% of the public
offering price, in whole or in part, between the first and fifth anniversary
dates of the effective date of this offering. The warrant exercise price is
subject to customary anti-dilution provisions. At any time during the exercise
term, the holders of a majority of these securities shall have the right to
require Eldorado to prepare and file one registration statement covering all or
any part of the securities. In addition, for a period of five years after the
effective date of the registration statement relating to this offering, the
holders of these securities have unlimited registration rights to include their
shares in an offering by Eldorado.
Transfer Agent and Warrant Agent
Corporate Stock Transfer, Inc. has been appointed registrar and
transfer agent for the common stock and the warrant agent for the warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Eldorado will have 3,695,495 shares of
common stock outstanding or 3,800,495, if the over-allotment option is exercised
in full. Of these shares, 988,091 will be freely tradeable without restriction
or registration under the Securities Act of 1933, as amended, unless held by
affiliates of Eldorado. If the over-allotment is exercised, 1,093,091 shares
will be freely tradeable. All the remaining 2,707,404 shares will be restricted
securities as that term is defined in Rule 144 published under the Securities
Act, and may only be sold in the public market if such shares are registered
under the Securities Act or sold in accordance with Rule 144 published
thereunder.
In general, under Rule 144 a person who has beneficially owned his
shares for one year, may sell in the open market within any three-month period a
limited number of shares. The shares sold may not exceed the greater of 1% of
the outstanding shares of Eldorado's common stock, or the average weekly trading
volume in the common stock during the four calendar weeks before such sale. One
percent of the outstanding shares will be about 36,955 shares or 38,005 shares
if the over-allotment option is exercised in full. Sales under Rule 144 are also
subject to certain limitations on the manner of sale, notice requirements and
availability of current public information about Eldorado. A person who is
considered not to be an affiliate of Eldorado and who has beneficially owned his
shares for at least two years, may sell such shares in the public market under
Rule 144(k). Rule 144(k) provides that shares may be sold without regard to the
volume limitations or certain other restrictions of Rule 144. Restricted shares
properly sold in reliance upon Rule 144 are thereafter freely tradeable without
restrictions or registration under the Act, unless thereafter held by an
affiliate of Eldorado.
24
<PAGE>
Of the 2,707,404 restricted shares currently outstanding, a total of
2,298,407 shares are held by Douglas A. Larson, Kevin M. Sipple, and Jeremy S.
Martin, officers and directors of Eldorado or their affiliates. Messrs. Larson,
Sipple and Martin and certain other employees holding options which are
exercisable right now, entered into agreements not to sell any shares for a
period of six months following the date of this prospectus. Shares may be sold
according to privately negotiated transactions or by the exercise of stock
options. As affiliates of Eldorado, Messrs. Larson, Sipple and Martin will be
further subject to the volume limitations of Rule 144(e)(1) with respect to any
such sales. Of the restricted shares outstanding, 108,997 shares were acquired
from Eldorado by non-affiliates more than two years before the date of this
prospectus. The balance of 300,000 of the restricted shares were acquired from
Eldorado by non-affiliates in April 1998, and are therefore now eligible for
sale under Rule 144(e)(2) subject to certain volume restrictions. The
underwriter has no plans, proposals, arrangements or understanding regarding
waiver of the lock up agreements. Additionally, 875,000 shares of Eldorado's
common stock are reserved for issuance under Eldorado's stock option plan, of
which 493,000 are outstanding. Of the 493,000 options outstanding, 34,000
options are immediately exercisable and saleable and 77,000 shares are
restricted for sale for six months after the completion of this offering.
Future sales of substantial amounts of common stock in the public
market, or the availability of such shares for future sale, could impair
Eldorado's ability to raise capital through an offering of securities and may
adversely affect the then-prevailing market prices for Eldorado's stock.
25
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting
agreement, the underwriters named below, through their representative Mills
Financial Services, Inc., have each agreed to buy from Eldorado the number of
shares of common stock shown opposite their names below:
NUMBER
UNDERWRITERS OF SHARES
Mills Financial Services, Inc. ...................................... __________
Total.............................................. __________
The underwriting agreement provides that the duty of the underwriters
to buy the shares included in this offering are subject to approval of certain
legal matters by counsel and to certain other conditions. The underwriters are
obligated to buy all the shares, except those covered by the over-allotment
option described below, if they buy any of the shares.
The underwriters propose to offer some of the shares to the public, at
the public offering price shown on the cover page of this prospectus, and some
of the shares to certain dealers at the public offering price less a concession
of not more than $0.35 per share. After the initial public offering, the
offering price and other selling terms may be changed by Mills Financial
Services, Inc., the representative of the underwriters.
Eldorado has granted to the underwriters an over-allotment option,
exercisable not later than 30 days after the date of this prospectus, to buy up
to 105,000 additional shares at the public offering price less the underwriting
discount. The underwriters may exercise this over-allotment option solely for
the purpose of covering over-allotments, if any, in connection with this
offering. To the extent the over-allotment option is exercised, each underwriter
will be obligated, subject to certain conditions, to buy a number of additional
shares approximately proportionate to such underwriter's initial purchase
commitment.
The following table shows the underwriting discount to be paid to the
underwriters by Eldorado in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the underwriters'
over-allotment option to buy additional shares to cover over-allotments.
NO EXERCISE FULL EXERCISE
------------------- ----------------------
Per share.............. $ 0.60 $ 0.60
Total.................. $420,000 $ 483,000
Eldorado has agreed to pay to Mills Financial Services, Inc., a
non-accountable expense allowance of 3% of the gross proceeds received by
Eldorado from the sale of the shares. A total of $90,000 has been paid as of the
date of this prospectus. If the underwriter does not complete this offering, it
is required to repay Eldorado all funds advanced, except for out-of-pocket
expenses actually incurred for the offering and accounting for by the
underwriter. The following table shows the amount of the non-accountable expense
allowance to be paid, assuming both no exercise and full exercise of the
underwriters' over-allotment option to buy additional shares to cover
over-allotments.
NO EXERCISE FULL EXERCISE
------------------ ----------------------
Total allowance........ $ 126,000 $ 144,900
At the closing of this offering, and subject to the terms and
conditions of the underwriting agreement, Eldorado has agreed to sell to Mills
Financial Services, Inc. for $700, a representative's warrant. The warrant
grants to Mills Financial Services, Inc. the right to buy up to 70,000 shares at
a price equal to 165% of the public offering price. The representatives'
warrant may be exercised for a four-year period beginning one year from the date
of
26
<PAGE>
this prospectus. For a period of one year from the date of this prospectus,
the representative's warrant will be restricted from sale, transfer, assignment
or hypothecation, except to officers of Mills Financial Services, Inc., other
underwriters or their officers. The representative's warrant will also contain
anti-dilution provisions providing for appropriate adjustment of the exercise
price and number of shares which may be bought upon exercise upon the occurrence
of certain events. The representative's warrant also provides for a one-time
right to require Eldorado, at its expense, to register with the SEC the shares
bought upon exercise of the representative's warrant. Also the representative's
warrant provides the right to request that the shares bought upon exercise of
the representative's warrant be included in certain registration statements, if
any, filed by Eldorado with the SEC to register other shares. Each of these
registration rights will be exercisable during the four-year period beginning
one year from the date of this prospectus and terminating five years from the
date of this prospectus.
Eldorado has also agreed that Mills Financial Services, Inc. will have
a right of first refusal for three years from the date of this prospectus. Mills
Financial Services, Inc. will have the right to manage, underwrite or buy any
securities sold by Eldorado or, subject to certain exceptions, sold by 10%
shareholders of Eldorado. Eldorado may cancel this right of first refusal upon
the payment of $21,500 to Mills Financial Services, Inc.
Eldorado has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Eldorado's officers and directors and certain other persons have agreed
that, for a period of 180 days from the date of this prospectus, they will not
sell or otherwise dispose of their shares of common stock of Eldorado. Mills
Financial Services, Inc., in its sole discretion, may release any of the common
stock subject to these lock-up agreements at any time without notice.
Mills Financial Services, Inc., has advised Eldorado that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In April 1998, Mills Financial Services, Inc. acted as placement agent
in the sale, by Eldorado, of 300,000 shares of common stock at $2.75 per share.
As compensation for its service as placement agent, Mills Financial Services,
Inc. received $82,500 in commissions and a non-accountable expense allowance of
$24,750. In addition, Mills Financial Services, Inc. received a warrant to buy
30,000 shares of Eldorado common stock at $3.30 per share, subject to adjustment
under certain circumstances. In addition, on April 22, 1998, Mills Financial
Services, Inc. bought from Eldorado, for $100, a warrant to buy 250,000 shares
of common stock at $11.00 per share, subject to adjustment under certain
circumstances. This warrant is exercisable from October 22, 1999 through April
21, 2002, and contains certain rights of registration. Also, on April 22, 1998,
in connection with a consulting agreement with Eldorado dated September 10,
1997, Mills Financial Services, Inc. received $25,000 in compensation for
providing investment banking services to Eldorado.
Before this offering, there has been only a sporadic public market for
Eldorado's common stock. Consequently, the public offering price was decided by
negotiation between Eldorado and Mills Financial Services, Inc. Among the
factors considered in determining the public offering price were:
- prevailing market conditions;
- Eldorado's results of operations in recent periods;
- the present stage of Eldorado's development;
- estimates of Eldorado's business potential; and
- the current condition of the bottled water industry.
In connection with this offering, certain underwriters, but not Mills
Financial Services, Inc., and selected dealers may engage in transactions that
stabilize, maintain or otherwise affect the market price for the common stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act of 1934. Rule
104 provides that such persons may bid for or buy shares of common stock for the
purpose of pegging, fixing or maintaining the price of the common shares.
The underwriters also may create a short position for the account of
the underwriters by selling more shares of common stock in connection with this
offering than they are committed to buy from Eldorado. The underwriters may
elect to cover any such short position by purchasing shares of common stock in
the open market or by
27
<PAGE>
exercising the over-allotment option granted to Mills Financial Services, Inc.
In addition, Mills Financial Services, Inc., on behalf of the underwriters, may
impose penalty bids under contractual arrangements with the other underwriters.
Under these arrangements, Mills Financial Services, Inc. may reclaim from an
underwriter, or selected dealer for the account of the other underwriters, the
selling concession with respect to shares of common stock that are distributed
in this offering but subsequently bought for the account of the underwriters in
the open market. Any of the transactions described in this paragraph and the
preceding paragraph may result in the maintenance of the price of the common
stock at a level above that which might otherwise prevail in the open market.
None of the transactions described in this paragraph are needed, and, if they
are undertaken, may be discontinued at any time.
The expenses of the offering, other than underwriting discounts and
non-accountable expense allowance, are shown below:
SEC Registration Fee $ 1342
NASD Filing Fee 983
Nasdaq Small-Cap Listing Fee 10,000
Accounting Fees and Expenses* 25,000
Printing and Engraving* 35,000
Legal Fees and Expenses* 50,000
Blue Sky Fees and Expenses* 15,000
Transfer Agent and Registrar Fees* 1,000
Other Expenses* 675
------------
Total $139,000
*Estimated
Mills Financial Services, Inc. has previously taken part as lead
underwriter in one initial public offering on a firm commitment basis. This
initial public offering was finished in May 1998. Accordingly, Mills Financial
Services, Inc. has limited experience as manager or underwriter of public
offerings of securities. In addition, Mills Financial Services, Inc. is a small
firm and does not intend to take part as a market maker in the shares. No
assurance can be given that any broker-dealer will become or continue to be a
market maker in the stock.
COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Eldorado
according to its bylaws, or otherwise, Eldorado has been advised that, in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and therefore, is unenforceable. If a claim for
indemnification against such liabilities (other than the payment by Eldorado of
expenses incurred or paid by a director, officer or controlling person of
Eldorado in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Eldorado will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
LEGAL MATTERS
The legality of the shares offered in this prospectus, will be handled
for Eldorado by Chrisman, Bynum & Johnson, P.C.
28
<PAGE>
EXPERTS
The financial statements of Eldorado as of March 31, 1999 and the years
ended March 31, 1999 and 1998 have been included in reliance upon the report of
Ehrhardt Keefe Steiner & Hottman, P.C., independent certified public
accountants, as given upon the authority of said firm as experts in accounting
and auditing.
29
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Financial Statements
March 31, 1999 and 1998
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
<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.
Ehrhardt Keefe Steiner & Hottman PC
May 5, 1999
Denver, Colorado
F-2
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Balance Sheet
March 31, 1999
<TABLE>
<CAPTION>
Assets (Notes 3 and 4)
Current assets
<S> <C>
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 issued and outstanding 2,995
Additional paid-in capital 984,656
Retained earnings 391,464
-----------
1,379,115
-----------
$ 3,386,374
===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Statements of Operations
<TABLE>
<CAPTION>
Years Ended
March 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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 activities 367,311 126,479
----------- -----------
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.
F-7
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
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.
F-8
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------------------
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
- -------------------------------------------
<TABLE>
<CAPTION>
March 31,
1999
-----------
Accounts receivable
<S> <C>
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
===========
</TABLE>
F-9
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 2 - Selected Balance Sheet Information (continued)
- -------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
1999
-----------
<S> <C>
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
===========
</TABLE>
Note 3 - Long-Term Debt
- -----------------------
<TABLE>
<CAPTION>
March 31,
Notes Payable 1999
- ------------- -----------
<S> <C>
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 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 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
===========
</TABLE>
F-10
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 3 - Long-Term Debt (continued)
- -----------------------------------
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:
<TABLE>
<CAPTION>
Notes Capital
Year Ending March 31, Payable Leases Total
--------------------- ----------- ----------- -----------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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.
F-11
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 5 - Income Taxes (continued)
- ---------------------------------
The net current and long-term deferred tax in the accompanying balance sheet
includes the following deferred tax assets and liabilities.
<TABLE>
<CAPTION>
March 31,
1999
----------
<S> <C>
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
==========
</TABLE>
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For the Years Ended
March 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Current $ 72,778 $ 19,683
Deferred 6,958 14,720
---------- ----------
$ 79,736 $ 34,403
========== ==========
</TABLE>
The following is a reconciliation of income taxes at the Federal Statutory rate
with income taxes recorded by the Company.
<TABLE>
<CAPTION>
Years Ended
March 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Computed income taxes at statutory rate - net of surtax $ 73,036 $ 31,503
State income taxes, net of Federal income tax benefit and
other 6,700 2,900
---------- ----------
$ 79,736 $ 34,403
========== ==========
</TABLE>
F-12
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 5 - Income Taxes (continued)
- ---------------------------------
Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax credit
carryforwards. Temporary differences and carryforwards which give rise to a
significant portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
March 31,
1999
-----------
<S> <C>
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)
===========
</TABLE>
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.
<TABLE>
<CAPTION>
Year Ending March 31,
---------------------
<S> <C>
2000 $ 199,000
2001 144,000
2002 105,000
2003 95,000
2004 85,000
Thereafter 93,000
-----------
$ 721,000
===========
</TABLE>
Total rental expense for 1999 and 1998 was approximately $222,000 and $134,000,
respectively.
F-13
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
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.
F-14
<PAGE>
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Financial Statements
Note 7 - Stockholders' Equity (continued)
- -----------------------------------------
Stock Option Plan (continued)
- -----------------------------
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:
<TABLE>
<CAPTION>
For the Nine
Months Ended
December 31
1998
----------------
<S> <C>
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
</TABLE>
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.
F-15
<PAGE>
================================================================================
No dealer, sales person or any other person is authorized to give any
information or to make any representation other than those contained in this
prospectus in connection with this offering. You may not rely on such
information or representations as having been given or made by Eldorado or any
underwriter. This prospectus is not an offer to sell or a solicitation of an
offer to buy the securities in any state where such offer or solicitation is not
permitted. Delivery of this prospectus or any sale of the securities is not an
indication that Eldorado's business has not changed since the date of this
prospectus or that information in the prospectus is correct as of any time after
the date of this prospectus.
-----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary ........................................................ 1
Eldorado Artesian Springs ........................................ 1
Key Facts ........................................................ 2
Summary of Financial Information ................................. 2
Risk Factors .............................................................. 3
Forward-Looking Information and Associated Risks .......................... 6
Additional Information .................................................... 6
Use of Proceeds ........................................................... 7
Determination of the Offering Price ....................................... 7
Price Range of Common Stock ............................................... 8
Dilution .................................................................. 9
Capitalization ............................................................ 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations .................... 10
Eldorado and its Business ................................................. 13
Management ................................................................ 19
Principal Stockholders .................................................... 22
Certain Relationships and Related Transactions ............................ 22
Legal Proceedings ......................................................... 22
History of Security Placements ............................................ 23
Description of Securities ................................................. 23
Shares Eligible for Future Sale ........................................... 24
Underwriting .............................................................. 26
Commission Position on Indemnification for Securities Act Liabilities ..... 28
Legal Matters ............................................................. 28
Experts ................................................................... 29
Index to Financial Statements ............................................ F-1
</TABLE>
-----------------------
Dealer prospectus delivery obligation until ______, 1999. All dealers effecting
transactions in these securities, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the obligation
of dealers to deliver a prospectus as when acting as underwriters and with
respect to their unsold allotments or subscriptions.
700,000 shares
of
Common Stock
ELDORADO ARTESIAN
SPRINGS, INC.
-----------------------
PROSPECTUS
-----------------------
Mills Financial Services, Inc.
_______, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The articles of incorporation and bylaws of Eldorado provide that
Eldorado shall indemnify to the fullest extent permitted by Colorado law any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, by reason of the
fact that he or she is or was a director or officer of Eldorado or is or was
serving at the request of Eldorado in any capacity and in any other corporation,
partnership, joint venture, trust or other enterprise. The Colorado Business
Corporation Act (the Colorado Act) permits Eldorado to indemnify an officer or
director who was or is a party or is threatened to be made a party to any
proceeding because of his or her position, if the officer or director acted in
good faith and in a manner he or she reasonably believed to be in the best
interests of Eldorado or, if such officer or director was not acting in an
official capacity for Eldorado, he or she reasonably believed the conduct was
not opposed to the best interests of Eldorado. Indemnification is mandatory if
the officer or director was wholly successful, on the merits or otherwise, in
defending such proceeding. Such indemnification (other than as ordered by a
court) shall be made by Eldorado only upon a determination that indemnification
is proper in the circumstances because the individual met the applicable
standard of conduct. Advances for such indemnification may be made pending such
determination. Such determination shall be made by a majority vote of a quorum
consisting of disinterested directors or of a committee of at least two
disinterested directors, or by independent legal counsel or by the
shareholders.
In addition, the articles of incorporation provide for the elimination,
to the extent permitted by Colorado law, of personal liability of directors to
Eldorado and its shareholders for monetary damages for breach of fiduciary duty
as directors. The Colorado Act provides for the elimination of personal
liability of directors for damages caused by breach of fiduciary duty, except
for liability based on the director's duty of loyalty to Eldorado, liability for
acts or omissions not made in good faith, liability for acts or omissions
involving intentional misconduct, liability based on payments of improper
dividends, liability based on violations of state securities laws, and liability
for acts occurring before the date such provision was added.
Eldorado has acquired directors and officers liability insurance.
See the second and third paragraphs of Item 28 on page II-2 below for
information regarding the position of the Securities and Exchange Commission
with respect to the effect of any indemnification for liabilities arising under
the Securities Act.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated costs and expenses to be
borne by Eldorado in connection with the offering described in the Registration
Statement, other than underwriting Commissions and discounts.
<TABLE>
<S> <C>
Registration Fee ................................................ $ 1,342
National Association of Securities Dealers, Inc. Fee ............ 983
Non-Accountable Expense Allowance ............................... 126,000
Legal Fees and Expenses ......................................... 50,000
Accounting Fees and Expenses .................................... 25,000
Printing and Engraving Expenses ................................. 35,000
Blue Sky Fees and Expenses ...................................... 15,000
Transfer Agent's and Registrar's Fees ........................... 1,000
Market Listing Fees ............................................. 10,000
Other ........................................................... 675
--------
Total ........................................................... 265,000
</TABLE>
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The Registrant sold the following unregistered securities during the
past three years.
During 1998, the following transaction occurred:
(1) On April 22, 1998, Eldorado sold 300,000 shares of its common stock to
accredited investors through Mills Financial Services, Inc. for the
aggregate offering price of $825,000. Eldorado believes such
transaction was private in nature and was exempt from the registration
requirements of Section 5 of the Securities Act of 1933 (the Securities
Act) because of the exemption contained in Section 4(2) of the
Securities Act and Rules 505 and 506 of Regulation D.
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
----------------------
<S> <C>
1.1 Form of Underwriting Agreement between Eldorado and the
underwriter, as amended.*
1.2 Form of warrant to be issued to the underwriter*
3.1 Articles of Incorporation, as amended, incorporated by
reference to Exhibit 3.1 filed with Eldorado's
Form 10-KSB for the fiscal year ended March 31, 1998
3.2 Bylaws of Eldorado, as amended*
4.1 Form of certificate for shares of common stock*
5.1 Opinion of Chrisman, Bynum & Johnson, P.C.*
10.1 Eldorado Artesian Springs, Inc. 1997 Stock Option Plan, as
amended July 1, 1999*
10.2 Promissory Note with First National Bank of Boulder County
dated June 27, 1997*
10.3 Deed of Trust to secure a loan from First National Bank of
Boulder County dated June 27, 1997*
10.4 Water Augmentation Agreement dated December 8, 1998*
10.5 Extension Agreement dated May 19, 1999*
23.1 Consent of Ehrhardt Keefe Steiner & Hottman PC
23.2 Consent of Chrisman, Bynum & Johnson, P.C. (included in its
opinion filed as Exhibit 5.1)
24.1 Power of Attorney (included in signature page of original
filing)
</TABLE>
- ----------------------
*Previously filed
Item 28. Undertakings.
The undersigned small business issuer will provide to the underwriter
at the closing named in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the Securities Act) may be permitted to directors, officers and
controlling persons of the small business issuer according to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
If a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-2
<PAGE>
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the small business issuer according to Rule
424(b)(1), or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it
effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and has caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boulder, Colorado, on the 29th day of
July, 1999.
ELDORADO ARTESIAN SPRINGS, INC.
By: /s/ Douglas A. Larson
---------------------------------------------
Douglas A. Larson, Chief Executive Officer
(Principal Executive Officer)
According to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates shown.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Douglas A. Larson President, Chief Executive Officer, July 29, 1999
- ------------------------------------ Director
Douglas A. Larson
/s/ Douglas A. Larson, POA Vice President and Secretary July 29, 1999
- ------------------------------------
Kevin M. Sipple Director
/s/ Douglas A. Larson, POA Vice President, Director July 29, 1999
- ------------------------------------
Jeremy S. Martin
/s/ Cathleen M. Collins Chief Financial Officer (Principal July 29, 1999
- ------------------------------------ Financial Officer)
Cathleen M. Collins
/s/ Douglas A. Larson, POA Director July 29, 1999
- ------------------------------------
George V. Schmidt
/s/ Douglas A. Larson, POA Director July 29, 1999
- ------------------------------------
Don P. Van Winkle
</TABLE>
II-4
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion, in this Amendment No. 3 to the Registration
Statement on Form SB-2, of our report dated May 5, 1999, on our audit of the
financial statements of Eldorado Artesian Springs, Inc. We also consent to the
reference to our firm under the caption "Experts".
Ehrhardt Keefe Steiner & Hottman PC
July 27, 1999
Denver, Colorado
