<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[XX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________________ to ____________________
Commission file number 1-12130
GREAT PINES WATER COMPANY, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 76-0203752
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 N. SHEPHERD, SUITE #303 HOUSTON, TX 77007
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (713) 864-6688
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(Former name, address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
X YES NO
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
- - -------------- YES -------------- NO
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
CLASS OUTSTANDING AS OF MARCH 31, 1996
- - ------------------------------------------------------------------------------
(Common Stock, $.01 per value) 2,381,700 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GREAT PINES WATER COMPANY, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
MARCH 31, DECEMBER 31,
1996 1995
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(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 231 $ 62
Accounts receivable - trade (net) 552 628
Inventory 88 85
Prepaid sales commissions 1 10
Prepaid insurance 168 168
Other prepaid expenses 2 5
------- -------
Total current assets 1,043 958
------- -------
PROPERTY, PLANT AND EQUIPMENT 8,656 8,636
Accumulated depreciation (3,307) (3,043)
------- -------
Total property, plant and equipment 5,349 5,593
------- -------
Other assets 62 55
------- -------
TOTAL ASSETS $ 6,454 $ 6,606
------- -------
------- -------
LAIBILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 186 $ 271
Customer deposits 713 767
Accrued liabilities and other current liabilities 297 154
Note payable 138 143
Current maturities of long-term debt 704 779
Current portion of capital lease obligations 113 126
------- -------
Total current liabilities 2,151 2,240
------- -------
LONG TERM DEBT 3,095 3,207
CAPITAL LEASE OBLIGATIONS 157 183
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; no shares outstanding at March 31, 1996
and December 31, 1995
Common stock, $.01 par value; 10,000,000 shares
authorized, 2,381,700 and 2,373,700 shares outstanding
at March 31, 1996 and December 31, 1995, respectively 24 24
Additional paid-in-capital 2,994 2,988
Retained deficit (1,960) (2,029)
Treasury stock (7) (7)
------- -------
Total shareholders' equity 1,051 976
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,454 $ 6,606
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements
Page 1
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GREAT PINES WATER COMPANY, INC.
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
------ ------
(UNAUDITED)
Net sales:
Water $1,070 $ 963
Equipment rental 663 614
Other 43 36
------ ------
1,776 1,613
------ ------
Cost and expenses:
Transportation costs 428 387
Depreciation and amortization 265 278
Operating costs 314 271
Commissions and other selling 53 120
------ ------
1,060 1,056
------ ------
Income from operations 716 557
Other expenses:
General and Administrative costs 536 409
Interest expense (net) 111 108
------ ------
647 517
------ ------
Income before taxes 69 40
Tax expense 0 0
------ ------
Net income $ 69 $ 40
------ ------
------ ------
Net income per share $ 0.03 $ 0.02
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------ ------
Weighted average common
shares outstanding 2,554 2,384
------ ------
------ ------
See accompanying notes to financial statements
Page 2
<PAGE>
GREAT PINES WATER COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
----- -----
(UNAUDITED)
Cash flows from operating activities:
Net income $ 69 $ 40
Adjustments to reconcile net income to net cash
provided by operating activities:
Non cash charges 269 287
Changes in current operating assets and liabilities 80 57
----- -----
Net cash provided by operating activities 418 384
----- -----
Cash flows used by investing activities-additions to
property and equipment (25) (15)
----- -----
Cash flows from financing activities:
Proceeds from note payable and long term debt 55 5
Payments on note payable and long term debt (285) (205)
Issuance of common stock 6 --
----- -----
Net cash used in financing activities (224) (200)
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Increase in cash 169 169
Cash and cash equivalents, beginning of period 62 177
----- -----
Cash and cash equivalents, end of period $ 231 $ 346
----- -----
----- -----
See accompanying notes to financial statements
Page 3
<PAGE>
GREAT PINES WATER COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE A - BASIS OF PRESENTATION
Great Pines Water Company, Inc. was incorporated in November 1986 and is
engaged in the bottling, distribution and sale of bottled drinking, purified,
and spring water and rental of related dispensing equipment under the "Texas
Premium Waters" brand name.
The accompanying unaudited condensed financial statements have been prepared
in accordance with Generally Accepted Accounting Principles for interim
financial information and with the instructions to Form 10-QSB and rule 10-01
of Regulation S-X. They do not include all information and notes required by
Generally Accepted Accounting Principles for complete financial statements.
The accompanying financial statements include all adjustments which in the
opinion of management are necessary in order to make the financial statements
not be misleading.
The accompanying condensed financial statements should be read in conjunction
with the Audited Financial Statements for the Year Ended December 31, 1995
and the notes thereto contained in the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995.
The results of operations for the three month period ended March 31, 1996,
are not necessarily indicative of the results to be expected for the full
year.
NOTE B - STOCKHOLDERS' EQUITY
In August 1993, the Company sold an aggregate of 575,000 shares of its common
stock, par value $.01 per share, to the public in its initial public offering
(the "Offering"), at a price of $5.00 per share. In addition, in connection
with the Offering, the Company sold, for a nominal consideration, warrants to
purchase an aggregate of 50,000 shares of common stock, at an exercise price
of $6.00 per share, to the underwriters of the Offering. The underwriters'
warrants are exercisable and expire if not exercised within five years of the
Offering. The underwriters have certain registration rights with respect to
the shares of common stock issuable upon exercise of the warrants. The
Company received aggregate net proceeds of $2,322,500 from the Offering.
The Company issued 33,333 shares of common stock to a private investor in May
1993 at a purchase price of $3.00 per share.
The Company issued 5,000 shares of common stock to a consultant under the
Company's 1995 Incentive Stock Plan during July 1995 for services rendered in
connection with the promotion of the Company.
The Company issued 3,000 shares of common stock to a former employee under
the Company's 1993 Stock Option Plan during March 1996 as the employee
exercised vested options.
Page 4
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NOTE C - STOCK OPTION PLANS
The Company's Stock Option Plan ("Option Plan") was adopted in 1993. An
aggregate of 225,000 shares of common stock were reserved for issuance
pursuant to the Option Plan. The Option Plan is administered by the
Compensation Committee established by the Board of Directors (the
"Committee"). The Committee determines, subject to the provisions of the
Option Plan, the employees to whom options are granted and the number of
options to be granted. The Committee may grant (i) "Incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, and
(ii) "non-qualified stock options" (options which do not meet the
requirements of Section 422).
Incentive stock options granted under the Option Plan must have an exercise
price equal to at least the fair market value of the common stock at the date
the option is granted. Each option granted under the Option Plan may have
a term of up to ten years, except that incentive stock options granted to a
shareholder who, at the time of grant, owns more than 10% of the total
combined voting power of all classes of stock of the Company must be not less
than 110% of the fair market value of the Company's common stock on the date
of grant and must not be exercisable for more than five years from the date
of grant. As of March 31, 1996, stock options to acquire 221,000 shares of
the Company's common stock have been granted under the Option Plan at an
exercise price of $2.00 to $2.20 per share. The options become exercisable
beginning March 30, 1995 through December 28, 1998. As of March 31, 1996,
174,200 of these options are exercisable.
The Company's Non-Employee Director Stock Option Plan ("Non-Employee
Director Plan") was also adopted in 1993. An aggregate of 25,000 shares of
common stock were reserved for issuance pursuant to the Non-Employee Director
Plan. Options to purchase 5,000 shares of common stock are automatically
granted to each person elected for the first time as director of the Company,
who is not an employee of the Company. An option to acquire an additional
1,000 shares is automatically granted each year thereafter that such director
is re-elected. Options granted under the Non-Employee Director Plan will not
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986. Options granted under the Non-Employee
Director Plan expire ten years after date of grant. As of March 31, 1996,
15,000 options have been granted under the Non-Employee Director Plan at an
exercise price of $2.00 to $4.25 per share. None of these options are
exercisable as of March 31, 1996.
The Company's's Incentive Stock Plan (Incentive Plan") was adopted in 1995. An
aggregate of 500,000 shares of common stock were reserved for issuance
pursuant to the Incentive Plan. The Incentive Plan is administered by the
Committee. The Committee determines, subject to the provisions of the
Incentive Plan, the employees to whom incentives are awarded. The Committee
may award (i) "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, (ii) "non-qualified stock options"
(options which do not meet the requirements to Section 422), (iii) shares of
"restricted stock", and (iv) "stock bonuses". Subject to the terms of the
Incentive Plan, the Committee will also determine the prices, expiration
dates and other material features of the incentive awards. As of March 31,
1996, 5,000 shares of common stock were granted under the Incentive Plan.
Page 5
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NOT D - TREASURY STOCK
The Company purchased 2,000 shares of its common stock for $10,000 at the end
of the First Quarter of 1994. During the Second and Third Quarter of 1994 and
the First Quarter of 1995, the Company issued 700 shares to various customers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the accompanying condensed financial
statements.
GENERAL
The Company's revenues consist of sales of the Company's bottled water
products, rental of water dispensers and sales of cups and other
miscellaneous items. The Company's strategy has been to use all available
capital for expansion and increasing its customer base. During periods of the
growth the Company experiences book losses due to expensing all selling and
commission cost. The growth in customer accounts has been accompanied by
increased revenues during 1994, 1995 and the First Quarter of 1996. The
Company attributes the growth in customer accounts in 1994 and 1995 to
aggressive marketing, increased bottled water consumption, a change in the
type of closed water system and an effective customer retention program. The
Company anticipates that its customer base and revenues will continue to
expand as sales of bottled water increase and the Company continues to
penetrate the Houston and Dallas/Ft. Worth bottled water markets. Some of the
factors that the Company believes may affect the rate of increase in bottled
water sales include the public perception of the quality of municipal
supplies and general health concerns.
Selling expenses comprise the largest controllable component of expenses.
Selling expenses consist primarily of commissions paid to the sales force and
telemarketing expenses. Commissions paid on commercial accounts which
terminate service within three months of initial set up are refundable to the
Company. Commissions paid on commercial accounts are expensed as they are
incurred. Commissions represent a higher percentage of total expenses during
periods when the Company is adding accounts at an accelerated rate when
compared to other expenses, which are not variable.
Transportation expenses include fuel, insurance, repair and maintenance
expenses associated with the Company's delivery trucks and vans.
Depreciation and amortization consist of depreciation of the Company's
delivery trucks and vans, water dispensers and bottles and the bottling
plants. Depreciation and amortization are expected to increase as the Company
continues to commit resources to its growing customer base.
Operating expenses included plant expenses, rent, direct production employee
costs and raw materials.
General and administrative expenses include centralized administration and
support costs.
Page 6
<PAGE>
Other expenses include bad debt, a provision for lost coolers and cash
over/short.
Certain reclassifications to prior years' balances were made to conform with
the current years' presentation.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Revenues for the three month period ended March 31, 1996 (the "First Quarter
of 1996") increased 10% to $1,776,000 versus $1,163,000 during the three
month period ended March 31, 1995 (the "First Quarter of 1995"). The
principal reason for the increase in revenues was the increase in the number
of customer accounts from the First Quarter of 1995 to the First Quarter of
1996.
Transportation expenses increased 11% during the First Quarter of 1996
compared to the First Quarter of 1995, $428,000 and $387,000 respectively.
The increase in transportation expenses is due to increased water sales and
increased fuel cost.
Depreciation and amortization expenses decreased 5% during the First Quarter
of 1996 from the First Quarter of 1995, to $265,000 from $278,000, as a
result of certain assets of the Company becoming fully depreciated for book
purposes during 1995.
Operating expenses increased 16% during the First Quarter of 1996 from the
First Quarter of 1995, to $314,000 from $271,000, primarily due to the
increase in number of customers and an increase in cooler repair costs to
refurbish the Company's cooler inventory for the 1996 marketing program.
Commissions and other selling expenses decreased 56% during the First Quarter
of 1996 from the First Quarter of 1995, to $53,000 from $120,000. The
Company decreased the marketing costs and growth of the Company during the
and First quarter of 1995 in order to improve its working capital and
financial position. The Company began a marketing program during the Second
Quarter of 1996.
General and administrative expenses increased 31% during the First Quarter of
1996 from the First Quarter of 1995, to $536,000 from $409,000. The increase
was caused primarily by additional professional fees during the First Quarter
of 1996 and increased overhead costs.
Interest expenses increased 3% during the First Quarter of 1996 from the
First Quarter of 1995, to $111,000 from $108,000. The increase is caused by
the addition of subordinated debt during the Second Quarter of 1995.
Page 7
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LIQUIDITY AND CAPITAL RESOURCES
The Company has typically financed operations from a combination of vendor
financing, bank loans and leases, placement of securities and cash generated
from operations. The Company generated cash of $2,322,500 from its initial
public offering in 1993. During 1993 and 1994, approximately $500,000 of the
proceeds were used for expansion and overhead costs to enter the Dallas/Fort
Worth market place, approximately $1,500,000 was used for commissions and
selling costs to increase the customer base and approximately $300,000 was
used for working capital. The Company acquires water coolers and cooler
equipment through vendor financing. The Company leases its water processing
and bottling plants and various trucks from financial institutions under
capital lease arrangements. Additional trucks and equipment are obtained under
operating leases.
Net cash from operating activities for the First Quarter of 1996 and the
First Quarter of 1995 was $418,000 and $384,000 respectively. The increase is
due to decreased marketing and general administrative expenses and increased
sales.
Working capital at March 31, 1996 and December 31, 1995 can be shown as
follows:
MARCH 31, DEC. 31,
1996 1995
-------- --------
Cash $231,000 $ 62,000
Accounts receivable, net 552,000 628,000
-------- --------
Subtotal 783,000 690,000
-------- --------
Accounts payable 186,000 271,000
Accrued liabilities 297,000 154,000
-------- --------
Subtotal 483,000 425,000
-------- --------
Working capital $300,000 $265,000
-------- --------
-------- --------
During the three month period ended March 31, 1996, the Company made capital
expenditures of $25,000 for office equipment and water bottles. No capital
expenditures are anticipated in the near future.
During the Second Quarter of 1995, the Company obtained $400,000 in
convertible subordinated debt for a term of seven years, to fund additional
growth from a cooler manufacturer located in Europe. The interest on the note
is at the prime lending rate plus 2%. The lender has the right to have the
note converted to common stock of the Company in the event that the Company
should fail to repay or otherwise default on the note. Principal and interest
payments are deferred until June 1996. As of March 31, 1996, the Company's
long-term debt amounted to $500,000 in bank debt, $2,899,000 in vendor
financing and $400,000 in convertible subordinated debt. During First Quarter
of 1996, the Company was in default of the net worth covenant of a bank loan
agreement. The loan balance was refinanced with a new bank to cure the
default position. The note is due in monthly installments with interest at
prime plus 2%, adjusted quarterly, through October 1998. The note is
collateralized by accounts receivable, inventory, equipment vehicles, the
assignment of a life insurance
Page 8
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policy on a shareholder and 400,000 shares held by a principal shareholder.
The note is guaranteed by a corporation related through common ownership up
to 37.5% of the outstanding balance and is guaranteed by the Small Business
Administration up to 75% of the outstanding balance. The agreement contains
no financial covenant restrictions.
Management's strategy is based on increasing the value of the Company by
increasing the customer base. Expenses related to new customer acquisitions
were greatly decreased during the Fourth Quarter of 1995 and the first
quarter of 1996 in order to improve the Company's working capital position.
During the Second Quarter of 1996 the Company reestablished it's marketing
team and began adding new customers. The marketing program is being funded
by internally generated cash from operations. Because the Company records the
marketing expense associated with the implementation of its growth strategy
in the period in which such expenses are incurred, the Company's earnings
will initially decrease for a period in which the Company experiences rapid
growth. Despite the short-term effect of growth on earnings, the Company
believes that its strategy of increasing the size of its customer base will
enhance shareholder value and improve the financial performance of the Company.
The Company will not be able to expand significantly or enter into new
markets until additional financing is acquired. There can be no assurance
that such arrangements will become available on terms acceptable to the
Company.
Page 9
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits.
Exhibit No. Description of Exhibit
----------- ----------------------
10.1 Loan Agreement, dated November 1, 1988, by and between Great
Pines Water Company, Inc. and Bank One Texas, National
Association, as amended. Exhibit 10.1 to the Company's
Registration Statement (#33-63022) on Form SB-2 ("The
Registration Statement"), is incorporated herein by reference.
10.2 Authorization and Loan Agreement with the United States Small
Business Administration. Exhibit 10.2 to the Registration
Statement is incorporated herein by reference.
10.3 Lease Agreement, dated April 1, 1990, with DBH Investment
Partners No. 3, as amended. Exhibit 10.3 to the Registration
Statement is incorporated herein by reference.
10.4 1993 Stock Option Plan of Great Pines Water Company, Inc.
Exhibit 10.4 to the Registration Statement is incorporated
herein by reference.
10.5 1993 Non-Employee Director Stock Option Plan of Great Pines
Water Company, Inc. Exhibit 10.5 to the Registration Statement
is incorporated herein by reference.
10.6 Form of Loan Agreement by and between Great Pines Water
Company, Inc. and Dependable Acceptance Company for the
purchase of equipment. Exhibit 10.6 to the Company's annual
report on Form 10-KSB for the fiscal year ended December 31,
1994 is incorporated herein by reference.
10.7 Amendment dated December 31, 1994 to Loan Agreement, dated
November 1, 1988 by and between Great Pines Water Company,
Inc. and Bank One Texas, N.A. Exhibit 10.7 to the Company's
annual report on Form 10-KSB for the fiscal year ended December
31, 1994 is incorporated herein by reference.
10.8 1995 Incentive Stock Plan of Great Pines Water Company, Inc.
Exhibit 10.8 to the Company's quarterly report on Form 10-QSB
is incorporated by reference.
10.9 Convertible Debenture, dated April 21, 1995, together with
Form of Convertible Note, by and between Great Pines Water
Company, Inc. and EBAC Systems Inc. Exhibit 10.9 is filed
herewith by reference.
10.10 Promissory Note dated October 13, 1995 between Great Pines
Water Company, Inc. and MetroBank, N.A. for the assumption of
equipment loans previously with Bank One Texas, N.A. Exhibit
10.10 to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 1995 is incorporated by
reference.
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10.11 Assignment dated March 22, 1996 of the SBA loan dated October
19, 1991 to Sunbelt National Bank, N.A. from Bank One Texas,
N.A. Exhibit 10.10 to the Company's annual report on Form 10-KSB
for the fiscal year ended December 31, 1995 is incorporated by
reference.
10.12 Amendment dated March 22, 1996 to the loan agreement, dated
November 1, 1988 by and between Great Pines Water Company, Inc.
and Bank One Texas, N.A. Exhibit 10.10 to the Company's annual
report on Form 10-KSB for the fiscal year ended December 31, 1995
is incorporated by reference.
10.13 Amendment to the Lease Agreement dated April 1, 1990, with DBH
Investment Partners No. 3. Exhibit 10.10 to the Company's annual
report on Form 10-KSB for the fiscal year ended December 31, 1995
is incorporated by reference.
b) No reports on Form 8-K were filed during the quarter ended March 31,
1996.
Page 11
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SIGNATURES
- - ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Great Pines Water Company, Inc.
Date: May 13, 1996 By: David G. Williams
------------ ------------------------------
David G. Williams
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Page 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000906285
<NAME> GREAT PINES WATER CO INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 231
<SECURITIES> 0
<RECEIVABLES> 552
<ALLOWANCES> 0
<INVENTORY> 88
<CURRENT-ASSETS> 172
<PP&E> 8656
<DEPRECIATION> 3307
<TOTAL-ASSETS> 6454
<CURRENT-LIABILITIES> 2151
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0
0
<COMMON> 24
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