VIA AIRBORNE EXPRESS

                                 August 12, 1997


Mr. H.  Christopher Owings
Assistant Director
United States Securities and
  Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

         RE: ECHO SPRINGS WATER CO., INC.
                (formerly Grudge Music Group, Inc.)
                Form 10-KSB/A submitted in paper April 23, 1997
                Form 10-QSB/A submitted in paper April 23, 1997
                Commission File No. 0-17872

Dear Mr. Owings:

On behalf of Echo Springs Water Co., Inc. (the  "Company"),  we enclose herewith
amendments to Form 10-KSB/A and Form 10-QSB/A (filed in paper on April 23, 1997)
in response to your Comment Letter of May 22, 1997.

In response to such Comment Letter, please note the following:

1.       As noted in the  Company's  response  letter of April  23,  1997 and as
         agreed with your Mr. Michael Smith via telephone on April 18, 1997, the
         Company  filed its amended Forms 10- KSB and 10-QSB in response to your
         Comment  Letter of March 28, 1997 in paper only and agreed to file such
         amended  Forms  formally  via the Edgar  System  upon  receipt  of your
         agreement with and approval of our responses to such Comment Letter.

         In continuation of such procedure,  first, we are sending this response
         letter via the Edgar System; second, we are sending hard copies of this
         response letter, Form 10-KSB/A and Form 10-QSB/A by overnight mail; and
         third,  upon  receipt  of  your  agreement  with  and  approval  of our
         responses to your Comment Letter of May 22, 1997 (which we would


<PAGE>


         appreciate at your earliest convenience so that we will be able to file
         our second  quarter Form 10-QSB  before its deadline of June 14, 1997),
         we will immediately file Form 10- KSB/A and Form 10-QSB/A  formally via
         the Edgar System.

2.       In order to  substantiate  accurate  stock  prices for the  appropriate
         periods,  the Company obtained,  from National Quotation Bureau, LLC, a
         full  listing of such prices for such periods and has revised the table
         at  PART  II,  Item 5. on page  11 of  Form  10-KSB/A  to  present  the
         appropriate information as obtained.

         The Company's  offer to convert debt and accrued  interest  thereon for
         shares of its Common Stock was dated June 4, 1996. The conversion value
         of  the  shares  was  $2.50  while  the  closing  bid  price  (ie - the
         approximate market value) on that date was $2.125. Thus, the Company is
         reflecting,  in its  consolidated  financial  statements for the fiscal
         year ended  October 31, 1996, an  extraordinary  gain of $328,950 [ie -
         877,201 shares times ($2.50-$2.125)] on this transaction.

         This comment has been complied  with. See pages 12, 14, 16, 18, 19, 20,
         28, 29 and 30 of Form 10-KSB/A.

3.       The Company originally issued 200,000 shares of its Common Stock valued
         at $25,000 to its President,  Mr.  Michael S. Rakusin in  consideration
         for prior services rendered by Mr. Rakusin to the Company. However, the
         market  value of such  shares  was in  excess of the  desired  level of
         compensation.  Therefore,  the Company is reducing the number of shares
         to 10, 000 so that the market  value of the  shares  ($26,  250) at the
         date of the award  (September 30, 1996) more closely  approximates  the
         original intended value of the prior services.

     This comment has been complied  with. See pages 12, 16, 18, 19, 20, 29, 31,
32 and 33 of Form 10-KSB/A.


Thank you for your attention to this matter.  Kindly acknowledge  receipt of the
enclosed  by  stamping  a copy of this  letter  and  returning  the  same in the
stamped, self-addressed envelope provided.

                                Yours very truly,

                                                       /s/David W. Sass
                                                       David W. Sass

Enclosures
cc: Michael S. Rakusin





                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

   
                                  FORM 10-KSB/A
    


[x] Annual report pursuant to section 13 or 15(d) of The Securities Exchange Act
of 1934 ("Exchange Act") [Fee Required]

For the fiscal year ended October 31, 1996

[ ] Transition report pursuant to section 13 or 15(d) of The Securities
Exchange Act of 1934

For the transition period from _________ to __________

   
Commission file number 0-17872
    

                          ECHO SPRINGS WATER CO., INC.
                  (formerly known as Grudge Music Group, Inc.)
                 (Name of small business issuer in its charter)

     New York                                16-1433379
(State or other jurisdiction        (I.R.S. Employer Identification No.)
of incorporation or organization)

Building 100A, Hackensack Avenue, Kearny, NJ  07032
(Address of principal executive offices)        (Zip Code)

Issuer's telephone number: (201) 465-5151

Securities Registered under Section 12(b) of the Exchange Act:
     None

Securities Registered under Section 12(g) of the Exchange Act:
     Title of Each Class:  Common Stock, Par Value $.0001

Check  whether  the issuer  (1) has 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 issuer 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  issuer'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. [ ]

The issuer's net revenues for its most recent fiscal were $2,264,702.


                                                                 1

<PAGE>



   
The aggregate  market value of the issuer's voting stock held as of December 31,
1996 by non-affiliates of the issuer,  based upon the average of the closing bid
and asked prices on that date, was approximately $4,866,900.

As at December 31, 1996,  2,907,149 shares of the issuer's Common Stock,  $.0001
par value, were outstanding.
    

Transitional Small Business Disclosure Format (Check one):
Yes       .  No  X  .




                                                                 2

<PAGE>



                                                      PART I

Item 1. Description of Business

Introduction

           Echo Springs Water Co., Inc., and its wholly-owned  subsidiaries,  RG
Water Company, Inc., and Berkshire Acquisition Company, Inc., (collectively, the
"Company") is engaged in bottling and  distributing  its  non-sparkling  natural
spring  water from  naturally  free-flowing  springs  located  on the  Company's
property in  Burlington,  New York.  The Company's  natural spring water is sold
both under the label "Echo  Springs" and under  private  label  distributor  and
supermarket  brands.  The Company also leases water coolers to  residential  and
commercial  customers and sells allied  products such as coffee,  tea and a wide
assortment of paper products to its commercial accounts.

           The  Company's  products  are  primarily  marketed  and  sold  by its
in-house  staff.  To  a  lesser  extent,   sales  to  certain  distributors  and
supermarkets are made through  independent  commissioned sales  representatives.
The Company also provides installation and service for its leased coolers.

   
           The  Company  is  highly  dependent  upon  the  Aramark   Corporation
("Aramark"),  one of the world's largest  privately-held food service companies,
for the Company's sales of five-gallon  bottled water. For the fiscal year ended
October  31,  1996,  approximately  $439,987 or 19.5% of gross sales was derived
from  Aramark.  Although  orders for sales have been  received,  there can be no
assurance that commitments for any additional years will be awarded. The Company
will  continue to be dependent  upon  revenues from this source in the immediate
future.  The loss of this revenue  source would have a material  adverse  impact
upon the Company.     

           At present,  the Company has an  established  sales and  distribution
network and an  existing  base of over 4,000  customers  located in the New York
City Metropolitan area, New Jersey and upstate New York

History of the Company

           The Company,  formerly Grudge Music Group,  Inc., was incorporated in
New York in 1985 for the purpose of engaging  in the music  recording  business.
Due to continuing  losses from  operations,  the Company  discontinued its music
business in 1990.

           In 1991 and 1992, the Company commenced its bottled water
business through the acquisition of two companies.  In December
1991, the Company completed the acquisition of the assets of Echo
Springs Water Co., Inc. (now known as ESWC, Inc.) consisting of its

                                                         3

<PAGE>



present spring water source and a fully-automated  natural spring water bottling
facility located in Burlington, New York.

           In July 1992, the Company acquired the assets of Berkshire Springs of
New Jersey, Inc.  (Berkshire),  a distribution company that leases water coolers
and sells water and other allied  products to both  commercial  and  residential
customers in the State of New Jersey.


The Bottled Water Market

           The bottled water market comprises three major segments: non-
sparkling, sparkling and imported water.

           *               Non-sparkling, or still water contains no
                           carbonation and is consumed as an
                           "alternative to tap water."  Non-sparkling
                           water is generally distributed directly to
                           homes and offices, through retail outlets
                           and through vending machines.
                           Distinctions are often made among brands
                           of non-sparkling water based on their
                           source, level of mineral content and the
                           method of purification (distillation,
                           deionization or reverse osmosis).

           *               Sparkling water contains either natural or
                           artificial carbonation and is positioned
                           to compete in the broad "refreshment
                           beverage" field.  Sparkling water includes
                           domestic sparkling water, club soda and
                           seltzer, and is typically sold through
                           normal food and beverage retail channels.

           *               Imported water, which includes both
                           sparkling and non-sparkling water produced
                           and bottled outside the U.S., is targeted
                           to "image-conscious consumers." Imported
                           water is sold through normal food and
                           beverage retail channels, typically at
                           significantly higher prices than other
                           bottled water alternatives.

           The Company  participates only in the  non-sparkling,  or still water
market.  Non-sparkling bottled water is currently distributed through office and
home  delivery,  retail stores and vending  machines.  Within the  non-sparkling
segment,  retail  pricing  generally  reflects  the  costs  associated  with the
maintenance of each distribution  channel. As a result,  bottled water delivered
to the home or office  has the  highest  per  gallon  price,  with  off-theshelf
bottled water sold through  retail  channels  having the next highest per gallon
price and, finally, vended water, which has the lowest price per gallon.

           Natural  spring  waters  are  not  always  free  from   contamination
problems.  Springs can be  contaminated  with coliform  (bacteria in the water).
Natural  springs need to be monitored and tested on a regular basis to make sure
they are without  contamination.  To date, the Company has had no  contamination
problems  with its  three  active  springs.  The  Company's  water  has not been
determined to be better or less  contaminated  than municipal water. The Company
believes, however, that natural spring water has advantages over municipal water
because,  unlike  municipal  water,  natural  spring  water is not treated  with
chlorine and other chemicals.

Products

           The  Company's  natural  spring  water is sold in two  bottle  sizes:
one-gallon plastic bottles and five-gallon high density polyethylene  recyclable
containers.  The Company  previously sold its natural spring water in 2.5 gallon
bottles, but has discontinued its sales in that size. Water sold under the "Echo
Springs" brand is packaged in both one-gallon and five-gallon  bottles.  Private
label water is sold only in one-gallon  size  bottles.  Private label sales have
not been significant to date.

           In  addition,  the  Company  leases  water  coolers  and sells a wide
variety of allied products,  including regular and decaffeinated  coffee, coffee
creamers and milk,  sugar,  soups and paper  products such as hot and cold paper
cups and plastic utensils.  To date, revenues from such allied products have not
been significant.

Suppliers

           The Company  purchases  all of its coolers and bottle and plastic cap
requirements from major vendors. In the past, the Company has experienced delays
from time to time in obtaining an adequate  supply of these materials due to its
vendors' inability to meet demand.  While such delays have become less frequent,
there can be no assurance that the Company will not experience similar delays in
the  future.  To date,  such delays  have not had a material  adverse  effect on
operations.

           Substantially  all of the Company's  water coolers are purchased from
the Cordley Temprite Division of Elkay Manufacturing. This supplier was selected
based on its reputation in the cooler  industry and its ability to meet delivery
deadlines  on a cost  efficient  basis.  Since there are only a few large cooler
manufacturers  in the United  States,  the  inability to obtain water coolers on
satisfactory  terms  could  have a  material  adverse  effect on the  Company' s
business. The Company has not experienced any

                                                         4

<PAGE>



such problems.  The Company also  purchases  certain  allied  products,  such as
coffee,  tea and a wide variety of paper  products  from numerous  vendors.  The
Company  believes  there are  sufficient  vendors  from  which to  obtain  these
products on competitive terms.

Marketing and Distribution

           The Company  markets its "Echo  Springs" brand as a 100% pure natural
spring water. The Company believes that this  distinguishes  its water from many
of its  competitors'  water,  many of which sell either  filtered  municipal tap
water or purified  water.  To date,  the Company has focused its  marketing  and
sales  efforts  in the New  Jersey/New  York City  Metropolitan  area,  which it
believes offers a substantial market for growth. If the Company is successful in
further penetrating this market, of which there can be no assurance,  it intends
to expand its marketing and sales focus to the northeastern  United States.  The
Company  sells all of its  products  through its own  in-house  staff except for
certain  distributor  and supermarket  sales which are made through  independent
commissioned sales  representatives.  The Company sells its products to offices,
other commercial  establishments,  residential  customers and supermarkets.  The
Company  distributes its bottled water and allied products from its Kearny,  New
Jersey  warehouse  by means of its  fleet of  eleven  trucks,  four of which are
owned,  five of which are rented and two of which are leased.  The Company  also
leases a tractor and three trailers for delivery to its Kearny  warehouse and to
certain distributors and supermarkets.

Seasonality

           In the beverage industry,  sales typically increase in the second and
third calendar quarters.  In order to help minimize the impact of seasonality on
sales in the future,  the Company will seek to expand its distribution of allied
products by  increasing  its  marketing  of such  products to its bottled  water
customers.

Competition

           The bottled water market is highly competitive.  The Company competes
in the  non-sparkling  segment of the bottled  water market  directly with other
office delivery water companies and indirectly with companies that provide water
vending machines and with off-the-shelf  marketers. The Company's water products
compete not only with other bottled water  products but also with other types of
beverages,  including  soft drinks,  coffee,  beer,  wine and fruit juices.  The
Company competes with vended water and  off-the-shelf  marketers on the basis of
(1) quality,  (2) taste,  (3) the  convenience of on site delivery,  and (4) the
features  offered by the water  dispenser  (i.e.  the  ability  to have  heated,
chilled or room temperature  water,  depending on the type of dispenser rented).
Such competition  includes bottlers and distributors of water products,  several
of which are more experienced and have greater

                                                         5

<PAGE>



financial  and  management  resources  than the  Company  and  have  established
proprietary trademarks, distribution facilities and bottling facilities.

           Many  bottled  water  companies  in the  United  States  are owned by
European or Japanese  companies.  Nestle  (Swiss) owns the Perrier,  Great Bear,
Poland Springs, Ozarka, Oasis, Zephyrhills,  Arrowhead,  Calistoga, Ice Mountain
and Volvic brands.  BSN Group (French) owns the Evian Brand. Anjou (French) owns
the Sierra Springs and Hinckley & Schmitt  brands.  Suntory  (Japanese) owns the
Belmont Springs, Crystal, Kentwood, Polar, Willow and Talwonda Springs brands.

Employees

           As of December 31, 1996, the Company  employed  twenty-eight  people,
six in  production,  fifteen  in  distribution,  and  seven  in  management  and
administration.  None of the  Company's  employees  is subject  to a  collective
bargaining  agreement  and the  Company  believes  that its  relations  with its
employees are satisfactory.

Government Regulation

           The United  States  Food and Drug  Administration  ("FDA")  regulates
bottled water as a food. Accordingly,  the Company's bottled water must meet FDA
standards  for  manufacturing  practices  and  chemical and  biological  purity.
Furthermore,  these  standards  undergo a continuous  process of  revision.  The
labels  affixed to bottles and other  packaging  of the water are subject to FDA
restrictions on health and nutritional claims for foods.

           In addition, all drinking water must meet United States Environmental
Protection  Agency  standards  established  under  the Safe  Drinking  Water Act
("SDWA") for mineral and chemical concentration. The 1986 amendments to the SDWA
mandated  the   establishment  of  new  drinking  water  quality  and  treatment
regulations.

           Bottled water must originate from an "approved  source" in accordance
with standards  prescribed by the state health  department in each of the states
in which the Company's  products are sold.  The source must be inspected and the
water sampled, analyzed and found to be of safe and wholesome quality. There are
annual  "compliance  monitoring tests" of both the source and the bottled water.
The health  departments  of the  individual  states also govern water purity and
safety,  labeling of bottled  water  products  and  manufacturing  practices  of
producers.

           The Company's water supply is located in the State of New York, which
requires a bottled  water  manufacturer  to be  certified  by the New York State
Department   of  Health   ("Department   of   Health").   In  order  to  receive
certification, a prospective manufacturer must

                                                         6

<PAGE>



submit an  application,  together with a detailed  report prepared by a licensed
professional engineer. The application includes the manner of development of the
source, the sanitation methods to be used in the bottling  operation,  the water
treatment  proposed,  the  laboratory  control  of water  quality  which will be
provided,  detailed engineering plans of the bottling facility and water source,
and a flow diagram from source through bottling operation.

           The application,  report and proposed labels and caps are reviewed by
the Department of Health.  In addition,  samples of the water are tested.  After
this  review and  testing,  arrangements  are made for the local  county  public
health unit to inspect the water bottling facilities.

   
           The cost to the Company to comply with government regulation consists
primarily of permits and water testing and amounted to approximately $28,000 for
the fiscal year ended October 31, 1996.     

           The Company  currently  has all required  approvals and believes that
its  bottling  facilities  are in  substantial  compliance  with all  applicable
government regulations.

Item 2. Description of Properties

           The  Company's  principal  facility  consists  of 150  acres  of land
located in  Burlington,  New York,  and owned by the Company,  on which there is
located a processing facility consisting of 7,200 square feet and seven springs,
of which three are  completed  and in  operation.  The  Burlington  facility was
built,  and  bottling  equipment  installed,  in 1990.  The Company  also leases
property in Edmeston,  New York.  Although  the Company has no present  plans to
develop the four uncompleted springs, in order to do so it would be necessary to
landscape the area, cap the springs, run an underground pipe from the springs to
the bottling  facility and obtain approval from the New York State Department of
Health.  The Company estimates that this process would take three to four months
to complete. Until developed,  management is not able to estimate the additional
capacity that these springs would provide.

           The  current  production   capacity  of  the  bottling  facility  per
eight-hour shift is 1,400,000 four-pack crates per year of one-gallon bottles or
1,100,000  five-gallon  bottles per year, which exceeds the Company's  projected
needs for the foreseeable  future.  The plant  currently  operates one shift per
day, five days per week, representing approximately 25% of capacity.

           The Company draws its water from three  developed  natural springs at
Burlington  and  Edmeston.  The  Company's  Burlington  water sources flow at an
average rate of 26 gallons per minute.  The Edmeston springs  (described  below)
have  average flow rates of 50 and 60 gallons per minute.  The Company  believes
that its water is clean, refreshing and lightly mineralized.

                                                         7

<PAGE>



           The Company is dependent upon the natural springs for the water which
it bottles  and sells.  Natural  occurrences  beyond the  control of the Company
including,  but not limited to, drought, which prevents the natural springs from
recharging  themselves,  and other  occurrences,  such as  contamination  of the
springs  or  failure  of  the  water  supply  to  comply  with  all   applicable
governmental  requirements for mineral and chemical concentration,  could have a
material adverse effect on the business of the Company.

   
           The  Company  entered  into a  20-year  lease  with  an  unaffiliated
landlord on  September  14, 1994 for 41.686 acres of land located in the town of
Edmeston,  State of New York,  on which are located two developed  springs.  The
springs have a combined average capacity of approximately  58,000,000 gallons of
water per year. The Company applied for and received  approval from the New York
State  Department of Health to operate the springs on August 10, 1995.  Based on
the  amended  agreement  of July 19,  1995,  rent for the  property is $.005 per
gallon of water  extracted  for the first five years (with  minimum rent of $300
per week) and $.01 per gallon for the following  fifteen years with minimum rent
of $600 per week). The Company has paid an additional rent of $21,000 during the
first year.  The Company has the right to build and operate a  processing  plant
(which will become the  property of the  landlord) on the property in which case
the rent will increase to $.015 per gallon  extracted.  The Company also has the
right to terminate the lease without  penalty after payment of rent  aggregating
$100,000 plus the additional  $21,000 first year rent,  and, in the event it has
constructed a processing  plant,  the right to renew the lease for an additional
20-year term on terms to be agreed upon by the parties.  The Company intends, as
its needs require, to utilize the water from these springs in its business.  The
water can be  utilized  without  construction  of a plant and the Company has no
immediate plans to build a plant on this property. Rent expense under this lease
was  $33,426  and  $9,330  for the  years  ended  October  31,  1996  and  1995,
respectively.     

           The Company's  principal  offices are in Kearny,  New Jersey where it
leases  23,000  square feet of office and  warehouse  space  pursuant to a lease
expiring in March,  1998. The Company pays a monthly rent of $5,495. The Company
believes that its current facilities are adequate for its foreseeable needs.

Item 3. Legal Proceedings

   
           Kenneth T. Williams  commenced two actions in March and April,  1994,
and a third action in June,  1996 in the Supreme Court of the State of New York,
County of Otsego, against certain parties,  including the Company and certain of
its  subsidiaries and affiliates,  seeking a one-half  interest in the Company's
land and facility located in Burlington, New York and $17,000,000 in damages.
    


                                                         8

<PAGE>



   
           All three suits have been dismissed in their entirety except a claim,
for an unspecified  amount,  that the Company and the other defendants have been
unjustly  enriched at Mr. Williams'  expense.  Due to Mr.  Williams'  failure to
timely  take  proceedings  for  judgment  against the  Company,  it is not clear
whether this case will come to trial on the merits.

           Management  is of the opinion  that there is no material  exposure to
the Company and  therefore,  no provision has been made for any possible loss in
the Company's consolidated financial statements.     

           In August,  1996,  an action was  commenced  against  the Company and
Messrs.  Rakusin and Grey in the Supreme Court of the State of New York,  Broome
County,  demanding a judgment on a promissory  note in the  principal  amount of
$50,000  issued by the Company and  allegedly  personally  guaranteed by Messrs.
Rakusin and Grey. In December,  1996, the plaintiff was granted summary judgment
in this matter.  The Company intends to pay all principal and interest due under
such note.

Item 4.  Submission or Matters to a Vote of Security Holders

           On  October  1,  1996  the  Company   held  its  annual   meeting  of
shareholders,  at which  meeting,  the  shareholders  were asked to elect  three
directors and to approve a proposal to effect a 1-for- 25 reverse stock split of
the outstanding shares of common stock of the Company. The directors elected and
the votes cast were as follows:

           Name               Votes in Favor        Votes Withheld
Michael S. Rakusin        42,101,212             50,800
Edward J. Metzger         42,102,712             49,300
Frank A. LaSala           41,996,712            115,300

           The  proposal to approve the reverse  stock split was approved by the
shareholder vote as follows:

            Votes in Favor      Votes Against        Abstained
             41,215,676          870,900              24,260


                                                         9

<PAGE>




                                                      PART II

Item 5.                    Market for Company's Common Equity and Related
                           Stockholder Matters


   
           The  following  table sets forth the high and low  closing bid prices
for the periods indicated as reported by the National  Association of Securities
Dealers  Automated  Quotation System (Nasdaq) between dealers and do not include
retail  mark-ups,  mark-downs,  or commissions and do not necessarily  represent
actual
    
transactions.
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                     Low                        High


Calendar Year 1994*:

   
First Quarter                                        $ .78                      $3.91
Second Quarter                                         .78                       3.75
Third Quarter                                          .50                       3.50
Fourth Quarter                                         .78                       3.13
    

Calendar Year 1995*:

   
First Quarter                                          .50                       2.00
Second Quarter                                        1.50                       1.56
Third Quarter                                         1.25                       1.50
Fourth Quarter                                         .75                       1.25
    

Calendar Year 1996:

   
First Quarter*                                         .63                       1.25
Second Quarter*                                       1.00                       2.25
Third Quarter*                                        1.25                       3.00
Fourth Quarter                                        1.25                       2.75
    
-----------
   
</TABLE>

*recalculated after reverse split

           At October  31,  1996,  the  Company had 318 holders of record of its
Common Stock.

           The Company has paid no cash  dividends  on its Common  Stock to date
and it does  not  anticipate  declaring  or  paying  any cash  dividends  in the
foreseeable future.
    


Item 6.                    Management's Discussion and Analysis of Financial
                           Condition and Results of Operations

Fiscal Year Ended  October 31,  1996  Compared to Fiscal Year Ended  October 31,
1995.

       Net revenues decreased $302,507 (11.8%) to $2,264,702 for the fiscal year
ended October 31, 1996 ("Fiscal 1996")from  $2,567,209 for the fiscal year ended
October 31, 1995 ("Fiscal 1995"). The $353,520 decrease in

                                                            10

<PAGE>



gross sales was due  primarily to four  factors.  The  2.5-gallon  sales fell by
approximately   $17,000  as  this  low-margin,   low-volume   product  line  was
discontinued in July, 1996. Sales of one gallons,  another  low-margin  product,
decreased by approximately $139,000,  largely due to a discontinuance of service
to three customers,  including one bankruptcy. The third contributing factor was
a deliberate  discontinuance of service to marginal customers as determined from
a  customer-by-customer  review in setting up the new corporate computer system.
The  fourth  factor  was a much  cooler  summer in 1996  compared  to 1995.  The
remaining  increase in net revenues was  accounted for primarily by three items.
Discounts earned upon the  renegotiation  and settlement of a few older payables
increased by  approximately  $24,000 and credits and allowances  were reduced by
approximately  $55,000.  These gains were offset by a lower gain on unclaimed or
lost customer deposits of approximately $30,000.

       Cost of sales for  Fiscal  1996 was  $865,255  (38.4% of gross  sales) as
compared  to  $978,901  (37.6% of gross  sales)  for  Fiscal  1995.  This  small
percentage increase was caused primarily by an approximately $24,000 increase in
rental expense relating to the Wheeler springs resulting from twelve months rent
in Fiscal 1996 versus three months in Fiscal 1995.

   
       Selling,  general and  administrative  expenses were $1,483,147 (65.5% of
net revenues) in Fiscal 1996 as compared to  $1,542,160  (60.1% of net revenues)
in Fiscal 1995. A significant  reduction in the sales and marketing  staff in an
effort to better concentrate on the current customer base resulted in an overall
savings  of   approximately   $158,000.   However,   delivery  costs   increased
approximately  $49,000 primarily as a result of increased truck rental costs due
to a larger  number of  rental  vehicles  in the  corporate  fleet,  in order to
improve the timeliness of product  deliveries,  combined with a 50% truck rental
price increase in May, 1996.  Further,  warehouse costs increased  approximately
$21,000 due largely to increased  cooler repair costs resulting from contracting
such repairs to a third party professional.  Lastly,  general and administrative
expenses rose by approximately  $29,000,  primarily as a result of approximately
$26,000 of additional compensation to the President in the form of common shares
issued in consideration of prior services.     

       Interest  expense  decreased  from $247,694 in Fiscal 1995 to $189,782 in
Fiscal 1996 primarily as a result of the $200,000 8% mortgage note payable under
litigation  being  eliminated  at  October  31,  1995 and the effect of the debt
conversion  described  in  Note  14 to the  consolidated  financial  statements.
Amortization of other assets of $4,876 in Fiscal 1996 and Fiscal 1995 related to
the  amortization  of water  rights.  Other income of $78,400 in Fiscal 1996 and
$3,705 in Fiscal 1995 related to non-recurring operating items.

   
       The net operating loss for Fiscal 1996 increased by $14,303 from $214,268
in Fiscal 1995 to $228,571  in Fiscal  1996.  The net income for Fiscal 1996 was
$100,379 after an extraordinary gain on debt restructuring of $328,950.
    




                                                            11

<PAGE>




Fiscal Year Ended October 31, 1995 Compared to Fiscal Year Ended October
31, 1994

      Net revenues decreased $115,158 (4.3%) from $2,682,367 for the fiscal year
ended October 31, 1995 ("Fiscal  1995") to $2,567,209  for the fiscal year ended
October 31, 1994 ("Fiscal  1994").  The $85,053  decrease in gross sales was due
primarily to two factors.  First, the sales mix in Fiscal 1995 showed increases,
totaling $74,296, in more profitable five gallon and coffee service sales offset
by decreases,  totaling  $133,537,  in less profitable 2.5 gallon and one gallon
sales.  The  second  contributing  factor  was a  discontinuance  of  service to
marginal  customers in the New York City suburbs.  The remaining decrease in net
revenues  related  primarily to a reduced  gain on  unclaimed  or lost  customer
deposits in Fiscal 1995 to $46,257 from $78,971 in Fiscal 1994.

      Cost of sales for  Fiscal  1995 was  $978,901  (37.6%  of gross  sales) as
compared to  $1,090,011  (40.5% of gross sales) for Fiscal 1994.  This  decrease
resulted  largely from two factors.  The first factor was the shift in sales mix
noted  above  which was  further  enhanced  by  shifting  the  packaging  of the
remaining  2.5 gallon and one gallon sales from  disposable  cardboard  boxes to
reusable plastic crates.

      Selling, general and administrative expenses were $1,542,160 (60.1% of net
revenues) in Fiscal 1995 as compared to  $1,872,906  (69.8% of net  revenues) in
Fiscal 1994. $192,903 of this $330,746 total decrease  represented a significant
reduction in the sales and marketing staff in an effort to better concentrate on
the current customer base while a further $135,884  resulted from a streamlining
of the  administrative  staff and  expenses.  The  remaining  $1,959  saving was
achieved in the delivery and warehouse operations.

      Interest  expense  increased  from  $220,223 in Fiscal 1994 to $247,694 in
Fiscal 1995  primarily as a result of the full-year  effect on 1994  borrowings.
The $200,000  mortgage note payable under  litigation was not  eliminated  until
year end in Fiscal 1995.  Amortization  of other assets of $4,876 in Fiscal 1995
and Fiscal 1994  related to the  amortization  of water  rights.  The  remaining
Fiscal 1994  amortization  costs  related to deferred  charges  which were fully
amortized as at October 31, 1994.

      In Fiscal 1994, the Company  wrote-off  $739,707 of costs incurred for the
proposed merger and public  offering which were  subsequently  withdrawn.  Other
income of $3,705 in Fiscal  1995 and other  expenses  of $318,895 in Fiscal 1994
related primarily to non-recurring operating items.

   
      The loss on sale of assets of $11,551 in Fiscal  1995  resulted  primarily
from the disposition of the property under  litigation while the gain on sale of
assets of $99,794 in Fiscal 1994 resulted  primarily  from the sale of the Utica
operation (See Note 2 to Consolidated Financial Statements).
    

      The net loss for Fiscal 1995  decreased by $1,526,407  from  $1,740,675 in
Fiscal 1994 to $214,268 in Fiscal 1995.


                                                            12

<PAGE>



      Liquidity and Capital Resources

      The Company's  primary  sources of liquidity have been cash generated from
sales, issuance of common stock, debentures and installment debt, and borrowings
from its officers.

      During the fiscal years ended  October 31, 1996 and 1995,  the Company had
negative  cash  flows  from  operating  activities  of  $270,514  and  $139,699,
respectively.  Investing  activities  used cash of  $44,695  in Fiscal  1996 and
$48,181 in Fiscal 1995 primarily for the  acquisition of property and equipment.
The Company has financed its  operating and  investing  activities  during these
periods primarily through the issuance of common stock and installment debt.

   
      In 1996,  the Company  completed a conversion  of debt of  $1,700,022  and
accrued  interest  thereon of $492,984 for 877,201 (post 1-for-25 reverse split)
shares of its Common  Stock in  conversion  of  $2,193,006  of  indebtedness  to
thirteen (13)  investors,  each an "accredited  investor"  within the meaning of
Regulation  D  of  the  Securities  Act  of  1933,  as  amended,   realizing  an
extraordinary  gain of  $328,950  as  indicated  in Note 14 to the  Consolidated
Financial Statements.     

      At October  31,  1996,  the Company had a working  capital  deficiency  of
$1,954,160.  Short-term  credit sources are limited to trade credit on purchases
and services.  The report issued by the Company's  accountants  that accompanies
the Company's  Consolidated  Financial Statements for the year ended October 31,
1996 states that there is a  substantial  doubt about the  Company's  ability to
continue as a going concern.

   
      As indicated in Note 7 to the Consolidated  Financial Statements,  certain
of the Company's indebtedness is in default. Although the debt is in default and
therefore  currently due, the  debtholders  have  informally  agreed to wait for
payment until completion of the proposed public offering noted below.
    

      Considerations  which  tend to  mitigate  the  question  of going  concern
include  management's  successful  efforts  in  raising  funds  through  private
placements,  the ability to renegotiate and restructure long-term financing with
major  creditors,  past and  present  efforts to convert  debt to equity and the
ability to acquire,  restructure and develop the bottled water business which it
believes will be able to achieve profitable operations.

   
      In June,  1996,  the Company  entered into  negotiations  to  consummate a
public offering with minimum gross proceeds of  approximately  $4,000,000.  Such
offering is expected to take place during  Fiscal 1997.  The Company  intends to
use a portion  of the  proceeds  of the  proposed  public  offering  to seek and
consummate  acquisitions  of companies in the bottled water and allied  products
business.  No  assurance  can be given that the Company  will be  successful  in
identifying potential acquisitions or, if made, that such acquisitions will have
a  beneficial  effect on the  Company.  The Company has no current  agreement to
acquire any business or property,  or intent to acquire any specific business or
property.     

      The Company believes that these factors provide meaningful  evidence as to
the  Company's  ability to  continue in  operation  for the next fiscal year and
support the going concern presentation in the accompanying

                                                            13

<PAGE>



Consolidated  Financial  Statements in favor of the liquidation basis. There can
be no  assurance,  however,  that  management  will continue to be able to raise
sufficient  capital or convert existing debt to equity or to achieve  profitable
operations going forward.

   
      The Company has no plans or commitments  for capital  expenditures  during
the next twelve  months other than the ordinary  equipment  purchases  which are
expected to be funded with additional  installment debt. The Company is close to
settling its prior years' unpaid payroll taxes and, upon  agreement,  intends to
pay such amounts from additional borrowings.     

      The  Company's  business is subject to seasonal  fluctuation,  with summer
being the busiest season and winter the slowest.  To date,  seasonality  has not
had any  material  effect on the  Company's  financial  condition  or results of
operations.

   
      New Accounting Standards

         In October,  1995,  the Financial  Accounting  Standards  Board adopted
Statement  No. 123  (Accounting  for  Stock-Based  Compensation),  effective for
fiscal years beginning after December 15, 1995. Under this Statement,  companies
can elect,  but are not  required,  to  recognize  compensation  expense for all
stock-based awards,  using a fair value methodology.  The Company will implement
the disclosures-only  provisions as allowed by this Statement in fiscal 1997 and
will  continue to measure  compensation  expense in accordance  with  Accounting
Principles Board Opinion No. 25 (Accounting for Stock Issued to Employees).

         In March,  1995,  the  Financial  Accounting  Standards  Board  adopted
Statement No. 121  (Accounting  for the Impairment of Long-Lived  Assets and for
Long-Lived Assets to Be Disposed Of), effective for fiscal years beginning after
December 15, 1995.  Management does not believe that adopting  Statement No. 121
in fiscal 1997 will have a material effect on the Company's financial position.
    



                                                            14

<PAGE>




      Item 7.              Financial Statements.


      Board of Directors and Shareholders
      Echo Springs Water Co., Inc.

                                               Independent Auditors' Report

         We have audited the  accompanying  consolidated  balance  sheet of Echo
Springs Water Co., Inc. and subsidiaries as at October 31, 1996 and 1995 and the
related consolidated statements of operations, shareholders' equity (deficiency)
and cash flows for the years then  ended.  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 aforementioned  consolidated  financial statements
present fairly, in all material respects, the financial position of Echo Springs
Water Co.,  Inc.  and  subsidiaries  as at October  31,  1996 and 1995,  and the
results  of their  operations  and their  cash flows for the years then ended in
conformity with generally accepted accounting principles.

         The accompanying  consolidated  financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
12 to the consolidated financial statements,  the Company has suffered recurring
losses from  operations and has a working  capital  deficiency and a net capital
deficiency 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 12. The  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.

   
         As  discussed  in  Notes  13  and  14  to  the  consolidated  financial
statements,  the  Company's  1996  valuation  of stock  compensation  previously
reported at $25,000 has been  revised to $26,250  and an  extraordinary  gain of
$328,950  has  been  recorded  on the  conversion  of debt and  interest.  These
revisions were made  subsequent to the issuance of the financial  statements and
the accompanying consolidated financial statements have been restated to reflect
these corrections.     



                                                CITRIN COOPERMAN & COMPANY, LLP


      New York, New York
   
      January 22, 1997,  except for Notes 13 and 14, as to which the date is May
      28, 1997
    

                                                            15

<PAGE>


                                                ECHO SPRINGS WATER CO. INC.

                                                CONSOLIDATED BALANCE SHEET

                                AS AT OCTOBER 31,

<TABLE>
<CAPTION>
<S>                                                                                  <C>                        <C>
                                                                                    1996                       1995
                                                                                   -----                      ----

                                     ASSETS
      Current Assets:
       Cash                                                                     $   44,631                $   57,224
       Accounts receivable - net of
        allowance for doubtful accounts
        of $14,000 in 1996 and $35,000 in 1995                                     257,212                   279,128
       Notes receivable, current portion                                            26,010                    22,380
       Inventories                                                                  34,221                    39,909
       Prepaid expenses                                                             30,178                    27,406
                                                                                 ---------                 ---------
         Total Current Assets                                                      392,252                   426,047

      Notes receivable, net of current portion                                     159,868                   157,857


      Property, plant and equipment - net                                        1,278,230                 1,395,090


      Other assets                                                                 220,026                   219,704
                                                                                 ---------                 ---------


         TOTAL ASSETS                                                           $2,050,376                $2,198,698
                                                                                 =========                 =========

                LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

      Current Liabilities:
       Current portion of debt                                                   $  552,153                 $  830,544
       Debentures                                                                    50,000                  1,325,000
       Accounts payable and accrued expenses                                      1,513,582                  2,242,578
       Customer deposits                                                            213,000                    211,900
       Unearned revenues                                                             17,677                     49,400
                                                                                    ---------                  ---------
   Total Current Liabilities                                                      2,346,412                  4,659,422

      Installment debt                                                                                           5,577

         Total Liabilities                                                        2,346,412                  4,664,999
                                                                                   ---------                  ---------


      Shareholders' Equity (Deficiency):
       Common stock, $.0001 par,
   
        75,000,000 shares authorized; issued
        and outstanding 2,907,149 shares in
        1996 and 1,659,996 shares in 1995                                               291                        166
       Additional paid-in capital                                                 7,967,725                  5,897,964
       Accumulated deficit                                                       (8,264,052)                (8,364,431)
                                                                                  ---------                    ---------
    
           Total Shareholders' Equity
            (Deficiency)                                                          (296,036)                  (2,466,301)
                                                                                   --------                    ---------
         TOTAL LIABILITIES AND SHARE-
          HOLDERS' EQUITY (DEFICIENCY)                                           $2,050,376                  $2,198,698
                                                                                   ==========                 =========
</TABLE>


      See accompanying notes to consolidated financial statements.


                                                               16

<PAGE>


                                                ECHO SPRINGS WATER CO. INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS

                         FOR THE YEARS ENDED OCTOBER 31,



<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                    1996                                       1995
                                                                    ----                                       ----



      Revenues:
       Gross sales                                                   $2,252,968                         $2,606,488
       Credits and allowances                                           (12,734)                           (67,241)
       Freight out                                                      (43,154)                           (50,745)
       Other income                                                      67,622                             78,707
                                                                      ---------                          ---------

                                                                      2,264,702                          2,567,209
                                                                      ---------                          ---------


      Costs and Expenses:
       Cost of sales                                                    865,255                            978,901
       Selling, general and
   
        administrative                                                1,483,147                          1,542,160
       Interest                                                         189,782                            247,694
       Amortization of other
    
        assets                                                            4,876                              4,876
       Other expenses (income) - net                                    (78,400)                            (3,705)
       Loss (gain) on sale
        of assets                                                        28,613                             11,551
                                                                      ---------                          ---------

         Total Costs and
   
          Expenses                                                    2,493,273                          2,781,477
                                                                      ---------                          ---------
      Loss before extraordinary
         gain                                                          (228,571)                          (214,268)
      Gain on debt restructuring        328,950                                                           _________
                                      ---------

        Net income (loss)                                             $ 100,379                          $(214,268)
                                                                       ========                           ========


        Loss per share before
         extraordinary gain                                                (.12)                              (.13)
         Extraordinary gain per share                                       .17                          _________
                                                                       ---------

      Net income (loss) per share                                      $     .05                        $     (.13)
                                                                        ========                         =========
    

      Weighted average shares
   
       outstanding                                                    1,913,925                          1,659,996
                                                                      =========                          =========
    

</TABLE>

      See accompanying notes to consolidated financial statements.





                                                               17

<PAGE>


                           ECHO SPRINGS WATER CO. INC.

           CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)

                  FOR THE YEARS ENDED OCTOBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                                                                                  Total
                                                         Common Stock                                         Shareholders'
                                                                           Paid-in         Accumulated           Equity
                                                 Shares       Amount       Capital           Deficit           (Deficiency)



      Balance at October 31,
       1994                                      1,659,996       $166      $5,897,964        $(8,150,163)        $(2,252,033)

      Net loss                                                                                  (214,268)           (214,268)
                                                ---------         --- ------------------            ----------         ---------

      Balance at October 31,
       1995                                       1,659,996       166      5,897,964          (8,364,431)         (2,466,301)

      Shares issued upon
       conversion of debt
   
       and interest                                  877,201        88      1,863,968                               1,864,056
      Shares purchased                                   (48)                    (420)                                   (420)
      Shares issued to
    
       officer under
   
       agreement                                       10,000         1        26,249                                  26,250
      Shares sold                                     360,000        36       179,964                                 180,000
      Net income                                                                                 100,379              100,379
                                                    ---------         ---          ---------            ---------           --------
    

      Balance at
   
       October 31, 1996                             2,907,149      $291     $7,967,725        $(8,264,052)         $ (296,036)
                                                    =========         ===          =========            ==========         =========
    


</TABLE>

      See accompanying notes to consolidated financial statements.


                                                                  18

<PAGE>


                                                ECHO SPRINGS WATER CO. INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                         FOR THE YEARS ENDED OCTOBER 31,
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                          1996                     1995
                                                                                          ----                     ----

      Operating Activities:
   
       Net income (loss)                                                                $ 100,379               $(214,268)
       Adjustments to reconcile
        net income (loss) to net cash used
        by operating activities -
        Extraordinary gain                                                              (328,950)
        Depreciation and amortization                                                    156,096                  139,245
         Loss on sale of assets                                                           28,814                   11,551
         Provision for doubtful accounts                                                 (21,000)                   8,000
         Stock issued for compensation                                                    26,250
    
        Changes in assets and liabilities -
   
         Accounts receivable                                                              20,166                  (11,832)
          Inventories                                                                      5,688                    7,376
          Prepaid expenses                                                                (2,772)                 (11,643)
          Other assets                                                                    11,450                      512
          Accounts payable and accrued expenses                                         (236,012)                 (75,640)
          Customer deposits                                                                1,100                   18,900
          Unearned revenues                                                              (31,723)                 (11,900)
                                                                                       ---------                 --------
    
           Net Cash Used By Operating
           Activities                                                                   (270,514)                (139,699)
                                                                                       ---------                 --------

      Investing Activities:
       Capital expenditures                                                              (68,409)                 (85,210)
       Collections on notes receivable                                                    18,479                   23,342
       Proceeds from sale of assets                                                        5,235                   13,687
                                                                                       ---------                 --------
         Net Cash Used By Investing
         Activities                                                                      (44,695)                 (48,181)
                                                                                       ---------                 --------

      Financing Activities:
       Proceeds from issuance of common stock                                            180,000
       Purchase of common stock                                                             (420)
       Increase in installment debt                                                      312,153                  124,336
       Repayment of installment debt                                                    (171,099)                (127,056)
       Deferred public offering costs                                                    (18,018)
                                                                                       ---------
         Net Cash Provided
         (Used) By Financing Activities                                                  302,616                   (2,720)
                                                                                       ---------                 --------

      Net decrease in cash                                                               (12,593)                (190,600)

      Cash - beginning                                                                    57,224                  247,824
                                                                                       ---------                 --------

      CASH - ENDING                                                                   $   44,631                $  57,224
                                                                                       =========                 ========

      Supplemental Cash Flow Information:
       Interest paid                                                                  $   45,292                $  20,071
       Conversion of accounts
        receivable to notes receivable                                                    22,750
       Conversion of other assets to
        notes receivable                                                                   1,370
       Conversion of debt and interest
   
        to common stock, net of extraordinary
        gain of $328,950                                                               1,864,056
    

 </TABLE>
    See accompanying notes to consolidated financial statements.

                                                                  19

<PAGE>



                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

                Echo  Springs  Water Co.,  Inc.  ("the  Company"),  through  its
                subsidiaries,  is engaged  principally  in the  distribution  of
                bottled  water and allied  products.  The Company  bottles water
                from  its own  natural  springs  in  Burlington,  NY for  direct
                distribution  and sale to business and residential  customers as
                well as for  wholesale to  supermarkets  and other bottled water
                distributors.

                SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:

                Principles of Consolidation
                The consolidated  financial  statements  include the accounts of
                the Company and its wholly-owned  subsidiaries.  All significant
                intercompany accounts and transactions have been eliminated.

                Use of Estimates
                The  preparation  of financial  statements  in  conformity  with
                generally accepted accounting  principles requires management to
                make estimates and assumptions  that affect the amounts reported
                in the  financial  statements  and  accompanying  notes.  Actual
                results could differ from those estimates.

                Revenue Recognition
                Revenue from equipment  rental is recognized based on the period
                in which it is earned and  unearned  revenue is recorded for the
                portion  billed in  advance.  Revenues  from  product  sales are
                recognized  upon  shipment to the  wholesaler or delivery to the
                customer, as applicable.

                Inventories
                Inventories consist of items held for sale or rental,  including
                water  coolers  and  bottles  which  have  not yet been put into
                service, and are valued at the lower of cost or market with cost
                being determined on the basis of the first-in, first-out method.

                Property, Plant and Equipment
                Property,  plant and equipment are recorded at cost.  Additions,
                renewals and improvements are capitalized. Asset and accumulated
                depreciation  accounts are relieved  for  dispositions  with any
                resulting  gain or loss reflected in earnings.  Maintenance  and
                repairs  are  charged to expense as  incurred.  Maintenance  and
                repairs expense amounted to $61,730 in 1996 and $39,716 in 1995.
                Depreciation   of  plant  and   equipment  is  provided  by  the
                straight-line method over the estimated economic useful lives of
                the various asset groups as follows:

                           Buildings and improvements           5-40 years
                           Machinery and equipment             10-20 years
                           Furniture and fixtures                  7 years
                           Vehicles                                5 years
                           Water coolers, bottles
                            and brewers                         6-10 years






                                                        20

<PAGE>



                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      NOTE 1 -             BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
                           --------------------------------------------
                           (CONTINUED)


                Other Assets
                The allocated  cost of the  acquisition  of water rights in 1991
                was  capitalized  and is being  amortized  by the  straight-line
                method over 40 years.  Costs associated with the proposed public
                offering  (Note  14)are  being  deferred at October 31, 1996 and
                will be  offset  against  the  proceeds  of such  offering  upon
                completion  or charged to expense  should such  offering  not be
                completed.

                Income Taxes
                All  deferred tax benefits  from the use of net  operating  loss
                carryforwards   are  offset  by  valuation   allowances  in  the
                accompanying consolidated financial statements.

                Loss Per  Common  and  Equivalent  Share Loss per share is based
                upon the weighted  average number of shares  outstanding  during
                each  period.  All share and per share  amounts give effect to a
                1-for-25 reverse stock split in October, 1996.

                Statement of Cash Flows
                For  purposes  of the  statement  of  cash  flows,  the  Company
                considers all highly liquid debt  instruments  purchased  with a
                maturity of three months or less to be cash  equivalents.  There
                were no cash equivalents at October 31, 1996 or 1995.

                Financial  Instruments and Credit Risks The carrying  amounts of
                cash,  accounts   receivable,   accounts  payable,  and  accrued
                expenses approximate fair value. However, it was not practicable
                to  estimate  the  fair  value of  other  financial  instruments
                principally,  installment  debt and  debentures - because quoted
                market  prices do not exist  and an  estimate  could not be made
                through other means without incurring excessive costs.

                Concentrations  of credit risk with respect to  receivables  are
                limited due to the large number of customers.  As of October 31,
                1996,  the Company  had  uncollateralized  receivables  with one
                distributor  approximating  $65,000, which represents 24% of the
                Company's trade accounts balance. During the years ended October
                31,  1996  and  1995,   sales  to  this  customer   amounted  to
                approximately 20% and 12%, respectively,  of the Company's gross
                sales.  No other  customer  accounted for more than 10% of gross
                sales.


      NOTE 2 -             NOTES RECEIVABLE
                           ----------------

   
                In efforts to  consolidate  operations,  in January,  1994,  the
                Company sold its commercial and residential  water  distribution
                business  in Utica  and  related  assets,  with a book  value of
                $120,467, to an unrelated party for $225,000 and realized a gain
                on the sale of $104,533. As part of the sales agreement, the new
                operation will purchase bottled water from the Company for three
                years.  The purchase  price was  satisfied  with two notes.  The
                first
    




                                                        21

<PAGE>



   
         NOTE 2 - NOTES RECEIVABLE (CONTINUED)

         note is for $50,000  without  interest,  which will be  converted  to a
         three-year,  6% term loan upon  repayment  of the  second  note  unless
         repaid  sooner.  The  second  note was  renegotiated  in 1996  with the
         inclusion of  approximately  $24,000 of accounts  receivable  and other
         assets  owed to the  Company  and is now  payable  at $2,788 per month,
         including interest at 6%, through June, 2001. Note payments continue to
         be received  by the Company in  accordance  with  payment  terms and no
         provision for uncollectible  amounts is required at this time. Sales of
         bottled  water to the new company in 1996 and 1995  amounted to $49,233
         and $39,924, respectively.
    


      NOTE 3 -             INVENTORIES
                           -----------

                Inventories consist of the following:

                                                      October 31,
                                                  1996              1995

                           Bottles               $ 1,722           $ 2,094
                           Product held
                            for sale              16,415            18,298
                           Supplies               16,084            19,517
                                                  ------            ------
                                                 $34,221           $39,909
                                                 ======            ======



      NOTE 4 -             PROPERTY, PLANT AND EQUIPMENT
                           -----------------------------

                Property, plant and equipment are summarized as follows:

                                                         October 31,
                                                    1996                 1995

Land                                          $  150,000           $  150,000
Buildings and improvements                       362,298              362,298
Water coolers, bottles and
  brewers                                        918,730              864,068
Machinery and equipment                          335,069              373,588
Vehicles                                          60,850               60,850
Furniture and fixtures                            127,128              124,862
                                                ---------            ---------
                                                 1,954,075            1,935,666

                           Less: accumulated
                            depreciation and
                     amortization                  675,845              540,576
                                                 ---------            ---------
                                                $1,278,230           $1,395,090
                                               =========            =========

      NOTE 5 -             OTHER ASSETS
                           ------------

                Other assets are comprised of the following:

                                   October 31,
                                    1996 1995

                Water rights                      $205,000             $205,000
                Accumulated amortization            33,529               28,653
                                                  -------              -------
                     Net deferred charges          171,471              176,347
                Security deposits                   30,537               43,357
                Deferred public offering costs      18,018
                                                  -------
                                                  $220,026             $219,704
                                                 =======              =======



                                                        22

<PAGE>



      NOTE 5 - OTHER ASSETS (CONTINUED)

         Deferred charges of $576,521 for financing costs, non-compete agreement
         and  consulting  costs were fully  amortized  at October  31,  1994 and
         written off in 1995.


      NOTE 6 -             CAPITAL AND OPERATING LEASES
                           ----------------------------

                Capital Leases
                The Company leased  machinery and equipment under capital leases
                that  were  included  under  the  caption  "Property,  Plant and
                Equipment" in the accompanying balance sheet at October 31, 1995
                with a book value of $36,293.  The  equipment was disposed of in
                1996.

                Operating Leases
                The Company  leases  office and  warehouse  facilities  under an
                operating  lease  expiring  March 31, 1998.  Rental  expense for
                office and warehouse  facilities amounted to $65,943 in 1996 and
                $65,943 in 1995.

                In  addition  the Company  leases  vehicles  and various  office
                equipment  under  operating  leases that extend until  February,
                2000.   Rental  expenses  under  equipment  leases  amounted  to
                $214,265 in 1996 and $150,575 in 1995.

   
                The Company  entered into a 20-year  lease with an  unaffiliated
                landlord on September  14, 1994 for 41.686 acres of land located
                in the town of Edmeston, State of New York, on which are located
                two  developed  springs.  The  springs  have a combined  average
                capacity of approximately  58,000,000 gallons of water per year.
                The Company applied for and received  approval from the New York
                State  Department of Health to operate the springs on August 10,
                1995. Based on the amended  agreement of July 19, 1995, rent for
                the  property  is $.005 per  gallon of water  extracted  for the
                first five years (with  minimum  rent of $300 per week) and $.01
                per gallon for the following fifteen years (with minimum rent of
                $600 per  week).  The  Company  has paid an  additional  rent of
                $21,000  during the first  year.  The  Company  has the right to
                build and  operate a  processing  plant  (which  will become the
                property of the landlord) on the property in which case the rent
                will  increase to $.015 per gallon  extracted.  The Company also
                has the right to  terminate  the  lease  without  penalty  after
                payment of rent aggregating $100,000 plus the additional $21,000
                first  year  rent,  and,  in  the  event  it has  constructed  a
                processing plant, the right to renew the lease for an additional
                20-year  term on terms to be  agreed  upon by the  parties.  The
                Company intends, as its needs require, to utilize the water from
                these springs in its business. The water can be utilized without
                construction  of a plant and the Company has no immediate  plans
                to build a plant on this property. Rent expense under this lease
                was $33,426 and $9,330 for the years ended  October 31, 1996 and
                1995, respectively.
    










                                                        23

<PAGE>





      NOTE 6 -             CAPITAL AND OPERATING LEASES (CONTINUED)
                           ----------------------------------------

                Minimum future lease payments are:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                              Operating Leases
                Fiscal year ending October 31,                                     Office        Equipment            Land
                ------------------------------                                     ------        ---------            ----
                1997                                                              $65,943          $34,020        $ 15,600
                1998                                                               27,476           24,720          15,600
                1999                                                                                24,720          15,600
                2000                                                                                 6,180          19,500
                2001                                                                                                31,200
                2002 and thereafter                                                                                429,000
                                                                                   ------           ------         -------
                Total minimum payments                                            $93,419          $89,640        $526,500
                                                                                   ======           ======         =======

      NOTE 7 -             INDEBTEDNESS
                           ------------
                                                                                                   1996              1995
                                                                                                   ----              ----
                Installment Debt

                Secured time note, with interest at 9.0%,  payable in 36 monthly
                 installments  of $954  including  interest.  Final  installment
                 originally due April 1997, repaid
                 in 1996.                                                                      $                 $ 15,119

                Secured time notes, at 12.0%,
                 payable in 36 monthly installments
                 of $6,072 including interest                                                                      57,509

                Advance payable to shareholder
   
                 with interest at 12% (d)                                                       282,153            60,000
    

                Capitalized lease obligations                                                                       8,471

                Notes payable with interest at 18%
                 due December 31, 1995 (c) (*)                                                  150,000           300,022

                Notes payable with interest at 7%
                 due December 31, 1995 (b) (*)                                                                    275,000

                Mortgage note payable, with 8.0%
                 interest payable quarterly,
                 principal due December 1993 (a) (*)                                            120,000           120,000
                                                                                                -------           -------

                           TOTAL DEBT                                                           552,153           836,121


                           CURRENT PORTION                                                      552,153           830,544
                                                                                                -------           -------

                           NET LONG-TERM PORTION                                               $                 $  5,577
                                                                                                =======           =======




</TABLE>

                *Obligations in default as to principal and interest. Portions
                 of the debt and interest were converted into common stock of
                 the Company.  (Note 14).







                                                            24

<PAGE>




      NOTE 7 -             INDEBTEDNESS (CONTINUED)
                           ------------------------

                (a) During 1993,  $1,300,000  of the  mortgage was  converted to
                5,200,000 shares of common stock on the basis of four shares for
                each dollar of debt and $80,000 was repaid. In addition, 500,000
                shares of common stock were issued in  settlement  of $71,143 of
                accrued  interest  and  any  additional  unpaid  interest.   The
                mortgagor has agreed to extend the maturity  until  December 31,
                1995.

   
                (b) Echo Springs Water  Company,  Inc., a company formed for the
                purposes  of a  proposed  merger and  public  offering  in 1994,
                borrowed $300,000 under a promissory note dated August 24, 1994.
                The loan bears  interest at 7% and  principal  and  interest are
                payable December 31, 1995. As additional  consideration  for the
                loan,  Echo  Springs  Water  Company,  Inc.  was to issue 25,000
                shares of its common stock to the note holder.  In October 1994,
                $25,000 of the borrowing was repaid. The debt was assumed by the
                Company  under  the same  terms as with  the  note  holder  upon
                failure of the proposed merger and public offering and, in 1996,
                such debt and related  interest was converted to common stock of
                the Company.
    

                (c)  Holders of notes  totalling  $200,000  agreed to extend the
                maturity  date in  exchange  for shares of common  stock of Echo
                Springs Water Company, Inc. Shares which were to be issued equal
                20% of the  amount  of the note  extended  divided  by $3.00 per
                share for an aggregate 13,333 shares. Holders of notes totalling
                $50,000  have sued the company  for  payment  and have  received
                judgment which they are currently trying to enforce.

                Shares of Echo Springs Water Company, Inc. to be issued under
                (b) and (c) above were not issued and there was an offer made
                to rescind the transaction since the contemplated offering was
                not consummated.

   
                (d) Michael S. Rakusin, the President,  a Director and principal
                shareholder  of the Company,  advances  funds to the Company for
                working capital purposes. Such advances increase and decrease as
                funds are needed and available.  Interest  expense on such loans
                for the fiscal years ended October 31, 1996 and 1995 amounted to
                $18,428 and $7,062, respectively.
    

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                               1996                  1995
                                                                                               ----                  ----
                Debentures

                8% Series D convertible
                 subordinated debentures
                 maturing December 31, 1995 (*)                                             $50,000            $   85,000


                10% Series E debentures
                 maturing December 31, 1995 (*)                                                                 1,240,000
                                                                                             ------             ---------

                           TOTAL                                                            $50,000            $1,325,000
                                                                                             ======             =========




</TABLE>



                                                            25

<PAGE>



                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      NOTE 7 -             INDEBTEDNESS (CONTINUED)
                           ------------------------

                *          Obligations in default as to principal and interest.
                           Portions of the debt and interest were converted into
                           common stock of the Company.  (Note 14).

                The convertible  subordinated  debentures are  convertible  into
                common stock at $12.50 per share.

      NOTE 8 -             ACCOUNTS PAYABLE AND ACCRUED EXPENSES
                           -------------------------------------

                Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
<S>                                                                                               <C>
                                                                                              October 31,
                                                                                       1996                 1995

                Trade payables                                                    $  564,385           $  649,983
                Accrued expenses                                                     294,947              573,507
                Wages payable                                                         40,527               41,263
                Interest payable                                                     100,130              451,373
                Payroll taxes payable                                                461,751              494,670
                Sales taxes payable                                                   51,842               31,782
                                                                                   ---------            ---------


                                                                                  $1,513,582           $2,242,578
                                                                                   =========            =========

</TABLE>

                The Company is presently  negotiating  for  settlement  of prior
                years' unpaid payroll taxes.  No provision has been made for any
                possible interest and penalties thereon, as management is of the
                opinion that such amounts, if any, will not be material.

      NOTE 9 -                                             COMMON STOCK
                                                           ------------

                On October 1, 1996, the stockholders approved a 1-for-25 reverse
                stock  split of the  outstanding  shares of common  stock of the
                Company.   The  par  value,   $.0001,   and  authorized  shares,
                75,000,000,  were not changed. The then outstanding common stock
                of  50,499,910  shares were  converted  to  2,019,996  shares of
                common  stock.  All  references  in the  accompanying  financial
                statements  to the number of common shares and per share amounts
                give effect to the reverse stock split.

                At October 31, 1996, the Company has warrants  outstanding  that
                allow the holders to purchase shares of common stock as follows:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                Group                                        Shares           Price       Expiration Date

                Investment banker                             4,000          $20.25                  March, 1997
                Officer                                      27,759            4.20                  October, 1998
</TABLE>

                In partial  settlement  of prior debts,  the Company  granted an
                officer  warrants to purchase 27,759 shares of common stock at a
                price of $12.50 per share, which warrants were to expire October
                31, 1993 and were extended an additional  year in 1993. In 1994,
                the  warrants  were  extended  an  additional  two years and the
                exercise  price  reduced  to $6.25 per share and,  in 1996,  the
                warrants  were  again  extended  for two years and the  exercise
                price reduced to $4.20 per share.

                Other warrants for 20,120 shares at an excise price of $6.25 per
                share expired as at October 31, 1996.


                                                          26

<PAGE>



      NOTE 10-                                         INCOME TAXES

   
                At  October  31,  1996,  the  estimated  maximum  amount  of net
                operating loss  carryforward  available to reduce future taxable
                income is approximately  $8,200,000,  expiring from 2004 through
                2010.  Deferred tax benefits from the use of net operating  loss
                carryforwards  of  approximately  $2,780,000  are  offset  by  a
                corresponding  amount of  valuation  allowance  since it is more
                likely  than not that all or some  portion of the  deferred  tax
                asset will not be realized.

                Taxes  (benefits)  that  would have been  provided  for the year
                ended October 31, 1996 on the loss before extraordinary gain and
                the extraordinary gain of approximately  $(77,800) and $111,800,
                respectively,  have been offset by corresponding  changes in the
                valuation allowance.

                The approximate  amounts of net operating loss  carryforward and
                the year of expiration are as follows:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                             Amount                            Year of Expiration

                                            $ 460,000                                 2004
                                            1,160,000                                 2005
                                            1,600,000                                 2006
                                            2,000,000                                 2007
                                            1,050,000                                 2008
                                            1,730,000                                 2009
                                              200,000                                 2010
    

</TABLE>

      NOTE 11-                                       LITIGATION

   
                The  Company  and  its  affiliates  are  defendants  in  actions
                involving a dispute  concerning  title to the Company's land and
                facility located in Burlington,  New York  ("Property") in which
                the  plaintiff  seeks a one-half  interest in the  Property  and
                $17,000,000  in damages.  All three suits have been dismissed in
                their entirety except a claim, for an unspecified  amount,  that
                the Company and the other defendants have been unjustly enriched
                at Mr. Williams' expense. Due to Mr. Williams' failure to timely
                take  proceedings  for judgment  against the Company,  it is not
                clear  whether  this  case  will  come to trial  on the  merits.
                Management is of the opinion that there is no material  exposure
                to the Company and therefore, no provision has been made for any
                possible  loss  in  the  accompanying   consolidated   financial
                statements.
    

      NOTE 12-                                       GOING CONCERN

   
                For the year ended  October 31,  1996,  the Company  sustained a
                loss before  extraordinary  gain of $228,571  and at October 31,
                1996  had  a  working  capital  deficiency  of  $1,954,160,   an
                accumulated  deficit  of  $8,264,052  and  deficit  net worth of
                $296,036.  In addition,  the Company was in default on principal
                and  interest  payments  on a  substantial  portion of its debt.
                These facts raise  substantial doubt about the Company's ability
                to continue  as a going  concern.  Considerations  which tend to
                mitigate  the  question of going  concern  include  management's
                successful efforts in raising funds through private  placements,
                the ability to renegotiate and restructure  long-term  financing
                with major  creditors,  past and present efforts to convert debt
                to equity and the  ability to acquire,  restructure  and develop
                the bottled water business which it believes will be able to
    



                                                          27

<PAGE>



      NOTE 12-   GOING CONCERN (CONTINUED)

   
                achieve  profitable  operations.  The  Company  intends to use a
                portion of the proceeds of the proposed  public  offering  (Note
                14) to seek and  consummate  acquisitions  of  companies  in the
                bottled water and allied products business.  No assurance can be
                given  that  the  Company  will  be  successful  in  identifying
                potential  acquisitions or, if made, that such acquisitions will
                have a  beneficial  effect on the  Company.  The  Company has no
                current agreement to acquire any business or property, or intent
                to acquire  any  specific  business  or  property.  The  Company
                believes that these factors  provide  meaningful  evidence as to
                the  Company's  ability to  continue in  operation  for the next
                fiscal year and support the going  concern  presentation  in the
                accompanying  consolidated  financial statements in favor of the
                liquidation  basis.  There can be no  assurance,  however,  that
                management will continue to be able to raise sufficient  capital
                or  convert  existing  debt to equity or to  achieve  profitable
                operations going forward.
    

      NOTE 13-  EMPLOYMENT AGREEMENT

   
                In October,  1996, Michael S. Rakusin, the President, a Director
                and  principal  shareholder  of  the  Company,  entered  into  a
                three-year employment agreement with the Company, effective upon
                completion of the proposed public offering.  There is no renewal
                option.  The  agreement  provides for,  among other  things,  an
                annual  salary of $120,000 and a  non-competition  clause during
                the  term of his  employment  by the  Company  and for one  year
                following the termination of such employment.

                On September 30, 1996,  the Company issued 200,000 shares of its
                common  stock at a value of  $25,000  ($.125  per  share) to Mr.
                Rakusin in  consideration  for prior  services  rendered  by Mr.
                Rakusin  to  the  Company.  Subsequent  to the  issuance  of the
                consolidated  financial  statements,  the valuation of the share
                price  was   reevaluated  and  the   accompanying   consolidated
                financial  statements  have been  restated to reflect the market
                value of the shares at $2.625 per share and a  reduction  in the
                number of shares to 10,000 for a total consideration of $26,250.
                The $26,250 has been charged to compensation  for the year ended
                October 31, 1996,  increasing  the  previously  reported loss by
                $1,250.
    

         NOTE 14 - PROPOSED PUBLIC OFFERING

   
                In  June,  1996,  the  Company  entered  into   negotiations  to
                consummate  a public  offering  with minimum  gross  proceeds of
                approximately $4,000,000.  As part of the negotiations,  on June
                4, 1996, the Company asked their lenders to convert  outstanding
                debt and unpaid interest  thereon into shares of common stock of
                the Company at a conversion  ratio of $2.50 per share,  the then
                estimated fair market value of the shares. The lenders converted
                $1,700,022  of  outstanding  principal  and unpaid  interest  of
                $492,984, which was converted to 877,201 shares of common stock.
                Subsequent  to  the  issuance  of  the  consolidated   financial
                statements, the valuation of the share price was reevaluated and
                the  accompanying  consolidated  financial  statements have been
                restated to reflect the market value of the shares at $2.125 per
                share resulting in an extraordinary gain on the restructuring of
                the  debt of  $328,950.  This  transaction  will  reduce  future
                interest expense by approximately $173,000 per year.
    

                                                          28

<PAGE>




      Item 8.    Changes In and Disagreements With Accountants on
                 Accounting and Financial Disclosure.

         None.
                                                       PART III

      Item 9.             Directors, Executive Officers, Promoters and Control
                          Persons; Compliance with Section 16(a) of the Exchange
                          Act.

      Directors and Executive Officers

         The  following  individuals  are the present  directors  and  executive
officers of the Company.  Each  director  will hold office until the next annual
meeting of the  shareholders  and until his successor is elected and  qualified.
Officers are elected by, and serve at the pleasure of the Board of Directors.

Name
                                                 Age             Position

Michael S. Rakusin...........                    40              President,
                                                                 Treasurer, and
                                                                 Director

Edward J. Metzger............                    39               Vice President
                                                                  - Operations,
                                                                 Secretary, and
                                                                     Director

Frank A. LaSala.............                     73               Director


         Michael S. Rakusin is a founder of the Company and has been
President and a Director since inception, and Treasurer since 1987.
He was appointed Secretary in June, 1987; Executive Vice President in
November, 1988; and President in April, 1991.  From 1984 to March,
1987, Mr. Rakusin was self-employed, rendering financial and
accounting services.  From 1976 to 1984, he was employed as an
accountant by J.M. Stern & Co., Certified Public Accountants.  Mr.
Rakusin is a Certified Public Accountant in the State of New York.
He earned a Bachelor of Business Administration Degree from the City
University of New York in 1976.

         Edward J. Metzger  joined the Company in July,  1992 as Vice  President
Operations. He was elected a Director in October, 1996.
         From 1988 to July,  1992,  he was Senior Vice  President  of  Berkshire
Springs of N.J.,  Inc. (doing business as Stony Brook Spring Water) in charge of
all operations,  including routes, customer service, cooler repair and warehouse
activities. The assets of Berkshire were acquired by the Company in July, 1992.

         Frank A. LaSala has been a Director of the Company since October, 1996.
Mr.  LaSala  has  been a  principal  of his  own  business,  Sal-Ma  Instruments
Corporation, a company engaged in manufacturing  sophisticated machinery for the
aerospace industry, for the past 45 years.







                                                          29

<PAGE>



      Item 10.                                       Executive Compensation

         The following table provides certain summary information concerning the
compensation  paid or  accrued  by the  Company  to or on  behalf  of its  Chief
Executive  Officer  and the other  named  executive  officer of the  Company for
services  rendered in all capacities to the Company and its subsidiaries for the
fiscal years ended October 31, 1996, 1995 and 1994.


      Summary Compensation Table
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


Name and Principal                                                             Long-Term Compensation
Position                                       Annual Compensation                 Awards Payouts
                                      Other
                                                                 Annual      Restricted                                   All Other
                                                                Compen-         Stock          Options/        LTIP        Compen-
                                 Year      Salary      Bonus     sation       Award(s)           SARs        Payouts        sation
                                 ----      ------      -----     ------       --------           ----        -------        ------
   
Michael S. Rakusin               1996         $80,200    -         -              -               -             -         $26,250(1)
  President
    
                                 1995         $81,288    -         -              -               -             -             -

                                 1994         $87,006    -         -              -               -             -             -


Edward J. Metzger                1996         $80,200    -         -              -               -             -             -
  Vice President
                                 1995         $83,000    -         -              -               -             -             -

                                 1994        $104,200    -         -              -               -             -             -



</TABLE>

   
      (1)         On September 30, 1996, the Company issued 10,000 shares of its
                  Common  Stock  valued at  $26,250  ($2.625  per  share) to Mr.
                  Michael S. Rakusin,  the  President,  a Director and principal
                  shareholder of the Company in consideration for prior services
                  rendered by Mr. Rakusin to the Company.
    


         For the fiscal  years  ended  October  31,  1996 and 1995,  none of the
directors of the Company have received or were accrued  compensation of any kind
for their services  rendered in such  capacities to the Company.  As of December
31, 1996,  there are no  outstanding  options or warrants held by any officer or
director of the Company  except for  warrants  held by Michael S.  Rakusin,  the
President,  a Director and  principal  shareholder  of the Company,  to purchase
27,759 shares of Common Stock at $4.20 per share.  These warrants were issued in
October, 1990 and expire on October 31, 1998.

   
         Michael S. Rakusin, the President, a Director and principal shareholder
of the  Company,  has entered into a three-year  employment  agreement  with the
Company in October,  1996 which will  commence  on the  closing of the  proposed
public offering.  There is no renewal option.  The agreement provides for, among
other things, an annual salary of $120,000 and a  non-competition  clause during
the term of his  employment  by the Company and for one (1) year  following  the
termination of such employment.     


                                                        30

<PAGE>



         The Company has no standard arrangement pursuant to which its directors
are  compensated  in their  capacity as  directors.  The Company does not have a
compensation or audit committee of the Board.

      Item 11.                 Security Ownership of Certain Beneficial Owners
                               and  Management.

         The following  table sets forth as of December 31, 1996,  the number of
shares of Common  Stock of the  Company and the  percentage  of that class owned
beneficially,  within the meaning of Rule 13d-3  promulgated  under the Exchange
Act,  and  the  percentage  of the  Company's  voting  power  owned  by (i)  all
shareholders  known by the Company to beneficially own more than five percent of
the  Company's  Common Stock;  (ii) each director of the Company;  and (iii) all
directors and officers as a group.  All shares set forth in the following  table
are  entitled  to one vote per share and the named  beneficial  owners have sole
voting and investment  power.  Each  percentage set forth in the following table
assumes the exercise of all stock options exercisable by the named individual or
group as of December 31, 1996 or within 60 days thereafter.

      Name and Address            Number of Shares
      of Beneficial Owner(1)   Owned Beneficially(2)        Percentage

   
      Michael S. Rakusin            237,759(3)                8.1%
    

      Edward J. Metzger               6,800                   0.2%

      Frank A. LaSala                 1,920                   0.1%

      ESWC, Inc.
      149 Main Street
      Cooperstown,
   
      NY  11326                     210,243                    7.2%
    

      H.T. Ardinger, Jr.
      9040 Governors Row
   
      Dallas, TX 75247              398,127                   13.7%
    

      William Heim
      8845 South Pleasant
   
      Chicago, IL 60620             273,133                   9.4%
    



      Robert Moody, Jr.
      601 Moody National
         Bank Tower
   
      Galveston, TX 77550            205,323                  7.1%
    

      Robert P. Gillings
      7423 Ridge Boulevard
   
      Brooklyn, NY 11209             290,000                 10.0%
    

      All Officers and
      Directors as a
   
      Group (three persons)         246,479(3)                8.4%
    

      --------------

      (1)         Unless  otherwise  indicated,  the address of each shareholder
                  listed is c/o Echo Springs  Water Co.,  Inc.,  Building  100A,
                  Hackensack Avenue, Kearny, NJ 07032.

                                                        31

<PAGE>




      (2)         Pursuant to the rules and regulations of the Securities
                  and Exchange Commission, shares of Common Stock that an
                  individual or group has a right to acquire within 60 days
                  pursuant to the exercise of warrants are deemed to be
                  outstanding for the purposes of computing the percentage
                  ownership of such individual or group, but are not deemed
                  to be outstanding for the purposes of computing the
                  percentage ownership of any other person shown in the
                  table.

      (3)         Includes  27,759 shares of common stock  issuable  pursuant to
                  warrants  exercisable  at $4.20  per  share  and  expiring  on
                  October 31, 1998.


      Item 12.             Certain Relationships and Related Transactions

   
      On September  30, 1996,  the Company  issued  10,000  shares of its Common
Stock  valued at $26,250  ($2.625  per share) to Mr.  Michael  S.  Rakusin,  the
President,  a Director and principal shareholder of the Company in consideration
for prior services rendered by Mr. Rakusin to the Company.
    

      On October 1, 1996, the Company entered into a three-year
employment agreement with Mr. Rakusin.  See "Executive
Compensation."

      On October  1, 1996,  the  Company  extended  Mr.  Rakusin's  warrants  to
purchase 27,759 shares of the Company's  Common Stock,  from October 31, 1996 to
October 31, 1998 and established an exercise price of $4.20.

      At October 31, 1996, Mr. Rakusin,  had advanced a total of $282,153 to the
Company, evidenced by the Company's 12% note payable to Mr. Rakusin, which funds
were used by the Company for working capital.


                                                        32

<PAGE>




                                                      PART IV

      Item 13.             Exhibits and Reports on Form 8-K.

      Schedules and Reports of Form 8-K


      (A)(1)      The following  financial  statements  are included in Part II,
                  Item 7:

      Independent Auditors' Report

      Consolidated Balance Sheet as at October 31, 1996 and 1995.

      Consolidated Statement of Operations for the Years Ended October
   31, 1996 and 1995

      Consolidated Statement of Shareholders' Equity (Deficiency) for
   the Years Ended October 31, 1996 and 1995

      Consolidated Statement of Cash Flows for the Years Ended October
   31, 1996 and 1995

      Notes to Consolidated Financial Statements

      Schedules are omitted for the reason that they are not  required,  are not
   applicable,  or the required information is shown on the financial statements
   or notes thereto.

      (B)         Reports on Form 8-K - Not applicable.
      (C)         Exhibits.  The following exhibits are filed as part of
                  the   Company's   report.   Where  such   filing  is  made  by
                  incorporation  by  reference  (I/B/R)  to a  previously  filed
                  statement or report, such statement or report is identified in
                  parenthesis.

      Official Exhibit

      Number                  Description                        Page Number

      [3] (a)                 Certificate of Incorporation
                              and all amendments thereto

      [3] (b)                 By-Laws

      [4]                     Form of Common Stock Certificate

   
      [10]                    Form of Employment Agreement with Michael S.
                              Rakusin
    

      [27]              Financial Data Schedule



                                                        33

<PAGE>




                                                    SIGNATURES

         Pursuant  to the  requirements  of Section 13 or 15(d) of the  Exchange
Act,  Echo  Springs  Water Co.,  Inc. has caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.

   
      Dated:    June    , 1997
    

                                  ECHO SPRINGS WATER CO., INC.


                                  By: /s/ Michael S. Rakusin
                                      Michael S. Rakusin
                                    President

         Pursuant to the  requirements of the Exchange Act, this report has been
signed by the  following  persons on behalf of the issuer and in the  capacities
and on the date indicated:


 Name                                  Titles                      Date




   
      /s/ Michael S. Rakusin   President and Director             June   , 1997
      Michael S. Rakusin       Principal Executive,
    
                               Operating and Financial
                               Officer



   
      /s/ Edward J. Metzger    Vice President, Secretary          June   , 1997
      Edward J. Metzger        and Director



      /s/ Frank A. LaSala      Director                           June   , 1997
      Frank A. LaSala
    



















<PAGE>



                                                    SIGNATURES

         Pursuant  to the  requirements  of Section 13 or 15(d) of the  Exchange
Act,  Echo  Springs  Water Co.,  Inc. has caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.

   
      Dated:   June    , 1997
    

                                  ECHO SPRINGS WATER CO., INC.


                                  By: ________________________
                               Michael S. Rakusin
                                      President


         Pursuant to the  requirements of the Exchange Act, this report has been
signed  by  the  following  persons  on  behalf  of  the  Registrant  and in the
capacities and on the date indicated:


      Name                              Titles                      Date



   
      _____________________    President and Director           June   , 1997
      Michael S. Rakusin       Principal Executive,
    
                               Operating and Financial
                               Officer

   
      ______________________   Vice President, Secretary        June    , 1997
      Edward J. Metzger        and Director


      _______________________  Director                         June    , 1997
      Frank A. LaSala
    

GE>





                                                       UNITED STATES
                                            SECURITIES AND EXCHANGE COMMISSION
                                                  Washington, D.C.  20549

   
                                                       FORM 10-QSB/A
    


                  QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
(X)      Quarterly  report  pursuant  to section 13 or 15 (d) of the Securi ties
         Exchange Act of 1934, for the quarterly period ended January 31, 1997.

( )      Transition report pursuant to section 13 or 15 (d) of the
         Securities Exchange Act of 1934, for the transition period from
                       to              .

   
Commission file number 01-17872
    

                          ECHO SPRINGS WATER CO., INC.
        (Exact name of small business issuer as specified in its charter)

New York                                                #16-1433379
(State of Incorporation)                          (I.R.S. Employer ID No.)

           Building 100A, Hackensack Avenue, Kearny, New Jersey 07032
                    (Address of Principal Executive Offices)

                                 (201) 465-5151
                           (Issuer's Telephone Number)

                                       N/A
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

                                                       Yes   X     No

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

            Class                    Outstanding at February 28, 1997

   
Common stock, $.0001 par value                              3,507,149 shares
    

Transitional Small Business Disclosure Format   Yes                     No   X


<PAGE>










                                               ECHO SPRINGS WATER CO., INC.



                                                   Index to Form 10-QSB





                                                                         Page
                   Item                                                  Number

PART I.  FINANCIAL INFORMATION                                            3

 Item 1.  Financial Statements:

         Consolidated balance sheets -
         January 31, 1997 and October 31, 1996                            3

         Consolidated statements of operations -
         Three months ended January 31, 1997 and 1996                     4

         Consolidated statements of cash flows -
         Three months ended January 31, 1997 and 1996                     5

         Notes to Consolidated Financial Statements                     6-9

         Management's Discussion and Analysis of Financial
   
          Condition and Results of Operations                         10-12
    

PART II.          OTHER INFORMATION

   
         Item 1.  Legal Proceedings                                      13
         Item 6.  Exhibits and Reports on Form 8-K                       13

Signatures                                                               14
    











<PAGE>



PART I.  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS

                                               ECHO SPRINGS WATER CO., INC.

                                                CONSOLIDATED BALANCE SHEET
                                                        (UNAUDITED)

                                                          ASSETS
<TABLE>
<CAPTION>
<S>                                                                                           <C>                   <C>
                                                                                      January 31,           October 31,
                                                                                         1997                   1996
Current Assets:
 Cash                                                                                 $   15,613             $   44,631
 Accounts receivable - net of allowance
  for doubtful accounts of $14,000 in
  1997 and in 1996                                                                       234,191                257,212
 Notes receivable, current portion                                                        26,402                 26,010
 Inventories                                                                              26,845                 34,221
 Prepaid expenses                                                                         76,363                 30,178
                                                                                       ---------              ---------
         Total Current Assets                                                            379,414                392,252

Notes receivable, net of current portion                                                 153,119                159,868

Property, plant and equipment - net                                                    1,240,842              1,278,230

Other assets                                                                             219,160                220,026
                                                                                       ---------              ---------

         TOTAL ASSETS                                                                 $1,992,535             $2,050,376
                                                                                       =========              =========

                                     LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

Current Liabilities:
 Current portion of debt                                                              $  572,153             $  552,153
 Debentures                                                                               50,000                 50,000
 Accounts payable and accrued expenses                                                 1,581,407              1,513,582
 Customer deposits                                                                       215,600                213,000
 Unearned revenues                                                                        17,132                 17,677
                                                                                       ---------              ---------
         Total Current Liabilities                                                     2,436,292              2,346,412
                                                                                       ---------              ---------

Shareholders' Equity (Deficiency):
 Common stock, $.0001 par, 75,000,000
   
  shares authorized; issued and
  outstanding 2,907,149 shares
  in 1997 and 1996                                                                           291                    291
 Additional paid-in capital                                                            7,967,725              7,967,725
 Accumulated deficit                                                                  (8,411,773)            (8,264,052)
                                                                                       ---------              --------- 
    
         Total Shareholders'
          Equity (Deficiency)                                                           (443,757)              (296,036)
                                                                                       ---------              ---------

         TOTAL LIABILITIES AND SHAREHOLDERS'
          EQUITY (DEFICIENCY)                                                         $1,992,535             $2,050,376
                                                                                       =========              =========


</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
 statements.

                                                         - 3 -

<PAGE>



                                               ECHO SPRINGS WATER CO., INC.

                                           CONSOLIDATED STATEMENT OF OPERATIONS

                                          FOR THE THREE MONTHS ENDED JANUARY 31,
                                                        (UNAUDITED)
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                                                    1997                        1996
                                                                                    ----                        ----

Revenues:
 Gross sales                                                                 $    444,476                 $   525,612
 Credits and allowances                                                            (2,652)                     (4,319)
 Freight out                                                                       (8,949)                    (12,051)
 Other income                                                                        (134)                      4,145
                                                                               ----------                  ----------
                                                                                  432,741                     513,387
                                                                               ----------                  ----------

Costs and Expenses:
 Cost of sales                                                                    188,795                     219,661
 Selling, general and
  administrative                                                                  373,834                     361,369
 Interest                                                                          17,474                      57,358
 Amortization of other assets                                                       1,219                       1,219
 Loss (gain) on sale of assets                                                       (860)                     (1,200)
                                                                               ----------                  ----------
         Total Costs and Expenses                                                 580,462                     638,407
                                                                               ----------                  ----------

Net loss                                                                      $  (147,721)                $  (125,020)
                                                                               ==========                  ==========

Net loss per share                                                            $      (.05)                $      (.08)
                                                                               ==========                  ==========

   
Weighted average shares outstanding                                             2,907,149                   1,659,996
                                                                               ==========                  ==========
    




</TABLE>



The  accompanying  notes are an integral  part of these  consolidated  financial
 statements.



                                                         - 4 -

<PAGE>



                                               ECHO SPRINGS WATER CO., INC.

                                           CONSOLIDATED STATEMENT OF CASH FLOWS

                                          FOR THE THREE MONTHS ENDED JANUARY 31,
                                                        (UNAUDITED)

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


                                                                                         1997                1996
                                                                                         ----                ----

Operating Activities:
 Net loss                                                                            $(147,721)          $(125,020)
 Adjustments to reconcile net loss to
  net cash used by
  operating activities:
  Depreciation and amortization                                                         39,869              37,667
  Loss (gain) on sale of assets                                                           (860)             (1,200)
  Provision for doubtful accounts                                                                          (10,000)
  Changes in assets and liabilities -
   Accounts receivable                                                                  23,021               2,551
   Inventories                                                                           7,376               4,637
   Prepaid expenses                                                                    (46,185)            (66,923)
   Other assets                                                                           (353)               (531)
   Accounts payable and accrued
    expenses                                                                            67,825              77,601
   Customer deposits                                                                              2,600      8,100
   Unearned revenues                                                                      (545)            (23,602)
                                                                                      --------            --------
         Net Cash Used by
          Operating Activities                                                         (54,973)            (96,720)
                                                                                      --------            --------

Investing Activities:
 Capital expenditures                                                                   (1,262)            (13,668)
 Collections on notes receivable                                                         6,357               5,037
 Proceeds from sale of assets                                                              860               1,200
                                                                                      --------            --------
         Net Cash Provided (Used) by
          Investing Activities                                                           5,955              (7,431)
                                                                                      --------            --------

Financing Activities:
 Increase in installment debt                                                           20,000              75,000
 Repayment of installment debt                                                                             (22,742)
                                                                                      --------            --------
         Net Cash Provided by
      Financing Activities                                                              20,000              52,258
                                                                                      --------            --------

Net decrease in cash                                                                   (29,018)            (51,893)

Cash - beginning                                                                        44,631              57,224
                                                                                      --------            --------

CASH - ENDING                                                                        $  15,613           $   5,331
                                                                                      ========            ========

SUPPLEMENTAL INFORMATION:
 Interest paid                                                                       $     927           $   1,262
</TABLE>


The  accompanying  notes are an integral  part of these  consolidated  financial
 statements.

                                                         - 5 -

<PAGE>



                                               ECHO SPRINGS WATER CO., INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



NOTE 1 -          SIGNIFICANT ACCOUNTING POLICIES
                  -------------------------------

                  BASIS OF PRESENTATION
                  The interim  consolidated  financial  statements  are prepared
                  pursuant to the requirements for reporting on Form 10-QSB. The
                  October 31, 1996  balance  sheet data was derived from audited
                  consolidated   financial  statements  and  together  with  the
                  interim  consolidated  financial  statements and notes thereto
                  should be read in conjunction with the consolidated  financial
                  statements and notes  included in the Company's  latest annual
                  report on Form  10-KSB/A.  In the opinion of  management,  the
                  interim   consolidated   financial   statements   reflect  all
                  adjustments of a normal recurring nature neces sary for a fair
                  statement  of the results for  interim  peri ods.  The current
                  period results of operations are not necessarily indicative of
                  results which  ultimately will be reported for the full fiscal
                  year.

                  BUSINESS
                  Echo Springs  Water Co.,  Inc.  ("the  Company"),  through its
                  subsidiaries,  is engaged  principally in the  distribution of
                  bottled water and allied  products.  The Company bottles water
                  from its own  natural  springs  in  Burlington,  NY for direct
                  distribution and sale to business and residential customers as
                  well as for wholesale to supermarkets  and other bottled water
                  distributors.

                  REVENUE RECOGNITION
                  Revenue  from  equipment  rental  is  recognized  based on the
                  period in which it is earned and unearned revenue is re corded
                  for the portion billed in advance. Revenues from product sales
                  are recognized upon shipment to the wholesal er or delivery to
                  the customer, as applicable.

                  LOSS PER SHARE

                  Net loss per share is based upon the weighted  average  number
                  of shares  outstanding  during each period.  All share and per
                  share amounts give effect to a 1-for-25 reverse stock split in
                  October, 1996.


                                                         - 6 -

<PAGE>



                                               ECHO SPRINGS WATER CO., INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)




NOTE 2 -          INVENTORIES
                  -----------

                  Inventories  are  valued at the lower of cost or market on the
                  first-in,  first-out basis and at October 31, 1996 and January
                  31, 1997 consist of the following:

                                                  January              October
                                                   31, 1997            31, 1996

Bottles                                           $ 2,168             $ 1,722
Product held for sale                              12,672              16,415
Supplies                                           12,005              16,084
                                                  ------              ------
                                                  $26,845             $34,221
                                                   ======              ======

NOTE 3 -          PROPERTY, PLANT AND EQUIPMENT
                  -----------------------------

                  Property,  plant  and  equipment  are  recorded  at  cost  and
                  depreciated  by the  straight-line  method over the  estimated
                  economic  useful  lives of the various  asset groups of 5 - 40
                  years and consist of the following:
                                                  January               October
                                                  31, 1997             31, 1996

Land                                            $  150,000           $  150,000
Buildings and improvements                         362,298              362,298
Water coolers, bottles and
      brewers                                      918,730              918,730
Machinery and equipment                            335,068              335,069
Vehicles                                            60,850               60,850
Furniture and fixtures                             128,391              127,128
                                                 ---------            ---------
                                                 1,955,337            1,954,075

        Less: accumulated depreciation
          and amortization                         714,495              675,845
                                                ---------            ---------
                                                $1,240,842           $1,278,230
                                                =========            =========



                                                         - 7 -

<PAGE>



                                               ECHO SPRINGS WATER CO., INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

NOTE 4 -          OTHER ASSETS
                  ------------

                  Other  assets at October  31,  1996 and  January  31, 1997 are
                  comprised of the following:

                                                 January             October
                                                 31, 1997            31, 1996
                  Water rights                   $205,000            $205,000
                  Accumulated amortization         34,748              33,529
                                                   -------             -------
                       Net deferred charges       170,252             171,471

                  Security deposits                30,890              30,537
                  Deferred public offering costs   18,018              18,018
                                                   -------             -------

                                                  $219,160            $220,026
                                                  =======             =======


NOTE 5 -          INDEBTEDNESS
                  ------------

   
                  The  Company  is  currently  in default  as to  principal  and
                  interest  on its  debt  and  debentures  except  for  advances
                  payable to  stockholder  of  $282,153  at October 31, 1996 and
                  $302,153 at January 31, 1997.  Although the debt is in default
                  and therefore  currently due, the debtholders  have informally
                  agreed to wait for payment  until  completion  of the proposed
                  public offering. (See Note 7).
    


NOTE 6 -          INCOME TAXES
                  ------------

   
                  The Company  files a  consolidated  federal  income tax return
                  with its  subsidiaries.  At October 31,  1996,  the  estimated
                  maximum amount of net operating loss carryforward available to
                  reduce  future  taxable  income is  approximately  $8,200,000,
                  expiring  from 2004 through  2010.  Deferred tax benefits from
                  the use of net operating loss  carryforwards  of approximately
                  $2,780,000 are offset by a  corresponding  amount of valuation
                  allowance  since it is more  likely  than not that all or some
                  portion of the deferred tax asset will not be realized.
    


                                                         - 8 -

<PAGE>



                                               ECHO SPRINGS WATER CO., INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

NOTE 7 -          GOING CONCERN
                  -------------

   
                  The Company  sustained  losses of $228,571  (before  extraordi
                  nary gain) for the  fiscal  year ended  October  31,  1996 and
                  $147,721  for the three months  ended  January 31,  1997.  The
                  Company had deficit net worths of $296,036 at October 31, 1996
                  and $443,757 at January 31, 1997. In addition, the Company was
                  in default on principal and interest payments on a substantial
                  portion of its debt.  These  facts  raise sub  stantial  doubt
                  about the  Company's  ability to continue as a going  concern.
                  Considerations  which tend to mitigate  the  question of going
                  concern  include  management's  successful  efforts in raising
                  funds through private  placements,  the ability to renegotiate
                  and restructure long-term financing with major creditors, past
                  and present  efforts to convert debt to equity and the ability
                  to acquire, restructure and develop the bottled water business
                  which  it  believes   will  be  able  to  achieve   profitable
                  operations.   In  June,   1996,   the  Company   entered  into
                  negotiations  to  consummate  a public  offering  with minimum
                  gross  proceeds  of  approximately  $4,000,000.   The  Company
                  intends  to use a  portion  of the  proceeds  of the  proposed
                  public  offering  to seek  and  consum  mate  acquisitions  of
                  companies in the bottled water and allied  products  business.
                  No assurance  can be given that the Company will be successful
                  in identifying  potential  acquisitions or, if made, that such
                  acquisitions will have a beneficial effect on the Company. The
                  Company has no cur rent  agreement  to acquire any business or
                  property,  or  intent  to  acquire  any  specific  busines  or
                  property.  The Company  believes  that these  factors  provide
                  meaningful evidence as to the Company's ability to continue in
                  opera  tion for the next  fiscal  year and  support  the going
                  concern   presentation   in  the   accompanying   consolidated
                  financial  statements in favor of the liquidation basis. There
                  can be no assurance, however, that management will continue to
                  be able to raise  sufficient  capital or convert existing debt
                  to equity or to achieve profitable operations going forward.
    

NOTE 8 -  SUBSEQUENT EVENTS

                  In February,  1997,  the Company  sold  600,000  shares of its
                  common  stock in private  transactions  at $1.00 per share for
                  aggregate gross proceeds of $600,000.

                                                         - 9 -

<PAGE>



                          ECHO SPRINGS WATER CO., INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          FOR THE THREE MONTHS ENDED JANUARY 31, 1997 COMPARED WITH THE

                       THREE MONTHS ENDED JANUARY 31, 1996


Net revenues  decreased  $80,646  (15.7%) to $432,741 for the three months ended
January 31, 1997  ("1997")  from $513,387 for the three months ended January 31,
1996  ("1996").  The $81,136  decrease in gross sales was due  primarily to four
factors.  The 2.5-gallon sales fell by approximately  $5,000 as this low-margin,
low-volume  product line was  discontinued in July,  1996. Sales of one gallons,
another low-margin product, decreased by approximately $16,000, largely due to a
discon tinuance of service to one supermarket customer. Sales of allied products
fell by  approximately  $21,000  due to reduced  emphasis  on this lower  volume
aspect of the business,  primarily as a result of the reduction in the sales and
marketing staff. The fourth contributing factor was a deliberate  discontinuance
of service to  marginal  custom ers as  determined  from a  customer-by-customer
review in setting up the new corporate  computer system.  The small improvements
in credits and  allowances  and freight out were largely offset by reduced gains
on unclaimed or lost customer deposits.

Cost of sales for 1997 was  $188,795  (42.5%  of gross  sales)  as  compared  to
$219,661  (41.8% of gross sales) for 1996.  This small  percentage  increase was
caused  primarily by an  approximately  $29,000 decrease in the equipment rental
portion of gross sales as a result of the discon tinuance of service to marginal
customers.

Selling,  general and administrative  expenses were $373,834 in 1997 as compared
to $361,369 in 1996. A reduction in the sales and  marketing  staff in an effort
to better  concentrate  on the  current  customer  base  resulted  in an overall
savings  of  approximately  $12,000.   However,  delivery  and  warehouse  costs
increased approximately $6,000,  primarily as a result of increased truck rental
costs due to a larger number of rental vehicles in the corporate fleet, in order
to improve  the  timeliness  of product  deliveries,  combined  with a 50% truck
rental price increase in May, 1996. Further, general and administrative expenses
rose by  approximately  $18,000.  A small increase in adminis  trative staff and
expenses accounted for approximately  $6,000. The investor relation costs of the
debt-to-equity  conversion  and the  reverse  stock  split  amounted  to another
approximately  $6,000 and the final factor was  increased  business  development
costs of approximately $6,000 to investigate new potential business investments.

Interest expense decreased from $57,358 in 1997 to $17,474 in 1996, primarily as
a result of the October, 1996 debt-to-equity  conversion.  Amortization of other
assets of $1,219 in 1997 and 1996 related to the amortization of water rights.

The net loss for 1997  increased by $22,701 from $125,020 in 1996 to $147,721 in
1997.

                                                         - 10 -

<PAGE>



                          ECHO SPRINGS WATER CO., INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                         LIQUIDITY AND CAPITAL RESOURCES

The Company's  primary sources of liquidity have been cash generated from sales,
issuance of common stock, debentures,  and installment debt, and borrowings from
its officers.

During the three  months  ended  January  31,  1997 and 1996,  the  Company  had
negative  cash  flows  from   operating   activities  of  $54,973  and  $96,720,
respectively.  Investing  activities provided cash of $5,955 in 1997,  primarily
from collections on notes receivable, and used cash of $7,431 in 1996, primarily
for the  acquisition  of property  and  equipment.  The Company has financed its
operating and investing  activities  during these periods  primarily through the
issuance of installment debt.

At January 31, 1997, the Company had a working capital deficiency of $2,056,878.
Short-term credit sources are limited to trade credit on purchases and services.
The report issued by the Company's  accoun tants that  accompanies the Company's
Consolidated  Financial  Statements  for the year ended  October 31, 1996 states
that there is a substantial  doubt about the Company's  ability to continue as a
going concern.

   
As indicated in Note 5 to the accompanying  Consolidated  Financial  Statements,
certain of the  Company's  indebtedness  is in default.  Although the debt is in
default and therefore  currently due, the debtholders have informally  agreed to
wait for payment until comple tion of the proposed public offering noted below.
    

Considerations  which tend to mitigate  the  question of going  concern  include
management's successful efforts in raising funds through private placements, the
ability to renegotiate and restructure long-term financing with major creditors,
past and present  efforts to convert  debt to equity and the ability to acquire,
restructure  and develop the bottled  water  business  which it believes will be
able to achieve profitable operations.

   
In June,  1996,  the Company  entered into  negotiations  to consummate a public
offering with minimum gross proceeds of approximately $4,000,000.  Such offering
is expected  to take place  during  Fiscal  1997.  The Company  intends to use a
portion of the proceeds of the proposed  public  offering to seek and consummate
acquisitions of companies in the bottled water and allied products business.  No
assurance  can be given that the  Company  will be  successful  in identi  fying
potential  acquisitions  or,  if  made,  that  such  acquisitions  will  have  a
beneficial  effect on the  Company.  The  Company  has no current  agreement  to
acquire any business or property,  or intent to acquire any specific business or
property.
    

The Company  believes that these factors provide  meaningful  evidence as to the
Company's  ability to continue in operation for the next fiscal year and support
the  going  concern  presentation  in the  accompanying  Consolidated  Financial
Statements  in  favor  of the  liquidation  basis.  There  can be no  assurance,
however, that management will continue to be able to raise sufficient capital or
convert  existing  debt to  equity or to  achieve  profitable  operations  going
forward.

   
The Company has no plans or commitments for capital expenditures during the next
twelve months other than the ordinary equipment  purchases which are expected to
be funded with additional installment debt. The Company is close to settling its
prior years'  unpaid  payroll  taxes and,  upon  agreement,  intends to pay such
amounts from additional borrowings.
    

                                                         - 11 -

<PAGE>



                          ECHO SPRINGS WATER CO., INC.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                         LIQUIDITY AND CAPITAL RESOURCES




The Company's business is subject to seasonal fluctuation, with summer being the
busiest  season and winter the  slowest.  To date,  seasonality  has not had any
material effect on the Company's financial condition or results of operations.

                                                         - 12 -

<PAGE>



                                               ECHO SPRINGS WATER CO., INC.



PART II           OTHER INFORMATION

ITEM 1.           Legal Proceedings

   
                  There have been no new legal  proceedings or material  changes
                  to legal proceedings  during the period from those reported in
                  the  Company's  Form  10-KSB/A for the year ended  October 31,
                  1996.
    

ITEM 6.           Exhibits and Reports on Form 8-K

                  a.  Exhibits - Financial Data Schedule

                  b.  Reports on Form 8-K

                                 NONE



                                                         - 13 -

<PAGE>






                                                        SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the issuer has duly  caused  this report to be signed on its behalf by
the undersigned, hereunto duly authorized.

                                               ECHO SPRINGS WATER CO., INC.
                                                         (Issuer)



         By
                  Michael S. Rakusin
                  President


   
Dated: June    , 1997
    

                                                         - 14 -

<PAGE>


                          ECHO SPRINGS WATER CO., INC.

                             FINANCIAL DATA SCHEDULE

                   FOR THE THREE MONTHS ENDED JANUARY 31, 1997





This  schedule  contains  summary  financial   information  extracted  from  the
financial  statements  for the  three  months  ended  January  31,  1997  and is
qualified in its entirety by reference to such financial statements.

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>


Item #                          Item Description                                                                Amount

5-02(1)                         Cash and cash items                                                           $   15,613
5-02(2)                         Marketable securities                                                             - 0 -
5-02(3)(a)(1)                   Notes and accounts receivable-trade                                               248,191
5-02(4)                         Allowances for doubtful accounts                                                   14,000
5-02(6)                         Inventory                                                                          26,845
5-02(9)                         Total current assets                                                              379,414
5-02(13)                        Property, plant and equipment                                                   1,955,337
5-02(14)                        Accumulated depreciation                                                          714,495
5-02(18)                        Total assets                                                                    1,992,535
5-02(21)                        Total current liabilities                                                       2,436,292
5-02(22)                        Bonds, mortgages and similar debt                                                 - 0 -
5-02(28)                        Preferred stock-mandatory redemption                                              - 0 -
5-02(29)                        Preferred stock-no
                                 mandatory redemption                                                             - 0 -
5-02(30)                        Common stock                                                                          310
5-02(31)                        Other stockholders' equity                                                       (444,067)
5-02(32)                        Total liabilities and
                                 stockholders' equity                                                           1,992,535
5-03(b)(1)(a)                   Net sales of tangible products                                                    432,875
5-03(b)(1)                      Total revenues                                                                    432,741
5-03(b)(2)(a)                   Cost of tangible goods sold                                                       188,795
5-03(b)(2)                      Total costs and expenses applicable
                                 to sales and revenues                                                            188,795
5-03(b)(3)                      Other costs and expenses                                                          - 0 -
5-03(b)(5)                      Provision for doubtful
                                 accounts and notes                                                               - 0 -
5-03(b)(8)                      Interest and amortization
                                 of debt discount                                                                  17,474
5-03(b)(10)                     Income before taxes and
                                 other items                                                                     (147,721)
5-03(b)(11)                     Income tax expense                                                                - 0 -
5-03(b)(14)                     Income/loss continuing operations                                                 - 0 -
5-03(b)(15)                     Discontinued operations                                                           - 0 -
5-03(b)(17)                     Extraordinary items                                                               - 0 -
5-03(b)(18)                     Cumulative effect-changes
                                 in accounting principles                                                         - 0 -
5-03(b)(19)                     Net income or loss                                                               (147,721)
5-03(b)(20)                     Earnings per share-primary                                                          (0.05)
5-03(b)(20)                     Earnings per share-fully diluted                                                  - 0 -

</TABLE>
                                                        - 15 -

<PAGE>