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 July 31, 1999.
( ) 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 July 31, 1999
Common stock, $.0001 par value 4,372,149 shares
Transitional Small Business Disclosure Format Yes No X
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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 -
July 31, 1999 and October 31, 1998 3
Consolidated Statements of Operations -
Three months ended July 31, 1999 and 1998 4
Consolidated Statements of Operations -
Nine months ended July 31, 1999 and 1998 5
Consolidated Statements of Cash Flows -
Nine months ended July 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 5. Other Events 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
July 31, October 31,
1999 1998
Current assets:
Cash $ 4,628 $ 18,848
Accounts receivable - net of allowance
for doubtful accounts of $15,000 in
1999 and $29,000 in 1998 229,194 313,713
Notes receivable, current portion 42,908 43,331
Inventories 19,190 27,130
Prepaid expenses 39,552 18,469
--------- ---------
Total current assets 335,472 421,491
Notes receivable, net of current portion 79,767 102,936
Property, plant and equipment - net 1,142,084 1,254,971
Other assets 273,254 225,577
--------- ---------
TOTAL ASSETS $1,830,577 $2,004,975
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Installment debt $1,224,000 $1,050,000
Debentures 25,000 25,000
Accounts payable and accrued expenses 1,048,911 1,053,182
Customer deposits 317,400 317,200
Unearned revenues 10,987 12,591
--------- ---------
Total current liabilities 2,626,298 2,457,973
--------- ---------
Shareholders' equity (deficiency):
Common stock, $.0001 par value,
75,000,000 shares authorized; issued
and outstanding 4,372,149 shares in
1999 and 3,822,149 shares in 1998 437 382
Additional paid-in capital 9,042,859 8,792,884
Accumulated deficit (9,839,017) (9,246,264)
--------- ---------
Total shareholders'
equity (deficiency) (795,721) (452,998)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY) $1,830,577 $2,004,975
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
- 3 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31,
(UNAUDITED)
1999 1998
---- ----
Revenues:
Gross sales $ 358,046 $ 490,699
Credits and allowances (195) (522)
Freight out (9,576)
Other income 3,610 4,232
---------- ----------
361,461 484,833
---------- ----------
Costs and expenses:
Cost of sales 128,078 152,841
Selling, general and
administrative 379,229 392,623
Interest 41,766 28,355
Amortization of other assets 1,219 1,219
Other expenses (income) - net (81) 2,000
---------- ----------
Total costs and expenses 550,211 577,038
---------- ----------
Net loss $ (188,750) $ (92,205)
========== ==========
Net loss per share $ (.04) $ (.03)
========== ==========
Weighted average shares outstanding 4,372,149 3,822,149
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
- 4 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31,
(UNAUDITED)
1999 1998
---- ----
Revenues:
Gross sales $ 1,037,548 $ 1,415,511
Credits and allowances (2,404) (13,655)
Freight out (24,447)
Other income 2,972 6,220
---------- ----------
1,038,116 1,383,629
---------- ----------
Costs and expenses:
Cost of sales 394,391 474,716
Selling, general and
administrative 1,133,186 1,240,246
Interest 100,688 71,447
Amortization of other assets 3,657 3,657
Other expenses (income) - net (1,053) 2,040
Gain on disposal of assets (1,441)
---------- ----------
Total costs and expenses 1,630,869 1,790,665
---------- ----------
Net loss $ (592,753) $ (407,036)
========== ==========
Net loss per share $ (.14) $ (.11)
========== ==========
Weighted average shares outstanding 4,099,927 3,822,149
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
- 5 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31,
(UNAUDITED)
1999 1998
---- ----
Operating activities:
Net loss $(592,753) $(407,036)
Adjustments to reconcile net loss to
net cash used by operating
activities -
Depreciation and amortization 122,343 112,180
Gain on disposal of assets (1,441)
Provision for doubtful accounts (14,000) 1,000
Changes in assets and liabilities -
Accounts receivable 98,519 (37,930)
Inventories 7,940 (2,084)
Prepaid expenses (21,083) (23,943)
Other assets 28,669 (1,290)
Accounts payable and accrued
expenses (4,271) (72,411)
Customer deposits 200 20,600
Unearned revenues (1,604) (1,590)
-------- --------
Net cash used by
operating activities (376,040) (413,945)
-------- --------
Investing activities:
Capital expenditures (5,799) (103,549)
Collections on notes receivable 23,592 11,250
Proceeds from disposal of assets 1,441
Deferred project costs (80,003)
-------- --------
Net cash used by
investing activities (62,210) (90,858)
-------- --------
Financing activities:
Proceeds from issuance of
common stock 250,030
Increase in installment debt 310,000 540,000
Repayment of installment debt (136,000) (114,000)
Deferred public offering costs (1,454)
-------- --------
Net cash provided by
financing activities 424,030 424,546
-------- --------
Net decrease in cash (14,220) (80,257)
Cash - beginning 18,848 170,288
-------- --------
CASH - ENDING $ 4,628 $ 90,031
======== ========
SUPPLEMENTAL INFORMATION:
Interest paid $ 19,301 $ 40,748
The accompanying notes are an integral part of these consolidated financial
statements.
- 6 -
<PAGE>
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, 1998 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 primarily for
direct distribution and sale to business and residential
customers.
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 delivery to the customer.
Loss Per Common Share
Loss per share is based upon the weighted average number of
shares outstanding during each period. Loss per share
represents both the basic and diluted amounts, since all
conversion and exercise of options and warrants would be
antidilutive and therefore not taken into consideration.
- 7 -
<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, 1998 and July 31,
1999 consist of the following:
July October
31, 1999 31, 1998
Bottles $ 732 $ 833
Product held for sale 11,329 15,582
Supplies 7,129 10,715
------ ------
$19,190 $27,130
====== ======
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:
July October
31, 1999 31, 1998
Land $ 150,000 $ 150,000
Buildings and improvements 364,541 364,541
Water coolers, bottles and
brewers 842,289 842,289
Machinery and equipment 515,469 509,670
Vehicles 10,500 10,500
Furniture and fixtures 90,610 90,610
--------- ---------
1,973,409 1,967,610
Less: accumulated depreciation
and amortization 831,325 712,639
--------- ---------
$1,142,084 $1,254,971
========= =========
- 8 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4 - OTHER ASSETS
------------
Other assets at October 31, 1998 and July 31, 1999 are
comprised of the following:
July October
31, 1999 31, 1998
Water rights $205,000 $205,000
Accumulated amortization 46,938 43,281
------- -------
Net water rights 158,062 161,719
Deposits 35,189 63,858
Deferred project costs 80,003
------- -------
$273,254 $225,577
======= =======
NOTE 5 - INDEBTEDNESS
------------
The Company is currently in default on principal and interest
payments on its debentures and $1,050,000 of its debt.
NOTE 6 - INCOME TAXES
------------
The Company files a consolidated federal income tax return
with its subsidiaries. At October 31, 1998, the estimated
maximum amount of net operating loss carryforward available to
reduce future taxable income is approximately $9,152,000,
expiring from 2004 through 2018. Deferred tax benefits from
the use of net operating loss carryforwards of approximately
$3,112,000 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.
- 9 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 7 - GOING CONCERN
-------------
The Company sustained losses of $242,592 for the fiscal year
ended October 31, 1998 and $592,753 for the nine months ended
July 31, 1999. The Company had deficit net worths of $452,998
at October 31, 1998 and $795,721 at July 31, 1999. 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. The Company intends 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.
- 10 -
<PAGE>
ECHO SPRINGS WATER CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1999 COMPARED WITH
THE NINE MONTHS ENDED JULY 31, 1998
Gross sales decreased $377,963 (26.7%) to $1,037,548 for the nine months ended
July 31, 1999 ("1999") from $1,415,511 for the nine months ended July 31, 1998
("1998"). Five-gallon sales to Aramark Corporation decreased by approximately
$156,000. Further, five-gallon and allied product sales to and rental income
from the Company's regular customer base fell by approximately $83,000, $34,000
and $23,000, respectively, largely due to only a nominal sales and marketing
effort by the Company. Low-margin five-gallon and one-gallon sales to
distributors fell by approximately $74,000 and $8,000, respectively, due largely
to the loss of five distributors as a result of price competition. While credits
and allowances and net freight out decreased approximately $11,000 and $22,000,
respectively, other income declined approximately $1,000.
Cost of sales decreased $80,325 (16.9%) to $394,391 for 1999 from $474,716 for
1998. Cost of sales, other than depreciation, fell 23.5%, due primarily to the
above-noted reductions in sales. However, depreciation rose approximately $9,000
in 1999 over 1998, primarily as a result of the improved stock of five-gallon
bottles and the new 16.9 ounce bottling line.
Selling, general and administrative expenses were $1,133,186 in 1999 as compared
to $1,240,246 in 1998. Delivery and warehouse costs increased approximately
$5,000, as increased vehicle rental costs and additional warehouse staff were
only partially offset by reduced maintenance and repairs. Selling costs fell
approximately $37,000, as declines in labor costs, advertising and promotion
expense and bad debt expense of approximately $9,000, $26,000 and $6,000,
respectively, were offset by an approximate $4,000 increase in vehicle rental
costs. While office labor costs, professional fees and insurance fell by
approximately $16,000, $48,000 and $17,000, respectively, general office costs
and travel and entertainment rose by approximately $2,000 and $4,000,
respectively.
Interest expense increased from $71,447 in 1998 to $100,688 in 1999 as a result
of increased debt. Amortization of other assets of $3,657 in 1999 and 1998
related to the amortization of water rights.
The net loss for 1999 increased by $185,717 from $407,036 in 1998 to $592,753 in
1999.
- 11 -
</TABLE>
<PAGE>
ECHO SPRINGS WATER CO., INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1999 COMPARED WITH
THE THREE MONTHS ENDED JULY 31, 1998
Gross sales decreased $132,653 (27.0%) to $358,046 for the three months ended
July 31, 1999 ("1999") from $490,699 for the three months ended July 31, 1998
("1998"). Five-gallon sales to Aramark Corporation decreased by approximately
$68,000. Further, five-gallon and allied product sales to and rental income from
the Company's regular customer base fell by approximately $30,000, $11,000 and
$8,000, respectively, largely due to only a nominal sales and marketing effort
by the Company. Low-margin five-gallon and one-gallon sales to distributors fell
by approximately $12,000 and $3,000, respectively, due largely to the loss of
five distributors as a result of price competition. In addition, net freight out
decreased approximately $10,000.
Cost of sales decreased $24,763 (16.2%) to $128,078 for 1999 from $152,841 for
1998. Cost of sales, other than depreciation, fell 21.6%, due primarily to the
above-noted reductions in sales. However, depreciation rose approximately $1,000
in 1999 over 1998, primarily as a result of the improved stock of five-gallon
bottles.
Selling, general and administrative expenses were $379,229 in 1999 as compared
to $392,623 in 1998. Delivery and warehouse costs decreased approximately
$19,000, as a result of reductions in labor costs, equipment rental and
maintenance and repairs of approximately $11,000, $3,000 and $5,000,
respectively. Selling costs fell approximately $1,000. Increases in health
benefits, professional fees and travel and entertainment amounted to
approximately $7,000.
Interest expense increased from $28,355 in 1998 to $41,766 in 1999 as a result
of increased debt. Amortization of other assets of $1,219 in 1999 and 1998
related to the amortization of water rights.
The net loss for 1999 increased by $96,545 from $92,205 in 1998 to $188,750 in
1999.
- 12 -
<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 nine months ended July 31, 1999 and 1998, the Company had negative
cash flows from operating activities of $376,040 and $413,945, respectively.
Investing activities used cash of $62,210 in 1999, primarily for deferred
project costs, and used cash of $90,858 in 1998, 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 common stock
and installment debt and cash on hand.
At July 31, 1999, the Company had a working capital deficiency of $2,290,826.
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, 1998 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.
The Company intends 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.
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.
- 13 -
<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, 1998.
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
- 14 -
<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 /s/ Michael S. Rakusin
Michael S. Rakusin
President
Dated: September , 1999
- 15 -
<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: September 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the nine months ended July 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> OCT-31-1998
<PERIOD-END> Jul-31-1999
<CASH> 4,628
<SECURITIES> 0
<RECEIVABLES> 244,194
<ALLOWANCES> 15,000
<INVENTORY> 19,190
<CURRENT-ASSETS> 335,472
<PP&E> 1,973,409
<DEPRECIATION> 831,325
<TOTAL-ASSETS> 1,830,577
<CURRENT-LIABILITIES> 2,626,298
<BONDS> 0
0
0
<COMMON> 437
<OTHER-SE> (796,158)
<TOTAL-LIABILITY-AND-EQUITY> 1,830,577
<SALES> 1,035,144
<TOTAL-REVENUES> 1,038,116
<CGS> 394,391
<TOTAL-COSTS> 394,391
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 100,688
<INCOME-PRETAX> (592,753)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (592,753)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
