UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) Quarterly report pursuant to section 13 or 15 (d) of the Securities
Exchange Act of 1934, for the quarterly period ended April 30, 1999.
( ) Transition report pursuant to section 13 or 15 (d) of the
Securities Exchange Act of 1934, for the transition period from
to .
Commission file number 0-17872
ECHO SPRINGS WATER CO., INC.
(Exact name of small business issuer as specified in its charter)
New York #16-1433379 (State of Incorporation) (I.R.S. Employer ID No.) Building 100A, Hackensack Avenue, Kearny, New Jersey 07032 (Address of Principal Executive Offices) (973) 465-5151 (Issuer's Telephone Number) N/A (Former name, former address and former fiscal year, if changed since last report) |
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
Common stock, $.0001 par value 4,372,149 shares
Transitional Small Business Disclosure Format Yes No X
ECHO SPRINGS WATER CO., INC.
Index to Form 10-QSB Page Item Number PART I. FINANCIAL INFORMATION 3 Item 1. Financial Statements: Consolidated Balance Sheets - April 30, 1999 and October 31, 1998 3 Consolidated Statements of Operations - Three months ended April 30, 1999 and 1998 4 Consolidated Statements of Operations - Six months ended April 30, 1999 and 1998 5 Consolidated Statements of Cash Flows - Six months ended April 30, 1999 and 1998 6 Notes to Consolidated Financial Statements 7-10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 5. Other Events 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 |
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ECHO SPRINGS WATER CO., INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS April 30, October 31, 1999 1998 Current assets: Cash $ 27,463 $ 18,848 Accounts receivable - net of allowance for doubtful accounts of $14,000 in 1999 and $29,000 in 1998 217,838 313,713 Notes receivable, current portion 42,271 43,331 Inventories 20,906 27,130 Prepaid expenses 62,580 18,469 --------- --------- Total current assets 371,058 421,491 Notes receivable, net of current portion 87,606 102,936 Property, plant and equipment - net 1,181,656 1,254,971 Other assets 274,014 225,577 --------- --------- TOTAL ASSETS $1,914,334 $2,004,975 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Installment debt $1,125,000 $1,050,000 Debentures 25,000 25,000 Accounts payable and accrued expenses 1,046,133 1,053,182 Customer deposits 313,800 317,200 Unearned revenues 11,372 12,591 --------- --------- Total current liabilities 2,521,305 2,457,973 --------- --------- Shareholders' equity (deficiency): Common stock, $.0001 par value, 75,000,000 shares authorized; issued and outstanding 4,372,149 shares in 1999 and 3,822,149 shares in 1998 437 382 Additional paid-in capital 9,042,859 8,792,884 Accumulated deficit (9,650,267) (9,246,264) --------- --------- Total shareholders' equity (deficiency) (606,971) (452,998) --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) $1,914,334 $2,004,975 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. - 3 - |
ECHO SPRINGS WATER CO., INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, (UNAUDITED) 1999 1998 ---- ---- Revenues: Gross sales $ 351,317 $ 482,814 Credits and allowances (617) (4,683) Freight out (7,337) Other income (510) 2,737 ---------- ---------- 350,190 473,531 ---------- ---------- Costs and expenses: Cost of sales 131,150 154,557 Selling, general and administrative 360,599 443,254 Interest 30,854 24,303 Amortization of other assets 1,219 1,219 Other expenses (income) - net 30 40 Gain on disposal of assets (857) ---------- ---------- Total costs and expenses 523,852 622,516 ---------- ---------- Net loss $ (173,662) $ (148,985) ========== ========== Net loss per share $ (.04) $ (.04) ========== ========== Weighted average shares outstanding 4,105,482 3,822,149 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. - 4 - |
ECHO SPRINGS WATER CO., INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED) 1999 1998 ---- ---- Revenues: Gross sales $ 679,502 $ 924,812 Credits and allowances (2,210) (13,133) Freight out (14,872) Other income (637) 1,988 ---------- ---------- 676,655 898,795 ---------- ---------- Costs and expenses: Cost of sales 266,313 321,875 Selling, general and administrative 753,957 847,622 Interest 58,922 43,092 Amortization of other assets 2,438 2,438 Other expenses (income) - net (972) 40 Gain on disposal of assets (1,441) ---------- ---------- Total costs and expenses 1,080,658 1,213,626 ---------- ---------- Net loss $ (404,003) $ (314,831) ========== ========== Net loss per share $ (.10) $ (.08) ========== ========== Weighted average shares outstanding 3,963,816 3,822,149 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. - 5 - |
ECHO SPRINGS WATER CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, (UNAUDITED) 1999 1998 ---- ---- Operating activities: Net loss $(404,003) $(314,831) Adjustments to reconcile net loss to net cash used by operating activities - Depreciation and amortization 81,552 72,609 Gain on disposal of assets (1,441) Provision for doubtful accounts (15,000) (2,000) Changes in assets and liabilities - Accounts receivable 110,875 (33,101) Inventories 6,224 (10,964) Prepaid expenses (44,111) (56,910) Other assets 28,669 (983) Accounts payable and accrued expenses (7,049) (6,410) Customer deposits (3,400) 10,600 Unearned revenues (1,219) (1,230) -------- -------- Net cash used by operating activities (247,462) (344,661) -------- -------- Investing activities: Capital expenditures (5,799) (70,687) Collections on notes receivable 16,390 11,250 Proceeds from disposal of assets 1,441 Deferred project costs (79,544) -------- -------- Net cash used by investing activities (68,953) (57,996) -------- -------- Financing activities: Proceeds from issuance of common stock 250,030 Increase in installment debt 210,000 540,000 Repayment of installment debt (135,000) (83,000) Deferred public offering costs (1,454) -------- -------- Net cash provided by financing activities 325,030 455,546 -------- -------- Net increase in cash 8,615 52,889 Cash - beginning 18,848 170,288 -------- -------- CASH - ENDING $ 27,463 $ 223,177 ======== ======== SUPPLEMENTAL INFORMATION: Interest paid $ 5,161 $ 14,274 The accompanying notes are an integral part of these consolidated financial statements. - 6 - |
ECHO SPRINGS WATER CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------- Basis of Presentation The interim consolidated financial statements are prepared pursuant to the requirements for reporting on Form 10-QSB. The October 31, 1998 balance sheet data was derived from audited consolidated financial statements and together with the interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes included in the Company's latest annual report on Form 10-KSB. In the opinion of management, the interim consolidated financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year. Business Echo Springs Water Co., Inc. ("the Company"), through its subsidiaries, is engaged principally in the distribution of bottled water and allied products. The Company bottles water from its own natural springs in Burlington, NY primarily for direct distribution and sale to business and residential customers. Revenue Recognition Revenue from equipment rental is recognized based on the period in which it is earned and unearned revenue is recorded for the portion billed in advance. Revenues from product sales are recognized upon delivery to the customer. Loss Per Common Share Loss per share is based upon the weighted average number of shares outstanding during each period. Loss per share represents both the basic and diluted amounts, since all conversion and exercise of options and warrants would be antidilutive and therefore not taken into consideration. - 7 - |
ECHO SPRINGS WATER CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 2 - INVENTORIES ----------- Inventories are valued at the lower of cost or market on the first-in, first-out basis and at October 31, 1998 and April 30, 1999 consist of the following: April October 30, 1999 31, 1998 Bottles $ 731 $ 833 Product held for sale 12,907 15,582 Supplies 7,268 10,715 ------ ------ $20,906 $27,130 ====== ====== NOTE 3 - PROPERTY, PLANT AND EQUIPMENT ----------------------------- Property, plant and equipment are recorded at cost and depreciated by the straight-line method over the estimated economic useful lives of the various asset groups ranging from 5 - 40 years and consist of the following: April October 30, 1999 31, 1998 Land $ 150,000 $ 150,000 Buildings and improvements 364,541 364,541 Water coolers, bottles and brewers 842,289 842,289 Machinery and equipment 515,469 509,670 Vehicles 10,500 10,500 Furniture and fixtures 90,610 90,610 --------- --------- 1,973,409 1,967,610 Less: accumulated depreciation and amortization 791,753 712,639 --------- --------- $1,181,656 $1,254,971 ========= ========= - 8 - |
ECHO SPRINGS WATER CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 4 - OTHER ASSETS ------------ Other assets at October 31, 1998 and April 30, 1999 are comprised of the following: April October 30, 1999 31, 1998 Water rights $205,000 $205,000 Accumulated amortization 45,719 43,281 ------- ------- Net water rights 159,281 161,719 Deposits 35,189 63,858 Deferred project costs 79,544 ------- ------- $274,014 $225,577 ======= ======= NOTE 5 - INDEBTEDNESS ------------ The Company is currently in default on principal and interest payments on its debentures and $1,050,000 of its debt. NOTE 6 - INCOME TAXES ------------ The Company files a consolidated federal income tax return with its subsidiaries. At October 31, 1998, the estimated maximum amount of net operating loss carryforward available to reduce future taxable income is approximately $9,152,000, expiring from 2004 through 2018. Deferred tax benefits from the use of net operating loss carryforwards of approximately $3,112,000 are offset by a corresponding amount of valuation allowance since it is more likely than not that all or some portion of the deferred tax asset will not be realized. - 9 - |
ECHO SPRINGS WATER CO., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) NOTE 7 - GOING CONCERN ------------- The Company sustained losses of $242,592 for the fiscal year ended October 31, 1998 and $404,003 for the six months ended April 30, 1999. The Company had deficit net worths of $452,998 at October 31, 1998 and $606,971 at April 30, 1999. In addition, the Company was in default on principal and interest payments on a portion of its debt. (Note 5). These facts raise substantial doubt about the Company's ability to continue as a going concern. Considerations which tend to mitigate the question of going concern include management's successful efforts in raising funds through private placements, the ability to renegotiate and restructure long-term financing with major creditors, past and present efforts to convert debt to equity and the ability to acquire, restructure and develop the bottled water business which it believes will be able to achieve profitable operations. The Company intends to seek and consummate acquisitions of companies in the bottled water and allied products business. No assurance can be given that the Company will be successful in identifying potential acquisitions or, if made, that such acquisitions will have a beneficial effect on the Company. The Company has no current agreement to acquire any business or property, or intent to acquire any specific business or property. The Company believes that these factors provide meaningful evidence as to the Company's ability to continue in operation for the next fiscal year and support the going concern presentation in the accompanying consolidated financial statements in favor of the liquidation basis. There can be no assurance, however, that management will continue to be able to raise sufficient capital or convert existing debt to equity or to achieve profitable operations going forward. - 10 - |
ECHO SPRINGS WATER CO., INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 1999 COMPARED WITH THE SIX MONTHS ENDED APRIL 30, 1998 Gross sales decreased $245,310 (26.5%) to $679,502 for the six months ended April 30, 1999 ("1999") from $924,812 for the six months ended April 30, 1998 ("1998"). Five-gallon sales to Aramark Corporation decreased by approximately $88,000. Further, five-gallon and allied product sales to and rental income from the Company's regular customer base fell by approximately $53,000, $23,000 and $14,000, respectively, largely due to only a nominal sales and marketing effort by the Company. Low-margin five-gallon and one-gallon sales to distributors fell by approximately $62,000 and $5,000, respectively, due largely to the loss of five distributors as a result of price competition. Credits and allowances and net freight out decreased approximately $11,000 and $12,000, respectively. Cost of sales decreased $55,562 (17.3%) to $266,313 for 1999 from $321,875 for 1998. Cost of sales, other than depreciation, fell 24.4%, due primarily to the above-noted reductions in sales. However, depreciation rose approximately $7,000 in 1999 over 1998, primarily as a result of the new 16.9 ounce bottling line and the improved stock of five-gallon bottles. Selling, general and administrative expenses were $753,957 in 1999 as compared to $847,622 in 1998. Delivery and warehouse costs increased approximately $25,000, as increased vehicle rental costs and additional warehouse staff were only partially offset by reduced maintenance and repairs. Selling costs fell approximately $36,000, due largely to declines in both advertising and promotion expense and bad debt expense. A reductions in Kearny office staff levels resulted in reduced labor costs of approximately $19,000. Professional fees and travel and entertainment fell by approximately $50,000 and $6,000, respectively. Interest expense increased from $43,092 in 1998 to $58,922 in 1999 as a result of increased debt. Amortization of other assets of $2,438 in 1999 and 1998 related to the amortization of water rights. Other income of $972 in 1999 related to non-recurring operating items. The net loss for 1999 increased by $89,172 from $314,831 in 1998 to $404,003 in 1999. - 11 - |
ECHO SPRINGS WATER CO., INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 1999 COMPARED WITH THE THREE MONTHS ENDED APRIL 30, 1998 Gross sales decreased $131,497 (27.2%) to $351,317 for the three months ended April 30, 1999 ("1999") from $482,814 for the three months ended April 30, 1998 ("1998"). Five-gallon sales to Aramark Corporation decreased by approximately $54,000. Further, five-gallon and allied product sales to and rental income from the Company's regular customer base fell by approximately $31,000, $12,000 and $8,000, respectively, largely due to only a nominal sales and marketing effort by the Company. Low-margin five-gallon and one-gallon sales to distributors fell by approximately $24,000 and $2,000, respectively, due largely to the loss of five distributors as a result of price competition. While credits and allowances and net freight out decreased approximately $4,000 and $7,000, respectively, other income declined approximately $3,000, primarily from a lower gain on unclaimed or lost customer deposits. Cost of sales decreased $23,407 (15.1%) to $131,150 for 1999 from $154,557 for 1998. Cost of sales, other than depreciation, fell 20.9%, due primarily to the above-noted reductions in sales. However, depreciation rose approximately $2,000 in 1999 over 1998, primarily as a result of the improved stock of five-gallon bottles. Selling, general and administrative expenses were $360,599 in 1999 as compared to $443,254 in 1998. Delivery and warehouse costs increased approximately $2,000, as increased vehicle rental costs and additional warehouse staff were partially offset by reduced maintenance and repairs. Selling costs fell approximately $15,000, due largely to declines in both advertising and promotion expense and bad debt expense. A reduction in Kearny office staff levels resulted in reduced labor costs of approximately $8,000. Professional fees and travel and entertainment fell by approximately $53,000 and $5,000, respectively. Interest expense increased from $24,303 in 1998 to $30,854 in 1999 as a result of increased debt. Amortization of other assets of $1,219 in 1999 and 1998 related to the amortization of water rights. The net loss for 1999 increased by $24,677 from $148,985 in 1998 to $173,662 in 1999. - 12 - |
ECHO SPRINGS WATER CO., INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity have been cash generated from sales, issuance of common stock, debentures and installment debt, and borrowings from its officers. During the six months ended April 30, 1999 and 1998, the Company had negative cash flows from operating activities of $247,462 and $344,661, respectively. Investing activities used cash of $68,953 in 1999, primarily for deferred project costs, and used cash of $57,996 in 1998, primarily for the acquisition of property and equipment. The Company has financed its operating and investing activities during these periods primarily through the issuance of common stock and installment debt and cash on hand. At April 30, 1999, the Company had a working capital deficiency of $2,150,247. Short-term credit sources are limited to trade credit on purchases and services. The report issued by the Company's accountants that accompanies the Company's Consolidated Financial Statements for the year ended October 31, 1998 states that there is a substantial doubt about the Company's ability to continue as a going concern. Considerations which tend to mitigate the question of going concern include management's successful efforts in raising funds through private placements, the ability to renegotiate and restructure long-term financing with major creditors, past and present efforts to convert debt to equity and the ability to acquire, restructure and develop the bottled water business which it believes will be able to achieve profitable operations. The Company intends to seek and consummate acquisitions of companies in the bottled water and allied products business. No assurance can be given that the Company will be successful in identifying potential acquisitions or, if made, that such acquisitions will have a beneficial effect on the Company. The Company has no current agreement to acquire any business or property, or intent to acquire any specific business or property. The Company believes that these factors provide meaningful evidence as to the Company's ability to continue in operation for the next fiscal year and support the going concern presentation in the accompanying Consolidated Financial Statements in favor of the liquidation basis. There can be no assurance, however, that management will continue to be able to raise sufficient capital or convert existing debt to equity or to achieve profitable operations going forward. The Company has no plans or commitments for capital expenditures during the next twelve months other than the ordinary equipment purchases which are expected to be funded with additional installment debt. The Company is close to settling its prior years' unpaid payroll taxes and, upon agreement, intends to pay such amounts from additional borrowings. The Company's business is subject to seasonal fluctuation, with summer being the busiest season and winter the slowest. To date, seasonality has not had any material effect on the Company's financial condition or results of operations. - 13 - |
ECHO SPRINGS WATER CO., INC.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
There have been no new legal proceedings or material changes to legal proceedings during the period from those reported in the Company's Form 10-KSB for the year ended October 31, 1998.
ITEM 5. Other Events
None
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits - Financial Data Schedule
b. Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the issuer has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
ECHO SPRINGS WATER CO., INC.
(Issuer)
By /s/ Michael S. Rakusin Michael S. Rakusin President Dated: May 28, 1999 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the issuer has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
ECHO SPRINGS WATER CO., INC.
(Issuer)
By
Michael S. Rakusin
President
Dated: June , 1998
ARTICLE 5 |
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
PERIOD TYPE | 6 MOS |
FISCAL YEAR END | DEC 31 1999 |
PERIOD START | OCT 31 1998 |
PERIOD END | APR 30 1999 |
CASH | 27,463 |
SECURITIES | 0 |
RECEIVABLES | 231,838 |
ALLOWANCES | 14,000 |
INVENTORY | 20,906 |
CURRENT ASSETS | 371,058 |
PP&E | 1,973,409 |
DEPRECIATION | 791,753 |
TOTAL ASSETS | 1,914,334 |
CURRENT LIABILITIES | 2,521,305 |
BONDS | 0 |
PREFERRED MANDATORY | 0 |
PREFERRED | 0 |
COMMON | 437 |
OTHER SE | (607,408) |
TOTAL LIABILITY AND EQUITY | 1,914,334 |
SALES | 677,292 |
TOTAL REVENUES | 676,655 |
CGS | 266,313 |
TOTAL COSTS | 266,313 |
OTHER EXPENSES | 0 |
LOSS PROVISION | 0 |
INTEREST EXPENSE | 58,922 |
INCOME PRETAX | (404,003) |
INCOME TAX | 0 |
INCOME CONTINUING | 0 |
DISCONTINUED | 0 |
EXTRAORDINARY | 0 |
CHANGES | 0 |
NET INCOME | (404,003) |
EPS BASIC | (.10) |
EPS DILUTED | (.10) |