ELDORADO ARTESIAN SPRINGS INC - FORM 10-K - XML - IDEA: XBRL DOCUMENT - June 29, 2012

Note 1 - Description of Business and Summary of Significant Accounting Policies

Eldorado Artesian Springs, Inc., (the "Company"), is a Colorado corporation which primarily sells bottled Artesian spring water from springs located in Eldorado Springs, Colorado and rents water dispensers. The Company also sells a line of Organic Vitamin Charged Spring Water to retail stores. The Company also rents housing, and during the summer months, it operates a natural Artesian spring pool. The Company's bottling and distribution facility is located in Louisville, Colorado.

Concentrations of Credit Risk

The Company maintains cash in bank accounts that may, at times, exceed FDIC insurance limits. Financial instruments potentially subjecting the Company to concentrations of credit risk consist primarily of accounts receivable. The Company grants credit to customers located primarily in Colorado. The Company periodically performs credit analysis and monitors the financial condition of its clients in order to minimize credit risk.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At March 31, 2012 and 2011, the Company did not have any cash equivalents.

Accounts Receivable

The Company extends unsecured credit to its customers in the ordinary course of business. The Company considers a reserve for doubtful accounts based on the creditworthiness of the customer. The provision for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management's best estimate of uncollectible amounts and is determined based on historical performance that is tracked by the Company on an ongoing basis.

Inventories

Inventories consist of direct costs which are primarily made up of water bottles and packaging and are stated at the lower of cost or market, determined using the first-in, first-out method (FIFO).

Deposits

Deposits consist primarily of deposits related to the purchase of equipment.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Machinery, equipment, furniture and fixtures are depreciated using various methods over their estimated useful lives, ranging from 3 to 7 years. Buildings and improvements are depreciated using the straight-line method over the estimated useful lives for owned assets, ranging from 15 to 39 years. Depreciable lives on leasehold improvements are the shorter of the lease term or the useful life. Capital leased assets amortize over the estimated useful life or related lease term.

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.

Water Rights

Water rights are recorded at cost. As water rights have an indefinite life, no amortization is recognized.

Other Assets

Other assets consist of loan fees and other costs which have been recorded at cost and are being amortized using the effective interest method over the term of the loan.. The Company expects to amortize approximately $4,000 each year for the next ten years.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. The Company looks primarily to the undiscounted future cash flows in its assessment of whether or not long-lived assets have been impaired. No impairments were deemed necessary during the fiscal years 2012 and 2011.

Customer Deposits

Customer deposits consist primarily of deposits on bottles and equipment.

Stock Based Compensation

The Company accounts for stock-based compensation arrangements for employees and recognizes compensation expense for share-based awards based on the grant date estimated fair value of the awards using the Black Scholes option pricing model.  Compensation expense for all share-based awards is recognized in earnings over the requisite service period (generally the vesting period).  The Company records compensation expense related to non-employees over the service periods commensurate with the services provided.  Compensation expense recorded during fiscal year 2012 and 2011 was $20,121 and $59,398.

Basic and Diluted Loss Per Common Share

Basic earnings per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted earnings per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the period.

Potentially dilutive common shares and outstanding options and warrants which have been excluded from the computation of diluted income per share as of March 31, 2012 and 2011 were 111,000 and 226,000, respectively, because their effect would have been antidilutive.

Fair Value of Financial Instruments

The carrying amounts of financial instruments including cash, receivables, accounts payable and accrued expenses approximated fair value as of March 31, 2012, because of the relatively short maturity of these instruments.

The carrying amounts of notes receivable and long-term debt approximates fair value as of March 31, 2012 because interest rates on these instruments approximate market interest rates.

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 utility revenue is recognized on a monthly basis based upon the monthly contracted rate.

Shipping Costs

Shipping costs for materials used in the final products are included in the cost of goods. Shipping costs for products delivered to customers are included in total operating expenses.

Promotional Expense – Consideration to Vendors

The Company recognizes certain promotional expense as a reduction in revenues. These costs included off invoice discounts to resellers and promotions for customers.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense for the years ended March 31, 2012 and 2011 were $208,226 and $236,860, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. New pronouncements assessed by the Company recently are discussed below:

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).” This pronouncement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This pronouncement is effective for reporting periods beginning on or after December 15, 2011. The adoption of ASU 2011-04 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

In June 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to report other comprehensive income and its components in the consolidated statement of shareholder’s equity and comprehensive income and requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company believes the adoption of ASU 2011-05 concerns presentation and disclosure only and will not have an impact on its consolidated financial position or results of operations.