Note 1 - Description of
Business and Summary of Significant Accounting Policies
Eldorado Artesian Springs, Inc., (the
"Company"), is a Colorado corporation which primarily sells bottled Artesian spring water from springs located in Eldorado
Springs, Colorado and rents water dispensers. The Company also sells a line of Organic Vitamin Charged Spring Water to retail stores.
The Company also rents housing, and during the summer months, it operates a natural Artesian spring pool. The Company's bottling
and distribution facility is located in Louisville, Colorado.
Concentrations of Credit Risk
The Company maintains cash in bank
accounts that may, at times, exceed FDIC insurance limits. Financial instruments potentially subjecting the Company to concentrations
of credit risk consist primarily of accounts receivable. The Company grants credit to customers located primarily in Colorado.
The Company periodically performs credit analysis and monitors the financial condition of its clients in order to minimize credit
Cash and Cash Equivalents
The Company considers
all highly liquid investments with original maturities of three months or less to be cash equivalents. At March 31, 2012 and 2011,
the Company did not have any cash equivalents.
The Company extends unsecured credit to its
customers in the ordinary course of business. The Company considers a reserve for doubtful accounts based on the creditworthiness
of the customer. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level
considered adequate to cover future losses. The allowance is management's best estimate of uncollectible amounts and is determined
based on historical performance that is tracked by the Company on an ongoing basis.
Inventories consist of direct costs
which are primarily made up of water bottles and packaging and are stated at the lower of cost or market, determined using the
first-in, first-out method (FIFO).
Deposits consist primarily of deposits
related to the purchase of equipment.
Property, Plant and Equipment
Property, plant and equipment are
stated at cost. Machinery, equipment, furniture and fixtures are depreciated using various methods over their estimated useful
lives, ranging from 3 to 7 years. Buildings and improvements are depreciated using the straight-line method over the estimated
useful lives for owned assets, ranging from 15 to 39 years. Depreciable lives on leasehold improvements are the shorter of the
lease term or the useful life. Capital leased assets amortize over the estimated useful life or related lease term.
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.
Water rights are recorded at cost.
As water rights have an indefinite life, no amortization is recognized.
Other assets consist of loan fees
and other costs which have been recorded at cost and are being amortized using the effective interest method over the term of the
loan.. The Company expects to amortize approximately $4,000 each year for the next ten years.
The Company reviews its long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered.
The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been
impaired. No impairments were deemed necessary during the fiscal years 2012 and 2011.
Customer deposits consist primarily
of deposits on bottles and equipment.
Stock Based Compensation
Company accounts for stock-based compensation arrangements for employees and recognizes compensation expense for share-based awards
based on the grant date estimated fair value of the awards using the Black Scholes option pricing model. Compensation expense
for all share-based awards is recognized in earnings over the requisite service period (generally the vesting period). The
Company records compensation expense related to non-employees over the service periods commensurate with the services provided.
Compensation expense recorded during fiscal year 2012 and 2011 was $20,121 and $59,398.
Basic and Diluted Loss Per Common Share
Basic earnings per share is computed
by dividing net income (loss) by the weighted average number of common shares outstanding. Shares issued during the period and
shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted earnings per
share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive
common shares that were outstanding during the period.
Potentially dilutive common shares
and outstanding options and warrants which have been excluded from the computation of diluted income per share as of March 31,
2012 and 2011 were 111,000 and 226,000, respectively, because their effect would have been antidilutive.
Fair Value of Financial Instruments
The carrying amounts of financial
instruments including cash, receivables, accounts payable and accrued expenses approximated fair value as of March 31, 2012, because
of the relatively short maturity of these instruments.
The carrying amounts of notes receivable
and long-term debt approximates fair value as of March 31, 2012 because interest rates on these instruments approximate market
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 utility revenue is recognized on a monthly basis based upon
the monthly contracted rate.
Shipping costs for materials used
in the final products are included in the cost of goods. Shipping costs for products delivered to customers are included in total
Promotional Expense Consideration
The Company recognizes certain promotional
expense as a reduction in revenues. These costs included off invoice discounts to resellers and promotions for customers.
The Company expenses advertising costs
as incurred. Advertising expense for the years ended March 31, 2012 and 2011 were $208,226 and $236,860, respectively.
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Recently Issued Accounting Pronouncements
The Company continually assesses any new accounting
pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects
the Companys financial reporting, the Company undertakes a study to determine the consequence of the change to its financial
statements and assures that there are proper controls in place to ascertain that the Companys financials properly reflect
the change. New pronouncements assessed by the Company recently are discussed below:
In May 2011, the FASB issued ASU No.
2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International
Financial Reporting Standards (IFRS). This pronouncement was issued to provide a consistent definition of
fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04
changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value
measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011. The adoption of ASU
2011-04 is not expected to have a significant impact on the Companys consolidated financial position or results of operations.
In June 2011, the Financial Accounting
Standards Board (FASB) issued ASU No. 2011-05, Presentation of Comprehensive Income. ASU 2011-05 eliminates
the option to report other comprehensive income and its components in the consolidated statement of shareholders equity
and comprehensive income and requires an entity to present the total of comprehensive income, the components of net income and
the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements.
This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The
Company believes the adoption of ASU 2011-05 concerns presentation and disclosure only and will not have an impact on its consolidated
financial position or results of operations.