UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-KSB


(Mark
One)





T
            ANNUAL REPORT UNDER SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934





For the
fiscal year ended: August 31,
2007





£
            TRANSITION REPORT UNDER SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934





For the
transition period from ___________ to ___________





Commission
file number: 000-31329





ROYAL
SPRING WATER INC.


(Name
of small business issuer in its charter)








Nevada
            N/A(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)





14553
Delano Street Suite 217, Van Nuys CA, 91411


(Address
of principal executive offices)





Issuer’s
telephone number: (818) 902-3690





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





Securities
registered under Section 12(g) of the Exchange Act:   Common Shares, $0.001 par
value





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. £





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes £ No T







1





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. £





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x





State
issuer’s revenues for its most recent fiscal year: $138,461





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $2,454,036, assuming a price per share
of $0.09 as of December 20, 2007. For the purpose of this disclosure, shares of
common stock held by directors, officers and stockholders whose ownership
exceeds five percent of the common stock outstanding were excluded. Exclusion of
shares held by any person should not be construed to indicate that such person
possesses the power, direct or indirect, to direct or cause the direction of
management or policies of the issuer, or that such person is controlled by or
under common control of the issuer.





The
number of outstanding shares of the Registrant’s common stock as of December 20
was 30,072,000.





2





ROYAL SPRING WATER INC.


Form
10-KSB


For
the Fiscal Year Ended August 31, 2007





PagePart IItem 1.
            Description of
      Business
            4Item 2.
            Description of
      Property
            13Item 3.
            Legal
      Proceedings
            14Item 4.
            Submission of
      Matters to a Vote of Security Holders
            14Part IIItem 5.
            Market for
      Common Equity and Related Stockholder Matters
            15Item 6.
            Management’s
      Discussion and Analysis or Plan of Operation
            15Item 7.
            Financial
      Statements
            22Item 8.
            Changes In and
      Disagreements with Accountants on Accounting and Financial
      Disclosure
            22Item 8A.
            Controls and
      Procedures
            23Item 8B.
            Other
      Information
            23Part IIIItem 9.
            Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act
            24Item 10.
            Executive
      Compensation
            26Item 11.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            26Item 12.
            Certain
      Relationships and Related Transactions
            26Item 13.
            Exhibits
            27Item 14.
            Principal
      Accountant Fees and Services
            27SIGNATURES





3
 Table of Contents





PART I





Item1.
            Description of
      Business.





Overview





Easy.com,
Inc. ("Easy") was incorporated under the laws of the State of Nevada on May 9,
2000. On June 30, 2005, Easy acquired 100% of the common stock of Royal Spring
Water Inc., a Nevada corporation (“Us, We, Our, or the Company”).





Royal
Spring Water Inc. was incorporated on April 20, 2005. In April 2006, the Company
filed Articles of Merger in Nevada and legally combined the entities of Easy.com
and Royal Spring Water Inc. They concurrently changed the name of the surviving
entity to Royal Spring Water Inc. The Company was established to extract,
process, and bottle mineral rich well water. The Company’s plant is in Hereford,
Texas, which is also known as the “city without a tooth ache” due to its
fluoride rich water.





The
Company’s underground water source has existed for millions of years and is part
of the “Ogallala Aquifer”, one of the country’s largest aquifers. The
state-of-the-art facility in Hereford, Texas is where water is extracted from
underground wells and then filtered and bottled through a complex filtration and
bottling process. In addition to acquiring water rights, the Company has entered
into a long-term agreement for a facility allowing for the manufacturing of
plastic bottles and labels providing a fully customized product for a very
competitive price.





The
Company has purchased the exclusive rights for the United States and Canada for
the production of Structured Water Beverages using a patent pending, proprietary
process designed to non-invasively treat large amounts of bottled water or
beverages that have been palletized.





Structured
Water is benefitting from an ever increasing demand from people who are health
conscious. The structured product produced by the Company differs from other
structured water beverages in some very important ways. First, most water
bottlers do not offer a structured product. For those that do, most begin with
municipal water that has been purified. We begin with water from our high
quality wells on the Ogallala Aquifer. As a result, we build from a superior
foundation.





After
bottling, the structuring process is applied to the sealed bottles that are in
cases on palettes and ready for shipment. This allows us to guarantee maximum
freshness as well as avoiding delays to the bottling process with
preprocessing.





The
addition of electrolytes and/or flavors in some products increases the
distinctness of our product line along with the market potential.





To
summarize, we offer what no other company in the market currently offers: high
quality water beverages that are structured, with or without electrolytes and
flavorings.





We also
produce private-label bottled water of any of our products for our
customers.





4
 Table of Contents





Risk
Factors





We
operate in a rapidly changing industry that involves numerous risks and
uncertainties. The risks and uncertainties described below may not be the only
ones we face. Other risks and uncertainties, including those that we do not
currently consider material, may impair our business. If any of the risks
discussed below actually occur, our business, financial condition, operating
results or cash flows could be materially adversely affected. This could cause
the trading price of our securities to decline, and you may lose all or part of
your investment. Prospective investors should consider carefully the risk
factors set out below.





Risks
Related to Our Business





Our Financial Statements have been
Prepared Assuming We Will Continue as a Going Concern





The
financial statements as of and for the years ended August 31, 2007 and 2006,
have been prepared assuming that we will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The carrying amounts of assets and liabilities
presented in the financial statements do not purport to represent the realizable
or settlement values if we are unable to continue as a going concern. We have
suffered operational losses and have limited working capital liquidity at August
31, 2007. As a result of these factors, our independent certified public
accountants expressed substantial doubt about our ability to continue as a going
concern in their August 31, 2007 and 2006 audit reports. We believe that our
efforts to generate revenue will generate cash flows, although there can be no
assurances that such efforts will be successful.





5
 Table of Contents





We Operate in a Highly Competitive
Industry





The
bottled water industry is highly competitive. Many of the Company’s competitors
have more experience in the U.S. bottled water market, have greater financial
and management resources and have more established proprietary trademarks and
distribution networks than we do. We currently compete with established national
companies such as the Perrier Group of America, Inc. (whose brands include
Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring Water, Great Bear,
Deer Park, Ice Mountain and Zephyrhills Natural Spring Water) and Great Brands
of Europe (whose brands include Evian, Natural Spring Water and Dannon Natural
Spring Water), as well as numerous regional bottled water companies located in
the United States and Canada. We compete not only with other bottled water
producers, but also with producers of other beverages, including, but not
limited to, soft drinks, coffee, juices, beer, liquor and wine. The bottled
water industry also competes for the same consumer who may, when choosing to
drink water, drink tap water or use a home filtration system to filter tap water
for drinking. There can be no assurance that we can compete successfully in this
market.





Our
Success Depends on our Ability to Achieve and Manage Growth





In order
to achieve continued growth in our bottled water business, we must meet our
strategic objectives of expanding our current capacity to produce high quality
mineral rich well water products, expanding our customer base, expanding our
product line and adding new distribution channels. No assurance can be given as
to the future growth in our business or as to our profitability. Further growth
of the Company will require capital, employment and training of new personnel,
expansion of facilities and expansion of management information systems. If the
Company is unable to manage its growth effectively, the Company’s profitability
and its ability to achieve its strategic objectives may likely be materially
adversely affected.





6
 Table of Contents





We
Expect to Have Fluctuations in Quarterly Operating Results




Our
future revenues are expected to be subject to several factors which may result
in fluctuations in our operating results. Our business is expected to be highly
seasonal, with increased sales during warmer months. Inclement weather may
negatively impact our business, particularly summers which are unusually cool or
rainy. Fluctuations in retail prices and raw material prices may produce
corresponding fluctuations in our profits. In addition, we expect to make
significant investments from time to time in capital improvements to, among
other things, increase capacity. Costs associated with such improvements may
cause an immediate reduction in profit margins unless and until sales volume
increases. Our product and packaging mix may change from time to time and,
depending on certain factors, may negatively impact profit margins. We are
subject to competitive pricing pressures which may affect our financial results.
Due to all the foregoing factors, it is possible that in some future quarter or
quarters, the Company’s operating results would likely be below the expectations
of securities analysts and investors. In such event, the price of the Common
Stock would likely be materially adversely affected. See “Management’s
Discussion and Analysis or Plan of Operation.”





We
May Have Limited Ability to Raise Prices





Due to
the wide range of beverages available to consumers, including bottled water
products, the Company has limited ability to raise prices for its products. From
time to time, the Company may be affected by higher prices for raw materials
including resin and corrugated boxes and transportation. We may be unable to
pass such higher costs on to our customers and we generally would be unlikely to
do so in connection with any future price increases. As a result, our future
profitability may be adversely affected by future increases in raw material
prices and transportation costs.





We
Will Have Potential for Product Liability





The
bottling and distribution of bottled water products entails a risk of product
liability, including liability due to the presence of contaminants in its
products. We maintain
insurance coverageagainst the risk of product liability and product
recall. However, the amount of the insurance carried by the Company is limited,
and the insurance is subject to certain exclusions and may or may not give us
adequate loss protection. In addition to direct losses resulting from product
liability and product recall, we may suffer adverse publicity and damage to our
reputation in the event of contamination which could have a material adverse
effect on sales and profitability.





We
Will Be Subject to Changes in Government Regulation





Our
operations are subject to numerous federal, state and local laws and regulations
relating to our bottling operations, including the identity, quality, packaging
and labeling of  bottled water. These laws and regulations and their
interpretation and enforcement are subject to change. There can be no assurance
that additional or more stringent requirements will not be imposed on our
operations in the future. Failure to comply with such laws and regulations could
result in fines against us.





7
 Table of Contents





We
Do Not Expect to Pay Dividends for Some Time





We have
never declared or paid cash dividends on our Common Stock. We currently intend
to retain our earnings, if any, to provide funds for the operation and expansion
of our business and, therefore, do not anticipate declaring or paying cash
dividends in the foreseeable future. Any payment of future dividends will be at
the discretion of the Board of Directors and will depend upon, among other
things, our earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other relevant factors. Further, pursuant to the terms of our existing
credit facilities, we are restricted in our ability to pay cash dividends on
Common Stock. See “Management’s Discussion and Analysis or Plan of
Operations.”





Risks
Related to Our Common Stock





Our
Stock Price May Be Highly Volatile and Subject to Wide Fluctuations Due to Many
Factors, Including a Substantial Market Overhang





The
market price of our common stock may be highly volatile and subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of distribution agreements, or new affiliations or new products by
us or our competitors, changes in financial estimates by securities analysts,
lack of market acceptance of our products, or other events or factors, including
the risk factors described herein. In addition, the stock market in general
experiences significant price and volume fluctuations that are often unrelated
to a company’s operating performance. As with any public company, we may be
subject to securities class action litigation following periods of volatility in
the market price of our securities which could result in substantial costs and a
diversion of management’s attention and resources. Additionally, the sale of a
substantial number of shares of common stock, or even the potential of sales, in
the public market following this offering could deflate the market price for the
common stock and make it more difficult for us to raise additional capital
through the sale of our common stock.





Your
Investment May Have Limited Liquidity If an Active Trading Market Does Not
Develop or Continue





Your
purchase of our common stock may not be a liquid investment because our
securities trade on the Pink Sheets. You should consider carefully the limited
liquidity of your investment before purchasing any shares of our common stock.
We have no obligation to apply for quotation of our common stock on the NASDAQ
Stock Market or for listing of our common stock on any national securities
exchange. Factors such as our lack of earnings history, the absence of
expectation of dividends in the near future, mean that there can be no assurance
that an active and liquid market for our common stock will exist at any time,
that a market can be sustained, or that investors in the common stock will be
able to resell their shares. In addition, the free transferability of the common
stock will depend on the securities laws of the various states in which it is
proposed that a sale of the common stock be made.





8
 Table of Contents





We
Will Be Subject to Certain California Corporate laws





Section
2115 of the California General Corporation Law subjects certain foreign
corporations doing business in California to various substantive provisions of
the California General Corporation Law in the event that the average of its
property, payroll and sales is more than 50% in California and more than
one-half of its outstanding voting securities are held of record by persons
residing in the State of California. Some of the substantive provisions include
laws relating to annual election of directors, removal of directors without
cause, removal of directors by court proceedings, indemnification of officers
and directors, directors standard of care and liability of directors for
unlawful distributions. The aforesaid Section does not apply to any corporation
which, among other things, has outstanding securities designated as qualified
for trading as a national market security on NASDAQ if such corporation has at
least eight hundred holders of its equity securities as of the record date of
its most recent annual meeting of shareholders. It is currently anticipated that
we may be subject to Section 2115 of the California General Corporation Law
which, in addition to other areas of the law, will subject us to Section 708 of
the California General Corporation Law which mandates that shareholders have the
right of cumulative voting at the election of directors.





We
Will Be Subject to Impediments to Resale from Penny Stock
Regulations





The
Securities and Exchange Commission (“SEC”) regulations generally define “Penny
Stock” to be any equity security that has a market price (as defined) less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. For transactions covered by these rules, the broker dealer
must make a delivery, prior to the transaction, of a disclosure schedule
prepared by the SEC relating to the penny stock market. The broker dealer also
must disclose the commissions payable to both the broker dealer and registered
representative, current quotations for the securities, and, if the broker dealer
is the sole market maker, the broker dealer must disclose this fact and the
broker dealer’s presumed control over the market. Finally, monthly statements
must be sent out disclosing recent price information for the penny stock held in
the customer’s account and information on a limited market in penny stocks.
Consequently, the “Penny Stock” rules may restrict the ability of broker dealers
to sell our securities and may affect the ability of stockholders to sell our
securities in the secondary market.





9
 Table of Contents





The
Industry





The U.S.
consumer interest in health can be credited for the growth of the bottled water
industry. Increasingly, consumers are realizing the importance of water for
their overall well being, energy level and appearance. The 1950's - 1970's saw a
large increase in soda and sugary drink consumption. Today, more and more people
are looking to bottled water as their choice for natural refreshment. Consumer
reports indicate that approximately 72% of the U.S. population today drinks
bottled water (1). The
bottled water and value added beverage business, now approaching $9.2 billion
annually in North America, is predicted to double within the next three to four
years in the water category alone. Market analysts predict that the bottled
water market will continue this rapid growth well into the future. At the same
time, the more healthful products, including value added water products, have
established an impressive foothold in the buying of mainstream shoppers. This
growing demand provides for primarily two types of sales for the Company;
contract packing and branded products.





(1)
            http://www.bottledwater.org/public/downloads/Bev_Marketing_2004_Release_04082004.doc


http://www.bottledwater.org/public/informat_main.htm





Bottled
water is the fastest growing segment of the entire beverage industry. In fact,
in 2007:





·
            Bottled water is still the number
      two beverage behind soft drinks(1)


·
            Industry wholesale dollar sales
      was projected to approach $11.9 billion in 2007(1)





·
            Total U.S. category volume was
      projected to surpass 9.075 million gallons in 2007, a 10% annual change(1)


·
            The polyethylene terephthalate
      (PET) plastic bottle segment of the market drove the entire category
      growth by representing 42% of all bottle
  sales.





(1)
            http://www.bottledwater.org/public/Stats_2006.doc(Latest available)





The
Market





With
little to no advertising, especially compared to other beverage types such as
soft drinks and coffee, consumers are selecting bottled water as an alternative
to other drink choices. Reports indicate the bottled water market is the fastest
growing sector of the overall U.S. beverage market. Health and safety reasons
also help to drive consumers to purchase bottled water. Some people reach for it
as a healthy substitute for caffeinated or alcoholic beverages. Others are wary
of tap water and are suspicious of its health effects.





Although
health and safety are foremost among water quality concerns, a significant
reason for the increase in bottled water consumption is purely aesthetic. Many
consumers object to the taste and smell of their tap water that is often times
treated with chlorine and other agents used for sanitization. Some people also
believe that using purified water instead of tap water ensures higher quality
and better tasting foods and beverages. Therefore, they use bottled water as
part of their ingredients to cook or make tea, coffee and ice
cubes.





Another
reason for using bottled water is that it is convenient and easily accessible
and transportable. Whether you’re working, playing, or traveling bottled water
is readily available and can easily be purchased.





10
 Table of Contents





Competition





Many of
our competitors have far greater capital resources than we have at this time and
for the foreseeable future. However, we hope to have a competitive edge over
these companies since our current operating plant lease includes water wells
that we expect will meet our production requirements. Our plant facility only
needs to have 5-10 percent of waste filtered to produce the quality of water
desired, so that for every gallon of water that goes into the bottling line 90
to 95 percent is bottled and only 5 to 10 percent is waste. Additionally, our
production facility includes a railroad spur which connects our loading docks to
the main railroad station in Hereford which we believe will add an additional
competitive advantage in our costs and product pricing. The railroad is not yet
in use but we believe this will provide us with a competitve advantage in the
future. This advantage exists because there is a weight limit on truck loads of
45,000 pounds (usually 53 foot-long trucks), which in the case of a 16.9oz
bottle water case, limits the truck carrier to 20 pallets, while on a rail box
car we are able to ship three times the load capacity of a truck - 60 pallets
per box car. Thus, we believe the cost of transportation by rail will result in
a lower total product cost.




Products
and Services





The
Company has purchased in North America the exclusive rights for the production
of Structured Water Beverages using a patent pending, proprietary process
designed to non-invasively treat large amounts of bottled water or beverages
that have been palletized.





Everyday
in what we eat, drink, breathe and touch we take in unwanted chemicals, viruses,
and bacteria. These toxins can cause illness and rob us of our energy and well
being.  By structuring the water into smaller clusters it allows for
the easy flow of water in and out of the cells, more effectively nourishing the
cells and cleansing them of toxins that have built up. This natural method of
helping the body to detoxify itself helps to improve the overall well being of
the individual.





There are
many different ways to structure water. Some water structuring methods beat the
water into smaller molecules or in some way smash or shock the clusters apart
without changing the factors that caused the original clustering. While
experimenting with a noninvasive method of relieving pain, decreasing swelling
and improving circulation in humans and animals, the team at Ferris Holding,
Inc. discovered a gentle and effective way of helping people and animals.
Serendipitously, the method also structured water.  It was a real
break through in structuring water. This proprietary patent pending process
structures water that is already in the bottle and Royal Spring Water, Inc. is
the exclusive licensee for this process for bottled water in North
America.





Structured
Water is becoming more popular in North America as a result ofan increasing
demand from people who are health conscious. The structured product produced by
the Company differs from other structured water beverages in some very important
ways. First, most water bottlers do not offer a structured product. For those
that do, most begin with municipal water that has been purified. We begin with
water from our high quality wells on the Ogallala Aquifer. As a result, we build
from a superior foundation.





After
bottling, the structuring process is applied to the sealed bottles that are in
cases on palettes and ready for shipment. This allows us to guarantee maximum
freshness as well as avoiding delays to the bottling process with
preprocessing.





The
addition of electrolytes and/or flavors in some products increases the
distinctness of our product line along with the market potential.




During
our first few years of operation, we will concentrate on producing regular
non-carbonated bottled structured water and electrolyte non-carbonated bottled
water. We intend to produce several sizes of bottled water, including 8 oz., 12
oz., 16.9 oz., 20 oz., 1 liter and 1.5 liter bottles. Once we have begun
shipment of these products, we intend on entering into the alcohol rectifying
and distribution sector. To rectify alcohol we will go through the following
processes; i) receive in our warehouse 120-180 proof spirit in bulk, ii) mix the
alcohol with water and other ingredients (for example the caramel is added to
rum to give it its golden color) bringing the proof level to an 80 proof mix,
iii) bottle, label pack and ship the finished alcohol bottle in palletized
cases.  Currently, we do not own the equipment and supplies to begin
production in the alcohol rectifying sector.


For the
U.S. Food and Drug Administration’s Bottled Water Regulations, visit the website
located at http://www.cfsan.fda.gov/~dms/botwatr.html.





11
 Table of Contents





The
Geography of Royal Spring Water Wells





The
Ogallala Aquifer (pronounced OH-GA-LA-LA) is one of the largest aquifer systems
in the world, stretching across parts of eight states including South Dakota,
Nebraska, Wyoming, Colorado, Kansas, Oklahoma, New Mexico and Texas and
underlying about 174,000 square miles.





The
Ogallala Formation was formed about 10 million years ago, during the geologic
time periods of late Miocene and early Pliocene by eastwardly flowing braided
streams, which originated in the Rocky Mountains. Coarse-grained sand, gravel,
fine clay, silt, and sand were deposited over the pre-Ogallala land surface,
which was much like the present-day area just east of the High Plains low,
rolling hills, valleys, and streams.





Licensing
and Water Rights





Although we have a contract
which will allow us to extract water from the land, it did not automatically
give us the right to distribute the water. In order to distribute water
worldwide and commence business, we obtained certain local licenses. Besides
these necessary local licenses, one must pass certain specifications and
requirements of the Food and Drug Administration (“FDA”). This includes a clean
and immaculate warehouse, and the use of hygienic filtration, bottling and
packing operation systems. We will ensure that all our operations continue to
meet and surpass all government requirements. In June 2006, the Company passed
the water test required by the state of Texas Commission on Environmental
Quality in order to commence production at the Royal Spring Water plant inHereford,Texas. The test was conducted by
the City ofAmarillo, Environmental Laboratory
No. 48103 over a period of three days. This completed all of the testing and
licensing requirements of the various government bodies needed to commence
production and sales of our products.





Product
Research and Development





In order
to obtain high quality products and assure customer satisfaction, we will be
using fully automated state of the art machinery. For the past three years, we
have spent much of our time, money and efforts into researching the water
industry in the U.S. and overseas. As a result, we have acquired broad knowledge
about procedures, licenses, machinery, and land. During this time, we have also
built strong relationships with key individuals within the government and
private sectors related to the water industry. We do not anticipate performing
further research and development for any products during the next twelve
months.





Acquisition
or Disposition of Plant and Equipment





We have purchased a fully
automated, state of the art water treatment and bottling system that is
currently in place and has the capacity to bottle up to 144 million bottles per
year, based on a bottle size of 16.9 ounces. The plant facility has the water
capacity to grow and supply in excess of one billion bottles per year. Our
bottling line can handle bottle sizes from 8 ounce bottles to 1.5 liter bottles.
This state of the art machinery is fully automated and runs with minimal human
intervention. We also purchased a bottle stretch blow molder which enables us to
blow our own bottles from preforms.





12
 Table of Contents





To date, we have purchased
and leased approximately $1,112,150 on the purchase of machinery and
equipment.  OnNovember 9, 2006, our machinery and equipment
was appraised by an independent consultant having a total fair market value of
$2,021,250.  Subsequent to the appraisal, we purchased approximately
$270,000 worth of new machines, including a Hartness Caser, Double System
Reverse Osmosis and Pressure Sensitive Labeler.





We also have available two
wells, fully certified by the TCEQ (Texas Commission on Environmental Quality)
and operational at a capacity of 400,000 gallons per day.





Employees





We
presently have fourteen employees at our facility in Hereford, Texas. We may
hire up to four additional employees over the next 12 month period. We also plan
to supplement our human resource needs through consultants and contractors as
needed.




Item 2.
            Description
      of Property






The
Hereford Facility





On August
1, 2005 the Company executed a lease for the premises located at 3500 Holly
Sugar Rd. in Hereford Texas. This lease includes 1,000 square feet of office
space, a 71,000 square foot warehouse, six 25,000 gallon liquid juice tanks and
related equipment and the water rights from 2 wells. This facility had
previously been the site of a sugar beet processing facility, but at the time
that we acquired the facilities, there were no active operations.





The lease
calls for an initial rental of $ 15,000 per month for six months commencing
November 1, 2005 to April 2006 payable in advance for six months on November 1,
2005. Thereafter for the next 23 years, the rent is approximately $25,625 per
month, adjustable annually based on the prevailing consumer price
index.





In the
first four years, the Company has an option to purchase the facility at an
amount determined as set out in the lease which is estimated to be approximately
$4,584,474. The amount of the purchase price depends upon the prevailing lease
rate at the time the option to purchase is exercised.





Of the
71,000 square feet, 40,000 square feet has been allocated to water processing
and packaging space made accessible by loading bays and a railroad extension.
Another 30,000 square feet will be allocated to the storage of raw materials and
finished goods. In addition, the facility has six 25,000-gallon water tanks, 4
water waste ponds, and a five and a half mile railroad spur leading directly
from the main railroad station in Hereford to our loading dock. Also on our
property is the engine needed to pull and push the train cars between our
loading bay and the railroad station. Under this lease we are allowed to pump up
to 400,000 gallons of water per day, which translates to approximately 2,900,000
bottles of water 500ml (16oz.) each, per day after water waste and bottle
rinsing water usage. Our current bottling line can handle up to 691,200 bottles
of water 500ml (16oz.) per day.





13
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Corporate
Office





The
Company’s corporate head office is about 2,400 square feet. The premises are
leased over three years, ending on December 31 2008. The lease calls for a
$2,432 per month payment from January 1, 2007 to December 31, 2007. In the final
year from January, 1 2008 to December 31, 2008 the monthly rent is
$2,504.








Item3.
            Legal
      Proceedings.





In
February of 2006, our former Chief Operating Officer (“COO”) filed a complaint
against the Company, for, among other things, breach of employment agreement.
The complaint was filed in the Los Angeles Superior Court, Santa Monica Division
and seeks unspecified damages. The Company filed a cross complaint against this
individual for fraud, misrepresentation and breach of fiduciary duty. The
Company recently reached a settlement agreement which involved a cash payment of
$1,700 to the former COO.  The COO shall return 250,000 shares that
was part of the contract between the Company and the former COO and will retain
35,000 shares.  The contract is now terminated.  The COO and
the Company have released each other of any past, present or future claims.
There are no proceedings in which any of our directors, officers or affiliates
is an adverse party or has a material interest adverse to the interest of the
Company.





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





No
matters were submitted to a vote of security holders during the year ended
August 31, 2007.





14
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PART II





Item5.
            Market for Common Equity and
      Related Stockholder Matters.





Market
Information





The
Company's common shares, par value $0.001 (the "Shares") are currently listed
for trading on the over-the-counter market (Pink Sheets) under the symbol
RSPG.PK and trades by way of unsolicited quotes.





Stockholders





As of
December 20, 2007, there were 49 shareholders of record.





In
December 2006, the Company signed a two year non-interest bearing convertible
note for $1,250,000.  The Company has also issued to the purchaser of
the convertible note 500,000 warrants with strike prices ranging from $2.00 to
$5.00.  These warrants are exercisable for a period of five years (the
“exercise period”) and can be exercised at any time within the exercise period;
payment will be made by a net cash settlement by the holder and the holder will
receive unregistered common shares of the Company.  See also note 5 in
our financial statements for further details.





We have
not yet adopted or developed any plans to adopt any stock option, stock purchase
or similar plan for our employees.





Dividends





The
Registrant has not paid or declared any dividends upon its common shares since
its inception and, by reason of its present financial status and its
contemplated financial requirements, does not intend to pay or declare any
dividends upon its common shares within the foreseeable future.





Item
      6.
            Management’s Discussion and
      Analysis or Plan of
Operation.





The
following discussion and analysis should be read in conjunction with our
Financial Statements and notes appearing elsewhere in this report.





PLAN
OF OPERATION





Proposed
Milestones to Implement Business Operations





The
following criteria for the milestones are based on estimates derived primarily
from research and market data accumulated by our management. They are
approximations only and subject to adjustment based on costs and availability of
cash flow.





15
 Table of Contents





For the
period from our inception through August 31, 2007, we have:





·
            Formed our company and
      established our initial
structure;


·
            Entered into a lease agreement
      for the water rights, land and production
  facility;


·
            Performed organizational and
      administrative upgrades;


·
            Sought and pursued investment
      opportunities;


·
            Reviewed and analyzed the
      potential market for bottled
water;


·
            Performed required testing of
      water quality at the bottling
site;


·
            Completed the development of a
      new web site as part of our marketing
  strategy;


·
            Purchased the additional
      equipment needed to bottle and sell the water; (see financials on www.
      pinksheets.com symbol RSPG)


·
            Made improvements to the plant
      site and water collection facilities;
and


·
            Negotiated and signed contracts
      and letters of intent with medium to large buyers (see press
      releases)





Our plan
of operation and development strategy is summarized as follows:





Phase
            Description
            
            Timing1
            Final
      development of the plant facilities (completed)
            
            Q3,
      20062a
            Implement
      quality control procedures (completed)
            
            Q3,
      20062b
            Completion
      of testing and licensing with local and federal authorities
      (completed)
            
            Q3,
      20063
            Close
      additional sales of private label contracts with major retail stores
      (completed)
            
            Q4,
      20064
            Commence
      operations (completed)
            
            Q4,
      20065
            Introduction
      of new types of beverage products, structured H20 and
    alcohol
            
            Q1-Q3
      20086
            Implementation
      of the Royal Water - brand recognition
            
            Q2,
      20087
            Exercise
      the option to purchase the water rights, land and production facility
      under the lease agreement
            
            Q4,
      2009





Phases 1
through phase 4 have already been completed. Phase 5 through phase 7 will be
financed from future revenues, credit sources, and/or equity sources. We are
currently gathering the cost estimates for phases 5 and 6. Phase 7 is
pre-negotiated in the lease. We are expecting to finance the estimated
$4,584,474 purchase price under our lease agreement through future profits of
the Company, credit sources, and/or additional sources of equity.





16
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During
the next twelve months, we intend to concentrate on two products;
non-carbonated, plain and structured H20 bottled beverage.





Our
primary business strategy is focused in two main areas. The first is to offer
existing bottled water distribution companies, major retail stores and service
oriented businesses the ability to change their current bottled water to a
private label in their business name. Additionally, for companies already
selling under a private label, we intend to sell our water for a more
competitive price and to help increase their bottle water capacity by providing
them with an additional source for their water supply. In some of these
circumstances, we intend to have the customers provide us with their labels or
logo; we will fill the bottles, apply the label and ship the products to the
customer. The second part of our marketing and sales strategy is to develop the
“Royal Water” brand of bottled water and commence sales of that product in the
US and around the world. We will be targeting our product (single serve plastic
bottles of 355ml, 500ml, 1liter, 1.5liters, 1gallon) directly to the smaller end
user - convenience stores, fast food establishments, gas stations, major clubs
and popular restaurants, among others.





A sales
team comprised of Company representatives will be put in charge to first work on
securing contracts with stores, restaurants and clubs using various promotional
tools such as pamphlets, price lists, and samples of our bottled water.
Sponsorship is another marketing tool that we will utilize in order to acquire
exposure and gain recognition. We expect to be sponsoring concerts, golf
tournaments, and dance clubs, etc. We believe that by providing free samples of
our bottled water to various groups and venues, we will be able to effectively
spread our name and popularity and obtain market penetration. We do not yet have
any definitive plans or arrangements for such sponsorship events.





We will
also be targeting all major hotel and casino gaming companies in order to
provide them with their private labeled bottled water and customized labels
(specific hotel-casino names, logos and images). We have contacts in some of the
major hotel-casinos in Las Vegas who have already expressed an interest in
purchasing water from our company when it becomes available. The hotels and
major casinos out-source 100% of their consumable bottled water
needs.





Results
of Operations for the Twelve Months Ended August 31, 2007





The plant
is now operational and during the year ended August 31, 2007 we began shipping
bottled water to our customers and realized sales of $138,461, which represents
sales for the third and fourth quarter of 2007.  These sales were made
to distributors and national chain stores.  The sales were of both our
RSW bottled water and private labeled bottled water.  The revenues
from the contracts we have negotiated are on a net 30 basis after the products
are received by the customer. We now have an accounts receivable line of credit
for $1,000,000 with American Business Finance LLC located in Oklahoma which will
help to speed up cash flow into our account against the payments that are
pending on outstanding vendor invoices. We expect our sales to increase in the
next fiscal year as we will have a full year of operation.  We also
expect to sell our own Structured Water Beverage and Electrolyte Water at higher
selling prices than those of our current products.





Cost of
sales represents the allocation of raw materials, direct labor, freight-in and
water testing related to sales of our finished goods inventory.  For
the year ended August 31, 2007, we earned a gross profit of
$12,822.  We have experienced a lower gross profit than expected
because we sold a portion of our finished goods at prices below cost in order to
promote our products.  We expect our cost to decrease and our sales
prices to increase in the next quarter, resulting in higher gross
margins.





17
 Table of Contents





Advertising
and promotion during the year ended August 31, 2007 increased $64,002 compared
to the prior year.   This increase was due to expenses related to
creating and airing a television commercial for our product.  We also
shipped out free cases of water to potential customers to promote our
products.  Other general expense categories have increased during
fiscal year 2007 as well, which include salaries and wages, vehicle, travel and
entertainment, occupancy costs, insurance and
telecommunications.  These expenses either did not exist or were
minimal in the prior year  mainly because we had only recently begun
operations.  We also had cost associated with damages and spoilages
during initial production runs of approximately $98,000.  This was
expensed as product testing and development. Our interest and bank charges
during the year ended August 31, 2007 increased by $218,087 compared to those
during the year ended August 31, 2006 mainly because of the interest accrued on
our shareholder loans.





Our
operations since inception have not generated any significant
revenue.  We incurred a net loss of $2,862,017 for the year ended
August 31, 2007. We have relied on and will continue to rely on significant
external financing to fund our operations.





Liquidity
and Capital Resources and Future Funding Requirements





Cash
flows used in operating activities were $1,682,617 for the year ended August 31,
2007.  Our main operating items were:





·
            Purchases
      of raw materials and direct labor to produce our bottled
      water;


·
            General
      and administrative and advertising and promotion
  expenses.





We have
limited sales for the year ended August 31, 2007, resulting in negative cash
flows from operations.





Cash
flows used in investing activities were $254,086 for the year ended August 31,
2007.  Our main purchases of equipment were as follows:





·
            Hartness Caser, Double
      System Reverse Osmosis and Pressure Sensitive
    Labeler;


·
            Leasehold
      improvements for our plant in
Texas;


·
            Furniture
      and fixtures, and


·
            Computer
      equipment.





Cash
flows provided by financing activities were $1,806,702 for the year ended August
31, 2007.  This represents proceeds from a convertible note of
$1,085,000 received in December 2006, as discussed below, advances from
shareholders of $430,452 received throuout the year and an advance from a
related party in the amount of $595,000 received in August 2007, as discussed
below.





In
December 2006, the Company signed a two year non-interest bearing convertible
note for $1,250,000.  The note is collateralized by a general security
agreement over the assets of the Company.  The note matures in
December 2008 and the Company may at its option repay, in whole or in part, the
note for a pre-payment price of 110%.  Any remaining unpaid balance of
the note will be paid on the maturity date.  The holder of the note
shall have the right, at its option, at any time, to convert the outstanding
principal to common stock at a price equal to 85% of the weighted market value
for the twenty days immediately prior to the conversion date.  The
Company has also issued, to the purchaser of the convertible note, 500,000
warrants with strike prices ranging from $2.00 to $5.00 expiring in five
years.  The Company paid $102,500 in debt issuance costs with respect
to convertible debt received in December 2006.  The original issuance
discount on the note was $62,500.





18
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In August
2007, the Company received $595,000 in cash in exchange for a loan payable to a
related party that will mature in August 2010.  The loan agreement did
not state or require any interest payment.   An estimated
discount rate of 20%  was determined based on the Company's current
capital structure and operations and the discount on the loan was recorded as an
addition to additional paid-in capital and as a reduction in the loan payable
balance.  The discount will be amortized over the life of the loan
with the amortized portion recorded as interest expense.





The
Company has received letters of intent from potential customers, which
management believes will produce the necessary income to attain positive cash
flows in the future. Since inception, the Company’s principal
shareholders/officers have provided approximately $2 million in short-term
working capital advances and these individuals will continue to provide certain
funding as and when required on a short-term basis. In addition, the Company has
secured a line of credit of up to $1,000,000 with American Business Finance LLC,
located in Oklahoma, to be collateralized by accounts receivable. American
Business Finance LLP will purchase 80% of the face value of invoices for a fee
ranging from 1.1% to 1.75%  until Royal Spring Water Inc. is paid.
Advances will bear interest at a base index rate, as defined in the agreement,
plus 2% per annum. This will help to improve cash flows needed for working
capital until profitable operations are attained.




Although
the Company has no firm commitments from other investors or lenders at this
time, the Company believes it will be able to raise sufficient capital to
continue production and distribution of its products. There can be no assurance
that the Company will be able to secure additional financing or that the amount
of any additional financing will be sufficient to accomplish its business
objectives or to pay ongoing operating expenses.





We expect
to have sufficient cash over the next twelve months. If additional external
financing is not obtained within the next twelve months, financing will be
provided by advances from shareholders.





19
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From
commencement in 2005 to the fiscal year ended August 31, 2007, the shareholders
of the Company have made loans to the Company in the amount of $2,080,061. These
funds have been used to meet working capital requirements, acquire bottling
equipment and further develop the plant.





Our
independent certified public accountants have stated in their report included
herein that we have incurred significant operating losses since our inception,
and that we are dependent upon management’s ability to develop profitable
operations. These factors among others raise substantial doubt about our ability
to continue as a going concern.





Off-Balance
Sheet Arrangements





We do not
have any outstanding derivative financial instruments, off-balance sheet
guarantees, interest rate swap transactions or foreign currency contracts. We do
not engage in trading activities involving non-exchange traded
contracts.





Critical
Accounting Policies





Our
financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles used in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses. These
estimates and assumptions are affected by management’s application of accounting
policies. We believe that understanding the basis and nature of the estimates
and assumptions involved with the following aspects of our financial statements
is critical to an understanding of our financial statements. We believe the
following critical accounting policies require us to make significant judgments
and estimates in the preparation of our financial statements.





Going
Concern





The
Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has experienced losses from operations
since inception, and as of August 31, 2007 has a working capital and total
capital deficiency, which raise substantial doubt as to its ability to continue
as a going concern.





20
 Table of Contents





The
Company's ability to continue as a going concern is contingent upon its ability
to obtain the financing and strategic alliances necessary to attain profitable
operations. Management is pursuing various sources of financing and intends to
raise equity financing through a private placement with a private group of
investors in the near future. The Company has received letters of intent from
potential customers, which management believes will produce the necessary income
to attain profitability in the future. As of August 31, 2007, the Company’s
principal shareholders/officers have provided approximately $2.1 million in
short-term working capital advances and these individuals will continue to
provide certain funding as and when required on a short-term basis. The Company
has secured a line of credit of up to $1,000,000 with American Business Finance
LLC, located in Oklahoma, to be collateralized by invoices signed by buyers.
American Business Finance LLC will finance 80% of the face value of the invoice
until Royal Spring Water is paid. This will help to improve cash flows needed
for working capital until profitable operations are attained. Although the
Company has no firm commitments from other investors or lenders at this time,
the Company believes it will be able to raise sufficient capital to complete
assembly of its production facilities and commence production and distribution
of its products. There can be no assurance that the Company will be able to
secure additional financing or that the amount of any additional financing will
be sufficient to accomplish its business objectives or to pay ongoing operating
expenses.





The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.





Pervasiveness
of Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates were
used in determining the present value of our capital lease obligation and the
allocation of that total cost to the various assets included in the
lease.





Impairment
of Long-Lived Assets





Long
lived assets are accounted for in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The statement requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company evaluates its long-lived assets for indicators of possible impairment by
comparison of the carrying amounts to future net undiscounted cash flows
expected to be generated by such assets when events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Should an
impairment exist, the impairment loss would be measured based on the excess
carrying value of the asset over the asset's fair value or estimates of future
cash flows. We have not identified any such impairment losses to
date.





21
 Table of Contents





Capital
Leases





Capital
leases represent those leases under which substantially all the risks and
rewards of ownership of the leased assets are transferred to the Company.
Property, plant and equipment held under capital leases are initially recorded
at the present value of the minimum payments at the inception of the leases,
with equivalent liabilities categorized as appropriate under current or
non-current liabilities. Interest expense, which represents the difference
between the minimum payments at the inception of the capital leases and the
corresponding fair value of the assets acquired, is allocated to accounting
periods over the period of the leases to produce a constant rate of charge on
the outstanding balance.





Income
Taxes





The
Company accounts for income taxes pursuant to SFAS No. 109, Accounting for
Income Taxes. Deferred tax assets and liabilities are recorded for differences
between the financial statements and tax basis of the assets and liabilities
that will result in taxable or deductible amounts in the future based on enacted
tax laws and rates. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is recorded for the amount of income tax payable or refundable for the
period increased or decreased by the change in deferred tax assets and
liabilities during the period. As of August 31, 2007, a deferred tax asset of
approximately $1.5 million (which arises solely as a result of net operating
losses), has been entirely offset by a valuation reserve due the uncertainty
that this asset will be realized in the future.




Item7.
            Financial
      Statements.





See
Financial Statements starting on page F-1 for this information.





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








In
February 2006 the Company appointed, as its new independent registered public
accounting firm, Grobstein, Horwath & Company LLP, Certified Public
Accountants, whose address is 15233 Ventura Boulevard, Ninth Floor, Sherman
Oaks, California 91403. The effective date of engagement agreed to by the
parties was February 6, 2006.





22
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Prior to
their appointment of the new independent registered public accounting firm, the
Company did not consult with the new auditor on the application of accounting
principles to a specific completed or contemplated transaction, or the type of
audit opinion that might be rendered on the Company’s financial
statements.




Item8A.
            Controls and
      Procedures.





As of the
end of the period covered by this annual report, an evaluation was carried out
under the supervision and with the participation of the Company's management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934).  Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the design and
operation of these disclosure controls and procedures were





During
the fiscal year covered by this report, there were no significant changes in
internal controls or in other factors that could significantly affect the
internal controls, including any corrective actions taken with regard to
significant deficiencies and material weaknesses.





Item8B.
            Other
      Information.





None.





23
 Table of Contents





PART III





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





All
directors of our company, hold office until the next annual meeting of the
stockholders or until their successors have been elected and qualified. The
officers of our company are appointed by our board of directors and hold office
until their death, resignation or removal from office.Our directors and executive
officers, their ages and position held are as follows:





NAME
            AGE
            
            POSITION
      HELD WITH COMPANYAlex
      Hazan
            46
            
            President,
      CEO & Chairman of the Board of DirectorsIsaac
      Ben Hamou
            46
            
            Director





Our
Director and Officers Business Experience





The
following is a brief account of the education and business experience of each
director and executive officer during at least the past five years, indicating
each person’s business experience, principal occupation during the period, and
the name and principal business of the organization by which he or she was
employed.





Mr. Alex Hazan


President,
CEO and Chairman of the Board of directors





Mr. Hazan
arrived to the United States in the early eighties. After his army service in
one of Israel’s elite units, Alex managed and over saw one of the most
prestige’s security outfits in the world. Shortly after his arrival in the
United States Alex raised the financing and owned one of the first home
improvement companies in Los Angeles with over 30 employees. Alex over saw the
company's strategy, marketing and sales. Over the last few years Alex has become
a real estate developer in Los Angeles and surrounding areas. In 1994 Alex
formed Silver Cloud productions and raised the financing as well as
self-financed over $25 million for independent films. Alex produced or executive
produced these films for worldwide markets. In 1996 Alex founded one of Israel’s
leading 3D animation companies - MIM TV (http://www.mimtv.com/)
Alex provided all of the funding of the company and produced and developed a
large library of children’s DVD programming as well as CD ROM interactive games.
MIM TV is currently selling its products to ToysRus.  Alex was
actively involved with MIM TV up to 2000 and currently has part ownership of
this company.  From 2000 to 2005 Alex was also involved in developing
and selling real estate properties.  Alex was appointed director and
officer of Royal Spring Water in 2005.





24
 Table of Contents





Isaac
Ben Hamou


Director





Isaac Ben
Hamou is currently and for the past five years head of the transportation
department of Stephen S. Wise Temple, one of the most prominent Temples in Los
Angeles. His department consists of 10 bus drivers and 1 bus company supervisor.
Mr. Hamou oversees all of the billing which comes from Laidlaw Transit, charging
each department accurately for the proportion of the labor they used. Mr. Hamou
interacts with the parents on a daily basis answering all their needs and
servicing their complaints.  Isaac was appointed director of Royal
Spring Water in 2005.





Mr.
Pete Gnecco


Chief
Operating Engineer





During
his high school years, Mr. Gnecco worked as a Tool and Die Apprentice. After
graduating high school, he went to work for Zenx Tool and Die as a Tool and Die
Maker while he attended college classes. Upon turning 18 and with the Vietnam
War heating up, he joined the United States Marine Corp where he initially
studied hydraulics and electronics. Later, due to his aptitude and leadership
qualities, he was chosen to become a Marine Corp Officer and pilot. After ten
years of service and the winding down of the Vietnam War, he left the Marine
Corp and finished his college degree program.





For the
next fifteen years, Mr. Gnecco worked in the building, mechanical, and
electrical trades gaining a high degree of proficiency in each while operating
his own company. He then became an Operating Engineer and worked in hotels and
casinos over the next six years. During this time, he obtained his certification
in backflow prevention and health and safety proficiency.





Afterwards,
he volunteered as the Executive Director of the Pahrump Economic Development
Corporation and assisted in bringing new businesses to Pahrump Nevada for the
next two years.





Following
his public service, he became a consultant to the liquor bottling industry doing
extensive work on both wine and hard alcohol bottling lines as well as handling
Federal and State compliance issues related to the industry for the next six
years.





Royal
Springs Water, Inc. consulted with him as an Operating Engineer and Bottling
Line Specialist from December 2006.   As the relationship between
Mr. Gnecco and Royal Spring Water proved to be successful and the company
production needs increased, both parties decided to make Mr. Gnecco’s position
with the company a more long-term management position.  As of March 1,
2007, Mr. Gnecco had relocated to Hereford Texas as a full-time management team
member and assumed the position of Chief Operating Engineer.





25
 Table of Contents





Item 10.
            Executive
      Compensation.





At this
time there is no set executive compensation package for any of the directors or
officers of the Company. The Company currently has no stock option plan or
similar plans, nor are there any immediate plans or intentions to establish such
compensation arrangements. While the Company has not paid executive
compensation, it receives services from its two key officers/shareholders, for
which compensation expense is recorded with a corresponding credit to paid-in
capital.





Item
      11.
            Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder
      Matters.





The
following table sets forth the name, address, number of shares beneficially
owned, and the percentage of the Registrant’s total outstanding common stock
shares owned by: (i) each of the Registrant’s Officers and Directors; (ii) the
Registrant’s Officers and Directors as a group; and (iii) other shareholders of
5% or more of the Registrant’s total outstanding common stock shares. The
percentages have been calculated by taking into account all Shares owned on the
record date as well as all such Shares with respect to which such person has the
right to acquire beneficial ownership at such date or within 60 days thereafter.
Unless otherwise indicated, all persons listed below have sole voting and sole
investment power over the Shares owned.





Title
      of Class
            
            Name
      and Address of
              Beneficial
      Owner
            
            Amount
      and
              Nature
      of
              Beneficial
              Ownership
            
            Percent
              of
      ClassCommon
      Stock
            
            Alex
      Hazan,14553 Delano
              St
      suite 217, Van Nuys CA
              91411
            
            2,704,932
            
            9.00%Common
      Stock
            
            Isaac
      Ben Hamou,14553
              Delano
      St suite 217, Van
              Nuys
      CA 91411
            
            100,000
            
            0.33%Common
      Stock
            
            Officers
      and Directors, as a
              Group
      (2 people)
            
            2,804,932
            
            9.33%





Item12.
            Certain Relationships and Related
      Transactions.





The
Company’s principal shareholders, who are also officers, have provided short
term, non-interest bearing working capital advances to the Company through
August 31, 2007 and subsequently. Such funding has been a substantial source of
the Company’s working capital to date.





26
 Table of Contents





Item13.
            Exhibits and Reports on Form
      8-K.





(a)
            Exhibits





Reference
is herewith made to the financial statements and notes thereto included herein
and to the cover page of this 10-KSB with respect to documents incorporated by
reference in accordance with Rule 12b-33.





Exhibit
              Number
            
            Description2
      (1)
            
            Acquisition
      Agreement3
      (1)
            
            Articles
      of Merger10
      (1)
            
            Commercial
      Lease Agreement16
      (1)
            
            Letter
      on Change in Accountant31.1*
            
            Certificate
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
            
            Certificate
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act if 200232.1*
            
            Certificate
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.2
            
            Certificate
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002





*
            Filed
      herewith.


(1)
            Incorporated by reference from
      our report on form 10K-SB/A filed on June 7th,
  2006





(a)
            Reports
      of Form 8-K filed in fourth quarter of the fiscal
  year:





On
November 15, 2007, the Company filed a Form 8-K for the termination of the
employment of Harel Goldstein as Chief Financial Officer of the
Company.








Item
      14.
            Principal Accountant Fees and
      Services.





The
following is a summary of the fees billed to the Company for professional
services rendered for the periods ended August 31, 2007 and 2006:





2007
            
            
            20061.
      Audit Fees (a)
            
            $
            64,915
            
            
            $
            15,0002.
      Audit Related Fees
            
            
            17,215
            
            
            
            9,0893.
      Tax Fees (b)
            
            
            220
            
            
            
            -4.
      All Other Fees
            
            
            9000
            
            
            
            -





(a)
            Consists of fees billed for
      professional services rendered for the audit of the Company's financial
      statements and review of the interim financial statements included in
      quarterly reports.





(b)
            Consists
      primarily of fees paid for tax compliance and tax planning
      services.





27
 Table of Contents





Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Registered Public Accounting Firm





The
Company currently does not have a designated Audit Committee, and accordingly,
the Company's Board of Directors' policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, tax services and
other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditors and
management are required to periodically report to the Company's Board of
Directors regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. The Board of Directors may also pre-approve particular services on a
case-by-case basis.








SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf on
December 20, 2007 by the undersigned, thereunto authorized.





ROYAL
      SPRING WATER INC.By:
              /s/  Alex
      HazanAlex
      Hazan, President








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities on the date(s) indicated.





Name
              
              Title
              
              Date/s/  Alex
      Hazan
              
              Chairman
      of the Board of
              
              February
      5, 2007Directors
      and ChiefAlex
      Hazan
              
              Executive
      Officer/s/  Isaac
      Ben Hamou
              
              Director
              
              February
      5, 2007Isaac
      Ben Hamou





28
 Table of Contents





INDEX
TO FINANCIAL STATEMENTS





PageReport
      of Independent Registered Public Accounting Firm
            F-2Balance
      Sheets as of August 31, 2007 and 2006
            F-3Statements
      of Operations for the Years Ended August 31, 2007 and 2006
            F-4Statements
      of Changes in Stockholders’ Deficit for the Years Ended August 31, 2007
      and 2006
            F-5Statements
      of Cash Flows for the Years Ended August 31, 2007 and 2006
            F-6Notes
      to Financial Statements
            F-7





F-1
 Table of Contents





Report
of Independent Registered Public Accounting Firm








To the
Board of Directors and Stockholders of


Royal
Spring Water Inc.





We have
audited the accompanying balance sheets of Royal Spring Water Inc. as of August
31, 2007 and 2006 and the related statements of operations, changes in
stockholders’ deficit, and cash flows for each of 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Royal Spring Water Inc. as of
August 31, 2007 and 2006, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company’s significant operating losses, negative working
capital, and total capital deficiency raise substantial doubt about its ability
to continue as a going concern. Note 1 also describes management’s plans to
address these financial matters. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.











/s/
Grobstein, Horwath & Company LLP





Sherman
Oaks, California


February
5, 2008





F-2
 Table of Contents





ROYAL
SPRING WATER INC.


BALANCE
SHEETS





August 31,
            
            
            August 31,ASSETS
            
            2007
            
            
            2006CURRENT
      ASSETSCash
      and cash equivalents
            
            $
            122,196
            
            
            $
            252,197Accounts
      receivable
            
            
            21,255
            
            
            
            -Inventory
            
            
            236,306
            
            
            
            65,912Prepaid
      expenses and deposits
            
            
            253,982
            
            
            
            32,722Total
      Current Assets
            
            
            633,739
            
            
            
            350,831Property,
      plant and equipment, net
            
            
            3,700,199
            
            
            
            3,768,892Debt
      issue costs
            
            
            68,334
            
            
            
            -TOTAL
      ASSETS
            
            $
            4,402,272
            
            
            $
            4,119,723LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
            
            $
            314,536
            
            
            $
            64,398Advances
      from shareholders
            
            
            2,080,061
            
            
            
            1,649,609Accrued
      warrant liability
            
            
            389,448Obligation
      under capital lease - current portion
            
            
            192,781
            
            
            
            171,083Total
      Current Liabilities
            
            
            2,976,826
            
            
            
            1,885,090Loan
      payable to related party
            
            
            328,162
            
            
            
            -Convertible
      debt, net of discount
            
            
            926,810
            
            
            
            -Obligation
      under capital lease
            
            
            3,957,232
            
            
            
            3,690,442Total
      Long Term Liabilities
            
            
            5,212,204
            
            
            
            3,690,442TOTAL
      LIABILITIES
            
            
            8,189,030
            
            
            
            5,575,532STOCKHOLDERS’
      DEFICITPreferred
      stock - $.001 par value; 5,000,000 shares authorized, none issued or
      outstanding
            
            
            -
            
            
            
            -Common
      stock - $.001 par value; 50,000,000 shares authorized, 30,072,000 shares
      issued and outstanding
            
            
            30,072
            
            
            
            30,072Additional
      paid-in capital
            
            
            666,701
            
            
            
            135,633Accumulated
      deficit
            
            
            (4,483,531
            )
            
            
            (1,621,514
            )TOTAL
      STOCKHOLDERS’ DEFICIT
            
            
            (3,786,758
            )
            
            
            (1,455,809
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            4,402,272
            
            
            $
            4,119,723





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





F-3
 Table of Contents





ROYAL
SPRING WATER INC.


STATEMENTS
OF OPERATIONS





Year
      Ended
            
            
            Year
      EndedAugust 31,
            
            
            August 31,2007
            
            
            2006Sales
            
            $
            138,461
            
            
            $
            -Cost
      of goods sold
            
            
            125,639
            
            
            
            -Gross
      profit
            
            
            12,822
            
            
            
            -EXPENSESGeneral
      and administrative
            
            
            614,146
            
            
            
            223,844Professional
      fees
            
            
            231,077
            
            
            
            237,857Salaries
      and wages
            
            
            192,957
            
            
            
            30,778Product
      testing and development
            
            
            97,977
            
            
            
            -Advertising
      and promotion
            
            
            83,666
            
            
            
            19,664Vehicle
            
            
            66,461
            
            
            
            37,222Travel
      and entertainment
            
            
            55,262
            
            
            
            27,438Insurance
            
            
            32,704
            
            
            
            13,104Telecommunications
            
            
            32,050
            
            
            
            21,091Occupancy
      costs
            
            
            29,320
            
            
            
            19,915Consulting
      fees
            
            
            17,049
            
            
            
            7,500Commissions
            
            
            14,500
            
            
            
            -Depreciation
            
            
            322,780
            
            
            
            183,194TOTAL
      EXPENSES
            
            
            1,789,949
            
            
            
            821,607LOSS
      FROM OPERATIONS
            
            
            (1,777,127
            )
            
            
            (821,607
            )OTHER
      EXPENSESInterest
      and bank charges
            
            
            219,664
            
            
            
            1,577Interest
      on capital lease obligation and convertible debenture
            
            
            865,226
            
            
            
            622,793NET
      LOSS
            
            $
            (2,862,017
            )
            
            $
            (1,445,977
            )Loss
      per common share, basic and diluted
            
            $
            (0.10
            )
            
            $
            (0.05
            )Weighted
      average shares outstanding, basic and diluted
            
            
            30,072,000
            
            
            
            30,072,000





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





F-4
 Table of Contents





ROYAL
SPRING WATER INC.


STATEMENTS
OF CHANGES IN STOCKHOLDERS' DEFICIT





Common
      Stock
            
            
            Additional
            
            
            
            
            
            TotalPaid-in
            
            
            Accumulated
            
            
            Stockholders’'Shares
            
            
            Par
      Value
            
            
            Capital
            
            
            Deficit
            
            
            DeficitBALANCE
      AT AUGUST 31, 2005, restated
            
            
            30,072,000
            
            
            $
            30,072
            
            
            $
            15,633
            
            
            $
            (173,537
            )
            
            $
            (129,832
            )Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,445,977
            )
            
            
            (1,445,977
            )Services
      contributed by shareholders
            
            
            -
            
            
            
            -
            
            
            
            120,000
            
            
            
            -
            
            
            
            120,000BALANCE
      AT AUGUST 31, 2006
            
            
            30,072,000
            
            
            
            30,072
            
            
            
            135,633
            
            
            
            (1,621,514
            )
            
            
            (1,455,809
            )Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            (2,862,017
            )
            
            
            (2,862,017
            )Conversion
      feature
            
            
            -
            
            
            
            -
            
            
            
            144,230
            
            
            
            -
            
            
            
            144,230Services
      contributed by shareholders
            
            
            -
            
            
            
            -
            
            
            
            120,000
            
            
            
            -
            
            
            
            120,000Discount
      on  loan payable to related party
            
            
            
            
            
            
            
            
            
            
            266,838
            
            
            
            
            
            
            
            266,838BALANCE
      AT AUGUST 31, 2007
            
            
            30,072,000
            
            
            $
            30,072
            
            
            $
            666,701
            
            
            $
            (4,483,531
            )
            
            $
            (3,786,758
            )





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





F-5
 Table of Contents





ROYAL
SPRING WATER INC.


STATEMENTS
OF CASH FLOWS





Year
      Ended
            
            
            Year
      EndedAugust 31,
            
            
            August 31,2007
            
            
            2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Loss
            
            $
            (2,862,017
            )
            
            $
            (1,445,977
            )Adjustments
      to reconcile net loss to net cash provided (used) by operating
      activities:Depreciation
            
            
            322,780
            
            
            
            183,194Interest
      accrued on obligation under capital lease and convertible
    debt
            
            
            865,226
            
            
            
            622,793Amortization
      of debt issue costs
            
            
            34,166
            
            
            
            -Services
      contributed by shareholders
            
            
            120,000
            
            
            
            120,000Changes
      in Assets and Liabilities:Accounts
      receivable
            
            
            (21,255
            )
            
            
            -Inventory
            
            
            (170,394
            )
            
            
            (65,912
            )Prepaid
      expenses and deposits
            
            
            (221,260
            )
            
            
            (22,722
            )Accounts
      payable and accrued liabilities
            
            
            250,137
            
            
            
            64,398NET
      CASH USED IN OPERATING ACTIVITIES
            
            
            (1,682,617
            )
            
            
            (544,226
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Acquisition
      of property and equipment
            
            
            (254,086
            )
            
            
            (614,652
            )NET
      CASH USED IN INVESTING ACTIVITIES
            
            
            (254,086
            )
            
            
            (614,652
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from convertible debt
            
            
            1,085,000
            
            
            
            -Loan
      payable to related party
            
            
            595,000
            
            
            
            -Advances
      from shareholders
            
            
            430,452
            
            
            
            1,576,063Repayment
      of obligation under capital lease
            
            
            (303,750
            )
            
            
            (165,000
            )NET
      CASH PROVIDED BY FINANCING ACTIVITES
            
            
            1,806,702
            
            
            
            1,411,063NET
      CHANGE IN CASH & CASH EQUIVALENTS
            
            
            (130,001
            )
            
            
            252,185CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
            
            
            252,197
            
            
            
            12CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
            
            $
            122,196
            
            
            $
            252,197





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





F-6
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





NOTE 1.
            NATURE OF OPERATIONS AND SUMMARY
      OF SIGNIFICANT ACCOUNTING
POLICIES





ORGANIZATION





Easy.com,
Inc. (“Easy”) was incorporated under the laws of the State of Nevada on May 9,
2000. Easy was a non-operating shell corporation with nominal net assets prior
to June 2005, when Easy acquired one hundred percent (100%) of the assets of
Royal Spring Water Inc., a Nevada company.





In April
2006, the Company filed Articles of Merger in Nevada and legally combined the
entities of Easy.com and Royal Spring Water Inc. They concurrently changed the
name of the surviving entity to Royal Spring Water Inc (“RSW” or the
“Company”).





The
Company was established with a clear mission, namely to extract, process, and
bottle mineral rich well water of supreme quality.





BUSINESS
COMBINATION





On June
30, 2005, Easy acquired all of the outstanding stock of RSW (the "Reverse
Merger"). Easy completed the acquisition by having the shareholders of RSW
surrender 100% of their common stock to the company. In anticipation of the
Reverse Merger, on September 2, 2004 the shareholders of Easy gifted stock to
the shareholders of RSW, giving these shareholders and their family members
control of Easy. For accounting purposes, pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 141, Business Combinations, the
acquisition has been treated as a recapitalization of RSW with RSW recognized as
the accounting acquirer (reverse acquisition). A reverse acquisition occurs if a
company other than the legal acquirer is deemed to be the “accounting acquirer”
in a business combination effected by the issuance of voting securities. In this
regard, RSW is considered the accounting acquirer and Easy is considered the
accounting target. The historical financial statements prior to June 30, 2005
are those of RSW.





GOING
CONCERN





The
Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has experienced losses from operations
since inception, and as of August 31, 2007 has a working capital and total
capital deficiency, which raise substantial doubt as to its ability to continue
as a going concern.





F-7
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





GOING
CONCERN (Continued)





The
Company's ability to continue as a going concern is contingent upon its ability
to obtain the financing and strategic alliances necessary to attain profitable
operations. Management is pursuing various sources of financing and intends to
raise equity financing through a private placement with a private group of
investors in the near future. The Company has received letters of intent from
potential customers, which management believes will produce the necessary income
to attain profitability in the future. Since August 31, 2007, the Company’s
principal shareholders/officers have provided approximately $2.1 million in
short-term working capital advances and these individuals will continue to
provide certain funding as and when required on a short-term basis. The Company
has secured a line of credit of up to $1,000,000 with American Business Finance
LLC, located in Oklahoma, to be collateralized by invoices signed by buyers.
American Business Finance LLC will finance 80% of the face value of the invoice
until Royal Spring Water is paid. This will help to improve cash flows needed
for working capital until profitable operations are attained. Although the
Company has no firm commitments from other investors or lenders at this time,
the Company believes it will be able to raise sufficient capital to complete
assembly of its production facilities and commence production and distribution
of its products. There can be no assurance that the Company will be able to
secure additional financing or that the amount of any additional financing will
be sufficient to accomplish its business objectives or to pay ongoing operating
expenses.





The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.





BASIS OF
PRESENTATION




The
accompanying financial statements include the accounts of the Company, a Nevada
corporation and have been prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP").





PERVASIVENESS
OF ESTIMATES





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates were
used in determining the present value of our capital lease obligation and the
allocation of that total cost to the various assets included in the
lease.





CASH
AND CASH EQUIVALENTS





Cash and
cash equivalents are considered to be all highly liquid investments purchased
with an initial maturity of three (3) months or less.





F-8
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





PROPERTY
AND EQUIPMENT





Property
and equipment are stated at cost less accumulated depreciation and amortization.
Maintenance and repairs that neither materially add to the value of the property
nor appreciably prolong its life are charged to operations as incurred.
Betterments or renewals are capitalized when incurred. Depreciation, based on
the estimated useful lives of the assets, is provided using the straight line
method over the following useful lives:





Equipment
      under capital lease
            5
      yearsLocomotive
      under capital lease
            5
      yearsBuilding
      under capital lease
            25
      yearsFurniture
      and equipment
            5
      yearsComputer
            2
      yearsSoftware
            1
      yearLeasehold
      improvements
            5
      years





LONG
LIVED ASSETS





Long
lived assets are accounted for in accordance with SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The statement requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company evaluates its long-lived assets for indicators of possible impairment by
comparison of the carrying amounts to future net undiscounted cash flows
expected to be generated by such assets when events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Should an
impairment exist, the impairment loss would be measured based on the excess
carrying value of the asset over the asset's fair value or estimates of future
cash flows. We have not identified any such impairment losses to
date.





CAPITAL
LEASES





Capital
leases represent those leases under which substantially all the risks and
rewards of ownership of the leased assets are transferred to the Company.
Property, plant and equipment held under capital leases are initially recorded
at the present value of the minimum payments at the inception of the leases,
with equivalent liabilities categorized as appropriate under current or
non-current liabilities. Interest expense, which represents the difference
between the minimum payments at the inception of the capital leases and the
corresponding fair value of the assets acquired, is allocated to accounting
periods over the period of the leases to produce a constant rate of charge on
the outstanding balance.





F-9
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





INVENTORY





Inventory
is valued at the lower of cost or net realizable value. Cost is determined on a
first-in, first-out basis. Included in inventory costs are raw materials, labor
and manufacturing overhead.





ACCOUNTS
RECEIVABLE





Accounts
receivable are stated at outstanding balances, less an allowance for doubtful
accounts. The allowance for doubtful accounts is established through provisions
charged against income. Accounts deemed to be uncollectible are charged against
the allowance and subsequent recoveries, if any, are credited to the allowance.
Management’s periodic evaluation of the adequacy of the allowance is based on
past experience, aging of the receivables, adverse situations that may affect a
customer’s ability to pay, current economic conditions and other relevant
factors. This evaluation is inherently subjective as it requires estimates that
may be susceptible to significant change. Unpaid balances remaining after the
stated payment terms are considered past due.





Based
upon such procedures management has determined that no allowance was required as
of August 31, 2007.





ADVERTISING





Advertising
costs are expensed as incurred and are included in advertising and promotion in
the amount of $83,666 and $19,664, for the years ended August 31, 2007 and 2006,
respectively.





SHIPPING
AND HANDLING COSTS





Shipping
and handling costs related to inventory delivered to our customers are expensed
as incurred and are included in general and administrative expenses in the
amount of $80,106 and $Nil, for the years ended August 31, 2007 and 2006,
respectively. Although our classification is consistent with many beverage
companies, our gross margin may not be comparable to companies that include
shipping and handling costs in cost of sales.





DEBT
ISSUE COSTS





The
Company paid $102,500 in debt issuance costs with respect to convertible debt
received in December 2006.  These debt issue costs are being amortized
over the term of the debt in accordance with Staff Accounting Bulletin (“SAB”)
No. 5.  For the year ended August 31, 2007, the Company amortized
$34,166 of the debt issue costs as a charge to financing costs.  The
original issuance discount on the note was $62,500.





F-10
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





BENEFICIAL
CONVERSION FEATURE OF DEBENTURES





In
accordance with Emerging Issues Task Force (“EITF”) No. 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, and EITF No. 00-27, Application of Issue No. 98-5 to
Certain Convertible Instruments, the Company recognized the advantageous
value of conversion rights attached to convertible debt. Such rights gives the
debt holder the ability to convert debt into shares of common stock at a price
per share that is less than the fair market value of the common stock on the day
the loan is made to the Company. The beneficial value was calculated as the
intrinsic value (the fair market value of the stock at the commitment date in
excess of the conversion rate) of the beneficial conversion feature of the
debentures and the related accrued interest and was recorded as a discount to
the related debt and an addition to additional paid in capital. The discount was
calculated as $144,230 and was included in the statement of operations under
interest on capital lease obligation and convertible debenture.





INCOME
TAXES





The
Company accounts for income taxes pursuant to SFAS No. 109, Accounting for Income Taxes.
Deferred tax assets and liabilities are recorded for differences between the
financial statements and tax basis of the assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
recorded for the amount of income tax payable or refundable for the period
increased or decreased by the change in deferred tax assets and liabilities
during the period. As of August 31, 2007, a deferred tax asset of approximately
$1.5 million (which arises solely as a result of net operating losses), has been
entirely offset by a valuation reserve due the uncertainty that this asset will
be realized in the future.





LOSS
PER SHARE





The
Company accounts for earnings per share pursuant to SFAS No. 128, Earnings per Share, which
requires disclosure on the financial statements of "basic" and "diluted"
earnings (loss) per share. Basic earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding for the year. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding plus common stock equivalents (if dilutive) related to stock options
and warrants for each year.





The
warrants as discussed in Note 6 are potentially dilutive but were anti-dilutive
for the year ended August 31, 2007.  There were no potentially
dilutive financial instruments for the period ended August 31,
2006.





FAIR
VALUE OF FINANCIAL INSTRUMENTS





The
carrying values of our financial instruments included in current assets and
current liabilities approximated their respective fair values at each balance
sheet date due to the immediate or short-term maturity of these financial
instruments. The fair value of lease obligations is based on current rates at
which we could borrow funds with similar remaining maturities.





F-11
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





RECENT
ACCOUNTING PRONOUNCEMENTS





In June
2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income
Taxes, which is an interpretation of SFAS No. 109, Accounting for Income Taxes.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS 109 and prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return.  FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition.  FIN 48 is effective for fiscal years
beginning after December 15, 2007. The Company believes the implementation of
FIN 48 will not have a significant effect on  its financial position
or results of operations.





In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
157 defines fair value, establishes a framework for measuring fair value and
expands disclosure of fair value measurements. SFAS 157 applies under other
accounting pronouncements that require or permit fair value measurements and
accordingly, does not require any new fair value measurements. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company is currently in the process of assessing the
impact the adoption of SFAS 157 will have on its financial
statements.





In
September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB 108 requires that public companies utilize a
"dual-approach" to assessing the quantitative effects of financial
misstatements. This dual approach includes both an income statement focused
assessment and a balance sheet focused assessment. The guidance in SAB 108 must
be applied to annual financial statements for fiscal years ending after November
15, 2006. Management believes the adoption of this pronouncement will not have a
material impact on the Company's consolidated financial statements.





In
December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration Payment
Arrangements which addresses accounting for registration payment
arrangements. FSP 00-19-2 specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included as a provision
of a financial instrument or other agreement, should be separately recognized
and measured in accordance with FASB Statement No. 5, Accounting for Contingencies.
FSP 00-19-2 further clarifies that a financial instrument subject to a
registration payment arrangement should be accounted for in accordance with
other applicable generally accepted accounting principles without regard to the
contingent obligation to transfer consideration pursuant to the registration
payment arrangement.  Adoption of FSP 00-19-02 is required for fiscal
years beginning after December 15, 2006.  The Company has adopted FSP
00-19-2 and the effect on the financial statements is disclosed in note
5.





In February 2007, the FASB issued SFAS
No. 159,The Fair Value
Option for Financial Assets and Financial Liabilities.SFAS 159 permits entities to choose to
measure many financial instruments, and certain other items, at fair value.SFAS 159 applies to
reporting periods beginning after November 15, 2007. The adoption of SFAS 159 is
not expected to have a material impact on the Company’s financial condition or
results of operations.





F-12
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





RECENT
ACCOUNTING PRONOUNCEMENTS (Continued)





In
December 2007, the FASB issued SFAS No. 141 (R) Business Combinations. SFAS
141R establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. SFAS 141R also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become
effective as of the beginning of the Company’s fiscal year beginning after
December 15, 2008. Management believes the adoption of this pronouncement will
not have a material impact on the Company's consolidated financial
statements.





In
December 2007, the FASB issued SFAS No. 160 Noncontrolling Interests in
Consolidated Financial Statements—an amendment ofARBNo. 51. SFAS 160 establishes
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. The guidance will become
effective as of the beginning of the Company’s fiscal year beginning after
December 15, 2008. Management believes the adoption of this pronouncement will
not have a material impact on the Company's consolidated financial
statements.





NOTE 2.
            PROPERTY, PLANT &
      EQUIPMENT





At August
31, 2007 and 2006 property, plant and equipment consists of the
following:





2007
            
            
            2006Land
      and water rights under capital lease
            
            $
            1,287,853
            
            
            $
            1,287,853Equipment
      under capital lease
            
            
            506,555
            
            
            
            506,555Locomotive
      under capital lease
            
            
            53,661
            
            
            
            53,661Computer
            
            
            74,102
            
            
            
            67,524Software
            
            
            3,275
            
            
            
            3,275Water
      treatment system
            
            
            605,605
            
            
            
            469,218Building
      under capital lease
            
            
            1,502,495
            
            
            
            1,502,495Furniture
      and equipment
            
            
            99,954
            
            
            
            75,850Leasehold
      improvements
            
            
            87,021
            
            
            
            -4,220,521
            
            
            
            3,966,431Less:
      accumulated depreciation
            
            
            (520,322
            )
            
            
            (197,539
            )Net
      property, plant and equipment
            
            $
            3,700,199
            
            
            $
            3,768,892





Depreciation
expense was $322,780 and $183,194 for the years ended August 31, 2007 and
2006, respectively.





F-13
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





NOTE 3.
            RELATED PARTY
      TRANSACTIONS





The
advances from shareholders of the Company to facilitate the payment of debts
bear interest at 10% per annum, are unsecured and have no specific terms of
repayment. The carrying value of the advances approximates the market value due
to the short-term maturity of the financial instruments.





In August
2007, the Company received $595,000 in cash in exchange for a loan payable to a
related party that will mature in August 2010.  The loan agreement did
not state or require any interest payment.  An estimated discount rate
of 20% was determined  based on the Company's current capital
structure and operations and the discount on the loan was recorded  as
an addition to additional paid-in capital and as a reduction in the loan payable
balance.  The discount will be amortized over the life of the loan
with the amortized portion recorded as interest expense.





For the
year ended August 31, 2007, the Company's directors and shareholders have
devoted time to the development of the Company. Compensation expense totaling
$120,000 has been recorded for the year ended August 31, 2007 and 2006. These
directors and shareholders have waived reimbursement and have considered these
services as a contribution to capital. Accordingly, the contributions have been
recorded as additional paid-in capital.





NOTE 4.
            FINANCING AGREEMENT FOR ACCOUNTS
      RECEIVABLE





On
November 21, 2006, the Company entered into a financing agreement with a
commercial finance company (“Finance Co.”). Under the terms of the agreement,
the Company may sell accounts receivable to Finance Co. for a fee ranging from
1.1% to 1.75% of the face value of the accounts sold. Finance Co. will advance
the Company 80% of the face value of the accounts sold to an aggregate maximum
of $1 million. The remaining 20% will be held by Finance Co. in a reserve
account until the account is collected or until the funds mature, which is
generally within 30 to 90 days. Advances will bear interest at a base index
rate, as defined in the agreement, plus 2% per annum. The minimum aggregate
annual borrowing rate on advances shall be 10.25%. Accounts are generally to be
sold without recourse, and Finance Co. will be responsible for collection,
assumes all credit risk (except where a dispute exists), and obtains rights and
remedies against the Company’s customers. Trade accounts receivable not sold to
Finance Co. will remain in the custody and control of the Company, and the
Company will maintain all credit risk and collection responsibility on those
accounts.  As of August 31, 2007, there have been no advances made to
the Company on its accounts receivable from Finance Co.





F-14
 Table of Contents





NOTE
      5.
            OBLIGATION
      UNDER CAPITAL LEASE





The
Company leases land, building and equipment under a capital lease which contains
a bargain purchase option which the Company intends to exercise on or before its
expiration on August 1, 2009. The asset and liability under the capital lease
are recorded at the present value of the minimum lease payments and purchase
option price. The assets are depreciated over their useful lives as described in
Note 1.





Future
minimum lease payments under capital leases as of August 31, 2007 for each of
the next two years and in the aggregate are as follows:





2008
            
            $
            310,5752009,
      including bargain purchase option
            
            
            4,874,603Total
      minimum lease payments
            
            
            5,185,178Less:
      amount representing interest at 19%
            
            
            (1,035,165
            )Total
      obligations under capital lease
            
            
            4,150,013Less:
      current installments of obligations under capital lease
            
            
            (192,781
            )Long-term
      obligation under capital lease
            
            $
            3,957,232





NOTE 6.
            CONVERTIBLE
      DEBT





In December 2006, the Company signed a
two year non-interest bearing convertible note for $1,250,000.  The
note is collateralized by a general security agreement of the assets of the
Company.  The note matures in December 2008 and the Company may at its
option repay, in whole or in part, the note for a pre-payment price of
110%.  Any remaining unpaid balance of the note will be paid on the
maturity date.  The holder of the note shall have the right, at its
option, at any time, to convert the outstanding principal to common stock at a
price equal to 85% of the weighted market value for the twenty days immediately
prior to the conversion date.  The Company has also issued to the
purchaser of the convertible note 500,000 warrants with strike prices ranging
from $2.00 to $5.00.  These warrants are exercisable for a period of
five years (the “exercise period”) and can be exercised at any time within the
exercise period; payment will be made by a net cash settlement by the holder and
the holder will receive unregistered common shares of the
Company.





F-15
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





NOTE 6.
            CONVERTIBLE DEBT
      (Continued)





In
accounting for the debentures and the warrants described above the Company
considered the guidance contained in EITF 00-19, Accounting for Derivative Financial
Instruments Indexed To, and Potentially Settled In, a Company's Own Common
Stock, and SFAS 133 Accounting for Derivative
Instruments and Hedging Activities.  Since the convertible debenture
is convertible into an indeterminate number of shares of common stock, it is
assumed that the Company could never have enough authorized and unissued shares
to settle the conversion of the outstanding warrants into common stock that are
held by non-employees.  In addition, as the warrants are detachable
from the convertible debt, they are freestanding derivative financial
instruments.  Therefore, in accordance with EITF 00-19, the fair value
of the warrants outstanding when the debentures were issued was determined and
removed from equity and shown as a liability.  The fair value of the
warrants at the inception of the debentures of $389,448 was calculated using the
Black-Scholes model using the following assumptions: Discount rate of 4.8%,
volatility of 70%; dividend rate of 0% and expected term of 5
years.





In
connection with the convertible debt, the Company paid $102,500 in fees and
commissions. These debt issue costs are being amortized over the term of the
debentures in accordance with SAB 5. For the year ended August 31, 2007, the
Company amortized $34,166 of the debt issue costs as a charge to financing
costs.  The original issuance discount on the note was
$62,500.





The
Company is required to measure the fair value of the warrants calculated using
the Black-Scholes valuation model on the date of each reporting period until the
debt is extinguished.  The Company allocated the proceeds from the
sale of the Debentures between the relative fair values at the date of
origination of the sale for the warrants and the debenture. The fair value of
the warrants was calculated by using the Black-Scholes valuation model and the
relative fair value of the warrants was recorded as a reduction to the Debenture
liability and will be valued periodically with any increase or decrease charged
to earnings. Upon full payment of the debenture (through repayment or conversion
to equity) the fair value of the warrants on that date will be reclassified to
equity.   As of August 31, 2007, the estimated value of the
warrants is $389,448.





In
accordance with EITF 98-5, the Company evaluated the conversion feature embedded
in the debt instrument and concluded that a beneficial conversion feature exists
since the effective conversion price of the shares was less than the stock price
at the date of issuance.  The beneficial conversion feature of
$144,230 has been recorded as additional paid in capital and has
been charged as interest expense in the statement of operations for the
year ended August 31, 2007.





F-16
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





NOTE 6.
            CONVERTIBLE DEBT
      (Continued)





The
convertible debenture agreement requires the Company to prepare and file a
registration statement on or before the 30th day following the closing date on
December 27, 2006.  If the Company fails to file the registration
statement by the filing date, the Company must pay to the Purchaser an amount
equal to 1% of the outstanding principal amount of the Convertible Note,
prorated, for each 30 day period until the Registration Statement is filed with
the Commission.  The Company filed a registration statement on May 9,
2007 and accordingly has accrued payments of $13,750 in the statement of
operations for the year ended August 31, 2007.  The agreement also
requires the Company to pay to purchaser, as liquidated damages, an amount equal
to 2% of the outstanding principal amount of the Convertible Note, prorated, for
each 30 day period the Registration Statement is not declared effective by the
Commission, based on certain definitions of the “best efforts” of the Company to
do so.  The agreement goes on to require the Company to pay liquidated
damages if, following the declaration of effectiveness of the Registration
Statement, such registration statement ceases to be effective.  The
Company must pay to the purchaser an amount equal to 1% of the outstanding
principal amount of the convertible note, prorated, for each 30 day period the
registration default remains uncured.





NOTE 7.
            STOCKHOLDERS'
      DEFICIT





During
the year ended August 31, 2001 the Company issued 30,072,000 shares to the
founders of the corporation for services rendered.





As
indicated in Note 3, the Company’s directors and shareholders have contributed
their services to the Company.





The
Company effected a 3-for-1 stock split in September 2004 of all outstanding
shares of capital stock. All references to share and per share data have been
retroactively adjusted to reflect the stock split.





NOTE 8.
            SUPPLEMENTAL CASH FLOW
      INFORMATION





During the years ended August 31, 2007
and 2006, interest of $219,664and $1,577, respectively, was paid. No income
taxes were paid during either of these periods.





Non-cash
financing and investing activities includes services provided by shareholders in
the amount of $120,000 for the years ended August 31, 2007 and 2006,
respectively.





F-17
 Table of Contents





ROYAL
SPRING WATER INC.


NOTES
TO FINANCIAL STATEMENTS





NOTE 9.
            COMMITMENTS





In August
2005, the Company entered into a land, building and equipment lease agreement
for a facility to be used for production and head office. This four-year lease
commenced August 1, 2005, and is classified as a capital lease as it contains a
bargain purchase option (see note 4). As of August 31, 2007, future obligations
under the terms of this lease aggregated $5,185,178, including $1,035,165 in
interest.





The
Company has made payments toward equipment in the amount of $207,760, which is
recorded in prepaid expenses and deposits.  The Company has a
commitment to pay an additional $39,590 towards this equipment subsequent to the
year end.





NOTE 10.
            CONTINGENT
      LIABILITY





In
February of 2006, our former Chief Operating Officer (“COO”) filed a complaint
against the Company, for, among other things, breach of employment agreement.
The complaint was filed in the Los Angeles Superior Court, Santa Monica Division
and seeks unspecified damages. The Company filed a cross complaint against this
individual for fraud, misrepresentation and breach of fiduciary duty. The
Company recently reached a settlement agreement which involved a cash payment of
$1,700 to the former COO.  The COO shall return 250,000 shares that
was part of the contract between the Company and the former COO and will retain
35,000 shares.  The contract is now terminated.  The COO and
the Company have released each other of any past, present or future claims.
There are no proceedings in which any of our directors, officers or affiliates
is an adverse party or has a material interest adverse to the interest of the
Company.





NOTE 11.
            SUBSEQUENT
      EVENT





On November 15, 2007, the Company
announced the termination of the employment of Harel Goldstein as Chief
Financial Officer of the Company.






F-18