Interested in an established micro-cap stock in a big market that vends a basic necessity -- water? How about if it's Glacier Water (AMEX:HOO), the market leader in self-service bottled water?

Here's the Glacier water formula: Install a vending machine at a local retail outlet and tap into the local water source. Then run that water through a six-step refining process to produce "fresh, great-tasting water."

"Oh, no!" you say, "Local water? Yuck. Where's the glacial water?" Well, unless your local water system is downstream from a glacier, there is none.

Glacier's concept is simple. Why bottle, label, stock, warehouse, and transport water -- which is pretty heavy -- to store shelves, when it can be produced at a retail location and distributed through vending machines? Consumers pour the water into their own bottles for $0.25 to $0.49 a gallon, while off-the-shelf water can run from $0.69 to $1.29 or more per gallon. It would appear to be a win-win for the company and consumers.

Water is a big market, too -- $11 billion big, divided up among packaged water sold off the shelf, packaged water delivered to homes, and water sold through vending machines like Glacier's. And there's plenty of room for expansion: Glacier vends water at 12,800 locations today, out of 200,000 potential locations in the United States alone.

Glacier is a micro-cap with an enterprise value of $146.1 million. And here's the downside: It also has liabilities and debt of $106 million. Over the past three years, the company's operating income has never covered the interest expense.

If Godzilla-sized debt doesn't scare you, how about the Achilles' heel of having 35.5% of its sales come from three retail chains? The interest-expense coverage is downright thin when your sales are concentrated with so few vendors. After all, what if any of these vendors are exposed to broader economic/business-specific risks -- which may have some effect on sales?

So, what's the company worth? With total assets of $79.5 million and total liability of $106.1 million, Glacier posts a negative book value. With net loss for the past three years, it doesn't have a recent good benchmark for projecting earnings, thereby invalidating P/E analysis.

Investors in Glacier have been on a roller-coaster ride for the past 13 years. The stock has risen 11.4% this year and is up 2.6 times from where it closed at the end of 2001. But don't let the soaring stock price deter you from noticing that Glacier's net loss for fiscal 2004 was $1.10 a share on a meager 5.5% increase in revenue. The first quarter of fiscal '05 wasn't any better -- sales were flat, and the net loss jumped from $0.57 in the comparable quarter a year ago to $0.91 a share.

Let's just say this. The company has 11,400 outdoor vending machines and 3,500 indoors. That's a big presence. But with sales flat to slowly rising, the concept is hardly showing any traction with consumers. Add in the company's expensive upgrade to a second generation of outdoor equipment feeding the debt monster, and there's plenty to worry about. The stock, to this observer, is overpriced until the company can show much higher revenues.

Are you looking for small-cap stocks with great growth opportunities and strong results? Why not take a free trial of the Motley Fool Hidden Gems newsletter and capitalize on its recommendations?

Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click here to see the Motley Fool's disclosure policy.