UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) Quarterly report pursuant to section 13 or 15 (d) of the Securi ties
Exchange Act of 1934, for the quarterly period ended January 31, 1997.
( ) Transition report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934, for the transition period from
to .
Commission file number 01-17872
ECHO SPRINGS WATER CO., INC.
(Exact name of small business issuer as specified in its charter)
New York #16-1433379
(State of Incorporation) (I.R.S. Employer ID No.)
Building 100A, Hackensack Avenue, Kearny, New Jersey 07032
(Address of Principal Executive Offices)
(201) 465-5151
(Issuer's Telephone Number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 28, 1997
Common stock, $.0001 par value 3,507,149 shares
Transitional Small Business Disclosure Format Yes No X
<PAGE>
ECHO SPRINGS WATER CO., INC.
Index to Form 10-QSB
Page
Item Number
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements:
Consolidated balance sheets -
January 31, 1997 and October 31, 1996 3
Consolidated statements of operations -
Three months ended January 31, 1997 and 1996 4
Consolidated statements of cash flows -
Three months ended January 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
January 31, October 31,
1997 1996
Current Assets:
Cash $ 15,613 $ 44,631
Accounts receivable - net of allowance
for doubtful accounts of $14,000 in
1997 and in 1996 234,191 257,212
Notes receivable, current portion 26,402 26,010
Inventories 26,845 34,221
Prepaid expenses 76,363 30,178
--------- ---------
Total Current Assets 379,414 392,252
Notes receivable, net of current portion 153,119 159,868
Property, plant and equipment - net 1,240,842 1,278,230
Other assets 219,160 220,026
--------- ---------
TOTAL ASSETS $1,992,535 $2,050,376
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Current portion of debt $ 572,153 $ 552,153
Debentures 50,000 50,000
Accounts payable and accrued expenses 1,581,407
1,513,582
Customer deposits 215,600 213,000
Unearned revenues 17,132 17,677
--------- ---------
Total Current Liabilities 2,436,292 2,346,412
--------- ---------
Shareholders' Equity (Deficiency):
Common stock, $.0001 par, 75,000,000
shares authorized; issued and
outstanding 2,907,149 shares
in 1997 and 1996 291 291
Additional paid-in capital 7,967,725 7,967,725
Accumulated deficit (8,411,773) (8,264,052)
--------- ---------
Total Shareholders'
Equity (Deficiency) (443,757) (296,036)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY) $1,992,535 $2,050,376
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996
---- ----
Revenues:
Gross sales $ 444,476 $ 525,612
Credits and allowances (2,652) (4,319)
Freight out (8,949) (12,051)
Other income (134) 4,145
---------- ----------
432,741 513,387
---------- ----------
Costs and Expenses:
Cost of sales 188,795 219,661
Selling, general and
administrative 373,834 361,369
Interest 17,474 57,358
Amortization of other assets 1,219 1,219
Loss (gain) on sale of assets (860) (1,200)
---------- ----------
Total Costs and Expenses 580,462 638,407
---------- ----------
Net loss $ (147,721) $ (125,020)
========== ==========
Net loss per share $ (.05) $ (.08)
========== ==========
Weighted average shares outstanding 2,907,149 1,659,996
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1997 1996
---- ----
Operating Activities:
Net loss $(147,721) $(125,020)
Adjustments to reconcile net loss to
net cash used by
operating activities:
Depreciation and amortization 39,869 37,667
Loss (gain) on sale of assets (860) (1,200)
Provision for doubtful accounts (10,000)
Changes in assets and liabilities -
Accounts receivable 23,021 2,551
Inventories 7,376 4,637
Prepaid expenses (46,185) (66,923)
Other assets (353) (531)
Accounts payable and accrued
expenses 67,825 77,601
Customer deposits 2,600 8,100
Unearned revenues (545) (23,602)
-------- --------
Net Cash Used by
Operating Activities (54,973) (96,720)
-------- --------
Investing Activities:
Capital expenditures (1,262) (13,668)
Collections on notes receivable 6,357 5,037
Proceeds from sale of assets 860 1,200
-------- --------
Net Cash Provided (Used) by
Investing Activities 5,955 (7,431)
-------- --------
Financing Activities:
Increase in installment debt 20,000 75,000
Repayment of installment debt (22,742)
-------- --------
Net Cash Provided by
Financing Activities 20,000 52,258
-------- --------
Net decrease in cash (29,018) (51,893)
Cash - beginning 44,631 57,224
-------- --------
CASH - ENDING $ 15,613 $ 5,331
======== ========
SUPPLEMENTAL INFORMATION:
Interest paid $ 927 $ 1,262
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
BASIS OF PRESENTATION
The interim consolidated financial statements are prepared
pursuant to the requirements for reporting on Form 10-QSB. The
October 31, 1996 balance sheet data was derived from audited
consolidated financial statements and together with the
interim consolidated financial statements and notes thereto
should be read in conjunction with the consolidated financial
statements and notes included in the Company's latest annual
report on Form 10-KSB/A. In the opinion of management, the
interim consolidated financial statements reflect all
adjustments of a normal recurring nature neces sary for a fair
statement of the results for interim peri ods. The current
period results of operations are not necessarily indicative of
results which ultimately will be reported for the full fiscal
year.
BUSINESS
Echo Springs Water Co., Inc. ("the Company"), through its
subsidiaries, is engaged principally in the distribution of
bottled water and allied products. The Company bottles water
from its own natural springs in Burlington, NY for direct
distribution and sale to business and residential customers as
well as for wholesale to supermarkets and other bottled water
distributors.
REVENUE RECOGNITION
Revenue from equipment rental is recognized based on the
period in which it is earned and unearned revenue is re corded
for the portion billed in advance. Revenues from product sales
are recognized upon shipment to the wholesal er or delivery to
the customer, as applicable.
LOSS PER SHARE
Net loss per share is based upon the weighted average number
of shares outstanding during each period. All share and per
share amounts give effect to a 1-for-25 reverse stock split in
October, 1996.
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<PAGE>
ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2 - INVENTORIES
-----------
Inventories are valued at the lower of cost or market on the
first-in, first-out basis and at October 31, 1996 and January
31, 1997 consist of the following:
January October
31, 1997 31, 1996
Bottles $ 2,168 $ 1,722
Product held for sale 12,672 16,415
Supplies 12,005 16,084
------ ------
$26,845 $34,221
====== ======
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are recorded at cost and
depreciated by the straight-line method over the estimated
economic useful lives of the various asset groups of 5 - 40
years and consist of the following:
January October
31, 1997 31, 1996
Land $ 150,000 $ 150,000
Buildings and improvements 362,298 362,298
Water coolers, bottles and
brewers 918,730 918,730
Machinery and equipment 335,068 335,069
Vehicles 60,850 60,850
Furniture and fixtures 128,391 127,128
--------- ---------
1,955,337 1,954,075
Less: accumulated depreciation
and amortization 714,495 675,845
--------- ---------
$1,240,842 $1,278,230
========= =========
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<PAGE>
ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 - OTHER ASSETS
------------
Other assets at October 31, 1996 and January 31, 1997 are
comprised of the following:
January October
31, 1997 31, 1996
Water rights $205,000 $205,000
Accumulated amortization 34,748 33,529
------- -------
Net deferred charges 170,252 171,471
Security deposits 30,890 30,537
Deferred public offering costs 18,018 18,018
------- -------
$219,160 $220,026
======= =======
NOTE 5 - INDEBTEDNESS
------------
The Company is currently in default as to principal and
interest on its debt and debentures except for advances
payable to stockholder of $282,153 at October 31, 1996 and
$302,153 at January 31, 1997. Although the debt is in default
and therefore currently due, the debtholders have informally
agreed to wait for payment until completion of the proposed
public offering. (See Note 7).
NOTE 6 - INCOME TAXES
------------
The Company files a consolidated federal income tax return
with its subsidiaries. At October 31, 1996, the estimated
maximum amount of net operating loss carryforward available to
reduce future taxable income is approximately $8,200,000,
expiring from 2004 through 2010. Deferred tax benefits from
the use of net operating loss carryforwards of approximately
$2,780,000 are offset by a corresponding amount of valuation
allowance since it is more likely than not that all or some
portion of the deferred tax asset will not be realized.
<PAGE>
ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 - GOING CONCERN
-------------
The Company sustained losses of $228,571 (before extraordi
nary gain) for the fiscal year ended October 31, 1996 and
$147,721 for the three months ended January 31, 1997. The
Company had deficit net worths of $296,036 at October 31, 1996
and $443,757 at January 31, 1997. In addition, the Company was
in default on principal and interest payments on a substantial
portion of its debt. These facts raise sub stantial doubt
about the Company's ability to continue as a going concern.
Considerations which tend to mitigate the question of going
concern include management's successful efforts in raising
funds through private placements, the ability to renegotiate
and restructure long-term financing with major creditors, past
and present efforts to convert debt to equity and the ability
<PAGE>
to acquire, restructure and develop the bottled water business
which it believes will be able to achieve profitable
operations. In June, 1996, the Company entered into
negotiations to consummate a public offering with minimum
gross proceeds of approximately $4,000,000. The Company
intends to use a portion of the proceeds of the proposed
public offering to seek and consum mate acquisitions of
companies in the bottled water and allied products business.
No assurance can be given that the Company will be successful
in identifying potential acquisitions or, if made, that such
acquisitions will have a beneficial effect on the Company. The
Company has no cur rent agreement to acquire any business or
property, or intent to acquire any specific busines or
property. The Company believes that these factors provide
meaningful evidence as to the Company's ability to continue in
opera tion for the next fiscal year and support the going
concern presentation in the accompanying consolidated
financial statements in favor of the liquidation basis. There
can be no assurance, however, that management will continue to
be able to raise sufficient capital or convert existing debt
to equity or to achieve profitable operations going forward.
NOTE 8 - SUBSEQUENT EVENTS
In February, 1997, the Company sold 600,000 shares of its
common stock in private transactions at $1.00 per share for
aggregate gross proceeds of $600,000.
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<PAGE>
ECHO SPRINGS WATER CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1997 COMPARED WITH THE
THREE MONTHS ENDED JANUARY 31, 1996
Net revenues decreased $80,646 (15.7%) to $432,741 for the three months ended
January 31, 1997 ("1997") from $513,387 for the three months ended January 31,
1996 ("1996"). The $81,136 decrease in gross sales was due primarily to four
factors. The 2.5-gallon sales fell by approximately $5,000 as this low-margin,
low-volume product line was discontinued in July, 1996. Sales of one gallons,
another low-margin product, decreased by approximately $16,000, largely due to a
discon tinuance of service to one supermarket customer. Sales of allied products
fell by approximately $21,000 due to reduced emphasis on this lower volume
aspect of the business, primarily as a result of the reduction in the sales and
marketing staff. The fourth contributing factor was a deliberate discontinuance
of service to marginal custom ers as determined from a customer-by-customer
review in setting up the new corporate computer system. The small improvements
in credits and allowances and freight out were largely offset by reduced gains
on unclaimed or lost customer deposits.
Cost of sales for 1997 was $188,795 (42.5% of gross sales) as compared to
$219,661 (41.8% of gross sales) for 1996. This small percentage increase was
caused primarily by an approximately $29,000 decrease in the equipment rental
portion of gross sales as a result of the discon tinuance of service to marginal
customers.
Selling, general and administrative expenses were $373,834 in 1997 as compared
to $361,369 in 1996. A reduction in the sales and marketing staff in an effort
to better concentrate on the current customer base resulted in an overall
savings of approximately $12,000. However, delivery and warehouse costs
increased approximately $6,000, primarily as a result of increased truck rental
costs due to a larger number of rental vehicles in the corporate fleet, in order
to improve the timeliness of product deliveries, combined with a 50% truck
rental price increase in May, 1996. Further, general and administrative expenses
rose by approximately $18,000. A small increase in adminis trative staff and
expenses accounted for approximately $6,000. The investor relation costs of the
debt-to-equity conversion and the reverse stock split amounted to another
approximately $6,000 and the final factor was increased business development
costs of approximately $6,000 to investigate new potential business investments.
Interest expense decreased from $57,358 in 1997 to $17,474 in 1996, primarily as
a result of the October, 1996 debt-to-equity conversion. Amortization of other
assets of $1,219 in 1997 and 1996 related to the amortization of water rights.
The net loss for 1997 increased by $22,701 from $125,020 in 1996 to $147,721 in
1997.
- 10 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash generated from sales,
issuance of common stock, debentures, and installment debt, and borrowings from
its officers.
During the three months ended January 31, 1997 and 1996, the Company had
negative cash flows from operating activities of $54,973 and $96,720,
respectively. Investing activities provided cash of $5,955 in 1997, primarily
from collections on notes receivable, and used cash of $7,431 in 1996, primarily
for the acquisition of property and equipment. The Company has financed its
operating and investing activities during these periods primarily through the
issuance of installment debt.
At January 31, 1997, the Company had a working capital deficiency of $2,056,878.
Short-term credit sources are limited to trade credit on purchases and services.
The report issued by the Company's accoun tants that accompanies the Company's
Consolidated Financial Statements for the year ended October 31, 1996 states
that there is a substantial doubt about the Company's ability to continue as a
going concern.
As indicated in Note 5 to the accompanying Consolidated Financial Statements,
certain of the Company's indebtedness is in default. Although the debt is in
default and therefore currently due, the debtholders have informally agreed to
wait for payment until comple tion of the proposed public offering noted below.
Considerations which tend to mitigate the question of going concern include
management's successful efforts in raising funds through private placements, the
ability to renegotiate and restructure long-term financing with major creditors,
past and present efforts to convert debt to equity and the ability to acquire,
restructure and develop the bottled water business which it believes will be
able to achieve profitable operations.
In June, 1996, the Company entered into negotiations to consummate a public
offering with minimum gross proceeds of approximately $4,000,000. Such offering
is expected to take place during Fiscal 1997. The Company intends to use a
portion of the proceeds of the proposed public offering to seek and consummate
acquisitions of companies in the bottled water and allied products business. No
assurance can be given that the Company will be successful in identi fying
potential acquisitions or, if made, that such acquisitions will have a
beneficial effect on the Company. The Company has no current agreement to
acquire any business or property, or intent to acquire any specific business or
property.
The Company believes that these factors provide meaningful evidence as to the
Company's ability to continue in operation for the next fiscal year and support
the going concern presentation in the accompanying Consolidated Financial
Statements in favor of the liquidation basis. There can be no assurance,
however, that management will continue to be able to raise sufficient capital or
convert existing debt to equity or to achieve profitable operations going
forward.
The Company has no plans or commitments for capital expenditures during the next
twelve months other than the ordinary equipment purchases which are expected to
be funded with additional installment debt. The Company is close to settling its
prior years' unpaid payroll taxes and, upon agreement, intends to pay such
amounts from additional borrowings.
- 11 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is subject to seasonal fluctuation, with summer being the
busiest season and winter the slowest. To date, seasonality has not had any
material effect on the Company's financial condition or results of operations.
- 12 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no new legal proceedings or material changes
to legal proceedings during the period from those reported in
the Company's Form 10-KSB/A for the year ended October 31,
1996.
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits - Financial Data Schedule
b. Reports on Form 8-K
NONE
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the issuer has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
ECHO SPRINGS WATER CO., INC.
(Issuer)
By
Michael S. Rakusin
President
Dated: June , 1997
- 14 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
FINANCIAL DATA SCHEDULE
FOR THE THREE MONTHS ENDED JANUARY 31, 1997
This schedule contains summary financial information extracted from the
financial statements for the three months ended January 31, 1997 and is
qualified in its entirety by reference to such financial statements.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Item # Item Description Amount
5-02(1) Cash and cash items $ 15,613
5-02(2) Marketable securities - 0 -
5-02(3)(a)(1) Notes and accounts receivable-trade 248,191
5-02(4) Allowances for doubtful accounts 14,000
5-02(6) Inventory 26,845
5-02(9) Total current assets 379,414
5-02(13) Property, plant and equipment 1,955,337
5-02(14) Accumulated depreciation 714,495
5-02(18) Total assets 1,992,535
5-02(21) Total current liabilities 2,436,292
5-02(22) Bonds, mortgages and similar debt - 0 -
5-02(28) Preferred stock-mandatory redemption - 0 -
5-02(29) Preferred stock-no
mandatory redemption - 0 -
5-02(30) Common stock 310
5-02(31) Other stockholders' equity (444,067)
5-02(32) Total liabilities and
stockholders' equity 1,992,535
5-03(b)(1)(a) Net sales of tangible products 432,875
5-03(b)(1) Total revenues 432,741
5-03(b)(2)(a) Cost of tangible goods sold 188,795
5-03(b)(2) Total costs and expenses applicable
to sales and revenues 188,795
5-03(b)(3) Other costs and expenses - 0 -
5-03(b)(5) Provision for doubtful
accounts and notes - 0 -
5-03(b)(8) Interest and amortization
of debt discount 17,474
5-03(b)(10) Income before taxes and
other items (147,721)
5-03(b)(11) Income tax expense - 0 -
5-03(b)(14) Income/loss continuing operations - 0 -
5-03(b)(15) Discontinued operations - 0 -
5-03(b)(17) Extraordinary items - 0 -
5-03(b)(18) Cumulative effect-changes
in accounting principles - 0 -
5-03(b)(19) Net income or loss (147,721)
5-03(b)(20) Earnings per share-primary (0.05)
5-03(b)(20) Earnings per share-fully diluted - 0 -
</TABLE>
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