UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2016

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to _________

Commission File Number: 000-31797

CRYSTAL ROCK HOLDINGS, INC.

 (Exact name of registrant as specified in Its charter)

 

	Delaware	03-0366218
	(State or other jurisdiction of  incorporation or organization)	(I.R.S. Employer   Identification No.)
	1050 Buckingham St., Watertown, CT	06795
	(Address of principal executive offices)	(Zip Code)
	(860) 945-0661
	(Registrant's telephone number, including area code)

         

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

 

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).  

 

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.

(Do not check if smaller reporting company)

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

 

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

 

    Shares outstanding at

 

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

	Table of Contents
PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements.
	Consolidated Balance Sheets as of  January 31, 2016 and October 31, 2015	3
	Consolidated Statements of Operations for the Three Months Ended January 31, 2016 and 2015	4
	Consolidated Statements of  Comprehensive Loss for the Three Months Ended January 31, 2016 and 2015	5
	Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2016 and 2015	6
	Notes to Consolidated Financial Statements	7-14
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	15–20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	21
Item 4.	Controls and Procedures.	21
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	22
Item 1A.	Risk Factors.	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	22
Item 3.	Defaults Upon Senior Securities.	22
Item 4.	Mine Safety Disclosures.	22
Item 5.	Other Information.	22
Item 6.	Exhibits.	22-23
SIGNATURE		24

See the accompanying notes to the consolidated financial statements.

 

 

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See the accompanying notes to the consolidated financial statements.

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See the accompanying notes to the consolidated financial statements.

 

 

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(Unaudited)

1.	BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with Form 10-Q instructions and in the opinion of management contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position, results of operations, and cash flows for the periods presented.  The results have been determined on the basis of generally accepted accounting principles and practices of the United States of America ("GAAP"), applied consistently with the Annual Report on Form 10-K of Crystal Rock Holdings, Inc. (the "Company") for the year ended October 31, 2015.

Certain information and footnote disclosures normally included in audited consolidated financial statements presented in accordance with GAAP have been condensed or omitted. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 2015.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

The financial statements herewith reflect the consolidated operations and financial condition of Crystal Rock Holdings, Inc. and its wholly owned subsidiary Crystal Rock LLC.

Major components of intangible assets consisted of:

Amortization expense for the three month periods ending January 31, 2016 and 2015 was $159,272 and $184,723, respectively.  There were no changes in the carrying amount of goodwill for the three month periods ending January 31, 2016 and 2015.

 

On May 20, 2015 the Company amended its Credit Agreement (the "Agreement") with Bank of America to provide a senior financing facility consisting of term debt and a revolving line of credit.  Under the Agreement, the Company became obligated on $12,000,000 of debt in the form of a term note to refinance the previous senior term debt and to fund repayment of a portion of its outstanding subordinated debt. Additionally, the Agreement includes a $5,000,000 revolving line of credit that can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital.

The Agreement amortizes the term debt over a five year period with 59 equal monthly installments of $133,333 and a final payment of $4,133,333 due in May 2020. The revolving line of credit matures in May 2018.  There are various restrictive covenants under the Agreement, and the Company is prohibited from entering into other debt agreements without the bank's consent.  The Agreement also prohibits the Company from paying dividends without the prior consent of the bank.

At January 31, 2016, there was no balance outstanding on the line of credit and a letter of credit issued for $1,420,000 to collateralize the Company's liability insurance program as of that date.  Consequently, as of January 31, 2016, there was $3,580,000 available to borrow from the revolving line of credit. There was $10,933,000 outstanding on the term note as of January 31, 2016.

On September 16, 2015, the Company amended its Credit Agreement with Bank of America (as so amended, the "Amendment"), effective as of July 31, 2015.  Under the Amendment, interest is paid at a rate of one-month LIBOR plus a margin based on the achievement of a specified leverage ratio.  As of January 31, 2016, the margin was 3.50% for the term note and 3.25% for the revolving line of credit.  Previously, in March 2013, the Company entered into an interest rate swap agreement, "old swap", for the purpose of fixing a portion of the term loan under the Third Amendment Agreement with Bank of America dated March 13, 2013.   As of January 31, 2016, the Company had $6,022,000 of the term debt subject to variable interest rates.  The one-month LIBOR was .4295% on the last business day of January 2016 resulting in total variable interest rates of 3.9295% and 3.6795%, for the term note and the revolving line of credit, respectively, as of January 31, 2016.

The Amendment requires the Company to be in compliance with certain financial covenants at the end of each quarter.  The covenants include rolling four quarter EBITDA of $3,350,000 as of January 31, 2016 and minimum liquidity (as defined) of at least $1,000,000.  The Amendment also requires specific EBITDA goals each quarter through the quarter ending October 31, 2016 and minimum liquidity (as defined) of no less than $1,000,000 through January 30, 2017.  As of January 31, 2016, the Company was in compliance with these covenants and the terms of the Amendment.

Effective for the quarter ending January 31, 2017, the quarterly covenants will include senior debt service coverage as defined of greater than 1.25 to 1, total debt service coverage, as defined, of greater than 1.05 to 1, and senior debt to EBITDA of less than 2.50 to 1.

The Amendment also restricts payments of interest on Subordinated Notes and Company acquisitions until certain conditions are met.

In addition to the senior debt, as of January 31, 2016, the Company has subordinated debt owed to Henry, Peter and John Baker in the aggregate principal amount of $9,546,000 that is due November 20, 2020.  The interest rate on each of these notes is 12% per annum.  On September 16, 2015, the Company amended its Subordinated Notes held by these related parties.  As required by the Bank of America Amendment, future interest payments on the notes will not be paid but will be added to the principal balance of the Subordinated Notes as of the date the payment is due until the following conditions are met; (1) the ratio of consolidated operating cash flow to consolidated total debt service is not less than 1.2 to 1 and (2) the Company has historical consolidated EBITDA of greater than $6,000,000 for two consecutive reference periods.  As of January 31, 2016, $546,000 of accrued interest had been added to the principal balance of the Subordinated Notes.

Inventories consisted of the following at:

 

Finished goods inventory consists of products that the Company sells such as, but not limited to, coffee, cups, soft drinks, and snack foods.  Raw material inventory consists primarily of bottle caps.  The amount of raw and bottled water on hand does not represent a material amount of inventory.  The Company estimates that value as of January 31, 2016 and October 31, 2015 to be $59,000 and $65,000, respectively.  This value includes the cost of allocated overhead.  Bottles are accounted for as fixed assets.

Derivative Financial Instruments

The Company has stand-alone derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk.  The notional amount is an amount on which calculations, payments, and the value of the derivative are based.  The notional amount does not represent direct credit exposure.  Direct credit exposure is limited to the net difference between the calculated amount to be received and paid, if any. Such difference, which represents the fair value of the derivative instrument, is reflected on the Company's consolidated balance sheet as an unrealized gain or loss on derivatives.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements.  The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and currently has no reason to believe that any counterparties will fail to fulfill their obligations.

These interest rate swap agreements are considered cash flow hedges to hedge against the variability of interest rates on outstanding debt.  The net unrealized loss relating to interest rate swaps was recorded in current and long term liabilities with an offset to other comprehensive income for the effective portion of the hedge. At January 31, 2016, these cash flow hedges were deemed 100% effective.  The portion of the net unrealized loss in current liabilities is the amount expected to be reclassified to income within the next twelve months.

For more details regarding the Company's derivative hedging polices refer to Note 2, Significant Accounting Policies, in the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 2015.

The following information pertains to the Company's outstanding interest rate swaps at January 31, 2016.  The pay rate is fixed and the receive rate is one month LIBOR.

                                     

 

The table below details the adjustments to other comprehensive income (loss), on a before tax and net-of tax basis, for the fiscal quarters ended January 31, 2016 and 2015.

 

The reclassification adjustments of $4,833 and $8,119 represent interest the Company paid in excess of the amount that would have been paid without the interest rate swap agreement during the quarters ended January 31, 2016 and 2015, respectively. These amounts were reclassified from accumulated other comprehensive loss and recorded in consolidated statements of operations as interest expense.

 

Fair Value Hierarchy

The Company's assets and liabilities measured at fair value on a recurring basis are as follows:

 

In determining the fair value, the Company uses a model that calculates a present value of the payments as they amortize through the life of the loan (float) based on the variable rate and compares them to the calculated value of the payment based on the fixed rate (fixed) defined in the swap.  In calculating the present value, in addition to the term, the model relies on other data – the "rate" and the "discount factor."

§

In the "float" model, the rate reflects where the market expects LIBOR to be in for the respective period and is based on the Eurodollar futures market.

§

The discount factor is a function of the volatility of LIBOR.

Payments are calculated by applying the rate to the notional amount and adjusting for the term. Then the present value is calculated by using the discount factor.

There were no assets or liabilities measured at fair value on a nonrecurring basis.

The Company considers outstanding in-the-money stock options as potential common stock in its calculation of diluted earnings per share, unless the effect would be anti-dilutive, and uses the treasury stock method to calculate the applicable number of shares.

 

The following calculation provides the reconciliation of the denominators used in the calculation of basic and fully diluted earnings per share:

As of January 31, 2016 there were no options outstanding.  As of January 31, 2015 there were 46,250 options outstanding.   For the three month periods ended January 31, 2016 and 2015 there were no options used to calculate the effect of dilution because the Company had a net loss.

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period).  The Company provides an estimate of forfeitures at the initial date of grant.

In April 2004, the Company's stockholders approved the 2004 Stock Incentive Plan.  The plan provided for issuances of awards of up to 250,000 restricted or unrestricted shares of the Company's common stock, or incentive or non-statutory stock options to purchase such common stock.  None of the total amount of options is outstanding.  As of February 18, 2014, no further options may be granted under the 2004 Plan.

There was one option grant, for a total of 10,000 shares, that was forfeited in the first three months of 2016 and eight option grants, for a total of 201,500 shares, that expired in the first three months of 2015.  Other than the forfeitures and expirations, there was no activity related to stock options and outstanding stock option balances or other equity based compensation during the three month periods ended January 31, 2016 and 2015.  The Company did not grant any equity based compensation during the three months ended January 31, 2016 and 2015.

In April 2014, the Company's stockholders approved the 2014 Stock Incentive Plan.  The plan provided for issuances of awards of up to 500,000 restricted or unrestricted shares of the Company's common stock, or incentive or non-statutory stock options to purchase such common stock. Of the total amount of shares authorized under this plan, no options have been granted and 500,000 shares are available for grant at January 31, 2016.

The options issued under the plans generally vest in periods up to five years based on the continuous service of the recipient and have 10 year contractual terms. Share awards generally vest over one year. Option and share awards provide for accelerated vesting if there is a change in control of the Company (as defined in the plans).

Compensation is determined using the Black-Scholes model and the simplified method to derive the expected term of the options and historical volatility over the past five years.

All incentive and non-qualified stock option grants had an exercise price equal to the market value of the underlying common stock on the date of grant.

9.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board ("FASB") FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.  In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of the ASU to fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. The Company is currently evaluating the transition methods and the impact of the standard on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory". The ASU requires entities using the first-in, first-out (FIFO) inventory costing method to subsequently value inventory at the lower of cost and net realizable value. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU requires prospective application and is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years, with early adoption permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes", which simplifies the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current in a statement of financial position.  For public business entities, the amendments in the ASU are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  The Company is currently in the process of evaluating the effect this guidance will have on its consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU 2016-02, "Leases", which is intended to improve financial reporting about leasing transactions.  The ASU requires that leased assts be recognized as assets on the balance sheet and the liabilities for the obligations under the lease also be recognized on the balance sheet.  This ASU requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.  The required disclosures include qualitative and quantitative requirements.  This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

10.

SIGNIFICANT ACCOUNTING POLICIES

Uncollectible Trade Accounts Receivable - Individual accounts receivable are written off when deemed uncollectible, with any future recoveries recorded as income when received.

For more details regarding the Company's accounts receivable policies refer to Note 2, Significant Accounting Policies, in the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 31, 2015.

 

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto as filed in our Annual Report on Form 10-K for the year ended October 31, 2015 as well as the consolidated financial statements and notes contained herein.

 

The "Management's Discussion and Analysis" (MD&A) portion of this Form 10-Q contains forward-looking statements about these topics:

(1)

the lower gross profits of products that we are offering in connection with our brand expansion and response to competition in our marketplace,

(2)

the outstanding debt levels may adversely impact the business profitability and ability to finance future expansion,

The following factors could cause actual results to differ materially from statements in MD&A about topic (1):  The volume of and revenues from products that we sell may be greater or less than we anticipate.  If greater, the effect will likely reduce our gross margin percentage overall as a result of lower prices in response to competition; if less, the effect on our gross margin percentage should be less significant, although in that case our results of operations could be adversely affected due to lower revenues.  We also incorporate by reference into this paragraph the full Risk Factors on pages 12 through 15 of our Annual Report on Form 10-K for the Fiscal Year Ended October 31, 2015 (our 2015 Form 10-K) beginning "We operate in a competitive business environment that is influenced by conditions some of which are controllable and others are beyond our control."; "The office products business is highly competitive"; "Acquisitions may disrupt our operations or adversely affect our results"; and "We also face significant competition in the water and office refreshment business".

 

The following factors could strain liquidity and working capital availability in MD&A about topic (2):  We incorporate by reference into this paragraph the full Risk Factor on page 17 of our 2015 Form 10-K beginning "Our Company is significantly leveraged".

The following factors could cause actual results to differ materially from statements in MD&A about topic (3):  We incorporate by reference into this paragraph the full Risk Factor on page 18 of our 2015 Form 10-K beginning "Fluctuations in the cost of essential raw materials and commodities".

The following factors could cause actual results to differ materially from statements in MD&A about topic (4):  We incorporate by reference into this paragraph the full Risk Factor on page 19 of our 2015 Form 10-K beginning "Our business has been and may continue to be affected from time to time by extremes of weather".

 

 

Reductions in selling and distribution expenses combined with streamlining of administrative functions have led to the lower operating expenses compared to a year ago. With a new sales revenue baseline of a higher margin product mix, a streamlined and focused sales approach and future technological improvements intended to further streamline administration while improving the customer experience, we are optimistic that we can stabilize and then increase sales while increasing margin and maintaining or reducing operating expenses in coming periods.

Sales for the three months ended January 31, 2016 were $16,132,000 compared to $17,698,000 for the corresponding period in 2015, a decrease of $1,566,000 or 9%.  The decrease was primarily attributable to a decrease in sales of coffee and office products though sales in all categories but water declined.

 

 

The comparative breakdown of sales of the product lines for the respective three-month periods ended January 31, 2016 and 2015 is as follows:

Water – Sales of water remained flat for the first quarter 2016 as compared to the same period of 2015.  Both volume and price were stable in 2016 as compared to the first quarter of 2015.

Coffee – The decrease in sales was attributable to a decline in our traditional higher volume lines, bulk and K-cup, while Cool Beans® pods increased 9%.  Bulk products sales continued to be negatively influenced by the single serve lines and K-cup sales declined as a result of ongoing commoditization. The increase in pod sales is a result of conversion of the other lines as well as new sales but the volume of the product, to date, has not approached that of the others.

Refreshment – Complementary coffee products, single serve drinks, cups, and vending sales all declined while small packaged water such as ½ liter cases of water sales increased 2%.

Equipment Rental – The decrease in sales was a result of a 4% decrease in price and 4% decrease in number of rental units in the field.  Since January 31, 2015, the company has lost units mostly from not winning incumbent competitive bids.

Office Products – The decrease in sales was a result of implemented price increases on items previously sold at cost or near cost.

Other – The decrease is attributable to reduced equipment sales and other miscellaneous items.  The decline in the fees that are charged to offset energy costs for delivery and freight, raw materials, and bottling operations was 22,000 or 5% from the same period in 2015.

Gross Profit/Cost of Goods Sold – For the three months ended January 31, 2016, gross profit decreased to $7,589,000 from $8,034,000 for the comparable period in 2015.  As a percentage of sales, gross margin was 47% compared to 45% for the same period a year ago. The decrease in gross profit of $445,000 was primarily due to lower sales of lower margin items thus resulting in the higher gross margin percentage.

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

 

Total operating expenses decreased to $7,241,000 in the first quarter of 2016 from $8,338,000 in the comparable period in 2015, a decrease of $1,097,000, or 13%.

Selling, general and administrative (SG&A) expenses of $6,949,000 in the first quarter of 2016 decreased $1,000,000, or 13%, from $7,949,000 in the comparable period in 2015.  Of total SG&A expenses, route distribution costs decreased $153,000, or 4%, as a result of lower vehicle labor and fuel costs; combined selling and marketing costs decreased $518,000, or 39%, as a result of reduced staffing; and administration costs decreased $329,000, or 11%, as a result of lower labor costs and professional services.

Advertising expenses were $136,000 in the first quarter of 2016 compared to $254,000 in the first quarter of 2015, a decrease of $118,000, or 46%. The decrease in advertising costs is primarily related to a decrease in printed promotional items.

Amortization decreased to $159,000 in the first quarter of 2016 from $185,000 in the comparable quarter in 2015, a decline of $26,000, or 14%.  Amortization is attributable to intangible assets that were acquired as part of acquisitions. The lower amortization in 2016 is attributable to some intangible assets becoming fully amortized during 2015.  The customer lists intangible asset is evaluated for impairment based on the current and future projected cash flows of the remaining customers.  In addition, we had a gain of $3,000, from the sale of assets in the first quarter of 2016, which was a decrease from the $50,000 gain from similar sales in the first quarter of 2015. We routinely sell assets used in the normal course of business as they are replaced with newer assets.

The income from operations for the three months ended January 31, 2016 was $348,000 compared to a loss from operations of $304,000 in the comparable period in 2015, an improvement of $652,000.  The improvement was the result of lower operating expenses despite lower sales and gross profit.

Interest expense was $397,000 for the three months ended January 31, 2016 compared to $384,000 in the three months ended January 31, 2015, an increase of $13,000.  The increase is attributable to higher debt and a higher weighted average of interest rates.

The loss before income taxes was $49,000 for the three months ended January 31, 2016 compared to $688,000 in the corresponding period in 2015, an improvement of $639,000. The tax benefit, as a result of loss from operations, for the first quarter of fiscal year 2016 was $19,000 compared to $261,000 in the first quarter of fiscal year 2015.  The lower tax benefit was a result of a lower loss from operations in the first quarter of 2016 compared to the first quarter of 2015, even though there was a lower expected effective tax rate in 2015.

 

 

The net loss for the three months ended January 31, 2016 was $30,000 compared to $427,000 in the corresponding period in 2015.  The reduction of the loss is attributable to lower operating expenses despite lower sales and gross profit the first quarter of 2016 as compared to the same period in fiscal year 2015.

As of January 31, 2016, we had working capital of $8,655,000 compared to $8,351,000 as of October 31, 2015, an increase of $304,000.  Decreases in accounts receivable and inventory were more than offset by decreases in accounts payable and accrued expenses.  Interest expensed but not paid to subordinated debt holders was $276,000.  Also during the quarter, we used $396,000 for capital expenditures and $400,000 for repayment of senior debt.

Our Credit Agreement with Bank of America provides a senior financing facility consisting of term debt and a revolving line of credit.  As of January 31, 2016 we had $10,933,000 outstanding on our term loan.  We have no funds borrowed from our line of credit with the Bank.  We have a letter of credit of $1,420,000 secured by our line of credit resulting in $3,580,000 available to borrow on the line of credit as of January 31, 2016.

Our term debt amortizes over a five year period with 59 equal monthly installments of $133,333 and a final payment of $4,133,333 due in May 2020. The revolving line of credit matures in May 2018.  There are various restrictive covenants under the Agreement, and the Company is prohibited from entering into other debt agreements without the bank's consent.  The Agreement also prohibits the Company from paying dividends without the prior consent of the bank.

On September 16, 2015, the Company amended its Credit Agreement with Bank of America (as so amended, the "Amendment"), effective as of July 31, 2015.  Under the Amendment, interest is paid at a rate of one-month LIBOR plus a margin based on the achievement of a specified leverage ratio.  As of January 31, 2016, the margin was 3.50% for the term note and 3.25% for the revolving line of credit.  Previously, in March 2013, the Company entered into an interest rate swap agreement for the purpose of fixing a portion of the term loan under the Third Amendment Agreement with Bank of America dated March 13, 2013.  As of January 31, 2016, the Company had $6,022,000 of the term debt subject to variable interest rates.  The one-month LIBOR was .4295% on the last business day of January 2016 resulting in total variable interest rates of 3.9295% and 3.6795%, for the term note and the revolving line of credit, respectively, as of January 31, 2016.

The following information pertains to the Company's outstanding interest rate swaps at January 31, 2016.  The pay rate is fixed and the receive rate is one month LIBOR.

 

Instrument Rate	Notional Amount	Pay Rate	Receive Rate
Interest rate swap	$5,333,335	1.25%	0.4295%
Interest rate swap	$4,911,000	0.68%	0.4295%

 

 

The Amendment requires the Company to be in compliance with certain financial covenants at the end of each quarter.  The covenants include rolling four quarter EBITDA of $3,350,000 as of January 31, 2016 and minimum liquidity (as defined) of at least $1,000,000.  The Amendment also requires specific EBITDA goals each quarter through the quarter ending October 31, 2016 and minimum liquidity (as defined) of no less than $1,000,000 through January 30, 2017.  As of January 31, 2016, the Company was in compliance with these covenants and the terms of the Amendment.

Effective for the quarter ending January 31, 2017, the quarterly covenants will include senior debt service coverage as defined of greater than 1.25 to 1, total debt service coverage, as defined, of greater than 1.05 to 1, and senior debt to EBITDA of less than 2.50 to 1.

The Amendment also restricts payments of interest on Subordinated Notes and Company acquisitions until certain conditions are met.

In addition to the senior debt, as of January 31, 2016, the Company has subordinated debt owed to Henry, Peter and John Baker in the aggregate principal amount of $9,546,000 that is due November 20, 2020.  The interest rate on each of these notes is 12% per annum.  On September 16, 2015, the Company amended its Subordinated Notes held by related parties.  As required by the Bank of America Amendment, future interest payments on the notes will not be paid but will be added to the principal balance of the Subordinated Notes as of the date the payment is due until the following conditions are met; (1) the ratio of consolidated operating cash flow to consolidated total debt service is not less than 1.2 to 1 and (2) the Company has historical consolidated EBITDA (as defined) of greater than $6,000,000 for two consecutive reference periods.  As of January 31, 2016, $546,000 of accrued interest had been added to the principal balance of the Subordinated Notes.

In addition to our senior and subordinated debt commitments, we have significant future cash commitments, primarily in the form of operating leases that are not reported on the consolidated balance sheet. The following table sets forth our contractual commitments in the remainder of the current year and future fiscal years as of January 31, 2016:

(1)

Interest based on 50% of outstanding senior debt at the hedged interest rate discussed above, 50% of outstanding senior debt at a variable rate of 3.93%, line of credit at a rate of 3.68%, and subordinated debt at a rate of 12%.

(2)

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

We have no other material contractual obligations or commitments.

 

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risks.

Pursuant to Regulation S-K, Item 305(e), smaller reporting companies are not required to provide this information.

Item 4.  Controls and Procedures.

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

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

Changes in Internal Control over Financial Reporting.

No change in our internal control over financial reporting occurred during the fiscal quarter ended January 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

None.

Not Applicable

None.

None.

None.

None.

Exhibit

3.1

Certificate of Incorporation (Incorporated by reference to Exhibit B to Appendix A to our registration statement on Form S-4, File No. 333-45226, filed with the SEC on September 6, 2000)

3.2

Certificate of Amendment of Certificate of Incorporation (Incorporated by reference to Exhibit 4.2 of our current report on Form 8-K, filed with the SEC on October 19, 2000)

3.3

Certificate of Ownership and Merger of Crystal Rock Holdings, Inc. with and into Vermont Pure Holdings, Ltd. (Incorporated by reference to Exhibit 3.1 to our current report on Form 8-K, filed with the SEC on May 6, 2010)

3.4

By-laws, as amended (Incorporated by reference to Exhibit 3.2 to our report on Form 8-K, filed with the SEC on April 2, 2010)

 

31.1

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

31.2

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

32.1

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

32.2

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

101

Interactive Data Files regarding (a) our Consolidated Balance Sheets as of January 31, 2016 and October 31, 2015, (b) our Consolidated Statements of Operations for the Three Months Ended January 31, 2016 and 2015, (c) our Consolidated Statements of Comprehensive Loss for the Three Months Ended January 31, 2016 and 2015, (d) our Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2016 and 2015, and (e) the Notes to such Consolidated Financial Statements.

SIGNATURE

Pursuant to 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.

CRYSTAL ROCK HOLDINGS, INC.   By: /s/ David Jurasek                                                                                  David Jurasek Chief Financial Officer/Treasurer (Principal Accounting Officer and Principal Financial Officer)

                                                                                                                        

Exhibits Filed Herewith

Exhibit

31.1

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

31.2

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

32.1

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

32.2

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

101

Interactive Data Files regarding (a) our Consolidated Balance Sheets as of January 31, 2016 and October 31, 2015, (b) our Consolidated Statements of Operations for the Three Months Ended January 31, 2016 and 2015, (c) our Consolidated Statements of Comprehensive Loss for the Three Months Ended January 31, 2016 and 2015, (d) our Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2016 and 2015, and (e) the Notes to such Consolidated Financial Statements.

 

 

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