<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 20, 2000
HAWAIIAN NATURAL WATER COMPANY, INC.
(Exact name of registrant as specified in its charter)
HAWAII 0-29280 99-0314848
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
98-746 Kuahao Place
Pearl City, Hawaii 96814
(Address of principal executive offices)
(808) 483-0520
(Registrant's telephone number, including area code)
N/A
(Former name or address, if changed since last report)
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 20, 2000, Hawaiian Natural Water Company, Inc. (the "Company")
completed the acquisition of Aloha Water Company, Inc. ("Aloha"), a major
distributor of purified water to the home and office and point of use market
in the greater Honolulu area. Aloha's products are sold under the
"Aloha" name.
The acquisition was effected by means of a merger (the "Merger") of Aloha with
and into a wholly owned subsidiary of the Company (the "Subsidiary") formed for
the purpose. The Subsidiary was the surviving corporation in the Merger, with
its name changed to "Aloha Water Company, Inc." Daniel Gabriel, a founder and
principal stockholder of Aloha, will be employed as the president of the
Subsidiary.
The consideration for Aloha consisted of an aggregate of (i) 750,000 shares of
Common Stock of the Company and a promissory note of the Company (the "Note") in
the original principal amount of $500,000. Interest on the Note is payable
monthly, commencing May 1, 2000, at the annual rate of 10%. The entire principal
amount of the Note is due on April 1, 2001. The Note is secured by a first
priority security interest in all of the capital stock of the Subsidiary.
As soon as practicable following the Merger, the Company expects to relocate
Aloha's plant and equipment to the Company's headquarters facility in Pearl
City. Such plant and equipment consists primarily of water filtering (reverse
osmosis) and bottling equipment and delivery vehicles. The Company intends to
continue the current use of these assets following their relocation.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The financial
statements of Aloha required by this item are being filed
by amendment to the Company's Current Report on Form 8-K,
originally filed on March 27, 2000. These financial
statements were omitted from the original filing pursuant
to paragraphs a(4) and b(2) of Item 7 of the Report, and
commence at page F-2 of this Report.
(b) PRO FORMA FINANCIAL INFORMATION. The unaudited pro forma
consolidated financial statements of the Company, giving
effect to the acquisition of Aloha, are being filed
herewith by amendment, commencing on page F-9.
(c) Exhibits.
2.1 Merger Agreement and Plan of Reorganization*
4.1 Secured Exchangeable Promissory Note ($500,000)*
4.2 Pledge and Security Agreement*
10.1 Employment Agreement (Daniel Gabriel)*
* Filed previously
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HAWAIIAN NATURAL WATER COMPANY, INC.
(Registrant)
May 26, 2000 By: /s/ MARCUS BENDER
-----------------------------------
Marcus Bender
President & Chief Executive Officer
3
<PAGE>
ALOHA WATER COMPANY
Financial Statements
As of December 31, 1998 and 1997
Together with Auditors' Report
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountant F-1
Audited Balance Sheets as of December 31, 1998 and 1997 F-2
Audited Statements of Operations for the years ended December 31, 1998 and 1997 F-3
Audited Statements of Stockholders' Equity for the years ended December 31, 1998 and 1997 F-4
Audited Statements of Cash Flows for the years ended December 31, 1998 and 1997 F-5
Notes to Audited Financial Statements for the years ended December 31, 1998 and 1997 F-6
Unaudited Balance Sheet as of September 30, 1999 F-9
Unaudited Statements of Operations for the nine months ended September 30, 1999 and 1998 F-10
Unaudited Statements of Stockholders' Equity for the nine months ended September 30, 1999 F-11
Unaudited Statements of Cash Flows for the nine months ended September 30, 1999 F-12
Notes to Unaudited Financial Statements for the nine months ended September 30, 1999 F-13
Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1999 F-16
Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998 F-18
Unaudited Pro Forma consolidated Statement of Operations for the nine months ended September 30, 1999 F-19
Notes to Unaudited Pro Forma Consolidated Financial Statements F-20
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Aloha Water Company:
We have audited the accompanying balance sheets of ALOHA WATER COMPANY (a Hawaii
Corporation) as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aloha Water Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Honolulu, Hawaii
February 25, 2000
F-1
<PAGE>
ALOHA WATER COMPANY
Balance Sheets - December 31, 1998 and 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 26,910 $ 138,431
Accounts receivable (Note 1) 79,669 73,975
Other current assets - 1,448
----------- -----------
Total current assets 106,579 213,854
PROPERTY AND EQUIPMENT, net (Note 3) 386,666 322,557
----------- -----------
$ 493,245 $ 536,411
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Customer deposits (Note 1) $ 277,263 $ 222,998
Accounts payable 23,985 24,518
Capital lease obligations (Note 4) 29,107 18,328
Other accrued liabilities 30,596 23,002
----------- -----------
Total current liabilities 360,951 288,846
NON-CURRENT LIABILITIES:
Capital lease obligations, net of
current portion (Note 4) 60,840 59,502
----------- -----------
Total liabilities 421,791 348,348
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value--1,000 shares
authorized, issued and outstanding 1,000 1,000
Additional paid-in capital 198,722 198,722
Accumulated deficit (128,268) (11,659)
----------- -----------
Total stockholders' equity 71,454 188,063
----------- -----------
$ 493,245 $ 536,411
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ALOHA WATER COMPANY
Statements of Operations
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
NET SALES $ 1,033,425 $ 892,811
COST OF SALES 379,260 300,238
------------- -----------
Gross margin 654,165 592,573
EXPENSES:
General and administrative 646,978 446,604
Selling and marketing 116,197 69,090
------------- -----------
763,175 515,694
------------- -----------
Operating (loss) income (109,010) 76,879
OTHER EXPENSES:
Interest 7,599 5,375
Other - 475
------------- -----------
7,599 5,850
------------- -----------
Net (loss) income $ (116,609) $ 71,029
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ALOHA WATER COMPANY
Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 1,000 $ 1,000 $ 203,722 $ (82,688) $ 122,034
Net income - - - 71,029 71,029
Capital distribution - - (5,000) - (5,000)
---------- -------- --------- ------------ ----------
BALANCE, December 31, 1997 1,000 1,000 198,722 (11,659) 188,063
---------- -------- --------- ------------ ----------
Net loss - - (116,609) (116,609)
---------- -------- --------- ------------ ----------
BALANCE, December 31, 1998 1,000 $ 1,000 $ 198,722 $ (128,268) $ 71,454
---------- -------- --------- ------------ ----------
---------- -------- --------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ALOHA WATER COMPANY
Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (116,609) $ 71,029
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation 97,854 55,860
Changes in assets and liabilities:
Increase in trade receivables (5,694) (5,010)
Decrease (increase) in other current assets 1,448 (1,050)
Decrease in accounts payable (533) (10,997)
Increase in customer deposits 54,265 49,192
Increase in other accrued liabilities 7,594 7,360
-------------- --------------
Net cash provided by operating activities 38,325 166,384
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES--
Capital expenditures on property and equipment (131,123) (129,242)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of capital lease obligations (18,723) (11,071)
Capital distributions - (5,000)
-------------- --------------
Net cash used in financing activities (18,723) (16,071)
-------------- --------------
Net (decrease) increase in cash (111,521) 21,071
-------------- --------------
CASH, beginning of year 138,431 117,360
-------------- --------------
CASH, end of year $ 26,910 $ 138,431
-------------- --------------
-------------- --------------
NON-CASH INVESTING AND FINANCING ACTIVITIES--
Acquisition of assets under capital lease $ 30,840 $ 42,360
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ALOHA WATER COMPANY
Notes to Financial Statements
December 31, 1998 and 1997
1. BACKGROUND
Aloha Water Company (the Company), a Hawaii Subchapter S corporation, was formed
to provide purified bottled water to commercial and residential consumers on the
island of Oahu.
The Company's bottling plant and corporate office are located in Waipahu,
Hawaii. The Company specializes in purifying water from the municipal water
supply at its bottling plant and distributing 5 and 6 gallon premium bottled
water to homes and offices island-wide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. ACCOUNTS RECEIVABLE
Accounts receivable is comprised primarily of trade receivables due
from commercial and residential customers. Trade receivables
determined to be uncollectible by management have been written off
in the respective period.
b. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Costs of normal repairs
and maintenance are charged to expense as incurred. Depreciation is
calculated using both the accelerated and straight-line methods over
the following estimated useful lives:
Machinery and equipment 5-10 years
Automobiles 5 years
Office furniture and fixtures 5 years
Leasehold improvements Shorter of useful life or
lease term
c. LONG-LIVED ASSETS
Whenever there are recognized events or changes in circumstances
that could affect the carrying amount of long-lived assets,
management reviews these assets for possible impairment. In
accordance with Statements of Financial Accounting Standards (SFAS)
No. 121 "Accounting for Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," management uses estimated expected future net
cash flows (undiscounted and excluding interest costs) from the use
and eventual disposition of the assets, to measure the
recoverability of these assets. If it is determined that an
impairment loss has occurred, then a loss is recognized in the
income statement using a fair value based model in the year in which
such a determination is made.
d. CUSTOMER DEPOSITS
Customer deposits represent monies collected for cooler rentals and
bottles. Deposits will be returned to customers once delivery
service is discontinued. The estimated liability is based upon the
amount of active customers times the average deposit amount per
customer in the accompanying financial statements.
e. INCOME TAXES
Effective in 1994, the Company elected S-Corporation status for
income tax purposes. Accordingly, income taxes are the obligation of
the individual stockholders.
F-6
<PAGE>
f. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
g. REVENUE RECOGNITION
The Company recognizes revenue on the accrual basis of accounting
upon delivery of goods to the customer. Costs incurred to purchase
bottles and bottling materials are expensed as incurred.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Machinery and equipment $ 470,360 $ 347,824
Automobiles 157,877 118,450
Office furniture and fixtures 8,197 8,197
Leasehold improvements 28,436 28,436
---------- ----------
664,870 502,907
Less--accumulated depreciation
and amortization (278,204) (180,350)
---------- ----------
$ 386,666 $ 322,557
---------- ----------
---------- ----------
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
The Company leases vehicles under capital leases that expire on various dates
through 2003.
At December 31, 1998, the future minimum lease payments, together with the
present value of the minimum lease payments are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999 $ 36,861
2000 24,702
2001 22,175
2002 16,885
2003 7,103
----------
Total future minimum lease payments 107,726
Less--amount representing interest
at 5.75 to 20 percent (17,779)
----------
Present value of obligations
under capital leases 89,947
Less--current portion (29,107)
----------
F-7
<PAGE>
Non-current portion $ 60,840
----------
----------
</TABLE>
Interest paid on these capital lease obligations approximated $7,600 in 1998 and
$5,400 in 1997.
5. COMMITMENTS AND CONTINGENCIES
a. PLANT LEASE
The Company leases its facility under an operating lease expiring in
March 2003. Rent expense approximated $77,000 in 1998 and $38,000 in
1997.
At December 31, 1998, the future rental payments under this
lease are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999 $ 72,225
2000 74,925
2001 76,950
2002 78,750
2003 19,800
------------
$ 322,650
------------
------------
</TABLE>
b. EQUIPMENT LEASE
The Company leases two flatbed trucks under operating leases
expiring in 1999. Annual rent expense approximated $10,000 for the
years ended December 31, 1998 and 1997.
6. SIGNIFICANT SUPPLIERS
During fiscal year 1998, purchases from five major suppliers approximated
between 5% and 14% of the Company's purchases individually and totaled
approximately 50% of purchases in the aggregate. No other single supplier
accounted for greater than 10% of purchases.
7. SUBSEQUENT EVENTS
On March 20, 2000, the Hawaiian Natural Water Co. (HNW) acquired all of the
outstanding shares of the Company. The acquisition was accomplished through a
merger of the Company into a wholly owned subsidiary of HNW (the "Subsidiary")
formed for this purpose. The consideration for the purchase consisted of an
aggregate of (i) 750,000 shares of Common Stock of HNW and (ii) a promissory
note from HNW in the amount $500,000. Interest on the note is payable monthly
at the annual rate of 10%. The entire note including any unpaid accrued
interest is due April 1, 2001. The note is secured by a first priority
secured interest on all of the capital stock of the Subsidiary. The merger
agreement also provides for reductions in the purchase price if working
capital is less than zero at closing, or if indebtedness other than short
term trade payables and other operating liabilities are assumed. Any such
adjustments would be allocated entirely to the Note.
F-8
<PAGE>
ALOHA WATER COMPANY
Balance Sheet - September 30, 1999
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
1999
------------
<S> <C>
CURRENT ASSETS:
Cash $ 155,910
Accounts receivable (Note 1) 109,666
------------
Total current assets 265,576
PROPERTY AND EQUIPMENT, net (Note 3) 388,309
------------
$ 653,885
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
CURRENT LIABILITIES:
Customer deposits (Note 1) $ 327,144
Accounts payable 49,028
Capital lease obligations (Note 4) 35,184
Other accrued liabilities 28,459
------------
Total current liabilities 439,815
NON-CURRENT LIABILITIES:
Capital lease obligations, net of
current portion (Note 4) 85,928
------------
Total liabilities 525,743
------------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value--1,000 shares
authorized, issued and outstanding 1,000
Additional paid-in capital 195,722
Accumulated deficit (68,580)
------------
Total stockholders' equity 128,142
------------
$ 653,885
------------
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
ALOHA WATER COMPANY
Statements of Operations (Unaudited)
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
NET SALES $ 901,973 $ 781,474
COST OF SALES 328,657 278,518
------------ -------------
Gross margin 573,316 502,956
EXPENSES:
General and administrative 471,527 485,233
Selling and marketing 35,407 57,265
------------ -------------
506,934 542,498
------------ -------------
Operating income (loss) 66,382 (39,542)
OTHER EXPENSES:
Interest 6,694 5,768
Other - -
------------ -------------
6,694 5,768
------------ -------------
Net income (loss) $ 59,688 $ (45,310)
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
ALOHA WATER COMPANY
Statement of Stockholders' Equity (Unaudited)
For the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 1,000 $ 1,000 $ 198,722 $ (128,268) $ 71,454
Net income - - - 59,688 59,688
Capital distribution - - (3,000) - (3,000)
----------- --------- ----------- ------------ ------------
BALANCE, September 30, 1999 1,000 1,000 195,722 (68,580) 128,142
----------- --------- ----------- ------------ ------------
----------- --------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
ALOHA WATER COMPANY
Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 59,688 $ (45,310)
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation 77,505 73,390
Changes in assets and liabilities:
Increase in trade receivables (29,997) (28,542)
Decrease in other current assets - 1,448
Increase (decrease) in accounts payable 25,043 (533)
Increase in customer deposits 49,881 38,528
Decrease (increase) in other accrued liabilities (2,137) 7,594
------------ ------------
Net cash provided by operating activities 179,983 46,575
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES--
Capital expenditures on property and equipment
(29,395) (131,123)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of capital lease obligations (18,588) (13,546)
Capital distributions (3,000) -
------------ ------------
Net cash used in financing activities (21,588) (13,546)
------------ ------------
Net increase (decrease) in cash 129,000 (98,094)
------------ ------------
CASH, beginning of year 26,910 138,431
------------ ------------
CASH, end of year $ 155,910 $ 40,337
------------ ------------
------------ ------------
NON-CASH INVESTING AND FINANCING ACTIVITIES--
Acquisition of assets under capital lease $ 49,753 $ -
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
ALOHA WATER COMPANY
Notes to Financial Statements
September 30, 1999
1. BACKGROUND
Aloha Water Company (the Company), a Hawaii Subchapter S corporation, was formed
to provide purified bottled water to commercial and residential consumers on the
island of Oahu.
The Company's bottling plant and corporate office are located in Waipahu,
Hawaii. The Company specializes in purifying water from the municipal water
supply at its bottling plant and distributing 5 and 6 gallon premium bottled
water to homes and offices island-wide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. ACCOUNTS RECEIVABLE
Accounts receivable is comprised primarily of trade receivables due
from commercial and residential customers. Trade receivables
determined to be uncollectible by management have been written off
in the respective period.
b. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Costs of normal repairs
and maintenance are charged to expense as incurred. Depreciation is
calculated using both the accelerated and straight-line methods over
the following estimated useful lives:
Machinery and equipment 5-10 years
Automobiles 5 years
Office furniture and fixtures 5 years
Leasehold improvements Shorter of useful life or
lease term
c. LONG-LIVED ASSETS
Whenever there are recognized events or changes in circumstances
that could affect the carrying amount of long-lived assets,
management reviews these assets for possible impairment. In
accordance with Statements of Financial Accounting Standards (SFAS)
No. 121 "Accounting for Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," management uses estimated expected future net
cash flows (undiscounted and excluding interest costs) from the use
and eventual disposition of the assets, to measure the
recoverability of these assets. If it is determined that an
impairment loss has occurred, then a loss is recognized in the
income statement using a fair value based model in the year in which
such a determination is made.
d. CUSTOMER DEPOSITS
Customer deposits represent monies collected for cooler rentals and
bottles. Deposits will be returned to customers once delivery
service is discontinued. The estimated liability is based upon the
amount of active customers times the average deposit amount per
customer in the accompanying financial statements.
F-13
<PAGE>
e. INCOME TAXES
Effective in 1994, the Company elected S-Corporation status for
income tax purposes. Accordingly, income taxes are the obligation
of the individual stockholders.
f. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
g. REVENUE RECOGNITION
The Company recognizes revenue on the accrual basis of accounting
upon delivery of goods to the customer. Costs incurred to purchase
bottles and bottling materials are expensed as incurred.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Machinery and equipment $ 549,508
Automobiles 157,877
Office furniture and fixtures 8,197
Leasehold improvements 28,436
-----------
744,018
Less--accumulated depreciation
and amortization (355,709)
-----------
$ 388,309
-----------
-----------
</TABLE>
4. CAPITAL LEASE OBLIGATIONS
The Company leases vehicles under capital leases that expire on various dates
through 2004.
At September 30, 1999, the future minimum lease payments, together with the
present value of the minimum lease payments are as follows:
<TABLE>
<S> <C>
Twelve months ending September 30,
2000 $ 44,415
2001 35,828
2002 30,774
2003 20,827
2004 11,081
-----------
Total future minimum lease payments 142,925
Less--amount representing interest
at 5.75 to 11.65 percent (21,813)
-----------
Present value of obligations
F-14
<PAGE>
under capital leases 121,112
Less--current portion (35,184)
-----------
Non-current portion $ 85,928
-----------
-----------
</TABLE>
Interest paid on these capital lease obligations approximated $6,700 for the
nine months ended September 30, 1999.
5. COMMITMENTS AND CONTINGENCIES
a. PLANT LEASE
The Company leases its facility under an operating lease expiring in
March 2003. Rent expense approximated $56,000 for the nine months
ended September 30, 1999.
At September 30, 1999, the future rental payments under this lease
are as follows:
<TABLE>
<S> <C>
Twelve months ending September 30,
2000 $ 74,250
2001 76,500
2002 78,300
2003 39,600
-----------
$ 268,650
-----------
-----------
</TABLE>
b. EQUIPMENT LEASE
The Company leases two flatbed trucks under operating leases
expiring in 1999. Annual rent expense approximated $2,500 for the
nine months ended September 30, 1999.
6. SIGNIFICANT SUPPLIERS
No single supplier accounted for greater than 10% of purchases.
7. SUBSEQUENT EVENTS
On March 20, 2000, the Hawaiian Natural Water Co. (HNW) acquired all of the
outstanding shares of the Company. The acquisition was accomplished through a
merger of the Company into a wholly owned subsidiary of HNW (the "Subsidiary")
formed for this purpose. The consideration for the purchase consisted of an
aggregate of (i) 750,000 shares of Common Stock of HNW and (ii) a promissory
note from HNW in the amount $500,000. Interest on the note is payable monthly
at the annual rate of 10%. The entire note including any unpaid accrued
interest is due April 1, 2001. The note is secured by a first priority
secured interest on all of the capital stock of the Subsidiary. The merger
agreement also provides for reductions in the purchase price if working
capital is less than zero at closing, or if indebtedness other than short
term trade payables and other operating liabilities are assumed. Any such
adjustments would be allocated entirely to the Note.
F-15
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC. AND ALOHA WATER COMPANY, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
ASSETS
<TABLE>
<CAPTION>
HAWAIIAN ALOHA
NATURAL WATER WATER PRO FORMA ADJUSTMENTS PRO FORMA
COMPANY, INC., COMPANY, INC. DEBIT CREDIT CONSOLIDATED
-------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 683,910 $155,910 $ - $ - $ 839,820
Inventories 514,209 - - - 514,209
Trade accounts receivable, net of
allowance for
doubtful accounts of $64,952 478,443 109,666 - - 588,109
Other current assets 173,038 - - - 173,038
---------- -------- ---------- ----------- -----------
Total current assets 1,849,600 265,576 - - 2,115,176
PROPERTY AND EQUIPMENT - net of accumulated
depreciation and amortization of $944,254 2,409,441 388,309 - - 2,797,750
CO-PACKING AGREEMENT 150,000 - - - 150,000
INTANGIBLE ASSET, net of accumulated amortization
of $6,455 152,694 - - - 152,694
PURCHASE PRICE IN EXCESS OF NET BOOK VALUE - - 1,311,033 (1) - 1,311,033
Total Assets $4,561,735 $653,885 $1,311,033 $ - $ 6,526,653
---------- -------- ---------- ----------- -----------
---------- -------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 682,568 $ 49,028 $ - $ - $ 731,596
Accrued professional fees 94,651 - - 20,000 (1) 114,651
Accrued vacation 56,728 - - - 56,728
Accrued payroll and related taxes 54,166 - - - 54,166
Accrued commissions and billbacks 122,927 - - - 122,927
Accrued other 89,528 28,459 - - 117,987
Note payable - Current portion 11,446 - - - 11,446
Capital lease obligation - Current portion 40,112 35,184 - - 75,296
---------- -------- ---------- ----------- -----------
Total current liabilities 1,152,126 112,671 - 20,000 1,284,797
NON-CURRENT LIABILITIES
Customer deposits - 327,144 - - 327,144
Capital lease obligation - net of
current portion 38,168 85,928 - - 124,096
Note payable - net of current portion 453,645 - - 431,675 (1) 885,320
Other 41,380 - - - 41,380
---------- -------- ---------- ----------- -----------
Total Non-Current Liabilities 533,193 413,072 - 431,675 1,377,940
Total liabilities 1,685,319 525,743 - 451,675 2,662,737
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $1.00 par value;
5,000,000 shares authorized; 994 shares
issued and outstanding with conversion rights
and aggregate liquidation preference of $994,000 732,397 - - - 732,397
Common stock, no par value; 20,000,000
shares authorized; 5,306,727 shares
issued and outstanding actual and
6,056,727 shares proforma 7,642,264 196,722 196,722 (1) 987,500 (1) 8,629,764
Common stock warrants and options;
issued and outstanding 3,533,992 - - - 3,533,992
Accumulated Deficit (9,032,237) (68,580) - 68,580 (1) (9,032,237)
---------- -------- ---------- ----------- -----------
Total Stockholders' Equity (Deficit) 2,876,416 128,142 196,722 1,056,080 3,863,916
Total Liabilities and
Stockholders Equity $4,561,735 $653,885 $ 196,722 $ 1,507,755 $ 6,526,653
---------- -------- ---------- ----------- -----------
---------- -------- ---------- ----------- -----------
</TABLE>
F-16
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC. AND ALOHA WATER COMPANY, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HAWAIIAN ALOHA
NATURAL WATER WATER PRO FORMA ADJUSTMENTS PRO
COMPANY, INC. COMPANY, INC. DEBIT CREDIT FORMA
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 1,809,730 $ 1,033,425 $ - $ - $ 2,843,155
COST OF SALES 1,680,381 379,260 - - 2,059,641
----------- ----------- ----------- ----------- ------------
GROSS MARGIN 129,349 654,165 - - 783,514
EXPENSES
Selling and Marketing 982,118 116,197 - - 1,098,315
87,402 (1)
General and Administrative 1,266,158 646,978 50,000 (2) - 2,050,538
----------- ----------- ----------- ----------- ------------
2,248,276 763,175 137,402 - 3,148,853
OPERATING LOSS (2,118,927) (109,010) (137,402) - (2,365,339)
OTHER INCOME (LOSS)
Investor relations expense (1,122,913) - - - (1,122,913)
Interest and other income 71,829 - - - 71,829
Interest expense (96,441) (7,599) - - (104,040)
----------- ----------- ----------- ----------- ------------
(1,147,525) (7,599) - - (1,155,124)
Net Loss $(3,266,452) $ (116,609) $ (137,402) $ - $(3,520,463)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Basic and Diluted Net Loss
Per Share $ (0.83) $ - $ - $ - $ (0.75)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Weighted Average Common
Shares Outstanding 3,949,454 - 750,000 4,699,454
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
</TABLE>
F-17
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC. AND ALOHA WATER COMPANY, INC.
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HAWAIIAN ALOHA
NATURAL WATER WATER PRO FORMA ADJUSTMENTS PRO
COMPANY, INC. COMPANY, INC. DEBIT CREDIT FORMA
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES $ 2,158,424 $ 901,973 $ - $ - $ 3,060,397
COST OF SALES 1,675,579 328,657 - - 2,004,236
------------ ------------ ------------ ------------ ------------
GROSS MARGIN 482,845 573,316 - - 1,056,161
EXPENSES
Selling and Marketing 493,708 35,407 - - 529,115
65,552(1)
General and Administrative 1,051,967 471,527 37,500(2) - 1,626,546
------------ ------------ ------------ ------------ ------------
1,545,675 506,934 103,052 - 2,155,661
OPERATING (LOSS) INCOME (1,062,830) 66,382 (103,052) - (1,099,500)
OTHER INCOME (EXPENSE)
Investor relations expense - - - - -
Interest and other income 8,490 - - - 8,490
Interest expense (58,323) (6,694) - - (65,017)
------------ ------------ ------------ ------------ ------------
(49,833) (6,694) - - (56,527)
Net (loss) income $ (1,112,663) $ 59,688 $ (103,052) $ - $ (1,156,027)
============ ============ ============ ============ ============
Basic and Diluted Net Loss
Per Share $ (0.25) $ - $ - $ - $ (0.22)
============ ============ ============ ============ ============
Weighted Average Common
Shares Outstanding 4,395,155 750,000 5,145,155
</TABLE>
F-18
<PAGE>
HAWAIIAN NATURAL WATER COMPANY, INC. AND ALOHA WATER COMPANY, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
A. The following unaudited pro forma adjustments are included in the
accompanying unaudited pro forma consolidated balance sheet at
September 30, 1999:
(1) On March 20, 2000 the Company completed the acquisition of
Aloha Water Company, Inc., ("Aloha") a major distributor of
purified water to the home and office delivery market in the
greater Honolulu area. The acquisition was accomplished
through a merger of Aloha into a wholly owned subsidiary of
the Company (the "Subsidiary") formed for this purpose.
The purchase price for Aloha consisted of an aggregate of (i)
750,000 shares of Common Stock of the Company and (ii) a
promissory note of the Company in the amount $500,000.
Interest on the note is due monthly at the rate of 10%
beginning on May 1, 2000. The entire note including any unpaid
accrued interest is due April 1, 2001. The Company discounted
this note using an estimated weighted-average cost of capital
of 25%, and will amortize the resulting discount to interest
expense using the effective interest method over the term of
the loan. The amount of the note payable, after offset for the
discounted interest, was $431,675. The total consideration
paid by the Company to the owners of Aloha on a pro-forma
basis as of September 30, 1999, plus associated professional
fees actually incurred, was $1,311,033.
B. The following unaudited pro forma adjustments are included in the
accompanying unaudited pro forma consolidated statement of operations
for the nine months ended September 30, 1999 and the year ended
December 31, 1998:
(1) General and administrative expenses have been increased by
$65,552 for the nine months ended September 30, 1999 and by
$87,402 for the year ended December 31, 1998 for the
amortization of goodwill. Goodwill is being amortized over a
15-year period.
(2) General and administrative expenses have been increased by
$37,500 for the nine months ended September 30, 1999 and by
$50,000 for the year ended December 31, 1998 for increased
payroll expenses related to an employment agreement entered
into by the Company with the President and Chief Operating
Officer of the Subsidiary.
F-19
