UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

[X]	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended October 31, 2017.

 

[  ]

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 000-31797

 

CRYSTAL ROCK HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		03-0366218
State or other jurisdiction of incorporation or organization		I.R.S. Employer Identification Number

1050 Buckingham St., Watertown, CT 06795

(Address of principal executive offices and zip code)

 

Registrant's telephone number, including area code: (860) 945-0661

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of exchange on which registered
Common Stock, par value $.001 per share		NYSE MKT

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  [_]   No  [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  [_]   No  [X]

 

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 (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. Yes [X] No [ ]

 

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 [X] No [ ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

 

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 [  ]		Accelerated filer [  ]
Non-accelerated filer [  ]		Smaller Reporting Company [X]

(Do not check if smaller reporting company)

 

Emerging Growth Company _____

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [  ] No [  ]

 

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last sale price per share of common stock on April 28, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the NYSE MKT, was $9,097,782.

 

The number of shares outstanding of the registrant's Common Stock, $.001 par value per share, was 21,358,411 on January 10, 2018.

 

Documents Incorporated by Reference

 

Portions of the registrant’s definitive proxy statement, to be filed no later than 120 days after the registrant’s fiscal year ended October 31, 2017, and delivered in connection with the registrant’s annual meeting of stockholders, are incorporated by reference into Part III of this Form 10-K.

 

 

 

 

 

 

 

 

 

 

 

 

		Table of Contents		Page
Part I
Item 1.		Business		4
Item 1A.		Risk Factors		12
Item 1B.		Unresolved Staff Comments		17
Item 2.		Properties		18
Item 3.		Legal Proceedings		18
Item 4.		Mine Safety Disclosures		18
Part II
Item 5.		Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		19
Item 7.		Management's Discussion and Analysis of Financial Condition and Results of Operations		20
Item 8.		Financial Statements and Supplementary Data		27
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		27
Item 9A.		Controls and Procedures		27
Item 9B.		Other Information		29
Part III
Item 10.		Directors, Executive Officers and Corporate Governance		30
Item 11.		Executive Compensation		30
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		30
Item 13.		Certain Relationships and Related Transactions, and Director Independence		31
Item 14.		Principal Accountant Fees and Services		31
Part IV
Item 15.		Exhibits and Financial Statement Schedules		32
		Signatures		36

 

Note: Items 6 and 7A are not required for smaller reporting companies and therefore are not furnished.

***************

In this Annual Report on Form 10-K, “Crystal Rock,” the “Company,” “we,” “us” and “our” refer to Crystal Rock Holdings, Inc. and its subsidiary, taken as a whole, unless the context otherwise requires.

***************

This Annual Report on Form 10-K contains references to trade names, label design, trademarks and registered marks of Crystal Rock Holdings, Inc. and its subsidiary and other companies, as indicated. Unless otherwise provided in this Annual Report on Form 10-K, trademarks identified by ® are registered trademarks or trademarks, respectively, of Crystal Rock Holdings, Inc. or its subsidiary. All other trademarks are the properties of their respective owners.

***************

Except for historical facts, the statements in this Annual Report on Form 10-K are forward-looking statements. Forward-looking statements are merely our current predictions of future events. These statements are inherently uncertain, and actual events could differ materially from our predictions. Important factors that could cause actual events to vary from our predictions include those discussed in this Annual Report on Form 10-K under the heading “Risk Factors.” We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in this Annual Report on Form 10-K and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

 

 

PART I

 

ITEM 1.

BUSINESS.

 

Introduction and Company Background

 

Crystal Rock Holdings, Inc., incorporated in Delaware in 1990, is engaged in the production, marketing and distribution of bottled water (the Crystal Rock® and Vermont Pure® brands) and the distribution of coffee including our Cool Beans® brand, ancillary products and other office refreshment products, and office products under the Crystal Rock Office® brand. We operate primarily as a distribution business to homes and offices, using our own trucks for distribution throughout New England, New York, and New Jersey.

 

Our distribution sales and services evolved from our initial business, sales of bottled water and cooler rentals. We bottle our water and also have it bottled for us. Our water products are primarily still, non-sparkling waters. We also have branded sparkling waters. In addition to water and related services, our other significant food and drink offerings have grown to include distribution of coffee and ancillary products, and other refreshment products including soft drinks and snacks. To a lesser extent, we distribute these products through third party distributors.

 

Water

 

Bottled water is a mainstream beverage and the centerpiece of many consumers’ healthy living lifestyles. Sales of bottled water accounted for 47% of our total sales in fiscal year 2017 and 43% in 2016. We believe that the development of the bottled water industry has for many years reflected public awareness of the potential contamination and unreliability of some municipal water supplies. Conversely, bottled water has periodically been the focus of publicity regarding concerns about the possibly adverse environmental effects of using plastic bottles, as well as the effect on the environment of water extraction and the production. See Item 1A, “Risk Factors,” for more information.

 

Coffee

 

Coffee, a product that is counter seasonal to water, is the second leading product in the distribution channel, accounting for 18% of our total sales in fiscal year 2017 and 17% of our total sales in fiscal year 2016. We sell different brands and sizes of coffee products. We continue to promote our Cool Beans® brand coffee in an effort to increase profitability and create brand equity in the coffee category. Because coffee is a commodity, coffee sales are affected by volatility in the world commodity markets. An interruption in supply or a dramatic increase in pricing could have an adverse effect on our business.

 

A large proportion of our coffee sales are single-serve coffee products. These products have become more prevalent in the marketplace over the last decade, and changes in distribution play a significant role in the availability and profitability of these products.

 

Refreshment and Equipment Rental

 

Ancillary products, such as soft drinks and snacks, accounted for 14% of our total revenues in fiscal year 2017 and 15% of our total revenues in fiscal year 2016. Equipment rentals, primarily water coolers, made up 12% of our total revenues in fiscal year 2017 and 11% of our total revenues in fiscal year 2016.

 

 

Office Products

 

In fiscal 2011, we added office products to our product offerings. We grew the office product line in an effort to diversify our product sales to existing office customers. However, we determined that sales of some office products generated low margins for us, so beginning in late fiscal 2015, we emphasized growth efforts on our core water products. As a result, the contribution to total revenues from office products in fiscal 2017 decreased to 6% of total revenues in fiscal 2017 from 11% in fiscal 2016.

 

Other Revenue

 

Fees that are charged to offset energy costs for delivery and freight, raw materials, and bottling operations primarily make up the balance of our revenue. This comprised 3% of our total sales in fiscal years 2017 and 2016.

 

Water Sources, Treatment, and Bottling Operations

 

Water from local municipalities is the primary source for the Crystal Rock Waters® brand in three- and five-gallon bottles. In fiscal 2017, this accounted for 67% of our water bottled in these types of containers. Municipal water is purified through a number of processes beginning with filtration. Utilizing carbon and ion exchange filtration systems, we remove chlorine and other volatile compounds and dissolved solids. After the filtration process, impurities are removed by reverse osmosis and/or distillation. Prior to bottling, we add pharmaceutical grade minerals to the water, including calcium, potassium, and magnesium for taste. The water is ozonated (by injecting ozone into the water as an agent to inhibit the formation of bacteria) and bottled in a fully enclosed clean room with a high efficiency particulate air, or HEPA, filtering system designed to prevent any airborne contaminants from entering the bottling area, in order to create a sanitary filling environment.

 

If for any reason the municipal sources for Crystal Rock® water were curtailed or eliminated, we could, though probably at greater expense, purchase water from other sources and have it shipped to our manufacturing facilities.

 

The main source of our natural spring water (primarily sold under the Vermont Pure® brand) is a spring owned by a third party in Stockbridge, Vermont that is subject to a 50-year water supply contract, approximately 32 years of which remain. We also obtain water, under a similar agreement with a third party, from a spring in Bennington, Vermont. These springs are approved by the State of Vermont as sources for natural spring water. The contractual terms for these springs provide spring water in excess of our current needs and within the apparent capacity of the springs, and accordingly we believe that we can readily meet our bulk water supply needs for the foreseeable future. Water from these springs accounted for 33% of our total water bottled in fiscal 2017.

 

Percolation through the earth's surface is nature's best filter of water. We believe that the age and extended percolation period of our natural spring water provides it with certain distinct attributes: a purer water, noteworthy mineral characteristics (including the fact that the water is sodium free and has a naturally balanced pH), and a light, refreshing taste.

 

An interruption in or contamination of any of our spring sites would materially affect our business. We believe that we could find adequate supplies of bulk spring water from other sources, but that we might suffer inventory shortages or inefficiencies, such as increased purchase or transportation costs, in obtaining such supplies.

 

 

We are highly dependent on the integrity of the sources and processes by which we derive our products. Natural occurrences beyond our control, such as drought, flood, earthquake or other geological changes, a change in the chemical or mineral content or purity of the water, or environmental pollution may affect the amount and quality of the water available from the springs or municipal sources that we use. There is a possibility that characteristics of the product could be changed either inadvertently or by tampering before consumption. Even if such an event were not attributable to us, the product’s reputation could be irreparably harmed. Consequently, we would experience economic hardship. Occurrence of any of these events could have an adverse impact on our business. We are also dependent on the continued functioning of our bottling processes. An interruption could result in an inability to meet market demand and/or negatively affect the cost to bottle the products.

 

We also bottle and distribute other brands of water for third parties. These sales account for 4% of our bottled water sales.

 

We have no material contractual commitments to the owners of our outside sources and bottling facilities other than for the products and services we receive.

 

We use outside trucking companies to transport bulk spring water from the source site to our bottling facilities.

 

Products

 

Water, Coffee, and Refreshment and Ancillary Equipment

 

We sell our Crystal Rock® and Vermont Pure® water brands in three- and five-gallon bottles to homes and offices throughout New England, New York, and New Jersey. In general, Crystal Rock® is distributed in southern New England and New York, while Vermont Pure® is primarily distributed throughout northern New England and secondarily in southern New England and New York. We rent and sell water coolers to customers to dispense bottled water. Our coolers are available in various consumer preferences such as cold, or hot and cold, dispensing units. In addition, we sell and rent units to commercial accounts that filter water from the existing source on site. We also rent and sell coffee brewing equipment and distribute a variety of coffee, tea and other hot beverage products and related supplies, as well as other consumable products used around the office. We own the Cool Beans® brand of coffee, which we distribute throughout our market area. In addition to Cool Beans®, we sell other brands of coffee, most notably, Baronet and Keurig Green Mountain.

 

Our extensive distribution system and large customer lists afford us the opportunity to introduce new products that may benefit our current customers or appeal to new customers. From time to time, we may capitalize on these opportunities by expanding our product lines or replacing existing products with new ones. In response to the increasingly competitive sales environment, we will consider distributing new products that we believe may enhance our sales and profitability.

 

Office Products Line

 

We have been distributing office products under the Crystal Rock Office^® brand since 2011. Recognizing the value inherent in our distribution system, we do not maintain large inventories of office products. Rather, we primarily purchase office products from large national vendors such as S. P. Richards that provide just-in-time delivery, with the result that the introduction of our office product line has not resulted, and is not expected to result, in a material outlay of resources to accommodate increased inventory. The broader range of office products compliments our product offerings to existing office customers who purchase our water and coffee products. Competition in the traditional office products markets has resulted in lower margins in this product line.

 

 

We believe that we have a well-established distribution system and that the Crystal Rock® family of brands is well known in the regions in which we operate, and we hope to leverage those advantages successfully. Nevertheless, price competition in the office product market can be robust, and there can be no assurance that our office products strategy will be successful. See Item 1A, “Risk Factors,” for more information.

 

Marketing and Sales of Branded Products

 

Crystal Rock products are marketed and distributed under four house brands: Crystal Rock Waters®, Vermont Pure Natural Spring Water®, Cool Beans® Coffee and Crystal Rock Office®. Through this combination of brands – and resale of other manufactured brands – we provide a choice of high quality products and value-added services to homes and offices.

 

Both our water brands feature three- and five-gallon premium bottled water in addition to a small pack case offerings. Our coffee line includes over 70 varieties in many different types of packaging. Additionally, we also re-sell other coffee and tea selections.  Our office products line features over 40,000 products, including supplies, equipment, and furniture, targeted for small and medium-sized business.

 

Over the last several years, we have diversified our product offerings and focused our efforts on sales and marketing in order to increase sales across all of our product lines and enhance the value of our distribution system and customer base. Initially, we hired and trained an expanded sales force and incurred significant expenditures to build an IT infrastructure designed to enhance sales administration and run our business more efficiently. Late in 2013, we decided to shift the infrastructure platform that we had been constructing to one we had acquired during the year. For more information, see Item 1A, “Risk Factors.” In 2014, we worked to stabilize our IT and e-commerce platforms while growing our office product sales revenues. Subsequently, during fiscal 2015, we experienced significant losses through the first three quarters, due in large part to lower than desired margins on office products, which led to a reduction in the number of full-time employees. In the latter part of fiscal 2015 and during fiscal 2016, we focused more heavily on strategic pricing taking into account the value provided with our quality products and integrated services. Our goal is to avoid competing based on price and focus on customers who want more regularly scheduled route deliveries. These changes have produced higher gross margins as a percentage of sales; however, sales decreases have impacted the gross margin dollars resulting in lower operating income in fiscal 2017 compared to fiscal 2016.

 

We support our marketing and sales efforts through a number of channels, including e-commerce, direct mail, internet advertising, traditional advertising, social media, sales collateral, email marketing, digital/internet technologies, referrals and public relations.  We also sponsor local area sporting events, participate in trade shows, maintain high community visibility, and donate to many charitable organizations and events.

 

We market our home and office delivery service throughout most of New England, New York and parts of New Jersey.  A combination of telemarketers and sales personnel sell our products and services. We also maintain an internal marketing department that works closely with a professional marketing agency who together develop and manage our brands and market position. Our goal is to optimize our marketing and sales returns through efficient technology investments, personal customer interactions and maintaining consistent visibility. 

 

 

Advertising and Promotion

 

We advertise our products through a digital, online strategy focused on promoting expanded product and services, and we look to collect customer data in order to engage and market customer relationships both on and offline. Through a combination of websites, social platforms and internet advertising, we are centralizing and transitioning our marketing efforts to offer and incentivize current and new customers through a larger online presence while providing customers a direct purchasing capability. We also promote our products through sales collateral, direct mail, various public relations and sponsorship opportunities. We endeavor to be highly visible in the communities that we serve. We have been a significant sponsor of a United Way giving campaign to support Live United through the Greater Waterbury Connecticut United Way, and we feature local giving options to support the United Way throughout our entire market area. We also support charities devoted to the treatment and cure of multiple sclerosis, and Peter and John Baker sit on a number of charitable boards.

 

Sales and Distribution

 

We sell and deliver products directly to our customers using our own employees and route delivery trucks.  Deliveries to customers are made on a regularly scheduled basis for water, coffee, and ancillary products. We accommodate our customers with next day delivery when they run out of those products and for office products.  We bottle our water at our facilities in Watertown, Connecticut, White River Junction, Vermont, and Halfmoon, New York and have water bottled for us in Buffalo and Endicott, New York.  We maintain numerous distribution locations throughout our market area.  From these locations, we also distribute dispensing equipment, a variety of coffee, tea and other refreshment products, and related supplies.  We receive office supplies, equipment, and furniture on a “just-in-time” basis from our vendors at our distribution locations. We ship between our production and distribution sites using both our own and contracted carriers.

 

Supplies

 

We currently source all of our raw materials from outside vendors. As one of the largest Home and Office distributors in the country, we are able to capitalize on volume to continue to reduce costs.

 

We rely on trucking to receive raw materials and to transport and deliver our finished products. Consequently, the fluctuating fuel prices significantly affect the cost of our products. We purchase our own fuel for our Home and Office delivery and use third parties for transportation of raw materials and finished goods between our warehouses. While volume purchases can help control erratic fuel pricing, market conditions ultimately determine the price. In the past, we have experienced substantial market fluctuation of fuel prices.  However, fuel prices have become more stable recently, and our regular customers pay a minimum monthly fuel charge. The risk remains that we may not be able to use fuel price adjustments to cover the cost of fuel increases in a volatile market for petroleum products, which could adversely affect our profitability.

 

Our principal coffee suppliers are Keurig Green Mountain and Baronet Coffee. Our principal bottle supplier is Parker Plastics.

 

No assurance can be given that we will be able to obtain the supplies we require on a timely basis or that we will be able to obtain them at prices that allow us to maintain the profit margins we have had in the past. We believe that we will be able to either renegotiate contracts with these suppliers when they expire or, alternatively, if we are unable to renegotiate contracts with our key suppliers, we believe that we could replace them. Any raw material disruption or price increase may result in an adverse impact on our financial condition and prospects. For instance, we could incur higher costs in renegotiating contracts with existing suppliers or replacing those suppliers, or we could experience temporary dislocations in our ability to deliver products to our customers, either of which could have a material adverse effect on our results of operations.

 

 

Seasonality

 

Our business is seasonal. The period from June to September, when we have our highest water sales, represents the peak period for sales and revenues due to increased consumption of cold beverages during the summer months in our core Northeastern United States market. Conversely, coffee has a peak sales period from November to March. Sales of office products and supplies fluctuate during the year.

 

Competition

 

We believe that bottled water historically has been a regional business in the United States. The market includes several large regional brands owned by multi-national companies that operate throughout contiguous states. We also compete with smaller, locally-owned bottlers that operate in specific cities or market areas within single states.

 

With our Crystal Rock®, Vermont Pure® and Cool Beans® brands, we compete on the basis of pricing, customer service, quality of our products, attractive packaging, and brand recognition. We consider our trademarks, trade names and brand identities to be very important to our competitive position and defend our brands vigorously.

 

We feel that installation of filtration units in the home or commercial setting poses competition to our business. To address this, we have continued to develop our plumbed-in filtration business expanding it internally and through acquisitions and actively offering it as an alternative product to our bottled water.

 

Traditionally, the rental of water coolers for offices and homes has been a profitable business for us. As coolers have become cheaper and more readily available at retail outlets and with increased promotional pricing in the marketplace, our cooler rental revenue has declined. Although this rental revenue is profitable for us, it may continue to decline or become less profitable in the future as a result of retail competition.

 

Coffee product sales have dramatically shifted to sales of single serve packages. We face increased competition for sales of these products from retail stores and home delivery options from other food and beverage distributors, office products distributors and retail outlets. In addition, internet availability has increased, leading to sales declines for coffee products.

 

Machines to brew these single serve packages are different from traditional machines, and packages ideally need to be brewed in machines that accommodate the specific package. As a result, the popularity of a certain machine often dictates what products are successful in the marketplace. We have developed our own Cool Beans® pod in order to create brand equity in this category. Our success, both from a sales and profitability perspective, may be affected by our access to distribution rights for certain products and machines, our decisions concerning which equipment to invest in and our ability to develop brand awareness.

 

 

We believe that it has become increasingly important to our competitive advantage to decrease the impact of our business on the environment. We traditionally use five-gallon containers that are placed on coolers and are reused many times. To further “green” our business we generate solar electricity in our Watertown, Connecticut facility, use high efficiency lighting and vehicles and have instituted no-idling and other driving policies in all of our locations.

 

The office products business is highly competitive. Companies like Staples, Office Depot and W.B. Mason are larger and have greater capital resources than Crystal Rock and compete with us on price as well as level of service. Moreover, the evolution of modern business practices towards the “paperless office” could have the effect of reducing the available market for some office products. If the overall market for office products contracts, price competition can be expected to exert pressure on our margins for office products, with potential adverse effects on our earnings or cash flow, even if we are able to continue increasing revenues from this product line. See Item 1A, “Risk Factors,” for more information.

 

Trademarks

 

We own the trade names of the principal water brands that we sell, Vermont Pure Natural Spring Water® and Crystal Rock®. We also own the Cool Beans® coffee brand, Crystal Rock Office® products brand and own or have rights to other trade names that currently are not a significant part of our business. Our trademarks as well as label designs are, in general, registered with the United States Patent and Trademark Office.

 

Government Regulation

 

The Federal Food and Drug Administration (FDA) regulates bottled water as a “food.” Accordingly, our bottled water must meet FDA requirements of safety for human consumption, of processing and distribution under sanitary conditions and of production in accordance with the FDA “good manufacturing practices.” To assure the safety of bottled water, the FDA has established quality standards that address the substances that may be present in water which may be harmful to human health as well as substances that affect the smell, color and taste of water. These quality standards also require public notification whenever the microbiological, physical, chemical or radiological quality of bottled water falls below standard. The labels affixed to bottles and other packaging of the water is subject to FDA restrictions on health and nutritional claims for foods under the Fair Packaging and Labeling Act. In addition, all drinking water must meet Environmental Protection Agency standards established under the Safe Drinking Water Act for mineral and chemical concentration and drinking water quality and treatment that are enforced by the FDA.

 

We are subject to the food labeling regulations required by the Nutritional Labeling and Education Act of 1990. We believe we are in compliance with these regulations.

 

We are subject to periodic, unannounced inspections by the FDA. Upon inspection, we must be in compliance with all aspects of the quality standards and good manufacturing practices for bottled water, the Fair Packaging and Labeling Act, and all other applicable regulations that are incorporated in the FDA quality standards. We believe that we meet the current regulations of the FDA, including the classification as spring water. All of our plants and distribution locations are registered with the FDA under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. In December 2009, the FDA put into effect the Bottled Water Microbial Rule to monitor water sources for E. coli bacteria. We have been in compliance with the testing requirements for this rule prior to and since its inception.

 

 

We also must meet state regulations in a variety of areas to comply with purity, safety, and labeling standards. From time to time, our facilities and sources are inspected by various state departments and authorities.

 

Our product labels are subject to state regulation (in addition to federal requirements) in each state where the water products are sold. These regulations set standards for the information that must be provided and the basis on which any therapeutic claims for water may be made.

 

We use a comprehensive program of self-regulation and use third party auditors for testing and inspections to evaluate our compliance with federal and various state regulations.

 

In recent years, there has been legislative and executive action in state and local governments that has or would ban the use of bottled water in municipal buildings, enact local taxes on bottled water, and limit the sale by municipalities of water supplies to private companies for resale. Such regulation could adversely affect our business and financial results. For additional information, see Item 1A, “Risk Factors,” below.

 

The laws that regulate our activities and properties are subject to change. As a result, there can be no assurance that additional or more stringent requirements will not be imposed on our operations in the future. Although we believe that our water supply, products and bottling facilities are in substantial compliance with all applicable governmental regulations, failure to comply with such laws and regulations could have a material adverse effect on our business.

 

Employees

 

As of January 10, 2018, we had 285 full-time employees and 9 part-time employees. None of the employees belongs to a labor union. We believe that we have good standing relationships with our employees.

 

Additional Available Information

 

Our principal website is www.crystalrock.com. We make our annual, quarterly and current reports, and amendments to those reports, available free of charge on www.crystalrock.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Reports of beneficial ownership of our common stock, and changes in that ownership, by directors, officers and greater-than-10% shareholders on Forms 3, 4 and 5, are likewise available free of charge on the SEC’s website and our website.

 

The information on our website is not incorporated by reference in this Annual Report on Form 10-K or in any other report, schedule, notice or registration statement filed with or submitted to the SEC.

 

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically at www.sec.gov. You may also read and copy the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

 

ITEM 1A.

RISK FACTORS.

 

We operate in a competitive business environment that is influenced by conditions some of which are controllable and others are beyond our control. These conditions include, but are not limited to, the regional economy, monetary policy, and the political and regulatory environment. The following summarizes important risks and uncertainties that may materially affect our business in the future.

 

The Baker family currently owns a majority of our voting stock and controls the company. Such control affects our corporate governance, and could also have the effect of delaying or preventing a change of control of the company.

 

The Baker family group, consisting of three current directors Peter Baker (CEO), John Baker (Executive Vice President) and Ross Rapaport (Chairman), as trustee, together own a majority of our common stock. Accordingly, these stockholders, acting together, can exert a controlling influence over the outcome of matters requiring stockholder approval, such as the election of directors, amendments to our certificate of incorporation, mergers and various other matters. The concentration of ownership could also have the effect of delaying or preventing a change of control of the company.

 

As permitted under the corporate governance rules of the NYSE MKT, we have, at the direction of the Baker family group, elected “controlled company” status under those rules. A controlled company is exempted from these NYSE MKT corporate governance rules: (1) the requirement that a listed company have a majority of independent directors, (2) the requirement that nominations to the company’s board of directors be either selected or recommended by a nominating committee consisting solely of independent directors, and (3) the requirement that officers’ compensation be either determined or recommended by a compensation committee consisting solely of independent directors. We do not currently utilize exemption (3) as we have a compensation committee consisting solely of three independent directors.

 

The personal interests of our directors and officers create conflicts.

 

As mentioned above, the Baker family group owns a majority of our common stock. In addition, in connection with the acquisition of the Crystal Rock Spring Water Company in 2000, we issued members of the Baker family group 12% subordinated promissory notes secured by all of our assets. As of October 31, 2017, the balance on these notes is $4,500,000. We also lease important facilities in Watertown and Stamford, Connecticut from Baker family interests. These interests of the Baker family create various conflicts of interest. Transactions between the Company and related parties are subject to review and approval by the Audit Committee, which consists entirely of independent directors.

 

We face significant competition in the home and office distribution business from companies with greater resources than we have.  Methods of competition in the distribution of home and office refreshment products continue to change and evolve.  If we are unable to meet these changes, our business could be harmed.

 

We operate in highly competitive markets. The principal methods of competition in the markets in which we compete are distribution capabilities, brand recognition, quality, reputation, and price. We have a significant number of competitors in our traditional water market, some of which have far greater resources than us. Among our principal competitors are Nestlé Waters North America, DS Services of America, Inc., a segment of Cott Corporation, W.B. Mason, large regional brands owned by private groups, and local competitors in the markets that we serve. As we expanded our product lines, most notably to office products, we learned that price reductions and the introduction of new products by our competitors can adversely affect our revenues, gross margins, and profits.

 

 

Our industry has also been affected by the increasing availability of water coolers in discount retail outlets. This has negatively affected our rental revenue stream in recent years as more customers choose to purchase coolers rather than rent them. We do not expect retail sales to replace rentals completely because we believe that the purchase option does not provide the quality and service that many customers want. However, third party retail cooler sales may continue to impact our rental revenues negatively in the future.

 

Internet technology and virtual stores have lowered the barriers of entry into non-water marketplace we service.

 

E-commerce businesses have added an additional layer of competition from product resellers who do not require investment in brick and mortar facilities and trucks. The lack of investment in physical assets has allowed these competitors to reduce overhead costs and subsequently sell products at a lower cost. These competitors generally will have products delivered to customers using third party distribution systems. While we have not seen an increase in competition in the bottled water products from virtual stores, we have seen increased competition in coffee and office product items.

 

We rely upon a single software vendor that supplies the software for our route accounting and online storefront ordering systems, which exposes us to risk from interruption of service.

 

Our route accounting and online ordering systems are essential to our overall administrative function and success.  An extended interruption in servicing the system could result in the inability to access information.  Limited or no access to this information would likely inhibit the sale and distribution of our products and the availability of management information, and could even affect our compliance with public reporting requirements.  Our software vendor has a limited number of staff possessing the proprietary information pertaining to the operation of the software.  Changes in personnel or ownership in the firm might result in disruption of service.  Such changes would be addressed by retaining a new vendor to service the existing software or purchasing a new system, but we cannot assure you that we could implement successfully a new vendor or new system without possible disruption to our business and added cost.  Any of these events could have a material adverse impact on our operations and financial condition.

 

We depend upon maintaining the integrity of our water sources and manufacturing process. If our water sources or bottling processes were contaminated for any reason, our business would be seriously harmed.

 

Our ability to retain customers and the goodwill associated with our brands is dependent upon our ability to maintain the integrity of our water resources and to guard against defects in, or tampering with, our manufacturing process. The loss of integrity in our water sources or manufacturing process could lead to product recalls and/or customer illnesses that could materially adversely affect our goodwill, market share and revenues. Because we rely upon natural spring sites for sourcing some of our water supply, acts of God, such as earthquakes, could alter the geologic formation of the spring sites, constricting or even contaminating water flow.

 

 

In addition, we do not own any of our water sources. Although we believe the long term rights to our spring and municipal sources are well secured, any dispute over these rights that resulted in prolonged disruption in supply could cause an increase in cost of our product or shortages that would not allow us to meet the market demand for our product.

 

The bottled water industry is regulated at both the state and federal level. If we are unable to continue to comply with applicable regulations and standards in any jurisdiction, we might not be able to sell our products in that jurisdiction, and our business could be seriously harmed.

 

The FDA regulates bottled water as a food. Our bottled water must meet FDA requirements of safety for human consumption, labeling, processing and distribution under sanitary conditions and production in accordance with FDA “good manufacturing practices.” In addition, all drinking water must meet Environmental Protection Agency standards established under the Safe Drinking Water Act for mineral and chemical concentration and drinking water quality and treatment, which are enforced by the FDA. We also must meet state regulations in a variety of areas. These regulations set standards for approved water sources and the information that must be provided and the basis on which any therapeutic claims for water may be made. We have received approval for our drinking water in Connecticut, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. However, we can give no assurance that we will receive such approvals in the future.

 

Legislative and executive action in state and local governments banning the use of municipal funds for purchasing bottled water, enacting local taxes on bottled water or water extraction, and restricting water withdrawal and usage rights from public and private sources could adversely affect our business and financial results.

 

Recent initiatives have taken place in several major cities regarding bottled water, principally the smaller sizes sold in stores to retail consumers. Regulations have been proposed in some localities that would ban the use of public funds to purchase bottled water, enact local taxes on bottled water or water extraction, and restrict the withdrawal of water from public and private sources. These actions are purportedly designed to discourage the use of bottled water due in large part to concerns about the environmental effects of producing and discarding large numbers of plastic bottles. In developing these stories, local and national media have reported on the growth of the bottled water industry and on the pros and cons of consuming bottled water as it relates to solid waste disposal and energy consumption in manufacturing, as well as conserving the supply of water available to the public.

 

We believe that the adverse publicity associated with these reports is generally aimed at the retail, small bottle segment of the industry that is now a minimal part of our business, and that our customers can readily distinguish our products from the retail bottles that are currently the basis for concern in some areas. Our customers typically buy their water in reusable five-gallon containers that are placed on coolers and reused many times. Only approximately 4% of our total sales are from water sold in single serve packages. In addition, we continue to take steps to “green” our business by means of solar electricity generation, high efficiency lighting, no-idling and other driving policies, and the use of biodiesel.

 

While we believe that to date we have not directly experienced any adverse effects from these concerns, and that our products are sufficiently different from those under scrutiny, there is no assurance that adverse publicity about any element of the bottled water industry will not affect consumer behavior by discouraging buyers from buying bottled water products generally. In that case, our sales and other financial results could be adversely affected.

 

 

Climate changes and severe weather may impact future ability to bottle water products and deliver all of our products.

 

There has been increasing concerns in recent years regarding climate change and the impact on water supplies. Most recently there have been drought conditions throughout much of our delivery areas. Should severe drought conditions exist, there may be restrictions on municipal water supplies used for the bottling of our Crystal Rock® branded water.

 

In addition, severe weather conditions during winter months in the northeast such as snow and ice storms significantly impact delivery schedules and revenue streams.

 

Our Company is significantly leveraged. Over the years, we have borrowed substantial amounts of money to finance acquisitions. If we are unable to meet our debt service obligations to our senior and subordinated lenders, we would be in default under those obligations, and that could hurt our business or even result in foreclosure, reorganization or bankruptcy.

 

At October 31, 2017 and 2016, our outstanding senior debt was $10,133,000 and $9,733,000, respectively, and our outstanding subordinated debt was $4,500,000 and $9,000,000 respectively. The underlying loans are secured by substantially all of our assets. If we do not repay our indebtedness in a timely fashion, our secured creditors could declare a default and foreclose upon our assets, which would result in harmful disruption to our business, the sale of assets for less than their fully realizable value, and possible bankruptcy. We must generate enough cash flow to service this indebtedness until maturity.

 

Fluctuations in interest rates could significantly increase our expenses. We will have significant interest expense for the foreseeable future, which in turn may increase or decrease due to interest rate fluctuations. To partially mitigate this risk, we have used swaps to establish fixed interest rates on a portion of our outstanding senior term debt.

 

As a result of our large amount of debt, we may be perceived by banks and other lenders to be highly leveraged and close to our borrowing ceiling. Until we repay some of our debt, our ability to access additional capital may be limited. In turn, that may limit our ability to finance transactions and to grow our business. In addition, our senior credit agreement limits our ability to incur incremental debt without our lender’s permission.

 

Fluctuations in the cost of essential raw materials and commodities, including fuel costs, for the manufacture and delivery of our products could significantly impact our business.

 

Bottle manufacturers use plastic and other petroleum-based products for the manufacturing of our bottles. Increases in the cost of petroleum will likely have an impact on our bottle costs.

 

We rely on trucking to receive raw materials and transport and deliver our finished products. Consequently, the price of fuel significantly impacts the cost of our products. We purchase our own fuel for our Home and Office delivery and use third parties for transportation of raw materials and finished goods between our warehouses. While volume purchases can help control erratic fuel pricing, market conditions ultimately determine the price. In the past, we have experienced substantial market fluctuation of fuel prices.  However, when fuel prices have increased, we have been able to establish a fuel adjustment charge for our customers that covered the incremental rising cost of fuel.  When fuel prices have decreased, they have not decreased enough to offset the incremental fuel cost over what we considered our “base” level for fuel cost.  The risk remains that we may not be able to use fuel price adjustments to cover the cost of fuel increases in a volatile market for petroleum products, which could adversely affect our profitability. Further, limitations on the supply or availability of fuel could inhibit our ability to get raw materials and distribute our products, which in turn could have an adverse effect on our business.

 

 

A significant portion of our sales is derived from coffee. The supply and price of coffee may be limited by climate, by international political and economic conditions, and by access to transportation, combined with consumer demand. An increase in the wholesale price of coffee could result in a reduction in our profitability. If our ability to purchase coffee were impaired by a market shortage, our sales might decrease, which would also result in a reduction of profitability and customer satisfaction.

 

Our success depends on the continued services of key personnel.

 

Our continued success will depend in large part upon the expertise of our senior management and their ability to execute our strategic planning. Peter Baker, our Chief Executive Officer and President, John Baker, our Executive Vice President, and David Jurasek, our Chief Financial Officer, Treasurer and Assistant Secretary, have entered into employment agreements with Crystal Rock Holdings, Inc. These “at will” employment agreements do not prevent these employees from resigning. The departure or loss of any of these executives individually could have an adverse effect on our business and operations and could contribute to disruption of our business while we searched for replacement personnel with appropriate skills.

 

We have a limited amount of bottling capacity. Significant interruptions of our bottling facilities could adversely affect our business.

 

We own three bottling facilities, and also contract with third parties, to bottle our water. If any of these facilities were incapacitated for an extended period of time, we would likely have to relocate production to an alternative facility. The relocation and additional transportation could increase the cost of our products or result in product shortages that would reduce sales. Higher costs and lower sales would reduce profitability.

 

Our customer base is located in New England, New York and New Jersey. If there were to be a material decline in the economy in these regions, our business would likely be adversely affected.

 

Essentially all of our sales are derived from New England, New York and New Jersey. We believe that the economic recession experienced in these areas, particularly in 2008 and 2009, adversely affected our financial results. Connecticut particularly has experienced difficulties recovering after the recession. Continued adverse effects in the regional economies, or a significant negative change in the economy of any of these regions, changes in consumer spending in these regions, or the entry of new competitors into these regional markets, among other factors, could result in a decrease in our sales and, as a result, reduced profitability.

 

Our business is seasonal, which may cause fluctuations in our stock price.

 

Historically, the period from June to September represents the peak period for sales and revenues due to increased consumption of cold beverages during the summer months in our core Northeastern United States markets. Warmer weather in our geographic markets tends to increase water sales, and cooler weather tends to decrease water sales. To the extent that our quarterly results are affected by these patterns, our stock price may fluctuate to reflect them.

 

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS.

 

None.

 

 

 

 

 

 

 

ITEM 2.

PROPERTIES.

 

As part of our Home and Office delivery operations, we have entered into or assumed various lease agreements for properties used as distribution points and office space. The following table summarizes these arrangements and includes our bottling facilities:

 

Location	Lease expiration	Sq. Ft.	Annual Rent
Williston, VT	June 2019	12,320	$100,416
Bow, NH	May 2021	12,800	68,500
Rochester, NY	June 2022	15,000	77,100
Buffalo, NY	September 2021	20,000	102,000
Syracuse, NY	March 2023	17,680	79,832
Halfmoon, NY	October 2021	22,500	180,000
Plattsburgh, NY	Month-to-month	5,000	29,400
Watertown, CT*	October 2021	67,000	470,521
Stamford, CT	September 2020	22,000	256,668
White River Junction, VT	May 2019	20,382	120,706
Groton, CT	June 2019	7,500	58,250
Canton, MA	October 2019	23,966	161,291
* Corporate headquarters

 

All locations are used primarily for warehousing and distribution and have limited office space for location managers and support staff. Halfmoon, NY, White River Junction, VT and Watertown, CT house water production facilities. Our headquarters in Watertown, Connecticut has a substantial amount of office space for sales, accounting, information systems, customer service, and general administrative staff.

 

The landlord for the buildings in Stamford and the headquarters in Watertown, Connecticut is a trust with which John and Peter Baker and Ross Rapaport are affiliated. We believe that the rent charged under these leases is not more than fair market rental value.

 

We expect that these facilities will meet our needs for the next several years.

 

ITEM 3.

LEGAL PROCEEDINGS.

 

None.

 

ITEM 4.

MINE SAFETY DISCLOSURES.

 

N/A.

 

 

 

PART II

 

ITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our Common Stock is traded on the NYSE MKT under the symbol CRVP. The table below indicates the high and low prices per share of Common Stock as reported by the exchange.

 

Fiscal Year Ended October 31, 2017

	High	Low
First Quarter	$.86	$.75
Second Quarter	$1.05	$.70
Third Quarter	$.93	$.76
Fourth Quarter	$.86	$.69

 

Fiscal Year Ended October 31, 2016

	High	Low
First Quarter	$1.00	$.44
Second Quarter	$.98	$.66
Third Quarter	$.95	$.63
Fourth Quarter	$.92	$.74

 

The last reported sale price of our Common Stock on the NYSE MKT on January 12, 2018 was $.82 per share.

 

As of that date, we had approximately 265 record owners and believe that there were approximately 1,500 beneficial holders of our Common Stock.

 

No dividends have been declared or paid to date on our Common Stock. Our senior credit agreement prohibits us from paying dividends without the prior consent of the lender. It is unlikely that we will pay dividends in the foreseeable future.

 

Issuer Purchases of Equity Securities

 

On May 14, 2012, we announced a program to repurchase up to $500,000 of our common stock. There is no expiration date for the program. The dollar amount may not be reached. During fiscal 2017 and 2016, no shares were repurchased. The maximum expenditure that may yet to be used for purchase under the program is $470,030 as of October 31, 2017.

 

 

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand our Company. The MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes. This overview provides our perspective on the individual sections of the MD&A, as well as a few suggestions for reading these pages. The MD&A includes the following sections:

 

§

Business Overview — a brief description of fiscal year 2017.

 

§

Results of Operations — an analysis of our consolidated results of operations for the two years presented in our consolidated financial statements.

 

§

Liquidity and Capital Resources — an analysis of cash flows, sources and uses of cash, and contractual obligations and a discussion of factors affecting our future cash flow.

 

§

Critical Accounting Policies — a discussion of accounting policies that require critical judgments and estimates. Our significant accounting policies, including the critical accounting policies discussed in this section, are summarized in the notes to the accompanying consolidated financial statements.

 

Business Overview

 

Net income decreased $642,000 on a sales decline of 10% in fiscal 2017 compared to fiscal 2016. Although dollar sales declined 10%, dollar gross profit declined 4%. The decrease in lower margin product sales lines resulted in an overall gross profit of 54% for fiscal 2017 compared to 51% in fiscal 2016. Operating expenses increased 1% or $248,000 in fiscal 2017 from fiscal 2016. Interest expense for fiscal 2017 decreased $395,000 or 24% compared to fiscal 2016. The lower sales in fiscal 2017 were the main factor for the lower net income in fiscal 2017 compared to fiscal 2016.

 

The reduced sales volume resulted in lower delivery costs in fiscal 2017 as compared to fiscal 2016. This reduction was offset by higher selling costs associated with commissions for rental unit placements and higher administrative expenses associated with improving our customer service and back office systems.

 

We continue to focus on strategic pricing for our products. Our target market focus is on customers who want regularly scheduled route deliveries and associated value added services. Furthermore, we are investing in customer facing technology that we expect will improve customer facing and back office systems. These improvements are expected to enhance customer online ordering capabilities and increase efficiencies in our administrative departments.

 

 

Results of Operations

 

Fiscal Year Ended October 31, 2017 Compared to Fiscal Year Ended October 31, 2016

 

Sales

Sales for fiscal year 2017 were $59,069,000 compared to $65,342,000 for 2016, a decrease of $6,273,000 or 10%. Other than other revenues, all sales categories declined. The most notable decline was that of office products.

 

The comparative breakdown of sales is as follows:

 

Product Line		2017				2016				Difference				% Diff.
		(in 000’s $)				(in 000’s $)				(in 000’s $)
Water		$	27,944			$	27,964			$	(20	)			(0	%)
Coffee			10,337				11,121				(784	)			(7	%)
Refreshment			8,431				10,041				(1,610	)			(16	%)
Equipment Rental			7,051				7,055				(4	)			(0	%)
Office Products			3,326				7,211				(3,885	)			(54	%)
Other			1,980				1,950				30				2	%
Total		$	59,069			$	65,342			$	(6,273	)			(10	%)

 

Water –Water sales volume increased 2%. The average selling price decreased 2% due to competitive pricing pressures.

 

Coffee – Sales of single-serve coffee declined to $7,190,000 from $7,599,000, despite an increase of 11% in our Cool Beans® pod sales. Cool Beans® made up 22% of the category in 2017 compared to 19% in 2016. There was an 11% decrease in sales of our traditional coffee products for office and food service brewers. The overall decrease in coffee sales was attributable to lower volume due to commoditization pricing by competitors in the marketplace as well as the availability of these products in grocery and box stores. Increasingly, single serve coffee products are becoming more available through the internet and virtual stores. The increase in Cool Bean® pod sales is the result of continued marketing efforts on the brand and lower pricing than traditional hard pod products.

 

Refreshment – The most notable decline in the refreshment category is attributable to discontinuing the servicing of vending machines. This resulted in a decline in sales of $854,000 or 53% of the total refreshment sales decline. We believe other declines in refreshment products are attributable to competition from virtual stores.

 

Equipment Rental – The small decrease in equipment rental revenue in fiscal year 2017 compared to the prior year was a result of a 2% increase in average units in the field and a decrease in average rental price of 2% due to competitive pricing. The unit increase is attributable to the selling focus of placing rental equipment with new customers to generate recurring revenue streams.

 

Office Products – The decrease in sales was the result of our renewed focus on core product sales particularly water and the placement of water coolers. Due to the competitive nature of the office products marketplace and the number of online retailers in the market combined with less focus on selling these products, total sales in the category have declined.

 

 

Other – The increase was primarily attributable to revenue earned for unreturned 3/5-gallon bottles delivered to customers.

 

Gross Profit/Cost of Goods Sold

Gross profit decreased $1,328,000 to $31,780,000 in fiscal year 2017 compared to $33,108,000 in fiscal 2016. Gross profit as a percentage of sales increased to 54% in fiscal 2017 from 51% in fiscal 2016. The sales decline resulted in lower dollar gross profit.

 

Cost of goods sold includes all costs to bottle water, costs of purchasing and receiving products for resale (including freight), as well as costs associated with product quality, warehousing and handling costs, internal transfers, and the repair and service of rental equipment, but does not include the costs of distributing our product to our customers. We include distribution costs in selling, general, and administrative expense, and the amount is reported below. Other companies may include distribution costs in their cost of goods sold, in which case, on a comparative basis, such other companies may have a lower gross margin as a result.

 

Income from Operations/Operating Expenses

Income from operations was $1,947,000 in 2017 compared to $3,523,000 in 2016, a decrease of $1,576,000. The decrease is attributable to lower sales and gross profit combined with an increase in operating expenses. Total operating expenses increased by $248,000 or 1% in 2017 to $29,833,000 compared to $29,585,000 in 2016.

 

Selling, general and administrative (SG&A) expenses were $28,704,000 in fiscal year 2017 compared to $28,366,000 in fiscal year 2016, an increase of $338,000, or 1%. Of total SG&A expenses:

 

·

Route sales costs decreased 4%, or $563,000, to $12,694,000 in fiscal year 2017 from $13,257,000 in fiscal year 2016. Lower sales resulted in lower direct distribution operating costs. These costs decreased $423,000, or 3%, to $12,131,000 in fiscal year 2017 from $12,554,000 in fiscal year 2016, primarily as a result of lower labor costs. Other cost reductions included telephone and paper delivery ticket costs;

 

·

Selling and marketing costs increased 2%, or $73,000, to $3,891,000 in fiscal year 2017 from $3,818,000 in fiscal 2016. The increase was attributable to higher labor costs;

 

·

Other general and administrative costs increased 7% or $828,000, to $12,119,000 in fiscal year 2017 from $11,291,000 in fiscal year 2016. The increase was attributable to improving back office technology and increases in customer service personnel. Also increasing was doubtful account expenses.

 

Advertising expenses decreased to $466,000 in fiscal year 2017 from $546,000 in 2016, a decrease of $80,000, or 15%. The decrease in advertising costs is primarily related to an increase in online advertising and a decrease in print advertising and radio advertising, which are comparatively more expensive.

 

Amortization decreased to $660,000 in 2017 compared to $672,000 in 2016. Amortization is attributable to intangible assets that were acquired as part of acquisitions in past years. The decrease is the result of acquired customer lists and non-competition agreements issued in conjunction with acquisitions becoming fully amortized.

 

 

There was a net loss from the sale of miscellaneous assets in fiscal year 2017 of $4,000 compared to a net loss of $1,000 in 2016. These were sales of miscellaneous assets and vending equipment no longer used in the course of business.

 

Interest Expense, Income Taxes, and Income before Income Taxes

Interest expense was $1,222,000 for fiscal year 2017 compared to $1,617,000 for fiscal year 2016, a decrease of $395,000. The decrease is the result of lower subordinated debt balances, which bear interest at a rate of 12% per annum.

 

Income before income taxes of $726,000 in fiscal year 2017 compared to income before income taxes of $1,906,000 in fiscal year 2016, was a decrease of $1,180,000.

 

Income tax expense for fiscal year 2017 of $166,000 compared to $704,000 for fiscal year 2016 resulted in an effective tax rate of 23% in 2017 and 37% in 2016. The decrease in taxes was the result of lower income before taxes and a lower effective tax rate in fiscal 2017 compared to fiscal 2016. The decrease in the tax rate is due to an adjustment related to Subpart F Income previously recorded.

 

Net Income

Net income for 2017 was $560,000 compared to $1,202,000 in fiscal year 2016, a decrease of $642,000. Earnings were lower due to lower sales and lower gross profit. The net income in the respective years was completely attributable to continuing operations.

 

Based on the weighted average number of shares of Common Stock outstanding of 21,358,000 (basic and diluted), net income per share in 2017 was $.03 per share. In 2016, weighted average number of shares of Common Stock outstanding was 21,358,000 (basic and diluted) resulting in net income of $.06 per share. This was a decrease in earnings of $.03 per share.

 

In 2017, there was $22,000 of unrealized gains related to our swap activity that we have designated as cash flow hedges, net of reclassification adjustments and taxes, compared to unrealized losses of $14,000 in 2016.

 

Liquidity and Capital Resources

 

As of October 31, 2017, we had working capital of $3,360,000 compared to $7,911,000 as of October 31, 2016, a decrease of $4,551,000. The decrease in working capital is primarily attributable to the use of $4,100,000 to reduce total debt and to lower accounts receivable.

 

Net cash provided by operating activities was $2,234,000 in 2017 compared to $8,077,000 in 2016, a decrease of $5,843,000. The decrease is reflective of lower net income, a reduction in accounts payable and accrued expenses, and no non cash interest expense in the current year. We used cash and short-term debt to reduce long-term debt obligations by $6,100,000. We used $2,624,000 for capital expenditures in 2017 compared to $2,629,000 in 2016.

 

Our Credit Agreement with Bank of America (the “Bank”), as amended to date, provides a senior financing facility consisting of term debt and a $6 million revolving line of credit. As of October 31, 2017 we had $8,133,000 outstanding on our term loan. At October 31, 2017, there was a balance of $2,000,000 outstanding on the line of credit and a letter of credit issued for $1,327,000 to collateralize the Company’s liability insurance program as of that date. Consequently, as of October 31, 2017, there was $2,673,000 available to borrow from the revolving line of credit. The line of credit matures in May 2018.

 

 

Our term debt amortizes over a five year period with 59 equal monthly installments of $133,333 and a final payment of $4,133,333 due in May 2020. There are various restrictive covenants under the Credit Agreement, and the Company is prohibited from entering into other debt agreements without the bank’s consent. The Credit Agreement also prohibits the Company from paying dividends without the prior consent of the Bank.

 

Effective September 12, 2016, the Company further amended its Credit Agreement with the Bank (the “Second Amendment”). Under the Second Amendment, interest is paid at a rate of one-month LIBOR plus a margin based on the achievement of a specified leverage ratio. As of October 31, 2017, the margin was 2.50% for the term note and 2.25% for the revolving line of credit. The Company fixed the interest rate on a portion of its term debt by entering into an interest rate swap. As of October 31, 2017, the Company had $4,068,000 of the term debt subject to variable interest rates. The one-month LIBOR was 1.24% on October 31, 2017 resulting in total variable interest rates of 3.74% and 3.49%, for the term note and the revolving line of credit, respectively, as of October 31, 2017.

 

The following information pertains to the Company's outstanding interest rate swap at October 31, 2017.  The pay rate is fixed and the receive rate is one month LIBOR.

 

Instrument	Notional Amount	Pay Rate	Receive Rate
Interest rate swap	$4,066,668	1.25%	1.24%

 

The Second Amendment requires the Company to be in compliance with certain financial covenants as follows: (i) a maximum annual limit for capital expenditures of $4,000,000 each fiscal year, (ii) consolidated adjusted operating cash flow to consolidated total debt service ratio, as defined, to be no less than 1.5 to 1 for any reference period ending on or after October 31, 2016 and (iii) senior funded debt to consolidated adjusted EBITDA, as defined, to be no greater than 2.5 to 1 as of the end of any fiscal quarter ending on or after October 31, 2016. As of October 31, 2017, the Company was in compliance with these financial covenants.

 

On June 13, 2017, the Company entered into a Third Amendment (the “Third Amendment”) to the Agreement The Third Amendment allows the Company to use up to $2,000,000 of proceeds from the revolving line of credit to make payments on the Subordinated Debt. The Third Amendment also allows for prepayments on Subordinated Debt up to $4,500,000 in the aggregate. Subsequently the Company paid an aggregate of $4,500,000 of subordinated debt principal payments.

 

In addition to the senior debt, as of October 31, 2017, the Company has subordinated debt owed to Peter and John Baker in the aggregate principal amount of $4,500,000 that is due November 20, 2020. The interest rate on each of these notes is 12% per annum.

 

 

In addition to our senior and subordinated debt commitments, we have significant future cash commitments, primarily in the form of operating leases that are not reported on the consolidated balance sheet. The following table sets forth our contractual commitments as of October 31, 2017:

 

Contractual Obligations		Payment due by Period (2)
		Total				2018				2019-2020				2021-2022				After 2022
Debt		$	14,633,000			$	3,600,000			$	6,533,000			$	4,500,000			$	-
Interest on Debt (1)			2,267,000				850,000				1,387,000				30,000				-
Operating Leases			8,826,000				2,991,000				4,085,000				1,713,000				37,000
Total		$	25,726,000			$	7,441,000			$	12,005,000			$	6,243,000			$	37,000

 

(1)

Interest is based on (a) 50% of outstanding senior debt at the hedged interest rate discussed above and 50% of outstanding senior debt at a variable rate of 3.74% and (b) subordinated debt at a rate of 12%.

 

(2)

Customer deposits have been excluded from the table. Deposit balances vary from period to period with water sales but future increases and decreases in the balances are not accurately predictable. Deposits are excluded because, net of periodic additions and reductions, it is probable that a customer deposit balance will always be outstanding as long as the business operates.

 

As of the date of this Annual Report on Form 10-K, we have no other material contractual obligations or commitments.

 

Factors Affecting Future Cash Flow

 

Generating cash from operating activities and access to credit is integral to the success of our business. We continue to generate cash from operating activities to service scheduled debt repayment and fund capital expenditures. In addition, we have capacity to borrow from our line of credit for capital expenditures and acquisitions. We also lease a significant amount of our vehicles and all of our buildings.

 

Adverse economic conditions and an increase in banking regulations in recent years have negatively impacted many businesses’ financial performance and restricted credit availability. The competitive landscape has reduced our sales volume over the past year. We anticipate that our business and pricing strategy will be successful. However, no assurance can be given that we will be profitable in the future and that the economic and competitive environment will not adversely affect our cash flow and results of operations or that we will have adequate access to credit.

 

Factors Affecting Quarterly Performance

 

Our business and financial trends vary from quarter to quarter based on, but not limited to, seasonal demands for our products, climate, and economic and geographic trends. Consequently, results for any particular fiscal quarter are not necessarily indicative, through extrapolation, or otherwise, of results for a longer period. In the past year as in other years, we have experienced weather related events that have influenced quarterly performance. Weather is always variable and can impact our performance both positively and negatively. In 2016 we believe water sales increased due to the warmer than usual summer while in fiscal 2017 the temperatures in the northeast were not as high.

 

 

Critical Accounting Policies

 

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment for such things as valuing assets, accruing liabilities, and estimating expenses. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies and estimates. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. We base our ongoing estimates on historical experience and other various assumptions that we believe to be reasonable under the circumstances.

 

Accounts Receivable – Allowance for Doubtful Accounts

We routinely review our accounts receivable, by customer account aging, to determine if the amounts due are collectible based on information we receive from the customer, past history, and economic conditions. In doing so, we adjust our allowance accordingly to reflect the cumulative amount that we feel is uncollectible. This estimate may vary from the proceeds that we actually collect. If the estimate is too low, we may incur higher bad debt expenses in the future resulting in lower net income. If the estimate is too high, we may experience lower bad debt expense in the future resulting in higher net income.

 

Fixed Assets – Depreciation

We maintain buildings, machinery and equipment, and furniture and fixtures to operate our business. We estimate the life of individual assets to allocate the cost over the expected life. The basis for such estimates is use, technology, required maintenance, and obsolescence. We periodically review these estimates and adjust them if necessary. Nonetheless, if we overestimate the life of an asset or assets, at a point in the future, we would have to incur higher depreciation costs and consequently, lower net income. If we underestimate the life of an asset or assets, we would absorb too much depreciation in the early years resulting in higher net income in the later years when the asset is still in service.

 

Goodwill – Intangible Asset Impairment

We have acquired a significant number of companies. The excess of the purchase price over the fair value of the assets and liabilities acquired has been recorded as goodwill. Goodwill is not amortized but is subject to impairment assessment. In accordance with ASC 350, "Intangibles-Goodwill and Other," we assess goodwill for impairment on an annual basis, or more frequently, if an event occurs or circumstances change that would more likely than not reduce the fair value below the carrying amount. Such assessment can be done on a qualitative or quantitative basis. When conducting a qualitative assessment, we consider relevant events and circumstances that affect the fair value or carrying amount of the reporting unit. A quantitative test is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or we elect not to perform a qualitative assessment of a reporting unit. We consider the extent to which each of the events and circumstances identified affect the comparison of the reporting unit's fair value or the carrying amount. Such events and circumstances could include macroeconomic conditions, industry and market considerations, overall financial performance, entity and reporting unit specific events, product brand level specific events and cost factors. We place more weight on the events and circumstances that may affect its determination of whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. These factors are all considered by management in reaching its conclusion about whether to perform a quantitative goodwill impairment test.

 

 

We perform a quantitative annual goodwill impairment test by comparing the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount exceeds the fair value, we recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill in that reporting unit.

 

As of October 31, 2017, considering qualitative factors, we concluded it is more likely than not that the fair value of the Company was greater than its carrying amount (Step 0); therefore performing the quantitative goodwill impairment test was not necessary. See the significant accounting policies in the footnotes to the financial statements.

 

Income Taxes

We recognize deferred tax assets and liabilities based on temporary differences between the financial statement carrying amount of assets and liabilities and their corresponding tax basis. The valuation of these deferred tax assets and liabilities is based on estimates that are dependent on rate and time assumptions. If these estimates do not prove to be correct in the future, we may have over or understated income tax expense and, as a result, earnings.

 

Financial Accounting Standards Board (“FASB”) guidance clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. The guidance prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return in order for those tax positions to be recognized in the financial statements.

 

Off-Balance Sheet Arrangements

We lease various facilities and equipment under cancelable and non-cancelable short and long term operating leases, which are described in Item 2 of this Annual Report on Form 10-K.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Our Consolidated Financial Statements and their footnotes are set forth on pages F-1 through F-24.

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and our Principal Financial Officer, and other members of our senior management team, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on such evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were adequate and effective to provide reasonable assurance that information required to be disclosed by us, including our consolidated subsidiary, in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive and Chief Financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

 

The effectiveness of a system of disclosure controls and procedures is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of internal controls, and fraud. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.

 

Internal Control Over Financial Reporting

 

a) Management's Annual Report on Internal Control Over Financial Reporting

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

·

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

·

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

 

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of October 31, 2017. In making this assessment, the Company's management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013) in Internal Control-Integrated Framework.

 

Based on our assessment, management concluded that, as of October 31, 2017, the Company's internal control over financial reporting is effective based on those criteria.

 

 

This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

 

b) Changes in Internal Control Over Financial Reporting

 

No change in our internal control over financial reporting occurred during the fiscal quarter ended October 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.

OTHER INFORMATION.

 

None.

 

 

 

 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The information required by this Item is incorporated by reference to the sections captioned “Directors,” “Our Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance” and “Committees of the Board of Directors” in our 2018 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2017.

 

ITEM 11.

EXECUTIVE COMPENSATION.

 

The information required by this Item is incorporated by reference to the sections captioned “Compensation of Executive Officers” and “Compensation of Non-Employee Directors” in our 2018 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2017.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

Securities Authorized for Issuance Under Equity Compensation Plans.

 

The following table sets forth certain information as of October 31, 2017 about shares of our Common Stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our stockholders and plans or arrangements that were not required to be and were not submitted to our stockholders for approval.

 

Equity Compensation Plan Information

 

	(a)	(b)	(c)
Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)).
Equity compensation plans approved by security holders	-0-	-	500,000
Equity compensation plans not approved by security holders	-0-	-	-0-
Total	-0-	-	500,000

 

 

Additional information required by this Item is incorporated by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in our 2018 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2017.

 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

The information required by this Item is incorporated by reference to the section captioned “Corporate Governance” in our 2018 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2017.

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

The information required by this Item is incorporated by reference to the sections captioned “Independent Registered Public Accounting Firm Fees” and “Pre-Approval Policies and Procedures” in our 2018 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2017.

 

 

 

 

 

 

PART IV

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

a)

The following documents are filed as part of this report:

 

(1) Financial Statements
	Report of Independent Registered Public Accounting Firm	F-1
	Consolidated Balance Sheets as of October 31, 2017 and 2016	F-2
	Consolidated Statements of Operations for the years  ended October 31, 2017 and 2016	F-3
	Consolidated Statements of Comprehensive Income for the years ended October 31, 2017 and 2016	F-4
	Consolidated Statements of Changes in Stockholders’ Equity for the years ended October 31, 2017 and 2016	F-5
	Consolidated Statements of Cash Flows for the years ended October 31, 2017 and 2016	F-6
	Notes to the Consolidated Financial Statements	F-7 - F-24
(2) Schedules
	None
(3) Exhibits

 

 

Exhibit No.	Description	Filed with this Form 10-K	Incorporated by Reference
			Form	Filing Date	Exhibit No.
3.1	Certificate of Incorporation		S-4	September 6, 2000	Exhibit B to Appendix A
3.2	Certificate of Amendment to Certificate of Incorporation		8-K	October 19, 2000	4.2
3.3	Amended and Restated By-Laws as adopted March 29, 2010		8-K	April 2, 2010	3.2
3.4	Certificate of Ownership and Merger of Crystal Rock Holdings, Inc. with and into Vermont Pure Holdings, Ltd.		8-K	April 30, 2010	3.1
4.1	Registration Rights Agreement with Peter K. Baker, Henry E. Baker, John B. Baker and Ross Rapaport		8-K	October 19, 2000	4.6
10.1*	1998 Incentive and Non-Statutory Stock Option Plan, as amended		DEF 14A	February 28, 2003	A
10.2*	2004 Stock Incentive Plan		DEF 14A	March 1, 2004	Annex B
10.3	Lease of Buildings and Grounds in Watertown, Connecticut from the Baker’s Grandchildren Trust		S-4	September 6, 2000	10.22
10.4	Second Amendment to the Lease of Buildings and Grounds in Watertown, Connecticut from the Baker’s Grandchildren Trust		10-Q	September 14, 2007	10.4
10.5	Amended and Restated Credit Agreement dated April 5, 2010 with Bank of America.		8-K	April 9, 2010	10.1
10.6	Form of Amended and Restated Term Note dated April 5, 2010 to Bank of America.		8-K	April 9, 2010	10.2

 

 

10.7	Form of Amended and Restated Subordination and Pledge Agreement dated April 5, 2010 between Henry E. Baker and Bank of America.		8-K	April 9, 2010	10.3
10.8	Form of Amended and Restated Subordination and Pledge Agreement dated April 5, 2010 between John B. Baker and Peter K. Baker and Bank of America.		8-K	April 9, 2010	10.4
10.9	Form of Amended and Restated Promissory Note dated April 5, 2010 issued to Henry E. Baker, John B. Baker and Peter K. Baker		8-K	April 9, 2010	10.5
10.10	Form of Indemnification Agreement dated November 2, 2005 with each of Henry E. Baker, John B. Baker, Peter K. Baker, Phillip Davidowitz, David Jurasek, Bruce S. MacDonald and Ross S. Rapaport		10-K	January 30, 2006	10.21
10.11	Form of Indemnification Agreement dated November 2, 2005 with each of John M. Lapides and Martin A. Dytrych and dated February 15, 2012 for Lori J. Schafer		10-K	January 30, 2006	10.22
10.12	Financial Assistance Agreement with Connecticut Innovations dated August 20, 2007		10-K	January 29, 2008	10.30
10.13	Letter of Waiver and Consent dated September 15, 2010 signed by Martin Dytrych, Henry Baker, Peter Baker, and John Baker.		8-K	October 1, 2010	10.1
10.14	First Amendment to the Credit Agreement dated September 28, 2010 with Bank of America.		8-K	October 1, 2010	10.2
10.15	Letter from Henry E., Peter K., and John B. Baker and Ross S. Rapaport, as trustee, to Bank America, as agreed to, to amend Subordination Agreements.		8-K	October 1, 2010	10.3
10.16	Lease of Building and Land in Stamford, Connecticut from Henry E. Baker dated September 30, 2010.		8-K	October 1, 2010	10.4
10.17	Second Amendment to the Credit Agreement with Bank of America dated May 14, 2012.		8-K	May 14, 2012	10.1
10.18	Third Amendment to the Credit Agreement with Bank of America dated March 13, 2013		10-Q	March 18, 2013	10.1
10.19	Amendment of Second Amended and Restated Subordinated Note and Subordinated Note to Henry Baker dated March 13, 2013		10-Q	March 18, 2013	10.2
10.20	Amendment of Subordinated Note to Peter and John Baker dated March 13, 2013		10-Q	March 18, 2013	10.3
10.21	Second Amended and Restated Term Note to Bank of America dated March 13, 2013		10-Q	March 18, 2013	10.4
10.22	Letter of Waiver and Consent dated December 21, 2012 signed by Martin Dytrych, Henry Baker, Peter Baker, and John Baker		8-K	December 28, 2012	10.1
10.23	Letter of Waiver and Consent From Bank of America dated December 21, 2012 signed by Donald Bates and Bruce MacDonald		8-K	December 28, 2012	10.2
10.24*	Crystal Rock Holdings, Inc. 2014 Stock Incentive Plan		DEF 14A	February 28, 2014	A

 

 

10.25	Fourth Amendment to the Credit Agreement with Bank of America dated September 30, 2013		10-K	January 27, 2015	10.33
10.26	Fifth Amendment to the Credit Agreement with Bank of America dated January 14, 2015		10-K	January 27, 2015	10.34
10.27	Second Amended and Restated Credit Agreement with Bank of America dated May 20, 2015		10-Q	June 15, 2015	10.1
10.28	Third Amended and Restated Term Note with Bank of America dated May 20, 2015		10-Q	June 15, 2015	10.2
10.29	Second Amended and Restated Revolving Credit Note Dated May 20, 2015		10-Q	June 15, 2015	10.3
10.30	Amendments to Subordinated Notes dated May 20, 2015		10-Q	June 15, 2015	10.4
10.31	First Amendment Agreement with Bank of America dated September 16, 2015		10-Q	September 18, 2015	10.1
10.32	Amendments to Subordinated Notes dated September 16, 2015		10-Q	September 18, 2015	10.2
10.33	Second Amendment Agreement with Bank of America dated September 12, 2016		10-Q	September 14, 2016	10.1
10.34	First Amendment dated October 11, 2016 to Lease of Building and Land 313 Long Ridge Road, Stamford, Connecticut between Henry E. Baker and Crystal Rock LLC, a Delaware Limited Liability Company dated September 30, 2010		8-K	October 17, 2016	10.1
10.35	Third Amendment dated October 11, 2016 to Lease of 1050 Buckingham Street, Watertown, CT between Henry E. Baker for the Baker Grandchildren Trust U/T/A dated May 5, 2000 and Crystal Rock Spring Water Company dated May 5, 2000		8-K	October 17, 2016	10.2
10.36*	Employment Agreement with Peter Baker dated November 1, 2016		8-K	November 2, 2016	10.1
10.37*	Employment Agreement with John Baker dated November 1, 2016		8-K	November 2, 2016	10.2
10.38*	Employment Agreement with David Jurasek dated November 1, 2016		8-K	November 2, 2016	10.3
10.39	Third Amendment Agreement with Bank of America dated June 13, 2017		8-K	June 13, 2017	10.1
10.40	Third Amended and Restated Revolving Credit Note dated June 13, 2017		8-K	June 13, 2017	10.2
21.1	Subsidiary	X
23.1	Consent of Wolf & Company, P.C.	X
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101	Interactive Data Files regarding (a) our Consolidated Balance Sheets as of October 31, 2017 and October 31, 2016, (b) our Consolidated Statements of Operations for the years ended October 31, 2017 and 2016, (c) Consolidated Statements of Comprehensive Income for the years ended October 31, 2017 and 2016 (d) Consolidated Statements of Changes in Stockholders’ Equity for the years ended October 31, 2017 and 2016, (e) our Consolidated Statements of Cash Flows for the years ended October 31, 2017 and 2016, and (f) the Notes to such Consolidated Financial Statements.	X

 

* Management contract or compensatory plan.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Crystal Rock Holdings, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		CRYSTAL ROCK HOLDINGS, INC.
Dated: January 24, 2018		By: /s/ Peter K. Baker
		Peter K. Baker, Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name		Title		Date
/s/ Ross S. Rapaport		Chairman of the Board of Directors		January 24, 2018
Ross S. Rapaport
/s/ John B. Baker		Executive Vice President and Director		January 24, 2018
John B. Baker
/s/ Peter K. Baker		Chief Executive Officer and Director		January 24, 2018
Peter K. Baker		(principal executive officer)
/s/ Martin A. Dytrych		Director		January 24, 2018
Martin A. Dytrych
/s/ John M. Lapides		Director		January 24, 2018
John M. Lapides
/s/ Lori J. Schafer		Director		January 24, 2018
Lori J. Schafer
/s/ Bruce S. MacDonald		Secretary and Director		January 24, 2018
Bruce S. MacDonald
/s/ David Jurasek		Chief Financial Officer, Chief		January 24, 2018
David Jurasek		Accounting Officer and Treasurer

 

 

 

EXHIBITS TO CRYSTAL ROCK HOLDINGS, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED OCTOBER 31, 2017

Exhibits Filed Herewith

 

	Exhibit Number	Description
	21.1	Subsidiary
	23.1	Consent of Wolf & Company, P.C.

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief 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 Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

	PAGE
Report of Independent Registered Public Accounting Firm	F-1
Financial Statements: Consolidated Balance Sheets as of October 31, 2017 and 2016	F-2
Consolidated Statements of Operations for the years ended October 31, 2017 and 2016	F-3
Consolidated Statements of Comprehensive Income for the years ended October 31, 2017 and 2016	F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended October 31, 2017 and 2016	F-5
Consolidated Statements of Cash Flows for the years ended October 31, 2017 and 2016	F-6
Notes to the Consolidated Financial Statements	F-7 - F-24

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors of

Crystal Rock Holdings, Inc.

Watertown, Connecticut

 

We have audited the accompanying consolidated balance sheets of Crystal Rock Holdings, Inc. and subsidiary as of October 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Crystal Rock Holdings, Inc. and subsidiary as of October 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

 

 

 

 

/s/ Wolf & Company, P.C.

Boston, Massachusetts

January 24, 2018

 

 

 

 

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

 

 

 

See the accompanying notes to the consolidated financial statements.

 

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

See the accompanying notes to the consolidated financial statements.

 

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

See the accompanying notes to the consolidated financial statements.

 

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 

 

See the accompanying notes to the consolidated financial statements.

 

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

See the accompanying notes to the consolidated financial statements.

 

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-24