UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
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 33-30980
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 3,697,149 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 10-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
ASSETS
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 3,097,149 shares
in 1997 and 1996 310 310
Additional paid-in capital 8,295,406 8,295,406
Accumulated deficit (8,739,473) (8,591,752)
Total Shareholders'
Equity (Deficiency) (443,757) (296,036)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY) $1,992,535 $2,050,376
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
- 3 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <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 3,097,149 1,659,996
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
- 4 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31,
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
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
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
- 5 -
ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim 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 finan
cial statements and together with the interim financial
statements and notes thereto should be read in conjunction
with the financial statements and notes included in the
Company's latest annual report on Form 10-KSB. In the
opinion of management, the interim 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.
- 6 -
<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
useful lives of the assets of 5 - 40 years and consist of
the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- 7 -
<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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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.
NOTE 6 - INCOME TAXES
The Company files a consolidated federal income tax return
with its subsidiaries. As of January 31, 1997, the Company
had net operating loss carryforwards in excess of $8,000,000
for financial as well as State and Federal tax purposes
which expire in varying amounts beginning in 2004. All de
ferred tax benefits from use of net operating loss carryfor
wards are offset by valuation allowances.
- 8 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 - GOING CONCERN
The Company sustained losses of $227,321 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 substantial 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 restruc
ture 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 opera
tions. 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 finan
cial 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 per share for
aggregate gross proceeds of $600,000.
- 9 -
<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.
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 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 assur
ance, 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'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.
- 11 -
<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 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
- 12 -
<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: March 17, 1997
- 13 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> OCT-31-1996
<PERIOD-END> JAN-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 248,191
<ALLOWANCES> 14,000
<INVENTORY> 26,845
<CURRENT-ASSETS> 379,414
<PP&E> 1,955,337
<DEPRECIATION> 714,495
<TOTAL-ASSETS> 1,992,535
<CURRENT-LIABILITIES> 2,436,292
<BONDS> 0
0
0
<COMMON> 310
<OTHER-SE> (444,067)
<TOTAL-LIABILITY-AND-EQUITY> 1,992,535
<SALES> 432,875
<TOTAL-REVENUES> 432,875
<CGS> 188,795
<TOTAL-COSTS> 188,795
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,474
<INCOME-PRETAX> (147,721)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (147,721)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0
<PAGE>
</TABLE>
