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 Securities
Exchange Act of 1934, for the quarterly period ended January 31, 1998.
( ) 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 0-17872
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)
(973) 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, 1998
Common stock, $.0001 par value 3,822,149 shares
Transitional Small Business Disclosure Format Yes No X
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ECHO SPRINGS WATER CO., INC.
Index to Form 10-QSB
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Page
Item Number
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements:
Consolidated Balance Sheets -
January 31, 1998 and October 31, 1997 3
Consolidated Statements of Operations -
Three months ended January 31, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Three months ended January 31, 1998 and 1997 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
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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ASSETS
January 31, October 31,
1998 1997
Current assets:
Cash $ 14,485 $ 170,288
Accounts receivable - net of allowance
for doubtful accounts of $7,000 in
1998 and $9,000 in 1997 234,898 255,675
Notes receivable, current portion 28,031 29,842
Inventories 34,222 25,753
Prepaid expenses 105,652 22,620
Total current assets 417,288 504,178
Notes receivable, net of current portion 125,088 132,254
Property, plant and equipment - net 1,289,036 1,187,029
Other assets 261,581 353,970
TOTAL ASSETS $2,092,993 $2,177,431
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Installment debt $ 590,000 $ 624,000
Debentures 25,000 25,000
Accounts payable and accrued expenses 1,530,750 1,419,074
Customer deposits 309,400 304,800
Unearned revenues 14,095 14,963
Total current liabilities 2,469,245 2,387,837
Shareholders' equity (deficiency):
Common stock, $.0001 par value,
75,000,000 shares authorized; issued
and outstanding 3,822,149 shares in
1998 and 1997 382 382
Additional paid-in capital 8,792,884 8,792,884
Accumulated deficit (9,169,518) (9,003,672)
Total shareholders'
equity (deficiency) (376,252) (210,406)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY) $2,092,993 $2,177,431
The accompanying notes are an integral part of these consolidated financial
statements.
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ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31,
(UNAUDITED)
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1998 1997
Revenues:
Gross sales $ 441,998 $ 444,476
Credits and allowances (8,450) (2,652)
Freight out (7,535) (8,949)
Other income (749) (134)
425,264 432,741
Costs and expenses:
Cost of sales 167,318 188,795
Selling, general and
administrative 404,368 373,834
Interest 18,789 17,474
Amortization of other assets 1,219 1,219
Gain on disposal of assets (584) (860)
Total costs and expenses 591,110 580,462
Net loss $ (165,846) $ (147,721)
Net loss per share $ (.04) $ (.05)
Weighted average shares outstanding 3,822,149 2,907,149
The accompanying notes are an integral part of these consolidated financial
statements.
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ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31,
(UNAUDITED)
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1998 1997
Operating activities:
Net loss $(165,846) $(147,721)
Adjustments to reconcile net loss to
net cash used by
operating activities -
Depreciation and amortization 34,473 39,869
Gain on disposal of assets (584) (860)
Provision for doubtful accounts (2,000)
Changes in assets and liabilities -
Accounts receivable 22,777 23,021
Inventories (8,469) 7,376
Prepaid expenses (83,032) (46,185)
Other assets (679) (353)
Accounts payable and accrued
expenses 111,676 67,825
Customer deposits 4,600 2,600
Unearned revenues (868) (545)
Net cash used by
operating activities (87,952) (54,973)
Investing activities:
Capital expenditures (42,021) (1,262)
Collections on notes receivable 8,977 6,357
Proceeds from disposal of assets 584 860
Net cash provided (used) by
investing activities (32,460) 5,955
Financing activities:
Increase in installment debt 20,000
Repayment of installment debt (34,000)
Deferred public offering costs (1,391)
Net cash provided (used) by
financing activities (35,391) 20,000
Net decrease in cash (155,803) (29,018)
Cash - beginning 170,288 44,631
CASH - ENDING $ 14,485 $ 15,613
SUPPLEMENTAL INFORMATION:
Interest paid $ 6,300 $ 927
The accompanying notes are an integral part of these consolidated financial
statements.
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ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS AND 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, 1997 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. In the opinion of management, the
interim consolidated financial statements reflect all
adjustments of a normal recurring nature necessary for a fair
statement of the results for interim periods. 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 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 recorded
for the portion billed in advance. Revenues from product sales
are recognized upon shipment to the wholesaler or delivery to
the customer, as applicable.
Loss Per Common Share
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. Loss per share represents both the basis and
diluted amounts, since all conversion and exercise of options
and warrants would be antidilutive and therefore not taken
into consideration.
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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, 1997 and January
31, 1998 consist of the following:
January October
31, 1998 31, 1997
Bottles $ 6,762 $
Product held for sale 16,714 16,585
Supplies 10,746 9,168
_________
$34,222 $25,753
========== =========
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 ranging from
5 - 40 years and consist of the following:
January October
31, 1998 31, 1997
Land $ 150,000 $ 150,000
Buildings and improvements 364,541 362,298
Water coolers, bottles and
brewers 788,002 754,084
Machinery and equipment 496,445 397,345
Vehicles 10,500 10,500
Furniture and fixtures 77,874 77,874
1,887,362 1,752,101
Less: accumulated depreciation
and amortization 598,326 565,072
----------- --------
$1,289,036 $1,187,029
========== ==========
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ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 - OTHER ASSETS
Other assets at October 31, 1997 and January 31, 1998 are
comprised of the following:
January October
31, 1998 31, 1997
Water rights $205,000 $205,000
Accumulated amortization 39,624 38,405
Net water rights 165,376 166,595
Deposits 62,938 155,499
Deferred public offering costs 33,267 31,876
--------- ------
$261,581 $353,970
========= ========
NOTE 5 - INDEBTEDNESS
The Company is currently in default on principal and interest
payments on its debentures and $75,000 of its debt. Although
the debt is in default and therefore currently due, the
debtholders have informally agreed to wait for payment until
completion of a proposed public offering. (Note 7).
NOTE 6 - INCOME TAXES
The Company files a consolidated federal income tax return
with its subsidiaries. At October 31, 1997, the estimated
maximum amount of net operating loss carryforward available to
reduce future taxable income is approximately $8,925,000,
expiring from 2004 through 2012. Deferred tax benefits from
the use of net operating loss carryforwards of approximately
$3,000,000 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.
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ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 - GOING CONCERN
The Company sustained losses of $739,620 for the fiscal year
ended October 31, 1997 and $165,846 for the three months ended
January 31, 1998. The Company had deficit net worths of
$210,406 at October 31, 1997 and $376,252 at January 31, 1998.
In addition, the Company was in default on principal and
interest payments on a portion of its debt. (Note 5). 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 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. 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 identifying 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.
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ECHO SPRINGS WATER CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1998 COMPARED WITH THE
THREE MONTHS ENDED JANUARY 31, 1997
Gross sales decreased $2,478 (0.6%) to $441,998 for the three months ended
January 31, 1998 ("1998") from $444,476 for the three months ended January 31,
1997 ("1997"). Five-gallon sales to Aramark Corporation increased by
approximately $81,000, due to increased sales of approximately $12,000 to their
continuing New York and New Jersey operations plus the Company's expansion into
this customer's Pennsyl-vania locations, which accounted for the remaining
approximately $69,000. However, five-gallon and allied product sales to and
rental income from the Company's regular customer base fell by approximately
$32,000, $9,000 and $9,000, respectively, largely due to a deliberate
discontinuance of service to marginal customers and only a nominal sales and
marketing effort as the Company concentrated its efforts toward the Aramark
business as this business requires no capital investment outlay for cooler
equipment and provides its own sales and marketing at no additional cost to the
Company. Sales of one gallons and one quarts, both low-margin products, and
freight-out decreased by approximately $31,000, $2,000 and $1,000, respectively,
largely due to a discontinuance of service to one supermarket customer and the
loss of one of the Company's distributors which completed its own bottling
facility in July, 1997. A $1,000 decrease in regular customer credits and
allowances was offset by approximately $7,000 in discounts attributable to a
half-price discount offered to Aramark for three months (March 10 through June
8, 1997) and a $0.15 discount per bottle for the nine months thereafter as an
incentive to obtain their Pennsylva-nia business.
Cost of sales for 1998 was $167,318 (37.9% of gross sales) as compared to
$188,795 (42.5% of gross sales) for 1997. This 4.6 percentage point improvement
is comprised of a 6.1 percentage point gain due primarily to the above-noted
reductions in the sales of low-margin product lines, offset by a 1.5 percentage
point increase caused by the above-noted decrease in the equipment rental
portion of gross sales.
Selling, general and administrative expenses were $404,368 in 1998 as compared
to $373,834 in 1997. Delivery and warehouse costs increased approximately
$18,000. The Pennsylvania operations amounted to approximately $27,000 but,
while Kearny staff levels remained similar, a change in the staff mix resulted
in reduced labor costs of approximately $9,000. Advertising and promotion costs
increased approximately $5,000 and related primarily to the Company's Aramark
business. The addition of one outside salesman added a further approximately
$7,000. The increase in clerical costs of approximately $12,000 was offset by
reductions in other general and administrative expenses.
Interest expense increased from $17,474 in 1997 to $18,789 in 1998. Amortization
of other assets of $1,219 in 1998 and 1997 related to the amortization of water
rights.
The net loss for 1998 increased by $18,125 from $147,721 in 1997 to $165,846 in
1998.
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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, 1998 and 1997, the Company had
negative cash flows from operating activities of $87,952 and $54,973,
respectively. Investing activities used cash of $32,460 in 1998, primarily for
the acquisition of property and equipment, and provided cash of $5,955 in 1997,
primarily from collections on notes receivable. The Company has financed its
operating and investing activities during these periods primarily through the
issuance of installment debt.
At January 31, 1998, the Company had a working capital deficiency of $2,051,957.
Short-term credit sources are limited to trade credit on purchases and services.
The report issued by the Company's accountants that accompanies the Company's
Consolidated Financial Statements for the year ended October 31, 1997 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. While the
doubling of its asset and equity listing requirements during 1997 by the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
caused a delay in the Company's plans, such offering is expected to take place
during Fiscal 1998. 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 identifying 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.
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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 -
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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, 1997.
ITEM 5. Other Events
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits - Financial Data Schedule
b. Reports on Form 8-K - None
- 13 -
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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 11, 1998
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<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>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> NOV-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,613
<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> 432,741
<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
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