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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
 
                                  FORM 10-KSB
 
/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
    OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
/ /  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
    SECURITIES EXCHANGE ACT OF 1934
 
                        COMMISSION FILE NUMBER: 0-29280
                             ---------------------
 
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                 (Name of small business issuer in its charter)
 
<TABLE>
<S>                                 <C>
              HAWAII                     99-0314848
    (State or jurisdiction of         (I.R.S. Employer
          incorporation              Identification No.)
         or organization)
</TABLE>
 
                               248 MOKAUEA STREET
                             HONOLULU, HAWAII 96819
                    (Address of principal executive offices)
 
                                 (808) 832-4550
                           Issuer's telephone number
                            ------------------------
 
   Securities registered pursuant to Section 12(b) of the Exchange Act: None
 
      Securities registered pursuant to Section 12(g) of Exchange the Act:
 
               Common Stock, no par value
               Redeemable Common Stock Purchase Warrants ("Warrants")
               Units, consisting of one share of Common Stock and one Warrant
 
                                (Title of Class)
                            ------------------------
 
    Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. YES: /X/ NO / /
 
    Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. / /
 
    State issuer's revenues for its most recent fiscal year: $1,809,730
 
    State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold or the average bid and asked price of such common equity, as of
a specified date within the past 60 days: $7,705,921 as of March 22, 1999.
 
    State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 4,079,563 shares of Common
Stock and 750 shares of Series A Convertible Preferred Stock as of March 30,
1999.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    Registrant's definitive proxy statement to be filed with the Commission in
connection with the 1999 Annual Meeting of Stockholders and Registrant's
Registration Statement on Form SB-2 (File No. 333-18289) are incorporated by
reference into Part III of this Report.
 
    Transitional Small Business Disclosure Format (check one): YES / / NO: /X/
 
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                                     PART I
 
ITEM 1.  DESCRIPTION OF BUSINESS
 
    GENERAL.  Hawaiian Natural Water Company, Inc. (the "Company") bottles,
markets and distributes "natural water" under the name "Hawaiian Springs-TM-."
The term "natural water" signifies that the bottled water retains the same
chemical composition and mineral content as the water at the source. Natural
water is distinguished from "purified" water, from which certain chemicals and
minerals have been removed by means of reverse osmosis filtration. There are
several purified Hawaiian waters currently on the market; however, the Company's
product is the only bottled natural water available from Hawaii.
 
    The Company draws its water from a well located at the base of the Mauna Loa
mountain range in Kea'au on the Big Island of Hawaii. The water is "bottled at
the source" in polyethylene terephthalate ("PET") plastic bottles, which are
manufactured at the Company's bottling facility. The term "bottled at the
source" signifies that the water is pumped directly from the source to the
bottling facility, thereby eliminating handling and transportation procedures
which might lead to contamination. The proprietary source of the Company's water
further distinguishes it from competing purified waters, which are typically
drawn from municipal water supplies.
 
    The Company currently offers its product only in PET plastic bottles of 1.5
liters or less; however, the Company has recently installed a new five liter
bottling line and expects to begin shipping product in this package by the
second quarter of 1999. In addition, the Company is currently in discussions
with various parties concerning the possible acquisition of a five gallon home
and office delivery business and expects to enter this market by the end of
1999, subject to receipt of additional financing.
 
    The Company was incorporated in Hawaii in September 1994, and began
commercial operations in February 1995, selling initially in the Hawaiian market
exclusively. The Company continues to market its product primarily in Hawaii but
has since developed a limited presence on the U.S. Mainland and in certain
international markets (currently Japan, Thailand, Guam, Taiwan and the Middle
East). The Company's objective is to become a leading provider of premium
quality bottled water on a national and international basis. Accordingly, the
Company is seeking to expand its presence on the U.S. Mainland and in developed
Asian markets. In 1998, the Company entered into new distribution arrangements
in Thailand and Japan, which are expected to generate significant sales growth
in these major foreign markets. See "Distribution."
 
    THE BOTTLED WATER MARKET.  Since the mid-1970's the bottled water market has
experienced substantial growth in the United States and most of the
industrialized world. Concerns about municipal water quality combined with
increased health awareness and the availability of light weight convenient
packaging, such as plastic bottles, have made bottled water consumption
prevalent among the more affluent, educated population in the United States and
other industrialized nations. Currently, bottled water is one of the fastest
growing segments of the beverage industry worldwide. The following summary
describes the demand for bottled water in those territories which the Company
considers its primary target markets.
 
        HAWAII.  Based upon internal marketing data provided by the Company's
    local distributor, the Company estimates the total bottled water market in
    Hawaii at approximately 5.8 million gallons (1,600,000 cases) per year. The
    Company believes that, as with the rest of the United States, bottled water
    sales in Hawaii are growing at a faster rate than the beverage market
    generally as bottled water gains in popularity relative to other beverages.
 
        U.S. MAINLAND.  The primary markets for bottled water on the U.S.
    Mainland are the Pacific and Northeast Regions, accounting for 31% and 26%,
    respectively, of total domestic bottled water consumption in 1998. The
    bottled water market in the United States as a whole has grown from
    approximately 317 million gallons in 1976 to approximately 3.77 billion
    gallons in 1998. From 1997 to 1998, per capita consumption increased by
    10.1% to 14 gallons. The largest segment of the U.S.
 
                                       1
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    bottled water market is the non-sparkling water segment, which accounted for
    approximately 3.3 billion gallons or 87.4% of the total gallons sold in
    1998. The fastest growing category within this segment is the retail,
    premium PET market (bottles of two liters or less are considered premium).
    This is the only category within which the Company currently competes. This
    category has grown from approximately 230 million gallons in 1992 to 983
    million gallons in 1998, up 25% in 1996, 29% in 1997 and 31% in 1998. Per
    capita consumption in the retail premium PET market is highest in the
    Pacific Region. However, all other regions of the U.S. Mainland registered
    gallonage increases of 40% or more in 1998.
 
        ASIA.  The Asian market consists primarily of Japan, Thailand, Taiwan,
    Guam, Korea, Indonesia, the Philippines, Singapore, Malaysia, and The
    Peoples Republic of China. Of these, Japan is currently the Company's most
    significant target market, with total 1996 consumption of approximately 172
    million gallons, approximately 23% of which was imported. Bottled water is
    now commonly stocked in convenience stores, mass merchandise outlets, kiosks
    and vending machines in Japan, and is used in cooking, in addition to being
    drunk out of the bottle. Most natural water in Japan is soft; i.e., with a
    relatively low mineral content. The Company believes that the low mineral
    content of its water will enhance its ability to penetrate the Japanese
    market. Although the total bottled water market and per capita consumption
    are higher in Thailand than in Japan, the import market is substantially
    smaller. The Company estimates the total PET premium market in Thailand at
    approximately 2.2 million gallons, approximately 23% of which is imported.
    In Taiwan, imported waters account for approximately 15% of total bottled
    water sales. Primarily as a result of recent economic weakness, the Company
    believes that certain Asian markets, especially Korea, are currently
    resistant to the import of premium foreign waters. However, the Company
    believes that the long term outlook for its product in these markets is
    attractive and continues to seek opportunities there. The Company also has
    long-term objectives to enter other major Asian territories, such as The
    Peoples Republic of China and Indonesia, both of which are among the ten
    largest bottled water markets in the world, but has had no sales in these
    territories to date. Guam represents a small but stable market for the
    Company's product.
 
    THE COMPANY'S WATER SOURCE.  The Company draws its water from a well at the
base of the Mauna Loa mountain range in Kea'au on the Big Island of Hawaii. The
southeastern slopes of Mauna Loa, above Kea'au, are among the wettest places on
earth, experiencing up to 225 inches of rainfall annually. Rainfall filters
through the porous lava rock of the mountainside forming large underground
reservoirs and aquifers that flow back into the ocean. This constant movement
maintains the purity of the source and also accounts for the low mineral content
of the water, which gives it its distinctively light or "young" taste.
 
    The Company's water source is drilled to a depth of approximately 250 feet.
The source is continuously recharged from rainwater at this level. Water is
pumped from the well at the rate of approximately 250 gallons per minute. This
water flow is more than adequate to satisfy the maximum projected demand for the
Company's product. The flow rate could be expanded, if desired, through the use
of stronger pumping equipment. In 1998, the Company replaced its existing
pumping equipment and refurbished its well shaft through the installation of new
stainless steel casing.
 
    The Company believes that its water is among the purest natural waters
available, because of the pristine environment at its source. The entire Big
Island of Hawaii is virtually free of major industrial activity. The air above
the source is so clear that the summit of nearby Mauna Kea Mountain is generally
regarded as among the best locations on earth for space observation. Thirteen
observatories, including the Keck Observatory, the world's largest, are
stationed there.
 
    BOTTLING OPERATIONS.  The Company operates its own bottling and packaging
facility in an 8,000 square foot renovated concrete building located adjacent to
the Company's well at Kea'au. This facility is leased from an affiliate pursuant
to a long-term lease agreement. See "Item 2. Description of Property." The
bottling facility is located within a 14.5 acre tract which is zoned for
agricultural use, but has been approved
 
                                       2
<PAGE>
for various beverage and bottling operations pursuant to a Special Use Permit
granted by the County of Hawaii. The Special Use Permit is of perpetual
duration, so long as the conditions to its effectiveness have been met. The
Company is currently in compliance with all of the conditions of the Special Use
Permit and expects that it will remain in compliance in the indefinite future as
long as the Company conducts its operations in the manner described herein.
 
    Source water is pumped directly into the Company's bottling facility where
it is passed through a series of particulate filters and ultraviolet light,
elevated through an ozone tower for sterilization and then released into the
rinsing and filling lines. Bottles are fed onto an automated conveyor system,
labeled and then passed into the first stage of a two-stage "clean" room, which
is separately enclosed and pressurized to minimize contamination during the
filling process. In the first stage, the bottles are vacuumed with an ionized
air system and then rinsed with ozonated water before entering the filling
stage. Inside the filling room, a high-speed rotary filler dispenses water into
the bottles, caps them and passes them onto an automated conveyor outside the
room. An ink-jet dating code is applied to the bottles as they pass to the
pack-off table. Bottles are packed by machine into cardboard cases, which are
then placed onto pallets for shipment. One and 1.5 liter bottles are packed 12
to a case, while 0.33 and 0.5 liter bottles are packed in cases of 24. Current
space constraints limit the Company's ability to store finished goods inventory
on site. Finished goods not destined for immediate shipment are transported by
truck to a leased warehouse facility in Kea'au. The Company currently maintains
approximately one month's supply of finished goods in inventory at this
warehouse and small amounts at its executive offices/warehouse in Honolulu. The
Company is contemplating construction of a new warehouse facility at Kea'au
should circumstances warrant, in light of then existing production levels and
available funding. See "Item 2. Description of Property."
 
    The Company currently bottles its water in 0.33, 0.5, 1.0 and 1.5 liter PET
plastic bottles. All sizes come with standard tamper-proof caps. Sports caps are
also available on 1.0 liter bottles. The Company has recently installed a new
five liter bottling line and expects to begin shipping product in this package
by the second quarter of 1999. The Company may further extend its product line
to include other sizes, including five gallon bottles for the home and office
delivery market. Any such extension would require a significant investment in
additional plant and equipment.
 
    The Company currently manufactures all of its own bottles on-site, utilizing
blow molding equipment installed at its bottling facility. The equipment has a
normal annual capacity of approximately 18 million bottles. Bottles can be fed
directly onto the bottling line and filled immediately or can be stored for
later use. The Company purchased the blow molding equipment in September 1997,
for an aggregate of $1.2 million, payable in installments over five years as
follows:
 
    (i) $375,000 paid on or prior to September 30, 1997;
 
    (ii) $330,000, payable in monthly installments of $13,750 during the first
         two years thereafter; and
 
   (iii) the balance of $495,000, payable in three annual installments of
         $165,000 thereafter, plus interest on the outstanding balance at the
         annual rate of 5%.
 
    DISTRIBUTION.  The Company distributes its product primarily in Hawaii and
to a limited extent on the U.S. Mainland and in certain international markets
(currently Japan, Thailand, Guam, Taiwan and the Middle East). A majority of the
Company's product is sold through retail channels such as convenience stores and
supermarkets, although the Company also sells through food service outlets such
as restaurants, bars, airlines, hotels and country clubs. Food service
distribution was the fastest growing segment of the Company's business in 1998.
The Company's product is currently distributed on Japan Airlines (flights
departing Hawaii), Aloha Island Air (inter-island flights) and Continental
Airlines/Air Micronesia (flights departing Hawaii and flights departing New
York, Houston and Los Angeles for Hawaii). The product is also sold at the Mauna
Lani Golf Course and other prestigious golf courses on the Big Island of Hawaii,
as well as military exchanges in Hawaii.
 
                                       3
<PAGE>
    In Hawaii, the Company has appointed Paradise Beverages ("Paradise"), one of
Hawaii's largest beverage wholesalers, as its retail distributor throughout the
State. The Company has also appointed several other distributors to cover food
service markets in Hawaii not normally covered by Paradise. In addition, the
Company has entered into exclusive broker agreements in Hawaii to support the
sales efforts of the Company's distributors. Sales in Hawaii accounted for
approximately 76% of the Company's revenue during 1998.
 
    Sales to the U.S. Mainland accounted for approximately 7% of the Company's
revenue during 1998. California, the largest U.S. market, accounted for
approximately 4% of sales. The Company's primary marketing efforts on the U.S.
Mainland are directed toward niche markets, with special emphasis on the
specialty and natural food markets. The Company believes that demand for its
product is enhanced in these markets due to consumer focus on quality and
willingness to pay a premium for products perceived as superior. An additional
niche market being cultivated by the Company is the health and fitness club
market. The Company established a foothold in this market through a sponsorship
arrangement as the "Official Bottled Water of SPINNING-TM-." SPINNING-TM- is an
indoor cycling exercise program, currently being featured in approximately 3,200
health clubs in 60 countries. Subject to available financing, an initial
marketing effort to penetrate SPINNING-TM--affiliated clubs in the Western
United States is planned for 1999.
 
    Internationally, the Company is continuing to serve the Guam market and the
Middle East through its existing distributors. In addition, in 1998, the Company
established two new distribution alliances of significance: (1) in Thailand, the
Company entered into an exclusive distribution agreement with Sahapathanapibul
Public Co., Ltd. (SAHAPAT)--a major consumer products distributor; and (2) in
Japan, the Company secured an importer relationship with Brother International,
a well-known company with wide-ranging business interests in Japan. The Company
expects to significantly expand its distribution base within both of these
countries as a result of these alliances. Both SAHAPAT and Brother International
have agreed to share a portion of the marketing expenses for the Company's
product in their respective territories. In 1998, the Company also began
shipping limited quantities of product to Taiwan.
 
    All product shipped from Hawaii to the West Coast, Asia and the Middle East
is transported by sea cargo. Product destined for inland portions of the United
States is generally transported by rail from a West Coast port. Although
transportation charges constitute a significant portion of the retail cost of
bottled water, the Company is able to benefit from favorable freight rates
available into the Company's principal target markets. Hawaii imports far more
goods (especially from the West Coast, Japan and Korea) than it exports;
therefore, freight charges on merchandise shipped from Hawaii ("backhaul") are
substantially lower than on merchandise shipped into the Islands. Even
merchandise shipped from Hawaii to inland destinations may benefit from
favorable rates ("through fares") offered by rail carriers which contract with
shippers to supply incremental cargo at a discount. As a result of favorable
freight rates enjoyed by the Company, the Company believes that its
transportation costs from Hawaii into overseas markets are often not
significantly higher than those incurred by competitors for shipping their
product within their regional markets.
 
    MARKETING.  The Company's marketing program concentrates on selling efforts
by its distributors and brokers as well as attendance at trade shows and outdoor
events. Trade shows in Asia and the U.S. Mainland have been particularly
successful in establishing contacts with distributors interested in carrying the
Company's product. In Hawaii, the Company has promoted its product through sales
to airlines, hotels, country clubs and other such customers which enhances the
visibility of the product.
 
    On the U.S. Mainland, substantial marketing and promotional expenditures are
typically required in order to obtain widespread distribution through the
largest retail outlets, such as supermarkets. Supermarkets, especially in
California, typically charge entry or "slotting fees" in exchange for
introducing new and untested products. Even after a successful introduction,
continuing expenditures for in-store promotions and coupon programs are
generally required in order to maintain shelf space for these products. Such
 
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promotional programs often need to be supported by widespread marketing
campaigns (e.g. television, radio or print advertising) which can be very
costly. The Company has lacked the financial resources required to maintain such
a mass marketing campaign. Accordingly, the Company's marketing strategy for the
U.S Mainland has been directed toward niche markets, with special emphasis on
the specialty and natural food markets. The Company has appointed three
distributors specializing in these markets in California and Texas. The Company
believes that its contacts in the specialty food arena will ultimately enable it
to secure supermarket distribution at a lower entry cost than would otherwise be
possible. A related niche market receiving attention is the health and fitness
club market. In December 1997, the Company entered into a Sponsorship Agreement
with Mad Dogg Athletics, Inc., the organizer of the aerobic bicycling movement
known as SPINNING-TM-, pursuant to which the Company's product has been
recognized as the "official water" of SPINNING-TM-. This arrangement enables the
Company to advertise its product at SPINNING-TM- events held throughout the U.S.
Mainland. The Company anticipates that it may also enable the Company to
generate distribution and sales at exercise facilities at which SPINNING-TM- is
practiced, thereby supporting the Company's entry into the health and fitness
market. The exercise program is now being featured in 3,200 health clubs in 60
countries. Subject to available financing, an initial marketing effort to
penetrate health clubs in the Western United States is planned for 1999.
Similarly, in January 1998, the Company entered into a sponsorship agreement
with Tanning Research Laboratories, Inc., organizer of the Hawaiian Tropic-TM-
Pageant, pursuant to which the Company's product was recognized as the official
bottled water of the Pageant. The Hawaiian Tropic-TM- Pageant is the second
largest beauty pageant system in the world and gives the Company advertising
exposure at over 1,700 pageant events each year as well as rights to promote its
product in conjunction with Hawaiian Tropic-TM- suntan oil.
 
    The Company's marketing strategy for the U.S. Mainland is still in the
development stage, and there can be no assurance that the programs currently
being implemented will be successful. The Company expects to evaluate the
results of its marketing strategy on an ongoing basis and to adjust or reorient
the strategy as perceived necessary in light of results achieved. The bottled
water market on the U.S. Mainland is highly competitive, and there can be no
assurance that the Company will achieve significant penetration in this market,
either through its current or any future marketing strategy.
 
    A key component of the Company's international marketing strategy has been
the development of a select number of high-impact licensing programs. The goal
is to use licensed graphics on Hawaiian Springs-TM- package labels in order to
broaden the brand's appeal. To date, the Company has secured the rights to use
Sanrio's Hello Kitty-TM- character in selected territories and the artwork of
Christian Riese Lassen on a worldwide basis. Hello Kitty-TM- is highly popular
among both young children and teenagers in the United States and Asia. Mr.
Lassen's artwork is widely known and sought after, especially in Japan. The
Company expects both licensing agreements to enhance its ability to build both
distribution and sales, especially in Asia. Both agreements have already
produced incremental sales for the Company. The Company is required to pay
royalties based upon a specified percentage of sales under both agreements.
 
    GOVERNMENTAL REGULATION; QUALITY CONTROL.  The bottled water industry is
highly regulated both in the United States and abroad. Various state and Federal
regulations, designed to ensure the quality of the product and the truthfulness
of its marketing claims, require the Company to monitor each aspect of its
production process, including its water source, its bottling operations and its
packaging and labeling practices. The Environmental Protection Agency requires a
yearly analysis of the Company's water source by a certified laboratory with
respect to a comprehensive list of contaminants (including herbicides,
pesticides, volatile chemicals and trace metals). In addition, the Hawaii
Department of Health requires weekly microbiological testing of the Company's
well water and finished product, as well as monthly inspection of its production
line.
 
    The Company's bottling facility has an on-site laboratory, where samples of
its finished product are visually and chemically tested daily. In addition, the
Company's production line is subject to constant visual
 
                                       5
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inspection. The Company believes that it meets or exceeds all applicable
regulatory standards concerning the quality of its water.
 
    The Company is also subject to regulation by the Food and Drug
Administration (the "FDA"), which regulates the Company's packaging and labeling
practices. The Company has met all FDA requirements for the labeling of its
water as "natural" and "bottled at the source." "Natural" signifies that the
chemical composition and mineral content of the bottled water are the same as
those at the source. This contrasts with "purified" water from which chemicals
and minerals have been removed by means of reverse osmosis filtration. "Bottled
at the source" signifies that the water is pumped directly from the source to
the bottling facility, thereby eliminating handling and transportation
procedures which might lead to contamination. The Company's product has also
been certified as Kosher by the Union of Orthodox Jewish Congregations of
America.
 
    In addition to U.S. regulations, the Company must meet the requirements of
foreign regulatory agencies in order to import and sell its product into other
countries. These requirements are generally similar to, and in certain respects
more stringent than, U.S. regulations. The Company believes that it is in
compliance with applicable regulations in all foreign territories where it
currently markets its product.
 
    Failure to meet applicable regulations in U.S. or foreign markets could lead
to costly recalls, loss of certification to market product or, even in the
absence of governmental action, to loss of revenue as a result of adverse market
reaction to negative publicity. See "Distribution" above.
 
    COMPETITION.  The bottled water industry is highly competitive, with
numerous competitors vying to differentiate themselves with respect to a product
often perceived as generic by consumers. Barriers to entry may be low at certain
local levels, but increase significantly at the national and international
levels because of the large marketing and transportation costs associated with
obtaining and maintaining a presence at such levels.
 
    The principal bases of competition in the industry are price, brand
recognition, water source and packaging. The Company seeks to develop brand
recognition based upon its unique water source. The Company's pricing strategy
is to price its product at or slightly below the price for other premium
international brands.
 
    The Company seeks to distribute its product in national and international
markets. In both arenas, the Company competes primarily with large, established
foreign and domestic companies, all of which have significantly greater
financial and other resources than the Company. The Company's principal foreign
competitors include Great Brands of Europe, a French company which distributes
under the "Evian," "Volvic" and "Dannon Natural Spring Water" names, and
Perrier, S.A., a French company, which distributes through its U.S. subsidiary,
The Perrier Group, under the "Arrowhead" and "Poland Spring" names, among
others. The Company's principal domestic competitors include Crystal Geyser
Water Co., a California company which distributes under the "Crystal Geyser"
name, Nora Beverage Co., a Connecticut company which distributes Canadian
sourced water under the "Naya" name, and Mountain Valley Water Co., an Arkansas
company which distributes under the "Mountain Valley" name. Most of these
national competitors seek to compete on a price basis.
 
    In Hawaii, the Company competes primarily with Evian, Crystal Geyser,
Arrowhead and certain local brands, such as Menehune. All local bottlers, except
the Company, sell "purified" municipal water, not "natural" or "spring" water.
The Company is the only producer of natural water from Hawaii. The Company
believes that it is likely to remain the only such producer, at least for some
time, because of zoning, water use and other restrictions currently in effect
which make development of a competing source difficult.
 
    EMPLOYEES.  The Company has 11 (including three part-time) employees at its
executive offices in Honolulu and 15 employees at its bottling facility in
Kea'au. The Company's employees are not unionized,
 
                                       6
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and the Company has not experienced any work stoppages or strikes as a result of
labor disputes. The Company considers its relations with its employees to be
satisfactory.
 
ITEM 2.  DESCRIPTION OF PROPERTY
 
    The Company has a leased bottling facility in Kea'au on the Big Island of
Hawaii, executive offices in Honolulu and a warehouse facility in Kea'au on the
Big Island. The Company also stores limited amounts of finished goods inventory
in temporary storage facilities located in Los Angeles, Houston and New Jersey.
All premises are occupied pursuant to lease or warehousing arrangements.
 
    The Company's bottling facility is located on approximately 14.5 acres of
land owned by Hawaii Brewery Development Co., Inc. ("HBDC"), a principal
stockholder of the Company owned by two officers and directors of the Company.
The property is located within an agricultural zone, but has been granted a
Special Use Permit for water extraction and bottling operations. The facility
itself consists of an 8,000 square foot concrete structure built in 1943. The
building has been retrofitted by the Company for its current use, which includes
the water bottling and packaging line, office and laboratory space and storage
space for raw materials and supplies, as well as a limited amount of storage
space for finished goods inventory. The facility also houses the Company's
on-site bottle manufacturing equipment. See "Item 1. Description of
Business--Bottling Operations."
 
    The Company's bottling facility and surrounding property, including the
water source and pumping equipment, are leased from HBDC pursuant to a long-term
lease agreement (the "Lease"). The Lease provides for an initial term of 50
years commencing on October 1, 1994, which may be extended at the option of the
Company for an additional 50 years. The Lease requires the Company to pay rent
to HBDC on a monthly basis at a rate equal to the greater of (i) a certain base
rent (the "Base Rent"), or (ii) 2% of the Company's net revenues, as defined.
The Base Rent is $5,000 per month during the first five years of the Lease, and
will adjust every five years thereafter based upon changes in the Consumer Price
Index in Hawaii (as defined). The Lease entitles the Company to exclusive use of
the water source; provided, however, that HBDC may draw up to 50% of the water
flow for use in beer brewing or other beverage production, but may not draw
water for the sale of natural water. The Company believes that even if HBDC were
to draw 50% of the water flow for other such purposes, the remaining 50% would
be adequate for the current and projected future needs of the Company's
business. HBDC currently conducts no other activity on the leased premises, and
the Company believes that HBDC has no current plans to conduct any such activity
in the foreseeable future.
 
    The Company's headquarters are currently located in approximately 5,500
square feet of office/ warehouse space in Honolulu. The Company leases this
space pursuant to a lease agreement providing for an initial term expiring in
September 1999, which may be extended, at the option of the Company, for an
additional three years. The Company's rental payments under this lease agreement
are approximately $4,000 per month. Effective February 1, 1999, the Company
entered into a lease agreement with respect to approximately 4,000 square feet
of warehouse space in Kea'au. This lease is for 24 months at $2,560 per month.
The Company's temporary storage facilities in Los Angeles, Houston and New
Jersey are leased on a month-to-month basis.
 
    In the opinion of management, the Company's facilities are adequately
covered by insurance.
 
ITEM 3.  LEGAL PROCEEDINGS
 
    None
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
 
    None
 
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                                    PART II
 
ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    (a) The Company's Common Stock has been quoted on the National Association
of Securities Dealers Automated Quotation System ("Nasdaq") SmallCap Market
under the symbol HNWC since the Company's initial public offering in May 1997.
The following table sets forth the high and low bid prices for the Company's
Common Stock during the periods indicated as reported by Nasdaq. These prices
reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions,
and may not represent actual transactions:
<TABLE>
<CAPTION>
                                                                                    HIGH        LOW
                                                                                  --------    --------
<S>                                                                               <C>         <C>
1998:
First Quarter..................................................................    2 15/16     1 15/16
Second Quarter.................................................................    2 1/16      1 1/4
Third Quarter..................................................................    4 3/4       1 7/16
Fourth Quarter.................................................................    4 3/8       3
 
<CAPTION>
 
                                                                                    HIGH        LOW
                                                                                  --------    --------
<S>                                                                               <C>         <C>
1997:
Second Quarter (Commencing May 12, 1997).......................................    4 5/8       3 7/8
Third Quarter..................................................................    4 1/4       3 1/8
Fourth Quarter.................................................................    3 1/2       1 7/8
</TABLE>
 
The last sales price for the Company's Common Stock, as reported by Nasdaq on
March 22, 1999, was $2 3/4.
 
    The Company has approximately 22 stockholders of record as of March 18, 1999
(which number does not include the number of stockholders whose shares are held
of record by a brokerage house or clearing agency, but does include such
brokerage house or clearing agency as one record holder).
 
    The Company has never paid any dividends on its Common Stock and does not
anticipate paying any such dividends in the foreseeable future. The Company
intends to retain any earnings it may generate in the foreseeable future to
finance the development and expansion of its business.
 
    During the year ended December 31, 1998, the Company granted to certain
employees and consultants stock options to purchase an aggregate of 273,525
shares of Common Stock at an exercise price of $4.00 per share. Of these
options, an aggregate of 30,000 (plus an additional 3,600 granted in 1997) were
forfeited unexercised as of year end. The Company also granted options to
purchase an aggregate of 40,000 shares of Common Stock in connection with the
termination of certain distribution arrangements. In addition, in July 1998, the
Company issued 100,000 shares of Common Stock to its financial public relations
advisor and granted to such advisor options to purchase an aggregate of 565,000
shares of Common Stock at exercise prices ranging from $2.50 to $6.00 per share.
See Note 8 to the Financial Statements. All of the foregoing transactions were
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2) thereof and the rules and regulations thereunder.
 
    (b) The Company completed its initial public offering (the "IPO") in May
1997, raising approximately $7,600,000, net of underwriting discounts and
expenses of the offering. Out of these net proceeds, as previously reported, the
Company repaid indebtedness of approximately $628,000 (including accrued
interest) to affiliates and an additional $1,804,000 (including accrued
interest) to unaffiliated parties. An additional $115,000 was used to pay
deferred compensation and consulting fees. The net cash proceeds of the IPO,
after payment of the foregoing obligations was approximately $5.05 million.
 
    Subsequent to the completion of the IPO through December 31, 1998, the
Company purchased approximately $960,000 in additional machinery and equipment,
primarily for use at its bottling facility. All
 
                                       8
<PAGE>
of these purchases, except $9,000, were made from unaffiliated parties. In
addition, as previously reported, on September 30, 1997, the Company purchased
the bottle making equipment installed at its bottling facility from Bottles
Packaging, Inc. ("BPI") for an aggregate of $1,200,000, of which $375,000 was
paid in cash on or before the closing and the balance ($825,000) was paid
through the issuance of a promissory note, payable over five years. As of
December 31, 1998, aggregate payments of $206,250 had been made pursuant to this
note. Nathan Keller, a director of the Company at the time of this transaction,
is the chief financial officer of BPI.
 
    The Company sustained significant losses subsequent to the IPO, which were
funded by the proceeds of the IPO. As of December 31, 1998, the Company had
approximately $320,000 in cash proceeds remaining from the IPO.
 
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
    THE FOLLOWING DISCUSSION MAY BE DEEMED TO CONTAIN CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, AS INDICATED BY THE USE OF TERMS SUCH AS "MAY," "WILL," "EXPECT,"
"BELIEVE," "ESTIMATE," "ANTICIPATE," "INTEND" OR OTHER SIMILAR TERMS OR THE
NEGATIVE OF SUCH TERMS. FORWARD-LOOKING STATEMENTS CONTAINED HEREIN MAY INCLUDE,
WITHOUT LIMITATION, STATEMENTS CONCERNING: ANTICIPATED CHANGES IN REVENUE, COST
OF MATERIALS, EXPENSE ITEMS, INCOME OR LOSS, EARNINGS OR LOSS PER SHARE, CAPITAL
EXPENDITURES, CAPITAL STRUCTURE AND OTHER FINANCIAL ITEMS; PLANS OR OBJECTIVES
OF THE COMPANY WITH RESPECT TO THE COMPANY'S GROWTH STRATEGY, INTRODUCTION OF
NEW PRODUCTS, AND PROPOSED ACQUISITIONS OF ASSETS OR BUSINESSES; POSSIBLE
ACTIONS BY CUSTOMERS, SUPPLIERS, COMPETITORS OR REGULATORY AUTHORITIES; AND
ASSUMPTIONS UNDERLYING THE FOREGOING. THESE FORWARD-LOOKING STATEMENTS ARE BASED
UPON THE COMPANY'S CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES, INCLUDING WITHOUT LIMITATION: THE PROSPECT FOR CONTINUING LOSSES
AND THE COMPANY'S POSSIBLE INABILITY TO CONTINUE AS A GOING CONCERN BASED UPON
ITS EXISTING CAPITAL RESOURCES; THE COMPANY'S NEED FOR ADDITIONAL CAPITAL AND
THE POSSIBLE UNAVAILABILITY OF SUCH CAPITAL ON ACCEPTABLE TERMS AND CONDITIONS;
POSSIBLE ADVERSE CONDITIONS, INCLUDING VOLATILITY, IN THE MARKET FOR THE
COMPANY'S SECURITIES AND THE POSSIBLE ADVERSE IMPACT OF SUCH CONDITIONS ON THE
COMPANY'S ABILITY TO RAISE ADDITIONAL CAPITAL AS NEEDED; POSSIBLE ADVERSE
CHANGES IN THE MARKET FOR THE COMPANY'S PRODUCTS, INCLUDING AS A RESULT OF
ADVERSE ECONOMIC CONDITIONS, SUCH AS THOSE CURRENTLY AFFECTING CERTAIN FOREIGN
TARGET MARKETS; POSSIBLE ADVERSE EFFECTS OF CHANGES IN CURRENCY EXCHANGE RATES;
POSSIBLE ADVERSE CHANGES IN THE COMPANY'S DISTRIBUTOR NETWORK; POSSIBLE ADVERSE
DEVELOPMENTS IN THE EXECUTION OF THE COMPANY'S EXISTING BUSINESS STRATEGY OR IN
THE IMPLEMENTATION OF CHANGES THERETO; POSSIBLE ADVERSE CHANGES IN THE COMPANY'S
COST OF MATERIALS OR SOURCES OF SUPPLY; POSSIBLE ADVERSE DEVELOPMENTS IN THE
COMPANY'S ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL; POSSIBLE ADVERSE
DEVELOPMENTS IN GOVERNMENTAL REGULATION IN THE U.S. OR ABROAD; AND POSSIBLE
ADVERSE DEVELOPMENTS IN THE COMPETITIVE ENVIRONMENT FOR THE COMPANY'S PRODUCT.
MANY OF THESE RISKS AND UNCERTAINTIES ARE BEYOND THE ABILITY OF THE COMPANY TO
PREDICT OR CONTROL. SHOULD ANY UNANTICIPATED CHANGES OCCUR IN THE COMPANY'S
BUSINESS, OR SHOULD MANAGEMENT'S OPERATING ASSUMPTIONS PROVE INCORRECT, THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
THESE FORWARD-LOOKING STATEMENTS.
 
                                       9
<PAGE>
RESULTS OF OPERATIONS
 
    YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
 
    NET SALES.  Net Sales increased approximately 73% to approximately
$1,810,000 for the fiscal year ended December 31, 1998 ("1998") from
approximately $1,049,000 for the fiscal year ended December 31, 1997 ("1997").
The increase in net revenues in 1998 was due primarily to a 105% increase in
unit sales to approximately 309,000 cases in 1998 from approximately 151,000
cases in 1997. The average net sales price per case decreased approximately 16%
in 1998 compared to 1997, due to promotional allowances and discounts at ABC
stores, a major convenience store chain on Waikiki, which accounted for a
significant portion of the Company's sales increase in the Hawaiian market in
the second half of 1998. Sales in the Hawaiian market accounted for
approximately 76% of net sales in 1998, compared to approximately 78% in 1997.
International sales accounted for approximately 17% of net sales in 1998,
compared to approximately 14% in 1997. Sales to the U.S. Mainland accounted for
approximately 7% of net sales in 1998, compared to approximately 8% in 1997. The
Company's expansion strategy emphasizes growth in international sales as well as
growth on the U.S. Mainland. Prospects in international markets were
substantially enhanced in 1998 through the addition of distribution alliances
with major companies in Thailand and Japan. The Company expects a significant
increase in international sales in 1999 as a result of these relationships. The
Company is also developing a marketing program for Taiwan in 1999. The Company
believes that the long term outlook for its product in Asia is excellent and
continues to seek opportunities in these markets. On the U.S. Mainland, the
Company has planned a new initiative in the health and fitness market for 1999,
subject to available financing. See "Item 1. Description of Business--
Distribution."
 
    COST OF SALES.  The Company's aggregate cost of sales increased
approximately 36% in 1998 compared to 1997, despite a 105% increase in unit
sales. The primary component in Cost of Sales is the cost of finished bottles.
The average cost per bottle declined approximately 33% in 1998 compared to 1997
due to lower unit costs of bottle pre-forms, labels, packaging costs and labor.
These direct cost reductions were partially offset by increased depreciation,
warehouse rent and utilities. For 1998, the Company's bottling facility operated
at only 39% of normal capacity. The Company anticipates continued excess
capacity until such time, if any, as sales increase significantly. See Note 3 to
the Financial Statements.
 
    EXPENSES.  Selling and marketing expenses increased approximately 23% to
approximately $982,000 in 1998 from approximately $801,000 in 1997, primarily as
a result of an increase in marketing personnel and related compensation,
advertising and promotional expenses and package development expenses, offset by
a reduction in consulting expenses. The Company utilized significant consulting
services in 1997 in the development of its marketing and distribution strategy.
The Company has reduced or terminated most of these consulting arrangements,
eliminating certain services and converting some consultants to employees.
However, the Company expects advertising and promotional expenses to increase in
an effort to penetrate the U.S. Mainland and overseas markets.
 
    General and administrative expenses increased approximately 25% to
approximately $1,266,000 in 1998 from approximately $1,013,000 in 1997. The
majority of this increase was due to increased compensation expense resulting
from the employment of a Vice President of Operations, and from increases in
legal and accounting expenses resulting from the Company's transition to public
company status in May 1997 and from the need for additional services in
connection with various attempted financing and acquisition activities. These
additional expenses were partially offset by certain settlement proceeds
received upon termination of U.S. Mainland distributor. See Note 7 to the
Financial Statements.
 
    OTHER INCOME (EXPENSE).  Investor relations expense in 1998 was due to the
engagement of the Company's financial public relations advisor in July 1998. The
Company issued to such advisor, as its sole compensation, 100,000 shares of
Common Stock and options to purchase an aggregate of 565,000 additional shares
of Common Stock. The Company recorded the fair market value of such securities
as a
 
                                       10
<PAGE>
charge to income in the third quarter of 1998. See Note 8 to the Financial
Statements. Interest income (expense) decreased to approximately $(25,000) in
1998 from approximately $(315,000) in 1997. Interest expense in 1997 was due
primarily to expenses, including amortization of deferred loan costs and
original issue discount, associated with the Bridge Financing completed in
October 1996. See Note 4a to the Financial Statements. All of the indebtedness
incurred in connection with the Bridge Financing, as well as all other
indebtedness of the Company (other than trade payables), was repaid out of the
proceeds of the Company's initial public offering in May 1997. The Company
currently has no long-term indebtedness, other than the promissory note to BPI
(see "Liquidity and Capital Resources" below) and minor amounts due pursuant to
capital equipment leases.
 
    NET LOSS AND NET LOSS PER SHARE.  Due to the foregoing, the Company incurred
a net loss of $3,266,452, or $(.83) per share, in 1998 compared to a net loss of
$2,581,570 or $(.85) per share, in 1997. Weighted average shares outstanding
increased to 3,949,454 in 1998 from 3,038,664 in 1997. The Company expects to
continue to generate losses until such time, if any, as it achieves
significantly higher sales levels.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    In May 1997, the Company completed an initial public offering (the"IPO") of
2,300,000 Units (including 300,000 Units subject to the Underwriter's
over-allotment option) at $4.00 per Unit, yielding aggregate net proceeds of
approximately $7,600,000, net of underwriting discounts and expenses of the
offering. Each Unit consisted of one share of Common Stock and one Redeemable
Common Stock Purchase Warrant. The Company utilized a portion of the net
proceeds of the IPO to repay indebtedness (including accrued interest) of
approximately $628,000 to affiliates and an additional $1,804,000 to
unaffiliated parties (including all obligations related to the Bridge
Financing). An additional $115,000 was used to pay deferred compensation and
consulting fees. The Company's cash position increased from approximately nil
immediately prior to the IPO to approximately $5.05 million immediately
thereafter, after payment of the foregoing obligations.
 
    Subsequent to completion of the IPO through December 31, 1998, the Company
purchased approximately $960,000 in machinery and equipment and, in September
1997, also purchased the bottle making equipment installed at its bottling
facility from Bottles Packaging, Inc. ("BPI") for an aggregate of $1,200,000 in
cash and promissory notes, of which an aggregate of $581,250 had been paid as of
December 31, 1998. All of these purchases were made out of the net proceeds of
the IPO. The net proceeds of the IPO were also used to fund significant
operating losses. As of December 31, 1998, the Company had approximately
$320,000 in cash proceeds remaining from the IPO. This amount was not
sufficient, in light of anticipated future losses, to fund the Company's ongoing
operations.
 
    In January 1999, the Company received $125,000 upon the exercise of certain
options previously granted to its financial public relations advisor, 8607
Colonial Group, Inc. ("Colonial"). Colonial currently holds unexercised options
to purchase an additional 515,000 shares of Common Stock at exercise prices
ranging from $2.50 to $6.00 per share. See Note 8 to the Financial Statements.
Any exercise of such options is solely within the discretion of Colonial. The
Company is unable to predict whether or when Colonial will exercise any of such
options.
 
    In March 1999, the Company completed the first $750,000 installment of an
aggregate $1.25 Million private offering of Series A Convertible Preferred Stock
(the "Series A Preferred") and warrant (the "Warrant") to purchase an additional
100,000 shares of Common Stock of the Company. See Note 13b to the Financial
Statements. The offering was placed with a single institutional investor (the
"Series A Investor"). The net proceeds of the first installment were
approximately $650,000, after the payment of financial advisory fees and other
expenses of the offering. The Series A Investor has committed to fund a second
installment of $500,000, subject to certain closing conditions, including the
effectiveness of a registration statement covering the shares of Common Stock
underlying the Series A Preferred and the Warrant. The Company has agreed to
file a registration statement with the Securities and Exchange
 
                                       11
<PAGE>
Commission covering such shares and to use its best efforts to cause the
registration statement to become effective within 90 days. The Company estimates
the anticipated net proceeds of the second installment at approximately
$450,000, net of financial advisory fees and related offering expenses,
including anticipated expenses of the foregoing registration. The Company
intends to use the net proceeds of the offering primarily for working capital
but may apply a portion of the proceeds to the acquisition of other beverage
assets or businesses, if circumstances warrant in light of operating results and
the availability of other capital resources. The Company believes that the net
proceeds of the offering, if applied solely to working capital, could be
sufficient to fund operations for at least six months. The Company does not
currently anticipate achieving profitability by such date.
 
    As shown in the accompanying financial statements, the Company has incurred
significant losses and negative cash flows since inception. Management expects
that the Company will continue to incur additional losses and negative cash
flows until the Company achieves significantly higher levels of sales. Based
upon its current business plan, the Company does not anticipate achieving such
sales levels prior to exhausting the capital resources currently available to
it. As such, there is substantial doubt about whether the Company can continue
as a going concern. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern. The Company is currently
evaluating the financing alternatives available to it and soliciting capital
from a number of sources. However, there can be no assurance that any additional
financing will become available to the Company. The Company does not anticipate
obtaining bank financing and does not expect any affiliate to lend or invest any
additional funds to or in the Company or guarantee any indebtedness of the
Company. Any future financing could involve the issuance of additional
convertible preferred stock, possibly at a discounted conversion price to then
current market price of the Common Stock. The Series A Investor has been granted
a right of first refusal with respect to certain future financings. The Company
is also continuing to evaluate various strategic alternatives, including the
launch of new products, revisions to the Company's marketing plan, acquisitions
and other strategies. However, there can be no assurance that any of these
strategic alternatives will be implemented or that, if implemented, they will
enable the Company to achieve profitability or positive cash flow.
 
    The Company financed most of its original equipment purchases through a
capital lease agreement with First Hawaiian Leasing, Inc., Honolulu, Hawaii,
entered into in March 1995. This agreement has a term of five years and provides
for up to $200,000 in equipment purchases. The depreciated cost of equipment
purchased under this agreement was approximately $110,000 at December 31, 1998.
The current portion of the lease liability was approximately $47,000 at that
date. The Company's obligations under this lease agreement are personally
guaranteed by certain directors and an affiliate of the Company.
 
    The Company had capital expenditures of approximately $840,000 in 1997,
including the initial cash payment on the purchase of its bottling equipment
(see Note 3 to the Financial Statements), and approximately $352,000 in 1998. As
of December 31, 1998, the Company owed an aggregate of $618,750 on its bottling
equipment, payable in monthly installments of $13,750 through September 1999,
and in three annual installments of $165,000 (plus accrued interest) thereafter.
As of December 31, 1998 the Company owed approximately an additional $70,000 on
other equipment, primarily its five liter bottling line. As a result of
additions and enhancements to date, the Company's bottling operations are now
substantially automated. Further, because the Company's bottling facility is
operating substantially below normal capacity (an average of 39% in 1998), the
Company can increase output significantly without additional investment in new
equipment. However, the Company is currently contemplating up to $75,000 for
further enhancements to its bottling line in 1999, and up to $150,000 for the
construction of a new warehouse facility, subject to receipt of additional
financing. Additional improvements not considered essential to the Company's
current operations may be implemented if and when sufficient funds become
available. The Company is considering extending its product line by entering the
home and office delivery market, either
 
                                       12
<PAGE>
independently or through the acquisition of an existing bottler. Any such
extension would require substantial additional capital investment.
 
    Net operating loss carryforwards available to offset future taxable income
were approximately $6.9 million as of December 31, 1998. The Company is subject
to Internal Revenue Code Section 382, which limits the Company's ability to
utilize net operating losses generated prior to the close of the IPO
(approximately $2.9 million). The annual net operating loss limitation under
Section 382 is approximately $361,000.
 
YEAR 2000 READINESS DISCLOSURE
 
    All statements contained in the following section are "Year 2000 Readiness
Disclosures" within the meaning of the Year 2000 Information and Disclosure Act.
 
    The Year 2000 issue (the "Year 2000 Issue") in computers arises from the
common industry practice of using two digits to represent a date in computer
software code and databases to enhance both processing time and save storage
space. Therefore, when dates in theYear 2000 and beyond are indicated and
computer programs read the date "00", the computer may default to the year
"1900" rather than the correct "2000." This could result in incorrect
calculations, faulty data and computer shutdowns, which would cause disruptions
of operations. In addition, the year 2000 is a leap year and systems need to
recognize it as such.
 
    The Company has developed a multi-phase program for Year 2000 Issues that
consists of the following: (1) assessment of the corporate systems and
operations of the Company that could be affected by the Year 2000 Issue, (2)
remediation of non-compliant systems and components, if any, and (3) testing of
systems and components following remediation. The Company has focused its Year
2000 compliance assessment program on three principal areas: (a) the Company's
internal information technology system applications, including voice and data
systems ("IT Systems"), (b) the Company's internal non-IT facilities systems,
including embedded software in environmental controls, security systems, fire
protection systems, and public utility connections for gas, electric and
telephone systems ("Facilities Systems"), and (c) Year 2000 compliance by third
parties with which the Company has a material relationship, such as significant
customers, vendors, financial institutions and insurers.
 
    The Company has completed an inventory and risk assessment of its own
internal IT Systems, Facilities Systems, and Equipment that it believes could be
adversely affected by the Year 2000 Issue, and believes (except for certain
computer accounting software upgrades to be purchased in 1999) that its own
internal systems are, at the present time, substantially compliant based upon
internal system tests, currently available information and reasonable assurance
by its equipment and software vendors. The cost to remediate the Year 2000
Issues with regard to the Company's IT Facility Systems and Equipment is not
material.
 
    In 1999, the Company plans to begin sending questionnaires to and/or
contacting its outside vendors and customers regarding their state of readiness
with respect to identifying and remediating their Year 2000 Issues. It is not
possible for the Company to determine or be assured that adequate remediation of
the Year 2000 Issue will be accomplished by such vendors and customers.
Furthermore, it is not possible for the Company to determine or be assured that
third parties upon which the Company's vendors are dependent, will accomplish
adequate remediation of their Year 2000 Issue. Except for the Company's public
utility service vendors, who have indicated that they expect to be in compliance
by mid-1999, the Company believes that, with respect to the computer systems of
its major outside vendors, should a Year 2000 Issue exist preventing a vendor
from addressing the Company's needs, alternative vendors have been identified
and are readily available that could furnish the Company with the same or
similar supplies or services at substantially the same cost. However, there can
be no assurance that a major Year 2000 Issue experienced by a customer would not
materially impact the Company's operations.
 
                                       13
<PAGE>
SEASONALITY
 
    The Company believes that its business is subject to seasonal variations.
For obvious reasons, demand for bottled water in any given market tends to be
higher during the summer months than during the winter. However, the Company
expects these seasonal effects to be moderated by concurrent sales into a
variety of different markets worldwide, all of which may not have the same
summer season. Moreover, several of the Company's target markets, such as
California and the Middle East, have hot or mild temperatures throughout the
year.
 
CURRENCY FLUCTUATIONS
 
    The Company is not directly affected by currency fluctuations in overseas
markets, since all of the Company's sales are quoted in U.S. dollars. However,
currency fluctuations can adversely affect the demand for the Company's product
in foreign markets by increasing the price of the product in local currency. To
date, the Company has not been prevented from expanding distribution into its
primary target markets in Asia as a result of the strength of the U.S. dollar
relative to local currencies. However, further strengthening of the U.S. dollar
could negatively impact developments in these markets.
 
ITEM 7.  FINANCIAL STATEMENTS
 
    The Financial Statements required by this Item are attached hereto,
commencing on page F-2.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
    QUANTITATIVE DISCLOSURES.  The Company is exposed to certain market risks
associated with interest rate fluctuations on its borrowing arrangements. All
borrowing arrangements are entered into for purposes other than trading. The
Company is not subject to risks from currency rate fluctuations, except as
described above. See "Item 6. Management's Discussion and Analysis or Plan of
Operation--Currency Fluctuations". The Company does not utilize hedging
contracts or similar instruments.
 
    The Company's exposure to interest rate risk arises from financial
instruments entered into in the normal course of business. The Company's
borrowings bear interest at fixed annual rates. Changes in interest rates
generally affect the fair value of such borrowings, but do not have an impact on
earnings or cash flows. Because of the uncertainty with respect to the Company's
ability to continue as a going concern, the fair value of the Company's
financial instruments may be significantly different than their respective
carrying values as of December 31, 1998.
 
    QUALITATIVE DISCLOSURES.  The Company's primary exposures relate to (1)
interest rate risk on its borrowings, (2) the Company's ability to pay or
refinance its borrowings at maturity at market rates, and (3) the impact of
interest rate movements on the Company's ability to obtain adequate financing to
fund future cash requirements. The Company manages interest rate risk on its
outstanding borrowings by using fixed rate debt. While the Company can not
predict or manage its ability to refinance existing borrowings or the impact of
interest rate movements will have on its existing borrowings, management
evaluates the Company's financial position on an ongoing basis.
 
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
    None
 
                                       14
<PAGE>
                                    PART III
 
ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
 
    The information required by this Item is incorporated herein by reference to
the Company's Definitive Proxy Statement (the "Proxy Statement"), to be filed
with the Securities and Exchange Commission (the "Commission") pursuant to
Regulation 14A in connection with the Company's 1998 Annual Meeting of
Stockholders, under the headings "Election of Directors" and "Management."
 
ITEM 10.  EXECUTIVE COMPENSATION.
 
    The information required by this Item is incorporated herein by reference to
the Proxy Statement under the heading "Executive Compensation."
 
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
    The information required by this Item is incorporated herein by reference to
the Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
 
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
    The information required by this Item is incorporated herein by reference to
the Proxy Statement under the heading "Certain Transactions."
 
ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K
 
    (a) Exhibits
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                   DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
       3.1   Articles of Incorporation, as amended, of the Registrant
 
       3.2   By-Laws, as amended, of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant's
             Annual Report on Form 10-KSB for the year ended December 31, 1997 (the "1997 10-K"))
 
       4.1   Specimen Stock Certificate for the Registrant's Common Stock (Incorporated by reference to Exhibit 4.1
             to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 (the "June 1997
             10-Q"))
 
       4.2   Specimen Stock Certificate for the Registrant's Series A Convertible Preferred Stock (Incorporated by
             reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated March 12, 1999 (the "March
             1999 8-K"))
 
       4.3   Warrant Agreement between the Registrant and Continental Stock Transfer & Trust Company, as Warrant
             Agent (Incorporated by reference to Exhibit 4.2 to the June 1997 10-Q)
 
       4.4   Specimen Public Warrant Certificate (Incorporated by reference to Exhibit 4.3 to the June 1997 10-Q)
 
       4.5   Underwriter's Warrant Agreement between the Registrant and Joseph Stevens & Company, Inc. (Incorporated
             by reference to Exhibit 4.4 to the June 1997 10-Q)
 
       4.6   Underwriter's Warrant Certificate (Incorporated by reference to Exhibit 4.5 to the June 1997 10-Q)
 
       4.7   Form of Bridge Warrant (Incorporated by reference to Exhibit 4.5 to the Registrant's registration
             statement on Form SB-2 (File No. 333-18289 (the "Form SB-2"))
</TABLE>
 
                                       15
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                   DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
       4.8   Warrant Agreement between the Registrant and Amro International, S.A. (Incorporated by reference to
             Exhibit 4.3 to the March 1999 8-K)
 
       4.9   Form of Lock-Up Agreement between Joseph Stevens & Company, Inc. and each of the Selling Securityholders
             registering securities pursuant to the Form SB-2 (Incorporated by reference to Exhibit 4.6 to the Form
             SB-2)
 
       4.10  Form of Lock-Up Agreement between Joseph Stevens & Company, Inc., and certain officers, directors and
             stockholders of the Registrant (Incorporated by reference to Exhibit 4.7 to the June 1997 10-Q)
 
      10.1   Lease Agreement dated October 3, 1994, as amended, between the Registrant as Lessee and Hawaii Brewery
             Development Co., Inc. as Lessor (Incorporated by reference to Exhibit 10.1 to the Form SB-2)
 
      10.2   Blow Molding Agreement dated December 1, 1995, between the Registrant and Bottles Packaging, Inc.
             ("BPI") (Incorporated by reference to Exhibit 10.2 to the Form SB-2)
 
      10.3   Master Lease Agreement No. A2500, dated December 8, 1994, between the Registrant and First Hawaiian
             Leasing and related agreements (Incorporated by reference to Exhibit 10.4 to the Form SB-2)
 
      10.4   Employment Agreement, dated October 10, 1996, between the Registrant and Marcus Bender (Incorporated by
             reference to Exhibit 10.5 to the Form SB-2)
 
      10.5   Stock Option Agreement, dated October 10, 1996, between the Registrant and Marcus Bender (Incorporated
             by reference to Exhibit 10.6 to the Form SB-2)
 
      10.6   Stock Option Agreement, dated September 17, 1997, between the Registrant and David K. Laeha
             (Incorporated by reference to Exhibit 10.7 to the 1997 10-K)
 
      10.7   1998 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report
             on Form 10-QSB for the quarter ended June 30, 1998 (the "June 1998 10-Q"))
 
      10.8   Form of Bridge Note (Incorporated by reference to Exhibit 10.8 to the Form SB-2)
 
      10.9   Form of Promissory Note evidencing an aggregate of $407,715 in principal amount of indebtedness of the
             Registrant to certain of its affiliates (Incorporated by reference to Exhibit 10.9 to the Form SB-2)
 
      10.10  Promissory Note dated May 24, 1995, in the original principal amount of $100,000 payable by the
             Registrant to Inter Island Petroleum, Inc. (Incorporated by reference to Exhibit 10.10 to Form SB-2)
 
      10.11  Letter Agreement dated August 1, 1996, between the Registrant and com.com Inc. (Incorporated by
             reference to Exhibit 10.11 to the Form SB-2)
 
      10.12  Form of Promissory Note evidencing an aggregate of $75,000 in principal amount of indebtedness of the
             Registrant to certain of its affiliates (Incorporated by reference to Exhibit 10.12 to the Form SB-2)
 
      10.13  Promissory Note dated April 15, 1997, in the original principal amount of $100,000 payable by the
             Registrant to Joseph Stevens & Company, Inc. (Incorporated by reference to Exhibit 10.13 to the Form
             SB-2)
 
      10.14  Form of Cancellation Agreement between the Registrant and certain holders of an aggregate of 106,500
             Bridge Warrants (Incorporated by reference to Exhibit 10.14 to the Form SB-2)
</TABLE>
 
                                       16
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                   DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
      10.15  Underwriting Agreement between the Registrant and Joseph Stevens & Company, Inc. (Incorporated by
             reference to Exhibit 10.1 to the June 1997 10-Q)
 
      10.16  Financial Advisory and Consulting Agreement between the Registrant and Joseph Stevens & Company, Inc.
             (Incorporated by reference to Exhibit 10.2 to the June 1997 10-Q)
 
      10.17  Asset Purchase Agreement between the Registrant and Bottles Packaging, Inc. ("BPI") (Incorporated by
             reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated October 7, 1997 (the
             "October 1997 8-K"))
 
      10.18  Bill of Sale between the Registrant and BPI evidencing the transfer of assets pursuant to the Asset
             Purchase Agreement (Incorporated by reference to Exhibit 10.2 to the October 1997 8-K)
 
      10.19  Promissory Note evidencing an aggregate of $825,000 in indebtedness of the Registrant to BPI in
             connection with the Asset Purchase Agreement (Incorporated by reference to Exhibit 10.3 to the October
             1997 8-K)
 
      10.20  Security Agreement between the registrant and BPI securing the obligations of the Registrant to BPI
             under the Promissory Note (Incorporated by reference to Exhibit 10.4 to the October 1997 8-K)
 
      10.21  Letter Agreement between the Registrant and 8607 Colonial Group, Inc. ("Colonial") (Incorporated by
             reference to Exhibit 99.1 to the June 1998 10-Q)
 
      10.22  Option Agreement between the Registrant and Colonial (Incorporated by reference to Exhibit 4.2 to the
             Registrant's registration statement on Form S-3 (File No. 333-63827))
 
      21     Subsidiaries--None
 
      23.1   Consent of Arthur Andersen LLP
 
      27.1   Financial Data Schedule
</TABLE>
 
    (b) Reports on Form 8-K
 
    None
 
                                       17
<PAGE>
                                   SIGNATURES
 
    In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
<TABLE>
<S>                             <C>  <C>
                                HAWAIIAN NATURAL WATER COMPANY, INC.
                                (REGISTRANT)
 
                                By:              /s/ MARCUS BENDER
                                     -----------------------------------------
                                                   Marcus Bender
                                        PRESIDENT & CHIEF EXECUTIVE OFFICER
</TABLE>
 
    In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
 
<TABLE>
<CAPTION>
             NAME                         TITLE                    DATE
------------------------------  --------------------------  -------------------
 
<C>                             <S>                         <C>
      /s/ MARCUS BENDER
------------------------------  Chief Executive Officer       March 29, 1999
        Marcus Bender             and Director
 
       /s/ DAVID LAEHA
------------------------------  Chief Financial Officer       March 29, 1999
         David Laeha
 
      /s/ BRIAN BARBATA
------------------------------  Director                      March 29, 1999
        Brian Barbata
 
    /s/ KEIJIRO SORIMACHI
------------------------------  Director                      March 29, 1999
      Keijiro Sorimachi
 
     /s/ MICHAEL CHAGAMI
------------------------------  Director                      March 29, 1999
       Michael Chagami
</TABLE>
 
                                       18
<PAGE>
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                                                     <C>
Report of Independent Public Accountants..............................................        F-1
 
Balance Sheet--December 31, 1998......................................................        F-2
 
Statements of Operations For the Years Ended December 31, 1998 and 1997...............        F-3
 
Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1998 and
  1997................................................................................        F-4
 
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997...............        F-5
 
Notes to Financial Statements--December 31, 1998......................................        F-6
</TABLE>
 
                                       19
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Stockholders and Board of Directors of Hawaiian Natural Water Company,
Inc.:
 
    We have audited the accompanying balance sheet of HAWAIIAN NATURAL WATER
COMPANY, INC., (a Hawaii corporation) as of December 31, 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the two years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hawaiian Natural Water
Company, Inc. as of December 31, 1998, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
 
    The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and negative cash flows that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
                                          ARTHUR ANDERSEN LLP
 
Honolulu, Hawaii
March 12, 1999
 
                                      F-1
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                        BALANCE SHEET--DECEMBER 31, 1998
 
<TABLE>
<S>                                                                               <C>
                                           ASSETS
 
CURRENT ASSETS:
  Cash and cash equivalents.....................................................  $  320,289
  Trade accounts receivable, net of allowance for doubtful accounts of
    $19,109.....................................................................     235,047
  Inventories...................................................................     386,222
  Other current assets..........................................................      87,503
                                                                                  ----------
      Total current assets......................................................   1,029,061
                                                                                  ----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of
  $394,092......................................................................   1,944,256
DEPOSITS ON EQUIPMENT...........................................................      47,238
                                                                                  ----------
      Total assets..............................................................  $3,020,555
                                                                                  ----------
                                                                                  ----------
 
                            LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
  Accounts payable..............................................................  $  504,682
  Accrued professional fees.....................................................      73,655
  Accrued vacation..............................................................      45,525
  Accrued commissions and billbacks.............................................      98,686
  Accrued promotional expenses..................................................      44,736
  Accrued other.................................................................      47,117
  Notes payable.................................................................      74,041
  Capital lease obligation......................................................      47,455
                                                                                  ----------
      Total current liabilities.................................................     935,897
                                                                                  ----------
 
NON-CURRENT LIABILITIES:
  Notes payable--net of current portion.........................................     444,872
  Capital lease obligation--net of current portion..............................       1,132
                                                                                  ----------
      Total non-current liabilities.............................................     446,004
                                                                                  ----------
      Total liabilities.........................................................   1,381,901
                                                                                  ----------
 
COMMITMENTS AND CONTINGENCIES
 
STOCKHOLDERS' EQUITY:
  Preferred stock, $1 par value:
    Authorized--5,000,000 shares
    Issued and outstanding--no shares...........................................          --
  Common stock, no par value:
    Authorized--20,000,000 shares
    Issued and outstanding--4,024,563 shares....................................   6,693,062
  Common stock warrants and options:
    Issued and outstanding--3,757,959...........................................   2,841,329
  Accumulated deficit...........................................................  (7,895,737)
                                                                                  ----------
      Total stockholders' equity................................................   1,638,654
                                                                                  ----------
      Total liabilities and stockholders' equity................................  $3,020,555
                                                                                  ----------
                                                                                  ----------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-2
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                            STATEMENTS OF OPERATIONS
 
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                                          1998           1997
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
NET SALES...........................................................................  $   1,809,730  $   1,048,806
COST OF SALES.......................................................................      1,680,381      1,232,502
                                                                                      -------------  -------------
    Gross margin....................................................................        129,349       (183,696)
EXPENSES:
  General and administrative........................................................      1,266,158      1,013,264
  Selling and marketing.............................................................        982,118        801,035
                                                                                      -------------  -------------
                                                                                          2,248,276      1,814,299
                                                                                      -------------  -------------
OPERATING LOSS......................................................................     (2,118,927)    (1,997,995)
OTHER INCOME (EXPENSE):
  Investor relations expense........................................................     (1,122,913)            --
  Interest income...................................................................         71,829        130,014
  Interest expense..................................................................        (96,441)      (444,779)
                                                                                      -------------  -------------
                                                                                         (1,147,525)      (314,765)
                                                                                      -------------  -------------
Net loss before extraordinary item..................................................     (3,266,452)    (2,312,760)
EXTRAORDINARY ITEM--
  Loss on extinguishment of debt....................................................             --       (268,810)
                                                                                      -------------  -------------
NET LOSS............................................................................  $  (3,266,452) $  (2,581,570)
                                                                                      -------------  -------------
                                                                                      -------------  -------------
BASIC AND DILUTED NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM......................  $       (0.83) $       (0.76)
EXTRAORDINARY ITEM..................................................................             --  $       (0.09)
                                                                                      -------------  -------------
BASIC AND DILUTED NET LOSS PER SHARE................................................  $       (0.83) $       (0.85)
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-3
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
 
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                 COMMON STOCK WARRANTS
                                            COMMON STOCK              AND OPTIONS                         TOTAL
                                       -----------------------  -----------------------                STOCKHOLDERS'
                                       NUMBER OF                NUMBER OF                ACCUMULATED      EQUITY
                                         SHARES      AMOUNT       SHARES      AMOUNT       DEFICIT      (DEFICIT)
                                       ----------  -----------  ----------  -----------  ------------  ------------
<S>                                    <C>         <C>          <C>         <C>          <C>           <C>
BALANCE, December 31, 1996...........   1,599,212  $   442,293     774,351  $   187,500  $ (2,047,715)  $(1,417,922)
Cancellation of bridge warrants,
  April 15, 1997.....................          --       26,625    (106,500)     (26,625)           --           --
Sale of shares of common stock and
  common stock warrants,
  May 15, 1997.......................   2,000,000    4,947,661   2,000,000    1,462,641            --    6,410,302
Issuance of underwriter common stock
  warrants,
  May 15, 1997.......................          --           --     200,000      146,264            --      146,264
Sale of common stock and common stock
  warrants,
  May 15, 1997.......................     300,000      922,149     300,000      219,396            --    1,141,545
Issuance of stock options to
  consultants........................          --           --      20,503       35,441            --       35,441
Forfeitures of stock options.........          --           --     (18,044)     (24,071)           --      (24,071)
Net loss.............................          --           --          --           --    (2,581,570)  (2,581,570)
                                       ----------  -----------  ----------  -----------  ------------  ------------
BALANCE, December 31, 1997...........   3,899,212    6,338,728   3,170,310    2,000,546    (4,629,285)   3,709,989
 
Issuance of common stock
  July 31, 1998......................     100,000      350,000          --           --            --      350,000
  October 1, 1998....................       1,000        4,312          --           --            --        4,312
Exercise of warrants
  September 2, 1998..................      24,351           22     (24,351)          --            --           22
Issuance of stock options to
  Consultants and distributors
  January 2, 1998....................          --           --      43,000       53,370            --       53,370
  July 31, 1998......................          --           --     565,000      772,913            --      772,913
  October 7, 1998....................          --           --       4,000       14,500            --       14,500
Net Loss.............................          --           --          --           --    (3,266,452)  (3,266,452)
                                       ----------  -----------  ----------  -----------  ------------  ------------
BALANCE, December 31, 1998...........   4,024,563  $ 6,693,062   3,757,959  $ 2,841,329  $ (7,895,737)  $1,638,654
                                       ----------  -----------  ----------  -----------  ------------  ------------
                                       ----------  -----------  ----------  -----------  ------------  ------------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-4
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                            STATEMENTS OF CASH FLOWS
 
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
 
<TABLE>
<CAPTION>
                                                                                          1998           1997
                                                                                      -------------  -------------
<S>                                                                                   <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..........................................................................  $  (3,266,452) $  (2,581,570)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization...................................................        198,315         97,066
    Issuance of common stock options to consultants and distributors................      1,195,117         11,370
    Amortization of debt discount...................................................         84,840         94,259
    Amortization of deferred charges................................................             --        172,028
    Extraordinary loss on extinguishment of debt....................................             --        268,810
    Net (increase) in current assets................................................       (137,338)      (350,924)
    Net increase in current liabilities.............................................        279,812         13,989
                                                                                      -------------  -------------
      Net cash used in operating activities.........................................     (1,645,706)    (2,274,972)
                                                                                      -------------  -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment, net..........................................       (351,854)      (839,549)
  Deposit on equipment..............................................................        (47,238)            --
                                                                                      -------------  -------------
      Net cash used in investing activities.........................................       (399,092)      (839,549)
                                                                                      -------------  -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments of notes payable.......................................................       (169,728)    (2,326,037)
  Repayment of principal on capital leases..........................................        (42,230)       (34,922)
  Net proceeds from initial public offering of common stock.........................             --      7,942,312
  Payments for services related to the initial public offering......................             --       (168,364)
  Proceeds from notes payable.......................................................             --        189,242
                                                                                      -------------  -------------
      Net cash (used in) provided by financing activities...........................       (211,958)     5,602,231
                                                                                      -------------  -------------
 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................................  $  (2,256,756) $   2,487,710
CASH AND CASH EQUIVALENTS, beginning of period......................................      2,577,045         89,335
                                                                                      -------------  -------------
CASH AND CASH EQUIVALENTS, end of period............................................  $     320,289  $   2,577,045
                                                                                      -------------  -------------
                                                                                      -------------  -------------
 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
  Acquisition of bottlemaking equipment with seller note payable....................             --  $     825,000
                                                                                      -------------  -------------
                                                                                      -------------  -------------
  Discount on seller note payable...................................................                 $    (222,984)
                                                                                      -------------  -------------
                                                                                      -------------  -------------
INTEREST PAID.......................................................................  $      96,000  $     180,000
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>
 
   The accompanying notes are an integral part of these financial statements
 
                                      F-5
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
 
                               DECEMBER 31, 1998
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS
 
a.  ORGANIZATION
 
    Hawaiian Natural Water Company, Inc. (the "Company") was incorporated in the
state of Hawaii on September 13, 1994. The Company was formed for the purpose of
bottling, marketing and distributing Hawaiian natural water in Hawaii, the
United States mainland and foreign markets. The Company's initial product
introduction occurred in the first quarter of 1995.
 
    As shown in the accompanying financial statements, the Company has incurred
significant losses and negative cash flows since inception. Management expects
that the Company will continue to incur additional losses and negative cash
flows until the Company achieves significant levels of sales. To date, the
Company has been unable to improve its sales to generate cash flow sufficient to
support its operations. As such, there is substantial doubt about whether the
Company can continue as a going concern. The accompanying financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern. The
Company is continuing to evaluate various alternatives, including obtaining
additional financing from strategic and financial investors, the launch of new
products, revisions to the Company's marketing plan, acquisitions and other
strategies. However, there can be no assurance that management will successfully
improve profitability and cash flow, or be able to obtain additional financing
on terms acceptable to the Company.
 
    The Company had approximately $188,000 of past due accounts payable at
December 31, 1998.
 
b.  BASIS OF ACCOUNTING
 
    The Company's accounting policies are in accordance with generally accepted
accounting principles in the United States.
 
c.  CASH AND CASH EQUIVALENTS
 
    Cash and cash equivalents include savings accounts and investments in a
money market account with original maturities less than 90 days.
 
d.  INVENTORIES
 
    Inventories are stated at the lower of cost (first-in, first-out) or market.
As of December 31, 1998, inventories were comprised of the following:
 
<TABLE>
<S>                                                                 <C>
Raw materials.....................................................  $ 298,290
Finished goods....................................................     87,932
                                                                    ---------
                                                                    $ 386,222
                                                                    ---------
                                                                    ---------
</TABLE>
 
    Raw materials inventory consists of PET "pre-forms", caps, labels and
various packaging and shipping materials. Finished goods inventory includes
materials and conversion costs.
 
                                      F-6
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS (CONTINUED)
e.  PROPERTY AND EQUIPMENT
 
    Property and equipment are stated at cost, which includes the cost of labor
used to install equipment and perform major leasehold improvements. Maintenance
and repairs are expensed as incurred. Depreciation and amortization are provided
by the straight-line method over the following estimated useful lives:
 
<TABLE>
<S>                                                  <C>
                                                     The shorter of the
                                                     useful life or the
Leasehold improvements.............................  lease term
Machinery, equipment and assets under capital
  lease............................................              7-15 years
</TABLE>
 
    Property and equipment is summarized as follows:
 
<TABLE>
<S>                                                               <C>
Machinery and equipment.........................................  $1,749,552
Leasehold improvements..........................................    394,570
Assets under capital lease......................................    194,226
                                                                  ---------
                                                                  2,338,348
Less--Accumulated depreciation and amortization.................   (394,092)
                                                                  ---------
                                                                  $1,944,256
                                                                  ---------
                                                                  ---------
</TABLE>
 
f.  REVENUE RECOGNITION
 
    The Company recognizes revenue on the accrual method of accounting when
title transfers upon shipment. The Company also grants customers the right to
return goods which are defective or otherwise unsuitable for sale. The Company
issues refunds to customers or replaces goods which are rejected.
 
    The Company's policy is to provide a reserve for estimated uncollectible
trade accounts receivable. The Company also provides a reserve for estimated
sales returns and related disposal costs. Net sales revenue reflects reductions
for the reserve for sales returns, discounts and freight-out.
 
g.  ADVERTISING
 
    The Company charges the cost of advertising to expense as incurred. The
Company incurred approximately $203,000 and $123,000 of advertising expense
during the years ended December 31, 1998 and 1997, respectively.
 
h.  STOCK-BASED COMPENSATION
 
    In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement establishes financial
accounting and reporting standards for stock-based compensation plans, including
all arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. This statement also applies
to transactions in which an entity issues its equity instruments to acquire
goods or services from non-employees. Those transactions must be accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued,
 
                                      F-7
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS (CONTINUED)
whichever is more reliably determinable. The Company accounts for the issuance
of equity instruments to employees under APB Opinion No. 25. (See Note 6).
 
i.  LOSS PER SHARE
 
    In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share." This statement establishes standards for
computing and presenting earnings per share ("EPS") previously found in APB
Opinion No. 15, "Earnings Per Share," and makes them comparable to international
EPS standards. Under the new standard, the Company's basic and diluted loss per
share are the same for both 1998 and 1997 in that any conversion of stock
options and warrants would have been anti-dilutive.
 
j.  FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of fair value
information for certain financial instruments. The carrying amounts for trade
receivables and payables are considered to be their fair values. The fair value
of the Company's note payable at December 31, 1998 may be significantly
different than its carrying value as a result of the matter discussed in Note
1a. above and as a result of fluctuations in market interest rates.
 
k.  INCOME TAXES
 
    The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this statement, income tax liabilities and
assets are recognized at enacted tax rates for the expected future tax
consequences of temporary differences between carrying amounts and the tax basis
of assets and liabilities. A reserve is provided to reduce deferred tax assets
to estimated realizable value (See Note 9).
 
l.  ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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.
 
m. BASIC AND DILUTED LOSS PER SHARE
 
    Basic and diluted loss per share is based on the weighted average number of
common shares issued and outstanding during the period of 3,949,454 and
3,038,664 for 1998 and 1997, respectively. Common stock options and warrants are
excluded from the computation, as their effect would be anti-dilutive.
 
n.  GROSS MARGIN
 
    The Company's plant currently has a normal production capacity of
approximately 800,000 cases per year. The Company is currently operating its
plant at less than 39 percent of this capacity. Since a significant portion of
the Company's cost of sales includes certain fixed production costs, the Company
anticipates low gross margins to continue until such time, if any, as production
and sales reach levels
 
                                      F-8
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS (CONTINUED)
sufficient to absorb these fixed costs. The increased utilization of production
capacity in 1998 as compared to 1997 (20 percent of capacity) enabled the
Company to generate a positive gross margin for the year ended December 31,
1998.
 
o.  NEW ACCOUNTING PRONOUNCEMENTS
 
    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 130 "REPORTING
     COMPREHENSIVE INCOME"
 
    This Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. This Statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
 
    This Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
 
    The Company adopted this statement in 1998. Adoption of this statement had
no impact on the presentation of the Company's financial statements.
 
    STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 131 "DISCLOSURE ABOUT
     SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION"
 
    This Statement requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
 
    This Statement requires that a public business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose financial
statements. It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or services (or groups
of similar products and services), about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of whether
that information is used in making operating decisions. However, this Statement
does not require an enterprise to report information that is not prepared for
internal use if reporting it would be impracticable.
 
    This Statement also requires that a public business enterprise report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in
 
                                      F-9
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS (CONTINUED)
the enterprise's general-purpose financial statements, and changes in the
measurement of segment amounts from period to period.
 
    The Company adopted this Statement during 1998. Management believes the
Company operates in one segment (the sale of bottled water) in three regions:
Hawaii, the United States Mainland and International (see Notes 11 and 12).
 
p.  RECLASSIFICATIONS
 
    Certain 1997 amounts have been reclassified to conform to their 1998
presentation.
 
2.  INITIAL PUBLIC OFFERING AND USE OF PROCEEDS
 
    In May 1997, the Company completed an initial public offering (IPO) of
2,300,000 Units (including 300,000 Units subject to the underwriter's
over-allotment option) at $4.00 per Unit. Each unit consisted of one share of
common stock and one common stock warrant ("Public Warrant"). Each Public
Warrant entitles the holder to purchase one share of the Company's common stock
at an exercise price of $6 per share (subject to adjustment) for a period of
five years.
 
    The IPO resulted in aggregate net proceeds to the Company of approximately
$7,600,000, net of underwriting discounts and expenses of the offering. The
Company used the IPO proceeds as follows: (i) repaid $1,591,000 of principal and
accrued interest on a 10% Bridge Loan (see Note 4), (ii) repaid $628,000 of
principal and accrued interest on 8% to 12% notes payable to related parties,
(iii) repaid $101,000 of principal and accrued interest on a 10% note payable to
the underwriter of the IPO, (iv) repaid $112,000 of principal and accrued
interest on a 12% note payable to an unaffiliated investor, (v) paid
approximately $115,000 of deferred compensation and consulting fees, and (vi)
used $375,000 as an initial payment on the purchase of a bottle making machine
(see Note 3). Approximately $960,000 has been used for capital improvements and
approximately $3,400,000 has been used for working capital and other purposes
through December 31, 1998. Of the remaining IPO proceeds, approximately $320,000
was held as cash and cash equivalents at December 31,1998.
 
    Upon the closing of the IPO, the Company issued to the Underwriter (for
aggregate consideration of $20), five year warrants to purchase 200,000 shares
of the Company's common stock. Each warrant may be exercised at any time during
a period of four years commencing on the first anniversary of the date of
issuance, to purchase one share of common stock at an exercise price of $6.60
(165% of the IPO price per unit), subject to adjustment in certain
circumstances.
 
3.  BLOW MOLDING AGREEMENT AND PURCHASE OF BOTTLING EQUIPMENT
 
    Prior to July 1996, the Company imported all of its bottles from a
single-source supplier. Subsequent to July 1996, the Company began to purchase
bottles from Bottles Packaging, Inc. ("BPI") which operated a bottle-making
machine at the Company's bottling facility. An officer of BPI was a director of
the Company at that time.
 
    On September 30, 1997, the Company purchased the bottling equipment subject
to the Blow Molding Agreement for $1.2 million, of which $375,000 was paid at
the closing, and the remaining $825,000 was paid through the issuance of a note
payable to BPI (see Note 4). The bottling equipment was recorded at
 
                                      F-10
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
3.  BLOW MOLDING AGREEMENT AND PURCHASE OF BOTTLING EQUIPMENT (CONTINUED)
the discounted present value of the payments provided for in the purchase
agreement (approximately $977,000) and is being depreciated over the estimated
remaining useful life of 15 years.
 
4.  NOTES PAYABLE
 
a.  BRIDGE NOTES PAYABLE
 
    On October 10, 1996, the Company completed a private bridge financing (the
"Bridge Financing"), consisting of (1) an aggregate of $1.5 million of unsecured
promissory notes ("Bridge Notes") of the Company bearing interest at the rate of
10 percent per annum and (2) an aggregate of 750,000 warrants ("Bridge
Warrants") of the Company, each Bridge Warrant entitling the holder to purchase
one share of common stock, at an exercise price of $1.50 per share, subject to
adjustment under certain circumstances, during the thirty-six month period
commencing October 10, 1997. In April 1997, certain investors who participated
in the Bridge Financing agreed to cancel an aggregate of 106,500 Bridge
Warrants. Upon completion of the IPO in May 1997, the remaining 643,500 Bridge
Warrants were converted into a like number of Public Warrants, and the Bridge
Notes and accrued interest were repaid in full. The Bridge Warrants were valued
by the Company at approximately $188,000 in the aggregate, and this amount was
recorded as original issue discount ("OID") in October 1996. The Company
amortized the OID to interest expense and recorded approximately $112,000 of
amortization expense from inception through May 1997. In May 1997, upon the
early repayment of the Bridge Loan, the Company wrote off the remaining $76,000
as an Extraordinary Item--Loss on Extinquishment of Debt.
 
    Direct costs of the Bridge Financing totaled approximately $440,000. The
Company amortized these direct costs to interest expense and recorded
approximately $247,000 from inception through May 1997. In May 1997, upon the
early repayment of the Bridge Loan, the Company wrote off the remaining $193,000
as an Extraordinary Item--Loss on Extinquishment of Debt.
 
b.  NOTES PAYABLE
 
    As discussed in Note 3, the Company acquired the bottle making equipment
used in its bottling operations from BPI. The consideration for the equipment
was an aggregate of $1.2 million, a portion of which was paid through the
issuance of a promissory note in the original principal amount of $825,000,
payable in installments as follows:
 
    (i) $13,750 per month (an aggregate of $330,000) during the two years
        following the close of the acquisition with no interest; and
 
    (ii) the balance of $495,000, payable in three annual installments of
         $165,000 plus interest on the outstanding balance at an annual rate of
         5%.
 
    The Company has discounted this note payable using the Company's estimated
weighted average cost of capital of 12% and amortizes the resulting discount to
interest expense using the effective interest method over the term of the loan.
 
                                      F-11
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
4.  NOTES PAYABLE (CONTINUED)
    The following summarizes the notes payable as of December 31, 1998:
 
<TABLE>
<S>                                                                 <C>
Equipment note payable............................................  $ 618,750
    Less: unamortized discount....................................   (114,080)
                                                                    ---------
Equipment note payable, net.......................................    504,670
Vehicle installment note payable..................................     14,243
                                                                    ---------
Notes payable at December 31, 1998................................    518,913
  Less: current portion...........................................    (74,041)
                                                                    ---------
  Non-current portion.............................................  $ 444,872
                                                                    ---------
                                                                    ---------
</TABLE>
 
    Maturities of notes payable, net of discount at December 31, 1998 are as
follow:
 
<TABLE>
<S>                                                                 <C>
1999..............................................................  $  74,041
2000..............................................................    134,569
2001..............................................................    146,113
2002..............................................................    164,190
                                                                    ---------
                                                                    $ 518,913
                                                                    ---------
                                                                    ---------
</TABLE>
 
5.  CONSULTING ARRANGEMENTS
 
    During 1998 and 1997, the Company hired various consultants to perform
sales, marketing and other functions. The Company recognized consulting expenses
of approximately $147,000 and $331,000 for 1998 and 1997, respectively.
Approximately $5,000 and $36,000, of these consulting expenses was incurred with
related parties in 1998 and 1997, respectively.
 
6.  STOCK OPTIONS
 
    During 1996, the Board of Directors authorized an aggregate of 1,000,000
shares of common stock for issuance upon the exercise of stock options which may
be granted from time to time to directors, officers, employees and consultants
of the Company under the Company's stock option plan. Under this plan, the
Company granted to certain consultants and distributors options to purchase an
aggregate of 47,000 shares of common stock in 1998, and 2,459 shares of common
stock in 1997. These options are exercisable for five years at exercise prices
ranging from $3.50 to $4.00 per share. These options were valued, in accordance
with SFAS 123 (using the Black-Scholes option pricing model), at $67,870 in
1998, and $11,370 in 1997, which amounts were charged to expense as incurred.
These options vested upon grant. Under a separate authorization, in July 1998,
the Company granted to its financial public relations advisor vested options to
purchase an aggregate of 565,000 shares of Common Stock, all of which were
outstanding at December 31, 1998. These options were valued, in accordance with
SFAS 123 (using the Black-Scholes option pricing model), at $772,913, which was
charged to income in the third quarter of 1998. See Note 8. All of the foregoing
options are reflected on the balance sheet as "Common Stock warrants and
options, issued and outstanding."
 
                                      F-12
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
6.  STOCK OPTIONS (CONTINUED)
    In addition, as further described below, at December 31, 1998, outstanding
options to purchase an aggregate of 487,000 shares of common stock were held by
employees of the Company. These options are not reflected on the balance sheet
as "Common Stock warrants and options, issued and outstanding."
 
    The following summarizes information about stock options granted to
employees during the years ended December 31,1998 and 1997:
 
<TABLE>
<CAPTION>
                                                                             WEIGHTED-AVERAGE
                                                                   SHARES     EXERCISE PRICE
                                                                 ----------  -----------------
<S>                                                              <C>         <C>
Balance at December 31, 1996...................................     150,000      $    4.00
  Granted......................................................     184,850      $    4.00
  Forfeited....................................................     (80,775)     $    4.00
                                                                 ----------
Balance at December 31, 1997...................................     254,075      $    4.00
  Granted......................................................     266,525      $    4.00
  Forfeited....................................................     (33,600)     $    4.00
                                                                 ----------
Balance at December 31, 1998...................................     487,000      $    4.00
</TABLE>
 
    At December 31, 1998 and 1997, respectively, the Company had 132,891 and
50,000 vested employee options outstanding, exercisable at a weighted-average
exercise price of $4.00.
 
    Using the Black-Scholes option valuation model (and the following
assumptions), the estimated fair values of options granted during 1998 ranged
from $1.76 to $3.51. The estimated fair value of options granted in 1997 ranged
from $1.06 to $2.51 per share. Management believes that the fair value results
from using the Black-Scholes calculation may not be indicative of the Company's
economic cost of issuing stock options. Principal weighted-average assumptions
used in applying the Black-Scholes model were as follows:
 
<TABLE>
<CAPTION>
BLACK-SCHOLES MODEL ASSUMPTIONS                                         1998           1997
---------------------------------------------------------------  ------------------  ---------
<S>                                                              <C>                 <C>
Risk-free interest rate........................................      4.74% to 5.57%      6.06%
Expected volatility............................................             109.95%     64.51%
Expected dividend yield........................................               0.00%      0.00%
Expected term..................................................               5 yrs      5 yrs
</TABLE>
 
    If compensation cost for stock options granted to employees had been
accounted for under SFAS. 123, the Company's net loss per share for 1998 and
1997 would have been $(0.91) and $(0.90), respectively.
 
7.  SETTLEMENT OF TERMINATED DISTRIBUTION AGREEMENT
 
    In May 1998, the Company terminated its exclusive distribution agreement
with a distributor covering most of the Western U.S. due to his failure to meet
a certain minimum purchase requirement. In connection with this termination, the
distributor made a $100,000 lump-sum payment to the Company in August 1998. That
payment was recorded in the accompanying financial statements as a reduction in
certain selling, and general and administrative expenses which primarily had
been incurred in order to reach the settlement.
 
                                      F-13
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
8.  INVESTOR RELATIONS
 
    In July, 1998, the Company engaged a financial public relations advisor for
a two-year term. As compensation for its services, the Company issued to such
advisor 100,000 shares of Common Stock (the "Initial Shares"), plus options to
purchase an aggregate of 565,000 additional shares at exercise prices ranging
from $2.50 to $6.00 per share. The options are exercisable over staggered terms
commencing September 1, 1998, and ending July 15, 2000. If the advisor exercises
all of the first 300,000 options, the Company is obligated to issue to the
advisor an additional 50,000 shares of common stock (the "Contingent Shares").
The options are redeemable by the Company at $0.05 per option if the trading
price (as defined) of the Common Stock exceeds 150% of the exercise price of the
options to be redeemed for a period of 10 consecutive trading days. The Company
believes that the fair value of the Initial Shares was approximately $350,000
and the options $772,913, based upon the Black-Scholes option pricing model with
the following weighted average assumptions: Risk-free interest rate of 5.42%;
expected dividend yield of zero; expected life of nine months; and expected
volatility of 126%. This entire amount was recorded as a charge to income in the
third quarter of 1998. The Contingent Shares will be recorded as a charge to
income at their fair value if and when issued. The Company has registered the
Initial Shares and the shares issued or issuable upon exercise of the options
under the Securities Act of 1933, as amended. See Note 13.
 
9.  INCOME TAXES
 
    Certain items of expense are recognized in different periods for income tax
purposes than for financial reporting purposes. As of December 31, 1998, the
Company had approximately $6.9 million of net operating loss (NOL) carryforwards
available to reduce future taxable income. These NOL carryforwards expire on
various dates beginning in 2009 through 2018. The deferred tax asset as of
December 31, 1998 consisted primarily of net operating loss carryforwards. A
valuation allowance has been provided for the entire deferred tax asset due to
the uncertainty of its realization.
 
    Since the close of the IPO, the Company is subject to Internal Revenue Code
Section 382 which limits the Company's ability to utilize net operating losses
generated prior to the closing of the IPO (of approximately $2.9 million). The
annual net operating loss limitation under Section 382 is approximately
$361,000.
 
    The Company paid no income taxes and had no net deferred or current tax
provision/benefit for the years ended December 31, 1998 and 1997.
 
10.  COMMITMENTS AND CONTINGENCIES
 
a.  CAPITAL LEASE OBLIGATIONS
 
    The Company leases machinery and equipment under capital leases which expire
on various dates through April 2000.
 
                                      F-14
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
10.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
    As of December 31, 1998, future minimum lease payments were as follows:
 
<TABLE>
<S>                                                                 <C>
1999..............................................................  $  49,998
2000..............................................................      1,597
                                                                    ---------
  Total future minimum payments...................................     51,595
Less--Amount representing interest................................     (3,008)
                                                                    ---------
  Total capital lease obligations.................................     48,587
Less--Current portion.............................................    (47,455)
                                                                    ---------
Noncurrent portion................................................  $   1,132
                                                                    ---------
                                                                    ---------
</TABLE>
 
    These capital leases are guaranteed by certain of the Company's directors
and an affiliate and bear interest at 11%.
 
b.  OPERATING LEASE OBLIGATIONS
 
    Plant Lease
 
    The Company leases its bottling facility and surrounding property, including
the water source and pumping equipment from a principal stockholder, under a 50
year lease. The lease can be renewed at the Company's option for an additional
50 years. The lease includes the following provisions:
 
        Rent is the greater of $5,000 per month (Base Rent), adjusted every five
    years based upon changes in the consumer price index in Hawaii, as defined,
    or two percent of the Company's net revenue, as defined.
 
        The lease entitles the Company to exclusive use of the water source,
    except that the lessor may draw up to 50 percent of the water flow for use
    in beverage production other than the sale of natural water. The Company
    believes that even if the lessor were to draw 50% of the water flow for such
    other purposes, the remaining 50% would be adequate for the current and
    projected future needs of the Company's business.
 
    During 1998, the Company incurred approximately $66,000 for leasehold
improvements to this property.
 
    Warehouse Lease
 
    On February 1, 1998 the Company entered into a one-year lease for warehouse
space comprised of approximately 5,300 square feet, with lease payments of
$3,000 per month. This space was replaced on February 1, 1999 when the Company
entered into a two year lease for warehouse space in a location of closer
proximity to the plant, comprised of approximately 4,000 square feet of
warehouse space. The lease payments pursuant to the new lease are $2,560 per
month.
 
                                      F-15
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
10.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
    Office Lease
 
    In October 1996, the Company entered into a three-year office and warehouse
lease in Honolulu, with a renewal option. Monthly rental payments were $3,000
through November 1997. Thereafter, monthly rental payments are $4,000.
 
    The Company recognized approximately $152,000 and $98,000 in lease expense
under all existing facility lease agreements in 1998 and 1997, respectively.
 
    The future minimum lease payments for the plant, warehouse and office leases
as of December 31, 1998 were as follow:
 
<TABLE>
<S>                                                               <C>
1999............................................................  $ 127,160
2000............................................................     90,720
2001............................................................     62,560
2002............................................................     60,000
2003............................................................     60,000
Thereafter......................................................  2,445,000
                                                                  ---------
                                                                  $2,845,440
                                                                  ---------
                                                                  ---------
</TABLE>
 
c.  ARTWORK LICENSING AGREEMENTS
 
    In December 1998, the Company entered into a license agreement with a
company to use certain "Hello Kitty" images and artwork on the Company's bottle
labels. The agreement expires December 31, 2000, with an option to renew for an
additional one year period. The agreement provides for royalty payments based
upon certain percentages of the net sales of the Company's product using such
images and artwork (as defined). These images have been licensed for use in
specified geographic territories. Royalty expense was not material in 1998.
 
    In April 1998, the Company entered into a license agreement with an artist
to use certain images and other artwork on the Company's bottle labels. The
agreement expires in April 2000, and provides for royalty payments based upon
certain percentages of actual invoiced wholesale price of the Company's products
sold using such images and artwork (as defined). Royalty expense was not
material in 1998.
 
d.  DISTRIBUTION AGREEMENT
 
    In September 1998, the Company entered into an exclusive import and
distribution agreement with a Thailand company (the "Distributor") for a three
year term (with a 3 year renewal option). The agreement provided for the
issuance of 1,000 shares of the Company's stock to the Distributor (valued at
approximately $4,000) upon execution of the agreement.
 
    The agreement further provides for the company to assist in funding joint
marketing costs by providing a per case discount to the Distributor, as defined.
The Company provided approximately $6,000 in marketing support discounts in
1998. The Distributor has agreed to share in the joint marketing costs by
contributing a certain per case amount to the joint marketing costs. The
agreement further provides that the Company will issue to the Distributor shares
of common stock equal to the Distributor's actual
 
                                      F-16
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
10.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
marketing costs. The shares are to be issued based on the then fair value of the
Company's common stock, within 30 days of a written request. No written request
for issuance of common stock pursuant to this agreement had been received as of
December 31, 1998. Such amounts were not deemed to be material for the year
ended December 31, 1998.
 
e.  BOTTLING EQUIPMENT AND AGENCY AGREEMENT
 
    During 1998, the Company entered into an agreement to purchase a 5-liter
bottle machine. As of December 31, 1998 the Company made deposits of $47,238 and
committed to pay an additional $22,493 for this equipment. In December 1998, the
Company also entered into an exclusive agency agreement with the manufacturer of
the 5-liter bottling machine and an affiliated company. The agreement covers the
United States, Canada, Japan, Mexico and the Philippines.
 
11.  SIGNIFICANT CUSTOMER
 
    For the years ended December 31, 1998 and 1997 approximately 52% and 64%,
respectively, of the Company's sales were made through one Hawaii distributor.
No other single customer accounted for greater than 10% of sales.
 
12.  SALES BY GEOGRAPHIC REGION
 
    The Company sells its product directly to certain foreign distributors. All
sales are made in U.S. dollars. For the years ended December 31, 1998 and 1997,
the Company had the following sales by geographic region:
 
<TABLE>
<CAPTION>
                                                          1998          %          1997          %
                                                      ------------     ---     ------------     ---
<S>                                                   <C>           <C>        <C>           <C>
Hawaii..............................................  $  1,372,000         76  $    815,000         78
International.......................................       305,000         17       143,000         14
United States Mainland..............................       133,000          7        91,000          8
                                                      ------------        ---  ------------        ---
                                                      $  1,810,000        100  $  1,049,000        100
                                                      ------------        ---  ------------        ---
                                                      ------------        ---  ------------        ---
</TABLE>
 
    Substantially all long-lived assets of the Company are attributable to its
Hawaii operations.
 
13.  SUBSEQUENT EVENTS
 
a.  OPTIONS EXERCISED
 
    On January 11, 1999 the Company's financial public relations advisor
exercised options to purchase an aggregate of 50,000 shares of common stock at
an exercise price of $2.50 per share, which resulted in cash proceeds to the
Company of $125,000 (see Note 8).
 
b.  $1.25 MILLION OFFERING TO AN INSTITUTIONAL INVESTOR
 
    On March 3, 1999, the Company completed the first $750,000 installment of an
aggregate $1.25 Million private offering of Series A Convertible Preferred Stock
(the "Series A Preferred") and warrant (the "Warrant") to purchase an additional
100,000 shares of Common Stock of the Company. The Warrant
 
                                      F-17
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
13.  SUBSEQUENT EVENTS (CONTINUED)
is exercisable for three years at an exercise price of $3.625 per share. The
offering was placed with a single institutional investor. The investor has
committed to purchase an additional $500,000 in Series A Preferred, subject to
certain closing conditions, including the effectiveness of a registration
statement covering the shares of Common Stock underlying the Series A Preferred
and the Warrant. The Company has agreed to file a registration statement with
the Securities and Exchange Commission covering such shares and to use its best
efforts to cause the registration statement to become effective within 90 days.
 
    The Series A Preferred is entitled to cumulative dividends at the annual
rate of 4 percent, payable quarterly, commencing May 31, 1999, in cash or Common
Stock, at the election of the Company.
 
    The Series A Preferred is convertible into Common Stock, in whole or in part
at the election of the holder, at a conversion price of $3.00 per share until
the closing of the investor's second ($500,000) investment. Thereafter, the
conversion price will be a variable price equal to 80 percent of the Market
Price (defined as the average of the three lowest closing bid prices for the
Common Stock during a period of 22 consecutive trading days ending immediately
prior to the date of conversion). The Series A Preferred will be convertible at
such variable price in increments (on a cumulative basis) commencing 90 days
following the initial closing, such that all of the Series A Preferred will be
convertible, at the election of the holder, within 180 days of the initial
closing. The Company will be entitled to require the holder to convert all (but
not less than all) of the shares of Series A Preferred outstanding on or after
March 1, 2001, into Common Stock or, at the Company's election, to repurchase
such shares for cash.
 
    Since the Series A Preferred will be convertible into Common Stock at a
price determined by future market conditions, the precise number of shares of
Common Stock into which the Series A Preferred will be converted is currently
indeterminable. The instrument governing the Series A Preferred provides that,
unless such stockholder approval has previously been obtained, no shares of
Common Stock may be issued upon conversion of the Series A Preferred, if such
issuance, together with all prior issuances of Common Stock upon conversion of
or as dividends on the Series A Preferred, or upon exercise of the Warrant,
would exceed 19.9 percent (approximately 800,690 shares) of the number of shares
of Common Stock currently outstanding. The Company has agreed to submit the
matter to a stockholder vote at its 1999 Annual Meeting of Stockholders. In the
event that stockholder approval is not obtained, the Company will be required to
honor any conversion request in cash, to the extent that such conversion would
otherwise result in an impermissible issuance of Common Stock. The instrument
governing the Series A Preferred also provides that the holder will have no
right to convert any shares of Series A Preferred if and to the extent that any
such conversion would result in the holder being deemed the "beneficial owner"
of more than 9.9 percent of the then outstanding shares of Common Stock within
the meaning of Section 13(d) of the Securities Exchange Act.
 
    The Series A Preferred is redeemable, at the election of the Company, at any
time or from time to time prior to conversion, provided that the Market Price of
the Common Stock does not exceed 150 percent of the Market Price on the date of
the initial closing.
 
    The Company has agreed to pay certain financial advisors 6 percent of the
gross proceeds of the offering in cash and to issue to them an aggregate of
5,000 shares of Common Stock and warrants to purchase 25,000 shares of Common
Stock, exercisable at $2.50 per share.
 
                                      F-18
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
14.  QUARTERLY DATA (UNAUDITED)
 
    In the opinion of management, the following unaudited, quarterly data
reflects all adjustments (consisting primarily of normal recurring adjustments)
considered necessary to fairly present the Company's, results of operations in
accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission.
 
<TABLE>
<CAPTION>
                                                                             1997 QUARTER ENDED*
                                                             ----------------------------------------------------
                                                              MARCH 31      JUNE 30    SEPTEMBER 30  DECEMBER 31
                                                             -----------  -----------  ------------  ------------
                                                                                 (UNAUDITED)
<S>                                                          <C>          <C>          <C>           <C>
Net Sales..................................................  $   216,683  $   283,310   $  339,456    $  209,357
Cost of Sales..............................................      241,475      301,241      387,329       302,457
                                                             -----------  -----------  ------------  ------------
Gross Margin...............................................      (24,792)     (17,931)     (47,873)      (93,100)
Expenses
  General and Administrative...............................      125,206      244,967      282,516       360,575
  Selling and Marketing....................................       86,784      189,187      250,230       274,834
                                                             -----------  -----------  ------------  ------------
                                                                 211,990      434,154      532,746       635,409
Other Income (Expenses)
  Interest Income..........................................        1,029       15,249       15,257        98,479
  Interest Expense.........................................     (236,195)    (178,279)      (3,166)      (27,139)
                                                             -----------  -----------  ------------  ------------
                                                                (235,166)    (163,030)      12,091        71,340
Net Loss Before Extraordinary Item.........................     (471,948)    (615,115)    (568,528)     (657,169)
Extraordinary Item--Loss on Extinquishment of Debt.........           --     (268,810)          --            --
                                                             -----------  -----------  ------------  ------------
  Net Loss.................................................  $  (471,948) $  (883,925)  $ (568,528)   $ (657,169)
                                                             -----------  -----------  ------------  ------------
Basic and Diluted Net Loss Per Share Before Extraordinary
  item.....................................................  $     (0.30) $     (0.23)  $    (0.15)   $    (0.17)
Extraordinary item.........................................                     (0.10)
                                                             -----------  -----------  ------------  ------------
Basic and Diluted Loss Per Share...........................  $     (0.30)       (0.33)       (0.15)        (0.17)
                                                             -----------  -----------  ------------  ------------
Weighted Average Shares Outstanding........................    1,599,212    2,709,212    3,899,212     3,899,212
                                                             -----------  -----------  ------------  ------------
</TABLE>
 
------------------------
 
*   Results of operations for interim periods are not necessarily indicative of
    results to be achieved for full fiscal years.
 
                                      F-19
<PAGE>
                      HAWAIIAN NATURAL WATER COMPANY, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
                               DECEMBER 31, 1998
 
14.  QUARTERLY DATA (UNAUDITED) (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                             1998 QUARTER ENDED*
                                                            -----------------------------------------------------
                                                             MARCH 31      JUNE 30    SEPTEMBER 30   DECEMBER 31
                                                            -----------  -----------  -------------  ------------
                                                                                 (UNAUDITED)
<S>                                                         <C>          <C>          <C>            <C>
Net Sales.................................................  $   399,603  $   477,005  $     515,465   $  417,657
Cost of Sales.............................................      393,049      407,024        473,579      406,729
                                                            -----------  -----------  -------------  ------------
Gross Margin..............................................        6,554       69,981         41,886       10,928
Expenses
  General and Administrative..............................      310,759      305,114        272,910      377,375
  Selling and Marketing...................................      242,480      269,486        234,948      235,204
                                                            -----------  -----------  -------------  ------------
                                                                553,239      574,600        507,858      612,579
Other Income (Expense)
  Investor relations expense..............................           --           --     (1,122,913)          --
  Interest Income.........................................       28,110       18,739         17,873        7,107
  Interest Expense........................................      (25,484)     (24,528)       (24,788)     (21,641)
                                                            -----------  -----------  -------------  ------------
Net Loss..................................................  $  (544,059) $  (510,408) $  (1,595,800)  $ (616,185)
                                                            -----------  -----------  -------------  ------------
Basic and Diluted Net Loss Per Share......................  $     (0.14) $     (0.13) $       (0.40)  $    (0.15)
                                                            -----------  -----------  -------------  ------------
Weighted Average Shares Outstanding.......................    3,899,212    3,899,212      3,973,192    4,024,563
                                                            -----------  -----------  -------------  ------------
</TABLE>
 
------------------------
 
*   Results of operations for interim periods are not necessarily indicative of
    results to be achieved for full fiscal years.
 
                                      F-20
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                   DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
       3.1   Articles of Incorporation, as amended, of the Registrant
 
       3.2   By-Laws, as amended, of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant's
             Annual Report on Form 10-KSB for the year ended December 31, 1997 (the "1997 10-K"))
 
       4.1   Specimen Stock Certificate for the Registrant's Common Stock (Incorporated by reference to Exhibit 4.1
             to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 (the "June 1997
             10-Q"))
 
       4.2   Specimen Stock Certificate for the Registrant's Series A Convertible Preferred Stock (Incorporated by
             reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated March 12, 1999 (the "March
             1999 8-K"))
 
       4.3   Warrant Agreement between the Registrant and Continental Stock Transfer & Trust Company, as Warrant
             Agent (Incorporated by reference to Exhibit 4.2 to the June 1997 10-Q)
 
       4.4   Specimen Public Warrant Certificate (Incorporated by reference to Exhibit 4.3 to the June 1997 10-Q)
 
       4.5   Underwriter's Warrant Agreement between the Registrant and Joseph Stevens & Company, Inc. (Incorporated
             by reference to Exhibit 4.4 to the June 1997 10-Q)
 
       4.6   Underwriter's Warrant Certificate (Incorporated by reference to Exhibit 4.5 to the June 1997 10-Q)
 
       4.7   Form of Bridge Warrant (Incorporated by reference to Exhibit 4.5 to the Registrant's registration
             statement on Form SB-2 (File No. 333-18289 (the "Form SB-2"))
 
       4.8   Warrant Agreement between the Registrant and Amro International, S.A. (Incorporated by reference to
             Exhibit 4.3 to the March 1999 8-K)
 
       4.9   Form of Lock-Up Agreement between Joseph Stevens & Company, Inc. and each of the Selling Securityholders
             registering securities pursuant to the Form SB-2 (Incorporated by reference to Exhibit 4.6 to the Form
             SB-2)
 
       4.10  Form of Lock-Up Agreement between Joseph Stevens & Company, Inc., and certain officers, directors and
             stockholders of the Registrant (Incorporated by reference to Exhibit 4.7 to the June 1997 10-Q)
 
      10.1   Lease Agreement dated October 3, 1994, as amended, between the Registrant as Lessee and Hawaii Brewery
             Development Co., Inc. as Lessor (Incorporated by reference to Exhibit 10.1 to the Form SB-2)
 
      10.2   Blow Molding Agreement dated December 1, 1995, between the Registrant and Bottles Packaging, Inc.
             ("BPI") (Incorporated by reference to Exhibit 10.2 to the Form SB-2)
 
      10.3   Master Lease Agreement No. A2500, dated December 8, 1994, between the Registrant and First Hawaiian
             Leasing and related agreements (Incorporated by reference to Exhibit 10.4 to the Form SB-2)
 
      10.4   Employment Agreement, dated October 10, 1996, between the Registrant and Marcus Bender (Incorporated by
             reference to Exhibit 10.5 to the Form SB-2)
 
      10.5   Stock Option Agreement, dated October 10, 1996, between the Registrant and Marcus Bender (Incorporated
             by reference to Exhibit 10.6 to the Form SB-2)
 
      10.6   Stock Option Agreement, dated September 17, 1997, between the Registrant and David K. Laeha
             (Incorporated by reference to Exhibit 10.7 to the 1997 10-K)
 
      10.7   1998 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report
             on Form 10-QSB for the quarter ended June 30, 1998 (the "June 1998 10-Q"))
 
      10.8   Form of Bridge Note (Incorporated by reference to Exhibit 10.8 to the Form SB-2)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                                                   DESCRIPTION
-----------  --------------------------------------------------------------------------------------------------------
<C>          <S>
      10.9   Form of Promissory Note evidencing an aggregate of $407,715 in principal amount of indebtedness of the
             Registrant to certain of its affiliates (Incorporated by reference to Exhibit 10.9 to the Form SB-2)
 
      10.10  Promissory Note dated May 24, 1995, in the original principal amount of $100,000 payable by the
             Registrant to Inter Island Petroleum, Inc. (Incorporated by reference to Exhibit 10.10 to Form SB-2)
 
      10.11  Letter Agreement dated August 1, 1996, between the Registrant and com.com Inc. (Incorporated by
             reference to Exhibit 10.11 to the Form SB-2)
 
      10.12  Form of Promissory Note evidencing an aggregate of $75,000 in principal amount of indebtedness of the
             Registrant to certain of its affiliates (Incorporated by reference to Exhibit 10.12 to the Form SB-2)
 
      10.13  Promissory Note dated April 15, 1997, in the original principal amount of $100,000 payable by the
             Registrant to Joseph Stevens & Company, Inc. (Incorporated by reference to Exhibit 10.13 to the Form
             SB-2)
 
      10.14  Form of Cancellation Agreement between the Registrant and certain holders of an aggregate of 106,500
             Bridge Warrants (Incorporated by reference to Exhibit 10.14 to the Form SB-2)
 
      10.15  Underwriting Agreement between the Registrant and Joseph Stevens & Company, Inc. (Incorporated by
             reference to Exhibit 10.1 to the June 1997 10-Q)
 
      10.16  Financial Advisory and Consulting Agreement between the Registrant and Joseph Stevens & Company, Inc.
             (Incorporated by reference to Exhibit 10.2 to the June 1997 10-Q)
 
      10.17  Asset Purchase Agreement between the Registrant and Bottles Packaging, Inc. ("BPI") (Incorporated by
             reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated October 7, 1997 (the
             "October 1997 8-K"))
 
      10.18  Bill of Sale between the Registrant and BPI evidencing the transfer of assets pursuant to the Asset
             Purchase Agreement (Incorporated by reference to Exhibit 10.2 to the October 1997 8-K)
 
      10.19  Promissory Note evidencing an aggregate of $825,000 in indebtedness of the Registrant to BPI in
             connection with the Asset Purchase Agreement (Incorporated by reference to Exhibit 10.3 to the October
             1997 8-K)
 
      10.20  Security Agreement between the registrant and BPI securing the obligations of the Registrant to BPI
             under the Promissory Note (Incorporated by reference to Exhibit 10.4 to the October 1997 8-K)
 
      10.21  Letter Agreement between the Registrant and 8607 Colonial Group, Inc. ("Colonial") (Incorporated by
             reference to Exhibit 99.1 to the June 1998 10-Q)
 
      10.22  Option Agreement between the Registrant and Colonial (Incorporated by reference to Exhibit 4.2 to the
             Registrant's registration statement on Form S-3 (File No. 333-63827))
 
      21     Subsidiaries--None
 
      23.1   Consent of Arthur Andersen LLP
 
      27.1   Financial Data Schedule
</TABLE>