Eldorado Artesian Springs (ELDO) 10-Q 2010 Q3 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 December 31, 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 February 16, 2010, 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 December 31, 2009 (Unaudited) and March 31, 2009		2
Unaudited Statements of Operations for the Three and Nine Months Ended December 31, 2009 and December 31, 2008		3
Unaudited Statements of Cash Flows for the Nine Months Ended December 31, 2009 and December 31, 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		16
Item 4(T) — Controls and Procedures		16
Part II — Other Information
Item 1 — Legal Proceedings		17
Item 1A — Risk Factors		17
Item 2 — Unregistered Sales of Equity Securities and Use and Proceeds		17
Item 3 — Defaults Upon Senior Securities		17
Item 4 — Submission of Matters to a Vote of Security Holders		17
Item 5 — Other Information		17
Item 6 — Exhibits		17
Signatures		18
Exhibit Index		19
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

ITEM 1. FINANCIAL STATEMENTS

ELDORADO ARTESIAN SPRINGS, INC.

Balance Sheets

	December 31,			March 31,
	2009			2009
	(Unaudited)
Assets
Current assets
Cash	$	89,863		$	347,148
Accounts receivable — trade, net of $80,000 allowance		830,391			967,508
Inventories		391,932			393,320
Prepaid expenses and other		163,189	��		105,456
Deferred tax asset		29,648			29,648
Income tax receivable		—			66,405
Total current assets		1,505,023			1,909,485
Non-current assets
Property, plant and equipment — net		4,242,310			4,433,393
Notes receivable — related party		362,557			342,787
Investments		361,196			361,196
Water rights		71,675			71,675
Deposits		118,020			112,820
Deferred tax asset — long term		147,466			28,066
Other — net		36,802			78,538
Total non-current assets		5,340,026			5,428,475
Total assets	$	6,845,049		$	7,337,960
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	571,613		$	420,849
Accrued expenses		207,796			283,540
Customer deposits		65,707			66,477
Current portion of capital lease obligations		119,656			118,334
Current portion of long-term debt		150,414			363,086
Total current liabilities		1,115,186			1,252,286
Non-current liabilities
Capital lease obligations, less current portion		49,062			135,118
Long-term debt, less current portion		4,277,458			4,332,360
Deferred gain on the sale of real estate		178,822			178,822
Total non-current liabilities		4,505,342			4,646,300
Total liabilities		5,620,528			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 (December and March 2009) issued and outstanding		6,536			6,536
Additional paid-in capital		1,760,558			1,736,438
Accumulated deficit		(542,573	)		(303,600	)
Total stockholders’ equity		1,224,521			1,439,374
Total liabilities and stockholders’ equity	$	6,845,049		$	7,337,960

See notes to financial statements.

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ELDORADO ARTESIAN SPRINGS, INC.

Unaudited Statements of Operations

	For the Three Months Ended						For the Nine Months Ended
	December 31,						December 31,
	2009			2008			2009			2008
Revenue
Water and related	$	1,917,200		$	2,104,352		$	6,434,674		$	7,014,223
Resort operations		—			8,184			95,852			134,024
Net revenue		1,917,200			2,112,536			6,530,526			7,148,247
Cost of goods sold		435,420			579,669			1,631,432			1,918,981
Gross profit		1,481,780			1,532,867			4,899,094			5,229,266
Operating expenses
Salaries and related		739,517			891,151			2,520,625			2,896,979
Administrative and general		371,732			463,100			1,254,729			1,439,689
Delivery		186,855			221,400			571,159			722,736
Advertising and promotions		62,602			82,668			278,804			264,192
Depreciation and amortization		123,886			125,331			375,904			364,252
		1,484,592			1,783,650			5,001,221			5,687,848
Operating loss		(2,812	)		(250,783	)		(102,127	)		(458,582	)
Other income (expense)
Other income		—			350,000			—			350,000
Interest income		6,727			6,327			19,905			28,236
Interest expense		(88,254	)		(92,095	)		(276,151	)		(273,980	)
		(81,527	)		264,232			(256,246	)		104,256
Net (loss) income before provision for income taxes		(84,339	)		13,449			(358,373	)		(354,326	)
Income tax benefit (expense)		25,900			(9,700	)		119,400			118,000
Net (loss) income	$	(58,439	)	$	3,749		$	(238,973	)	$	(236,326	)
Basic loss per common share	$	(0.01	)	$	0.00		$	(0.04	)	$	(0.04	)
Dilutive loss per common share	$	(0.01	)	$	0.00		$	(0.04	)	$	(0.04	)
Weighted average number of common shares outstanding — basic		6,536,091			6,699,481			6,536,091			6,659,032
Weighted average number of common shares outstanding — dilutive		6,536,091			6,906,348			6,536,091			6,659,032

See notes to financial statements.

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ELDORADO ARTESIAN SPRINGS, INC.

Unaudited Statements of Cash Flows

	Nine Months Ended
	December 31,
	2009			2008
Cash flows from operating activities
Net loss	$	(238,973	)	$	(236,326	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Depreciation and amortization		375,904			364,252
Deferred income tax benefit		(119,400	)		(31,525	)
Stock based compensation		24,120			25,911
Accrued interest on related party note receivable		(19,770	)		(18,301	)
Changes in certain assets and liabilities
Accounts receivable		137,117			(156,116	)
Inventories		1,388			(9,397	)
Prepaid expenses and other		(30,272	)		23,550
Deposits		(5,200	)		(4,662	)
Accounts payable		150,764			48,226
Accrued expenses		(75,744	)		1,325
Customer deposits		(770	)		(16,144	)
Income tax receivable		66,405			—
Net cash provided by (used in) operating activities		265,569			(9,207	)
Cash flows from investing activities
Purchases of property and equipment		(170,546	)		(224,121	)
Net cash flows used in investing activities		(170,546	)		(224,121	)
Cash flows from financing activities
Payments on long-term obligations		(352,308	)		(118,959	)
Proceeds on line of credit		—			215,000
Proceeds from exercise of stock options		—			2,625
Net cash flows (used in) provided by financing activities		(352,308	)		98,666
Net decrease in cash		(257,285	)		(134,662	)
Cash — beginning of period		347,148			389,440
Cash — end of period	$	89,863		$	254,778

Supplemental disclosures of cash flow information:

Cash paid for interest for the nine months ended December 31, 2009 and December 31, 2008 was $276,151 and $273,980, respectively.

Cash paid for income taxes for the nine months ended December 31, 2009 and December 31, 2008 was $0.

During the nine months December 31, 2009 and December 31, 2008, $0 and $351,876 in equipment was acquired through capital leases, respectively.

See notes to the financial statements.

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ELDORADO ARTESIAN SPRINGS, INC.

Notes to Unaudited Financial Statements

Note 1 — Summary of Significant Accounting Policies

Interim Unaudited Financial Statements

The interim financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The results of operations for the nine months ended December 31, 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 to 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 December 31, 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 December 31, 2009, 249,000 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.

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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 nine months ended December 31, 2009, $14,679 was recorded as compensation expense. Stock option expense of $24,390 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 nine months ended December 31, 2009, $9,441 was recorded as compensation expense and $44,083 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. 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 December 31, 2009, all of the warrants were fully vested. The warrants have a remaining life of 2 years.

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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 $162,557 of accrued interest at December 31, 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 December 31, 2009, the note due from Mr. Larson has not yet been paid and the outstanding principal and interest due is $362,557 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. On the same date, $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.

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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 was made on October 5, 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. As of September 30, 2009, the line of credit had an outstanding balance of $187,407.

On October 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 October 7, 2009 was $87,407. 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 December 31, 2009. The monthly note payable has an interest rate of 8.0% until December 31, 2009. The final payment for the note was paid on January 4, 2010 in the amount of $83,175.

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Notes Payable

On February 20, 2007, the Company entered into a commercial loan agreement with American National Bank. Under the loan agreement, the Company received proceeds of $1,500,000 from the bank pursuant to a promissory note. The terms of the note include a fixed interest rate of 7.75% for five years with monthly payments of approximately $11,500. A single “balloon payment” of the entire unpaid balance of principal and interest will be due on February 12, 2012. Under the loan agreement, the Company granted the bank security interests in the leases and rents on the property in Eldorado Springs, Colorado as well as a deed of trust for the same property in Eldorado Springs, Colorado. The balance as of December 31, 2009 was approximately $1,439,000.

The Company used the proceeds to pay off an existing real estate loan of approximately $565,000 for property owned in Eldorado Springs, Colorado and a line of credit of $356,150. In addition, the Company used the additional proceeds of approximately $575,000 to purchase additional equipment.

On October 11, 2007, the Company entered into a commercial loan agreement with American National Bank. Under the loan agreement, the Company received proceeds of $3,000,000 from the bank pursuant to a promissory note. The terms of the note include a fixed interest rate of 7.5% for five years with monthly payments of approximately $22,300. A single “balloon payment” of the entire unpaid balance of principal and interest will be due on October 11, 2012. Under the loan agreement, the Company granted the bank security interests in the leases and rents on the property in Louisville, Colorado as well as a deed of trust for the same property in Louisville, Colorado. The balance as of December 31, 2009 was approximately $2,906,000.

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. The Company will purchase all of the solar electricity generated by the system which will provide approximately 50% of the electricity needs at the facility in Louisville, Colorado. The agreement provides a guaranteed energy rate schedule for 10 years with a reset rate in year eleven for the electric cost. If the Company was to terminate the agreement the Company would be required to pay a termination penalty. As of December 31, 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 from December 31, 2009 through February 16, 2010 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.

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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 December 31, 2009 decreased 9.2% to $1,917,200 from $2,112,536 for the same period ended December 31, 2008. Revenues for the nine months ended December 31, 2009 decreased 8.6% to $6,530,526 compared to $7,148,247 during the same period ended December 31, 2008.

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While revenues have decreased overall, certain product lines have increased and helped offset some of the decline in revenues. One gallon products of both Company branded spring water and private label purified drinking water have increased for the nine months ended December 31, 2009 compared to the same period ended December 31, 2008. The Company began packaging a purified drinking water for the largest retailer in the country in July 2008. Shipments to this retailer has increased revenues for the Company while also opening up the opportunity to offer the same product 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 Albertson’s, Vitamin Cottage, Kroger’s and a major natural foods supermarket. Additionally, 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.

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.

Three and Nine Months Ended December 31, 2009 Compared to Three and Nine Months Ended December 31, 2008

Revenues

Sales for the three months ended December 31, 2009 were $1,917,200 compared to $2,112,536 for the same period ended December 31, 2008, a decrease of 9.2%. Sales for the nine months ended December 31, 2009 were $6,530,526 compared to $7,148,247 for the same period ended December 31, 2008, a decrease of 8.6%.

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 55.7% of sales and decreased from $4,142,456 for the nine months ended December 31, 2008 to $3,635,483 for the nine months ended December 31, 2009, a decrease of $506,973 or 12.2%. Total units of 5 and 3 gallon products decreased 12.9% for the nine months ended December 31, 2009 as compared to the nine months ended December 31, 2008, while the average selling price increased approximately 1.9%. The Company experienced a decrease in the total units of 5 and 3 gallon products and attributed this to factors including an unseasonable coolers summer, competition from filtration units and from affects of the downturn in the economy.

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. Revenues for the purified drinking water were $596,335 for the nine months ended December 31, 2009. The Company expects to continue to provide standard shipment levels and patterns of private label purified drinking water for this retailer.

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In September 2007, the Company introduced 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 in Albertson’s, Vitamin Cottage, K&G (Jenny’s Markets), Kroger’s (King Soopers and City Markets) and one of the nation’s premier health food supermarkets. 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. During September 2008, one of the larger grocery store chains began carrying the product and ordered a significant shipment in order to fill the shelves. Since the initial introduction of theOrganic Vitamin Charged Spring WaterGross revenues and unit volumes continue to match or exceed previous levels.

Net revenues, after discounts to retailers, for theOrganic Vitamin Charged Spring Waterwere $130,500 for the nine months ended December 31, 2009. 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. The Company also introduced a new package size for theOrganic Vitamin Charged Spring Waterwhich will help increase presence in smaller outlets as well.

Sales of the Company’s branded PET products (.5 liter to 1.5 liter sizes) decreased from $1,195,941 for the nine months ended December 31, 2008 to $861,127 for the nine months ended December 31, 2009, a decrease of 28.0%. Sales of the Company’s branded PET products represented 13.2% of sales for the nine months ended December 31, 2009 and 16.7% of sales for the nine months ended December 31, 2008. Sales of the branded PET products decreased due to a cooler than normal summer as well as effects of the economic downturn.

Sales for the private label PET products decreased from $241,726 for the nine months ended December 31, 2008 to $202,118 for the nine months ended December 31, 2009, a decrease of 19.6%. While the Company is able to offer the private label products at a premium to customers wishing to utilize the product in their marketing campaigns many companies have decreased their marketing budgets during tougher economic times. The average selling price for the private label PET products is about 20.1% higher than the Company’s branded PET products. The Company continues to offer this product as a premium to existing and new customer.

The Company’s branded gallon size products were 8.3% of sales and decreased 4.0% to $539,510 for the nine months ended December 31, 2009 compared to 9% of sales or $642,768 for the nine months ended December 31, 2008. While total unit volume has decreased 7.7% for the nine months ended December 31, 2009 the average selling price of the branded gallon size has increased by 4% which offset a portion of the decrease in volume.

Sales generated from the filter division increased from $81,389 for the nine months ended December 31, 2008 to $102,021 for the nine months ended December 31, 2009, an increase of 25.3%. The Company is able to offer filtration equipment to new and existing customers who are looking for lower cost alternative to bottled water while still obtaining an improvement over municipal tap water.

Coffee and coffee equipment for service from our existing route vehicle decreased slightly from $118,827 for the nine months ended December 31, 2008 to $116,990 for the nine months ended December 31, 2009. The Company has experienced competition from other water companies that have now begun offering similar services.

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Gross Profit/Cost of Goods Sold

Cost of goods sold for the nine months ended December 31, 2009 decreased $287,549 to $1,631,432 or 25.0% of sales from $1,918,981, or 26.8% of sales for the same period ended December 31, 2008. Gross profit decreased from $5,229,266 or 73.2% of sales for the nine months ended December 31, 2008 to $4,899,094 or 75.0% of sales for the nine months ended December 31, 2009. Overall, gross profit decreased 6.3% for the nine months ended December 31, 2009 compared to the same period ended December 31, 2008. Cost of goods sold for the three months ended December 31, 2009 decreased $144,249 to $435,420, or 22.7% of sales from $579,669 or 27.4% of sales for the same period ended December 31, 2008. Gross profit decreased from $1,532,867 or 72.6% of sales for the three months ended December 31, 2008 to $1,481,780 or 77.3% of sales for the three months ended December 31, 2009. Gross profit decreased 3.3% for the three months ended December 31, 2009 compared to the same period ended December 31, 2008. Recently, certain products used with the one gallon and PET packaged products have had a decrease in cost of goods. With the decrease in fuel costs the Company has seen a decrease in the overall costs of goods as the total cost of shipping raw materials to the warehouse are now cheaper overall.

Operating Expenses

Total operating expenses decreased 12.1% or $686,627 to $5,001,221 for the nine months ended December 31, 2009 from $5,687,848 for the same period ended December 31, 2008. Total operating expenses decreased 16.8% or $299,058 to $1,484,592 for the three months ended December 31, 2009 from $1,783,650 for the three months ended December 31, 2008. Overall, the Company has instituted changes across many areas to decrease overall expenses.

Salaries and related expenses decreased $376,354 to $2,520,625 for the nine months end December 31, 2009, or 38.6% of sales, from $2,896,979 for the nine months ended December 31, 2008, or 40.5% of sales. Salaries and related expenses decreased $151,634 to $739,517 for the three months ended December 31, 2009, or 38.6% of sales, from $891,151 for the three months ended December 31, 2008, or 42.2% of sales. The Company has been able to consolidate certain jobs resulting in a decrease in salaries and related expenses. Additionally, overall commissions have decreased with the decrease in revenues.

Administrative and general expenses decreased $184,960 from $1,439,689 for the nine months ended December 31, 2008 to $1,254,729 for the nine months ended December 31, 2009, a decrease of 12.8%. Administrative and general expenses decreased $91,368 from $463,100 for the three months ended December 31, 2008 to $371,732 for the three months ended December 31, 2009, a decrease of 19.7%. Company employees now contribute a percentage of the cost of the health premiums which has helped to decrease overall administrative and general expenses.

Delivery expenses decreased $151,577 from $722,736 for the nine months ended December 31, 2008 to $571,159 for the nine months ended December 31, 2009, a decrease of 21.0%. Delivery expenses decreased $34,545 from $221,400 for the three months ended December 31, 2008 to $186,855 for the three months ended December 31, 2009, a decrease of 15.6%. Total fuel costs have decreased almost 50% over the recent 12 months. Additionally, the Company has been able to consolidate certain delivery routes which decreased the need for leased vehicles as well as other vehicle operating costs including insurance and licensing fees.

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Advertising and promotion expenses increased 5.5% to $278,804 or 4.3% of sales for the nine months ended December 31, 2009 compared to $264,192 or 3.7% of sales for the same period ended December 31, 2008. Advertising and promotion expenses decreased 24.3% to $62,602 or 3.3% of sales for the three months ended December 31, 2009 compared to $82,668 or 3.9% of sales for the three months ended December 31, 2008. The increase of advertising and promotion expenses for the nine months ended December 31, 2009 is due to the launch of the new organic 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 3.2% to $375,904 or 5.8% of sales for the nine months ended December 31, 2009, as compared to $364,252 or 5.1% of sales for the nine months ended December 31, 2008. Depreciation and amortization decreased 1.2% to $123,886 or 6.5% of sales for the three months ended December 31, 2009, as compared to $125,331 or 5.9% of sales for the three months ended December 31, 2008.

Interest, Taxes, Other Income and Other Expenses

For the nine months ended December 31, 2009, interest income decreased 29.5% to $19,905 as compared to $28,236 for the same period ended December 31, 2008. For the three months ended December 31, 2009, interest income increased 6.3% to $6,727 as compared to $6,327 for the same period ended December 31, 2008. Since the launch of the organic vitamin charged spring water in September 2007, the Company began utilizing funds that had been placed in an interest bearing account to purchase additional equipment and to help fund the launch of the organic vitamin charged spring water resulting in a decrease of earned interest income.

Interest expense for the nine months ended December 31, 2009 increased less than 1% to $276,151 as compared to $273,980 for the same period ended December 31, 2008. Interest expense for the three months ended December 31, 2009 decreased 4.2% to $88,254 as compared to $92,095 for the same period ended December 31, 2008. During the nine months ended December 31, 2009 the Company paid down a short term note for approximately $213,000 which reduced the overall interest expense. The Company made the final payment on the note of $83,175 on January 4, 2010.

For the nine months ended December 31, 2009, the Company recorded income tax benefit of $119,400 against our pretax book loss of $358,373, a 33.3% effective tax rate compared to a tax benefit of $118,000 against our pretax book loss of $354,326 for the nine months ended December 31, 2008. For the three months ended December 31, 2009, the Company recorded income tax benefit of $25,900 against our pretax book loss of $84,339, a 30.7% effective tax rate compared to a tax expense of $9,700 against our pretax book income of $13,449 for the three months ended December 31, 2008.

The Company had a net loss after taxes of $238,973 for the nine months ended December 31, 2009 compared to a net loss after taxes of $236,326 for the same period ended December 31, 2008. The Company had a net loss after taxes of $58,439 for the three months ended December 31, 2009 compared to net income after taxes of $3,749 for the three months ended December 31, 2008.

Liquidity and Capital Resources

Trade accounts receivable as of December 31, 2009 were 8.4% less than the balance at December 31, 2008. Day’s sales outstanding was approximately 34 and 33 days for December 31, 2009 and December 31, 2008. The Company continues to manage accounts receivable and the day sales outstanding is still within the range of forecasted balances. Days sales outstanding has decreased over the years and can be attributed to shorter payment terms extended to the larger retailers.

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Cash flows from operating activities had a net inflow of $265,569 for the nine months ended December 31, 2009. The cash provided by operating activities represents an increase of $274,776 from the nine months ended December 31, 2008. The change in operating activities resulted from the change in inventories, accounts receivable, accounts payable 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 $170,546 for the nine months ended December 31, 2009. This total represents 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 $352,308 for the nine months ended December 31, 2009. The Company paid down $100,000 on a short term note. The Company also made payments on long-term debt obligations of $252,308.

The Company’s cash balance at December 31, 2009 decreased to $89,863 by a net amount of $257,285 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 two additional notes in July 2009 and October 2009 for the balance due on the note at that time. The new note calls for two monthly payments of $2,984 and a final balloon payment due December 31, 2009. The final payment for this note was made on January 4, 2010 in the amount of $83,175.

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 $162,557 of accrued interest at December 31, 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 December 31, 2009, the note due from Mr. Larson has not yet been paid and the outstanding principal and interest due is $362,557 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. 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4(T). CONTROLS AND PROCEDURES

Conclusion Regarding The Effectiveness Of Disclosure Controls And Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange 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 December 31, 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.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 1A. RISK FACTORS

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

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Exhibit No.		Description
	31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

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

	ELDORADO ARTESIAN SPRINGS, INC.
Date: February 16, 2010	By:	/s/ Douglas A. Larson
		Douglas A. Larson
		President (Principal Executive Officer)
Date: February 16, 2010	By:	/s/ Cathleen Shoenfeld
		Cathleen Shoenfeld
		Chief Financial Officer (Principal Financial Officer)

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ELDORADO ARTESIAN SPRINGS, INC.

Quarterly Report on Form 10-Q
for the Quarter Ended December 31, 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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