<PAGE>

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

(MARK ONE)

/S/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
         SECURITIES EXCHANGE ACT OF 1934

    FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998

                               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 3,999,212 shares of Common Stock 
on August 7, 1998.

     Transitional Small Business Disclosure Format (check one):

                                YES        NO    X
                                     ---        ---

<PAGE>

                     Hawaiian Natural Water Company, Inc.
                                       
                                Balance Sheet
                                June 30, 1998
                                 (Unaudited)
                                       
                                    ASSETS

<TABLE>
<S>                                                                <C>
CURRENT ASSETS:
     Cash and cash equivalents                                     $  1,109,362 
     Inventories                                                        346,603 
     Trade accounts receivable, net of allowance for doubtful
          accounts of $10,626                                           311,431 
     Other current assets                                               149,921 
                                                                   ------------
          Total Current Assets                                        1,917,317 

PROPERTY AND EQUIPMENT, net of accumulated depreciation
          and amortization of $306,135                                1,876,398 
                                                                   ------------
               Total Assets                                        $  3,793,715 
                                                                   ------------
                                                                   ------------
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Trade accounts payable                                        $    270,143 
     Accrued payroll and related                                         77,372 
     Accrued other                                                      104,223 
     Notes payable - Current portion                                     94,857 
     Capital lease obligation - Current portion                          44,563 
                                                                   ------------
          Total Current Liabilities                                     591,158 

NON-CURRENT LIABILITIES
     Notes payable - net of current portion                             468,815 
     Capital lease obligation - net of current portion                   24,850 
                                                                   ------------
          Total Non-Current Liabilities                                 493,665 

               Total Liabilities                                      1,084,823 

STOCKHOLDERS' EQUITY
     Preferred Stock, $1.00 par value; 5,000,000 shares
          authorized; none issued and outstanding                            --   
     Common stock, no par value; 20,000,000 shares authorized;
          3,899,212 shares issued and oustanding                      6,338,728 
     Common stock warrants and options, 3,213,310 issued
          and outstanding                                             2,053,916 
     Accumulated Deficit                                             (5,683,752)
                                                                   ------------
          Total Stockholders' Equity                                  2,708,892 

               Total Liabilities and Stockholders' Equity          $  3,793,715 
                                                                   ------------
                                                                   ------------
</TABLE>

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

<PAGE>

                       Hawaiian Natural Water Company, Inc.
                            Statements of Operations
              For the Three and Six Months Ended June 30, 1997 and 1998
                                    (Unaudited) 

<TABLE>
<CAPTION>

                                                        Three Months                 Six Months 
                                                       Ended June 30,               Ended June 30 
                                                 -------------------------    --------------------------
                                                    1997           1998          1997           1998
                                                 ----------     ----------    -----------    -----------
<S>                                              <C>            <C>           <C>            <C>
NET SALES                                        $  283,309     $  477,005    $   499,993    $   876,608 
COST OF SALES                                       330,780        407,024        542,716        800,073 
                                                 ----------     ----------    -----------    -----------
     Gross Margin                                   (47,471)        69,981        (42,723)        76,535 

EXPENSES:
     Selling and Marketing                          189,187        269,486        275,971        511,966 
     General and Administrative                     215,427        305,114        370,173        615,873 
                                                 ----------     ----------    -----------    -----------
                                                    404,614        574,600        646,144      1,127,839 
OTHER INCOME (EXPENSE)
  Interest expense                                 (178,279)       (24,528)      (414,474)       (50,012)
  Interest and other income                          15,249         18,739         16,278         46,849
                                                 ----------     ----------    -----------    -----------
                                                   (163,030)        (5,789)      (398,196)        (3,163)

Net Loss Before Extraordinary Item                 (615,115)      (510,408)    (1,087,063)    (1,054,467)

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

Net Loss                                         $ (883,925)    $ (510,408)   $(1,355,873)   $(1,054,467)
                                                 ----------     ----------    -----------    -----------
                                                 ----------     ----------    -----------    -----------

Basic and Diluted
Net Loss Per Share:
     Before Extraordinary Item                   $    (0.23)    $    (0.13)   $     (0.51)    $    (0.27)

     Extraordinary Item                          $    (0.10)            --    $     (0.12)    $       --   

Net Loss Per Share:                              $    (0.33)    $    (0.13)   $     (0.63)    $    (0.27)
                                                 ----------     ----------    -----------    -----------
                                                 ----------     ----------    -----------    -----------

Weighted Average Common and
Common Equivalent Shares Outstanding              2,709,212      3,899,212      2,154,212      3,899,212 
                                                 ----------     ----------    -----------    -----------
                                                 ----------     ----------    -----------    -----------
</TABLE>

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

<PAGE>

                     Hawaiian Natural Water Company, Inc.
                                       
                           Statements of Cash Flows
               For the Six Months Ended June 30, 1997 and 1998
                                 (Unaudited)

<TABLE>
<CAPTION>
                                                                                  1997          1998
                                                                             -------------  ------------
<S>                                                                          <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net loss                                                                   $  (1,355,873) $ (1,054,467)

  Adjustments to reconcile net loss to net cash used
     in operating activities:
          Depreciation and amortization                                             31,786       105,233 
          Amortization of loan discount and deferred costs                         235,000        44,825 
          Extraordinary loss on extinquishment of debt                             268,810            -- 
          Issuance of stock options to consultants and distributors                     --        53,370 
          Net increase in current assets                                          (141,339)     (248,402)
          Net (decrease) increase in current liabilities                          (104,647)       29,895 
                                                                             -------------  -------------
                    Net cash used in operating activities                       (1,066,263)   (1,069,546)

CASH FLOWS FROM INVESTING ACTIVITIES:
          Purchase of property and equipment                                       (10,479)     (183,898)
          Purchase of short-term investment                                     (3,000,000)           -- 
                                                                             -------------  ------------
                    Net cash used in investing activities                       (3,010,479)     (183,898)

CASH FLOWS FROM FINANCING ACTIVITIES:
          Proceeds from initial public offering of common stock                  7,942,312            --
          Payments for services related to the initial public offering            (168,364)           -- 
          Proceeds from notes payable                                              189,242            -- 
          Repayments of notes payable                                           (2,458,467)      (84,818)
          Repayment of principal on capital leases                                 (18,490)      (23,738)
                                                                             -------------  ------------
                    Net cash provided by (used in) financing activities          5,486,233      (108,556)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             1,409,491    (1,362,000)

CASH AND CASH EQUIVALENTS, beginning of period                                      89,335     2,471,362 
                                                                             -------------  ------------

CASH AND CASH EQUIVALENTS, end of period                                     $   1,498,826  $  1,109,362 
                                                                             -------------  ------------
                                                                             -------------  ------------
</TABLE>

     The accompanying notes are an integral part of the financial statements

<PAGE>

                       Hawaiian Natural Water Company, Inc.

                        Statement of Stockholders' Equity
                      For the Six Months Ended June 30, 1998
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                       Common Stock Warrants
                                                                                 and
                                               Common Stock                    Options
                                         ------------------------      ------------------------                      Total
                                         Number of                     Number of                   Accumulated   Stockholders
                                          Shares         Amount         Shares         Amount        Deficit        Equity
                                         ---------     ----------      ---------     ----------  -------------  -------------
<S>                                      <C>           <C>             <C>           <C>         <C>            <C>
BALANCE AT
     DECEMBER 31, 1997                   3,899,212     $6,338,728      3,170,310     $2,000,546  $  (4,629,285) $   3,709,989 
                                                                 
Issuance of stock options                         
     to consultants and distributors            --             --         43,000         53,370              -         53,370 

Net Loss                                        --             --             --             --     (1,054,467)    (1,054,467)
                                         ---------     ----------      ---------     ----------  -------------  -------------

BALANCE AT                                        
     JUNE 30, 1998                       3,899,212     $6,338,728      3,213,310     $2,053,916  $  (5,683,752) $   2,708,892 
                                         ---------     ----------      ---------     ----------  -------------  -------------
                                         ---------     ----------      ---------     ----------  -------------  -------------
</TABLE>



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

<PAGE>

                     HAWAIIAN NATURAL WATER COMPANY, INC.
                        NOTES TO FINANCIAL STATEMENTS
                                JUNE 30, 1998
                                 (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, 1997 and notes thereto 
filed with the Securities and Exchange Commission in the Company's Annual 
Report on Form 10-KSB.  In the opinion of management, the accompanying 
financial statements reflect all adjustments considered necessary to fairly 
present the financial position of the Company at June 30, 1998, the results 
of its operations for each of the three and six month periods ended June 30, 
1997 and 1998, and the cash flows for the six month periods ended June 30, 
1997 and 1998, 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.

As shown in the accompanying financial statements, the Company has incurred 
significant losses since inception.  Management expects that the Company will 
continue to incur additional losses until the Company achieves significantly 
higher levels of sales.  The Company is continuing to develop its strategic 
plan and related marketing strategies, which would allow for the improvement 
of sales and cash flow.  However, in order for the Company to achieve 
profitability, it will need to improve revenues.  In order to sustain 
operations, the Company must obtain additional financing.

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 (generally upon 
shipment).  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.

<PAGE>

GROSS MARGIN.  The Company's plant currently has a normal maximum production 
capacity of approximately 800,000 cases per year.  The Company is currently 
operating its plant at approximately 30 percent of this capacity. 

2. LOSS PER SHARE

Basic and Diluted Loss Per Share is computed by dividing the Net Loss by the 
Weighted Average Common and Common Equivalent Shares Outstanding during the 
period.  The Weighted Average Common and Common Equivalent Shares Outstanding 
during the three and six month periods ended June 30, 1998 was 3,899,212 
compared to 2,709,212 and 2,154,212 during the three and six month periods 
ended June 30, 1997, respectively. 

The Company's basic and diluted losses per share are the same for the second 
quarter and first half of both 1997 and 1998 in that any exercise of stock 
options or warrants would have been anti-dilutive.

3. CASH AND CASH EQUIVALENTS

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

4. INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or 
market. As of June 30, 1998, inventories were comprised of the following:

<TABLE> 
             <S>                                    <C>
             Raw materials                           $235,701
             Finished goods                           110,902
                                                    ------------
                                                     $346,603
                                                    ------------
</TABLE>

5.  NOTES PAYABLE

As discussed in Note 3 to the audited financial statements contained in the 
Company's Annual Report on Form 10-KSB, in September 1997, the Company 
acquired certain bottle making equipment used in its bottling operations. The 
consideration for the equipment was an aggregate of $1.2 million, a portion 
of which was paid through the issuance of a promissory note in the original 
principal amount of $825,000, payable in installments, as defined. The 
Company has discounted this equipment note payable using an estimated 
weighted average cost of capital of 12%, and amortizes the resulting discount 
to interest expense using the effective interest method over the term of the 
loan.

Additionally, the Company has a $16,654 installment note payable for the 
purchase of a vehicle.

<PAGE>

The following summarizes the notes payable as of June 30, 1998:

<TABLE>
        <S>                                              <C>
        Equipment note payable                           $ 701,250
          Less:  Unamortized discount                     (154,232)
                                                         ---------
        Net equipment note payable                         547,018
        Vehicle installment note payable                    16,654
                                                         ----------
          Subtotal - notes payable                         563,672 
          Less:  Current portion                           (94,857)
                                                         ----------
          Non-current portion                             $468,815
                                                         ----------
                                                         ----------
</TABLE>

At December 31, 1997, the equipment note payable was carried in the Company's 
accounting records as a note payable to a related party, because at that time 
an executive officer of the equipment note lender was a director of the 
Company. On March 31, 1998, this officer resigned as a director of the 
Company.

6. STOCK OPTIONS

The total number of Common Stock warrants and options shown at June 30, 1998 
excludes an aggregate of 426,575 options outstanding at such date held by 
officers and employees of the Company. 

The Company accounts for stock options granted to non-employees in accordance 
with Statement of Financial Accounting Standards No. 123 (SFAS 123) 
"Accounting for Stock-Based Compensation," which requires that these 
transactions be accounted for based upon the fair value of consideration 
received or the fair value of the equity instruments issued, whichever is 
more reliably determinable. In the first quarter of 1998, the Company 
recorded $53,370 for options granted to certain consultants and distributors. 
 No additional options were granted to non-employees in the second quarter of 
1998.

In February 1998, the Company granted an aggregate of 202,500 options to 
certain officers and employees at an exercise price of $4 per share, (subject 
to adjustments under certain circumstances).  These options vest over a 
three-year period.  In May 1998, 30,000 of these options were forfeited upon 
resignation of an employee.  Stock options granted to employees are accounted 
for under APB Opinion No. 25, under which compensation expense is recognized 
only if the exercise price is less than the market price at the date of grant.
The exercise price of all of the foregoing options was higher than the market 
price of the Common Stock at the date of grant.

<PAGE>

7. SALES BY GEOGRAPHIC REGION

The Company sells its product directly to certain foreign distributors.  All 
sales are made in U.S. dollars.  For the three-month periods ended June 30, 
1997 and 1998, the Company had the following sales by geographic region:

<TABLE>
<CAPTION>
                                  1997         %       1998        %
                               ---------      ---    --------     ---
         <S>                   <C>            <C>    <C>          <C>
         Hawaii                 $183,395       65    $305,771      64
         U. S. Mainland           52,086       18      42,191       9
         International            47,828       17     129,043      27
                                --------      ---    --------     ---
                                $283,309      100    $477,005     100
                                --------      ---    --------     ---
</TABLE>

For the six month periods ended June 30, 1997 and 1998, the Company had the 
following sales by geographic region:

<TABLE>
<CAPTION>
                                  1997         %       1998        %
                               ---------      ---    --------     ---
         <S>                   <C>            <C>    <C>          <C>
         Hawaii                 $342,647       69    $581,188      66
         U. S. Mainland           93,890       18     129,813      15
         International            63,456       13     165,607      19
                                --------      ---    --------     ---
                                $499,993      100    $876,608     100
                                --------      ---    --------     ---
</TABLE>

8. SUBSEQUENT EVENT

On July 31, 1998, the Company engaged 8607 Colonial Group, Inc. ("Colonial") 
as its financial public relations advisor for a two-year term.  As 
compensation for its services, the Company agreed to issue to Colonial 
100,000 shares of Common Stock (the "Initial Shares"), plus options (the 
"Colonial Options") to purchase an aggregate of 565,000 additional shares at 
exercise prices ranging from $2.50 to $6.00 per share.  The options are 
exercisable over staggered terms commencing September 1, 1998, and ending 
July 15, 2000.  The options are redeemable by the Company at $.05 per option 
if the trading price (as defined) of the Common Stock exceeds 150% of the 
exercise price of the options to be redeemed for a period of 10 consecutive 
trading days. If Colonial exercises all of the first 300,000 options, the 
Company will issue to Colonial an additional 50,000 shares of common stock 
(the "Contingent Shares"). The Company has agreed to register the shares 
issued or issuable upon exercise of the options under the Securities Act of 
1933, as amended.

The Company believes that the fair market value of the Initial Shares was 
approximately $350,000, determined on the date of issuance. The Company 
believes that the fair value of the Colonial Options was approximately 
$773,000 determined on the date of grant using the Black-Scholes option 
pricing model with the following weighted average assumptions: risk-free 
interest rate of 5.42%; expected dividend yield of zero; expected life of 
nine months; and expected volatility of 126%. The aggregate fair market value 
of the Initial Shares and the Colonial Options will be recorded as a charge 
to income in the Third Quarter of 1998. The fair market value of the 
Contingent Shares will be recorded as a charge to income upon issuance.

<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) ASSUMPTIONSL 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 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.

RESULTS OF OPERATIONS

    THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED 
JUNE 30, 1997

     Net Sales.  Net Sales increased 68% to approximately $477,000 for the 
three months ended   June 30, 1998 (the "1998 Quarter") from approximately 
$283,000 for the three months ended June 30, 1997 (the "1997 Quarter").  The 
increase in net revenues in the 1998 Quarter was due primarily to unit sales 
growth from approximately 41,000 cases 

<PAGE>

in the 1997 Quarter to approximately 71,000 cases in the 1998 Quarter.  The 
average sales price per case decreased approximately 4% in the 1998 Quarter 
compared to the 1997 Quarter due to discounts and promotional allowances 
granted to promote sales.  Sales in the Hawaiian market accounted for 
approximately 64% of sales in the 1998 Quarter compared to 65% in the 1997 
Quarter. International sales accounted for approximately 27% of sales in the 
1998 Quarter compared to approximately 17% in the 1997 Quarter.  In the 1998 
Quarter, the Company made its first major shipment to Japan.  The Company 
currently has three distributors in Japan and expects significant sales 
growth in that market. Sales to Guam also increased significantly over the 
prior year and are expected to increase further during the second half of 
1998.  The Company expects continued growth in International sales, 
especially in the Pacific Rim, through increased penetration of existing 
markets and entrance into new markets, such as Thailand and Taiwan. Sales to 
the U.S. Mainland decreased to 9% of sales in the 1998 Quarter compared to 
18% in the 1997 Quarter.  In May 1998, the Company terminated its exclusive 
distribution agreement with William Wright covering most of the Western U.S. 
due to his failure to meet certain minimum purchase requirement. In August 
1998, the Company received a lump sum payment of $100,000 in connection with 
this termination. Mainland sales are currently directed primarily into 
Seattle, Santa Barbara and Kansas City, and to a limited extent into Las 
Vegas and the Los Angeles area.  The Company is currently pursuing a niche 
marketing strategy on the U.S. Mainland, primarily directed toward the health 
and fitness markets.

     Cost of Sales.  The Company's cost of sales increased 23% to 
approximately $407,000 in the 1998 Quarter from approximately $331,000 in the 
1997 Quarter, primarily due to unit sales growth.  However, the average cost 
per case sold decreased approximately 30% in the 1998 Quarter.  The primary 
raw material cost component in Cost of Sales is the cost of the bottle. That 
cost was substantially reduced in the 1998 Quarter compared to the 1997 
Quarter, as a result of the Company's purchase of the blow molding equipment 
used to manufacture its bottles. (See Note 5 to the Financial Statements) 
Bottling costs were also reduced through the installation of new equipment 
used to further automate the Company's bottling line. The Company is 
currently implementing additional improvements to its bottling line, which 
should further reduce its bottling costs in the second half of 1998.

     Gross Margin.  Gross margin increased to approximately $70,000 in the 
1998 Quarter from approximately ($47,000) in the 1997 Quarter, primarily as a 
result of the decrease in the Company's bottling costs described above under 
"Cost of Sales."

     Expenses.  Selling and marketing expenses increased 42% to approximately 
$269,000 in the 1998 Quarter from approximately $189,000 in the 1997 Quarter. 
The majority of this increase is attributable to an expanded sales staff and 
promotional expenses.  General and administrative expenses increased 42% to 
approximately $305,000 in the 1998 Quarter from approximately $215,000 in the 
1997 Quarter.  The majority of this increase resulted from increased outside 
legal and accounting services,  investor relation expenses, and other 
expenses related to being a public company, most of which were not applicable 
in the 1997 Quarter. The Company anticipates a charge of approximately $1.1 
million in the Third Quarter of 1998 due to the issuance of stock and options 
to its financial public relations advisor. (See Note 8 to the Financial 
Statements)

     Other Income (Expense).  Other (Expense) decreased to approximately 
$(6,000) in the 1998 Quarter from approximately $(163,000) in the 1997 
Quarter. This decrease is primarily due to the reduction in interest expense, 
resulting from the repayment of the Bridge Financing from proceeds of the 
Company's initial public offering (the "IPO") in May 1997.  See Note 4 to the 
Company's audited financial statements contained in its Annual Report on Form 
10-KSB.

<PAGE>

     Extraordinary Item - Loss on Extinquishment of Debt.  This loss was 
realized in the 1997 Quarter as a result of the repayment of the Bridge 
Financing from proceeds of the Company's IPO.

     Net Loss and Net Loss Per Share.  Due to the foregoing, the Company 
incurred a net loss of $(510,408), or $(.13) per share, in the 1998 Quarter 
compared to a net loss of $(883,925) or $(.33) per share, in the 1997 
Quarter. Weighted Average Shares Outstanding were 3,899,212 in the 1998 
Quarter compared to 2,709,212 in the 1997 Quarter. The Company expects to 
continue to generate losses until such time, if any, as it achieves 
significantly higher sales levels.

<PAGE>

     SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

     Net Sales.  Net Sales increased 75% to approximately $877,000 for the 
six months ended June 30, 1998 (the "1998 First Half") from approximately 
$500,000 for the six months ended June 30, 1997 (the "1997 First Half").  
This increase in net sales was due primarily to unit sales growth from 
approximately 69,000 cases in the 1997 First Half to approximately 133,000 
cases in the 1998 First Half.  The average sales price per case decreased 
approximately 9% in the 1998 First Half compared to the 1997 First Half due 
to discounts and promotional allowances granted to promote sales. Sales in 
the Hawaiian market accounted for approximately 66% of sales in the 1998 
First Half compared to 69% in the 1997 First Half.  Sales to the US Mainland 
and International markets accounted for approximately 15% and 19% of sales, 
respectively, in the 1998 First Half compared to 18% and 13% of sales, 
respectively, in the 1997 First Half. 

     Cost of Sales.  The Company's cost of sales increased 47% to 
approximately $800,000 in the 1998 First Half from approximately $543,000 in 
the 1997 First Half, primarily due to unit sales growth.  However, the 
average cost per case sold decreased approximately 23% in the 1998 First 
Half. 

     Gross Margin.  Gross margin increased to approximately $77,000 in the 
1998 First Half from approximately ($43,000) in the 1997 First Half, 
primarily as a result of reductions in the Company's cost of bottles and 
improvements to its bottling line.

     Expenses.  Selling and marketing expenses increased 86% to approximately 
$512,000 in the 1998 First Half from approximately $276,000 in the 1997 First 
Half.  The majority of this increase is attributable to an expanded sales 
staff and promotional expenses. General and Administrative expenses increased 
66% to approximately $616,000 in the 1998 First Half from approximately 
$370,000 in the 1997 First Half.  The majority of this increase resulted from 
increased outside legal and accounting expenses, investor relation expenses, 
and other expenses related to being a public company, most of which were not 
applicable in the First Half of 1997.

     Other Income (Expense).  Other (Expense) decreased to approximately 
$(3,000) in the 1998 First Half from approximately $(398,000) in the 1997 
First Half.  This decrease is primarily due to the reduction in interest 
expense, resulting from the repayment of the Bridge Financing in May 1997. 

     Net Loss and Net Loss Per Share.  Due to the foregoing, the Company 
incurred a net loss of $(1,054,467) or $(.27) per share, in the 1998 First 
Half compared to a net loss of $(1,355,873) or $(.63) per share, in the 1997 
First Half.  Weighted Average Shares Outstanding were 3,899,212 in the 1998 
First Half compared to 2,154,212 in the 1997 First Half.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Cash and cash equivalents declined from approximately $2,471,000 at 
December 31, 1997 to approximately $1,109,000 at June 30, 1998, primarily 
due to continuing losses from operations, capital expenditures and debt 
repayment.

     In connection with the purchase of its bottling equipment in September 
1997, the Company issued to the seller a promissory note in the original 
principal amount of $825,000. This note is payable in monthly installments of 
$13,750 (including principal and interest) during the first two years 
following the issuance thereof, and thereafter in three annual installments 
of $165,000, plus interest at the annual rate of 5% on the unpaid principal 
and balance.

     The Company had capital expenditures of approximately $62,000 in the 
1998 Quarter, compared to approximately $5,900 in the 1997 Quarter, primarily 
related to improvements to its bottling facility. Capital expenditures of 
approximately $90,000 previously expected during the second quarter of 1998, 
to complete the automation of the Company's bottling line and refurbish the 
pumping equipment at its water source, were deferred. The Company is 
currently considering extending its product line by entering the home/office 
market, either independently or through the acquisition of an existing 
bottler. Any such extension would require substantial additional capital.

     Based upon current expectations, the Company does not believe that cash 
on hand will be adequate to fund its operations until such time as the 
Company is able to generate positive cash flow from operations. Therefore, 
the Company will need to raise additional capital or improve its performance 
more rapidly than expected in order to sustain its operations. Additional 
capital would also be required in connection with the possible acquisition of 
other businesses or assets. The Company is currently negotiating with certain 
sources concerning the investment of additional capital. Additional capital 
may also become available through the exercise of options by the Company's 
financial public relations advisor. (See Note 8 to the Financial Statements) 
However, there can be no assurance that such capital will become available on 
acceptable terms or that any of such options will be exercised. The Company 
does not anticipate obtaining bank financing at this time.

SEASONALITY

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

CURRENCY FLUCTUATIONS

          The Company is not directly affected by currency fluctuations in
overseas markets, since all of the Company's sales are quoted in U.S. dollars. 
However, currency fluctuations can adversely affect the demand for the Company's
product in foreign markets by increasing the price of the product in local
currency. To date, the Company has not been prevented from expanding
distribution into target Asian markets as a result of the strength of the U.S.
dollar relative to local currencies. However, futher strengthening of the U.S.
dollar could negatively impact developments in these markets.

                         PART II:  OTHER INFORMATION

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

(a)  The Company held its 1998 Annual Meeting of Stockholders (the "Annual 
Meeting") on June 2, 1998.

(b)  The following three persons were re-elected as directors of the Company:

         Marcus Bender

         Brian Barbata

         Michael Chagami

         Subsequent to the mailing of the Company's Definitive Proxy 
Statement for the Annual Meeting, John Mayo, an incumbent director, resigned 
as a director for personal reasons and withdrew his nomination for 
re-election at the Annual Meeting. No other person was nominated for election 
in his stead. Accordingly, the Board seat previously occupied by Mr. Mayo 
remained vacant following the Annual Meeting.

(c) The following matters were voted upon at the Annual Meeting:

(1)  Election of Directors:

<TABLE>
<CAPTION>
                                   FOR        AGAINST     ABSTAIN
     <S>                        <C>           <C>         <C>
     Marcus Bender              3,534,225     20,020         --

     Brian Barbata              3,533,275     20,970         --

     Michael Chagami            3,534,225     20,020         --
</TABLE>

         (2)  Approval of the 1998 Stock Option Plan providing for the grant 
of options covering up to 1,000,000 shares of Common Stock (including 502,034 
shares covered by options then outstanding):

<TABLE>
<CAPTION>
                                           BROKER
        FOR       AGAINST     ABSTAIN     NON-VOTE
     <S>          <C>         <C>         <C>
     1,653,715    82,545      10,100      1,807,885
</TABLE>

         (3)  Ratification of Arthur Andersen LLP as the Company's 
independent accountants for the fiscal year ending December 31, 1998:

<TABLE>
<CAPTION>
        FOR       AGAINST     ABSTAIN
     <S>          <C>         <C>
     3,536,195    14,975       3,075
</TABLE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

<TABLE>
<CAPTION>

          Exhibit
          Number    Description
          ------    -----------
          <C>       <S>
          10.1      1998 Stock Option Plan (including exhibits thereto)

          27.1      Financial Data Schedule

          99.1      Letter agreement dated July 31, 1998 between the Registrant
                     and 8607 Colonial Group, Inc.
</TABLE>

     (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)



August 12, 1998                            By: /S/ MARCUS BENDER
                                           ----------------------
                                           Marcus Bender
                                           President & Chief Executive Officer


August 12, 1998                            By: /S/ DAVID K. LAEHA
                                           -----------------------
                                           David K. Laeha
                                           Chief Financial Officer


<PAGE>
                                       
                                EXHIBIT INDEX

<TABLE>
<CAPTION>

          Exhibit
          Number    Description
          ------    -----------
          <C>       <S>
          10.1      1998 Stock Option Plan (including exhibits thereto)

          27.1      Financial Data Schedule

          99.1      Letter agreement dated July 31, 1998 between the Registrant
                     and 8607 Colonial Group, Inc.
</TABLE>