<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C.  20549
                                  FORM 10-Q SB

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

    FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                       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 NO. 0-29280

                      HAWAIIAN NATURAL WATER COMPANY, INC.
       (Exact name of small business issuer as specified in its charter)

                HAWAII                                99-0314848
(State or jurisdiction of incorporation             I.R.S. Employer
           or organization)                      Identification Number)

                               248 Mokauea Street
                            Honolulu, Hawaii  96819
                    (Address of principal executive offices)

                                 (808) 832-4550
                          (Issuer's telephone number)

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

                              YES   X           NO

     The issuer had issued and outstanding 3,899,212 shares of Common Stock 
on November 11, 1997.

     Transitional Small Business Disclosure Format (check one):

                            YES                 NO   X

<PAGE>

                        PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

Hawaiian Natural Water Company, Inc.
Balance Sheet

<TABLE>
<CAPTION>

ASSETS                                                                                       December 31,        September 30,
                                                                                                 1996                1997
                                                                                             ------------        ------------
                                                                                                                  (Unaudited)
<S>                                                                                          <C>                 <C>

Current Assets:
  Cash and Cash Equivalents                                                                   $    89,335         $ 3,496,789
  Inventories                                                                                     156,570             234,582
  Trade Accounts Receivable, net of Allowance For Doubtful Accounts of
   $3,700 at September 30, 1997                                                                    53,515             163,880
  Prepaid Expenses and Other                                                                        7,945              61,554
                                                                                             ------------        ------------
    Total Current Assets                                                                          307,365           3,956,805

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $112,110 
and 163,312, respectively                                                                         441,352           1,541,537


ORGANIZATIONAL COSTS, net of accumulated amortization of $2,029 and $2,706, respectively            2,480               1,803

DEFERRED CHARGES AND OTHER, net of accumulated amortization of $82,056 at December 31, 1996       441,196               1,710
                                                                                             ------------        ------------
    Total Assets                                                                              $ 1,192,393         $ 5,501,855
                                                                                             ------------        ------------
                                                                                             ------------        ------------

LIABILITIES

Current Liabilities:
  Accounts Payable                                                                            $   331,370         $   288,555
  Notes Payable to Related Parties                                                                496,393              90,335
  Notes Payable                                                                                 1,467,561                   -
  Accrued Expenses and Other Current Liabilities                                                  189,251             102,339
  Capital Lease Obligation - Current Portion                                                       38,264              36,214
                                                                                             ------------        ------------
    Total Current Liabilities                                                                   2,522,839             517,443

Non-current Liabilities
  Capital Lease Obligation - Net of Current Portion                                                87,476              81,503
  Note Payable to Related Parties - Net of Current Portion                                              -             511,680
                                                                                             ------------        ------------
    Total Long-Term Liabilities                                                                    87,476             593,183
                                                                                             ------------        ------------
    Total Liabilities                                                                           2,610,315           1,110,626

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)

STOCKHOLDERS' EQUITY (DEFICIT):
 Preferred Stock, $1 par value, 5,000,000 shares authorized, no shares issued or             
 outstanding                                                                                       -                   -
 Common Stock, no par value; 20,000,000 shares authorized; 1,599,212 and 3,899,212 
 shares issued and outstanding, respectively                                                      442,293           6,338,728

  Common Stock Warrants and Options 924,351 and 3,442,429, respectively                           187,500           2,024,617

  Accumulated Deficit                                                                          (2,047,715)         (3,972,116)
                                                                                             ------------        ------------
  Total Stockholders Equity (Deficit)                                                          (1,417,922)          4,391,229
                                                                                             ------------        ------------
  Total Liabilities and Stockholders' Equity (Deficit)                                        $ 1,192,393         $ 5,501,855
                                                                                             ------------        ------------
                                                                                             ------------        ------------
</TABLE>

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

Hawaiian Natural Water Company, Inc.
Statement of Operations
For the Three and Nine Months Ended September 30,1996 and 1997
(UNAUDITED)

<TABLE>
<CAPTION>
                                               Three Months                Nine Months
                                           Ended September 30,          Ended September 30,
                                       -------------------------     -------------------------
                                           1996           1997           1996          1997
                                       ----------     ----------     ----------    -----------
<S>                                    <C>            <C>            <C>           <C>
NET SALES                              $  292,214     $  339,456     $  721,342    $   839,449
COST OF SALES                             330,996        387,329        804,221        930,045
                                       ----------     ----------     ----------    -----------
   Gross Margin (Loss)                    (38,782)       (47,873)       (82,879)       (90,596)

EXPENSES:
    General and Administrative             49,991        282,516        432,356        652,689
    Selling and Marketing                  40,388        250,230        106,081        526,201
                                       ----------     ----------     ----------    -----------
                                           90,379        532,746        538,437      1,178,890

OTHER INCOME ( EXPENSE)
    Interest Income                           -           14,957            -           29,130
    Interest Expense                      (37,762)        (3,166)       (65,497)      (417,640)
    Other Income                              -              300            -            2,405
                                       ----------     ----------     ----------    -----------
                                          (37,762)        12,091        (65,497)      (386,105)

Net Loss Before Extraordinary Item       (166,923)      (568,528)      (686,813)    (1,655,591)

Extraordinary Item -
    Loss on Extinguishment of Debt            -              -              -         (268,810)
                                       ----------     ----------     ----------    -----------

Net Loss                               $ (166,923)    $ (568,528)    $ (686,813)   $(1,924,401)
                                       -------------------------     -------------------------
                                       -------------------------     -------------------------

Net Loss Per Share:
    Before Extraordinary Item          $    (0.10)    $    (0.15)    $    (0.43)   $     (0.60)
                                       -------------------------     -------------------------
                                       -------------------------     -------------------------

    Extraordinary Item                        -             -               -            (0.10)
                                       -------------------------     -------------------------
                                       -------------------------     -------------------------

    Net Loss Per Share                 $    (0.10)    $    (0.15)    $    (0.43)   $     (0.70)
                                       -------------------------     -------------------------
                                       -------------------------     -------------------------
</TABLE>

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


<PAGE>

Hawaiian Natural Water Company, Inc.
Statement of Stockholders Equity (Deficit)
For the Period Ending September 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
                                    Common Stock        Common Stock Warrants   Common Stock Options
                                ---------------------  ----------------------- ----------------------                 Total
                                Number of              Number of               Number of              Accumulated  Stockholders
                                  Shares      Amount   Warrants     Amount     Options      Amount       Deficit   Equity(Deficit)
                                ---------  ----------  ---------   ----------  ---------  ----------  -----------  --------------
<S>                             <C>        <C>         <C>         <C>         <C>        <C>         <C>           <C>
BALANCE AT 
  DECEMBER 31,1996              1,599,212  $  442,293    774,351   $  187,500    150,000       -      $(2,047,715)  $(1,417,922)

Cancellation of Bridge 
 Warrants April 15, 1997              -        26,625   (106,500)     (26,625)     -           -             -             -
Sale of shares 
  and common stock 
  warrants May 15, 1997         2,000,000   4,947,661  2,000,000    1,462,641      -           -             -       6,410,302 
Issuance of Underwriter 
  common stock warrants 
  May 15, 1997                        -           -      200,000      146,264      -           -             -         146,264 
Sale of shares 
  and common stock 
  warrants May 27, 1997           300,000     922,149    300,000      219,396      -           -             -       1,141,545 
Issuance of Common Stock
  Options to Consultants
  and Employees                       -           -          -            -     124,578   $ 35,441                      35,441
Net Loss                              -           -          -            -        -           -      (1,924,401)   (1,924,401)
                                ---------  ----------  ---------   ----------  ---------  ----------  -----------   ------------
BALANCE AT 
 SEPTEMBER 30, 1997             3,899,212  $6,338,728  3,167,851   $1,989,176   274,578   $ 35,441   $(3,972,116)  $ 4,391,229
                                ------------------------------------------------------------------------------------------------
                                ------------------------------------------------------------------------------------------------
</TABLE>

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


<PAGE>

Hawaiian Natural Water Company, Inc.
Statement of Cash Flows
For the nine months ended September 30, 1996 and 1997
(UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     Nine Months Ended
                                                                                       September 30,  
                                                                                   1996               1997   
                                                                               ----------         -----------
<S>                                                                            <C>                <C>        
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                     $ (686,813)        $(1,924,401)

  Adjustments to reconcile net loss to net cash used 
    in operating activities:
      Depreciation and amortization                                                 3,388              51,879
      Issuance of options to consultants                                              -                35,441
      Amortization of debt discount                                                   -                70,000
      Amortization of deferred charges/advances                                       -               165,000
      Extraordinary loss on extinguishment of debt                                    -               268,810 
      Net decrease (increase) in current assets                                   137,721            (241,986)
      Net increase (decrease) in current liabilities                              251,159            (129,705)
      Increase in deposits and other                                               (5,744)             (2,115)
                                                                               ----------         ----------- 
        Net cash used in operating activities                                    (300,289)          (1,707,077)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment, net                                             -              (529,278)
  Purchase of short-term investment                                                   -            (3,000,000)
  Sale of short-term investment                                                       -             3,000,000
                                                                               ----------         ----------- 
        Net cash used in investing activities                                         -              (529,278)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from initial public offering of common stock                               -             8,280,000
  Payments for services related to the initial public offering                   (167,202)           (498,288)
  Proceeds from underwriter note payable                                              -               100,000 
  Proceeds from related party notes payable                                       487,987              75,000
  Proceeds from note payable                                                      100,000                 -
  Repayment of related party notes payable                                            -              (571,393)
  Advances from affiliates                                                         10,000             100,272 
  Repayment to affiliates                                                         (10,000)           (100,272)  
  Repayment of bridge notes payable                                                   -            (1,500,000)
  Repayment of private investor borrowing                                             -              (100,000)
  Repayment of bank note payable                                                      -               (13,394)
  Repayment of underwriter note payable                                               -              (100,000)
  Repayment of principal on capital leases                                        (19,607)            (28,116)
                                                                               ----------         -----------
    Net cash provided by financing activities                                     411,178           5,643,809
                                                                               ----------         -----------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS:                             110,889           3,407,454

CASH AND CASH EQUIVALENTS, beginning of period                                        -                89,335 
                                                                               ----------         -----------
CASH AND CASH EQUIVALENTS, ending of period                                    $  110,889         $ 3,496,789
                                                                               ------------------------------
                                                                               ------------------------------

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

  Acquisition of bottlemaking equipment with seller note payable               $       -          $   825,000
  Discount on seller note payable                                                      -             (222,984)
  Acquisition of auto under capital lease                                              -               20,093
                                                                               ------------------------------
                                                                               ------------------------------
</TABLE>

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



<PAGE>

                      HAWAIIAN NATURAL WATER COMPANY, INC.
                         NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997
                                  (UNAUDITED)

1.  GENERAL

The accompanying unaudited financial statements of Hawaiian Natural Water 
Company, Inc. (the "Company") should be read in conjunction with the audited 
financial statements for the year ended December 31, 1996 and notes thereto 
filed with the Securities and Exchange Commission in the Company's 
Registration Statement on Form SB-2. In the opinion of management, the 
accompanying financial statements reflect all adjustments (consisting only of 
normal recurring accruals) considered necessary to fairly present the 
financial position of the Company at September 30, 1997 and December 31, 1996 
and the results of its operations for the three and nine month periods ended 
September 30, 1997 and 1996 in accordance with generally accepted accounting 
principles and the rules and regulations of the Securities and Exchange 
Commission. The results of operations for interim periods are not 
necessarily indicative of results to be achieved for full fiscal years. 
Certain amounts from prior periods have been reclassified to conform to 
current period presentation.

ESTIMATES.  The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect the reported amounts of assets and 
liabilities at the date of the financial statements and the reported amounts 
of revenue and expenses during the reporting period. Actual results could 
differ from those estimates.

REVENUE RECOGNITION.  The Company recognizes revenue on the accrual method of 
accounting when title to product transfers to the buyer (upon shipment).  In 
1996, the Company began granting early payment discounts to certain large 
customers in Hawaii in order to encourage prompt payment.  Such customers 
currently account for a majority of the Company's sales. Discounts are 
recorded when the customer makes payment within the discount period. The 
Company's policy is to provide a reserve for estimated uncollectible accounts 
receivable, if any.

RESERVE FOR RETURNS.  The Company grants customers the right to return goods 
which are defective or otherwise unsuitable for sale.  The Company replaces 
returned goods or issues a refund to the customer.  The Company's policy is 
to provide a reserve for estimated returns and related disposal costs.

RECLASSIFICATIONS.  During the third quarter of 1997, the Company reviewed 
its expenses and determined that certain costs previously reflected as 
General and Administrative Expenses were in fact related to production 
overhead. Accordingly, these costs, approximating $56,000 in the six months 
ended June 30,1997, were reclassified to Cost of Sales.

GROSS MARGIN.  The Company's plant currently has a maximum production 
capacity of approximately 800,000 cases per year. The Company is currently 
operating its plant at less than 20 percent of this capacity. Since a 
significant portion of the Company's cost of sales includes certain fixed 
production costs, the Company anticipates negative gross margins to continue 
until production and sales reach levels sufficient to absorb these fixed 
costs.

2.  LOSS PER SHARE

Loss Per Share is computed by dividing the Net Loss by the weighted average 
number of Common and Common Equivalent Shares issued and outstanding during 
the period.  The weighted average number of Common and Common Equivalent 
Shares issued and outstanding during the period were as follows:

                                           Common and Common Equivalent
                                           shares issued and outstanding
                                       September 30, 1996   September 30, 1997
                                       ------------------   ------------------

     For the three months ended             1,599,212           3,899,212
     For the nine months ended              1,599,212           2,748,663

Loss per Share and weighted average number of Common and Common Equivalent 
Shares retroactively reflect the split of the Company's outstanding common 
shares on a 1,111.428-for-one basis effected in August 1996 and the 
conversion of all outstanding shares of Convertible Preferred Stock into 
389,000 shares of Common Stock effected in October 1996.  As of September 30, 
1997, 274,578 options and 3,167,851 warrants to purchase the Company's Common 
Stock (including 200,000 warrants issued to the Underwriter of the IPO (See 
Note 11)) were 

<PAGE>

outstanding. The effect on Loss per Share of all outstanding warrants and 
options would be anti-dilutive.

3.  CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of savings accounts and investments in a 
money market account with original maturities less than 90 days.

4.  INVENTORIES

Inventories were comprised of the following:

                                          December 31,   September 30,
                                              1996           1997
                                          ------------   -------------
                                                          (Unaudited)

     Raw Materials                          $ 95,088       $125,448
     Finished Goods                           61,482        109,134
                                            --------       --------
     Total                                  $156,570       $234,582
                                            --------       --------
                                            --------       --------

5.  NOTES PAYABLE

Notes Payable to Related Parties.

In February 1997, certain shareholders loaned the Company an aggregate of 
$75,000, bearing interest at 12 percent per annum.  This was in addition to 
an aggregate of approximately $496,000 then owed to related parties.  All of 
these loans, bearing interest between 8% and 12% per annum, plus all accrued 
interest, were repaid as shown in the table below.

On September 30, 1997, the Company acquired the bottle making equipment used 
in its bottling operations from Bottles Packaging, Inc. ("BPI"), a California 
bottle supplier (See Note 13). The consideration for the equipment was an 
aggregate of $1.2 million, a portion of which was paid through the issuance 
of a promissory note (the "BPI Note") in the original principal amount of 
$825,000, payable in installments as follows:

     (i)   $13,750 per month (an aggregate of $330,000) during the two years 
           following         the closing of the acquisition; and

     (ii)  the balance of $495,000, payable in three annual installments of 
           $165,000 thereafter,       plus interest on the outstanding 
           balance, at the annual rate of 5%.

BPI's Chief Financial Officer is also a Director of the Company.  The Company 
has discounted the BPI Note using the Company's estimated weighted average 
cost of capital of 12 percent and will amortize the resulting discount of 
$222,985 to interest expense using the effective interest method over the 
term of this note. $90,335 of the discounted amount of the BPI Note is shown 
on the Balance Sheet under Current Liabilities: Notes Payable to Related 
Parties and the balance ($511,680) is shown under Non-Current Liabilities: 
Note Payable to Related Parties.

Note Payable To Managing Underwriter

In April 1997, the managing underwriter (the "Underwriter") for the Company's 
IPO (See Note 11) loaned the Company $100,000 on a short-term basis, bearing 
interest at 10 percent per annum, in order to enable the Company to meet its 
working capital requirements pending completion of the IPO.  The Company 
repaid this note and accrued interest as shown in the table below.

Bridge Notes Payable

On October 10, 1996, the Company completed a private bridge financing (the 
"Bridge Financing"), consisting of (i) an aggregate of $1.5 million of 
unsecured promissory notes ("Bridge Notes") of the Company bearing interest 
at the rate of 10 percent per annum and (ii) an 

<PAGE>

aggregate of 750,000 warrants ("Bridge Warrants") of the Company, each Bridge 
Warrant entitling the holder to purchase one share of Common Stock, at an 
exercise price of $1.50 per share, subject to adjustment under certain 
circumstances, during the thirty-six month period commencing October 10, 
1997.  In April 1997, certain investors who participated in the Bridge 
Financing agreed to cancel an aggregate of 106,500 Bridge Warrants.  Upon 
completion of the IPO in May 1997, the remaining 643,500 Bridge Warrants were 
converted into a like number of Public Warrants (See Note 12), and the Bridge 
Notes and accrued interest were repaid in full.  The Bridge Warrants were 
valued by the Company at $187,500 in the aggregate, and this amount was 
recorded as original issue discount ("OID") in October 1996.  The Company 
amortized the OID to interest expense and recorded approximately $112,000 of 
amortization expense from inception through May 1997.  In May 1997, upon the 
early repayment of the Bridge Loan, the Company wrote off the remaining 
$76,000 as an Extraordinary Item - Loss on Extinguishment of Debt.

Direct costs of the Bridge Financing totaled approximately $440,000 and were 
reflected as Deferred Charges and Other, net of accumulated amortization as 
of December 31, 1996.  The Company amortized these direct costs to interest 
expense and recorded approximately $247,000 from inception through May 1997.  
In May 1997, upon  the early repayment of the Bridge Loan, the Company wrote 
off the remaining $193,000 as an Extraordinary Item - Loss on Extinguishment 
of Debt.

In May 1997, the following notes payable and accrued interest were repaid out 
of the proceeds of the IPO:

                                              Principal    Interest      Total
                                              ----------   --------   ----------

Bridge Notes Payable.......................   $1,500,000   $ 91,000   $1,591,000
Notes Payable to Related Parties...........      571,000     57,000      628,000
Note Payable to Unaffiliated Investor......      100,000     12,000      112,000
Note Payable to Underwriter................      100,000      1,000      101,000
                                              ----------   --------   ----------
Total......................................   $2,271,000   $160,000   $2,432,000
                                              ----------   --------   ----------
                                              ----------   --------   ----------

6.  SIGNIFICANT CUSTOMERS AND SUPPLIERS

In 1995, approximately 81 percent of the Company's sales were made through a 
Hawaiian distribution company.  In 1996, this distribution company was sold 
to Anheuser - Busch which terminated sales of all non Anheuser - Busch 
products. In June 1996, the Company negotiated an oral agreement with another 
distribution company in Hawaii.  The following table summarizes the Company's 
sales to its Hawaiian distributors during the applicable periods.

                                                Percentage of Sales
                                      September 30, 1996   September 30, 1997
                                      ------------------   ------------------

     Three Months Ending                     60%                   80%
     Nine Months Ending                      70%                   73%

<PAGE>

Prior to July 1996, the Company imported all of its bottles from a 
single-source supplier.  Subsequent to July 1996, the Company began to 
purchase bottles from BPI (See Note 5), which operated a bottle-making 
machine at the Company's bottling facility. Pursuant to a Blow Molding 
Agreement with BPI, the Company committed to purchase a minimum of $750,000 
of bottles per year, as defined, for three years.  During the first year of 
the agreement ended June 30, 1997, the Company purchased approximately 
$347,000 of bottles from this source.  On September 30, 1997, the Company 
purchased the bottling equipment subject to the Blow Molding Agreement (See 
Note 13).  In connection with this purchase, the Company was released from 
any obligation arising out of its failure to meet this minimum purchase 
obligation.

7.  SALES RETURNS

During 1995, the Company sold approximately $133,000 (13,000) cases of 
product to a Japanese importer (the "Importer"). A portion of this shipment 
was rejected by the Importer due to dust particle contamination from labels, 
the cause of which the Company subsequently identified and corrected.  The 
Importer returned 8,000 cases in 1995 to the Company and the Company reversed 
approximately $83,000 of sales and credited the customer for the returned 
product. The Company resold the majority of the product in the first quarter 
of 1996 at the Company's approximate cost of $43,000.  In connection with the 
return of these goods, the Company was required to pay various freight, 
storage and customs charges related to these shipments totaling approximately 
$67,000.  Approximately $28,100 of this amount is recorded in Trade Accounts 
Payable at September 30, 1997.  In July 1996, the Company received a credit 
of approximately $26,000 from the manufacturer of its labels in settlement of 
the dust particle contamination issue.  This credit was applied to past due 
accounts payable to the manufacturer.

There were no significant sales returns during the nine months ended 
September 30, 1997.

8.  INTERNATIONAL SALES

The Company sells its product directly to foreign distributors.  All sales are 
made in U.S. dollars.  Export sales were as follows:

                        Three Months Ended       Nine Months Ended
                           September 30,           September 30,
                         1996         1997        1996        1997
                       -------      -------     -------     --------
    Total              $43,329      $47,227     $78,329     $116,227
                       -------      -------     -------     --------
                       -------      -------     -------     --------

9.  CONSULTING AGREEMENTS

a.  Financial Advisor


<PAGE>

In October 1995, the Company entered into a consulting agreement with a 
financial advisor (the "Advisor") for a 12 month term.  The Advisor was 
engaged to evaluate the Company's capital structure and requirements, to 
evaluate potential acquisition or joint venture candidates and to provide 
other strategic planning services to the Company.  The Advisor's fee was 
$120,000 for the term of the agreement, accrued at the rate of $10,000 per 
month. These fees are reflected in General and Administrative Expenses.

b.  Sales Representatives

In 1995, the company entered into an agreement with an individual to be the 
Company's sales agent for the Western Region of the United States.  The 
Company paid this agent a fee of $2,000 per month commencing June 1995.  In 
June 1996, the fee was increased to $4,000 per month, which is reflected in 
Sales and Marketing Expense.

In 1996, the Company entered into certain other sales agent agreements with 
individuals, covering periods of up to one year.  Certain of these agreements 
provide for reimbursement to the agents for travel, lodging and communication 
expenses and also provide for additional compensation in the form of sales 
commissions ranging from 2.5 to 5 percent of sales (as defined) and bonus 
payments ranging from $500 to $1,000 for each new distribution agreement 
entered into (as defined).  These expenses are reflected in Selling and 
Marketing Expense.

Effective November 1, 1996, the Company engaged the landlord of the Company's 
Honolulu warehouse and office space as a sales representative for a one-year 
term.  The Company has agreed to pay the landlord $2,000 per month for the 
first five months and $1,000 per month for the remainder of the term.

In March 1997, the Company entered into a six month sales agent agreement 
with an individual which provided a monthly fee of $500, plus 6 percent 
commission on sales (as defined).  This expense is reflected in Sales and 
Marketing Expense.  In April 1997, the Company also granted this agent 2,500 
options to purchase the Company's Common Stock (See Note 12).

c.  Marketing Consultants

In July 1996, the Company engaged an outside marketing consultant to develop 
a marketing plan for the Company.  The Company accrued approximately $25,000 
in expenses in 1996 pursuant to this agreement.  In March 1997,  the Company 
retained the services of this consultant on a month to month basis.

<PAGE>

In March 1997, the Company entered into a month to month agreement with an 
outside marketing consultant specializing in event and sponsorship marketing 
and public relations.  The consultant's fee is $4,500 per month plus 
reasonable travel expenses (as defined). This expense are reflected in Selling 
and Marketing Expenses.

In June 1997, the Company entered into a two-month agreement with an outside 
marketing consultant to revise the Company's marketing plan and to enhance 
the graphic design of the Company's label.  The consultant's fee for these 
services was $30,000, plus travel expenses, payable $24,000 in cash, plus 
$6,000 in equivalent stock options. In September 1997, the Company entered 
into an additional three-month agreement with this same consultant to provide 
further assistance in connection with the Company's marketing and 
distribution. The consultant's fee for these services is $24,000 in cash, 
plus options to purchase 3,000 shares of the Company's Common Stock. None of 
these latter options were earned as of September 30, 1997.

d.  Advertising Consultant

On July 31, 1996, the Company entered into a one year agreement with an 
advertising consultant (who was appointed a Director of the Company in August 
1996).  The consultant's fee was $5,000 per month.  The agreement also 
provided that the Company, at its discretion, may grant the consultant stock 
options. The agreement was terminated at the end of May 1997, and no stock 
options were granted.

e.  Summary

The total consulting expenses (excluding the value of stock options earned) 
pertaining to the aforementioned sales representatives, marketing consultants 
and advertising consultants for the comparative periods were as follows:

                         Three Months              Nine Months
                      Ended September 30,      Ended September 30,
                        1996      1997           1996       1997
                      --------  --------       --------   --------
General and 
 Administrative       $20,000   $ 30,975       $116,001   $ 50,071
Selling and Marketing  14,635    111,788         20,117    212,657
                      --------  --------       --------   --------
                      $34,635   $142,763       $136,118   $262,728
                      --------  --------       --------   --------
                      --------  --------       --------   --------

10.  OFFICE LEASE COMMITMENT

In October 1996, the Company entered into a three year lease for new office 
and warehouse space in Honolulu.  Monthly minimum rental payments are $3,000 
for the term of the lease.  In exchange for the favorable monthly rent, the 
Company granted the landlord 10,000 stock options in April 1997.  The value 
of these options (approximately $24,000 in the aggregate) will be amortized 
ratably over the remaining lease term (See Note 12).  

11.  RECAPITALIZATION AND INITIAL PUBLIC OFFERING

In July 1996, the Company increased the number of authorized shares of Common 
Stock to 20,000,000.  In August 1996, the Company effected a 1,111.428 for 1 
Common Stock split.  In October 1996, the Company increased the number of 
authorized shares of Preferred Stock to 5,000,000 and changed the par value 
to $1.  In October 1996, all outstanding shares of the Company's Convertible 
Preferred Stock were converted into an aggregate of 389,000 shares of Common 
Stock.

In May 1997, the Company completed an initial public offering ("IPO") of 
2,300,000 Units (including 300,000 Units subject to the Underwriter's 
over-allotment option) at $4.00 per Unit, each Unit consisting of one share 
of Common Stock and one Common Stock purchase warrant 


<PAGE>

(each, a "Public Warrant").  Each Public Warrant entitles the holder to 
purchase one share of the Company's Common Stock at an exercise price of $6 
per share (subject to adjustment) for a period of five years. The IPO 
resulted in aggregate net proceeds of approximately  $8,280,000, net of 
underwriting discounts.  Of these proceeds, the Company used approximately 
(i) $2,432,000 to repay Notes Payable plus all accrued interest (see Note 5), 
(ii) approximately $109,000 to pay deferred compensation and consulting fees, 
(iii) approximately $665,000 to pay other related expenses of the IPO and 
(iv) $375,000 as an initial payment on the purchase of a bottle making 
machine (See Note 5). Of the remaining $5 million, approximately $3.4 million 
was held in the form of cash equivalents at September 30, 1997 (See Note 3), 
and the balance has been used for capital improvements and general corporate 
and working capital purposes.

Upon closing of the IPO, the Company issued to the Underwriter (for aggregate 
consideration of $20) five year  warrants to purchase 200,000 shares of 
Common Stock.  Each warrant may be exercised at any time during a period of 
four years commencing on the first anniversary of the date of issuance, to 
purchase one share of Common Stock at an exercise price of $6.60 (165 percent 
of the IPO price per Unit), subject to adjustment in certain circumstances.

At June 30, 1997, the fair market value of the Public Warrant and Unit 
were $1.38 and $5.81, respectively.  On that basis, the Company has allocated 
approximately 24 percent of the net proceeds of the IPO to the Public 
Warrants and the Underwriter's warrants.

12.  STOCK OPTIONS

In 1996, the Company reserved an aggregate of 1,000,000 shares of Common 
Stock for issuance upon the exercise of stock options which may be granted 
from time to time to directors, officers, employees and consultants of the 
Company. Options granted to employees are accounted for under APB Opinion No. 
25, under which no compensation expense is recognized in connection with the 
grant of options.  Options granted to non - employees (e.g., consultants and 
outside directors) are accounted for under FASB 123, pursuant to which the 
fair market value of the options granted is amortized over the related 
service period.

In October 1996, the Company granted to its President options (subject to 
vesting requirements) to purchase 150,000 shares of the Company's Common 
Stock at an initial exercise price of $4.00 per share (subject to 
adjustment).  In January 1997, the Company granted to its Chief Financial 
Officer options (subject to vesting requirements) to purchase 75,000 shares 
of the Company's Common Stock at an initial exercise price of $4.00 per share 
(subject to adjustment).  On September 19, 1997, this Chief Financial Officer 
resigned prior to the vesting of any of these options. On September 22, 1997, 
the Company engaged a new Chief Financial Officer and granted to him options 
to purchase 75,000 shares (subject to vesting requirements) on substantially 
the same terms as those forfeited.  As of September 30, 1997, none of these 
options were exercised, or expired.

As of September 30, 1997, approximately 52,000 options granted to officers 
and other employees of the company had been earned.  The Company has 
determined that the aggregate fair market value of these options is 
approximately $2.44 per option determined on the date of grant using the 
Black-Scholes option pricing model with the following weighted average 
assumptions; risk-free interest rate of 6.37%; expected dividend yield of 
zero; expected life of five years; and expected volatility of 66%. Management 
believes that the fair value results from using the Black-Scholes calculation 
may not be indicative of the Company's economic cost of issuing stock options 
to its employees. If compensation expense had been recognized in connection 
with these 

<PAGE>

option grants in accordance with FASB Statement No. 123, the Company's Net 
Loss and Net Loss per Share for the period ending September 30, 1997 would 
have been $2,051,281 and $.75, respectively.

In 1997, the Company granted outside consultants and its landlord an 
aggregate of 20,503 stock options valued at approximately $35,441.  In 
accordance with FASB No. 123 , the cost of options granted to these 
individuals will be recognized over the related service period.

13.  PURCHASE OF BOTTLING EQUIPMENT

On September 30, 1997 the Company purchased the bottling equipment subject to 
the Blow Molding Agreement for $1.2 million, of which an aggregate of 
$375,000 was paid at or prior to the closing, and the remaining $825,000 was 
paid through the issuance of the BPI Note. (See Note 5). In addition, the 
parties entered into a mutual release with respect to all obligations under 
the Blow Molding Agreement, other than payment obligations of the Company 
with respect to invoices outstanding as of the closing. The Company was 
released from any obligation arising out of its failure to meet the minimum 
purchase requirement during the first year of the Blow Molding Agreement.  
The bottling equipment was recorded at its discounted present value of 
$977,015 at September 30, 1997. (See Note 5) The Company will depreciate the 
equipment over the manufacturer's estimated remaining useful life of 15 years.

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

     THE FOLLOWING DISCUSSION MAY BE DEEMED TO CONTAIN CERTAIN 
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES 
LITIGATION REFORM ACT OF 1995, AS INDICATED BY THE USE OF SUCH TERMS AS 
"MAY," "WILL," "EXPECT," "BELIEVE," "ESTIMATE," "ANTICIPATE," "INTEND" OR 
OTHER SIMILAR TERMS OR THE NEGATIVE OF SUCH TERMS.  FORWARD-LOOKING 
STATEMENTS CONTAINED HEREIN MAY INCLUDE, WITHOUT LIMITATION, STATEMENTS 
CONCERNING: (I) ANTICIPATED CHANGES IN REVENUE, COST OF MATERIALS, EXPENSE 
ITEMS, INCOME OR LOSS, EARNINGS OR LOSS PER SHARE, CAPITAL EXPENDITURES, 
CAPITAL STRUCTURE AND OTHER FINANCIAL ITEMS; (II) PLANS OR PROPOSALS OF THE 
COMPANY OR ITS MANAGEMENT WITH RESPECT TO THE COMPANY'S GROWTH STRATEGY, 
INTRODUCTION OF NEW PRODUCTS, AND POSSIBLE ACQUISITIONS OF ASSETS OR 
BUSINESSES; (III) POSSIBLE ACTIONS BY CUSTOMERS, SUPPLIERS, COMPETITORS OR 
REGULATORY AUTHORITIES; AND (IV) ASSUMPTIONS UNDERLYING THE FOREGOING. THESE 
FORWARD-LOOKING STATEMENTS ARE BASED UPON THE COMPANY'S CURRENT EXPECTATIONS 
AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, INCLUDING WITHOUT 
LIMITATION, RISKS AND UNCERTAINTIES RELATING TO: (I) THE MARKET FOR THE 
COMPANY'S PRODUCTS; (II) THE MAINTENANCE AND DEVELOPMENT OF THE COMPANY'S 
DISTRIBUTOR NETWORK; (III) POSSIBLE CHANGES IN THE COMPANY'S BUSINESS 
STRATEGY OR THE EXECUTION OF ITS EXISTING STRATEGY; (IV) THE COMPANY'S COST 
OF MATERIALS OR SOURCES OF SUPPLY; (V) THE COMPANY'S NEED FOR ADDITIONAL 
CAPITAL OR, IF NEEDED, THE AVAILABILITY OF ADDITIONAL CAPITAL ON ACCEPTABLE 
TERMS AND CONDITIONS; (VI) THE COMPANY'S ABILITY TO ATTRACT AND RETAIN KEY 
PERSONNEL; (VII) REGULATORY ISSUES IN THE U.S. OR ABROAD; AND (VIII) THE 
COMPETITIVE ENVIRONMENT IN THE COMPANY'S INDUSTRY.  MANY OF THESE RISKS AND 
UNCERTAINTIES ARE BEYOND THE COMPANY'S ABILITY TO PREDICT OR CONTROL.  SHOULD 
ANY UNANTICIPATED CHANGES OCCUR IN THE COMPANY'S BUSINESS, OR SHOULD 
MANAGEMENT'S OPERATING ASSUMPTIONS PROVE INCORRECT, THE COMPANY'S ACTUAL 
RESULTS COULD DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY THESE 
FORWARD-LOOKING STATEMENTS.

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S 
FINANCIAL STATEMENTS INCLUDED HEREWITH AND THE NOTES THERETO.

<PAGE>

RESULTS OF OPERATIONS

     THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
     SEPTEMBER 30, 1996

     Net Sales.  Net Sales increased to approximately $339,000 for the three 
months ended September 30, 1997 (the "1997 Quarter") from approximately 
$292,000 for the three months ended September 30, 1996 (the "1996 Quarter").  
The increase in net revenues in the 1997 Quarter was due primarily to unit 
sales growth from approximately 41,000 cases in the 1996 Quarter to 
approximately 51,000 cases in the 1997 Quarter.  The average sales price per 
case decreased approximately 7% in the 1997 Quarter compared to the 1996 
Quarter due to general price reductions to promote sales.  Sales in the 
Hawaiian market accounted for approximately 80% of sales in the 1997 
Quarter compared to 60% in the 1996 Quarter.  Beginning in the second quarter 
of 1995, the Company began export sales to Asia and the Pacific Islands. Such 
sales accounted for approximately 11% of sales in the 1997 Quarter compared 
to 14% in the 1996 Quarter. The Company's expansion strategy emphasizes 
growth in this export market as well as growth in domestic markets outside of 
Hawaii.  In October 1997, the Company terminated its distribution agreement 
with a distributor in Alabama covering a ten state territory in the  
Southeastern United States.  The Company is currently negotiating a new 
arrangement with a national distributor covering this and other territories 
within the Continental United States which, if consummated, would 
substantially enlarge the Company's distribution network on the Mainland. In 
addition, the Company continues to pursue opportunities to expand sales to 
Asia. The Company is currently negotiating a major distribution agreement in 
Japan and has also recently entered into a Purchase Agreement for the sale of 
significant quantities of product to be shipped to Japan and possibly Korea. 
Sales pursuant to this agreement are expected to commence in December 1997.

     Cost of Sales.  The Company's cost of sales increased to approximately 
$387,000 in the 1997 Quarter from approximately $331,000 in the 1996 Quarter, 
primarily due to unit sales growth.   However, the average cost per case 
decreased approximately 6% in the 1997 Quarter.  The primary component in 
Cost of Sales is the cost of  finished bottles.  In July 1996, the Company 
stopped importing bottles from Honolulu and began purchasing all of its 
requirements pursuant to a Blow Molding Agreement with a California bottle 
supplier. Pursuant to this agreement, such supplier agreed to manufacture 
bottles for the Company on site, using equipment owned by the supplier but 
installed at the Company's bottling facility.  This arrangement substantially 
reduced the Company's cost of bottles. In September 1997, the Company 
purchased the equipment subject to the Blow Molding Agreement, which the 
Company believes will enable it to further reduce the cost of its bottles. 
(See Note 13 to the Financial Statements)

     Expenses.  Selling and marketing expenses increased to approximately 
$250,000 in the 1997 Quarter from approximately $40,000 in the 1996 Quarter, 
primarily as a result of an increase in consulting fees, advertising expenses 
and promotional events.  The Company terminated its relationship with its 
advertising consultant in May 1997 and will continue to evaluate the merits 
of  retaining the services of present and future outside consultants.  (See 
Note 10 to the Financial Statements)  General and administrative expenses 
increased to approximately $283,000 in the 1997 Quarter from approximately 
$50,000 in the 1996 Quarter.  The majority of this increase resulted from the 
accrual of stock options for consultants, increased administrative personnel 
costs and travel.

     Other Income (Expense).  Other Income (Expense) increased to 
approximately $12,100 in the 1997 Quarter from approximately $(38,000) in the 
1996 Quarter.  Decrease is primarily due to the reduction in interest expense 
resulting from the repayment of obligations existing at September 30, 1996 
with proceeds from the Bridge Financing in October 1996 and the Company's 
initial public offering (the "IPO") in May 1997.

     Net Loss and Net Loss Per Share.  Due to the foregoing, the Company 
incurred a net loss of $568,528, or $(.15) per share, in the 1997 Quarter 
compared to a net loss of $166,923, or $(.10) per share, in the 1996 Quarter. 
The Company expects to continue to generate losses until such time, if any, 
as it achieves significantly higher sales levels.


<PAGE>

     NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED 
     SEPTEMBER 30, 1996

     Net Sales.  Net sales increased to approximately $839,000 for the nine 
months ended September 30, 1997 ("1997 YTD") from approximately $721,000 for 
the nine months ended September 30, 1996 (the "1996 YTD").  This increase was 
due primarily to unit sales growth from approximately 99,000 cases in the 
1996 YTD to approximately 119,000 cases in the 1997 YTD.  Sales in the 1996 
YTD included 8,000 cases which were returned in 1995 and resold in 1996 at 
the Company's approximate cost of $43,000. The average sales price per case 
decreased approximately 4% in the 1997 YTD due to a general price reduction 
to promote sales and significant cash discounts to generate cash prior to the 
closing of the IPO. Sales in the Hawaiian market accounted for approximately 
70% in the 1997 YTD compared to approximately 73% in the 1996 YTD. Sales to 
Asia and the Pacific Islands accounted for approximately 13% of sales in the 
1997 YTD compared to 16% in the 1996 YTD.  

     Cost of Sales.  The Company's cost of sales increased to approximately 
$930,000 in the 1997 YTD from approximately $804,000 in the 1996 YTD, 
primarily due to unit sales growth.  However, the average cost per case 
decreased approximately 4% in the 1997 YTD primarily due to the purchase of 
bottles pursuant to the Blow Molding Agreement described above commencing in 
July 1996.

     Expenses.  Selling and marketing expenses increased to approximately 
$526,000 in the 1997 YTD from approximately $106,000 in the 1996 YTD, 
primarily as a result of an increase in the use of consultants, advertising 
and promotional events. General and administrative expenses increased to 
approximately $653,000 in the 1997 YTD from approximately $432,000 in the 
1996 YTD.  The majority of this increase resulted from increased  
administrative personnel costs, the accrual of stock options for consultants 
and travel.

     Other Income (Expense).  Other Income (Expense) increased to ($386,000) in
the 1997 YTD from ($65,000) in the 1996 YTD.  The increase is primarily due to 
increased borrowings relating to the Bridge Financing in October 1996 as well 
as certain additional borrowings from related parties and others prior to the 
closing of the IPO.  The Company also amortized approximately $314,000 of 
original issue discount and offering expenses on the Bridge Financing to 
interest expense in the 1997 YTD. All of these borrowings and accrued 
interest were repaid out of the proceeds of the IPO.

     Extraordinary Loss.  In May 1997, upon  the early retirement of the 
Bridge Notes, the Company wrote off the remaining  unamortized balance of 
original issue discount and offering expenses of the Bridge Financing of 
$76,000 and $193,000, respectively.

     Net Loss and Net Loss Per Share.  Due to the foregoing, the Company 
incurred a net loss of $1,924,401, or $(.70) per share, in the 1997 YTD 
compared to a net loss of $686,813, or $(.43) per share, in the 1996 YTD. 
Weighted average shares outstanding increased  to 2,748,663 in the 1997 YTD 
from 1,599,212 in the 1996 YTD due to the completion of the Company's IPO in 
May 1997.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Until the completion of  the Bridge Financing in October 1996, the 
Company was substantially dependent upon equity investments and loans as well 
as personal guarantees from its affiliates in order to meet its capital 
requirements.  The Company was originally capitalized in September 1994, 
through the issuance of an aggregate of $51,000 in Common Stock and $133,334 
in Convertible Preferred Stock (the "Preferred Stock").  In 1995, the Company 
issued an aggregate of $157,959 in additional Common Stock and $100,000 in 
additional Preferred Stock.  The Company also borrowed $100,000 from an 
affiliated company in May 1995.  In 1996, the Company borrowed an aggregate 
of $417,715 from three of its stockholders in the form of unsecured loans, 
bearing interest at 12 percent per annum, and received additional unsecured, 
non-interest bearing advances from these stockholders in the aggregate amount 
of $100,272.

     In March 1995, the Company established a $300,000 credit line with First 
Hawaiian Bank ("FHB"), Lihue Branch. Borrowings under this line of credit 
bore interest at a floating annual rate equal to the rate announced by FHB 
from time to time as its prime rate, plus 2 percent.  This line of credit was 
secured by a security interest in all of the Company's equipment, accounts 
receivable, inventory and general intangibles and was also personally 
guaranteed by certain directors and an affiliate of the Company.  This line 
of credit expired on March 31,1996 and was not renewed. Outstanding 
borrowings remained at the maximum level until the line was repaid in full in 
October 1996.  In addition, in May 1996, the Company obtained a $100,000 
subordinated, unsecured loan from an unrelated private investor.  In 
connection with such loan, the Company issued to the lender a warrant to 
purchase 24,351 shares of Common Stock at an exercise price of $.00009 per 
share.

     The Company consummated the Bridge Financing on October 10, 1996 (See 
Note 5 to the Financial Statements).  The Company used the net proceeds of 
approximately $1,131,000: (i) to repay all borrowings from FHB in full 
(approximately $300,000); (ii) to repay a portion of the indebtedness to an 
affiliate in the amount of approximately $62,000 and; (iii) to pay fees and 
expenses in connection with the IPO.  The balance was used for working 
capital and general corporate purposes.  Due to continuing losses from 
operations, these proceeds were exhausted during the first quarter of 1997.  
As a result, the Company needed to solicit additional loans from stockholders 
in order to sustain its operations.

     In February and March 1997, the Company borrowed an aggregate of $75,000 
from three stockholders,  bearing interest at 12 percent per annum.  In April 
1997, the Underwriter of the IPO loaned the Company $100,000, bearing 
interest at 10% per annum, to enable the Company to meet its working capital 
requirements pending the completion of the IPO. All outstanding borrowings of 
the Company from its stockholders or their affiliates and other private 
investors were repaid in full out of the proceeds from the IPO.  There can be 
no assurance that affiliates of the Company will lend or invest any 
additional funds to or in the Company or guarantee any additional borrowings 
of the Company in the future.

     In May 1997, the Company completed an IPO consisting of 2,300,000 Units 
(including 300,000 Units subject to the Underwriter's over-allotment option) 
at $4.00 per Unit, yielding aggregate net proceeds of approximately 
$8,280,000, net of underwriting discounts. Of these proceeds, the Company 
used (i) approximately $1,591,000 to repay the Bridge Notes (including all 
accrued interest) in full; (ii) approximately $628,000 to repay all of the 
Company's outstanding indebtedness to stockholders or their affiliates 
(including accrued interest), including an aggregate of approximately $40,000 
of indebtedness (including accrued interest) incurred in connection with the 
conversion of the Company's previously outstanding Convertible Preferred 
Stock; (iii) approximately $213,000 to repay all of the Company's outstanding 
indebtedness (including accrued interest) to unaffiliated parties (including 
the Underwriter); and (iv) approximately $115,000 to pay deferred 
compensation and consulting fees. As a result, all outstanding borrowings of 
the Company (other than accounts payable and capital lease obligations), 
including all indebtedness to related parties, were repaid in full.  (See 
Note 6 to the Financial Statements)  The Company's cash position increased 
from approximately nil immediately prior to the IPO to approximately $3.5 
million at September 30,1997.

<PAGE>

(See Notes 3 and 4 to the Financial Statements). The Company intends to use 
these funds primarily for improvements to plant and equipment and to further 
develop and enhance its sales and marketing programs as well as to fund 
current operations. The Company believes that the proceeds of the IPO will be 
sufficient to fund its operations for at least 12 months following the 
completion of the IPO.

     The Company had cumulative capital expenditures of approximately $0 and 
$529,278 for the nine months ended September 30, 1996 and 1997, respectively. 
In March 1995, the Company financed certain equipment purchases through a 
capital lease agreement with First Hawaiian Leasing, Inc., Honolulu, Hawaii.  
This agreement has a term of five years and provides for up to $200,000 in 
equipment purchases. The depreciated cost of equipment purchased under this 
agreement was approximately $126,000 at September 30, 1997. The current portion 
of the lease liability was approximately $36,214, at September 30, 1997.  The 
Company's obligation under this lease agreement are personally guaranteed by 
certain directors and an affiliate of the Company.

     In September, 1997 the Company purchased the bottling equipment subject 
to the Blow Molding Agreement for $1.2 million, $375,000 of which was paid at 
or prior to the closing and the balance of which ($825,000) was paid through 
the issuance of a secured promissory note payable over five years. The first 
two years require a monthly payment of $13,750. The remaining $495,000 will 
be payable in annual principal payments of $165,000 plus 5 percent per annum 
on the unpaid principal balance. This note is recorded on the Balance Sheet 
at a discount of $222,985. The Company expects to invest additional capital 
in the near term in order to enhance the quality and efficiency of its 
bottling operations. In the event that the Company is successful in 
generating high volume demand for its product, the Company anticipates that 
substantial additional investments in new plant and equipment will be 
required.

     Net operating loss carryforwards available to offset future taxable 
income were approximately $4.0 million as of September 30, 1997.  Use of 
these net operating losses in future years will likely be limited pursuant to 
Section 382 of the Internal Revenue Code due to the ownership change (as 
defined) resulting from the IPO.

SEASONALITY

     The Company believes that its business is subject to seasonal 
variations.  For obvious reasons, demand for bottled water in any given 
market tends to be higher during the summer months than during the winter.  
However, the Company expects these seasonal effects to be moderated by 
concurrent sales into a variety of different markets worldwide, all of which 
may not have the same summer season.  Moreover, several of the Company's 
target markets, such as California and the Middle East, have hot or mild 
temperatures throughout the year.

                          PART II: OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES

     (c)  During the three months ended September 30 1997, the Company 
granted to certain employees, consultants and sales agents stock options to 
purchase an aggregate of 108,115 shares of Common Stock at an exercise price 
of $4.00 per share (subject to adjustment).

<PAGE>

 All of the foregoing transactions were exempt from registration under the 
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof and the 
rules and regulations thereunder.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Exhibits

     Exhibit
     Number   Description
     -------  -----------

     10.1     Asset Purchase Agreement between the Registrant and Bottles 
              Packaging, Inc. ("BPI") (Incorporated by reference to Exhibit 
              10.1 to the Registrant's Current Report on Form 8-K dated 
              October 7, 1997 (the "Form 8-K"))

     10.2     Bill of Sale between the Registrant and BPI evidencing the 
              transfer of assets pursuant to the Asset Purchase Agreement 
              (Incorporated by reference to Exhibit 10.2 to the Form 8-K)

     10.3     Promissory Note evidencing an aggregate of $825,000 in 
              indebtedness of the registrant to BPI in connection with the 
              Asset Purchase Agreement (Incorporated by reference to Exhibit 
              10.3 to the Form 8-K)

     10.4     Security Agreement between the registrant and BPI securing the 
              obligations of the registrant to BPI under the Promissory Note 
              (Incorporated by reference to Exhibit 10.4 to the Form 8-K)

     27.1     Financial Data Schedule

     (b)  Reports on Form 8-K

         None

<PAGE>
                                  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.


                                       HAWAIIAN NATURAL WATER COMPANY, INC.
                                       (Registrant)


November 14, 1997                      By: /s/ MARCUS BENDER
                                       -----------------------------------
                                       Marcus Bender
                                       President & Chief Executive Officer


November 14, 1997                      By: /s/ DAVID K. LAEHA
                                       -----------------------------------
                                       David K. Laeha
                                       Chief Financial Officer