Eldorado Artesian Springs 10Q 2010 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-18235

ELDORADO ARTESIAN SPRINGS, INC.

(Exact name of registrant as specified in its charter)


Colorado (State or Other Jurisdiction of Incorporation or Organization)		84-0907853 (IRS Employer Identification No.)

1783 Dogwood Street Louisville, Colorado (Address of Principal Executive Offices)		80027 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (303) 499-1316

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

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). Yeso Noo

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 filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ
		(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

On August 13, 2009, there were 6,536,091 shares of the registrant’s common stock, $.001 par value, outstanding.

ELDORADO ARTESIAN SPRINGS, INC.
FORM 10-Q

INDEX


	Page
Part I — Financial Information

Item 1 — Financial Statements

Balance Sheets as of June 30, 2009 (Unaudited) and March 31, 2009		2

Unaudited Statements of Operations for the Three Months Ended June 30, 2009 and June 30, 2008		3

Unaudited Statements of Cash Flows for the Three Months Ended June 30, 2009 and June 30, 2008		4

Notes to Unaudited Financial Statements		5

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		10

Item 3 — Quantitative and Qualitative Disclosures About Market Risk		15

Item 4(T) — Controls and Procedures		15

Part II — Other Information

Item 1 — Legal Proceedings		16

Item 1A — Risk Factors		16

Item 2 — Unregistered Sales of Equity Securities and Use and Proceeds		16

Item 3 — Defaults Upon Senior Securities		16

Item 4 — Submission of Matters to a Vote of Security Holders		16

Item 5 — Other Information		16

Item 6 — Exhibits		16

Signatures		17

Exhibit Index		18

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


ITEM 1.		FINANCIAL STATEMENTS

ELDORADO ARTESIAN SPRINGS, INC.

Balance Sheets


	June 30,			March 31,
	2009			2009
	(Unaudited)

Assets
Current assets
Cash	$	534,167		$	347,148
Accounts receivable — trade, net		992,779			967,508
Inventories		436,662			393,320	��
Prepaid expenses and other		122,616			105,456
Deferred tax asset		29,648			29,648
Income tax receivable		66,405			66,405

Total current assets		2,182,277			1,909,485


Non-current assets
Property, plant and equipment — net		4,380,121			4,433,393
Notes receivable — related party		349,254			342,787
Investments		361,196			361,196
Water rights		71,675			71,675
Deposits		117,770			112,820
Other — net		116,384			106,604

Total non-current assets		5,396,400			5,428,475


Total assets	$	7,578,677		$	7,337,960


Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	697,273		$	420,849
Accrued expenses		359,120			283,540
Customer deposits		78,523			66,477
Current portion of capital lease obligations		118,334			118,334
Current portion of long-term debt		353,918			363,086

Total current liabilities		1,607,168			1,252,286

Non-current liabilities

Capital lease obligations, less current portion		108,024			135,118
Long-term debt, less current portion		4,319,743			4,332,360
Deferred gain on the sale of real estate		178,822			178,822

Total non-current liabilities		4,606,589			4,646,300

Total liabilities		6,213,757			5,898,586


Commitments and contingencies

Stockholders’ equity
Preferred stock, par value $.001 per share; 10,000,000 shares authorized; 0 issued and outstanding		—			—
Common stock, par value $.001 per share; 50,000,000 shares authorized; 6,536,091 (June and March 2009) issued and outstanding		6,536			6,536
Additional paid-in capital		1,744,478			1,736,438
Accumulated deficit		(386,094	)		(303,600	)

Total stockholders’ equity		1,364,920			1,439,374


Total liabilities and stockholders’ equity	$	7,578,677		$	7,337,960

See notes to financial statements.

ELDORADO ARTESIAN SPRINGS, INC.

Unaudited Statements of Operations


	For the Three Months Ended
	June 30,
	2009			2008
Revenue
Water and related	$	2,226,469		$	2,175,050
Resort operations		29,121			42,288

Net revenue		2,255,590			2,217,338

Cost of goods sold		567,002			521,696


Gross profit		1,688,588			1,695,642


Operating expenses
Salaries and related		878,633			971,322
Administrative and general		424,850			506,396
Delivery		192,688			238,565
Advertising and promotions		102,083			96,618
Depreciation and amortization		126,861			116,568

		1,725,115			1,929,469


Operating loss		(36,527	)		(233,827	)


Other income (expense)
Interest income		6,527			6,743
Interest expense		(94,494	)		(89,456	)


		(87,967	)		(82,713	)


Net loss before provision for income taxes		(124,494	)		(316,540	)

Income tax benefit		42,000			110,000


Net loss	$	(82,494	)	$	(206,540	)


Basic and diluted loss per common share	$	(0.01	)	$	(0.03	)


Weighted average number of common shares outstanding — basic and dilutive		6,536,091			6,579,365

See notes to financial statements.

ELDORADO ARTESIAN SPRINGS, INC.

Unaudited Statements of Cash Flows


	Three Months Ended
	June 30,
	2009			2008
Cash flows from operating activities
Net loss	$	(82,494	)	$	(206,540	)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization		126,861			116,569
Deferred income tax benefit		(42,000	)		(110,000	)
Stock based compensation		8,040			6,564
Accrued interest on related party note receivable		(6,467	)		(5,955	)
Changes in certain assets and liabilities
Accounts receivable		(25,271	)		(112,794	)
Inventories		(43,342	)		(4,818	)
Prepaid expenses and other		10,302			30,347
Deposits		(4,950	)		13,363
Accounts payable		276,424			138,998
Accrued expenses		75,580			(63,723	)
Customer deposits		12,046			2,987

Net cash used in operating activities		304,729			(221,729	)


Cash flows from investing activities
Purchases of property and equipment		(68,831	)		(75,316	)

Net cash flows used in investing activities		(68,831	)		(75,316	)


Cash flows from financing activities
Payments on long-term obligations		(48,879	)		(17,163	)
Proceeds on line of credit		—			140,000

Net cash flows provided by financing activities		(48,879	)		122,837


Net (decrease) increase in cash		187,019			(174,208	)

Cash — beginning of period		347,148			389,440


Cash — end of period	$	534,167		$	215,232

Supplemental disclosures of cash flow information:

Cash paid for interest for the three months ended June 30, 2009 and June 30, 2008 was $94,494 and $89,456, respectively.

Cash paid for income taxes for the three months ended June 30, 2009 and June 30, 2008 was $0 and $0, respectively.

During the three months ended June 30, 2009 and June 30, 2008, $0 and $148,781 in equipment was acquired through capital leases, respectively.

See notes to the financial statements.

ELDORADO ARTESIAN SPRINGS, INC.

Notes to Unaudited Financial Statements

Note 1 — Summary of Significant Accounting Policies

Interim Unaudited Financial Statements

The interim financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The results of operations for the three months ended June 30, 2009 and 2008 are not necessarily indicative of the results of the entire year. The financial statements included herein are presented in accordance with the requirements of Form 10-Q and consequently do not include all of the disclosures normally made in the registrant’s annual report on Form 10-K. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Form 10-K for the year ended March 31, 2009.

Investments

The Company owns investments of capital stock in an investee. This investment entitles the Company an equal pro rata share of this investee’s irrigation system. As the ownership represents less than 20% ownership of the Company the value of this investment is stated at cost and evaluated for impairment if there are indications of such.

Revenue Recognition

Revenue is recognized on the sale of products as customer shipments are made. Returns are estimated and recorded at the time of sale. Rental revenue is recognized on a monthly basis upon commencement of the lease agreement. Water tap revenue is recognized upon the transfer of the right to use the water. Water utility revenue is recognized on a monthly basis based upon the monthly contracted rate.

Note 2 — Stockholders’ Equity

Stock Option Expenses

The Company has a qualified stock plan, the 2008 Incentive Stock Plan, pursuant to which 2,000,000 shares were reserved for issuance. As of June 30, 2009, 50,000 shares were reserved for issuance pursuant to outstanding grants and 1,950,000 shares were available for future grant. Additionally, the Company previously had a qualified stock plan, the 1997 Stock Option Plan, which expired in 2007, pursuant to which 875,000 shares were reserved for issuance. As of June 30, 2009, 254,000 shares were reserved for issuance pursuant to outstanding grants and no shares were available for future grant as the plan has expired. The 2008 Incentive Stock Plan and the 1997 Stock Option Plan, referred to herein as the Plans, and the shares issuable there under, are both registered on Form S-8 with the Securities and Exchange Commission. The Plans provide for the grant of options and other equity based awards to employees, directors and consultants of the Company and is administered by the Company’s Board of Directors.

Valuation and Expense Information under SFAS 123(R)

The fair value of each share option award is estimated on the date of grant using the Black-Scholes pricing model based on assumptions noted in the following table. The Company’s employee stock options have various restrictions including vesting provision and restrictions on transfers and hedging, among others, and are often exercised prior to their contractual maturity. Expected volatilities used in the fair value estimate are based on historical volatility of the Company’s stock. The Company uses historical data to estimate share option exercises, expected term and employee departure behavior used in the Black-Scholes pricing model. The risk-free rate for periods within the contractual term of the share option is based on the U.S. Treasury yield curve in effect at the time of grant.

On February 2, 2007, the Company granted 100,000 options to one of its directors at fair value. These options vest over 4 years and expire in 5 years. These options were determined to have a value of $78,297 based on the Black-Scholes option-pricing model and an estimated forfeiture rate of 23%. The value of the option will be expensed over the term of the vesting schedule. For the three months ended June 30, 2009, $4,893 was recorded as compensation expense. $34,176 remains to be expensed over the remaining vesting period. The following is a summary of the assumptions used and the weighted average grant-date fair value of these stock option grants.


Risk Free Interest Rate		4.65	%
Expected life (years)		5
Expected dividend yield		0	%
Annualized volatility		88.5	%
Estimated fair value of options granted	$1.01 per share

On April 17, 2008, the Company granted 50,000 options to a certain employee at fair value. These options will vest over 5 years and will expire in 10 years. These options were determined to have a value of $62,965 based upon the Black-Scholes option-pricing model and an estimated forfeiture rate of 23%. The value of the option will be expensed over the term of the vesting schedule. For the three months ended June 30, 2009, $3,147 was recorded as compensation expense and $50,377 remains to be expensed over the remaining vesting period. The following is a summary of the assumptions used and the weighted average grant-date fair value of these stock option grants.


Risk Free Interest Rate		3.75	%
Expected life (years)		7.5
Expected dividend yield		0	%
Annualized volatility		118.27	%
Estimated fair value of options granted	$1.26 per share

Warrants

On January 24, 2008, the Company retained Pfeiffer High Investor Relations, Inc. (“PHIR”) to develop and implement a comprehensive investor relations program. For providing services, PHIR will be paid a monthly retainer fee of $5,000. In addition, the Company granted to PHIR principals, John Pfeiffer and Geoff High, a total of 20,000 warrants to purchase 20,000 shares of the Company’s common stock at an exercise price of $1.80. The warrants vest one-third on the date of the agreement, one-third at the six-month anniversary and one-third at 12-month anniversary. In the event of termination of the agreement, warrants will vest on a pro-rata basis for the period in which the agreement was in effect. All warrants have a four-year term, have cashless exercise provisions and piggyback registration rights. The warrants were determined to have a value of $26,750 based upon the Black-Scholes option-pricing model. As of June 30, 2009, all of the warrants were fully vested. The warrants have a remaining life of 2.5 years.

Note 3 — Related Party Transactions

During the year ended March 31, 2002, the Company entered into an agreement to sell certain parcels of real estate to two senior executives of the Company, Messrs. Larson and Sipple, for a total of $900,000. The Company received cash from the sale of $500,000. The Company also provided 60 month carry back financing of $400,000 with interest at 7.5% that has been recorded as notes receivable related party and includes $149,254 of accrued interest at June 30, 2009. The Company recognized a gain on the real estate sales of $519,937 and deferred an additional $357,544 of gain as required by the terms of the carry back note. The collateral on the notes receivable included a junior deed of trust on the properties and shares of the Company’s common stock. During the year ended March 31, 2003, the Board of Directors determined that 250,000 shares of common stock of the Company was sufficient collateral and released the junior deed of trust on the properties. The accumulated interest and outstanding principal were due upon maturity in August 2007. As of June 30, 2009, the note due from Mr. Larson has not yet been paid and the outstanding principal and interest due is $349,254 as reflected in the Company’s financial statements as “Notes receivable — related party.”

On December 7, 2007, Mr. Sipple paid the entire balance due to the Company in the amount of $310,311. In the third quarter of fiscal year 2008, $178,722 of the deferred gain was recognized as the $200,000 note receivable plus interest from Mr. Sipple was paid.

Note 4 — Contingencies

Water Rights Contingency

When the Company purchased mountain property in 1983, included in the purchase price were certain water rights for Eldorado Springs. These water rights are relatively junior to other water rights in the South Boulder Creek and South Platte Basins. The Company has the right to beneficially use all of the water that emanates from the springs in accordance with its water rights unless a more senior rights holder makes a call on the water. A senior call might occur in the winter or when runoff is low and insufficient to meet the water needs of more senior water users below Eldorado Springs. Because of Colorado’s drought conditions, the possibility of a senior call has increased. For many years, the Company had enrolled its water rights in a substitute supply plan approved by the Colorado State Engineer, which serves to protect the Company’s water supply in the event of a senior call.

On August 31, 2006, the Company entered into a Water Lease Agreement with Denver Wells, LLC, a Colorado limited liability company. Under the terms of the agreement, Eldorado is leasing 100 acre feet annually of nontributary ground water from Denver Wells, LLC for an initial term of two (2) years that commenced on August 31, 2006. The cost of the lease was $60,000 in year one and $65,000 in year two. Denver Wells, LLC also agreed to lease to the Company up to 200 additional acre feet of water per year, if needed, for an additional $600 per acre foot in year one and $650 per acre foot in year two. The Company also has the option to purchase 300 acre feet per year of water from the existing and operating well or wells under the terms of the agreement. If the Company exercises its purchase option, the purchase price will be $10,000 per acre foot if purchased before December 31, 2006. The purchase price increases by .5% in each month thereafter. With the execution of the lease, the Company paid a $90,000 earnest money deposit. The deposit is nonrefundable unless Denver Wells, LLC is unable to obtain a change in the use of the water adjudicated to include augmentation. In the event that the Company executes the option to purchase the water, the deposit will be applied to the purchase price. The first lease payment was made on September 29, 2006 and the second lease payment was made on September 26, 2007.

On July 28, 2008, the Company entered into a First Amendment dated July 15, 2008 to the Water Lease Agreement with Denver Wells, LLC, to extend the original agreement for an additional two (2) years, commencing October 1, 2008 and continuing through September 20, 2010. The cost of the lease is $70,000 in year three and $75,000 in year four. Pursuant to the First Amendment, Denver Wells, LLC also agreed to lease to the Company up to 200 additional acre feet of water per year, if needed, for an additional $700 per acre foot in year three and $750 per acre foot in year four. The third lease payment was made on October 1, 2008 and the fourth lease payment will be made on or about September 30, 2009.

The Company is also pursuing other possible supply sources for use in augmenting the stream flows as a result of the Company’s withdrawals of water. There is no assurance that any of the renewal applications, Colorado Water Court applications for permanent augmentation, or any other alternative arrangements being sought by the Company will be approved. Denial of the Company’s applications for substitute or for a permanent augmentation plan coupled with a senior call on the Company’s water will likely result in a significant financial impact on the Company. The Company will also incur significant expenses in connection with its efforts to obtain approval of these plans. In the event of the approval of a permanent augmentation plan, the Company will also incur additional expenses associated with its required purchase of additional water rights.

Note 5 — Commitments

Line of Credit

On March 17, 2009, the Company and American National Bank entered into an agreement to modify the terms of the Company’s $300,000 line of credit, originally obtained on February 24, 2000. Pursuant to a loan agreement and debt modification agreement, both dated March 17, 2009, the outstanding balance on the line of credit of $300,000, which was due and payable on February 28, 2009, was converted to a term loan that was due and payable on June 30, 2009 with interest at a fixed rate of 8.00%. The modified note provided for monthly payments of approximately $4,676 beginning on March 30, 2009 and required a single balloon payment of the entire unpaid balance of principle and interest on June 30, 2009.

On July 7, 2009, the Company and American National Bank entered into another agreement to modify the terms of the note dated March 17, 2009. The Company paid $100,000 towards the outstanding balance. The outstanding balance for the new note dated July 7, 2009 was $191,046. The modified note provides for monthly payments of approximately $2,984 for two months and requires a single balloon payment of the entire unpaid balance of principle and interest on September 30, 2009. The monthly note payable has an interest rate of 8.0% until September 30, 2009.

The modified note continues to be secured by the Company’s inventory and accounts receivable and guaranteed by three of the Company’s officers and directors. The loan agreement specifies events of default customary to facilities of its type, including any non-payment of principal, interest or other amounts, misrepresentation of representations and warranties, violation of covenants, certain events of bankruptcy or insolvency, certain material judgments, seizure of assets, or other material adverse changes. Upon the occurrence of an event of default, the payments by the Company of all of its outstanding obligations may be accelerated and the Bank’s commitments under the loan agreement may be terminated. Other terms of the original note dated February 24, 2000 remain unchanged. The Company is currently renegotiating the terms of the note and the payments due.

Note Payable

On October 11, 2007, the Company entered into a commercial loan agreement with American National Bank. Under the loan agreement, the Company received proceeds of $3,000,000 from the bank pursuant to a promissory note. The terms of the note include a fixed interest rate of 7.5% for five years with monthly payments of approximately $22,300. A single “balloon payment” of the entire unpaid balance of principal and interest will be due on October 11, 2012. Under the loan agreement, the Company granted the bank security interests in the leases and rents on the property in Louisville, Colorado as well as a deed of trust for the same property in Louisville, Colorado.

The Company used the proceeds to pay off an existing real estate loan of approximately $2,500,000 for the corporate headquarters and bottling facility located in Louisville, Colorado. In addition, the Company used the additional proceeds of approximately $500,000 to purchase additional water rights and purchase additional equipment.

Renewable Energy Service Agreement

On June 11, 2009, the Company entered into a twenty year renewable energy service agreement with Eldorado Springs Solar, LLC to design, install, own, operate and maintain a solar electricity generating system at our property in Louisville, Colorado. Upon commissioning of the system the Company will purchase all of the solar electricity generated by the system which will provide approximately 50% of the electricity needs at the facility in Louisville, Colorado. The agreement provides a guaranteed energy rate schedule for 10 years with a reset rate in year eleven for the electric cost. If the Company was to terminate the agreement the Company would be required to pay a termination penalty. As of June 30, 2009, this penalty would be approximately $400,000. The Company also has the option to purchase and take title to the system starting in year 11.

Note 6 — Subsequent Events

The Company’s management has evaluated events subsequent to June 30, 2009 through August 14, 2009 which is the issuance date of these financial statements. There have been no events noted in this period which would impact the results reflected in these financial statements or the Company’s going forward results.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This filing contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include the plans and objectives of management for future operations, including plans and objectives relating to services offered by and future economic performance of the Company.

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties that might adversely affect the Company’s operating results in the future in a material way. Such risks and uncertainties include but are not limited to the following: availability of debt and equity financing, ability to purchase additional water rights, interest rate fluctuations, effects of regional economic and market conditions, labor and marketing costs, operating costs, packaging costs, intensity of competition and legal claims.

Overview

Eldorado Artesian Springs, Inc. is a Colorado based company that is primarily involved in the bottling and marketing of natural artesian spring water. The spring is located in the foothills of the Colorado Rocky Mountains and is surrounded by thousands of acres of state and city park land. The water rises up through many layers of sandstone under its own artesian pressure. Currently, the Company’s operations consist of its home/commercial delivery business (5 and 3 gallon bottles) and its PET (polyethylene terephtalate, a premium clear plastic container) consumer business. The Company also recently introduced an organic vitamin charged spring water that is distributed locally off of the Company’s vehicles as well as to regional distribution facilities. A small segment of the Company’s business includes the sales and rental of filtration and coffee dispensing equipment as well as the sale of coffee. The Company also owns and operates a public swimming pool on its property during the summer months and rents a single-family home on the property.

The Company’s headquarters and bottling facility consists of a total of approximately 40,000 square feet in Louisville, Colorado. The water is transported to the new facility in stainless steel tanker trucks. Once at the bottling plant, the water is then transferred into stainless steel holding tanks until it is used for bottling.

Results of Operations

Performance Overview — Recent Trends

Revenues for the three months ended June 30, 2009 increased 1.7% to $2,255,590 from $2,217,338 for the same period ended June 30, 2008. The increase in revenues was generally driven by an increase in orders for the new purified drinking water line to one of the largest retailers in the world. Orders from this customer have been consistent since we began providing products to them. Shipments to this retailer increased revenues for the Company while also opening up the opportunity to offer purified drinking water products to other customers by utilizing filtration equipment that was recently installed.

Recently, we recognized the opportunity to introduce a new product line to the current natural spring water line. Enhanced and flavored waters have experienced a significant growth over the recent years and now maintain an 18% market share of the premium water category. In order to compete in this market, the Company introduced itsOrganic Vitamin Charged Spring Waterin September 2007. The Company developed six flavors for introduction which included Pink Passion Guava, Sicilian Orange, Strawberry Blueberry, Black Raspberry, Dragonfruit and Peach Mango and began delivery to new and existing customers utilizing our current delivery system. The products have also been introduced on a regional level to Vitamin Cottage, Kroger’s and Whole Foods markets. Recently, the Company began shipments to a regional distributor on the west coast which now makes the product available in over 2,000 locations in that area.

While general economic trends have increased the costs associated with raw materials and the fuel costs associated with the operation of the route vehicles, the Company has begun to see some costs trending downward in more recent months. The Company has also been able to reduce costs in other areas that resulted in a total decrease of operating expenses as compared to the previous years.

The Company continues to utilize advertising and promotional budgets to help promote various products. The Company will continue to look for additional ways to increase the sales of our core products while also introducing the newOrganic Vitamin Charged Spring Waterline to our existing distribution channels and expanding into new territories.

The Company has experienced a decrease in overall units delivered to home and office accounts from the same quarter ended 2008 to 2009 and attributes this to the overall change in the economy that affected much of the country beginning October 2008. The Company has been aggressively working to offset some of the decrease in overall units by actively marketing and promoting the products to new and existing accounts.

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Revenues

Sales for the three months ended June 30, 2009 were $2,255,590 compared to $2,217,338 for the same period ended June 30, 2008, an increase of 1.7%.

Sales of the products used in the delivery to homes and offices, which include 5 and 3 gallons bottles as well as the dispenser units, were 56.4% of sales and decreased from $1,409,534 for the three months ended June 30, 2008 to $1,272,800 for the three months ended June 30, 2009, a decrease of $136,734 or 9.7%. Total units of 5 and 3 gallon products decreased 12.4% from the three months ended June 30, 2009 to the three months ended June 30, 2008, while the average selling price increased approximately 2.4%. The Company began increasing the price of the 5 and 3 gallon bottles in March 2008 which resulted in the increase of the average selling price for the three months ended June 30, 2009 compared to the same period ended June 30, 2008.

In July 2008, the Company began shipments of a private label purified drinking water to the largest retailer in the country. The Company is one of the suppliers for their distribution center in Colorado that services approximately 90 locations. For the three months ended June 30, 2009, revenues for the purified drinking water were approximately $204,000. The Company expects to continue to provide private label purified drinking water for this retailer in the future.

In the second quarter of the fiscal year ended March 31, 2008, the Company began introducing anOrganic Vitamin Charged Spring Waterfor distribution off of existing route vehicles as well as through major distributors. The product is now available throughout Colorado and in portions of surrounding states and through distributors along the west coast. The line ofOrganic Vitamin Charged Spring Wateris available Vitamin Cottage, K&G (Jenny’s Markets), Kroger’s (King Soopers and City Markets) and Whole Foods Markets in the Midwest area. Additionally, the product is available to more than 2,000 other retail outlets, convenience stores and on-premise locations serviced by UNFI and US Food Service distributors. Gross revenues for theOrganic Vitamin Charged Spring Waterwere $77,159 for the three months ended June 30, 2009 compared to $66,958 for the three months ended June 30, 2008, an increase of 15.2%. The Company is offering purchasing incentives to the retail buyers including discounts and buy one get one offers, as well as supporting in store sampling. In the stores in which the Company has been able to utilize sampling, sales figures show increased market acceptance by the increased ordering schedule for additional products.

Sales of the Company’s branded PET products (.5 liter to 1.5 liter sizes), decreased from $391,251 for the three months ended June 30, 2008 to $356,648 for the three months ended June 30, 2009, a decrease of 8.8%. Sales of the Company’s branded PET products represented 15.8% of sales for the three months ended June 30, 2009 and 18.0% of sales for the three months ended June 30, 2008. Sales for the private label PET products decreased from $83,534 for the three months ended June 30, 2008 to $59,325 for the three months ended June 30, 2009, a decrease of 28.9% compared to the same period ended June 30, 2008. The Company offers a private label PET product to customers who choose to use their own labels on the Company’s spring water packaging and utilize the product in their marketing campaigns. The Company is able to offer the private label packaging at a higher average selling price for the custom labeling than the Company’s branded PET products. The average selling price for the private label PET products is about 19% higher than the Company’s branded PET products.

The Company’s branded gallon size products were 9.2% of sales or $209,585 for the three months ended June 30, 2009 compared to $206,193 for the three months ended June 30, 2008, an increase of 1.6%. The total unit volume for the one gallon products has decreased 6.8% for the three months ended June 30, 2009 compared to the same period ended June 30, 2008. The average selling price per one gallon unit has increased 7.3%. The Company began increasing prices for the one gallon products to customers in July 2008 to help offset the increases in the cost of goods.

Sales generated from the filter division increased from $25,424 for the three months ended June 30, 2008 to $32,685 for the three months ended June 30, 2009, an increase of 28.5%. Coffee and coffee equipment for service from our existing route vehicles decreased from $41,248 for the three months ended June 30, 2008 to $35,807 for the three months ended June 30, 2009. The Company has experienced competition from other water companies and on-line retailers that have begun to offer similar services.

Gross Profit/Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2009 was $567,002, or 25.1% of sales, compared to $521,696 or 23.5% of sales for the same period ended June 30, 2008. The increase in the cost of goods sold is due to the change in the product mix of goods being sold compared to the previous year, with a higher percentage of products being sold that have a higher cost of goods sold as a percent of sales. Gross profit was $1,688,588 or 74.9% of sales for the three months ended June 30, 2009 compared to $1,695,642 or 76.5% of sales for the three months ended June 30, 2008. Overall, gross profit decreased less than 1% for the three months ended June 30, 2009.

Operating Expenses

Total operating expenses decreased to $1,725,116 for the three months ended June 30, 2009 from $1,929,469 for the same period ended June 30, 2008, a decrease of $204,353 or 10.6%.

Salaries and related expenses decreased to $878,633 for the three months ended June 30, 2009, or 39.0% of sales, from $971,322 for the three months ended June 30, 2008, or 43.8% of sales. The Company has been able to decrease wages for sales staff by utilizing outside brokers for the packaged good sales. Additionally, the Company has not had to augment water usage by hauling additional water resulting in lower wages. The Company has maintained a stable workforce and continues to compensate accordingly.

Administrative and general expenses decreased from $506,396 for the three months ended June 30, 2008 to $424,850 for the three months ended June 30, 2009, a decrease of 16.1%. The Company experienced the largest decreases in expenses for consulting fees due to terminating the agreement for a public relations firm. The Company also experienced a large decrease in health insurance costs by requiring employees to contribute a portion for the company sponsored health insurance.

Delivery expenses decreased from $238,565 for the three months ended June 30, 2008 to $192,688 for the three months ended June 30, 2009, a decrease of 19.2%. This decrease was mainly driven by a decrease in fuel costs as the price of fuel decreased over 50% as compared to the same period ended June 30, 2008.

Advertising and promotion expenses increased 5.7% to $102,083, or 4.5% of sales for the three months ended June 30, 2009 compared to $96,618, or 4.4% of sales for the same period ended June 30, 2008. The increase in advertising and promotion expenses for the three months ended June 30, 2009 is due to the launch of the newOrganic Vitamin Charged Spring Water. The Company will incur additional costs as we promote the product at events and through major retail chains. The Company recognizes certain advertising and promotional expenses for products or services that could have been purchased at a fair market value regardless of whether or not the vendor had purchased the product.

Depreciation and amortization increased 8.8% to $126,861 or 5.6% of sales for the three months ended June 30, 2009, as compared to $116,568 or 5.3% of sales for the three months ended June 30, 2008. The Company added additional equipment in order to produce purified water which was introduced in July 2008 which resulted in an increase in the depreciation expenses as compared to previous periods.

Interest, Taxes, Other Income and Other Expenses

For the three months ended June 30, 2009, interest income decreased 3.2% to $6,527 as compared to $6,743 for the same period ended June 30, 2008.

Interest expense for the three months ended June 30, 2009 increased 5.6% to $94,494 as compared to $89,456 for the same period ended June 30, 2008. The increase in the net interest expense resulted from the increase in interest related to the increased balance due on the line of credit which was then converted into a short-term note payable.

For the three months ended June 30, 2009, the Company recorded income tax benefit of $42,000 against our pretax book loss of $124,495 compared to a tax benefit of $110,000 against our pretax book loss of $316,540 for the three months ended June 30, 2008.

The Company had a net loss after taxes of $82,494 for the three months ended June 30, 2009 compared to a net loss after taxes of $206,540 for the three months ended June 30, 2008.

Liquidity and Capital Resources

Trade accounts receivable at June 30, 2009 was 2.6% more than that at March 31, 2009. This resulted from the increase in revenues for the three months ended June 30, 2009. Day’s sales outstanding was approximately 40 days at June 30, 2009 and 38 days at March 31, 2009. The increase in the day’s sales outstanding can be attributed to the general economic conditions that the region is experiencing at this time resulting in a slight delay in payments.

Cash flows from operating activities had a net inflow of $309,487 for the three months ended June 30, 2009. The cash provided by operating activities represents an increase of $531,216 from the three months ended June 30, 2008. The change in operating activities resulted from the change in accounts payable, accounts receivable, accrued expenses and income taxes. The Company anticipates that cash flow from operations will be available to fund existing obligations for expected cash requirements over the next year and thereafter.

Cash flows from investing activities resulted in a net outflow of $73,589 for the three months ended June 30, 2009. This total represents cash expenditures on equipment for electric water coolers, filtration equipment and coffee dispensing equipment that are rented to existing delivery customers.

Cash flows from financing activities resulted in a net outflow of $48,879 for the three months ended June 30, 2009. The Company made cash payments on long-term debt obligations of $48,879.

The Company’s cash balance at June 30, 2009 increased to $534,167 by a net amount of $187,019 from $347,148 at March 31, 2009.

At this time, the Company does not have a line of credit. The Company converted the balance due on its old line of credit of $300,000, which was due on February 28, 2009, to a term loan in March 2009. The note payable had an interest rate of 8.0% until June 2009, at which time the balance of the note was due. The Company renegotiated the terms of the note and the payments due. The note called for monthly principal and interest payments of $4,676 and matured in June 2009. The Company entered into another note in July 2009 for the balance due on the note at that time of $191,046. The new note calls for two monthly payments of $2,984 and a final balloon payment due September 30, 2009. The note is subject to certain restrictive covenants. The Company has no other material commitments for capital expenditures.

On December 7, 2007, Mr. Sipple paid the entire balance due to the Company in the amount of $310,311. The Company recognized a gain on the real estate sales of $519,937 and deferred an additional $357,544 of gain as required by the terms of the carry back note. In the third quarter of fiscal year 2008, $178,722 of the deferred gain was recognized as the $200,000 note receivable plus interest from Mr. Sipple was paid.


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, the Company is not required to provide the information required by this Item.


ITEM 4(T).		CONTROLS AND PROCEDURES

Conclusion Regarding The Effectiveness Of Disclosure Controls And Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

With the participation of management, our principal executive officer and principal financial officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. In consultation with Ehrhardt Keefe Steiner & Hottman, PC, our independent registered public accounting firm, management has identified a control deficiency that it believes constitutes a material weakness in our internal control over financial reporting. The material weakness relates to our lack of technical expertise regarding complex accounting matters associated with certain equity transactions and the impact of deferred income taxes. Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission.

Remediation Of Material Weaknesses in Internal Control Over Financial Reporting

In light of the conclusion that our internal control over financial reporting was not effective, our management is in the process of implementing a plan intended to remediate such ineffectiveness and to strengthen our internal controls over financial reporting through the implementation of certain remedial measures, including obtaining the assistance of experienced financial personnel to enhance our financial reporting capabilities and assist our principal financial officer as the need arises.

Changes In Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As described above, in the future we intend to obtain the assistance of experienced financial personnel to enhance our financial reporting capabilities.

PART II — OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS

Not applicable.


ITEM 1A.		RISK FACTORS

As a smaller reporting company, the Company is not required to provide the information required by this Item.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE AND PROCEEDS

Not applicable.


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

Not applicable.


ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


ITEM 5.		OTHER INFORMATION

Not applicable.


ITEM 6.		EXHIBITS


Exhibit No.		Description

	31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ELDORADO ARTESIAN SPRINGS, INC.
Date: August 14, 2009	By:	/s/ Douglas A. Larson
		Douglas A. Larson
		President (Principal Executive Officer)

Date: August 14, 2009	By:	/s/ Cathleen Shoenfeld
		Cathleen Shoenfeld
		Chief Financial Officer (Principal Financial Officer)

ELDORADO ARTESIAN SPRINGS, INC.

Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2009
Exhibits Filed Herewith


Exhibit No.		Description

	31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Eldorado Artesian Springs (ELDO) Inactive 10-Q2010 Q1 Quarterly report

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