Attached files
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EX-31.2 - EXHIBIT 31.2 - ELDORADO ARTESIAN SPRINGS INC | c12420exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - ELDORADO ARTESIAN SPRINGS INC | c12420exv32w2.htm |
EX-31.1 - EXHIBIT 31.1 - ELDORADO ARTESIAN SPRINGS INC | c12420exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - ELDORADO ARTESIAN SPRINGS INC | c12420exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2010
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-18235
ELDORADO ARTESIAN SPRINGS, INC.
(Exact name of registrant as specified in its charter)
Colorado | 84-0907853 | |
(State or Other Jurisdiction of | (IRS Employer | |
Incorporation or Organization) | Identification No.) | |
1783 Dogwood Street | ||
Louisville, Colorado | 80027 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants Telephone Number, Including Area Code: (303) 499-1316
Indicate by check mark whether the registrant: (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, and
(2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting companyþ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date: On February 11, 2011 there were 6,536,091 shares of the registrants
common stock, $.001 par value, outstanding.
ELDORADO ARTESIAN SPRINGS, INC.
FORM 10-Q
INDEX
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Table of Contents
ITEM 1. FINANCIAL STATEMENTS
ELDORADO ARTESIAN SPRINGS, INC.
Balance Sheets
December 31, | March 31, | |||||||
2010 | 2010 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets |
||||||||
Cash |
$ | 48,105 | $ | 65,304 | ||||
Accounts receivable trade, net of $80,000 allowance |
950,161 | 853,914 | ||||||
Inventories |
406,020 | 391,410 | ||||||
Prepaid expenses and other |
57,300 | 136,396 | ||||||
Deferred tax asset |
29,648 | 29,648 | ||||||
Total current assets |
1,491,234 | 1,476,672 | ||||||
Non-current assets |
||||||||
Property, plant and equipment net |
4,019,129 | 4,149,154 | ||||||
Notes receivable related party |
390,704 | 369,397 | ||||||
Investments |
361,196 | 361,196 | ||||||
Water rights |
71,675 | 71,675 | ||||||
Deposits |
118,020 | 118,020 | ||||||
Deferred tax asset long term |
123,066 | 101,466 | ||||||
Other net |
52,328 | 34,346 | ||||||
Total non-current assets |
5,136,118 | 5,205,254 | ||||||
Total assets |
$ | 6,627,352 | $ | 6,681,926 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 427,056 | $ | 570,584 | ||||
Accrued expenses |
332,467 | 283,145 | ||||||
Customer deposits |
85,113 | 73,423 | ||||||
Line of credit |
105,000 | | ||||||
Current portion of capital lease obligations |
74,549 | 121,634 | ||||||
Current portion of long-term debt |
68,842 | 68,842 | ||||||
Total current liabilities |
1,093,027 | 1,117,628 | ||||||
Non-current liabilities |
||||||||
Capital lease obligations, less current portion |
46,982 | 17,910 | ||||||
Long-term debt, less current portion |
4,202,289 | 4,256,953 | ||||||
Deferred gain on the sale of real estate |
178,822 | 178,822 | ||||||
Total non-current liabilities |
4,428,093 | 4,453,685 | ||||||
Total liabilities |
5,521,120 | 5,571,313 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity |
||||||||
Preferred stock, par value $.001 per share;
10,000,000 shares authorized; 0 issued and
outstanding |
| | ||||||
Common stock, par value $.001 per share; 50,000,000
shares authorized; 6,536,091 (December and March
2010) issued and outstanding |
6,536 | 6,536 | ||||||
Additional paid-in capital |
1,806,337 | 1,768,598 | ||||||
Accumulated deficit |
(706,641 | ) | (664,521 | ) | ||||
Total stockholders equity |
1,106,232 | 1,110,613 | ||||||
Total liabilities and stockholders equity |
$ | 6,627,352 | $ | 6,681,926 | ||||
See notes to financial statements.
2
Table of Contents
ELDORADO ARTESIAN SPRINGS, INC.
Unaudited Statements of Operations
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue |
||||||||||||||||
Water and related |
$ | 2,009,753 | $ | 1,917,200 | $ | 6,637,721 | $ | 6,434,674 | ||||||||
Resort operations |
3,000 | | 135,558 | 95,852 | ||||||||||||
Net revenue |
2,012,753 | 1,917,200 | 6,773,279 | 6,530,526 | ||||||||||||
Cost of goods sold |
512,748 | 435,420 | 1,760,012 | 1,631,432 | ||||||||||||
Gross profit |
1,500,005 | 1,481,780 | 5,013,267 | 4,899,094 | ||||||||||||
Operating expenses |
||||||||||||||||
Salaries and related |
759,407 | 739,517 | 2,488,909 | 2,520,625 | ||||||||||||
Administrative and general |
357,076 | 371,732 | 1,216,692 | 1,254,729 | ||||||||||||
Delivery |
178,931 | 186,855 | 574,758 | 571,159 | ||||||||||||
Advertising and promotions |
45,512 | 62,602 | 206,321 | 278,804 | ||||||||||||
Depreciation and
amortization |
115,375 | 123,886 | 350,051 | 375,904 | ||||||||||||
1,456,301 | 1,484,592 | 4,836,731 | 5,001,221 | |||||||||||||
Operating income (loss) |
43,704 | (2,812 | ) | 176,536 | (102,127 | ) | ||||||||||
Other income (expense) |
||||||||||||||||
Interest income |
8,449 | 6,727 | 22,520 | 19,905 | ||||||||||||
Interest expense |
(90,290 | ) | (88,254 | ) | (262,776 | ) | (276,151 | ) | ||||||||
(81,841 | ) | (81,527 | ) | (240,256 | ) | (256,246 | ) | |||||||||
Net loss before provision
for income taxes |
(38,137 | ) | (84,339 | ) | (63,720 | ) | (358,373 | ) | ||||||||
Income tax benefit |
13,100 | 25,900 | 21,600 | 119,400 | ||||||||||||
Net loss |
$ | (25,037 | ) | $ | (58,439 | ) | $ | (42,120 | ) | $ | (238,973 | ) | ||||
Basic and
dilutive loss per common share |
$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.04 | ) | ||||
Weighted average number of
common shares outstanding
basic and dilutive |
6,536,091 | 6,536,091 | 6,536,091 | 6,536,091 | ||||||||||||
See notes to financial statements.
3
Table of Contents
ELDORADO ARTESIAN SPRINGS, INC.
Unaudited Statements of Cash Flows
Nine Months Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (42,120 | ) | $ | (238,973 | ) | ||
Adjustments to reconcile net loss to net cash
provided by operating activities |
||||||||
Depreciation and amortization |
350,051 | 375,904 | ||||||
Deferred income tax benefit |
(21,600 | ) | (119,400 | ) | ||||
Stock based compensation |
37,739 | 24,120 | ||||||
Accrued interest on related party note receivable |
(21,307 | ) | (19,770 | ) | ||||
Changes in certain assets and liabilities |
||||||||
Accounts receivable |
(96,247 | ) | 137,117 | |||||
Inventories |
(14,610 | ) | 1,388 | |||||
Prepaid expenses and other |
61,114 | (30,272 | ) | |||||
Deposits |
| (5,200 | ) | |||||
Accounts payable |
(143,528 | ) | 150,764 | |||||
Accrued expenses |
49,322 | (75,744 | ) | |||||
Income tax receivable |
| 66,405 | ||||||
Customer deposits |
11,690 | (770 | ) | |||||
Net cash provided by operating activities |
170,504 | 265,569 | ||||||
Cash flows from investing activities |
||||||||
Purchases of property and equipment |
(143,863 | ) | (170,546 | ) | ||||
Net cash flows used in investing activities |
(143,863 | ) | (170,546 | ) | ||||
Cash flows from financing activities |
||||||||
Proceeds on line of credit |
105,000 | | ||||||
Payments on long-term obligations |
(148,840 | ) | (352,308 | ) | ||||
Net cash flows used in financing activities |
(43,840 | ) | (352,308 | ) | ||||
Net decrease in cash |
(17,199 | ) | (257,285 | ) | ||||
Cash beginning of period |
65,304 | 347,148 | ||||||
Cash end of period |
$ | 48,105 | $ | 309,257 | ||||
Supplemental disclosures of cash flow information:
Cash paid for interest for the nine months ended December 31, 2010 and December 31, 2009 was
$262,776 and $276,151, respectively.
Cash paid for income taxes for the nine months ended December 31, 2010 and December 31, 2009 was
$0.
During the nine months December 31, 2010 and December 31, 2009, $76,163 and $0 in equipment was
acquired through capital leases, respectively.
See notes to the financial statements.
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Table of Contents
ELDORADO ARTESIAN SPRINGS, INC.
Notes to Unaudited Financial Statements
Note 1 Summary of Significant Accounting Policies
Interim Unaudited Financial Statements
The interim financial statements are unaudited and reflect all adjustments (consisting only of
normal recurring adjustments), which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim periods. The results
of operations for the nine months ended December 31, 2010 and 2009 are not necessarily indicative
of the results of the entire year. The financial statements included herein are presented in
accordance with the requirements of Form 10-Q and consequently do not include all of the
disclosures normally made in the registrants annual report on Form 10-K. These financial
statements should be read in conjunction with the financial statements and notes thereto contained
in the Companys Form 10-K for the year ended March 31, 2010.
Investments
The Company owns investments of capital stock in an investee. This investment entitles the Company
to an equal pro rata share of this investees irrigation system. As the ownership represents less
than 20% ownership of the Company the value of this investment is stated at cost and evaluated for
impairment if there are indications of such.
Revenue Recognition
Revenue is recognized on the sale of products as customer shipments are made. Returns are
estimated and recorded at the time of sale. Rental revenue is recognized on a monthly basis upon
commencement of the lease agreement. Water tap revenue is recognized upon the transfer of the right
to use the water. Water utility revenue is recognized on a monthly basis based upon the monthly
contracted rate.
Note 2 Stockholders Equity
Stock Option Plans
The Company has a qualified stock plan, the 2008 Incentive Stock Plan, pursuant to which 2,000,000
shares were reserved for issuance. As of December 31, 2010, 50,000 shares were reserved for
issuance pursuant to outstanding grants and 1,950,000 shares were available for future grant.
Additionally, the Company previously had a qualified stock plan, the 1997 Stock Option Plan, which
expired in 2007, pursuant to which 875,000 shares were reserved for issuance. As of December 31,
2010, 226,000 shares were reserved for issuance pursuant to outstanding grants and no shares were
available for future grant as the plan has expired. The 2008 Incentive Stock Plan and the 1997
Stock Option Plan, referred to herein as the Plans, and the shares issuable there under, are both
registered on Form S-8 with the Securities and Exchange Commission. The Plans provide for the
grant of options and other equity based awards to employees, directors and consultants of the
Company and is administered by the Companys Board of Directors.
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Table of Contents
Warrants
On January 24, 2008, the Company retained Pfeiffer High Investor Relations, Inc. (PHIR) to
develop and implement a comprehensive investor relations program. In addition, the Company granted
to PHIR principals, John Pfeiffer and Geoff High, a total of 20,000 warrants to purchase 20,000
shares of the Companys common stock at an exercise price of $1.80. All warrants have a four-year
term, have cashless exercise provisions and piggyback registration rights. The warrants were
determined to have a value of $26,750 based upon the Black-Scholes option-pricing model. As of
December 31, 2010, all of the warrants were fully vested. The warrants have a remaining life of one
year.
Note 3 Related Party Transactions
During the year ended March 31, 2002, the Company entered into an agreement to sell certain parcels
of real estate to two senior executives of the Company, Messrs, Larson and Sipple, for a total of
$900,000. The Company received cash from the sale of $500,000. The Company also provided 60 month
carry back financing of $400,000 with interest at 7.5% that has been recorded as notes receivable
related party and includes $190,704 of accrued interest at December 31, 2010. The Company
recognized a gain on the real estate sales of $519,937 and deferred an additional $357,544 of gain
as required by the terms of the carry back note. The collateral on the notes receivable included a
junior deed of trust on the properties and shares of the Companys common stock. During the year
ended March 31, 2003, the Board of Directors determined that 250,000 shares of common stock of the
Company was sufficient collateral and released the junior deed of trust on the properties. The
accumulated interest and outstanding principal were due upon maturity in August 2007. As of
December 31, 2010, the note due from Mr. Larson has not yet been paid and the outstanding principal
and interest due is $390,704 as reflected in the Companys financial statements as Notes
receivable related party.
Note 4 Contingencies
Water Rights Contingency
When the Company purchased mountain property in 1983, included in the purchase price were certain
water rights for Eldorado Springs. These water rights are relatively junior to other water rights
in the South Boulder Creek and South Platte Basins. The Company has the right to beneficially use
all of the water that emanates from the springs in accordance with its water rights unless a more
senior rights holder makes a call on the water. A senior call might occur in the winter or when
runoff is low and insufficient to meet the water needs of more senior water users below Eldorado
Springs. Because of Colorados drought conditions, the possibility of a senior call has increased.
For many years, the Company had enrolled its water rights in a substitute supply plan approved by
the Colorado State Engineer, which serves to protect the Companys water supply in the event of a
senior call.
On September 30, 2010, the Company entered into a Water Lease Agreement with Denver Wells, LLC, for
the right to 50 acre feet of non-tributary ground water. The term of the lease is for 13 months,
commencing October 1, 2010 and continuing through October 31, 2011. The lease may be extended upon
mutual written agreement of the parties executed prior to the expiration of the lease. The cost of
the lease is $39,000 for 50 acre feet, to be paid at the rate of $3,000 per month on the first of
each month of the lease term. The first payment was made on October 5, 2010.
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The Company is also pursuing other possible supply sources for use in augmenting the stream flows
as a result of the Companys withdrawals of water. There is no assurance that any of the renewal
applications, Colorado Water Court applications for permanent augmentation, or any other
alternative arrangements being sought by the Company will be approved. Denial of the Companys
applications for substitute or for a permanent augmentation plan coupled with a senior call on the
Companys water will likely result in a significant financial impact on the Company. The Company
will also incur significant expenses in connection with its efforts to obtain approval of these
plans. In the event of the approval of a permanent augmentation plan, the Company will also incur
additional expenses associated with its required purchase of additional water rights.
Note 5 Commitments
Line of Credit
On November 18, 2010, the Company entered into an agreement with Great Western Bank for a line of
credit in the amount of $475,000. As of December 31, 2010, the Company had a balance on the line of
credit of $105,000. The line of credit is subject to certain borrowing base requirements, requires
monthly interest payments calculated at Prime plus 1% with a minimum rate of 5.5%. The line
includes certain reporting and financial covenants and is cross-collateralized by accounts
receivable and inventory.
Notes Payable
On February 20, 2007, the Company entered into a commercial loan agreement with American National
Bank. Under the loan agreement, the Company received proceeds of $1,500,000 from the bank pursuant
to a promissory note. The terms of the note include a fixed interest rate of 7.75% for five years
with monthly payments of approximately $11,500. A single balloon payment of the entire unpaid
balance of principal and interest will be due on February 12, 2012. Under the loan agreement, the
Company granted the bank security interests in the leases and rents on the property in Eldorado
Springs, Colorado as well as a deed of trust for the same property in Eldorado Springs, Colorado.
The balance as of December 31, 2010 was approximately $1,413,000.
On October 11, 2007, the Company entered into a commercial loan agreement with American National
Bank. Under the loan agreement, the Company received proceeds of $3,000,000 from the bank pursuant
to a promissory note. The terms of the note include a fixed interest rate of 7.5% for five years
with monthly payments of approximately $22,300. A single balloon payment of the entire unpaid
balance of principal and interest will be due on October 11, 2012. Under the loan agreement, the
Company granted the bank security interests in the leases and rents on the property in Louisville,
Colorado as well as a deed of trust for the same property in Louisville, Colorado. The balance as
of December 31, 2010 was approximately $2,857,000.
Renewable Energy Service Agreement
On June 11, 2009, the Company entered into a twenty year renewable energy service agreement with
Eldorado Springs Solar, LLC, an unrelated third party, to design, install, own, operate and
maintain a solar electricity generating system at our property in Louisville, Colorado. The Company
will purchase all of the solar electricity generated by the system which will provide approximately
50% of the electricity needs at the facility in Louisville, Colorado. The agreement provides a
guaranteed energy rate schedule for 10 years with a reset rate in year eleven for the electric
cost. If the Company was to terminate the agreement the Company would be required to pay a
termination penalty. As of December 31, 2010, this penalty would be approximately $388,000. The
Company also has the option to purchase and take title to the system starting in year 11.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This filing contains certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company
intends that such forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for future operations,
including plans and objectives relating to services offered by and future economic performance of
the Company.
The forward-looking statements included herein are based on current expectations that involve a
number of risks and uncertainties that might adversely affect the Companys operating results in
the future in a material way. Such risks and uncertainties include but are not limited to the
following: availability of debt and equity financing, ability to purchase additional water rights,
interest rate fluctuations, effects of regional economic and market conditions, labor and marketing
costs, operating costs, packaging costs, intensity of competition and legal claims.
Overview
Eldorado Artesian Springs, Inc. is a Colorado based company that is primarily involved in the
bottling and marketing of natural artesian spring water. The spring is located in the foothills of
the Colorado Rocky Mountains and is surrounded by thousands of acres of state and city park land.
The water rises up through many layers of sandstone under its own artesian pressure. Currently, the
Companys operations consist of its home/commercial delivery business (5 and 3 gallon bottles) and
its PET (polyethylene terephtalate, a premium clear plastic container) consumer business. The
Company also recently introduced an organic vitamin charged spring water that is distributed
locally off of the Companys vehicles as well as to regional distribution facilities. A small
segment of the Companys business includes the sales and rental of filtration and coffee dispensing
equipment as well as the sale of coffee. The Company also owns and operates a public swimming pool
on its property during the summer months and rents a single-family home on the property.
The Companys headquarters and bottling facility consists of a total of approximately 40,000 square
feet in Louisville, Colorado. The water is transported to the facility in stainless steel tanker
trucks. Once at the bottling plant, the water is then transferred into stainless steel holding
tanks until it is used for bottling.
Results of Operations
Performance Overview Recent Trends
Revenues for the nine months ended December 31, 2010 increased 3.7% to $6,773,279 from $6,530,526
for the same period ended December 31, 2009. The increase in revenues was mainly generated by an
increase in the overall revenues for the larger sized PET products and the 1 gallon branded
products. Certain trends have been noticed in consumer buying that indicates that customers are
choosing larger, more economical packaging over the smaller size PET products. The Companys
Organic Vitamin Charged Spring Water also generated an increase in revenues compared to the
previous year. Additionally, a warmer than average summer season resulted in an increase in
revenues for the resort.
While general economic trends have increased the costs associated with raw materials and the fuel
costs associated with the operation of the route vehicles, the Company has begun to see some costs
trending downward in more recent months. The Company has also been able to reduce costs in other
areas that resulted in a total decrease of operating expenses as compared to the previous years.
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The Company continues to utilize advertising and promotional budgets to help promote various
products. The Company will continue to look for additional ways to increase the sales of our core
products while also introducing the new Organic Vitamin Charged Spring Water line to our existing
distribution channels and expanding into new territories.
The Company believes that we are in a position to grow the business as the economy recovers in the
markets we presently service by offering additional products and utilizing advertising and
promotional budgets for promoting the products. We will continue to pursue additional business in
new and emerging markets. In addition, we continue to look for ways to decrease operating costs in
order to achieve profitability in the future.
Three and Nine Months Ended December 31, 2010 Compared to Three and Nine Months Ended December 31,
2009
Revenues
Sales for the nine months ended December 31, 2010 were $6,773,279 compared to $6,530,526 for the
same period ended December 31, 2009, an increase of 3.7%. Sales for the three months ended December
31, 2010 were $2,012,753 compared to $1,917,200 for the same period ended December 31, 2009, an
increase of 5.0%. The increase in revenues was a result of an increase overall revenues for the
Companys branded products as well as the home and office delivery products.
Sales of the products used in the delivery to homes and offices, which include 5 and 3 gallons
bottles as well as the dispenser units, were 54.4% of sales and increased from $3,635,483 for the
nine months ended December 31, 2009 to $3,686,335 for the nine months ended December 31, 2010, an
increase of $50,852 or 1.4%. Total units of 5 and 3 gallon products decreased slightly for the same
for the nine months ended December 31, 2010 and 2009, while the average selling price increased
slightly. The Company has increased the number of accounts for the home and office delivery
primarily in the smaller accounts that have a higher average selling price.
Sales generated from the filter division increased from $102,021 for the nine months ended December
31, 2009 to $123,367 for the nine months ended December 31, 2010, an increase of 20.9%. Consumers
are looking for ways to decrease expenses and are substituting filtration units for the 5 and 3
gallon products. The Company also sells coffee and coffee equipment from our existing route
vehicles. Coffee and coffee equipment for service from our existing route vehicles increased
slightly from $116,990 for the nine months ended December 31, 2009 to $119,739 for the nine months
ended December 31, 2010. The Company has been forced to increase the selling price of the coffee
products due to an increase in the cost of coffee over the past several months.
In July 2008, the Company began shipments of a private label purified drinking water in one gallon
containers to the largest retailer in the country. The Company is one of the suppliers for their
distribution center in Colorado that services approximately 90 locations. For the nine months ended
December 31, 2010, revenues for the purified drinking water were approximately $593,335 compared to
$586,656 for the same period ended December 31, 2009. The Company expects to continue to provide
private label purified drinking water for this retailer in the future.
In the second quarter of the fiscal year ended March 31, 2008, the Company began introducing an
Organic Vitamin Charged Spring Water for distribution off of existing route vehicles as well as
through major distributors. The product is now available throughout Colorado and in portions of
surrounding states and through distributors along the west coast. The line of Organic Vitamin
Charged Spring Water is available Vitamin Cottage, Krogers (King Soopers and City Markets) and
Whole Foods Markets in the Midwest area. Additionally, the product is available to more than 2,000
other retail outlets, convenience stores and on-premise locations serviced by UNFI, US Food Service
and KeHE Distributors. Gross revenues for the
Organic Vitamin Charged Spring Water were $223,411 for the nine months ended December 31, 2010
compared to $195,201 for the nine months ended December 31, 2009, an increase of 14.5%. The Company
was able to sell on a regional basis in about 10 local Costco Warehouse stores during the summer
which contributed to the increase in overall revenues.
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Sales of the Companys branded PET products (.5 liter to 1.5 liter sizes), decreased slightly from
$990,379 for the nine months ended December 31, 2009 to $972,771 for the nine months ended December
31, 2010, a decrease of 1.8%. Sales of the Companys branded PET products represented 14.4% of
sales for the nine months ended December 31, 2009 and 15.2% of sales for the nine months ended
December 31, 2010. Sales for the private label PET products increased from $165,512 for the nine
months ended December 31, 2009 to $169,385 for the nine months ended December 31, 2010, an increase
of 2.3% compared to the same period ended December 31, 2009. The Company offers a private label
PET product to customers who choose to use their own labels on the Companys spring water packaging
and utilize the product in their marketing campaigns. The Company is able to offer the private
label packaging at a higher average selling price for the custom labeling than the Companys
branded PET products. The average selling price for the private label PET products is about 24%
higher than the Companys branded PET products.
Sales of the Companys branded gallon size products increased from $622,538 for the nine months
ended December 31, 2009 compared to $748,116 for the nine months ended December 31, 2010, an
increase of 20.2%. The Companys branded gallon size products were 11% of sales for the nine months
ended December 31, 2010 compared 9.5% the nine months ended December 31, 2009. The Company added
new distribution for the gallon size products through the local distribution center for one of the
larger club stores in the area.
Gross Profit/Cost of Goods Sold
Cost of goods sold for the nine months ended December 31, 2010 was $1,760,012, or 26% of sales,
compared to $1,631,432 or 25% of sales for the same period ended December 31, 2009. Gross profit
was $5,013,267 or 74% of sales for the nine months ended December 31, 2010 compared to $4,899,094
or 75% of sales for the nine months ended December 31, 2009. Overall, gross profit increased 2.3%
for the nine months ended December 31, 2010. Cost of goods sold for the three months ended December
31, 2010 was $512,748 or 25.5% of sales, compared to $435,420 or 22.7% of sales for the same period
ended December 31, 2009. The fluctuation in the cost of goods sold between period is due to an
issue with the quality of the 5 gallon bottles used for the home and office accounts. The Company
has purchased a number of bottles that have experienced a shorter life span than what is
historically expected. For that reason, the Company had to expense an unusually higher amount of
cost of goods for the five gallon revenue during the first three months ended June 30, 2010. During
the nine months ended December 31, 2010 the Company rejected the poor quality 5 gallon bottles and
contested the amounts that were billed to the Company. The Company was able to reach a resolution
with the supplier of the 5 gallon bottles and will begin to purchase a different type of bottle of
better quality from the supplier going forward. The supplier of the 5 gallon bottles agreed not to
bill for any of the previous shipments of the poor quality bottles. It was determined that the
amount that would not be charged to the company was approximately $98,000.
Operating Expenses
Total operating expenses decreased to $4,836,731 for the nine months ended December 31, 2010 from
$5,001,221 for the same period ended December 31, 2009, a decrease of $164,490 or 3.3%. Total
operating expenses decreased to $1,456,301 for the three months ended December 31, 2010 from
$1,484,592 for the same period ended December 31, 2009, a decrease of $28,291 or 1.9%.
Salaries and related expenses decreased to $2,488,909 for the nine months ended December 31, 2010,
or 36.7% of sales, from $2,520,625 for the nine months ended December 31, 2009, or 38.6% of sales.
Salaries and related expenses increased to $759,407 for the three months ended December 31, 2010,
or 37.7% of sales,
from $739,517 for the three months ended December 31, 2009, or 38.6% of sales. The Company has been
able to decrease salaries and related expenses through consolidation of existing routes and through
reorganization of certain positions. The Company has maintained a stable workforce and continues to
compensate accordingly.
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Administrative and general expenses decreased from $1,254,729 for the nine months ended December
31, 2009 to $1,216,692 for the nine months ended December 31, 2010, a decrease of 3%.
Administrative and general expenses decreased from $371,732 for the three months ended December 31,
2009 to $357,076 for the three months ended December 31, 2010, a decrease of 3.9%. The Company has
seen a decrease in bad debt expense for the nine months ended December 31, 2010 compared to the
same period ended December 31, 2009 and attributes that to a slight improvement in the general
economic conditions as compared to the previous year.
Delivery expenses increased from $571,159 for the nine months ended December 31, 2009 to $574,758
for the nine months ended December 31, 2010, an increase of less than 1%. Delivery expenses
decreased from $186,855 for the three months ended December 31, 2009 to $178,931 for the three
months ended December 31, 2010, a decrease of 4.2%. The fluctuation in delivery expenses was due to
fluctuation in fuel cost and truck maintenance for the delivery vehicles.
Advertising and promotion expenses decreased 26% to $206,321, or 3% of sales for the nine months
ended December 31, 2010 compared to $278,804, or 4.3% of sales for the same period ended December
31, 2009. Advertising and promotion expenses decreased 27.3% to $45,512, or 2.3% of sales for the
three months ended December 31, 2010 compared to $62,602, or 3.3% of sales for the same period
ended December 31, 2009. The decrease in advertising and promotion expenses for the nine months
ended December 31, 2010 is due to the decrease in the number of large sales events that the Company
participated in for the current year. The Company chose to participate in fewer large events that
werent as profitable. In lieu of the events, the Company chose to invest in an outside sales staff
to solicit to new home and office delivery accounts.
Depreciation and amortization decreased 6.9% to $350,051 or 5.2% of sales for the nine months ended
December 31, 2010, as compared to $375,904 or 5.8% of sales for the nine months ended December 31,
2009. Depreciation and amortization decreased 6.9% to $115,375 or 5.7% of sales for the three
months ended December 31, 2010, as compared to $123,886 or 6.5% of sales for the three months ended
December 31, 2009.
Interest, Taxes, Other Income and Other Expenses
For the nine months ended December 31, 2010, interest income increased 13.1% to $22,520 as compared
to $19,905 for the same period ended December 31, 2009. For the three months ended December 31,
2010, interest income increased 25.6% to $8,449 as compared to $6,727 for the same period ended
December 31, 2009.
Interest expense for the nine months ended December 31, 2010 decreased 4.8% to $262,776 as compared
to $276,151 for the same period ended December 31, 2009. Interest expense for the three months
ended December 31, 2010 increased 2.3% to $90,290 as compared to $88,254 for the same period ended
December 31, 2009. The decrease in interest expense is due to the lower outstanding debt for the
nine months ended December 2010 as compared to the same period ended December 2009.
For the nine months ended December 31, 2010, the Company recorded income tax benefit of $21,600
against our pretax book loss of $63,720 compared to a tax benefit of $119,400 against our pretax
book loss of $358,373 for the nine months ended December 31, 2009. For the three months ended
December 31, 2010, the Company recorded income tax benefit of $13,100 against our pretax book loss
of $38,137 compared to a tax
expense benefit of $25,900 against our pretax book loss of $84,339 for the three months ended
December 31, 2009.
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The Company had a net loss after taxes of $42,120 for the nine months ended December 31, 2010
compared to a net loss after taxes of $238,973 for the nine months ended December 31, 2009. The
Company had a net loss after taxes of $25,037 for the three months ended December 31, 2010 compared
to a net loss after taxes of $58,439 for the three months ended December 31, 2009.
Liquidity and Capital Resources
Trade accounts receivable at December 31, 2010 was 11.2% more than that at March 31, 2010. This
resulted from the increase in revenues for the nine months ended December 31, 2010. Days sales
outstanding was approximately 38 days at December 31, 2010 and 37 days at March 31, 2010. The
increase in the days sales outstanding can be attributed to the general economic conditions that
the region is experiencing at this time resulting in a slight delay in payments.
Cash flows from operating activities had a net inflow of $170,504 for the nine months ended
December 31, 2010. The cash provided by operating activities represents a decrease of $98,790 from
the nine months ended December 31, 2009. The change in operating activities resulted from the
change in accounts payable, accounts receivable and inventory.
Cash flows from investing activities resulted in a net outflow of $143,863 for the nine months
ended December 31, 2010. This total represents cash expenditures on equipment for electric water
coolers, filtration equipment and coffee dispensing equipment that are rented to existing delivery
customers.
Cash flows from financing activities resulted in a net outflow of $43,840 for the nine months ended
December 31, 2010.
The Companys cash balance at December 31, 2010 decreased to $48,105 by a net amount of $17,199
from $65,304 at March 31, 2010.
The Company secured a $475,000 line of credit with Great Western Bank in November 2010. The
interest rate of the line of credit is currently 5.5%. As of December 31, 2010, the balance on the
line of credit was $105,000. There are also two outstanding loan agreements with American National
Bank which mature in February and October 2012 at which time there will be significant balloon
payments. It is also noted that the note that matures in February 2012 will become current during
the quarter ended March 31, 2011, which will cause the Company to be out of compliance with their
financial covenants with American National Bank. As the Company does not anticipate that cash
flows from operations will be enough to pay the balloon payments or comply with the financial
covenants, the Company is currently pursuing the possibility of renegotiating the terms of the
current debt or acquiring new debt to replace the outstanding loans with American National Bank.
During the year ended March 31, 2002, the Company entered into an agreement to sell certain parcels
of real estate to two senior executives of the Company, Messrs. Larson and Sipple, for a total of
$900,000. The Company received cash from the sale of $500,000. The Company also provided 60 month
carry back financing of $400,000 with interest at 7.5% that has been recorded as notes receivable
related party and includes $190,704 of accrued interest at December 31, 2010. The Company
recognized a gain on the real estate sales of $519,937 and deferred an additional $357,544 of gain
as required by the terms of the carry back note. The collateral on the notes receivable included a
junior deed of trust on the properties and shares of the Companys common stock. During the year
ended March 31, 2003, the Board of Directors determined that 250,000 shares of common stock of the
Company was sufficient collateral and released the junior deed of trust on the properties. The
accumulated interest and outstanding principal were due upon maturity in August
2007. As of December 31, 2010, the note due from Mr. Larson has not yet been paid and the
outstanding principal and interest due is $390,704 as reflected in the Companys financial
statements as Notes receivable related party.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, the Company is not required to provide the information
required by this Item.
ITEM 4(T). CONTROLS AND PROCEDURES
Conclusion Regarding The Effectiveness Of Disclosure Controls And Procedures
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and that such information is accumulated and communicated to
management, including the principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure. Management necessarily
applied its judgment in assessing the costs and benefits of such controls and procedures, which, by
their nature, can provide only reasonable assurance regarding managements control objectives.
With the participation of management, our principal executive officer and principal financial
officer evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. In consultation with Ehrhardt Keefe
Steiner & Hottman, PC, our independent registered public accounting firm, management has identified
a control deficiency that it believes constitutes a material weakness in our internal control over
financial reporting. The material weakness relates to our lack of technical expertise regarding
complex accounting matters associated with certain equity transactions and the impact of deferred
income taxes. Based upon this evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures were not effective in ensuring that
material information required to be disclosed is included in the reports that we file with the
Securities and Exchange Commission.
Remediation Of Material Weaknesses in Internal Control Over Financial Reporting
In light of the conclusion that our internal control over financial reporting was not
effective, our management is in the process of implementing a plan intended to remediate such
ineffectiveness and to strengthen our internal controls over financial reporting through the
implementation of certain remedial measures, including obtaining the assistance of experienced
financial personnel to enhance our financial reporting capabilities and assist our principal
financial officer as the need arises.
Changes In Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter
ended December 31, 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. As described above, in the
future we intend to obtain the assistance of experienced financial personnel to enhance our
financial reporting capabilities.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 1A. RISK FACTORS
As a smaller reporting company, the Company is not required to provide the information required by
this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE AND PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Exhibit No. | Description | |||
31.1 | Certification of Principal Executive Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
31.2 | Certification of Principal Financial Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of Principal Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Principal Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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SIGNATURES
In accordance with 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.
ELDORADO ARTESIAN SPRINGS, INC. |
||||
Date: February 14, 2011 | By: | /s/ Douglas A. Larson | ||
Douglas A. Larson | ||||
President (Principal Executive Officer) |
||||
Date: February 14, 2011 | By: | /s/ Cathleen Shoenfeld | ||
Cathleen Shoenfeld | ||||
Chief Financial Officer (Principal Financial Officer) |
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ELDORADO ARTESIAN SPRINGS, INC.
Quarterly Report on Form 10-Q
for the Quarter Ended December 31, 2010
Exhibits Filed Herewith
for the Quarter Ended December 31, 2010
Exhibits Filed Herewith
Exhibit No. | Description | |||
31.1 | Certification of Principal Executive Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
31.2 | Certification of Principal Financial Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of Principal Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Principal Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
16