UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(MARK ONE)

[X]    ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
       1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

                                       OR

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

            FOR THE TRANSITION PERIOD FROM ___________ TO __________

                        Commission file number: 000-22785

                            AMERICAN WATER STAR, INC.
                 (Name of small business issuer in its charter)


                  NEVADA                                    87-0636498
      (State or other jurisdiction of                    (I.R.S. Employer
       incorporation or organization)                   Identification No.)


       4560 S. DECATUR, SUITE 301, LAS VEGAS, NEVADA          89103
         (Address of principal executive offices)            Zip Code

       Issuer's telephone number, including area code: (702) 740-7036

              (Former name, former address and former fiscal year,
                         if changed since last report.)

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

       Securities  registered  under Section  12(g) of the Exchange Act:  Common
       Stock, $0.0001 par value per share

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. [ ]

       State issuer's revenue for its most recent fiscal year: $2,664,088

      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 April 13, 2004: $ 66,191,983.

      State the number of shares  outstanding  of common stock,  as of April 13,
2004: 75,945,424.

                      DOCUMENTS INCORPORATED BY REFERENCE:

      None.

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


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<PAGE>

                                TABLE OF CONTENTS

                                     PART I

                                                                          PAGE
ITEM 1.         Description of Business
ITEM 2.         Description of Property
ITEM 3.         Legal Proceedings

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

                                     PART II

ITEM 5.         Market for Common Equity and Related Stockholder Matters
ITEM 6.         Managements' Discussion and Analysis and Plan of Operation
ITEM 7.         Financial Statements
ITEM 8.         Changes in and Disagreements With Accountants on
                 Accounting and Financial Disclosure

ITEM 8A.        Controls and Procedures

                                    PART III

ITEM 9.         Directors and Executive Officers of the Registrant
ITEM 10.        Executive Compensation
ITEM 11.        Security Ownership of
                 Certain Beneficial Owners and Management
ITEM 12.        Certain Relationships and Related Transactions
ITEM 13.        Exhibits and Reports on Form 8-K
ITEM 14.        Principal Accountant Fees and Services
Signatures
Certifications


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<PAGE>

                                                                PART I

ITEM 1. DESCRIPTION OF BUSINESS

American Water Star, Inc. ("AMWS"), with its administrative offices located in
Las Vegas, Nevada, operates as a holding company of entities and brands engaged
in the beverage industry. Our products and brands are licensed and developed
in-house.

Our main objective is to position the Company to sell our products directly to
major national chains and food service channels. We are actively developing the
systems and national production capability to service these types of accounts.

Our beverage products are sold by the truckload, principally to distributors,
who, in turn sell to retail stores, corner grocery stores, convenience stores,
schools and other outlets. A truckload consists of 20 pallets holding 72 cases
per pallet. Each case holds 24 16-ounce bottles. Each truckload consists of
1,440 cases.

BUSINESS DEVELOPMENT

AMWS was incorporated as American Career Centers, Inc., in the State of Nevada
on June 15, 1999. AMWS was formed as a holding company for the acquisition of
information technology career training centers and related businesses. Effective
December 3, 1999, AMWS acquired 100% of the outstanding shares of Tunlaw
International Corporation, a publicly-held reporting company, in exchange for an
aggregate of 200,000 shares of common stock, with Tunlaw becoming a wholly-owned
subsidiary. With the completion of this acquisition, AMWS became the successor
issuer to Tunlaw, and retained public company reporting status under the
Securities Exchange Act of 1934 (the "Exchange Act"). Tunlaw has had no
operations to date and is inactive.

On May 7, 2002, we changed our name to "American Water Star, Inc." to reflect
the significant change in our character and strategic focus relating to our
water bottling and distribution business.

Acquisition of American Distribution & Packaging, Inc.

On December 23, 2002, we completed the acquisition of American Distribution &
Packaging, Inc., a privately-held Nevada corporation ("AD&P"), pursuant to an
Acquisition Agreement dated December 23, 2002. Pursuant to that Agreement, AD&P
exchanged 100% of its outstanding common stock for 5,200,000 newly issued shares
of our common stock. Upon completion of that acquisition, AD&P became a
wholly-owned subsidiary of the Company.

Although the consideration exchanged in the Acquisition was not negotiated at
"arms-length," our directors and executive officers deemed it reasonable based
on certain criteria such as the valuation of the assets of AD&P ; AD&P's current
and historical business operations; the potential of AD&P ;  and the potential
benefit to our stockholders. Our directors determined that the consideration for
the exchange was reasonable, under these circumstances.

AD&P is developing a packaging process that will be an alternative to
traditional plastic bottles, glass containers and aluminum cans. This process
requires alternative manufacturing and distribution coordination as compared to
traditional bottling procedures.

All of the equipment owned by AD&P is designed to be used in the production of
bottled beverages; accordingly, it was transferred as a dividend to AMWS in
early 2003.

The Board of Directors of AMWS, on December 31, 2003, resolved to spin off AD&P
to our stockholders as a stock dividend. This is expected to occur during 2004.
The spin-off of AD&P will have no effect on our historical financial statements,
as AD&P has no assets or liabilities, and had no sales and only nominal expenses
through December 31, 2003.

Our management expects that AD&P will acquire equipment and commence operations
prior to the effective date of the spin-off.

Our Board of Directors believes that AD&P will be better able to achieve its
corporate objectives as a stand-alone entity.

Acquisition of All-Star Beverages, Inc.

On December 24, 2002, we completed the acquisition of All-Star Beverages, Inc.,
a privately-held Nevada corporation ("All-Star"), pursuant to an Acquisition
Agreement dated as of September 6, 2002. Pursuant to that Agreement, All-Star
exchanged 100% of its outstanding common stock for 12,645,824 newly issued
shares of our common stock. Upon completion of that acquisition, All-Star became
a wholly-owned subsidiary of the Company.

Although the consideration exchanged in the Acquisition was not negotiated at
"arms-length," our directors and executive officers deemed it reasonable based
on certain criteria such as the valuation of the assets of All-Star; All-Star's
current and historical business operations; the potential of All-Star; and the
potential benefit to our stockholders. Our directors determined that the
consideration for the exchange was reasonable, under these circumstances.

All-Star is now our operating entity. We have contractual relationships with
various independent distributors, brokers, both single and multi-location retail
operations, and governmental agencies throughout the United States.


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<PAGE>

As a result of the acquisitions, the former stockholders of All-Star and AD&P
became the controlling stockholders of AMWS. The accompanying financial
statements and descriptions relate only to All-Star and AD&P.

PRINCIPAL PRODUCTS

As of December 2003, our product line includes four branded beverages: Geyser
Fruit, Geyser Sport, Geyser Fruta, and Hawaiian Tropic. We offer Geyser Sport in
eight different fruit flavored waters: Cherry, Peach, Wildberry, Cranberry
Raspberry, Strawberry Kiwi, Kiwi Watermelon, Cherry Lime, and Lemonade. Under
the Geyser Fruta label, we offer Mango, Jamaica, Tamarindo, and Kiwi Melon.

Our Hawaiian Tropic products feature sugar-free, no carbohydrate,
caffeine-free, sodium-free tropical drinks in the following flavors: Strawberry
Kiwi, Lemon Lime, Orange Guava, and Pineapple Grapefruit.

We believe that our products take advantage of major trends in the beverage
industry. Increasingly, consumers want healthy, refreshing drinks. In fact,
because of the passage of SB-19 in California (The Pupil Nutrition, Health, and
Achievement Act of 2001), which prohibits the sale of carbonated beverages in
elementary schools and establishes nutrient standards, schools in California are
now banning the sugared, carbonated beverages that have been the mainstay of
Coca Cola(R) and Pepsi Cola(R). We believe our great tasting, new zero sugar,
zero calorie, flavored water beverages have positioned us to capture a large
share of the market for healthy flavored waters.

PRODUCTION AND DISTRIBUTION

Our product brands are both licensed and developed in-house, and bottled in
strategic locations throughout the country. Through December 31, 2003, all of
our products have been produced by third-party bottling plants. In January of
2004, we commenced a program to operate our own bottling plants. The first of
these plants, to be located in Jacksonville, Florida, is currently expected to
start bottling our products in the second quarter of 2004.

We sell our products through a nationwide network of brokers, and directly to
distributors and customers. Our distributors sell to retail stores, corner
grocery stores, convenience stores, schools, and other outlets. The customers to
whom we sell directly include single and multi-location retail operations and
governmental agencies.

COMPETITION

The beverage industry is highly competitive. The principal areas of competition
are pricing, packaging, development of new products and flavors, and marketing
campaigns. Our products compete with a wide range of drinks produced by a
relatively large number of manufacturers, most of which have substantially
greater financial, marketing, and distribution resources than we do.

Important factors affecting our ability to compete successfully include taste
and flavor of products, trade and consumer promotions, rapid and effective
development of new, unique cutting edge products, attractive and different
packaging, branded product advertising and pricing. We also compete for
distributors who will concentrate on marketing our products in favor of those of
our competitors, provide stable and reliable distribution, and secure adequate
shelf space in retail outlets. Competitive pressures in the alternative, energy,
and functional beverage categories could cause our products to be unable to gain
market share, to lose market share, or we could experience price erosion, any of
which events could have a material adverse affect on our business and results.

SOURCES AND AVAILABILITY OF RAW MATERIALS

We purchase beverage flavors and the raw materials used in our packaging and
labeling from independent suppliers located in the United States. We are
dependent on the ability of our suppliers to provide products on a timely basis
and on favorable pricing terms. Our goal is to ensure that the raw materials
used in the manufacture and packaging of our products, including flavors,
bottles, caps, labels, and boxes, are readily available from two or more
sources. Accordingly, we have engaged in developing strategic partnerships in
these critical supply areas, although, as of the date of this Annual Report, we
have not yet entered any material strategic partnerships.

DEPENDENCE ON THIRD-PARTIES

We are dependent on third-party water bottling companies and bottle makers. In
our 2002 and 2003 fiscal years, products purchased from our three largest
suppliers accounted for approximately 70% and 95%, respectively, of product
purchases. We are dependent on the ability of our supplier to provide products
on a timely basis and on favorable pricing terms. The loss of certain principal
suppliers or a significant reduction in product availability from principal
suppliers could have a material adverse effect on us. We believe that our
relationship with our suppliers is satisfactory.

COPYRIGHTS, TRADEMARKS AND LICENSES

On January 1, 2003, we entered into a Trademark and Design License Agreement
with Tanning Research Laboratories, Inc. ("Tanning"), granting us authorization
to use the trademarked name, "Hawaiian Tropic." Under the Agreement, Tanning
licensed us to produce, market, and sell, on an exclusive basis in the United
States and Canada, items that bear the Hawaiian Tropic trademark for a period of
three years. In consideration, we agreed to pay Tanning a royalty of four
percent of invoice sales (net of shipping and sales taxes), payable each
quarter. The Agreement calls for guaranteed minimum royalties in the amounts of
$40,000 for the first year, $120,000 for the second year, and $200,000 for the
third year. The Agreement has a three-year renewal option, contingent on our
meeting minimum sales amounts under the Agreement and if renewed, the minimum
royalties will be $200,000 year.


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<PAGE>

GOVERNMENTAL REGULATION

Flavored and bottled waters are subject to a number of strict federal, state,
and industry regulations. These serve to ensure that products are consistent in
public safety and quality. The United States Food and Drug Administration
("FDA") regulates flavored and bottled water as a packaged food product.
Flavored and bottled waters also must meet state regulations that, in some
cases, are more stringent than the prevailing FDA and Environmental Protection
Agency standards. The FDA also regulates the labeling of our products. We have
not encountered any regulatory action as a result of our operations, and no such
action is anticipated.

INVESTMENT IN TECHNOLOGY

We are committed to using technology to meet our business objectives and to keep
our operating costs as low as possible. We have installed EDI, a
state-of-the-art software inventory management and tracking system, which is
mandatory when dealing with the type of large accounts to which we intend to
supply our products. Further, we believe that EDI will enable us to speed the
processing of orders, from raw materials purchasing to plant operations. This
will become more important as we move to having national production capability
with plants capacity nationwide.

We have also completed a company website with a feature reflecting where our
products are being sold which can be accessed at www.americanwaterstar.com.

COMPLIANCE WITH ENVIRONMENTAL LAWS

Other than normal cleaning and sanitation supplies, our business does not
involve the use, handling, storage, and disposal of potentially toxic substances
or wastes. Accordingly, we are not subject to regulation by federal, state, and
local authorities establishing requirements for the use, management, handling,
and disposal of these materials and health and environmental quality standards,
liability related to those standards, and penalties for violations of those
standards. Compliance with environmental laws, ordinances, and regulations has
not had, and we do not expect such compliance to have, a material adverse effect
on our business, financial condition, or results of operation.

EMPLOYEES

As of April 2004, we had 12 full-time employees. In addition, we have
contractual arrangements with three independent contractors to provide
administrative services to us, and three persons who receive commissions for the
sale of our products. Management believes our future success will depend in
large part upon our ability to attract and retain qualified employees. We have
no collective bargaining agreements with its employees and believe our relations
with our employees are good.

ITEM 2. DESCRIPTION OF PROPERTY

The Company maintains its corporate headquarters at 4560 S. Decatur Blvd., Suite
301, Las Vegas, Nevada 89103. We lease approximately 4,000 square feet of office
space under a non-cancelable lease, expiring in April 2008. The minimum monthly
rental for the premises is approximately $8,700, plus standard, ancillary
charges, such as property taxes, insurance, and certain operating expenses
applicable to the leased premises. The lease is subject to annual rent increases
at a rate of four percent per annum.

The Company maintains its warehouse space and its accounting department 4545
Cameron Street, Suites A and B, Las Vegas, Nevada 89103. We lease approximately
11,000 square feet of warehouse and 4,000 square feet of office space under a
non-cancelable lease, expiring in October 2006. The minimum monthly rental for
the premises is approximately $8,900, plus standard, ancillary charges, such as
property taxes, insurance, and certain operating expenses applicable to the
leased premises. The lease is subject to an annual rent increase of
approximately $300.

As of April 2004, the Company began leasing 56,000 square feet of an industrial
building located at the SW corner of the intersection of Jesse Hall Memorial
Parkway and U.S. Highway 51 North, Magnolia, Mississippi for use as a water
bottling facility. The term of the lease is five years at a monthly rental of
approximately $14,000, plus standard, ancillary charges, such as property taxes,
insurance and certain operating expenses applicable to the leased premises. The
Company has one five-year option to renew the lease with a rental increase in
accordance with the CPI Index.

As of January 2004, the Company began leasing 2615 Roussele, Santa Ana,
California, under a one-year lease with monthly rent of $9,600.00, plus
standard, ancillary charges, such as a proportion of any increases in property
taxes, insurance, and certain operating expenses applicable to the leased
premises. The property is to be used as a bottling plant.

As of January 2004, the Company began leasing warehouse facilities at 6301
Powers Avenue, Suites A, B1 and B2,Jacksonville, Florida 32217. Suite A and
Suites B1 and B2, are leased under two separate leases. All leases are for a
term of three years, with an option to renew by the Company for an additional
three years. Under the lease for Suite A, which is approximately 6,000 square
feet, base rent is $1,575 per month during 2004, $1,650 per month during 2005,
and $1,765 during 2006. Under the lease for Suites B1 and B2, which are together
approximately 13,563 square feet, base rent is $ 3,560 per month during 2004,
$3,730 per month during 2005 and $3,990 during 2006. In addition, the Company
pays a 7% sales tax to the landlord on such base rents plus certain common area
maintenance charges. Lastly, the Company pays an additional $5,500 per month in
rental charges for amortization of approximately $180,000 in Tenant
Improvements.


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<PAGE>

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are involved in various legal proceedings relating to
claims arising in the ordinary course of business. We are not a party to any
such legal proceedings, the adverse outcome of which, individually or taken
together with all other legal proceedings, is expected to have a material
adverse effect on our prospects, financial condition or result of operation.

The Company was previously engaged in an action filed in the Superior Court of
California, County of Orange, on September 20, 2002 by Feldhake, August &
Roquemore LLP for alleged non-payment of legal fees for services rendered to the
Company's predecessor, American Career Centers, Inc. In lieu of litigation, the
parties entered into a Settlement Agreement on December 18, 2002. The Settlement
Agreement has been fully satisfied.

As of April 2, 2004, the Company was served with a copy of a summons and
complaint, styled South Beach Beverage Company, Inc., a Delaware corporation,
Plaintiff, vs. American Water Star, Inc., a Nevada corporation, and Roger
Mohlman, Defendants, United States District Court, District of Nevada, Case No.
CV-S-04-0387-KJD-LRL. Plaintiff has alleged causes of action for trademark
infringement, unfair competition and unfair and deceptive trade practices, and
trademark dilution based upon the Company's February 10, 2004, announcement of
the commencement of the launch of its South Beach line of beverages and the
filing of certain U.S. trademark applications. Plaintiff seeks a permanent
injunction against defendants' use of certain trademarks alleged by plaintiff to
be its property and against certain conduct alleged by plaintiff to constitute
unfair practices, an order of abandonment of certain of the Company's pending
trademark applications, and damages consisting of the Company's profits and
plaintiff's losses (actual and trebled) derived from the conduct alleged by
plaintiff to have been improper, as well as incidental disclosure and
plaintiff's attorneys' fees. The defendants have not yet analyzed the complaint,
but, upon preliminary analysis, believe that plaintiff's allegations are without
merit. The defendants expect to defend the action vigorously.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our common stock began being quoted on the OTC Bulletin Board in December 2000,
and currently is quoted under the symbol "AMWS." The following table sets forth,
for the periods indicated, quotations for the high and low closing bid prices
for our common stock for each quarter within the last two fiscal years. The
source of this information is as reported by the National Association of
Securities Dealers composite feed or other qualified inter-dealer quotation
medium as compiled by Pink Sheets, LLC. As of the close of business on April 2,
2002, we effected a 1:12 reverse stock split of our Common Stock. Unless
indicated otherwise, all stock prices and all share amounts quoted in this
Annual Report have been adjusted to give effect to the stock split. These
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.

                                 High        Low
                                 ----        ---

1st Quarter 2002                 $4.21      $0.84
2nd Quarter 2002                 $1.62      $0.60
3rd Quarter 2002                 $0.41      $0.15
4th Quarter 2002                 $0.32      $0.22
1st Quarter 2003                 $0.40      $0.17
2nd Quarter 2003                 $0.29      $0.12
3rd Quarter 2003                 $0.78      $0.13
4th Quarter 2003                 $1.35      $0.75

EFFECT OF PENNY STOCK RULES

Our common stock is currently a "penny stock" under Rule 3a51-1 of the Exchange
Act and is likely to remain a penny stock for a considerable period. It will
remain a "penny stock" unless and until the shares reach a price of at least
$5.00 per share, we meet the financial size and volume levels for our common
stock not to be considered a penny stock, or we register the shares on a
national securities exchange or they are quoted on the NASDAQ system. A "penny
stock" is subject to Rules 15g-l through 15g-10 of the Exchange Act that require
a broker-dealer, before carrying out transactions in any "penny stock," to
deliver a disclosure document to the customer that provides information about,
and describes the risks of, penny stocks and to obtain a written receipt for
that document; to disclose current bid and offer quotations for the penny stock
and the compensation received by the broker-dealer or any associated person of
the broker-dealer in the transaction; and to send monthly statements to
customers with market and price information about the "penny stock." Our common
stock will also be subject to a rule which requires the broker-dealer, in some
circumstances, to approve the "penny stock" purchaser's account under standards
specified in the rule, and deliver written statements to the customer with
information specified in the rule. These requirements could prevent a
broker-dealer from carrying out transactions and may limit the ability of our
stockholders to sell their shares into the secondary market for our common stock
and also limit the ability of any subsequent stockholders to sell the shares in
the secondary market.


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<PAGE>

HOLDERS

As of April 6, 2004, there were 738 holders of record of the Company's Common
Stock. This number of holders of record does not include beneficial owners of
the Company's Common Stock, whose shares are held in the names of various
security holders, dealers, and clearing agencies. The Company believes that the
number of beneficial owners of its Common Stock held by others or in nominee
names exceeds 800 in number.

DIVIDENDS

We do not have a policy of paying dividends, and it is currently anticipated
that no cash dividends will be paid in order to retain earnings to finance
future growth. Any future decision to pay cash dividends will be made on the
basis of earnings, alternative needs for funds, and other conditions existing at
the time.

SHARES ELIGIBLE FOR FUTURE SALE

As of April 6, 2004, we had an aggregate of 75,945,424 shares of our common
stock issued and outstanding, 63,008,063 of which are "restricted securities,"
which may be sold only in compliance with Rule 144 under the Securities Act of
1933, as amended or exemptions from registration requirements of this act. Rule
144 provides, in essence, that a person holding restricted securities for a
period of one year after payment therefor may sell, in brokers' transactions or
to market makers, an amount not exceeding one percent of the outstanding class
of securities being sold, or, if the issuer's common stock is listed on a
national stock exchange or quoted on the Nasdaq Stock Market (which our common
stock is not), the average weekly reported volume of trading of the class of
securities being sold over a four-week period, whichever is greater, during any
three-month period. (Persons who are not our affiliates and who have held their
restricted securities for at least two years are not subject to the volume or
transaction limitations.) The sale of a significant number of these shares in
the public market may adversely affect prevailing market prices of our
securities.

RECENT SALES OF UNREGISTERED SECURITIES

On October 1, 2003, the Company sold a total of 160,700 shares of its common
stock to three accredited investors for the aggregate purchase price of $65,000
in reliance on Sections 4(2) and/or 3(b) of the Securities Act, based upon each
investor's relationship to the Company, their accredited investor status, the
amount of securities offered, and the size and manner of the offering. The
shares are restricted against resale and may only be sold pursuant to Rule 144
or an effective registration statement.

On October 6, 2003, the Company sold 71,450 shares of its common stock to one
accredited investor for the purchase price of $25,000 in reliance on Sections
4(2) and/or 3(b) of the Securities Act, based upon his being the sole offeree,
his relationship to the Company, his accredited investor status, the amount of
securities offered, and the size and manner of the offering. The shares are
restricted against resale and may only be sold pursuant to Rule 144 or an
effective registration statement.

On October 16, 2003, the Company sold a total of 271,450 shares of its common
stock to two accredited investors for the aggregate purchase price of $75,000 in
reliance on Sections 4(2) and/or 3(b) of the Securities Act, based upon each
investor's relationship to the Company, their accredited investor status, the
amount of securities offered, and the size and manner of the offering. The
shares are restricted against resale and may only be sold pursuant to Rule 144
or an effective registration statement.

NOTE CONVERSIONS

As of September 30, 2003, all purchasers of Convertible Promissory Notes issued
by the Company pursuant to private placements conducted in 2002 and 2003 had
converted the principal and accrued interest into shares of common stock,
resulting in the issuance of 2,470,822 shares and the cancellation of debt in
the amount of $731,685, consisting of principal and accrued interest. Camden
Securities, Inc. ("Camden") received 114,214 shares as additional commission,
which represented 10% of the number of shares issued upon conversion in
connection with the offerings conducted by it. On October 4, 2003, the Company
granted Camden a stock bonus of 200,000 shares for assisting it during the
conversion process.

PRIVATE PLACEMENTS

On September 24, 2003, the Company commenced a private placement of Units, each
Unit consisting of one share of common stock and one common stock purchase
warrant at the purchase price of $0.35 per Unit. Each warrant is exercisable for
a period of two years from the date of purchase at the exercise price of $0.525.
The offering closed on October 31, 2003, and the Company sold 1,487,640 Units
totaling $520,675 to 35 accredited investors. The offering was conducted by the
Company and no commissions were paid.

On October 24, 2003, the Company exercised its rights under the Common Stock
Purchase Agreement with SSJ Enterprises, LLC dated August 15, 2003, and
terminated SSJ's right to purchase up to 8,000,000 shares of the Company's
common stock at the purchase price of twenty-five cents per share in six
tranches on the dates set forth in the Agreement. The Agreement provided SSJ
with a 15 day grace period to purchase the shares on the dates and in the
amounts set forth in the Agreement and should it fail to purchase such shares
prior to the expiration of the grace period, its right to purchase the shares
contained in that tranche and any remaining shares purchasable under the
Agreement shall terminate. As of September 2, 2003, SSJ had purchased a total of
280,000 shares for the purchase price of $70,000 and failed to purchase the
remaining shares under the first Tranche prior to the expiration of the grace
period.


                                       7
<PAGE>

On November 14, 2003, the Company commenced a private placement of its common
stock priced at a 30% discount to the closing bid price of the Company's common
stock on the day of the investment by the purchaser. The private placement was
conducted by the Company's Registered Sales Agent, Westcap Securities, Inc., and
closed on January 31, 2004. The Company sold 940,573 shares totaling $810,610 to
65 accredited investors. The Company received a total of $692,390 after paying
commissions, fees and costs of the offering. Under the terms of the Sales
Agreement, in addition to its cash compensation, Westcap is entitled to receive
shares of the Company's common stock equal to 8% of the number of Units sold by
it. Westcap was issued 75,246 shares of restricted common stock.

On January 15, 2004, the Company commenced a private placement of its common
stock at the purchase price of 30% discount to the closing price (last trade
price) posted on the OTC Bulletin Board on the date the investment amount was
received by the Company. The offering closed on January 31, 2004, and the
Company sold 220,350 shares to 13 accredited investors. The offering was
conducted by the Company and no commissions were paid.

On February 18, 2004, the Company consummated the issuance of 8,888,892
newly-issued shares of the common stock, warrants (the "Unit Warrants") to
purchase 4,444,442 newly-issued shares of the Company's common stock, and
warrants (the "Green Shoe Warrants") to purchase 4,444,446 newly-issued shares
of the Company's common stock, to a small number of institutional and other
accredited investors, resulting in approximately $8 million in gross proceeds to
the Company, prior to the exercise of the warrants. Of such amount, $4,000,000
is held in escrow pending the filing by the Company of a registration statement
in respect of the Shares and the shares of common stock underlying the Warrants.
The effective price in the private placement was $.90 for each unit. Each unit
consists of one Share of common stock, a Unit Warrant to purchase one-half of a
share of common stock, and a Green Shoe Warrant to purchase one-half of a share
of common stock. The unit purchase price was determined based on the fair market
value of the Company's common stock as determined in good faith by the board of
directors of the Company. The Unit Warrants have an exercise period of five
years and an exercise price of $1.65 per share. The Green Shoe Warrants have an
exercise period of 45 days following the effectiveness of the Registration
Statement and an exercise price of $1.25 per share. The Unit Warrants are
exercisable in cash, and, under certain circumstances, allow for cashless
exercise, representing a potential $7.3 million in additional proceeds. The
Green Shoe Warrants are exercisable in cash, and, under certain circumstances,
allow for cashless exercise, representing a potential $5.6 million in additional
proceeds. Assuming the Warrants are fully-exercised, the total gross proceeds of
this offering are approximately $20.9 million. The Company has received a
limited waiver from the subscribers in such private offering in respect of the
Company's failure to have filed its Form SB-2 registration statement with the
Commission by April 2, 2004. The Company acknowledges the liquidated damages
obligations set forth in Section 11.4 of the related Subscription Agreement and
will act in accordance with such section.

The above sales were made in reliance upon the private offering exemptions
contained in Rule 506 of Regulation D of the Act. Each investor represented that
he/she/it was acquiring the securities for investment purposes only and not with
a view to distribute. Each investor further represented that he/she/it (a) had
such knowledge and experience in financial and business matters and was capable
of evaluating the merits and risks of the investment, (b) was able to bear the
complete loss of the investment, and (c) had the opportunity to ask questions
of, and receive answers from, the Company and its management concerning the
terms and conditions of the offering and to obtain additional information. Each
investor further represented to the Company that he/she/it was an "accredited
investor" as such term is defined in Rule 501 of the Securities Act.

ISSUANCE OF SECURITIES FOR SERVICES OR IN SATISFACTION OF OBLIGATIONS

On October 1, 2003, the Company issued 9,000 shares of restricted common stock
to one person in consideration for services relating to the preparation of
marketing material to be provided during the months of October, November and
December 2003.

On October 1, 2003, the Company issued 50,000 shares of restricted common stock
to one person in consideration for financial representation services to be
provided during the months commencing October 1, 2003 and ending February 4,
2004.

On October 8, 2003, the Company issued a total of 8,500 shares of restricted
common stock to three persons in exchange for services valued at $5,147.88.

On October 9, 2003, the Company entered into a Consulting Agreement with MJ
Holdings, Inc. under which it was issued 150,000 shares of restricted common
stock as payment for its agreement to consult to the Company for a period of two
years.

On October 9, 2003, the Company entered into a Consulting Agreement with First
Advisory LLC under which First Advisory was issued 150,000 shares of restricted
common stock as payment for its agreement to consult to the Company for a period
of two years.

On November 1, 2003, the Company issued 120,000 shares of restricted common
stock to one person in full consideration for Investor Relations services to be
provided pursuant to an Independent Contractor Agreement commencing November 1,
2003 and ending on April 30, 2004.


                                       8
<PAGE>

On November 17, 2003, Design to Print, Inc. agreed to accept 5,700 shares of the
Company's restricted common stock in lieu of cash payment in the amount of
$4,243 to be applied against an invoice, which amount represents one half of the
total amount due thereunder.

On February 3, 2004, the Company executed a Consulting Agreement with Alpine
Capital Partners, Inc. pursuant to which Alpine will assist the Company by
conducting public relations work throughout the financial community commencing
February 1, 2004 and running through February 1, 2007, and in partial
consideration therefor, the Company issued Alpine 750,000 shares of its
restricted common stock, and agreed to include those shares in the Company's
next registration statement.

Effective February 26, 2004, the Company issued 100,000 shares of its restricted
common stock to D.A.M.E., Inc. pursuant to a Consultant Agreement under which
D.A.M.E. will be responsible for sourcing and developing advertising campaigns,
trademark designs, slogans and artwork for the Company for a period of 24 months
commencing January 1, 2004.

On March 1, 2004, the Company issued 10,000 shares of its restricted common
stock to one person in full consideration of services to be performed under a
six month Consulting Agreement commencing on February 21, 2004, whereby he will
develop artwork design for new labels and advertisement.

On March 1, 2004, the Company issued 100,000 shares of its restricted common
stock to one person in partial consideration of services to be performed under
an Independent Consultant Agreement commencing February 21, 2004 and ending
February 21, 2007, whereby he will develop artwork design for new labels and
advertisement artwork.

On March 1, 2004, the Company issued 100,000 shares of its restricted common
stock to one person in partial consideration of services to be performed under
an Independent Consultant Agreement commencing February 21, 2004 and ending
February 21, 2007, whereby he will serve as a sales and marketing consultant for
the Company's wholly-owned subsidiary, All-Star Beverages, Inc.

Effective March 12, 2004, the Company issued 71,500 shares of its restricted
common stock to one person pursuant to a Consultant Agreement under which he
will promote the Company's products by participating in marketing programs
throughout the United States and South America for a period of one year
commencing January 1, 2004.

REDWOOD CONSULTANTS, LLC: ISSUANCE OF SECURITIES FOR SERVICES; WARRANT EXERCISE

On July 21, 2003, the Company entered into a Consulting Agreement with Redwood
Consultants, LLC for a period ending January 20, 2004. Pursuant to the
Agreement, the Company issued Redwood 100,000 shares of common stock as a non-
refundable Commencement Bonus. Further, the Agreement provides for the issuance
of 100,000 shares of common stock per month commencing August 21, 2003 along
with a warrant to purchase 100,000 shares of common stock. As of the date of
this report, Redwood has been issued a total of 800,000 shares and warrants to
purchase (i) 100,000 shares at the exercise price of $0.25, (ii) 100,000 shares
at the exercise price of $0.50, and (iii) 100,000 shares at the exercise price
of $0.75. The warrants are exercisable from the date of grant until December 31,
2004. The shares and the shares issuable upon warrant exercise are restricted
against resale and carry piggy-back registration rights.

On March 4, 2004, the Company entered into a new non-exclusive Consulting
Agreement with Redwood for a period of thirty (30) months, whereby Redwood will
become a financial and marketing consultant to the Company. The cost to Company
for the services to be provided during the term of the Agreement will be
$300,000, which amount will be earned at the rate of $10,000 per month. Per the
Agreement, the Company paid the compensation due thereunder by immediately
funding the exercise of the $1.00 and $2.00 warrants previously granted to
Redwood. Per the Agreement, all shares issued upon exercise will be held in
escrow by the Company and released to Redwood pursuant to the following vesting
schedule: (1) the 100,000 shares issued upon exercise of the $1.00 warrants
shall be released to Redwood at the rate of 10,000 shares per month for the
first 10 months of the Agreement; and (2) the 100,000 shares issued upon
exercise of the $2.00 warrants shall be released to Redwood at the rate of 5,000
shares per month for months 11 through 30 of the Agreement.

ISSUANCE OF SECURITIES FOR WARRANT EXERCISE

At the year ended December 31, 2003, the Company had outstanding warrants to
purchase up to 4,673,550 shares of its common stock with varying exercise
prices, terms and conditions. The warrants were granted in connection with
private placement unit offerings or in connection with services rendered or to
be rendered to the Company under Consulting Contracts. Between January 23, 2004
and the date of this report, 1,882,487 of those warrants had been exercised
resulting in $746,063 cash proceeds to the Company and contract services valued
at $300,000 to be provided by Redwood Consultants for a period of three years as
described above.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

On December 27, 2002, the Company adopted a Stock Plan which includes a total of
10,000,000 shares of common stock for issuance pursuant to a Stock Award or
pursuant to the exercise of options. The authority to determine the person to
whom shares shall be issued or options shall be granted, the amount of such
option, the exercise price and number of shares subject to each option, the time
or times on which all or a portion of each option may be exercised, and certain
other provisions of each option, shall be in the Board of Directors of the
Company.

On February 20, 2004, the Company granted a 200,000 share Stock Award under the
Stock Plan to Roger Mohlman in consideration of his services to the Company
during the years 2002 and 2003. In accordance with Section 5 of the Plan, the
shares were issued pursuant to Mr. Mohlman's services as an executive officer of
the Company, as described elsewhere in this Annual Report.


                                       9
<PAGE>

On February 20, 2004, the Company granted a 50,000 share Stock Award under the
Stock Plan to Jerry Ludeman in consideration of his services to the Company
during the year 2003. In accordance with Section 5 of the Plan, the shares were
issued in connection with Mr. Ludeman's performance of services for the Company.

In addition, the Stock Plan provides for the issuance of the Company's equity
securities as compensation for consulting and/or legal services provided to the
Company from time to time. The Company limits the recipients of stock issued
pursuant to the Stock Plan to natural persons who performed bona-fide services
to the Company which were not in connection with the offer or sale of securities
in a capital-raising transaction, and which do not directly or indirectly
promote or maintain a market for the Company's securities. All shares issued
pursuant to the Stock Plan were registered with the Securities and Exchange
Commission (the "Commission") on Form S-8, as follows:

<TABLE>
<CAPTION>

SEC Registration Number           Effective Date of           Number of securities        Number of securities remaining available
                                  Registration Statement      issued under equity         for future issuance under equity
                                                              compensation plan           compensation plans (excluding securities
                                                                                          reflected in column (c))
    (a)                                (b)                          (c)                          (d)
    <S>                                 <C>                      <C>                               <C>
      333-87846                          05/08/02                   1,995,000 (1)                   5,000
      333-103529                         02/28/03                   4,997,500 (1)                   2,500
</TABLE>

(1)     Number of shares issued pursuant to these Registration Statements as of
        March 15, 2004. During the year ended December 31, 2003, 5,077,500 of
        these shares were issued to 15 persons who provide consulting or legal
        services to the Company.

SPIN-OFF OF WHOLLY-OWNED SUBSIDIARY, AMERICAN DISTRIBUTION AND PACKAGING, INC.

On January 27, 2004, the Company announced that it would spin-off AD&P, a
wholly-owned subsidiary of the Company, by distributing the capital stock of
AD&P, on a one share for one share basis, to the Company's stockholders of
record at March 15, 2004. The spin-off is intended to allow the Company to focus
on the traditional bottled beverage market and to allow AD&P to focus on the bag
box beverage market. The distribution of shares will take place once a
registration statement is filed and declared effective by the Commission. As of
the date of this Annual Report, no registration has been effected.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

This Annual Report contains forward-looking statements. Actual results and
events could differ materially from those projected, anticipated, or implicit,
in the forward-looking statements as a result of the risk factors set forth
below and elsewhere herein.

The Private Securities Litigation Reform Act of 1995 (the "Reform Act") provides
a safe harbor for forward-looking statements made by or on behalf of the
Company. We and our representatives may from time to time make written or oral
forward-looking statements, including statements contained in this Annual Report
and other filings with the Commission and in reports to stockholders and
announcements. Certain statements made in this Annual Report may constitute
forward-looking statements (within the meaning of Section 27.A of the Securities
Act and Section 21.E of the Exchange Act) regarding the expectations of
management with respect to revenues, profitability, adequacy of funds from
operations and our existing credit facility, among other things. All statements
that address operating performance, events or developments that our management
expects or anticipates will or may occur in the future including statements
related to new products, volume growth, revenues, profitability, adequacy of
funds from operations, and/or our existing credit facilities, earnings per share
growth, statements expressing general optimism about future operating results
and non-historical information, are forward-looking statements within the
meaning of the Reform Act.

These statements are qualified by their terms and/or important factors, many of
which are outside our control, involve a number of risks, uncertainties and
other factors, that could cause actual results and events to differ materially
from the statements made including, but not limited to, the following:

o      Unexpected delays in completion of bottling facilities
o      Inability of co-packers to meet production requirements
o      Interruption of critical packaging materials and/or flavorings
o      Slower than anticipated sales of our products
o      Increased  competition
o      Greater than expected promotion costs and slotting fees

The following discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and the related
notes thereto appearing elsewhere herein. All references to 2003 represent the
year ended December 31, 2003. All references to 2002 represent the period from
August 20, 2002 (inception) to December 31, 2002.


                                       10
<PAGE>

BUSINESS OVERVIEW

We develop markets, sell, and distribute four branded beverages, Hawaiian
Tropic, Geyser Fruit, Geyser Sport, and Geyser Fruta. Our products are
orientated to the health conscious consumer looking for an alternative to
products containing high sugar and caffeine levels. Our customers include single
and multi-store retail operations, governmental agencies, and distributors who
in turn sell to retail stores, convenience stores, schools and other outlets.

During 2003, we had negative cash flow from operations of $1,697,198 and in 2002
we had negative cash flow from operations of $419,734. During 2003, we raised
$1,952,623 from the sale of common stock, which exceeded cash used in
operations.

The level of operating expenses for 2003 have exceeded the gross profit
generated on its sales due in large part to costs associated with developing the
infrastructure necessary to support our expected sales growth and $2,159,000 of
product used in slotting and other promotional activities. Management plans to
use aggressive sales promotions, primarily consisting of offering free samples
at retail locations to increase sales of our products. The success of this
strategy is evidenced by the initial order for our products from a large
national retail organization delivered in April 2004 totaling $600,000. We
expect to continue to obtain new customers for our products in 2004 that would
provide for a significant increase in sales compared to the sales levels
recorded in 2003.

We have experienced sales growth in 2003 and we will continue our strategy that
we adopted at the beginning of 2003. We believe that we have good products, that
our business plan is sound, and that we have sufficient resources to implement
our plan. During 2003, we benefited from contributions of cash and assets from
management and stockholders and in the first quarter of 2004 raised
approximately $7.0 million through the sale of shares of our common stock. Of
this amount, approximately $3.5 million is expected to be received in the second
quarter of 2004.

Our actual results could be materially different from the results described or
anticipated by our forward-looking statements due to the inherent uncertainty of
estimates, and projections and may be better or worse than anticipated. Given
these uncertainties, you should not rely on forward-looking statements.
Forward-looking statements represent our estimates and assumptions only as of
the date that they were made. We expressly disclaim any duty to provide updates
to forward-looking statements, and the estimates and assumptions associated with
them, after the date of this Annual Report, to reflect changes in circumstances
or expectations or the occurrence of unanticipated events except to the extent
required by applicable securities laws.

RESULTS OF OPERATIONS

The comparison of 2003 operations to those in 2002 is not necessarily meaningful
as 2002 was not a full year.

Net Sales.

During 2003, we recorded sales of $2,664,088 compared to sales of $458,152 for
2002. We have recorded increased sales on an annualized basis compared to 2002
that reflect the growth of the business. We have two major products, the
Hawaiian Tropic brand, with 2003 net sales of approximately $750,000, and Geyser
Products, including Geyser Sport, Geyser Fruta, and Geyser Fruit, with 2003 net
sales of approximately $1,900,000. Net sales are reduced by sales promotion and
slotting fees of $2,159,000. During 2003, we implemented our marketing program,
which placed a high priority on market penetration and establishing distribution
channels. This program involves aggressive use of promotional products and
activities. We believe that the levels of promotional costs are higher than
industry averages, but are necessary to be able to achieve our distribution and
market penetration goals.

Gross Profit.

Gross profit was $1,012,242 in 2003 compared to gross profit of $197,516 in
2002. Gross profit as a percentage of net sales was 38.0% in 2003, which was
lower than gross profit as a percentage of net sales of 43.1% in 2002. The
decrease in profit margin reflects increased quantities of slotting and
promotional products that were provided to our customers in 2003.

General and Administrative - Third Parties.

General and administrative expenses - third parties were $3,683,326 in 2003
compared to $753,219 in 2002. These amounts include consulting and legal
services for stock of $2,098,525 in 2003 $689,320 in 2002. We used stock as
compensation for services as a means to preserve cash. When and if positive cash
flow from operations is generated, we anticipate that the use of this strategy
will lessen. The balance of these expenses were bad debts of $302,037,
professional fees of $466,038, travel costs of $543,098, and accrued officers'
compensation of $169,200. We believe that the costs of professional services and
bad debt will decrease in future years; however, the travel costs associated
with expanding our customer base and production capabilities will continue.


General and Administrative - Related Parties.

Entities controlled by the former wife of the Company's chairman, chief
executive officer, and majority stockholder provided the following services to
the Company:

                                       11
<PAGE>

o      Software acquisition and website maintenance $354,202
o      Computer hardware and other software acquisition $388,414
o      Rents on facilities under sublease arrangements $365,250
o      Leased employee cost $308,098

Impairment Writedown.

At December 31, 2003, we recognized an impairment writedown of our bottling and
other equipment. In determining the amount of the impairment, we obtained a
valuation from an independent appraiser. The valuation contemplates the orderly
sale of this equipment in, and the existence of, a market for this equipment. We
do not plan to dispose of this equipment, but rather to use it in our future
operations. The amount of the impairment recorded was $1,745,669 for 2003.

Depreciation and Amortization.

Depreciation and amortization expense was $376,427 in 2003 compared to
depreciation and amortization expense of $21,596 in 2002. The increase reflects
additional assets being placed in service.

Interest Expense.

Interest expense was $251,217 in 2003 compared to no interest in 2002. The
increase of $251,217 reflects an interest expense on convertible notes of
$74,323, the amortization of a beneficial conversion feature related to the
convertible notes of $76,254, and credit facility charges, factoring fees, and
other interest of $100,640.

Net Loss.

Net loss was $6,326,270 for 2003 compared to a net loss of $577,299 for 2002.
The increase in net loss reflects the impact of high levels of general and
administrative expenses that were incurred in our efforts to build distribution
channels and expand our markets.

In December of 2003, our Board of Directors declared a dividend in the form of
all of the common stock of American Distributing and Packaging, Inc ("AD&P").
The distribution of the AD&P shares is expected to occur in 2004. As of December
31, 2003, AD&P had no assets or liabilities and incurred minimal expenses for
the year ended December 31, 2003. The anticipated business model for AD&P is not
compatible with our current operations and we believe that the divestiture will
have no material impact on our future operations.

Since inception we have recorded losses that would provide a future tax benefit
of $2,347,213 as of December 31, 2003. A valuation allowance for the full amount
of the tax benefit was established based on the lack of a history of earning
pretax income.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2003 we had working capital of $2,525,162 compared to working
capital of $558,658 as of December 31, 2002, an increase of $1,966,504. The
increase in working capital was primarily attributable to increased inventory
levels and conversions of short-term convertible notes to common stock. During
the year ended December 31, 2003 we issued 15,666,934 shares of our common stock
to a stockholder and officer of the corporation in exchange for inventory having
a recorded predecessor cost of $1,253,355. We expect future short-term
operations and business expansion to be funded principally by private placements
and additional short-term borrowings.

Net cash used in operating activities in 2003 was $1,697,198 that included a net
loss of $6,326,270. This loss was partially offset by a depreciation and
amortization expense of $376,427, provision for bad debts of $302,037, and stock
issued for services of $2,098,525. We have relied extensively on the issuance of
stock as a means to pay for professional services. This strategy allows us to
preserve cash that can be used for operations and to develop our distribution
network. During 2003 we issued 6,792,023 shares of our common stock for services
valued at $2,736,408, of which $2,098,525 was expensed during the year. In 2002
cash used in operations was $419,734. A substantial part of our net loss for
this period is related to expenses from the issuance of stock for services.

Net cash used in investing activities for 2003 was $229,747 and is principally
related to the purchase of bottling and other equipment to provide for business
expansion in the future. Included in cash used in investing activities are funds
issued to third-party bottlers of $30,000.

Net cash provided by financing activities for 2003 was $2,562,351. Our financing
activities have focused on private placements and funding from related parties
that manage our company or have a stockholder interest in the company. During
2003, we received cash from private placements of $1,952,623, short-term
borrowings $146,475, and loans from related parties totaling $463,253. Net cash
provided by financing activities for 2002 related to a private placement of
$273,619 and a note from a stockholder of $303,763. During the year end December
31, 2003 we were successful in obtaining financing sources to generate an
improvement in our cash position at year end. We intend to continue to pursue
financing sources as the primary means of funding our operations.

Pursuant to a factoring agreement, with recourse against us in the event of a
loss, we factor the majority of our receivables, which are assigned on a
pre-approved basis. At December 31, 2003, the factoring charge amounted to
0.089% per day (32.5% per annum) between the date of purchase of the receivable
and the date of payment by our customer. Our obligations to the factor are
collateralized by all of our accounts receivable, inventories, and equipment. In
addition, we have an accounts receivable factoring agreement with a related
party requiring a 5% transaction fee and a daily usage fee based on an annual
percentage rate. The maximum amount to be advanced under this agreement is
$4,000,000. Total fees paid under this agreement during 2003 were $49,181.


                                       12
<PAGE>

Through December 31, 2003, we relied on third party bottlers for the production
of our products and did not own manufacturing facilities. We were able to secure
a third-party bottling agreements at what we consider very favorable rates by
providing bottlers with production equipment. As of December 31, 2003,
approximately $755,000 of our bottling equipment is located in the facility of
and used by one bottler. In the first quarter of 2004, we acquired an
independent bottling company in Florida for cash of $135,000 and 200,000 shares
of our common stock. We anticipate placing into this facility bottling equipment
with a carrying value of approximately $2.3 million. We expect this facility to
be producing our products in the second quarter of 2004.

We will continue to use our existing co-packers and expect to open other
bottling facilities to support our sales growth.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND PRONOUNCEMENTS.

Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP"). GAAP
requires us to make estimates and assumptions that affect the reported amounts
in our consolidated financial statements including various allowances and
reserves for accounts receivable and inventories, the estimated lives of
long-lived assets and trademarks and trademark licenses as well as claims and
contingencies arising out of litigation or other transactions that occur in the
normal course of business. The following summarize our most significant
accounting and reporting policies and practices:

Long-Lived Assets.

We review the carrying value of long-lived assets for impairment whenever events
or a change in circumstances indicates that the carrying value of such assets
may not be recoverable. Measurement of the impairment loss is based on the fair
value of the asset at December 31, 2003. At December 31, 2003, we recognized an
impairment writedown of our bottling and other equipment. In determining the
amount of the impairment, we obtained a valuation from an independent appraiser.
The valuation contemplates the orderly sale of this equipment in, and the
existence of, a market for this equipment. The Company does not plan to dispose
of this equipment, but rather to use it in its future operations.

Income Taxes.

Income taxes are accounted for under the asset and liability method of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

Revenue Recognition.

Revenue from the sale of our products is recorded when title and risk of loss
have passed to the customer. Revenue is recorded at the time of shipment. Sales
are recorded net of discounts, rebates, and promotional costs.


                                       13
<PAGE>



ITEM 7. FINANCIAL STATEMENTS.

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                        INDEX TO THE FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.

<TABLE>
<CAPTION>
<S>                                                                                                 <C>
Independent Auditors' Reports........................................................................1

Consolidated Financial Statements:

       Consolidated Balance Sheet as of December 31, 2003............................................3

       Consolidated Statements of Operations for the Year Ended December 31, 2003 and for the
         Period from August 20, 2002 (Inception) to December 31, 2002  ..............................5

       Consolidated Statements of Shareholders' Equity for the Year Ended December 31, 2003 and
         for the Period from August 20, 2002 (Inception) to December 31, 2002  ......................6

       Consolidated Statements of Cash Flows for the Year Ended December 31, 2003 and for the
         Period from August 20, 2002 (Inception) to December 31, 2002  ..............................8

Notes to the Consolidated Financial Statements as of December 31, 2003 and for
   the Year Ended December 31, 2003 and for the Period from August 20, 2002
   (Inception) to December 31, 2002  ...............................................................10
</TABLE>


                                       14
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
American Water Star, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of American Water
Star, Inc. and subsidiaries as of December 31, 2003 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of American Water Star,
Inc. and subsidiaries as of December 31, 2003, and the results of their
operations and their cash flows for the year ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.

Kelly & Company
Costa Mesa, California

April 2, 2004


                                       15
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of:
  American Water Star, Inc. and Subsidiaries

We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of American Water Star, Inc. and
subsidiaries (the "Company") for the period from August 20, 2002 (inception)
through December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the results of operations and cash flows of
American Water Star, Inc. and subsidiaries for the period from August 20, 2002
(inception) through December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company had a net loss of
$577,299 and a negative cash flow from operations of $419,734 for the period
from August 20, 2002 (inception) through December 31, 2002. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

WEINBERG & COMPANY, P.A.


Boca Raton, Florida
April 4, 2003



                                       16
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                             AS OF DECEMBER 31, 2003

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

                                     ASSETS

Current assets:

       Cash                                                           $  721,396
       Accounts receivable - trade, net of allowance
        for doubtful accounts of $247,037                                 24,841
       Inventories                                                     2,959,785
       Notes receivable                                                   35,000
       Deferred financing costs                                           33,279
                                                                      ----------

             Total current assets                                      3,774,301


Plant and equipment, net                                               1,446,663

Bottling and other equipment held for future use                       2,258,571

Deposits                                                                  46,500
                                                                      ----------

TOTAL ASSETS                                                          $7,526,035
                                                                      ==========



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


                                       17
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                             AS OF DECEMBER 31, 2003

<TABLE>
<CAPTION>

                      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                                                   <C>
Current liabilities:
       Accounts payable - trade and other accrued expenses                            $    384,882
       Advances from and accrued compensation to chairman, chief
         executive officer, and majority shareholder                                       321,510
       Advances from related parties                                                       542,747
                                                                                      ------------
TOTAL CURRENT LIABILITIES                                                                1,249,139
                                                                                      ------------

Commitments and contingencies

Shareholders' equity:
       Preferred stock, $.0001 par value, 20,000,000 shares authorized, none issued             --
       Series A preferred convertible, 4,100,000 shares authorized, none issued                 --
       Common stock, $.0001 par value, 150,000,000 shares authorized, 63,263,206
         shares issued and outstanding                                                       6,327
       Additional paid-in capital                                                       13,812,021
       Unearned consulting services                                                       (637,883)
       Accumulated deficit                                                              (6,903,569)
                                                                                      ------------

TOTAL SHAREHOLDERS' EQUITY                                                               6,276,896
                                                                                      ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                            $  7,526,035
                                                                                      ============
</TABLE>


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


                                       18
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.

<TABLE>
<CAPTION>
                                                                                       For the
                                                                                     Period from
                                                                      For the       August 20, 2002
                                                                     Year Ended     (Inception) to
                                                                 December 31, 2003 December 31, 2002
                                                                 ----------------- -----------------
<S>                                                              <C>               <C>
Sales                                                               $  3,784,748    $    458,152
       Less: slotting fees                                             1,120,660              --
                                                                    ------------    ------------

Net sales                                                              2,664,088         458,152
Cost of sales                                                          1,651,846         260,636
                                                                    ------------    ------------
       Gross profit                                                    1,012,242         197,516
                                                                    ------------    ------------

Operating expenses:
       General and administrative - third parties                      3,683,326         753,219
       General and administrative - related parties                    1,415,964              --
       Impairment charges on equipment                                 1,745,669              --
       Depreciation                                                       98,416           7,971
       Amortization                                                      143,920          13,625
                                                                    ------------    ------------

             Total operating expenses                                  7,087,295         774,815
                                                                    ------------    ------------

Operating loss                                                        (6,075,053)       (577,299)
                                                                    ------------    ------------

Other expense:
       Interest expense - third parties                                 (202,036)             --
       Interest expense - related parties                                (49,181)             --
                                                                    ------------    ------------
             Total other expense                                        (251,217)             --
                                                                    ------------    ------------

NET LOSS                                                            $ (6,326,270)   $   (577,299)
                                                                    ============    ============

NET LOSS PER COMMON SHARE - BASIC AND DILUTED                       $      (0.14)   $      (0.04)
                                                                    ============    ============

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED     44,257,133      13,528,523
                                                                    ============    ============
</TABLE>


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


                                       19
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.

<TABLE>
<CAPTION>
                                                         Common Stock            Additional
                                                  --------------------------       Paid-In
                                                     Shares       Par Value        Capital
-----------------------------------------------------------------------------------------------
<S>                                               <C>             <C>            <C>
BALANCE AT AUGUST 20, 2002 (INCEPTION)                    --              --              --

    Stock issued for equipment and inventory      11,103,433     $     1,110     $ 3,125,697

     Stock issued for officer services             2,562,393             256         689,064

     Stock issued in recapitalization of
       American Distributing & Packaging, Inc.     5,200,000             520       2,590,356

     Stock issued in recapitalization of
       American Water Star, Inc.                   6,915,256             692         (99,621)

     Stock issued for cash, net                    1,258,892             126         273,493

     Stock issued for related party note payable     913,802              92         259,361

     Stock issued for equipment and software       2,204,622             220         617,074

     Net loss                                             --              --              --
-----------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002                        30,158,398     $     3,016     $ 7,455,424
===============================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                         Unearned
                                                        Consulting      Accumulated
                                                         Services         Deficit           Total
-----------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>              <C>
BALANCE AT AUGUST 20, 2002 (INCEPTION)                          --               --               --

    Stock issued for equipment and inventory                    --               --      $ 3,126,807

     Stock issued for officer services                          --               --          689,320

     Stock issued in recapitalization of
       American Distributing & Packaging, Inc.                  --               --        2,590,876

     Stock issued in recapitalization of
       American Water Star, Inc.                       $  (636,400)              --         (735,329)

     Stock issued for cash, net                                 --               --          273,619

     Stock issued for related party note payable                --               --          259,453

     Stock issued for equipment and software                    --               --          617,294

     Net loss                                                   --      $  (577,299)        (577,299)
-----------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002                             $  (636,400)     $  (577,299)     $ 6,244,741
=====================================================================================================
</TABLE>

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


                                       20
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.

<TABLE>
<CAPTION>
                                                      Common Stock             Additional
                                               --------------------------        Paid-In
                                                  Shares       Par Value         Capital
---------------------------------------------------------------------------------------------
<S>                                             <C>             <C>            <C>
BALANCE, DECEMBER 31, 2002                     30,158,398     $      3,016     $  7,455,424

     Shares issued for cash                     5,693,662              569        1,952,054

     Shares issued for extension of
       notes payable                               39,000                4            7,776

     Shares issued upon conversion of
       notes payable                            2,785,036              279          731,406

     Shares issued upon conversion of
       notes payable to related party           1,828,153              183          254,274

     Shares issued to related party
       for inventory                           15,666,934            1,567        1,251,788

     Shares issued for placement of
       factoring agreement                        300,000               30           59,970

     Shares and warrants issued for services    6,792,023              679        2,735,729

     Amortization of unearned
        consulting services                            --               --               --

     Reversal of unearned
       consulting services                             --               --         (636,400)

     Net loss                                          --               --               --
---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003                     63,263,206     $      6,327     $ 13,812,021
=============================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                    Unearned
                                                   Consulting       Accumulated
                                                    Services          Deficit            Total
---------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>              <C>
BALANCE, DECEMBER 31, 2002                       $   (636,400)     $   (577,299)     $  6,244,741

     Shares issued for cash                                --                --         1,952,623

     Shares issued for extension of
       notes payable                                       --                --             7,780

     Shares issued upon conversion of
       notes payable                                       --                --           731,685

     Shares issued upon conversion of
       notes payable to related party                      --                --           254,457

     Shares issued to related party
       for inventory                                       --                --         1,253,355

     Shares issued for placement of
       factoring agreement                                 --                --            60,000

     Shares and warrants issued for services       (2,736,408)               --                --

     Amortization of unearned consulting
       services                                     2,098,525                --         2,098,525

     Reversal unearned consulting services            636,400                --                --

     Net loss                                              --        (6,326,270)       (6,326,270)
---------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003                       $   (637,883)     $ (6,903,569)     $  6,276,896
===================================================================================================
</TABLE>

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



                                       21
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.

<TABLE>
<CAPTION>
                                                                                              For the
                                                                                             Period from
                                                                            For the        August 20, 2002
                                                                          Year Ended       (Inception) to
                                                                      December 31, 2003   December 31, 2002
                                                                      -----------------   -----------------
<S>                                                                       <C>                 <C>
Cash flows used in operating activities:
       Net loss                                                           $(6,326,270)        $  (577,299)
        Adjustments to reconcile net loss to net
          cash used in operating activities:
             Depreciation                                                     232,507               7,971
             Amortization                                                     143,920              13,625
             Stock issued for services                                      2,098,525             689,320
             Impairment charges on equipment                                1,745,669                  --
             Accrued interest - related parties                                49,181                  --
             Provision for doubtful accounts                                  302,037                  --
             Amortization - deferred financing cost                            26,721                  --
             Changes in operating assets and liabilities:
                 (Increase) decrease in:
                     Accounts receivable - trade                             (238,207)            (88,671)
                     Inventories                                             (116,255)           (308,669)
                     Other assets                                              88,254                  --
                 Increase (decrease) in:
                     Accounts payable - trade and accrued expenses            127,520            (156,011)
                     Accrued compensation                                     169,200                  --
                                                                          -----------         -----------
NET CASH USED IN OPERATING ACTIVITIES                                      (1,697,198)           (419,734)
                                                                          -----------         -----------

Cash flows used in investing activities:
       Purchase of equipment - third parties                                  (76,727)            (16,658)
       Purchase of equipment - related parties                               (123,020)                 --
       Increase in notes receivable                                           (30,000)            (55,000)
                                                                          -----------         -----------
NET CASH USED IN INVESTING ACTIVITIES                                        (229,747)            (71,658)
                                                                          -----------         -----------

Cash flows provided by financing activities:
       Proceeds from issuance of common stock                               1,952,623             273,619
       Proceeds from issuance of notes payable - third parties                146,475                  --
       Advances from a related party                                          357,063                  --
       Advances from chairman, chief executive officer, and
         majority shareholder                                                 106,190                  --
       Net proceeds on note payable - chairman, chief executive
         officer, and majority shareholder                                         --             303,763
                                                                          -----------         -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                   2,562,351             577,382
                                                                          -----------         -----------
NET INCREASE IN CASH                                                          635,406              85,990
CASH - BEGINNING OF PERIOD                                                     85,990                  --
                                                                          -----------         -----------
CASH - END OF PERIOD                                                      $   721,396         $    85,990
                                                                          ===========         ===========
</TABLE>

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



                                       22
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


                Supplemental Disclosure of Cash Flow Information

<TABLE>
<CAPTION>
                                                                   For the
                                                                 Period from
                                                For the        August 20, 2002
                                              Year Ended        (Inception) to
                                           December 31, 2003   December 31, 2002
                                           -----------------   -----------------
<S>                                             <C>                  <C>
Interest paid - third party                     $23,533              --
Income taxes paid                                    --              --
</TABLE>


     Supplemental Disclosure of Non-Cash Investing and Financing Activities

The Company purchased inventory from its chairman, chief executive officer and
majority shareholder for 15,666,934 shares of the Company's common stock with
fair value of $1,253,355, which equaled the lower of predecessor cost or fair
value of inventory.

During 2003, the holders of the Company's 10%, 15%, and 25% convertible notes
payable totaling $731,685 elected to convert the notes payable into 2,785,036
shares of the Company's common stock.

At December 31, 2003, the Company issued a note payable to acquire inventory
from a related party for $375,960.

During 2003, the Company issued 1,828,153 shares of its common stock to a
shareholder and officer of the corporation as payment of liabilities to the
shareholder of $254,457.

During 2003, the Company issued 300,000 shares of its common stock as a
placement fee for a credit facility with a value of $60,000. The fee is being
amortized as interest expense over the life of the facility.

During 2003, the Company issued 39,000 shares of its common stock having a fair
market value of $7,780 in exchange for the extension of the maturity dates on
certain of its convertible notes.

During 2002, the Company issued 3,219,996 shares of common stock to a
shareholder for inventory with a cost of $905,546.

During 2002, the Company issued 7,883,437 shares of common stock to a
shareholder for office and bottling equipment with a cost of $2,221,260.

During 2002, the Company issued 913,802 shares of common stock to a shareholder
in exchange for a note payable of $259,453.

During 2002, the Company issued 2,204,622 shares of common stock for equipment
and software with a cost of $617,294.


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


                                       23
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.



1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       Principles of Consolidation

       The accompanying consolidated financial statements include the accounts
       of American Water Star, Inc., a Nevada corporation (the "Company") and
       its wholly-owned subsidiaries, All Star Beverage, Inc., American
       Distributing & Packaging, Inc., and Tunlaw Corporation (an inactive
       subsidiary).

       In December 2002, American Career Centers, Inc., a Nevada corporation,
       issued shares constituting a majority of its post-issuance common shares
       outstanding in exchange for all of the outstanding common shares of All
       Star Beverage, Inc. ("All Star") and American Distributing & Packaging,
       Inc. ("AD&P") and the former shareholders of All Star and AD&P became the
       controlling shareholders of American Career Centers, Inc., which then
       changed its name to American Water Star, Inc. The accompanying financial
       statements reflect the results of operations and financial condition
       of All Star and AD&P.

       All significant intercompany transactions and balances have been
       eliminated in consolidation.

       All references to 2003 represent the year ended December 31, 2003. All
       references to 2002 represent the period from August 20, 2002 (inception)
       to December 31, 2002.

       Nature of Operations

       The principal business of the Company is the production and sale of a
       variety of nonalcoholic, uncarbonated beverages. Through December 31,
       2003, the Company's products were produced by third-party bottling
       companies under long term production contracts. These products are
       bottled to the Company's specifications using inventory provided by the
       Company. The Company sells its products through brokers, and directly to
       distributors and customers. The Company's customers include retail
       operations and governmental agencies.

       Use of Estimates

       In preparing financial statements in conformity with generally accepted
       accounting principles, management is required to make estimates and
       assumptions that affect the reported amounts of assets and liabilities
       and the disclosure of contingent assets and liabilities at the date of
       the financial statements and the reported amounts during the reported
       period. Actual results could differ from those estimates.

       Examples of significant estimates include the allowance for doubtful
       accounts, valuation allowance on deferred tax asset and the
       recoverability of long-lived assets.

       Cash

       The Company maintains cash balances in bank deposit accounts, money
       market accounts, and time deposit accounts. At December 31, 2003, these
       accounts that either exceeded


                                       24
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       Cash, Continued

       federally insured limits or were not federally insured amounted to
       $614,093; however, the Company has not experienced any losses in such
       accounts. The Company has no requirements for compensating balances.

       Allowance for Doubtful Accounts

       The Company provides for estimated uncollectible amounts through a charge
       to earnings and a credit to a valuation allowance. Balances that remain
       outstanding after the Company has used reasonable collection efforts are
       written off through a charge to the valuation allowance and a credit to
       accounts receivable.

       Inventory

       Inventories are stated at the lower of cost or market. Cost is determined
       using the first-in, first-out method.

       Deferred Financing Costs

       The cost to obtain the third party factoring arrangement is amortized on
       the straight line method over one year (Note 8).

       Plant and Equipment

       Plant and equipment are recorded at cost. Plant and equipment are
       depreciated or amortized on a straight-line basis over the estimated
       useful lives of the assets as follows:

             Warehouse and bottling equipment                      5 to 10 years
             Office furniture and equipment                         5 to 7 years
             Computer hardware and software                              3 years
             Leasehold improvements                            Life of the lease

       Depreciation commences when equipment is placed in service. Leasehold
       improvements are amortized over the remaining life of the lease. Website
       development costs are amortized over three years.

       Expenditures for renewals and improvements are charged to the property
       accounts. Replacements, maintenance and repairs that do not improve or
       extend the life of the respective asset are expensed as incurred.

       Repairs and maintenance costs totaled $64,394 in 2003 and $6,000 in 2002.

       Impairment of Long-Lived Assets

       The Company reviews the carrying value of long-lived assets for
       impairment whenever events or a change in circumstances indicates that
       the carrying value of such assets may not be recoverable. Measurement of
       the impairment loss is based on the fair value of the asset.


                                       25
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       Revenue Recognition

       Revenue from the sale of products is recognized when title and risk of
       loss have passed to the customer. Revenue is recorded at the time of
       shipment and is net of discounts, rebates, and promotional costs.

       Sales Promotion and Slotting Fees

       The cost of Company products used for sales promotion is included in
       cost of sales. The values of products used in promotion activities are
       not included in sales. Slotting fees that are paid to the Company's
       customers for the right to sell its products in the customers' retail
       facilities, either in cash or the Company's products, are classified in
       the statement of operations as a reduction of sales.

       Advertising Costs

       Advertising costs are expensed as incurred. Advertising costs totaled
       $42,814 in 2003 and $38,800 in 2002.

       Freight Costs

       The Company generally sells its products FOB shipping point and in some
       cases arranges for shipment to its customers. Freight costs related to
       sales paid by the Company are included in the cost of sales.

       Fair Value of Financial Instruments

       Statement of Financial Accounting Standards No. 107, Disclosure About
       Fair Value of Financial Instruments, requires certain disclosures
       regarding the fair value of financial instruments. Cash, accounts and
       notes receivable, accounts payable, accrued liabilities, notes payable
       and amounts due to shareholder are reflected in the financial statements
       at fair value because of the short-term maturity of the instruments.


                                       26
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       Reclassifications

       Certain reclassifications have been made to the prior years' financial
       statements to conform to the current year presentation. These
       reclassifications had no effect on previously reported results of
       operations or retained earnings.

       Recent Accounting Pronouncements

       In November 2002, the Financial Accounting Standards Board ("FASB")
       issued Interpretation No. 45, Guarantor's Accounting and Disclosure
       Requirements for Guarantees, Including Indirect Guarantees of
       Indebtedness of Others ("FIN No. 45"). FIN No. 45 clarifies and expands
       on existing disclosure requirements for guarantees, including loan
       guarantees. It also would require that, at the inception of a guarantee,
       the Company must recognize a liability for the fair value of its
       obligation under that guarantee. The initial fair value recognition and
       measurement provisions will be applied on a prospective basis to certain
       guarantees issued or modified after December 31, 2002. The disclosure
       provisions are effective for financial statements of periods ending after
       December 15, 2002. The Company's adoption of FIN No. 45 did not have a
       material impact on its financial position, cash flows or results of
       operations.

       In January 2003 the FASB issued Intepretation No. 46R, Consolidation of
       Variable Interest Entities, an Interpretation of ARB No. 51 ("FIN No.
       46R"). FIN No. 46R requires certain variable interest entities to be
       consolidated by the primary beneficiary of the entity if the equity


                                       27
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

       Recent Accounting Pronouncements, Continued

       investors in the entity do not have the characteristics of a controlling
       financial interest or do not have sufficient equity at risk for the
       entity to finance its activities without additional subordinated
       financial support from other parties. FIN 46R is effective for all new
       variable interest entities created or acquired after December 31, 2003.
       For variable interest entities created or acquired prior to December 31,
       2003, the provisions of FIN 46R must be applied for the first interim or
       annual period beginning after March 15, 2004. The Company does not expect
       that the adoption of FIN 46R will have a material impact on its
       consolidated financial position, results of operations or cash flows, as
       the Company has no interests in variable interest entities.

2.     ACCOUNTS RECEIVABLE - TRADE

       Trade accounts receivable are stated at the amount the Company expects to
       collect. The Company maintains allowances for doubtful accounts for
       estimated losses resulting from the inability of its customers to make
       required payments. Management considers the following factors when
       determining the collectibility of specific customer accounts: customer
       credit-worthiness, past transaction history with the customer, current
       economic industry trends, and changes in customer payment terms. If the
       financial condition of the Company's customers were to deteriorate,
       adversely affecting their ability to make payments, additional allowances
       would be required.

       Changes in the allowance for doubtful accounts during 2003 follow:

             Beginning balance                                               --
             Provision for doubtful accounts                         $  302,037
             Write-offs                                                 (55,000)
                                                                     ----------
             ENDING BALANCE                                          $  247,037
                                                                     ==========



                                       28
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


2.     ACCOUNTS RECEIVABLE - TRADE, CONTINUED

       All factored accounts receivable at December 31, 2003 have been
       collected.

       Third-Party Factor

       Pursuant to a factoring agreement, with recourse against the Company in
       the event of a loss, the Company factors the majority of its receivables
       with a third-party factor, which are assigned on a pre-approved basis. At
       December 31, 2003, the factoring charge amounts to .089% per day (32.5%
       per annum) between the date of purchase of the receivable and the date of
       payment by the customer. During 2003, the fees paid pursuant to this
       agreement were $23,533. The Company's obligations to the factor are
       collateralized by all of the Company's accounts receivable, inventories,
       and equipment. The advances for factored receivables are made pursuant to
       a revolving purchase of accounts agreement. No maximum credit limit has
       been specified in the agreement.

       Related Party Factor

       Pursuant to a factoring agreement, the Company factored certain of its
       accounts receivable with a related party factor. The factoring agreement
       required a 5% transaction fee and daily usage fee based on an annual
       percentage rate. The maximum amount to be advanced under this agreement
       is $4,000,000. Total fees incurred under this agreement during 2003 was
       $49,181. The Company's obligations to the factor are collateralized by
       all of the Company's accounts receivable, inventories, and equipment. The
       unpaid amounts due from the related party factor have been offset against
       advances from that same related party (Note 7).


                                       29
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


3.     INVENTORIES

       At December 31, 2003 inventories consisted of the following:

               Raw materials                                $2,602,611
               Finished goods                                  357,174
                                                            ----------

               TOTAL INVENTORIES                            $2,959,785
                                                            ==========


4.     NOTES RECEIVABLE

       Notes receivable at December 31, 2003 are as follows:

               Note receivable, interest at 7% per annum,
                 without collateral, due July 21, 2004           $10,000
               Note receivable, interest at 7% per annum,
                 without collateral, due November 6, 2004         25,000
                                                                 -------

               TOTAL NOTES RECEIVABLE                            $35,000
                                                                 =======


5.     PLANT AND EQUIPMENT

       Plant and equipment at December 31, 2003 consisted of the following:


               Bottling and other equipment              $   755,794
               Office equipment                              483,107
               Furniture and fixtures                         76,500
               Website                                       357,589
               Vehicles                                        7,900
               Improvements                                   74,172
                                                         -----------
                                                           1,755,062
                   Less: accumulated depreciation           (308,399)
                                                         -----------

               TOTAL PLANT AND EQUIPMENT, NET            $ 1,446,663
                                                         ===========


       Bottling and other equipment currently in service is physically located
       at and operated by a third-party bottling entity that provides copacking
       services under a production agreement with the Company (Note 9). This
       arrangement has resulted in the Company obtaining favorable pricing for
       the related copacking services provided to it under this agreement.


                                       30
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


5.     PLANT AND EQUIPMENT, CONTINUED

       Bottling and other equipment with a book value of $2,258,571 has not been
       put into use at December 31, 2003 and is classified as bottling and other
       equipment held for future use (Note 10).

       Depreciation expense totaled $232,507 in 2003 and $7,971 in 2002.

       Depreciation of $134,091 in 2003 was included in the cost of sales; there
       was no depreciation expense that was included in the cost of sales in
       2002.

       Amoritization expense was $143,920 in 2003 and $13,625 in 2002.

6.     IMPAIRMENT CHARGES ON EQUIPMENT

       As a result of the delay in implementation of the Company's business plan
       concerning installation of its bottling and other equipment and slower
       than anticipated growth in the sales of its products, the Company
       recorded an impairment in the carrying value of its bottling and other
       equipment of $1,745,669 at December 31, 2003. Of the impairment charge,
       $437,639 related to bottling and other equipment currently used in the
       Company's operations. The portion of the impairment charge attributable
       to bottling and other equipment held for future use was $1,308,030.

       In determining the amount of the impairment, the Company obtained a
       valuation from an independent appraiser. The valuation was based on fair
       market value assuming the orderly sale of the valued equipment in, and
       the existence of, a market for that equipment. The Company does not plan
       to dispose of this bottling and other equipment, but rather to use it in
       its future operations.

7.     RELATED PARTY TRANSACTIONS

       The Company has entered into several transactions with its chairman,
       chief executive officer, and majority shareholder, and with entities that
       were related to this individual at the time the transactions or
       relationships commenced.



                                       31
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


7.     RELATED PARTY TRANSACTIONS, CONTINUED

       During 2003:

              The Company purchased inventory from its chairman, chief executive
              officer and majority shareholder for 15,666,934 shares of the
              Company's common stock with fair value of $1,253,355, which
              equaled the lower of predecessor cost or fair value of the
              inventory.

              The Company's chairman, chief executive officer, and majority
              shareholder assumed an obligation recorded by the Company in the
              amount of $106,169. This assumption is included in advances from
              and accrued compensation to the Company's chairman, chief
              executive officer, and majority shareholder.

              Entities controlled by the former wife of the Company's chairman,
              chief executive officer, and majority shareholder provided the
              following to the Company:

                 Services
                 --------

                     Software acquisition and website maintenance       $354,202

                     Computer hardware and other software acquisition   $388,414

                     Rents on facilities under sublease arrangements    $365,250

                     Leased employee cost                               $308,098
                                                                      ----------
                                                                      $1,415,964
                                                                      ==========

                 These entities also billed the Company for the following:

                 o   Lease deposits on subleases                         $57,600
                                                                        ========

                 o   Tenant improvements to subleased facilities         $40,888
                                                                        ========

                 o   Bottling and office equipment                      $199,805
                                                                        ========

                 o   Cash advances                                      $704,800
                                                                        ========

                 o   Accounts receivable - trade factoring agreement
                     (Note 2)                                            $49,181
                                                                        ========

       During 2002:

              The Company entered into a note receivable of $5,000 with a
              shareholder.

              The Company exchanged 913,802 shares of common stock for a note
              payable to an officer of $259,453.

              The Company issued 2,562,391 shares of common stock for services
              to an officer having a fair value of $689,320.

              The Company exchanged 11,103,433 shares of common stock for
              bottling equipment and inventory from an officer with a fair value
              of $3,126,807.

              The Company exchanged 5,000,000 shares of common stock for
              bottling equipment from an officer.



                                       32
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


8.     SHAREHOLDERS' EQUITY

       Common Stock Issued for Cash

       During 2003, the Company sold, in several offerings, 5,693,662 shares of
       its common stock and warrants to purchase 2,746,550 shares of its common
       stock with exercise prices of $0.53 and $0.54 per share. The net proceeds
       of these offerings totaled $1,952,623.

       During 2002, the Company sold 1,169,860 shares of common stock and issued
       89,032 shares of common stock as direct offering costs for net proceeds
       of $273,619.

       Common Stock Issued for Extension of Convertible Notes Payable

       During 2003, the Company issued 39,000 shares of its common stock with a
       fair value of $7,780 for a one-year extension of the due date of
       convertible notes payable.

       Common Stock Issued Upon Conversion of Convertible Notes Payable

       During 2003, the holders of the Company's 10%, 15%, and 25% convertible
       notes payable totaling $731,685 elected to convert the notes payable into
       2,785,036 shares of the Company's common stock.

       Common Stock and Warrants Issued for Consulting Services

       During 2003, the Company issued 6,792,023 shares of its common stock and
       warrants to purchase 1,700,000 common shares for consulting services. The
       fair value of these shares and warrants totalled $2,736,408. Of this
       amount, $637,883 relates to services that remain to be provided in future
       years as of December 31, 2003. Using the Black-Scholes pricing model, the
       warrants were valued using the following assumptions: no annual
       dividends, expected volatility of 95%, weighted average risk free
       interest rate of 1.29%, and a weighted average term of 1.5 years.

       During 2002 the Company issued 2,562,393 shares of common stock to an
       officer for services having a fair value of $689,320. In addition, the
       Company was seeking the return of 430,000 shares of common stock with a
       fair value of $636,400 due to the non-performance of services provided
       prior to August 20, 2002. This amount was reversed during 2003.

       Common Stock Issued for Equipment and Software

       The Company purchased inventory from its chairman, chief executive
       officer and majority shareholder for 15,666,934 shares of the Company's
       common stock with fair value of $1,253,355, which equaled the lower of
       predecessor cost or fair value of the inventory.


                                       33
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


8.     SHAREHOLDERS' EQUITY, CONTINUED

       Common Stock Issued for Equipment and Software, Continued

       During 2002, the Company exchanged 2,204,622 shares of its common stock
       for equipment and software with a fair value of $617,294.

       During 2002, the Company exchanged 11,103,433 shares of common stock for
       bottling equipment and inventory from an officer with a fair value of
       $3,126,807.

       Common Stock Issued for Third Party Factoring Agreement

       During 2003, the Company issued 300,000 shares of common stock as a fee
       in obtaining the third party accounts receivable factoring agreement.
       These shares had a fair value of $60,000 at the time of issuance.

       Common Stock Issued Upon Conversion of Notes Payable - Related Party

       During 2003, the Company issued 1,828,153 shares of its common stock to a
       related party in satisfaction of debt obligations totaling $254,457. The
       issuance of shares in satisfaction of the obligation was based on the
       fair value of the stock at the time of issuance, and no gain or loss was
       recorded on this transaction.

       During 2002, the Company issued 913,802 shares of common stock in
       satisfaction of note payable to an officer of $259,453. The shares were
       recorded at the fair value of the note and no gain or loss on the
       extinguishment of the debt.

       Common Stock Warrants

       During 2002, the Company issued 227,000 common stock warrants at an
       exercise price of $0.36 to a consultant for stock placement services. The
       warrants expire in 2007. Using the Black-Scholes model, the warrants were
       valued at $95,691 using the following assumptions; no annual dividends,
       expected volatility of 349%, risk free interest rate of 3.25% and a term
       of five years. The amount was recorded as a stock placement cost prior to
       the recapitalization.


                                       34
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


8.     SHAREHOLDERS' EQUITY, CONTINUED

       Summary of Warrants

       The following table summarizes warrants outstanding at December 31, 2003.

<TABLE>
<CAPTION>
                                              Weighted         Weighted                              Weighted
                         Warrants              Average          Average          Warrants             Average
    Exercise          Outstanding at          Remaining        Exercise       Exercisable at         Exercise
      Price          December 31, 2003     Life (in Years)       Price       December 31, 2003         Price
----------------------------------------------------------------------------------------------------------------
<S>                  <C>                   <C>               <C>             <C>                   <C>
 $0.25 to $0.37             827,000              1.96        $     0.34             827,000        $     0.34
 $0.38 to $0.57           2,930,241              2.44        $     0.48           2,930,241        $     0.48
 $0.58 to $0.87             716,309              1.62        $     0.63             716,309        $     0.63
      $1.00                 100,000              1.00        $     1.00             100,000        $     1.00
      $2.00                 100,000              1.00        $     2.00             100,000        $     2.00
                          ---------                                               ---------
                          4,673,550                                               4,673,550
                          =========                                               =========
</TABLE>


       The following table summarizes the grants of warrants in 2003 and 2002.

                                                                  Weighted
                                                                   Average
                                                                  Exercise
                                                     Warrants       Price
                                                     --------     ---------
             OUTSTANDING AT AUGUST 20, 2002              --             --
                 Warrants granted                    227,000       $   0.36
                                                   ---------       --------
             OUTSTANDING AT DECEMBER 31, 2002        227,000           0.36
                 Warrants granted                  4,446,550           0.53
                 Warrants exercised                       --            --
                 Warrants forfeited                       --            --
                                                   ---------       --------
             OUTSTANDING AT DECEMBER 31, 2003      4,673,550       $   0.52
                                                   =========       ========


       As of December 31, 2003, the Company has reserved for future issuance
       common stock as follows:

             Warrants                                              4,673,550
                                                                  ==========

       Per Share Data

       Net loss per share for 2003 and 2002 is computed based on the weighted
       average number of shares of common stock outstanding during the period.
       The effect of common stock equivalents was not included because the
       effect was anti-dilutive.


                                       35
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


9.     COMMITMENTS AND CONTINGENCIES

       Legal Proceedings

       The Company is involved in various unresolved legal actions,
       administrative proceedings and claims in the ordinary course of business.
       Although it is not possible to predict with certainty the outcome of
       these unresolved actions, the Company believes these unresolved legal
       actions will not have a material effect on its financial position or
       results from operations.

       On April 2, 2004, the Company was served with a complaint by South Beach
       Beverage Company, Inc. in a matter that alleges trademark infringment
       among other things. The plaintiffs are seeking a permanent injunction
       against the Company's use of certain trademarks. During 2002, 2003, and
       through March 31, 2004, the Company has not sold, nor does it have any
       orders for, any of the products that may be involved in this dispute. The
       Company has not as of yet adequately reviewed the complaint, but based
       on its preliminary analysis, management believes the allegations are
       without merit and plans to vigorously defend itself in this legal matter.

       Operating Leases

       The Company leases two facilities under long-term non-cancelable
       operating sublease agreements expiring at various dates through March
       2008. The sublessor on these leases is an entity controlled by the former
       wife of the Chief Executive Officer. The non-cancelable operating leases
       provide that the Company pays property taxes, insurance and certain
       operating expenses applicable to the leased premises. Rent expense was
       approximately $501,000 in 2003 and $33,000 in 2002. The future minimum
       annual lease payments required under the operating leases are as follows:

               2004                                        $203,000
               2005                                         186,000
               2006                                         180,000
               2007                                         117,000
               2008 and thereafter                           40,000
                                                           --------
                                                           $726,000
                                                           ========


       In March 2004, the sublease agreements were cancelled and replaced with
       lease agreements with the landlords.

       Production Agreements

       The Company has entered into production agreements with two bottling
       entities (the "copackers"). One of these agreements expires in 2007 and
       the other is month to month. At December 31, 2003, minimum annual
       purchase requirements under these contracts follow:

             2004                                       $  125,500
             2005                                          125,500
             2006                                          125,500
             2007                                           62,750
                                                        ----------
                                                        $  439,250
                                                        ==========


                                       36
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


9.     COMMITMENTS AND CONTINGENCIES, CONTINUED

       License Agreements

       In January 2003, the Company entered into an agreement with a corporation
       that owns the licensing rights to a consumer product trademark. The
       Agreement provides the Company with a three-year exclusive license to
       produce, market and sell flavored water bearing the trademark name in the
       United States and Canada. In consideration, the Company agreed to pay a
       royalty of four percent of invoice sales (net of shipping and sales
       taxes), payable each quarter. The agreement calls for a guaranteed
       minimum annual royalty fee of $40,000 in the first year, $120,000 in the
       second year, and $200,000 in the third year. The agreement may be renewed
       for three years if the Company meets minimum sales amounts under the
       agreement. Royalty expense for the year ended December 31, 2003 was
       $40,000.

10.    CONCENTRATIONS

       Credit Risk

       During 2003, the Company relied on three customers for approximately 40%
       of net sales. At December 31, 2003, accounts receivable from those
       customers totaled $14,743.

       During 2002, the Company relied on three customers for approximately 61%
       of sales. At December 31, 2002, accounts receivable from those customers
       totaled $13,820.

       Significant Suppliers

       The Company's largest suppliers accounted for approximately 95% of
       product purchases in 2003 and 70% in 2002. The Company is dependent on
       the ability of their suppliers to provide products on a timely basis and
       on favorable pricing terms. The loss of certain principal suppliers or a
       significant reduction in product availability from principal suppliers
       could have a material adverse effect on the Company. The Company believes
       that its relationships with suppliers are satisfactory.

       In January 2004, the Company commenced a plan to open its own bottling
       facilities. The first of these facilities is expected to start production
       in the second quarter of 2004. Approximately $2.3 million of equipment
       held for future use is anticipated to be used in this facility.


                                       37
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


11.    INCOME TAXES

       The Company uses the asset and liability approach to account for income
       taxes. Under this method, deferred tax assets and liabilities are
       recognized for the expected future tax consequences of differences
       between the carrying amounts of assets and liabilities and their
       respective tax base using enacted tax rates in effect for the year in
       which the differences are expected to reverse. The effect on deferred tax
       assets and liabilities of a change in tax rates is recognized in income
       in the period when the change is enacted. Deferred tax assets are reduced
       by a valuation allowance when, in the opinion of management, it is more
       likely than not that some portion or all of the deferred tax assets will
       not be realized.

       The Company recported no income tax benefit or expense for 2003 or 2002.

       Significant components of the Company's deferred income tax assets and
       liabilities at December 31, 2003 are as follows:

               Deferred income tax assets:
                   Net operating loss carryforward                  $ 1,634,192
                   Allowances and reserves                              762,512
                   Accrued compensation                                  57,528
                                                                    -----------

               Total deferred income tax asset                        2,454,232
                                                                    -----------

               Deferred income tax liabilities:

                   Depreciation                                         107,019
                                                                    -----------

               Total deferred income tax liability                      107,019
                                                                    -----------

                                                                      2,347,213

                   Valuation allowance                               (2,347,213)
                                                                    -----------

               NET DEFERRED INCOME TAX ASSET                        $        --
                                                                    ===========

       The Company's tax benefit differs from the expected tax benefit for 2003
       and 2002 (computed by applying the Federal corporate tax rate of 34% to
       income (loss) before taxes) as follows:


                                       38
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


11.    INCOME TAXES, CONTINUED


<TABLE>
<CAPTION>
                                                                                 For the
                                                                                Period from
                                                        For the               August 20, 2002
                                                       Year Ended             (Inception) to
                                                    December 31, 2003        December 31, 2002
                                                    -----------------        -----------------
<S>                                                 <C>                      <C>
             Computed "expected" tax benefit          $  (2,150,931)             $  (196,282)
             Valuation allowance                          2,150,931                  196,282
                                                      -------------              -----------

             INCOME TAX (BENEFIT) EXPENSE                        --                      --
                                                      =============              ===========
</TABLE>


       At December 31, 2003, the Company had a net operating loss carryforward
       of approximately $4.7 million for U.S. Federal Income tax purposes
       available to offset future taxable income expiring beginning 2022. The
       Company recorded a valuation allowance of $2,347,213 at December 31, 2003
       to fully offset the deferred tax asset.

12.    SPIN OFF

       In December 2003, the Company's Board of Directors declared a dividend in
       the form of all of the common stock of American Distributing & Packaging,
       Inc. ("AD&P"). The distribution of the AD&P shares to the Company's
       shareholders is expected to occur in 2004.

       At December 31, 2003, AD&P had no assets or liabilities and had no
       revenues or significant expenses. Their only activity through December
       31, 2003 was the development of its business plan.

       AD&P is expected to acquire assets and commence the sale of its products
       in 2004 before its shares are distributed to the Company's shareholders.

13.    SUBSEQUENT EVENTS

       Sales of Shares for Cash

       In February 2004, the Company sold 250,040 shares of its common stock.
       The net proceeds of this offering were $159,272.

       In March 2004, the Company sold 8,888,892 shares of its common stock, and
       warrants to purchase 4,444,446 common shares at $1.25 per shares and
       warrants to purchase 4,444,446 shares of common stock at $1.65 per share.
       The $1.65 warrants expire in February 2009 and the $1.25 warrants expire
       forty-five days after the registration of the shares and the warrants is
       effective. The net proceeds of this offering are $7,250,000. Of this
       amount, $3,410,000 was received in February 2004 and $3,840,000 will be
       received upon the Company's filing of a Registration statement related to
       this offering.

                                       39
<PAGE>

                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


13.    SUBSEQUENT EVENTS, CONTINUED

       New Customer

       In March 2004, the Company received an initial order from a national
       retail organization. This order is for about $600,000 of the Company's
       products which are to be shipped in April 2004.

       Consulting Agreement

       In January 2004, the Company entered into a consulting agreement with an
       entity that is controlled by the former wife of the chairman, chief
       executive officer, and majority shareholder of the Company. The agreement
       provides for special branded beverage products and advertising
       development. The agreement provides for the issuance of 100,000 shares of
       the Company's restricted common stock and a monthly payment of $10,000.
       The term of this agreement is 24 months.

       Operating Leases

       In 2004, the Company entered into three separate non-cancelable operating
       sublease agreements expiring at various dates through March 2008. The
       sublessor on these leases is an entity controlled by the former wife of
       the chairman, chief executive officer, and majority shareholder of the
       Company. The future minimum annual lease payments required under the
       operating leases are as follows:

                      2004                             $  350,000
                      2005                                317,000
                      2006                                325,000
                      2007                                208,000
                      2008                                211,000
                                                       ----------
                                                       $1,411,000
                                                       ==========

       Acquisition

       In the  first  quarter  of 2004,  the  Company  acquired  an  independent
       bottling  company in Florida for cash of $135,000  and 200,000  shares of
       common stock.

14.    QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

       The following is a summary of the unaudited quarterly results for each of
       the calendar quarters in 2003 and 2002 (in thousands, except per share
       data).

<TABLE>
<CAPTION>
                                                        Amounts in Thousands Except Per Share Data
                                                        ------------------------------------------
                                           March 31             June 30          September 30           December 31
                                         ------------         ------------       ------------           ------------
<S>                                      <C>                  <C>                  <C>
   2003:
       Net sales, as originally
         reported                        $        786         $        979         $      1,411                   --

       Fourth quarter adjustments                  --                   --         $       (864)                  --  (1)

       Net sales, as adjusted            $        786         $        979         $        547         $        352

       Gross profit                      $        342         $        414         $        648         $       (392) (2)

       Operating expenses                $      1,252         $        369         $      1,451         $      4,015

       Net loss, as adjusted             $       (776)        $       (229)        $       (957)        $     (4,364)

       Shares used in calculation          35,373,311           34,518,499           54,906,495           59,942,819

       Basic and diluted loss per
         share                           $     (0.022)        $     (0.007)        $ (0.017)            $     (0.073)
</TABLE>



                                       40
<PAGE>


                   AMERICAN WATER STAR, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           AS OF DECEMBER 31, 2003 AND
                    FOR THE YEAR ENDED DECEMBER 31, 2003 AND
      FOR THE PERIOD FROM AUGUST 20, 2002 (INCEPTION) TO DECEMBER 31, 2002.


14.    QUARTERLY FINANCIAL INFORMATION (UNAUDITED), CONTINUED

<TABLE>
<CAPTION>
                                                        Amounts in Thousands
                                                       Except Per Share Data
                                                       ---------------------
                                                September 30          December 31
                                                ------------          -----------
<S>                                             <C>                  <C>
    2002:
        Net sales                               $        203         $        255
        Gross profit                            $         88         $        110
        Total operating expense                 $        344         $        431
        Net loss                                $       (256)        $       (321)
        Basic and diluted loss per share        $      (0.02)        $      (0.02)
        Shares used in calculation                13,528,523           13,528,523
</TABLE>


      (1)   The Company adjusted net sales during the fourth quarter as a result
            of two product returns that occurred in the fourth quarter of 2003
            and the first quarter of 2004. These product returns were related to
            sales invoices recorded during the third quarter ended September 30,
            2003.

      (2)   Negative gross profit in the fourth quarter of 2003 results from
            slotting and other promotional goods shipped.




                                       41
<PAGE>

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

On September 30, 2003, we engaged Kelly & Company as our principal independent
accountant after the resignation of Weinberg & Co., P.A. as our principal
independent accountant on August 18, 2003. (See our Current Reports on Form 8-K,
as filed with the Commission on August 25, 2003 and October 6, 2003.)

We have had no disagreements on accounting and financial disclosure with our
former principal independent accountant, Weinberg & Co., P.A., and our current
principal independent accountant, Kelly & Company, during our last two most
recent fiscal years.

ITEM 8A. CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures that are
designed to ensure that information required to be disclosed by the Company in
the reports filed under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified under the Commission's rules and
forms. Based on an evaluation performed, the Company's certifying officers have
concluded that the disclosure controls and procedures were effective as of the
end of the period covered by this Annual Report to provide reasonable assurance
of the achievement of these objectives.

Notwithstanding the foregoing, there can be no assurance that the Company's
disclosure controls and procedures will detect or uncover all failures of
persons within the Company to disclose material information otherwise required
to be set forth in the Company's reports.

We do not believe that there has been any change in the Company's internal
control over financial reporting during the period covered by this report that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

                                    PART III

ITEM  9.  DIRECTORS,   EXECUTIVE  OFFICERS,   PROMOTERS,  AND  CONTROL  PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Unless otherwise specified herein, each Director is subject to election at
American Water Star's annual meeting of stockholders. There are no family
relationships between the executive officers and directors of the Company. The
following table sets forth certain information regarding the executive officers
and directors of American Water Star, Inc. as of April 13, 2004:

<TABLE>
<CAPTION>

    NAME                   AGE               POSITION                              DIRECTOR SINCE
    ----                   ---               --------                              --------------
<S>                       <C>    <C>                                               <C>
Roger Mohlman               56     Chairman of the Board, Chief Executive            July 2002
                                   Officer, President, and Chief Financial
                                   Officer

Jerry Ludeman               59     Executive Vice President, Secretary,
                                   and Director                                      July 2003
</TABLE>

ROGER MOHLMAN

Mr. Mohlman has served as our Chairman of the Board, Chief Executive Officer,
President, and Chief Financial Officer since July of 2002. He brings over 30
years of experience in product licensing and business development. From 1981 to
1997, Mr. Mohlman was the owner of Pobeda Manufacturing, Inc. in Mexico, a
licensee for manufacturing name-brand clothing for U.S. companies. From 1986 to
July 2002, Mr. Mohlman was the President of Camelot Ltd., LLC, a holding company
for various businesses, including Rumours, Delizia, and Excalibur Awards. From
January 1998 until June 2001, he was the CEO and President of Venda Tel, Inc.
and Merlin Computers, manufacturers of slot machines and telco equipment and
software. Mr. Mohlman currently devotes substantially all of his time to the
business of the Company.

JERRY LUDEMAN

In July 2003,  Mr.  Ludeman  re-joined  the  Company as a member of the Board of
Directors, Executive Vice President and Secretary. Mr. Ludeman previously served
as a director and  Executive  Vice  President of the Company from  February 2002
until he resigned to pursue other  ventures in July of 2002.  From March 2001 to
February 2003, Mr. Ludeman served as a director and CEO of Geyser Products, LLC,
a  company  that  specialized  in the  marketing  and  distribution  of  bottled
beverages. From 1989 to 2001, Mr. Ludeman was the President and CEO of Next Age,
Inc. (formerly  Barrington Food Group,  Inc.), a national and international food
and beverage  marketing  organization.  From 1977 to 1989, Mr. Ludeman served as
Vice President of Sales and National Sales Manager of Orval Kent Food Company, a
division of Pet Foods Company.

AUDIT COMMITTEE

Although the Company's Board of Directors has not yet appointed an audit
committee, it is in the process of forming one.


                                       42
<PAGE>

CODE OF ETHICS

The Company has adopted a Code of Ethics and Business Conduct for its officers,
directors, and employees. The Code of Ethics and Business Conduct is filed
herewith, available for reading in its entirety at www.americanwaterstar.com,
and will be provided in printed form, without charge, upon request from the
Company.

SECTION 16(A) COMPLIANCE

Executive officers, directors and certain persons who own more than ten percent
of the Company's common stock are required by Section 16(a) of the Exchange Act
and related regulations to file reports of their ownership of the common stock
with the Commission and to furnish us with copies of the reports. Based on our
review of the reports and representations, except as set forth below, we believe
that all required Section 16(a) reports were timely filed in 2003. One of our
current executive officers and directors filed two Form 4 Reports following
their respective due dates. One of our former executive officers and directors
filed one Form 4 Report following its due date.

ITEM 10. EXECUTIVE COMPENSATION

The table below summarizes all compensation awarded to, earned by, or paid to
the executive officers of AMWS by any person for all services rendered in any
capacity to AMWS for the fiscal years ended December 31.

The following table sets forth certain information with respect to the
compensation of our Chief Executive Officer and each of our other most highly
compensated executive officers who earned more than $100,000 for the fiscal
years ended December 31, 2003, 2002 and 2001.

<TABLE>
<CAPTION>
                                                                 SUMMARY EXECUTIVE COMPENSATION TABLE

                                                              ANNUAL COMPENSATION      LONG TERM COMPENSATION AWARDS

                                                                                                                        ALL OTHER
          NAME AND PRINCIPAL POSITION            YEAR        SALARY         BONUS          STOCK         OPTIONS       COMPENSATION
<S>               <C>                            <C>        <C>             <C>             <C>          <C>            <C>
    Roger Mohlman (1)                            2003       $162,500         ---            ---             ---            ---
         Chief Executive Officer,                2002         ---            ---            ---             ---            ---
         President, and Chief Financial Officer
    Jerry Ludeman (2)                            2003       $89,825          ---            ---             ---            ---
         Executive Vice President; Secretary     2002         ---            ---            ---             ---            ---
    Thomas F. Krucker (3)                        2003         ---            ---            ---             ---            ---
         Chief Financial Officer;                2002         ---            ---         1,000,000          ---            ---
         Treasurer; Secretary                    2001         ---            ---           41,667           ---            ---
    Ronald Mears (4)                             2001         ---            ---            ---           416,667         83,333
    William Anthony (5)                          2001         ---            ---            ---             ---            ---

</TABLE>

(1) Mr. Mohlman has served as Chief Executive Officer, President, and director
with the Company since June 2002. In July 2003, he was also named Chairman of
the Board and Chief Financial Officer of the Company. Mr. Mohlman's salary was
accrued for the Company's 2003 fiscal year and was paid in April 2004. In
February 2004, Mr. Mohlman received 200,000 shares of the Company's common stock
pursuant to the Company's Stock Plan in consideration of his services to the
Company in 2002 and 2003.

(2) Mr. Ludeman has served as Executive Vice President, Secretary, and director
with the Company since July 2003. Mr. Ludeman also previously served as
Executive Vice President and director of the Company from February 2002 until
his resignation in July 2002. Mr. Ludeman received compensation and
reimbursement of expenses for his services with the Company in the amount of
$89,825 for 2003. In February 2004, Mr. Ludeman received 50,000 shares of the
Company's common stock pursuant to the Company's Stock Plan in consideration of
his services to the Company in 2003.

(3) Mr. Krucker served as President and CEO with the Company from December 2001
to June 2002. In June 2002, he resigned his positions as President and CEO and
was appointed Chief Financial Officer, Secretary, and Treasurer. Mr. Krucker
served as a director of the Company since October 2001. Mr. Krucker resigned as
Chief Financial Officer, Treasurer, Secretary, and director with the Company on
July 24, 2003.

(4) Mr. Mears  resigned as CEO of the Company in December  2001 and resigned his
director position in February 2002.

(5) Mr. Anthony resigned as President and director of the Company in July 2001.


                                       43
<PAGE>

None of the Company's executive officers named above received any options or SAR
grants as of December 31, 2003.

EMPLOYMENT AGREEMENTS

Effective January 1, 2003, the Company entered into an employment agreement with
Roger Mohlman as the Company's President and CEO. Prior to that date, Mr.
Mohlman did not have any employment agreement. The term of the employment
contract is one year from the effective date. Both parties, upon mutual written
agreement, may extend the contract for an additional two years. After a two-year
extension, both parties may make additional extensions in one year increments.
The initial annual base compensation for 2003 was set at $120,000 (subject to
increase by the Board of Directors), stock options, annual bonus in accordance
with Company performance, and various benefits. In February 2004, pursuant to a
resolution of the Board, the employment agreement was extended for two years and
Mr. Mohlman's base salary was set at 240,000. In 2003, the Company accrued the
$120,000 base salary and awarded Mr. Mohlman compensation of approximately
$42,500 for his services to the Company commencing in August 2002, all of which
compensation was paid in April 2004.

Effective January 1, 2003, the Company entered into an employment agreement with
Thomas F. Krucker as the Company's Secretary, Treasurer and CFO. The term of the
employment agreement was one-year. The agreement provided for an extension of
the term for an additional two years. After the two-year extension, both parties
could have made additional extensions in one-year increments thereafter. Under
the agreement, Mr. Krucker's base salary was $120,000 (which may be increased by
consent of the Board), stock options, annual bonus in accordance with Company
performance, and various benefits. Mr. Krucker resigned as Chief Financial
Officer, Treasurer, Secretary, and director with the Company on July 24, 2003.

COMPENSATION OF DIRECTORS

The directors of the Company are not compensated for their services, except that
such directors may, from time to time, be awarded options or other incentives
under the Company's Stock Plan.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth each person known to us, as of the date of this
Annual Report, to be a beneficial owner of five percent (5%) or more of our
outstanding common stock, each officer and director individually, and all
executive officers and directors as a group. No other class of voting securities
is outstanding. None of the beneficial owners has the right to acquire any
shares of our common stock within 60 days pursuant to options, warrants, rights,
conversion privileges, or similar obligations.

Name of Beneficial Owner (1)            Number of Shares    Percent of Class (2)
----------------------------            ----------------    -------------------

Roger Mohlman                                 33,600,227           44.24%
Jerry Ludeman                                     50,000              *
Includes all officers and
 directors as a group (2 individuals)         33,650,227           44.31%

(1) As used in this table, "beneficial ownership" means the sole or shared power
to vote, or to direct the voting of, a security, or the sole or shared
investment power with respect to common stock (i.e., the power to dispose of, or
to direct the disposition of, a security). The address of each person is in care
of the Company.

(2) Based on 75,945,424 shares of common stock outstanding as of April 6, 2004.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

At December 31, 2003, the Company issued a note payable to acquire inventory
from a related party for $375,960. During 2003, the Company issued 1,828,153
shares of its common stock to a stockholder and officer of the corporation as
payment of liabilities to the stockholder of $254,457. The issuance of shares in
satisfaction of the obligation was based on the fair value of the stock at the
time of issuance, and no gain or loss was recorded on this transaction.

Pursuant to a factoring agreement, the Company factored certain of its accounts
receivable with a related party factor. The factoring agreement required a 5%
transaction fee and daily usage fee based on an annual percentage rate. The
maximum amount to be advanced under this agreement is $4,000,000. Total fees
incurred under this agreement during 2003 were $49,181. The Company's
obligations to the factor are collateralized by all of the Company's accounts
receivable, inventories, and equipment. The unpaid amounts due from the related
party factor have been offset against advances from that same related party

The Company has entered into several transactions with its chairman, chief
executive officer, and majority stockholder, and with entities that were related
to this individual at the time the transactions or relationships commenced.
During 2003, the Company purchased inventory from its chairman, chief executive
officer and majority stockholder for 15,666,934 shares of the Company's common
stock with fair value of $1,253,355, which equaled the lower of predecessor cost
or fair value of the inventory. The Company's chairman, chief executive officer,
and majority stockholder assumed an obligation recorded by the Company in the
amount of $106,169. This assumption is included in advances from and accrued
compensation to chairman, chief executive officer, and majority stockholder.

Entities controlled by the former wife of the Company's chairman, chief
executive officer, and majority stockholder provided the following services to
the Company:


                                       44
<PAGE>

o      Software acquisition and website maintenance $354,202
o      Computer hardware and other software acquisition $388,414
o      Rents on facilities under sublease arrangements $365,250
o      Leased employee cost $308,098

These entities also billed the Company for:

o      Lease deposits on subleases $57,600
o      Tenant improvements to subleased facilities $40,888
o      Bottling and office equipment $199,805
o      Cash advances $704,800
o      Accounts receivable - trade factoring agreement $49,181

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

NUMBER           DESCRIPTION

--------------------------------------------------------------------------------
3.1    Articles of Incorporation  (Exhibit 3.1 to the Company's Annual Report on
       Form 10-KSB filed on April 13, 2000 and incorporated by reference herein)
--------------------------------------------------------------------------------
3.2    Certificate  of  Amendment  to the  Company's  Articles of  Incorporation
       (Exhibit 3.2 to the Company's Annual Report on Form 10-KSB filed on April
       13, 2000 and incorporated by reference herein)
--------------------------------------------------------------------------------
3.3    Certificate  of Change in Number of  Authorized  Shares  Pursuant  to NRS
       78.209, which define the rights of holders of the equity securities being
       registered  (Exhibit  4.3 of the  Company's  Report  on Form S-8 filed on
       April 5, 2002 and incorporated by reference herein)
--------------------------------------------------------------------------------
3.4    Certificate  of  Amendment  to the  Company's  Articles of  Incorporation
       changing the name of the Company and  increasing  its  authorized  common
       stock (Exhibit 3.2 of the Company's Quarterly Report on Form 10-QSB filed
       on May 20, 2000 and incorporated by reference herein)
--------------------------------------------------------------------------------
3.5    Bylaws  (Exhibit 3.3 of the Company's  Annual Report on Form 10-KSB filed
       on April 13, 2000 and incorporated by reference herein)
--------------------------------------------------------------------------------
3.6    Articles of Exchange completing the acquisition of American  Distribution
       & Packaging,  Inc.  (Exhibit 3.6 of the  Company's  Annual Report on Form
       10-KSB/A filed on April 22, 2003 and incorporated by reference herein)
--------------------------------------------------------------------------------
3.7    Articles of Exchange  completing the  acquisition  of All-Star  Beverage,
       Inc.  (Exhibit 3.7 of the Company's  Annual Report on Form 10-KSB/A filed
       on April 22, 2003 and incorporated by reference herein)
--------------------------------------------------------------------------------
4.1    Certificate  of  Designation  of  Series A  Convertible  Preferred  Stock
       (Exhibit 4.4 of the Company's Registration Statement on Form S-8 filed on
       April 5, 2002 and incorporated by reference herein)
--------------------------------------------------------------------------------
4.2    Stock Plan (Exhibit 4.6 of the Company's  Registration  Statement on Form
       S-8 filed on February  28, 2003 and  incorporated  by  reference  herein)
--------------------------------------------------------------------------------
4.3    Form of Subscription Agreement, dated February 18, 2004, by and among the
       Company and the investors a party  thereto  (Exhibit 4.1 of the Company's
       Report  on Form 8-K  filed on  February  18,  2004  and  incorporated  by
       reference herein)
--------------------------------------------------------------------------------
4.4    Form  of  Unit  Warrant  issued  pursuant  to  the  Securities   Purchase
       Agreement,  dated  February  18,  2004 by and among the  Company  and the
       investors a party thereto  (Exhibit 4.2 of the  Company's  Report on Form
       8-K filed on February 18, 2004 and incorporated by reference herein)
--------------------------------------------------------------------------------
4.5    Form of Green Shoe Warrant  issued  pursuant to the  Securities  Purchase
       Agreement,  dated  February  18,  2004 by and among the  Company  and the
       investors a party thereto  (Exhibit 4.3 of the  Company's  Report on Form
       8-K filed on February 18, 2004 and incorporated by reference herein)
--------------------------------------------------------------------------------
10.1   Reserved
--------------------------------------------------------------------------------
10.2   Reserved
--------------------------------------------------------------------------------
10.3   Reserved
--------------------------------------------------------------------------------
10.4   Reserved
--------------------------------------------------------------------------------
10.5   Employment  Agreement  with Roger Mohlman  (Exhibit 10.4 of the Company's
       Annual Report on Form 10-KSB filed on April 16, 2003 and  incorporated by
       reference herein)
--------------------------------------------------------------------------------
10.6   Employment  Agreement  with  Thomas  F.  Krucker  (Exhibit  10.5  of  the
       Company's  Annual  Report  on Form  10-KSB  filed on April  16,  2003 and
       incorporated by reference herein)
--------------------------------------------------------------------------------



                                       45
<PAGE>

--------------------------------------------------------------------------------
10.7   Trademark and Design License  Agreement dated January 1, 2003 for the use
       of the Hawaiian Tropic name (Exhibit 10.6 of the Company's  Annual Report
       on Form 10-KSB  filed on April 16,  2003 and  incorporated  by  reference
       herein)
--------------------------------------------------------------------------------
14.1*  Code of Ethics and Business Conduct
--------------------------------------------------------------------------------
21.1*  Subsidiaries of the Company
--------------------------------------------------------------------------------
23.1*  Consent of Weinberg & Co., P.A.
--------------------------------------------------------------------------------
23.2*  Consent of Kelly & Company
--------------------------------------------------------------------------------
31.1*  Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------
32.1*  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
--------------------------------------------------------------------------------

* Filed herewith.

(b)    Reports on Form 8-K:

On October 6, 2003, the Company filed a Current Report on Form 8-K announcing
the engagement of Kelly & Company, Costa Mesa, California, as its independent
accountants.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

For the year ended  December 31,  2003,  Kelly & Company  audited the  Company's
consolidated  financial  statements.  For the  year  ended  December  31,  2002,
Weinberg & Co., P.A. audited the Company's consolidated financial statements.

Audit fees paid during 2003 and 2002 were $105,302 and $31,271, respectively. We
have not incurred any third party fees with respect to tax returns or
tax-related services. No non-audit related services were provided by our
independent auditors during 2002 or 2003.

It is our Board of Directors' policy and procedure to approve in advance all
audit engagement fees and terms and all permitted non-audit services, if any,
provided by our independent auditors. We believe that all audit engagement fees
and terms and permitted non-audit services, if any, provided by our independent
auditors as described in this Item approved in advance by our Board of
Directors.


                                       46
<PAGE>

                                   SIGNATURES

SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                               AMERICAN WATER STAR, INC.
                               (Registrant)


                                  By: /s/ Roger Mohlman
                                      -------------------------------
                                      Roger Mohlman
                                      Chief Executive Officer ,
                                      President, and Chief financial Officer

                               Date:  April 14, 2004

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

                                 By:   /s/ Roger Mohlman
                                       ------------------------------
                                       Roger Mohlman, Director
                                Date:  April 14, 2004


                                  By:  /s/ Jerry Ludeman
                                       ------------------------------
                                       Jerry Ludeman, Director
                                Date:  April 14, 2004


                                       47