Arrowhead Water Products Ltd.

Arrowhead Water Products Ltd. is Canada’s largest publicly traded water company specializing in the production and sale of large format bottled water. The company generates the majority of its revenues through the delivery and sale of bottled water along with the sale and rental of water coolers. Based in Alberta, Arrowhead Water operates production and distribution facilities in Calgary and Edmonton, Alberta and Dawson Creek, British Columbia.

The company offers various types of water including naturally filtered artesian spring water, reverse osmosis water, in which minerals are removed by a thin film of composite membrane, and 99% pure distilled water, in which substantially all of the minerals are removed.

In May 2003, Arrowhead Water’s wholly-owned subsidiary, Arrowhead Spring Water Ltd., entered into a joint venture with Ecco Sales Ltd. of Victoria, B.C., to supply bottled water to all Safeway grocery stores in Alberta. In compliance with the commitments and sales program agreement made by Ecco and Arrowhead Water with Safeway Canada Ltd., Arrowhead Water will supply 18.9 litre bottles and store display racks to 80 Safeway stores in Alberta. This joint venture adds to the company’s existing depot business in Alberta.

In the fourth quarter of fiscal 2003, Arrowhead Water completed a private placement consisting of 1.5 million shares issued at $0.10 per unit for gross proceeds of $150,000. These securities are subject to a one-year hold period that expires on August 2, 2004. The company carried out this financing in order to raise proceeds for general working capital purposes and to finance the necessary inventory and equipment for the Ecco joint venture

In October 2003, the company, through its whollyowned subsidiary, Arrowhead Spring Water Ltd., completed the takeover of a business that produces and sells bottled water in Dawson Creek and Fort St. John, B.C. The business was purchased as a going concern effective October 1, 2003. The purchase price consisted of cash in the amount of $400,000, one million common shares of the company at $0.10 per share and 50% of the accounts receivable of the business to the effective date. The B.C. business operates under the names Eagle Springs, The Water Store, Pure Water Sales, and Double Anchor, generating gross annual revenues of approximately $800,000. The acquisition fits strategically with Arrowhead Water's existing operations in northern Alberta and B.C. and adds a substantial customer base in and around Dawson Creek and Fort St. John. In total, the company purchased $1.2 million in fixed assets during fiscal 2003 without increasing its long-term debt.

During the year ended September 30, 2003, which was the most successful year in the history of Arrowhead Water, the company experienced an increase in sales of approximately 23% to $4.3 million, while cash flow from operations for the year grew by 18% over cash flow in 2002 to $825,000. In addition, Arrowhead Water upgraded its production equipment at its Calgary and Edmonton facilities, which translated into a higher production capacity. Furthermore, these facilities were successfully audited by the National Sanitation Foundation. Lastly, Arrowhead Water achieved official bottler status with the Canadian Bottled Water Association.

Due to the increased demand for the company’s water, Arrowhead Water is expanding into a state-of-the-art 30,000 square foot building located at 5716 Burbank Road in Calgary, Alberta in August 2004. This premier bottled water plant will become western Canada's first and only customer drive-through facility. The plant will also feature indoor parking and loading for trucks which is expected to reduce fleet maintenance costs and increase manufacturing capacity and overall company margins.

Arrowhead Water recorded its best month ever in terms of gross sales during March 2004. Sales totalled $532,000 as compared to $302,000 generated in March 2003, an increase of 76%. The only other month that came close in terms of total sales was July 2003, in which the company’s sales were $501,000.

Management has set several objectives for the company to carry out during fiscal 2004. Sales from existing operations and acquisitions are expected to be increased by approximately 30% over the previous year. In addition, the company intends to actively seek out and acquire other related companies to add to Arrowhead Water’s existing water bottling operations. The company will continue to focus upon its core business of servicing the home and office market in the major urban centers of Alberta.

Over the long-term, Arrowhead Water has a goal of becoming the leading non-governmental provider of premium drinking water in Alberta through organic growth and acquisitions. Management believes that the market for providing premium drinking water as an alternative to traditional municipal water supplies will continue to grow over the next several years.