U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                   FORM 10-KSB

               [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended: December 31, 2000
                                       OR
                [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
             For the transition period from __________to __________

                        Commission File Number: 0 - 25836

                            PORTLAND BREWING COMPANY
                 (Name of small business issuer in its charter)
                      OREGON                      93-0865997
            (State or other jurisdiction       (I.R.S. Employer
           of incorporation or organization)   Identification No.)

                   2730 NW 31st Avenue, Portland, Oregon 97210
               (Address of principal executive offices) (Zip Code)
                    Issuer's telephone number: (503) 226-7623

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

         Securities registered under Section 12(g) of the Exchange Act:
                           Common Stock, no par value
                                (Title of Class)
                                 ---------------
     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[ ]

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information  statements  incorporated  by  reference  in Part  III of this  Form
10-KSB, or any amendment to this Form 10-KSB.[ ]

     Revenues for the year ended December 31, 2000: $12,977,848.

     State  the   aggregate   market   value  of  the   voting   stock  held  by
non-affiliates:  Not  Applicable,  the  Registrant's  stock  has no  established
trading market.

     The number of shares  outstanding  of the  Registrant's  Common Stock as of
March 17, 2001 was 5,000,514 shares.

     Transitional Small Business Disclosure Format (check one):  Yes  X  No
                                                                    -----  -----


<PAGE>
                            PORTLAND BREWING COMPANY
                                2000 FORM 10-KSB
                                TABLE OF CONTENTS


                                     Part I
                                     ------                                Page
                                                                           ----

  Item 6.   Description of Business                                           2

  Item 7.   Description of Property                                          10

  Item 8.   Directors, Executive Officers and Significant Employees          11

  Item 9.   Remuneration of Directors and Officers                           13

  Item 10.  Security Ownership of Management and Certain Security Holders    14

  Item 11.  Interest of Management and Others in Certain Transactions        18

                                     Part II

  Item 1.   Market Price of and Dividends on the Registrant's Common         20
               Equity and Other Shareholder Matters

  Item 2.   Legal Proceedings                                                21

  Item 3.   Changes in and Disagreements with Accountants                    21

  Item 4.   Submission of Matters to a Vote of Security Holders              21

  Item 5.   Compliance with Section 16(a) of the Exchange Act                21

  Item 6.   Reports on Form 8-K                                              21

                                    Part F/S

            Index to Consolidated Financial Statements                       22

                                    Part III

  Item 1.   Index to Exhibits                                                23

  Item 2.   Description of Exhibits                                          24



                                       1
<PAGE>
                                     Part I
                                     ------

Item 6.  Description of Business
--------------------------------

General

The Company was  incorporated  in Oregon on November 14,  1983.  The Company was
formed to brew and sell specialty  beer (i.e.,  beer which is made in relatively
small  batches  and which  generally  sells at retail  prices of over  $6.00 per
six-pack).  The  Company's  product  line  includes the  following  core brands:
MacTarnahan's Scottish Style Amber Ale,  MacTarnahan's  BlackWatch Cream Porter,
MacTarnahan's  Highlander  Pale Ale,  Oregon Honey Beer,  and Woodstock  IPA. In
addition,  there is a seasonal line of beers including  BobbyDazzler  Old London
Style Holiday Ale, and Uncle Otto's Oktoberfest Maerzen.  Specialty products are
made periodically to be served at the Company's  restaurant,  The Tap Room, such
as ZigZag River Lager,  Bavarian Style Weizen,  Benchmark MM Old Ale and certain
Saxer and Nor'wester products. The Company uses distributors to sell principally
to  the  packaged/bottle  market  through  authorized  retail  outlets  and  the
on-premise  draft  market  through  establishments  licensed to serve  alcoholic
beverages. The Company sells beer primarily in its home market of Oregon as well
as in Washington, California and other western states. In addition, in 1996, the
Company  began selling beer in states east of the Rocky  Mountains.  In 2000 the
Company again exported beer to Japan, and expects to continue throughout 2001.

The Company opened its first brewery in January 1986 at 1339 NW Flanders  Street
in Portland,  Oregon.  In March 1986 a pub was added which allowed  customers to
view  various  stages  of the  brewing  process,  and in July  1996 the  Company
completed an expansion which significantly  increased the restaurant area of the
pub. In November 1998,  the Company sold this  facility.  The Company opened its
second  brewery in June 1993 located at 2730 NW 31st Avenue in  Portland,  which
initially  more than  doubled its annual  production  capacity to  approximately
26,000  barrels.  Subsequent  equipment  additions and expansion  have increased
capacity to  approximately  135,000  barrels of ales per year.  In July 1994,  a
restaurant,  The Tap Room, was constructed at the main brewery and opened to the
public.

Acquisition

In October 1999,  the Company  acquired all of the  outstanding  common stock of
Harco  Products,  Inc.,  ("Harco"),  from a related  party.  Harco produces hand
trucks for various industrial uses. The purchase price of $569,585,  was paid by
the issuance of 759,447 shares of the Company's common stock valued at $0.75 per
share. In connection with the  acquisition,  the Company  received and cancelled
30,000  shares of its  Common  Stock  that were  owned by Harco.  [See Item 11 -
Interest of Management and Others in Certain Transactions - Acquisition of Harco
Products, Inc. and Note 3 of Notes to Consolidated Financial Statements].

Saxer Brewing Company Asset Purchase

On January 31, 2000, the Company purchased certain assets (equipment and brands)
from Saxer Brewing  Company for 900,000  shares of the  Company's  common stock,
$150,000 cash and a three year agreement to pay certain  amounts based on barrel
sales of the Saxer and Nor'wester  brands,  such amount secured by the Saxer and
Nor'wester brands. In connection with the purchase, Steven C. Goebel, a majority
shareholder of Saxer Brewing Company, was appointed to the board of directors of
the Company.  In February 2001, Mr. Goebel resigned from the Board of Directors.
[See Item 11 - Interest of Management and Others in Certain Transactions - Saxer
Brewing  Company Asset  Purchase and Note 3 of Notes to  Consolidated  Financial
Statements].

                                       2
<PAGE>
Industry Overview

National Beer  Industry.  Total beer  consumption in the United States has grown
just 4.9% since 1986 (The Maxwell  Report,  February 2000). In the early 1980's,
when  sales  of  imported  beers  were  growing,  a  few  entrepreneurs  founded
micro-breweries  to compete  with  imported  beer.  What came to be known as the
domestic  specialty (craft) beer market,  went on to experience fifteen years of
extremely  rapid  growth.  In addition to new small  breweries,  large  domestic
brewers  produced  craft-style  beers and contract  brewers used excess regional
brewery capacity to add brands.  Stores and pubs found it difficult to make room
for all the  brands  that  were  available,  and the  consumer  was  faced  with
bewildering variety.  Excess capacity and ensuing brand proliferation  beginning
in 1996, resulted in the market saturation which continues today.

The large national  breweries  (Anheuser-Busch,  Miller Brewing Company,  Adolph
Coors Brewing Company and Pabst Brewing Co.) continued to dominate the market in
2000, with more than 85% market share,  according to Beer  Marketer's  Insights-
January 2001. In 1999,  Pabst Brewing Co.  purchased The Stroh Brewing  Company,
closing  most of its  breweries  and  selling  off some of its  brands to Miller
Brewing  Company,  which eliminated much of the excess capacity in the industry.
Since then,  Pabst  Brewing Co. is closing all but one of its own  breweries and
has contracted most of its production to Miller Brewing  Company.  Consolidation
in the  industry is  expected  to  continue  on every level for the  foreseeable
future.

In 2000,  sales of imported beer  continued to increase with Corona and Heineken
leading the way. Imports grew 12.4% in 2000,  attaining the fourth  double-digit
increase in five years,  and  exceeding  10% market  share for the first time in
history.  Meanwhile  domestic  shipments  for the same  period grew less than 1%
emphasizing the fact that beer drinkers have traded up  dramatically  during the
second half of the  decade.  David Edgar of the  Institute  for Brewing  Studies
estimates the domestic specialty category will be in excess of 6,000,000 barrels
for 2000 resulting in a 3% market share or slightly better. Specialty and import
categories  combined  appear to exceed 13% growth  according to Beer  Marketer's
Insights- March 2001.

Specialty Beer Industry--Pacific  Northwest.  Sales of specialty beers in Oregon
increased by less than 1% in 2000,  compared to 7% in 1999;  and  accounted  for
approximately  a 10% and  11%  market  share  in 2000  and  1999,  respectively,
according to Oregon Liquor Control Commission  Statement of Beer Sales in Oregon
for the  respective  periods.  Oregon and Washington are considered to be mature
markets in the U.S. specialty beer segment.  Consequently,  the Company believes
that future growth will be more difficult in these two states.

Products

The Company offers a wide variety of specialty  beers. The complete product line
includes core brands,  which are available  year-round,  a rotating selection of
seasonal  brands,  and specialty  products.  Draft product (kegs)  accounted for
approximately  30% and 35% of the  Company's  beer  shipments  in 2000 and 1999,
respectively.

Portland Brewing Company products consist of core brands generally incorporating
a reference to MacTarnahan and the assumed  business name,  MacTarnahan  Brewing
Co., to further  endorse this branding.  Other brand families  include Saxer and
Nor'wester.  From  time to time,  other  specialty  beers are  produced  for the
Company's use or as private label brands.

Portland Brewing Company's brands include:

         MacTarnahan's  Scottish Style Amber Ale.  MacTarnahan's  Scottish Style
Amber Ale is a complex,  copper-colored  Scottish  style ale of great  character
made with pale and caramel malts and Cascade hops, and is available in draft, 12
oz. bottles and a 12 oz. can.

         MacTarnahan's  BlackWatch  Cream  Porter.  BlackWatch  Cream  Porter is
brewed using a selection of pale and dark malts with the  judicious  addition of
unmalted grains and oatmeal providing an unparalleled  creamy texture.  The beer
is available on draft and in 12 oz. bottles.

                                       3
<PAGE>
         MacTarnahan's  Highlander  Pale Ale.  Highlander  Pale Ale combines the
pale golden malt  character of a light,  pale beer made with  distilled hop oil.
This truly unique  combination  pioneered by  Brewmaster,  Alan  Kornhauser,  is
delightfully embellished with original highland heather. Highlander is available
on draft and in 12 oz. bottles.

         Oregon Honey Beer.  Oregon Honey Beer is a pale  light-bodied  ale made
with two-row barley malt,  Oregon clover honey,  and Nugget and Willamette hops,
and is available on draft and in 12 oz. bottles.

         ZigZag River Lager. ZigZag River Lager is a full bodied, European style
bottom  fermented  lager with a slight malty  sweetness and subtle hop presence,
available on draft and in 12 oz. bottles.

         Woodstock  IPA.  The  Company's  India  Pale Ale is aged  with  natural
untoasted American oak from the Ozarks that has been air dried for two years and
is one of the few India Pale Ales to marry the hop and oak flavors, available on
draft and in 12 oz. bottles.

The Company's  seasonal  brands (all  available on draft and in 12 oz.  bottles)
currently include:

         Uncle Otto's  Oktoberfest  Maerzen.  This beer,  lagered for a full two
months, is created using a blend of pale and select specialty malts, spiced with
Northwest grown Mt. Hood hops, and is offered in September and October.

         BobbyDazzler  Old London Style  Holiday  Ale.  This holiday ale is made
with five malts yielding very rich character and burgundy color  utilizing a dry
hop  process  which adds great  aroma.  This  product is offered  from  November
through January.

Saxer brands include:

         Saxer  Bock.  This beer is a  golden,  Helles  Bock  brewed in the true
Bavarian  lager  tradition.  It is brewed with 40% more malt than  normal  lager
giving it a truly unique malty sweetness and a rich aroma.

         Saxer  Seasonal  Lagers.  These  fine  beers,  lagered  in  the  German
tradition,  include Jack Frost,  Saxer  Dopplebock,  Saxer Dark Bock,  and Saxer
Pilsner.

         Saxer Lemon Lager.  This is a lager beer with special  flavorings added
to make a unique refreshing taste.

Nor'wester brands include:

         Nor'wester  Hefe-weizen.  This is an American style hefe-weizen  brewed
with wheat malt and left unfiltered to preserve all the flavor and aroma.

         Nor'wester  Raspberry  Hefe-weizen.  This is a wheat ale flavored  with
raspberry and other natural  flavors left unfiltered to preserve all the natural
flavors and aromas.

         Nor'wester  Oregon  Pale  Ale.  This is a blonde  ale with a crisp  hop
profile and full-bodied malt character.

         Smith Rock Bock.  This beer has  malty-sweet  character and toffee-like
flavors brewed as a traditional pale bock.

Restaurant

The  Company  operates  a  restaurant,  The Tap Room,  which is  located  at the
Company's brewery. The Tap Room is a tasting room and restaurant that is upscale
in  comparison  to other  brewpubs  in the  region.  The Tap Room has a European
atmosphere, a wood-burning fireplace, outdoor patio and a terrace with an arbor.

                                       4
<PAGE>
Marketing and Sales

The Company uses both licensed beer and wine distributors/wholesalers to sell to
and service on- and off-premise  accounts for specific  geographic  territories.
These  distributors  maintain broad  distribution  in the Company's core markets
i.e., Oregon, Washington and California.  Columbia Distributing Company services
almost all of the major markets in Oregon and  Washington.  In California,  Wine
Warehouse  represents  the  Company on a state wide basis  handling  most of the
Company's sales to that state.  The Company  expects that Columbia  Distributing
and Wine Warehouse will continue to be large volume distributors of its products
in 2001.  Approximately  73  distributors  represent  the Company in its Western
Markets and the Company  employs nine  salespeople  to service its core markets:
six in Oregon, one in Washington,  one in California,  and one in Minnesota. The
Company also uses the services of two brokers:  one in northern  California  and
one on the east coast.  Because of the excess capacity in the industry,  and the
mature markets of the Pacific  Northwest,  the Company expanded sales into other
markets for the last four years, and is now represented in 44 states.  Shipments
for all markets east of the Rocky Mountains  accounted for 9% of total shipments
in  both  2000  and  1999.  With   consolidation  of  independent   distributors
accelerating,  the Company may be  required to further  adjust its  distribution
arrangements in the future.

The Company's 2000 marketing plan focused on key western U.S. markets  including
Oregon,  Washington and California.  Secondary  markets include virtually all of
the western United States  including  Hawaii,  Alaska and Idaho, as well as many
states east of the Rocky Mountains.

The Company has increased its focus on the MacTarnahan  brands which is anchored
in MacTarnahan's  Scottish Style Ale, and the continued  emphasis on a family of
unique  brands that can stand  together  as well as alone.  Going  forward,  the
Company  plans to  continue  to direct a  significant  portion of its  marketing
budget toward promoting the MacTarnahan's family while other brands will receive
proportionately   less  support.  The  Company  continues  to  enhance  consumer
awareness  through  increased  promotional and advertising  activity in selected
sports,   music  and  community   activities  which  offer   opportunities   for
introduction  to  the  Company  and  sampling  of  its  brands.   These  include
opportunities  associated with the Seattle Seahawks,  the Portland Trail Blazers
and the  Highland  Games  in  Oregon  and  California.  Because  of the  intense
competition for draft accounts in larger cities, the Company's marketing efforts
have been concentrated on increasing packaged authorizations in chain retailers.
However,  in Oregon,  its core market,  the Company focuses equally on draft and
package sales.

To further narrow its focus on the brand name MacTarnahan,  the Company embarked
upon  importing  a "top  class",  pure  Highland  15 yr. old single  malt Scotch
Whisky,  "The MacTarnahan." The purpose of this endeavor is to use the whisky to
cross-promote  the  MacTarnahan  Scottish  Style Amber Ale.  This  strategy also
represents  the  Company's  effort to  enhance  the  quality  image of both malt
beverages as well as acknowledge their heritage. Moreover, using the whisky as a
cross-promotional  tool,  creates a novel but very effective new way to approach
existing  as well as  potential  customers.  This  is done  through  educational
tastings,  promotions, and pairing the products side-by-side as is traditionally
done in the British Isles.

Trademarks

The Company has a program to obtain United States  trademark  registrations  for
its key bottled brands. The Company owns federal trademark registrations for the
names Portland Brewing, Portland,  MacTarnahan's,  ZigZag River Lager, Woodstock
IPA, Thunderhead Cream Stout,  BobbyDazzler Ale, "Mac's", the running Mac design
icon; the Oregon Honey Beer label design and MacTarnahan's label design; and the
mark Portland Brewing.  The Company has applied for registration of the MixPack,
MacTarnahan's  Black  Watch,  MacTarnahan's  Highlander  and  "The  MacTarnahan"
trademark names. To the best of the Company's knowledge, it has the right to use
these marks on a nationwide basis in connection with malt beverages,  and to use
"The MacTarnahan" on a nationwide basis in connection with whisky.

The Company has long  maintained  a practice of  registering  its brand names as
trademarks  in the State of Oregon.  It owns Oregon  registrations  for numerous
marks,  including  the brand names  Haystack  Black,


                                       5
<PAGE>
Uncle Otto's Oktoberfest,  Portland Porter,  Portland Brewing,  Portland Ale and
Malarkey's Wild Irish Ale. In addition,  the Company owns state registrations in
California,  Washington  and Colorado  for key brand  names.  To the best of the
Company's  knowledge,  it has the  right  to use the  brand  name of each of its
current products in areas where those products are currently distributed.

In January  2000,  the Company  acquired from Saxer  Brewing  Company  federally
registered trademarks for the names Nor'wester,  Saxer, Three Finger Jack, Peach
Creme, Blacksmith, and Saxer's Lemon Lager; and the design marks for Lemon Lager
and Nor'wester.  To the best of the Company's knowledge, it has the right to use
these marks on a nationwide basis in connection with malt beverages.

Competition

The  domestic  specialty  brewing  industry has grown to a 3% market share (Beer
Marketer's Insights- January 2001). Growth rates have slowed for the majority of
craft   brewers  and   distribution   opportunities   continue  to  diminish  as
consolidation  increases.  The Company believes that continued saturation in the
category  serves  to make  growth  more  difficult  for  national  and  regional
specialty breweries with greater mass marketing capabilities.  Additionally, the
existence of  micro-breweries/brew  pubs,  efforts by regional  craft brewers to
expand their production capacities and distribution,  and underutilized domestic
brewing  capacity are  significant  competitive  factors for specialty  brewers.
Also,  larger national  brewers  continue to develop brands to compete  directly
with "above-premium"  brands. These national competitors have advantages such as
lower production costs,  larger marketing  budgets,  greater financial and other
resources,  and a more  developed  and extensive  distribution  network than the
Company.

Sales of domestic  specialty beer to chain stores nationally are relatively flat
and  slightly  down when  factoring in the barrels of  "malternatives"  products
i.e.,  hard  lemonades  and  fruit-flavored   malt  beverages  (Beer  Marketer's
Insights- January 2001). In the northwestern  U.S. markets,  the top 10 domestic
specialty brewers experienced slight incremental gain in 2000 as eight had small
increases and two had decreases in Oregon.  The Company was able to gain a 16.7%
increase in Oregon  through the growth of core  brands and  acquisition  (Oregon
Liquor Control  Commission - Statement of Beer Sales in Oregon,  December 2000).
In  Washington,  the  Company's  shipments  were  down  12% for the  year due to
extremely  competitive  conditions and  distributor  consolidation.  The Company
believes that price  discounting,  solidifying  distribution,  maintaining shelf
space, and increasing sales and marketing efforts, will continue to be essential
to near and long term survival.

Growing demand for imported beer continues to have a negative impact on sales of
domestic  specialty beer. In Oregon,  import sales  increases  slowed to 2.5% in
2000, compared to 1999's 21%. Yet, the specialty beer category grew 0.5% in 2000
while the domestic macro beer category lost 3% market share. Nationally,  import
beers continue to outsell  domestic  specialty beers nearly three to one. Oregon
domestic  specialty  beers and import sales are currently  even, each with a 10%
market  share  (Oregon  Liquor  Control  Commission - Statement of Beer Sales in
Oregon, December 2000).

Governmental Regulation

The  production  and  sale  of  alcoholic  beverages  is  subject  to  extensive
regulation by the Federal Bureau of Alcohol, Tobacco and Firearms and individual
states'  alcoholic  beverage  regulatory  agencies.  The  Company  also  holds a
warehouse  license and a distillery  license issued by the Oregon Liquor Control
Commission solely to import and store whisky.

License  Description.  The Company operates under a Brewery Public House license
which allow sales  off-premise as well as through up to two retail outlets.  The
Company operates one restaurant at its brewery.

Taxes.  The Company  pays a federal  excise tax (FET) of $7.00 per barrel on all
production.  This tax increases to $18.00 per barrel on production  above 60,000
barrels per year.  In addition,  the Company pays an Oregon  excise tax of $2.60
per barrel.  Beginning in 2001,  payment of the Washington excise tax (which was
$4.68  per  barrel in 2000)  became  the  direct  responsibility  of  Washington
distributors.   In  other  states,


                                       6
<PAGE>
similar  excise  taxes are levied on the  distributor.  Increases  in either the
federal or state excise taxes would  inevitably  raise the price of beer,  which
may adversely affect sales.

Dram Shop  Liability.  The  Oregon  Supreme  Court has held that the  serving of
alcoholic  beverages  to a person known to be  intoxicated  may,  under  certain
circumstances,  result in the server  being  held  liable to third  parties  for
injuries caused by the intoxicated customer. The Company serves beer and wine to
its customers at its  restaurant.  If an intoxicated  customer is served wine or
beer and subsequently commits a tort such as causing an automobile accident, the
Company may be held liable for  damages to the  injured  person or persons.  The
Company has obtained host liquor liability  insurance coverage and will continue
such coverage if available at a reasonable  cost.  However,  future increases in
insurance  premiums may make it prohibitive for the Company to maintain adequate
insurance  coverage.  A large damage award against the Company,  not  adequately
covered by insurance, would adversely affect the Company's financial position.

Research and Development

The Company had minimal research and development  expenditures in 2000 and 1999,
and had no customer sponsored  research and development  activities during these
periods.  The Company has,  however,  conducted  focus group research in 2001 as
well as embarked on a marketing database  collection  strategy.  The Company has
from time to time,  developed  new  products  and will  continue to do so in the
future. Such products are sold to retail customers and, accordingly,  associated
development costs are expensed as cost of goods sold.

Employees

As of December 31, 2000, the Company had 95 employees (76 full time),  including
31 in brewing,  bottling and shipping operations, 39 in retail operations, 15 in
sales and marketing, six in administration, and four in the Company's hand truck
business.  None of the Company's employees are covered by collective  bargaining
agreements. The Company provides its full-time employees with health, dental and
life  insurance,  short  and  long  term  disability,  and  a  401(k)  plan.  No
contributions  were made by the Company to the 401(k) plan in 2000 or 1999.  The
Company  believes its  employee  relations  are good,  and believes its employee
practices  comply with all Federal and State laws and  regulations.  The Company
does carry employment practices liability  insurance.  There can be no assurance
that such  insurance  will continue to be available at a price or on other terms
satisfactory to the Company.

Concentrations of Risk

Distributor Concentration.  In 2000, wholesale distributors accounted for 88% of
the Company's shipments, of which 45% were to Oregon distributors. The Company's
largest  distributor,  Columbia  Distributing  Company,  which  distributes  the
Company's products in Oregon and Washington,  accounted for approximately 35% of
the Company's net sales in 2000. The next largest  distributor,  Wine Warehouse,
accounted for  approximately 12% of the Company's net sales for the same period.
Distribution  agreements generally grant exclusive  territories to distributors.
Distribution  agreements  and  applicable  state laws  limit the  ability of the
Company to terminate such agreements. The Company's distributors also market and
distribute   competing   brands.   While  the  Company   believes  it  has  good
relationships  with most of its distributors,  the Company can give no assurance
that each of its distributors will continue to effectively market and distribute
the  Company's  beer.  Because  state  liquor laws and/or  standard  contractual
provisions  limit the Company's  ability to terminate a distribution  agreement,
the Company can give no assurance  that a distributor  for any given  geographic
area could be replaced without cost or replaced immediately,  either temporarily
or  permanently,  in the  event the  distributor  was  performing  poorly in its
efforts to distribute the Company's  products or was otherwise unable to perform
(e.g.  as a result of an  employee  strike or damage  caused by fire or  natural
disaster).  The  Company's  inability  to  replace  a  non-performing  or poorly
performing distributor in a timely fashion and/or with minimal cost could have a
significant adverse effect on the Company's results of operations,  particularly
if the distributor were Columbia  Distributing  Company,  the Company's  largest
distributor.



                                       7
<PAGE>
Increased  Competition  and  Saturation in the  Specialty  Beer  Industry.  (See
"Industry  Overview" and  "Competition"  above).  Increased  competition and the
proliferation  of brands in the specialty beer industry has had and may continue
to have an adverse  effect on the Company's  business,  financial  condition and
results  of  operations.  There  can be no  assurance  that the  specialty  beer
industry will experience growth,  that it will not experience a downturn or that
any downturn will not be severe.  The Company's  future success will depend upon
its ability to continue to build brand awareness and increase sales and profits.

Operating  Hazards.  The  Company's  operations,  and the  brewing  industry  in
general,  are  subject  to certain  hazards  such as  contamination  of brews by
micro-organisms  and risk of equipment  failure.  The Company's products are not
heat  pasteurized,  irradiated  or chemically  treated.  The Company has product
liability insurance that it believes is adequate to cover risks of contamination
to third-parties. There can be no assurance that such insurance will continue to
be  available  at a price or on other terms  satisfactory  to the  Company.  The
Company carries business interruption  insurance to cover against insured losses
to equipment from direct physical damage.

Environmental Matters

The Company has  addressed  the waste water  treatment  issues raised in a March
1998 letter from the City of Portland,  Oregon. In 1999, the Company implemented
a solution to ensure continued compliance with appropriate  standards which cost
approximately  $65,000.  The  Company  is not aware of any  other  environmental
matters.

Sources of Liquidity

The Company requires capital  principally to fund its working capital needs. The
Company has met its capital  requirements  through bank  borrowings,  loans from
shareholders and the private and public sale of its Common Stock.

In 1998,  the  Company  obtained  a  $2,100,000  term loan from the  MacTarnahan
Limited Partnership ("MacTarnahan"),  a shareholder.  [See Item 11 - Interest of
Management and Others in Certain  Transactions -  Restructuring  of Debt].  This
$2,100,000  term loan was  secured  by  receivables,  inventory,  equipment  and
general  intangibles of the Company,  with interest at a per annum rate equal to
the prime  lending rate of the Bank of the  Northwest  plus 1% (9.5% at December
31, 2000). The term loan required  interest only payments with the total balance
due upon maturity.  On January 31, 2000,  the principal  amount of the term loan
was increased to $2,500,000  and the maturity date was extended from January 31,
2000 to April 1, 2001. In February 2001,  the Company  refinanced the $2,500,000
term loan with Western Bank.  This new term loan is secured by Company's  assets
and guaranteed by certain of the Company's shareholders,  including MacTarnahan.
The  maturity  date of the  replacement  term loan is August  2,  2001,  with an
extension of 90 days.  The interest  rate is equal to the prime  lending rate of
Western Bank plus 0.5% (9.0% at February 2, 2001).  The Company expects to place
the debt  permanently  with a financial  institution  by August 2, 2001.  If the
Company is unable to obtain a term loan,  the  guarantors  will be  required  to
assume the debt or secure the debt with income producing  commercial  properties
so that the loan may be amortized within the lender's underwriting standards. In
addition,  to the extent the Company is unable to refinance the $2,500,000  term
loan on or before maturity, MacTarnahan has entered into a binding commitment to
repay or purchase the term loan and  refinance  the loan for at least a 12 month
period with a 5 year amortization at market rates,  secured by the assets of the
Company and subject to customary financial  covenants.  Accordingly the debt has
been  classified  as long-term as of December 31, 2000.  [See Note 4 of Notes to
Consolidated  Financial  Statements  and Item 11 - Interest  of  Management  and
Others in Certain Transactions - Restructuring of Debt].

In 1998,  the  Company  offered  several  of its trade  creditors  the option of
receiving a discounted  amount of cash  immediately or the entire amount owed to
them to be paid over a five-year period.  As a result,  the Company issued notes
in the  aggregate  principal  amount of  $148,065 to trade  creditors,  of which
$49,206 was  outstanding at December 31, 2000. The notes bear interest at 6% per
annum and mature on September 1, 2003. Payments under the notes are due in equal
monthly payments of principal and interest.



                                       8
<PAGE>
The Company has a $1,000,000  revolving line of credit  ("Revolving  Line") with
Western Bank,  under which $750,752 and $435,465 was outstanding at December 31,
2000 and 1999. The Revolving Line is secured by certain of the Company's  assets
and is guaranteed by certain of the Company's shareholders.  Interest is payable
monthly at a per annum rate  equal to prime rate plus 1% (9.5% at  December  31,
2000).  The expiration  date is June 1, 2001.  The Company  expects to renew the
Revolving  Line  under  similar  terms.  The  Revolving  Line  contains  certain
covenants  including  restrictions  on  additional  indebtedness  and payment of
dividends  without the  permission of the lender.  The Company was in compliance
with all covenants at December 31, 2000.

On March 1, 1999,  Harmer Mill & Logging Supply Co. (dba Harmer Company) and the
Charles A. Adams  Family  Trust each  purchased  2,885  shares of the  Company's
Series A Preferred Stock ("Series A") for $52 per share,  resulting in aggregate
proceeds to the Company of $300,040.  [See Item 11 - Interest of Management  and
Others in Certain Transactions -Series A Preferred Stock].

Liquidity Risks

Competition.  The  Company  operates in the  specialty  beer  industry.  Intense
competition  and the  proliferation  of new brands have had and may  continue to
have an  adverse  effect on the  Company's  business,  financial  condition  and
results of  operations.  There can be no assurance that the Company will be able
to  increase  its sales  volume or be able to  maintain  its  selling  prices in
existing  markets or new markets.  (See  "Industry  Overview" and  "Competition"
above).

Operating Losses. The Company  experienced  significant  operating losses during
the years ended December 31, 2000 and 1999, and has continued to incur losses in
the first quarter of 2001. Operating results have fluctuated and may continue to
fluctuate as a result of many factors  including lower sales volumes and selling
prices,  increased  depreciation and other fixed operating costs as a percent of
sales during  periods when the Company's  brewery is operating at less than full
capacity, changes in product mix, increased selling and marketing costs incurred
as the  Company  protects  its  business  in  existing  markets,  and  increased
transportation costs.

Purchase  of Assets  from Saxer  Brewing  Company.  In January  2000 the Company
purchased  inventory,  equipment and the Saxer and Nor'wester  brands from Saxer
Brewing  Company.  In March 2000 the Company began production of these brands at
its  Portland  brewery.  The  production  and  distribution  of  the  Saxer  and
Nor'wester brands required  additional working capital.  The Company also agreed
to pay certain amounts based on barrel sales of the Saxer and Nor'wester brands,
subject to a minimum annual  payment.  In 2000,  since barrel sales of the Saxer
and Nor'wester  brands were below the minimum barrel  threshold,  the amount was
the minimum annual payment. In 2000, a payment of $90,000 was made. There are no
assurances  that the  production  and  distribution  of the Saxer and Nor'wester
brands will provide  sufficient  cash flow from  operations to  accommodate  the
increased  working  capital needs and repayment of the increased debt. [See Item
11 - Interest of Management  and Others in Certain  Transactions - Saxer Brewing
Company Asset Purchase].

Ability to Refinance  or Retire  Outstanding  Debt.  The Company has a term loan
with Western Bank,  secured by the Company's assets and guaranteed by certain of
the Company's  shareholders,  which matures on August 2, 2001, with an extension
of 90 days. The intent of this financing is to provide financing on a short-term
basis  followed by an  amortized  term loan once the  guarantors  determine  the
nature of the  collateral  that will secure the loan,  with longer  amortization
schedules provided for real estate collateral.  The Company expects to place the
debt permanently with a financial  institution by August 2, 2001. If the Company
is unable to obtain a term loan on or before  maturity,  the guarantors  will be
required to assume the debt or secure the debt with income producing  commercial
properties  so that the loan may be amortized  within the lender's  underwriting
standards.  In addition,  to the extent the Company is unable to  refinance  the
$2,500,000  term loan,  MacTarnahan  has entered into a binding  committment  to
repay or purchase the term loan and  refinance  the loan for at least a 12 month
period with a 5 year amortization at market rates,  secured


                                       9
<PAGE>
by the assets of the  Company  and  subject to  customary  financial  covenants.
Accordingly the debt has been classified as long-term as of December 31, 2000.

The Company has a $1,000,000  Revolving  Loan expiring on June 1, 2001 which the
Company  expects to refinance  under similar  terms.  [See Item 11 - Interest of
Management and Others in Certain  Transactions  -  Restructuring  of Debt].  The
Company's working capital requirements over the next year are expected to be met
partially from cash flow through operations, funds available under the Revolving
Line and, if  appropriate  and available,  additional  equity  offerings  and/or
borrowings  from other lenders.  The Company has a letter of commitment from the
MacTarnahan Limited Partnership to provide up to $500,000 in the form of debt or
equity to fund operations  through  December 31, 2001, to the extent the Company
incurs  working  capital  deficiencies.  [See  Note 4 of Notes  to  Consolidated
Financial Statements].

Year 2000 Issue

Costs directly related to Year 2000 remediation  efforts were immaterial in 1999
and the Company did not expect to incur  additional  expense in addressing  Year
2000 issues. As of the date of this filing,  the Company has not experienced any
Year 2000 issues with  respect to its  computer  equipment  and  software or any
disruptions with its significant vendors or customers, or problems in processing
orders and billings.  Additionally, the Company has not experienced difficulties
relating  to Year 2000  issues  resulting  in  disruption  of  service  from its
infrastructure  suppliers or its  telecommunications  and transportation  supply
channels.

Item 7.  Description of Property
--------------------------------

The Company's brewery, located at 2730 NW 31st Avenue in Portland, showcases the
copper brewing vessels and equipment acquired in 1991 from the Sixenbrau brewery
in  Nordlingen,  Germany.  The brewery  opened in 1993 and has a present  annual
production  capacity of  approximately  135,000  barrels of ale. The brewery has
27,000 square feet of  manufacturing,  shipping and warehouse space with a 1,000
square  foot,  three-story  brewhouse  (to house and display the copper  brewing
vessels), and 3,000 square feet of offices. Also included is a 3,000 square foot
restaurant,  The Tap Room,  complete with an outdoor  seating area.  The brewery
lease is for a 15 year term which  commenced  June 15, 1993. The monthly rent is
$24,906 plus property taxes,  insurance and maintenance,  with an adjustment for
inflation  or changes in fair  market  rental  value on July 1, 1998 and July 1,
2003. The increased rental adjustment was determined subsequent to July 1, 1998,
resulting in a $19,922  charge  which was paid by the Company in twelve  monthly
installments  beginning  February  1,  1999.  [See  Notes  5 and 7 of  Notes  to
Consolidated Financial Statements and Item 11- Interest of Management and Others
in Certain Transactions - Lease Agreement with Portland Brewing Building, LLC].

 In 1999, the Company entered into a lease for approximately  23,000 square feet
of space in a building  adjacent to the main brewery with a related party, L & L
Land  Company  ("L & L").  The term of the lease is 5 years,  with one option to
extend the term until June 14, 2008.  Rent under the lease is $12,000 per month.
In addition,  the Company agreed to pay the real property taxes on the building,
provide  insurance  and to make  various  maintenance  and  repairs.  The  lease
contains a first  opportunity  to purchase the adjacent  building.  The lease is
guaranteed by two  shareholders  of the Company.  In 1999, L & L reimbursed  the
Company $218,000 for costs incurred in prior years for constructing the shipping
dock at this property.  In connection with the lease, the Company entered into a
sublease with another party for  approximately  13,000 square feet of office and
warehouse  space and a portion of the parking  lot.  The term of the sublease is
month to month  and rent is  $4,974  per  month,  plus  $365 per  month for real
property taxes, plus payment of utilities,  insurance and interior  maintenance.
In 2000,  the Company  reduced the amount of  subleased  space to  approximately
8,000 square feet on a month to month basis for $3,168 per month. [See Note 7 of
Notes to Consolidated  Financial  Statements and Item 11- Interest of Management
and Others in Certain Transactions - Lease Agreement with L & L Land Company].

In October 1999, in connection  with the purchase of Harco,  the Company entered
into a lease with a related party for  approximately  5,600 square feet of space
in which Harco  operates.  Rent under the lease is $2,500 per month and the term
of the lease is five  years,  and can be  terminated  upon 60 days notice by the
Company.


                                       10
<PAGE>
[See Notes 3 and 7 of Notes to  Consolidated  Financial  Statements and Item 11-
Interest of Management and Others in Certain Transactions - Acquisition of Harco
Products, Inc.].

Item 8.  Directors, Executive Officers and Significant Employees
----------------------------------------------------------------

Directors.  The following lists the persons currently serving as directors.  The
term of office for each person  elected as a director  continues  until the next
Annual  Meeting of  Shareholders  and until a  successor  has been  elected  and
qualified.

                     Name of Director                             Age
                     ----------------                             ---
                     Charles A. (Tony) Adams                      54
                     Frederick L. Bowman                          56
                     Robert M. MacTarnahan                        85
                     R. Scott MacTarnahan                         54
                     William J. Prenger                           55
                     Howard M. Wall, Jr.                          55


Charles A. (Tony)  Adams.  Mr. Adams has been Chairman of the Board of Directors
and President and Chief Executive Officer of the Company since February 1992. He
has been a Director of the Company since October 1988. Mr. Adams is president of
Electra  Partners,  Inc., a private  investment  holding company.  Mr. Adams was
active in the real  estate  business  beginning  in 1973,  including  owning and
operating  his own  real  estate  company  until  1983,  when he  became a sales
associate at CB Commercial Real Estate Group,  Inc., where he was employed until
1992. He holds a B.A. in Geology from the University of Virginia and has studied
graduate level  economics and business  administration  at the University of San
Francisco,  Portland State  University and Stanford  University.  Mr. Adams is a
director of Portco  Corporation,  a company  which Howard M. Wall,  Jr., a board
member of the Company, is president and chief executive officer.

Frederick  L. Bowman.  Mr.  Bowman is a founder of the Company and has been Vice
President  since  February  1992.  In July  1997 Mr.  Bowman  was  also  elected
Treasurer and Secretary,  and in September 1998, Mr. Bowman was appointed to the
Board of Directors.  Mr. Bowman serves as corporate liaison to the beer industry
and assists in marketing  efforts  including  public relations and the Company's
distributor  support program.  He designed the Company's  original  products and
brewery.  Previous to founding Portland Brewing Company, Mr. Bowman was involved
in the wholesale automotive industry as both a technician and a district service
manager. Mr. Bowman has attended Portland State University, University of Oregon
and Oregon  State  University.  In  addition,  Mr.  Bowman  attended the Brewing
Microbiology and Microscopy course at the Siebel Institute in 1988.

Robert M. MacTarnahan.  Mr. MacTarnahan has been a Director since July 1985. Mr.
MacTarnahan has been a partner in Harmer Company and Black Lake  Investments for
more than five years.  Until October 31, 1999, Mr. MacTarnahan was the president
of Honeyman  Aluminum  Products  Company,  a manufacturer of hand trucks for the
beverage industry, for more than 10 years. He is also active in the promotion of
the  Company  and the  Company's  MacTarnahan's  Ale is named  after  him.  (See
"Certain Relationships And Related  Transactions").  Mr. R. Scott MacTarnahan is
his son.

R. Scott MacTarnahan. Mr. MacTarnahan has been a Director since July 1985. Until
October 31,  1999,  he was the vice  president  and general  manager of Honeyman
Aluminum Products Company and has been the vice president and general manager of
Harmer  Company  for more than 10 years.  Mr.  MacTarnahan  received  a B.S.  in
Business  Administration  from Portland State  University in 1968. Mr. Robert M.
MacTarnahan is his father.

William J. Prenger. Mr. Prenger was appointed to the Board of Directors in April
2000.  He is Vice  President  of Durham and Bates  Agencies,  a  Portland  based
regional  insurance  brokerage  firm.  Previously,  Mr.  Prenger


                                       11
<PAGE>
was Senior Vice  President  and  Principal  of a major  international  insurance
brokerage  firm,  having  held  senior  management  positions  in  Honolulu  and
Portland.  Mr.  Prenger  received a B.S.  in  Business  Administration  from the
University  of  Oregon in 1968 and  completed  Stanford  University's  Executive
Program for Smaller Companies in 1989.

Howard M. Wall,  Jr. Mr. Wall has been a Director of the Company  since  October
1992. Since 1984 he has been the president and chief executive officer of Portco
Corporation, a Vancouver,  Washington manufacturer of paper and plastic flexible
packaging  for the  produce,  fish,  and roofing  industries.  He has had a long
association with the Northwest hop industry as Portco developed the world's only
biodegradable  paper hop string.  Mr. Wall  received a B.A. in English  from the
University of Oregon in 1973.

Executive  Officers.  The following  lists the names,  ages and positions of the
Company's current executive officers, along with certain other information.  The
Company's  officers are elected by the Board of Directors at its annual meeting,
and hold office  until the next  annual  meeting of the Board of  Directors  and
until their successors are elected and qualified.


     Name                                  Age         Position(s) with Company
     ----                                  ---         ------------------------
     Charles A. (Tony) Adams                54         Chairman of the Board,
                                                       President and Chief
                                                       Executive Officer
     Jerome M. Chicvara                     49         Executive Vice President
     Frederick L. Bowman                    56         Vice President, Secretary
                                                       and Treasurer
     Mark L. Carver                         47         Vice President, Sales
     Michael J. Skelley                     39         Vice President, Sales

For  information  on the business  background of Mr. Adams and Mr.  Bowman,  see
"Directors" above.

Mark L. Carver. Mr. Carver has been Vice President,  Sales since September 1999,
and served as National  Off-Premise  Sales Manager and National  Account Manager
from 1995 until September 1999. Mr. Carver joined the Company in 1991.  Prior to
that,  Mr. Carver worked at the  wholesale  distributor  level for 13 years with
Pepsi Cola and Columbia Distributing in the Portland,  Oregon market. Mr. Carver
received his Bachelor of Science Degree in 1975 from the University of Oregon.

Jerome M.  Chicvara.  Mr.  Chicvara was appointed as Executive Vice President in
February  2001 and was a  director  from June  2001 to  February  2001.  He is a
twenty-year  veteran  of the beer  and wine  industry,  and has  delivered  many
keynote  speeches to the industry in his role as industry pioneer and visionary.
He spent the first seven years of his beverage  career  learning  the  wholesale
trade as a Sales  Executive.  In 1987,  Mr.  Chicvara  co-founded  the Full Sail
Brewing  Company  and served as  Director  of Sales &  Marketing.  His  guidance
assisted the company as it pioneered  Oregon's first microbeer in a bottle.  Mr.
Chicvara was founding  President of the Oregon  Brewer's  Guild,  an association
committed to quality brewing techniques in Oregon's vast microbrew industry.  In
1999,   Mr.   Chicvara   sold  his  equity  in  Full  Sail  and   joined   Saxer
Brewing/Nor'Wester  Beer as VP Marketing & Sales.  Mr Chicvara  joined  Portland
Brewing Co. in April 2000. He holds a Bachelor of Communications  from Evergreen
State College.

Michael J Skelley.  Mr. Skelley has been Vice  President,  Sales since September
1999, has served as Director of Sales & Marketing - Central and Eastern  markets
from January 1998 until  September 1999, and has served as General Sales Manager
- Midwest and East from June 1996 until January 1998.  Mr. Skelley has worked in
the beverage  industry for 12 years and has 17 years of consumer  product  sales
and marketing  experience.  Mr. Skelley  received his Bachelor of Arts Degree in
Business Administration/Marketing in 1984 from Coe College, Cedar Rapids, Iowa.





                                       12
<PAGE>
Item 9.  Remuneration of Directors and Officers
-----------------------------------------------

a. Director and Officer Remuneration

Directors  receive no cash  compensation  for serving on the Board of Directors.
Each Director,  with the exception of Mr. Adams,  has been granted options under
the  Company's  Non-Qualified  Stock Option Plan  ("NQSOP").  As of December 31,
1999, options to purchase 13,500 shares of the Company's Common Stock at $5.3333
per share are  outstanding  under the NQSOP.  No options were granted  under the
NQSOP in 2000.

The  following  table sets forth  information  regarding  all cash  compensation
earned by each of the three most highly compensated officers and all officers as
a group for the year ended December 31, 2000.
<TABLE>
<CAPTION>
                                     Capacities in Which                                  Aggregate
     Name                            Remuneration Was Received                            Remuneration
     ----                            -------------------------                            ------------
<S>                                  <C>                                                  <C>
     Charles A. (Tony) Adams         Chairman of the Board, President and Chief           $    60,000
                                     Executive Officer
     Glenmore James                  Formerly: Executive Vice President, Chief Financial      108,780
                                     Officer and Chief Operating Officer
     Michael J. Skelley              Vice President, Sales                                     97,919

     All officers as a group (6                                                               477,204
     persons)*
     *(includes Mr James)
</TABLE>

         Mr.  James  resigned  as an  officer  and  employee  of the  Company on
December 15, 2000.

b. Remuneration Plans

Incentive  Stock Option Plan. In October 1992, the  shareholders  of the Company
approved  the  Company's  Incentive  Stock  Option  Plan  ("ISOP").  The ISOP is
administered  by the  Company's  Board of  Directors  and provides for grants to
officers and  employees  of options to acquire  shares of the  Company's  Common
Stock, subject to the limitations set forth in the ISOP. The ISOP was amended in
December 1998 to increase the number of shares available for issuance thereunder
from 163,500 to 400,000. Pursuant to the ISOP, the granting of options is at the
discretion of the Board of Directors,  and it has the authority to set the terms
and conditions of the options granted, including the option exercise price which
must be a price equal to at least 100% of the fair  market  value of the subject
shares of Common  Stock at the time the option is granted.  As of  December  31,
2000,  options  covering  316,250  shares of the  Company's  Common  Stock  were
outstanding under the ISOP.

Incentive  Stock Option  Repricing.  The Company  maintains  its ISOP to provide
incentives  to the Company's key employees to exert their best efforts on behalf
of the  Company.  In 1999,  the  Company  noted  that  there  was a  significant
difference  between the exercise  prices of stock  options held by its employees
and the market value of the underlying stock, which results in options providing
little  incentive.  The Board of Directors  determined  that  establishing  new,
shorter  term  options,  based  on  pricing  which  more  closely  reflects  the
underlying  stock price,  was crucial to obtaining and retaining its  personnel.
Accordingly,  in May 1999, options to purchase 118,800 shares of Common Stock at
prices  ranging  from $3.33 to $7.00 per share were  repriced  and  regranted on
different  terms,  of which  options  to  purchase  72,000  shares  were held by
executive  officers of the Company.  Repriced  options to purchase 82,800 shares
were issued at an exercise price of $0.54 per share and repriced options granted
to Mr.  Adams to purchase  36,000  shares  were  issued at an exercise  price of
$0.594 per share. Mr. Adams' options were cancelled on December 31, 2001. All of
the repriced options became exercisable on May 20, 2000.

Restated Cash Incentive  Plan. The Company may award its officers and employees,
under its Restated Cash Incentive Plan ("the Plan"),  bonuses in an amount up to
10 percent (10%) of net operating  profits  before


                                       13
<PAGE>
taxes.  Awards under the Plan will be allocated among the officers and employees
in accordance  with the provisions of the Plan at the discretion of the Board of
Directors. No amounts were awarded in 2000 or 1999 under the Plan.

Non-Qualified  Stock Option Plan. In August 1994, the Board of Directors adopted
the 1994 Non-Qualified Stock Option Plan ("NQSOP"). The NQSOP is administered by
the Board of Directors and provides for grants to officers, employees, directors
and  consultants  of options to  acquire  up to 45,000  shares of the  Company's
Common  Stock at an exercise  price of at least 85% of the fair market  value of
the  subject  shares of Common  Stock at the time the  option  is  granted.  The
granting  of  options  is at the  discretion  of the Board of  Directors.  As of
December 31, 2000 options  covering 13,500 shares of the Company's  Common Stock
were outstanding under the NQSOP.

Item 10. Security Ownership of Management and Certain Security Holders
----------------------------------------------------------------------

The following  table sets forth  certain  information  regarding the  beneficial
ownership of voting equity  securities of the Company as of March 17, 2001 as to
(i) each person who is known by the Company to own  beneficially  10% or more of
the outstanding shares of such class of voting equity securities of the Company,
(ii) each of the three most highly compensated  officers and (iii) all Directors
and officers as a group.  Except as otherwise  noted,  the Company  believes the
persons  listed below have sole  investment and voting power with respect to the
voting equity securities owned by them.
<TABLE>
<CAPTION>
                                                                                             Series A
                                                           Common Stock                   Preferred Stock (13)
                                                  --------------------------      ----------------------------
                                                     Shares        Percent of        Shares        Percent of
      Name of Beneficial Owner or                 Beneficially       Shares       Beneficially       Shares
      Number of Persons in Group                    Owned (1)      Outstanding      Owned (1)      Outstanding
      --------------------------                    ---------      -----------      ---------      -----------
<S>                  <C>                         <C>             <C>                 <C>         <C>
      Shareholder Group (12)                        2,340,697.5     46.0  %             5,770       100  %

      Robert M. MacTarnahan (2) (3) (11) (12)       2,340,697.5     46.0                5,770       100

      R. Scott MacTarnahan (2) (4) (11) (12)        2,340,697.5     46.0                5,770       100

      Charles A. (Tony) Adams (2) (5) (11)          2,340,697.5     46.0                5,770       100
      (12)

      Steven C. Goebel (8)                              454,518      9.1

      Kerry S. Gilbert (7)                              366,183      7.3

      Frederick L. Bowman (2) (6)                        72,445      1.4                    -         -

      Jerome M. Chicvara (2) (14)                             0        *                    -         -

      Mark L. Carver (2) (9)                             29,100        *                    -         -

      Michael J. Skelley (2) (10)                        25,000        *                    -         -

      All Officers and Directors as a group,
      (9 persons)  (11) (12) (13)                   2,477,142.5     47.3  %             5,770       100  %
</TABLE>


     * Represents beneficial ownership of less than 1% of the outstanding Common
Stock.



                                       14
<PAGE>

     (1)   Beneficial  ownership includes voting power and investment power with
           respect to shares and includes  shares  issuable upon the exercise of
           outstanding stock options and warrants.

     (2)   The business  address for these  individuals  is 2730 NW 31st Avenue,
           Portland, Oregon 97210.

     (3)   Includes   22,860  shares  owned   individually   by  Mr.  Robert  M.
           MacTarnahan,  433,971 shares owned by the  MacTarnahan  Family Trust,
           which is controlled  by Mr. and Mrs.  Robert M.  MacTarnahan,  73,335
           shares held by Black Lake Investments,  a co-partnership of RM and RS
           MacTarnahan,  and 765,162 shares held by Harmer Mill & Logging Supply
           Co. (dba Harmer  Company),  which is owned by the MacTarnahan  Family
           Trust, RS MacTarnahan,  AJ MacTarnahan,  and SM Whitworth,  43,848.75
           shares which may be purchased  for $3.3333 per share upon exercise of
           a warrant held by  MacTarnahan  Limited  Partnership,  whose  general
           partner  is  Harmer  Mill & Logging  Supply  Co.  and  whose  limited
           partners  are  the  MacTarnahan  Living  Trust,  RS  MacTarnahan,  AJ
           MacTarnahan,  and  SM  Whitworth,  and  6,000  shares  which  may  be
           purchased  for  $5.3333 per share upon  exercise  of a  non-qualified
           stock option held by Mr. Robert M. MacTarnahan. (See note 13).

     (4)   Includes   108,492  shares  owned   individually   by  Mr.  R.  Scott
           MacTarnahan,   73,335  shares  held  by  Black  Lake  Investments,  a
           co-partnership  of RM and RS  MacTarnahan,  765,162  shares  held  by
           Harmer Mill & Logging  Supply Co,  which is owned by the  MacTarnahan
           Family Trust, RS MacTarnahan,  AJ MacTarnahan,  and SM Whitworth, 600
           shares held by Mr. R. Scott  MacTarnahan's  spouse,  43,848.75 shares
           which may be  purchased  for  $3.333  per share  upon  exercise  of a
           warrant  held  by  MacTarnahan  Limited  Partnership,  whose  general
           partner  is  Harmer  Mill & Logging  Supply  Co.  and  whose  limited
           partners  are  the  MacTarnahan  Living  Trust,  RS  MacTarnahan,  AJ
           MacTarnahan,  and SM  Whitworth,  6,000 shares which may be purchased
           for $5.333 per share upon  exercise of a  non-qualified  stock option
           held by Mr. R. Scott MacTarnahan. (See note 13).

     (5)   Includes  180,300  shares held by Electra  Partners,  Inc., an entity
           controlled by Mr. Adams,  666,192 shares held by Mr. Adams as Trustee
           of the Charles A. Adams Family Trust,  32,886.75  shares which may be
           purchased  for $3.3333  upon  exercise  of a warrant  held by Electra
           Partners, Inc.. (See note 13).

     (6)   Includes 44,445 shares owned  individually by Mr. Bowman,  and 28,000
           shares  which may be purchased  for $0.54 per share upon  exercise of
           incentive  stock options held by Mr. Bowman.  Does not include 23,000
           shares  which may be purchased  for $0.59 per share upon  exercise of
           incentive  stock options  granted to Mr. Bowman on February 22, 2001,
           to be vested on February 22, 2002.

     (7)   The information as to beneficial ownership is based on a Schedule 13D
           filed with the Securities and Exchange Commission by Kerry S. Gilbert
           (1822 SW  Madison,  Portland,  Or.  97205) on January  5,  2001.  Mr.
           Gilbert was a former  principal of Lake Oswego Brewing Co., fka Saxer
           Brewing Company.

     (8)   The information as to beneficial ownership is based on a Schedule 13D
           filed with the Securities and Exchange Commission by Steven C. Goebel
           (4019 SW Downsview  Ct.,  Portland,  Or. 97221) on January 5, 2001 in
           his  capacity  as  Trustee  of the  Steven  C.  Goebel  Trust  and as
           Custodian  under  Oregon  UTMA for Luke B. Goebel and Marie E. Goebel
           and  Elizabeth  M.  Goebel,  and in his  capacity  as  Trustee of the
           Elizabeth M. Goebel Trust and as custodian under Oregon UTMA for Carl
           S. Goebel and Marie E. Goebel.  Mr. Goebel was a former  principal of
           Saxer Brewing Company, and subsequently Lake Oswego Brewing Co.

     (9)   Includes  1,100 shares owned  individually  by Mr.  Carver and 28,000
           shares  which may be purchased  for $0.54 per share upon  exercise of
           incentive stock options held by Mr. Carver.


                                       15
<PAGE>
     (10)  Includes  25,000  shares which may be  purchased  for $0.54 per share
           upon exercise of incentive stock options held by Mr. Skelley.

     (11)  Includes  242,735.5  shares which may be purchased for prices ranging
           from $0.54 to $5.33 per share, upon exercise of stock options held by
           all Directors and officers,  as a group.  Includes  43,848.75  shares
           which may be  purchased  for  $3.3333  per share upon  exercise  of a
           warrant held by MacTarnahan  Limited Partnership and 32,886.75 shares
           which may be purchased for $3.3333 upon exercise of a warrant held by
           Electra Partners, Inc.

     (12)  Robert M. MacTarnahan,  Robert S. MacTarnahan,  Harmer Mill & Logging
           Supply Co. (dba Harmer Company) (11416 SW Lynnridge, Portland, Oregon
           97225),  MacTarnahan  Family  Trust  (11416 SW  Lynnridge,  Portland,
           Oregon 97225), Black Lake Investments (11416 SW Lynnridge,  Portland,
           Oregon 97225),  MacTarnahan  Limited Partnership (11416 SW Lynnridge,
           Portland,  Oregon 97225),  Charles A. Adams,  Electra Partners,  Inc.
           (1765 Farmington  Road,  Aloha,  Oregon 97007),  the Charles A. Adams
           Family Trust (4047 Shattuck Road, Portland,  Oregon 97221), Katherine
           McBride (fka Katherine  Maxwell Adams) (2636 NE 11th Ave.,  Portland,
           Or. 97221), and Charles F. Adams III (4923 SW Lowell,  Portland,  Or.
           97221),  are  members  of a "group"  as that term is used in  Section
           13(d)(3) of the Securities Exchange Act of 1934 ("34 Act").  Pursuant
           to Rule 13d-5  promulgated  under the 34 Act,  the group is deemed to
           beneficially  own all shares of the  Company  which are  beneficially
           owned by any member of the group and therefore the group beneficially
           owns 2,376,697.5  shares of Common Stock.  Because each member of the
           group shares investment and voting control of the group shares,  each
           member of the group is deemed to  beneficially  own all shares of the
           group. Therefore, (a) Robert M. MacTarnahan is deemed to beneficially
           own  1,031,520.75  shares of Common  Stock in  addition to the shares
           described  in  note  3,  (b)  R.  Scott   MacTarnahan  is  deemed  to
           beneficially own  1,379,259.75  shares of Common Stock in addition to
           the  shares  described  in note 4, (c)  Charles A. Adams is deemed to
           beneficially own  1,460,268.75  shares of Common Stock in addition to
           the shares described in note 5, (d) Katherine  McBride (fka Katherine
           Maxwell Adams) is deemed to beneficially  own  2,340,172.5  shares of
           Common  Stock in addition to the 525 shares of Common  Stock owned in
           her name, and (e) Charles F. Adams III is deemed to beneficially  own
           2,340,172.5  shares of Common  Stock in addition to the 525 shares of
           Common  Stock  owned in his  name.  (See note 13  regarding  Series A
           Preferred Stock).

     (13)  On March 1,  1999,  Harmer  Mill & Logging  Supply  Co.  (dba  Harmer
           Company) and the Charles A. Adams Family Trust each  purchased  2,885
           shares of the Company's Series A Preferred Stock ("Series A") for $52
           per  share,  resulting  in  aggregate  proceeds  to  the  Company  of
           $300,040.  As noted above in note 12, Harmer  Company and the Charles
           A. Adams  Family  Trust are members of a "group" as that term is used
           in Section 13(d)(3) of the 34 Act. Pursuant to Rule 13d-5 promulgated
           under the 34 Act, the group is deemed to beneficially  own all shares
           of the  Company  which are  beneficially  owned by any  member of the
           group and  therefore  the group  beneficially  owns  5,770  shares of
           Series A stock.  Because each member of the group  shares  investment
           and voting  control of the group shares,  each member of the group is
           deemed to beneficially own all shares of the group.

     (14)  Does not include  50,000  shares which may be purchased for $0.59 per
           share  upon  exercise  of  incentive  stock  options  granted  to Mr.
           Chicvara on February 22, 2001, to be vested on February 22, 2002.






                                       16
<PAGE>
                          OPTIONS, WARRANTS AND RIGHTS

The following table sets forth certain information regarding outstanding options
and  warrants to purchase  shares of Common  Stock of the Company as of March 1,
2000 as to (i) each person who is known by the Company to own  beneficially  10%
or more of the outstanding  shares of the Company's  Common Stock,  (ii) each of
the three most highly compensated  officers and (iii) all Directors and officers
as a group.

<TABLE>
<CAPTION>
                                     Number of Shares of Common Stock
                                          Called for by Options
Name of  Holder                                and Warrants              Exercise Price        Date of Exercise
--------------------------------        ----------------------------    -----------------     -----------------
<S>                                           <C>                         <C>                    <C>
MacTarnahan Limited Partnership (1)              43,848.75                   $3.333                 (2)
Electra Partners, Inc. (1)                       32,886.75                   $3.333                 (2)
Robert M. MacTarnahan (1)                         6,000                      $5.333                 (2)
R. Scott MacTarnahan (1)                          6,000                      $5.333                 (2)
Frederick L. Bowman                              51,000                      $0.54                  (3)
Jerome M. Chicvara                               50,000                      $0.59                  (7)
Mark Carver                                      28,000                      $0.54                  (4)
Michael Skelley                                  25,000                      $0.54                  (5)

All Directors and officers as a group,
(9 persons)                                    242,735.5                  $0.54-$5.33               (8)
</TABLE>


(1)      As noted in Item 10 - Security  Ownership  of  Management  and  Certain
         Security  Holders,  Footnote 12, each of these holders are members of a
         "group"  as  that  term  is used  in  Section  13(d)(3)  of the 34 Act.
         Pursuant  to Rule  13d-5  promulgated  under  the 34 Act,  the group is
         deemed  to  beneficially  own  all  shares  of the  Company  which  are
         beneficially  owned by any member of the group and  therefore the group
         beneficially owns 88,735.5 shares of Common Stock which may be acquired
         under  outstanding  options and warrants,  as noted in the table above.
         Because each member of the group shares  investment  and voting control
         of the group shares, each member of the group is deemed to beneficially
         own all shares of the group.

(2)      Options and warrants are currently exercisable.

(3)      Options to purchase  8,000 shares of Common Stock issued to Mr.  Bowman
         in January  1996 at $7.00 per share were  repriced in May 1999 to $0.54
         per share. (See "Remuneration of Directors and Officers-Incentive Stock
         Option Repricing").  Additionally,  in May 1999, Mr. Bowman was granted
         options to  purchase  20,000  shares  Common  Stock at $0.54 per share.
         28,000 of Mr. Bowman's  outstanding  options became  exercisable on May
         20, 2000.  In  addition,  options to purchase  23,000  shares of Common
         Stock issued to Mr. Bowman in February  2001 at $0.59 per share.  These
         options become exercisable on February 22, 2002.

(5)      Options to purchase  28,000 shares of Common Stock issued to Mr. Carver
         in July 1993 at $3.33 per share were  repriced in May 1999 at $0.54 per
         share.  (See  "Remuneration of Directors and  Officers-Incentive  Stock
         Option  Repricing").  All of Mr.  Carver's  outstanding  options became
         exercisable on May 20, 2000.

(6)      Options to purchase 25,000 shares of Common Stock issued to Mr. Skelley
         in August,  1996 at $7.00 per share were  repriced in May 1999 at $0.54
         per share. (See "Remuneration of Directors


                                       17
<PAGE>
         and Officers-Incentive  Stock Option Repricing").  All of Mr. Skelley's
         outstanding options became exercisable on May 20, 2000.

(7)      Options  to  purchase  50,000  shares  of  Common  Stock  issued to Mr.
         Chicvara in  February,  2001 at $0.59 per share.  All of Mr.  Chivara's
         outstanding options become exercisable on February 22, 2002.

(8)      As of December 31, 2000,  options to purchase  329,750 shares of Common
         Stock were exercisable.  As of December 31, 2000,  warrants to purchase
         76,735.5 shares of Common Stock were exercisable.

Item 11.  Interest of Management and Others in Certain Transactions
-------------------------------------------------------------------

Saxer Brewing Company Asset Purchase

On January 31, 2000, the Company purchased certain assets (equipment and brands)
from Saxer Brewing  Company for 900,000  shares of the  Company's  common stock,
$150,000 cash and a three year agreement to pay certain  amounts based on barrel
sales of the Saxer and Nor'wester  brands,  such amount secured by the Saxer and
Nor'wester  brands.  In connection  with the purchase,  Mr.  Goebel,  a majority
shareholder of Saxer Brewing Company, was appointed to the board of the Company.
Also in connection with the purchase,  the Company and Mr. Goebel entered into a
consulting  agreement under which Mr. Goebel provided consulting services to the
Company  relating to brand  management and marketing,  for $4,500 per month. The
consulting  agreement  terminated  on May 31,  2000,  and was not  extended.  In
connection  with the  purchase,  Charles A. Adams,  the Charles A. Adams  Family
Trust, Electra Partners,  Inc. and Mr. Adams' children ("Adams Parties") and Mr.
and Mrs. Robert M MacTarnahan and their children and certain entities controlled
by them  ("MacTarnahan  Parties")  entered into a voting  agreement.  The Voting
Agreement was terminated in March 2001. In 2000, the amount paid based on barrel
sales was $90,000.

Acquisition of Harco Products, Inc.

In October 1999,  the Company  acquired all of the  outstanding  common stock of
Harco Products,  Inc., ("Harco"), an entity controlled by Mr. and Mrs. Robert M.
MacTarnahan and Mr. R. Scott MacTarnahan. Harco produces hand trucks for various
industrial  uses.  The purchase  price of $569,585,  was paid by the issuance of
759,447  shares  the  Company's  common  stock  valued  at $0.75 per  share.  In
connection  with the  acquisition,  the Company  received and  cancelled  30,000
shares of its Common  Stock  that were  owned by Harco.  [See Note 3 of Notes to
Consolidated  Financial  Statements].  Also in  connection  with the purchase of
Harco,  the  Company  and Mr. R. Scott  MacTarnahan  entered  into a  consulting
agreement under which Mr.  MacTarnahan will provide  consulting  services to the
Company for $2,500 per month.  The  consulting  agreement will terminate upon 30
days notice by the Company or Mr. MacTarnahan.

In connection with the purchase of Harco,  the Company entered into a lease with
the McTarnahan Limited Partnership, an entity controlled by two directors of the
Company for  approximately  5,600 square feet of space in which Harco  operates.
Rent  under  the  lease is  $2,500  per  month and the term of the lease is five
years, and can be terminated upon 60 days notice by the Company.

Lease Agreement with Portland Brewing Building, L.L.C.

In November 1992,  the Company  executed a triple net, 15 year lease (with three
five-year  renewal options) for the Company's new brewery at 2730 NW 31st Avenue
in Portland. The Company believes that the terms and conditions of its lease, as
amended,  are fair and  reasonable and are no less favorable to the Company than
could be obtained from unaffiliated  parties.  Through a series of transactions,
the  property  and the lease were  contributed  to  Portland  Brewing  Building,
L.L.C.,  the interests of which are owned 44% and 56%  respectively,  by Electra
Partners, Inc. and MacTarnahan Limited Partnership.  The monthly rent is $24,906
plus property taxes, insurance and maintenance, with an adjustment for inflation
or changes in fair  market


                                       18
<PAGE>
rental value on July 1, 1998 and July 1, 2003. The increased  rental  adjustment
was determined  subsequent to July 1, 1998,  resulting in a $19,922 charge which
was paid by the Company in twelve monthly installments which ended on January 1,
2000. In connection  with the  negotiation  of this lease,  MacTarnahan  Limited
Partnership  and  Electra  Partners,  Inc.  each were  issued  warrants  for the
purchase of 43,848.75 shares of Common Stock at $3.333 per share, exercisable at
any time through December 31, 2002.

Lease Agreement with L & L Land Company

In May 1999,  the Company  entered into a lease of  approximately  23,000 square
feet of space  (the  "lease")  located  in the  warehouse  and  office  building
commonly  known as 2750  N.W.  31st  Avenue,  Portland,  Oregon  (the  "Adjacent
Building").  The  Adjacent  Building  is owned by L & L Land  Company (a general
partnership  consisting  of Howard M. Wall, a director of the  Company,  and his
wife,  Patricia  Wall).  The term of the  lease is 5 years,  with one  option to
extend the term until June 14, 2008.  Rent under the lease is $12,000 per month.
In addition,  the Company  agreed to pay, as additional  rent, the real property
taxes for and to insure the Adjacent  Building and to be responsible for certain
types of  maintenance  and repairs.  The lease  contains a first  opportunity to
purchase the Adjacent Building. The lease is guaranteed by Robert M. MacTarnahan
and  Charles A.  Adams.  As part of the lease  transaction,  L & L Land  Company
reimbursed the Company for $218,000 for its costs in  constructing  the shipping
dock. In  connection  with the lease,  the Company  entered into a sublease with
Power Transmission Products,  Inc. of approximately 13,000 square feet of office
and  warehouse  space and a portion of the parking  lot. The term of sublease is
one year,  with a one-year  renewal and rent is $4,974 per month,  plus $365 per
month for real property taxes, plus payment of utilities, insurance and interior
maintenance. In March 2000, the Company reduced the amount of subleased space by
taking back for its own use  approximately  4,700 square feet, which reduced the
sublease amount to  approximately  $3,200 per month.  The terms of the lease and
sublease  were  determined to be fair to the Company and approved by all members
of the Board of Directors, except Mr. Wall.

License Agreement with Robert M. MacTarnahan

In July 1994, the Company entered into a License Agreement ("License Agreement")
with Robert M. MacTarnahan, a director of the Company, and Harmer Mill & Logging
Supply  Co.  ("Harmer"),  a  company  controlled  by  Mr.  and  Mrs.  Robert  M.
MacTarnahan.  Pursuant to the License Agreement, (i) Mr. MacTarnahan conveyed to
the Company the right to use his surname and its  variation  "MacTarnahan"  as a
Company trademark,  and (ii) the Company has been granted an exclusive worldwide
license to use Mr. MacTarnahan's  likeness,  image and other personal attributes
to  promote  the  sale  of the  Company's  products,  merchandise,  and  related
materials.  The license  expires on December 31, 2093. In  consideration  of the
license  grant,  the  Company  must  pay  a  royalty  of  $1.00  per  barrel  of
MacTarnahan's  Ale sold by the Company for the term of the license.  The Company
has the right to terminate the License  Agreement on 30-days' written notice and
the license  may also  terminate  under other  conditions  as  specified  in the
License  Agreement.  In the event the license is terminated or  terminates,  the
Company  must  assign its rights to the  trademark  "MacTarnahan"  and the above
variations  to Mr.  MacTarnahan.  Royalties  paid to Harmer  under  the  License
Agreement for 2000 and 1999 were $27,837 and $27,245 respectively,  based on the
sale of 27,837 and 27,245 barrels, respectively, of MacTarnahan's Ale during the
same periods.

Lease Agreement with Clan Associates as Tenants-in-common

The Company leases approximately 15,000 square feet for parking at $0.10/sq. ft.
from  Clan  Associates  under an oral  agreement  beginning  in  April  2000 for
$1,500.00  per month.  Clan  Associates is a tenancy in common  between  Electra
Partners,  Inc. and Harmer. The terms of the lease were determined to be fair to
the Company and approved by all disinterested members of the Board of Directors.

Series A Preferred Stock

On March 1, 1999,  Harmer and the Charles A. Adams Family  Trust each  purchased
2,885 shares of the Company's  Series A Preferred Stock ("Series A") for $52 per
share, resulting in aggregate proceeds to the Company of $300,040. Each share of
Series A is convertible on February 25, 2004 into fully paid and  non-


                                       19
<PAGE>
assessable  shares of Common  Stock at a rate of 100 shares of Common  Stock for
each share of Series A. The  conversion  ratio,  which is currently 100 to 1, is
subject to  adjustment in the event of stock splits or stock  dividends.  Unless
converted,  the Company must redeem the Series A shares on February 25, 2004, at
$52 per share plus any  declared  but unpaid  dividends,  in cash or in 24 equal
monthly payments bearing interest at 12% per annum. Each shareholder of Series A
is entitled to the number of votes equal to the number of shares of Common Stock
into  which the  Series A shares  can be  converted  and the Series A shares are
entitled to vote as a separate class.  Each  shareholder of Series A is entitled
to  receive  cumulative  dividends  at the  rate of 8% per  annum,  when  and if
declared  by the Board of  Directors,  prior to payment of  dividends  on Common
Stock.  No dividends have been declared to date. In the event of any liquidation
or dissolution of the Company, either voluntary or involuntary, each shareholder
of  Series A shall be  entitled  to  receive,  prior  and in  preference  to any
distribution  of any assets or surplus funds to the holders of Common Stock,  an
amount  equal to $52 per share for each share of Series A and, in  addition,  an
amount equal to all declared but unpaid dividends on Series A.

Restructuring of Debt

On  November  18,  1998,  the Company and the  MacTarnahan  Limited  Partnership
entered into a Loan Restructuring  Agreement  ("Restructuring  Agreement") which
replaced  the Bank of America  Loan  Agreement  and the  Credit and  Forbearance
Agreement and reduced the  outstanding  amount of the loan  previously due under
the Bank of America  Loan  Agreement  (which was  subsequently  assigned  to the
MacTarnahan Limited Partnership) to approximately  $2,100,000 due on January 31,
2000. On January 31, 2000, the available borrowing capacity of the Term Loan was
increased to $2,500,000  and the maturity date was extended to April 1, 2001. In
March 2000, the Company borrowed an additional  $400,000 under the Term Loan and
paid $400,000 of the amounts  outstanding  under its Revolving Line. In February
2001,  the Company  refinanced  the Term Loan with Western Bank,  secured by the
Company assets and guaranteed by certain of the Company's shareholders

In connection with the  Restructuring  Agreement,  Charles A. Adams,  the Trust,
Electra Partners,  Inc. and Mr. Adams' children ("Adams Parties") entered into a
Voting Agreement with Robert M.  MacTarnahan,  R. Scott  MacTarnahan and certain
entities  controlled  by them  ("MacTarnahan  Parties").  The  Voting  Agreement
replaces  the  letter  voting  agreement  entered  into on August  26,  1998 and
provides that the Adams  Parties will vote all of their voting  capital stock in
the Company at the  direction of the  MacTarnahan  Parties.  Although the Voting
Agreement by its terms expires upon  termination of the payment of amounts owing
under the  Restructuring  Agreement,  the  parties  have  agreed  to extend  the
arrangement.

In addition,  the  Revolving  Loan is secured by accounts  receivable,  contract
rights,  inventory and general intangibles,  and is guaranteed by certain of the
Company's  shareholders.  These guarantees are also secured by certain assets of
the Company.

                                     Part II
                                     -------

Item 1. Market Price and  Dividends on the Registrant's  Common Equity and Other
--------------------------------------------------------------------------------
Shareholder Matters
-------------------

There is no public  trading market for the Company's  Common Stock.  The Company
had 5,702  shareholders  of record as of March 16,  2001.  The Company has never
declared any cash dividends on its Common Stock,  nor does the Company intend to
do so in the near  future.  Pursuant  to certain  loan  agreements,  the Company
cannot  declare  or  pay  dividends  on any of  its  outstanding  stock,  except
dividends payable in Common Stock of the Company,  without prior written consent
of the lenders.  Holders of the Company's  Series A Preferred Stock are entitled
to  receive  cumulative  dividends  at the  rate of 8% per  annum,  when  and if
declared  by the Board of  Directors,  prior to payment of  dividends  on Common
Stock. No cash or stock dividends have been declared to date. The Revolving Line
contains a  restriction  on the  payment of  dividends  on the  Company's  stock
without prior consent of the lender.

                                       20
<PAGE>
Item 2. Legal Proceedings
-------------------------

On December  16, 1998,  Lydia Mather filed a lawsuit  against the Company in the
Multnomah County Circuit Court of Oregon.  The complaint alleges that Ms. Mather
attended a holiday party on the Company's  premises and fell and was injured due
to the Company's  negligence.  Ms. Mather is seeking  economic and  non-economic
damages in excess of $145,000  which is still  pending but fully  covered by the
Company's  insurance.  The Company is defending the lawsuit and does not believe
the outcome will have a material  adverse  effect on the results of  operations,
financial condition or liquidity of the Company.

As of the  date  of this  Report  on  Form  10-KSB,  there  are no  other  legal
proceedings  pending  to which  the  Company  is a party or to which  any of its
property is  subject,  and the  Company  does not know of any such action  being
contemplated.

Item 3. Changes in and Disagreements with Accountants
-----------------------------------------------------

None.

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

No matters were  submitted to a vote of the  Company's  shareholders  during the
quarter ended December 31, 2000.

Item 5. Compliance with Section 16(a) of the Exchange Act
---------------------------------------------------------

Section 16(a) Beneficial Ownership Reporting Compliance

Section  16(a) of the  Securities  Exchange  Act of 1934  (the  "Exchange  Act")
requires the Company's  executive  officers and  Directors,  and persons who own
more than ten percent of a registered class of the Company's  equity  securities
to file reports of ownership and changes in ownership  with the  Securities  and
Exchange Commission ("SEC"). Executive officers,  Directors and greater than ten
percent  stockholders are required by SEC regulation to furnish the Company with
copies of all Section  16(a) forms they file.  Based solely on its review of the
copies of such forms  received by it, or written  representations  from  certain
reporting  persons,  the Company  believes  that,  during  2000,  all  executive
officers,  Directors  and  greater  than  10%  shareholders  complied  with  all
applicable filing requirements.

Item 6. Reports on Form 8-K
---------------------------

There were no reports on Form 8-K filed  during the quarter  ended  December 31,
2000.












                                       21
<PAGE>
                                    Part F/S
                                    --------

Index to Consolidated Financial Statements
------------------------------------------
                                                                         Page

   Report of Independent Public Accountants                              F-1

   Consolidated Balance Sheets as of December 31, 2000 and 1999          F-2

   Consolidated Statements of Operations for the years ended December
   31, 2000 and 1999                                                     F-3

   Consolidated Statements of Stockholders' Equity for the years ended
   December 31, 2000 and 1999                                            F-4

   Consolidated Statements of Cash Flows for years ended December 31,
   2000 and 1999                                                         F-5

   Notes to Consolidated Financial Statements                            F-6






























                                       22
<PAGE>

                                                  Part III

Item 1. and Item 2.        Index to Exhibits and Description of Exhibits

Exhibit   Exhibit
Number    Number
(1-A)     (S-B 601)           Description
------    ---------           -----------
2.1        3.1       Articles of Incorporation, as amended  (8)
2.2        3.2       Bylaws, as amended (8)
3.1        4.1       Specimen of Common Stock Certificate (1)
3.2        4.2       Warrant issued to Electra Partners, Inc. dated March 25,
                     1996 (2)
3.3        4.3       Warrant issued to MacTarnahan Limited Partnership dated
                     March 25, 1996 (2)
6.1        10.1      Indenture of Lease between the Company and Portland Brewing
                     Building Partners dated November 4, 1992, as amended (1)
6.2        10.2      Sublease between the Company, Power Transmission Products,
                     Inc., and Pacific Realty Associates, L.P., dated January
                     26, 1995 (1)
6.3        10.3      License Agreement between the Company, R. M. MacTarnahan
                     and Harmer Company dated July 1, 1994 (1)
6.4        10.4      The Company's Incentive Stock Option Plan, as amended and
                     Specimen Form Plan Documents (1) (10)
6.5        10.5      Amendment to the Company's Incentive Stock Option Plan (7)
                     (10)
6.6        10.6      The Company's 1994 Nonqualified Stock Option Plan and
                     Specimen Form Plan Documents (1) (10)
6.7        10.7      Distribution Agreement between the Company and Columbia
                     Distributing, dated April 8, 1996 (5)
6.8        10.8      Voting Agreement, dated November 18, 1998 (8)
6.9        10.9      Amendment No. 1 to November 18, 1998 Voting Agreement,
                     dated December 6, 1999 * (11)
6.10       10.10     Restated Cash Incentive Plan, as amended (1) (10)
6.11       10.11     The Company's Stock Offering Purchase Plan for Employees
                     and Specimen Form Plan (1) (10)
6.12       10.12     Option to Purchase and Agreement and Option to Lease
                     between the Company and L&L Land Co., dated December 1995
                     (2)
6.13       10.13     Indenture of Lease between the Company and Western Stations
                     Co. dated May 1, 1995 (3)
6.14       10.14     Manufacturing Services Agreement between the Company and
                     The Stroh Brewery Company dated January 31, 1996 (4)
6.15       10.15     Loan Agreement, dated February 2, 2000 (6)
6.16       10.16     Lease Agreement between the Company and L&L Land Company,
                     dated May 18, 1999 (certain schedules to the Lease
                     Agreement have been omitted) (9)
6.17       10.17     Sublease Agreement between the Company and Power
                     Transmission Products, Inc., dated May 1, 1999 (9)
6.18       10.18     Business Loan Agreement, dated February 1, 2001*
6.19       10.19     Consulting Agreement between the Company and R. Scott
                     McTarnahan, dated November 1, 1999 (10) (11)
6.20       10.20     Lease Agreement between the Company and MacTarnahan Limited
                     Partnership, dated November 1, 1999 (11)
6.21       10.21     June 12, 2000 Amendment to License Agreement between the
                     Company and Harmer Mill & Logging Supply, Inc., dated July
                     1, 1994 (12)
6.22       10.22     July 1, 2000 Amendment to License Agreement between the
                     Company, RM MacTarnahan and Harmer Mill & Logging Supply,
                     Inc., dated July 1, 1994 (13)
6.23       10.23     Letter Agreement, dated March 19, 2001*
--         21.0      Subsidiaries of the Registrant*

10.0       23.0      Consent of Arthur Andersen LLP *

     (1)   Incorporated by reference to the Company's Form SB-1 (Commission File
           No. 33-90914-LA) as filed with the Commission on April 4, 1995.



                                       23
<PAGE>
     (2)   Incorporated by reference to the Company's Form 10-KSB for the year
           ended December 31, 1995 as filed with the Commission on March 28,
           1996.
     (3)   Incorporated by reference to the Company's Form 10-QSB for the
           quarter ended March 31, 1996 as filed with the Commission on May 2,
           1996.
     (4)   Incorporated by reference to the Company's Form 10-QSB/A No. 1 for
           the quarter ended March 31, 1996 as filed with the Commission on July
           31, 1996.
     (5)   Incorporated by reference to the Company's Form 10-QSB for the
           quarter ended September 30, 1996 as filed with the Commission on
           November 12, 1996.
     (6)   Incorporated by reference to the Company's Form 10-QSB for the
           quarter ended March 31, 2000 as filed with the Commission on May 11,
           2000.
     (7)   Incorporated by reference to the Company's Definitive Proxy Statement
           for the 1998 Annual Meeting of Shareholders, as filed with the
           Commission on November 17, 1998.
     (8)   Incorporated by reference to the Company's Form 10-KSB for the year
           ended December 31, 1998 as filed with the Commission on March 31,
           1999.
     (9)   Incorporated by reference to the Company's Form 10-QSB/A for the
           quarter ended June 30, 1999 as filed with the Commission on August
           10, 1999.
     (10)  Denotes a management contract or compensatory plan or arrangement.
     (11)  Incorporated by reference to the Company's Form 10-KSB for the year
           ended December 31, 1999 as filed with the Commission on March 28,
           2000.
     (12)  Incorporated by reference to the Company's Form 10-QSB for the
           quarter ended June 30, 2000 as filed with the Commission on August
           10, 2000.
     (13)  Incorporated by reference to the Company's Form 10-QSB for the
           quarter ended September 30, 2000 as filed with the Commission on
           November 14, 2000.

       *    Filed herewith.


































                                       24
<PAGE>

                                   SIGNATURES

In  accordance  with  Section 13 or 15 (d) of the Exchange  Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 30th day of March, 2000.


                            PORTLAND BREWING COMPANY


                            By: /S/ CHARLES A. ADAMS
                                Charles A. Adams
                                Chairman of the Board, President and
                                Chief Executive Officer

In  accordance  with the Exchange  Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities indicated and on
the 30th day of March, 2001.

     Signature                              Title


     /S/  CHARLES A. ADAMS        Chairman of the Board, President and Chief
     ---------------------        Executive Officer
     Charles A. Adams             (Principal Executive Officer)

     /S/  JANET N. GOLDEN         Controller
     --------------------         (Principal Accounting Officer)
     Janet N. Golden

     /S/ FREDERICK L. BOWMAN      Director
     -----------------------
     Frederick L. Bowman

     /S/ ROBERT M. MACTARNAHAN    Director
     -------------------------
     Robert M. MacTarnahan

     /S/ R. SCOTT MACTARNAHAN     Director
     ------------------------
     R. Scott MacTarnahan

     /S/ HOWARD M. WALL, JR.      Director
     -----------------------
     Howard M. Wall, Jr.

     /S/ WILLIAM J. PRENGER       Director
     ----------------------
     William J. Prenger



















                                       25
<PAGE>


                    Report of Independent Public Accountants


To the Board of Directors and Stockholders of
Portland Brewing Company:

We have audited the accompanying consolidated balance sheets of Portland Brewing
Company (an Oregon Corporation) and subsidiary as of December 31, 2000 and 1999,
and the related consolidated statements of operations,  stockholders' equity and
cash  flows for each of the two years in the period  ended  December  31,  2000.
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 consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Portland Brewing
Company  and  subsidiary  as of December  31, 2000 and 1999,  and the results of
their  operations  and their  cash flows for each of the two years in the period
ended  December 31, 2000, in conformity  with  accounting  principles  generally
accepted in the United States.


                                               ARTHUR ANDERSEN LLP
                                               Arthur Andersen LLP


Portland, Oregon
March 2, 2001

                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                     PORTLAND BREWING COMPANY AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

                                      ASSETS                                                 December 31,
                                      ------                                                 ------------
                                                                                         2000            1999
                                                                                         ----            ----
<S>                                                                                 <C>             <C>
CURRENT ASSETS:
  Cash                                                                              $    35,693     $   103,006
  Accounts receivable, net of allowance of $20,285 (2000), $8,000 (1999)                885,632         655,064
  Inventories                                                                         1,050,964         729,853
  Prepaid assets                                                                        139,853         218,550
                                                                                    -----------     -----------
          Total current assets                                                        2,112,142       1,706,473

Property and equipment, net                                                           6,401,146       6,711,257
Other assets, net                                                                       808,177         198,544
                                                                                    -----------     -----------
          Total assets                                                              $ 9,321,465     $ 8,616,274
                                                                                    ===========     ===========

                                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Line of credit                                                                     $   750,752     $   435,465
 Current portion of long-term debt                                                       26,779          26,706
 Accounts payable                                                                     1,506,490         809,369
 Customer deposits held                                                                 138,559         131,821
 Accrued payroll                                                                        160,892         170,580
 Other accrued liabilities                                                              137,021          65,853
                                                                                    -----------     -----------
          Total current liabilities                                                   2,720,493       1,639,794

Long-term debt, less current portion                                                     43,217          86,099
Stockholder term loan (Note 4)                                                        2,500,000       2,100,000
Other long-term liabilities                                                              42,500              --

Series A Redeemable  Convertible  Preferred Stock, $52 par value,  10,000 shares
   Authorized, 5,770 shares issued and outstanding, liquidation preference of
   of $300,040                                                                          300,040         300,040

COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS' EQUITY:
  Common stock, no par value, 25,000,000 shares authorized
    Shares issued and outstanding: 4,995,014 (2000), 4,094,714 (1999)                 8,164,320       7,662,508
  Accumulated deficit                                                               (4,449,105)      (3,172,167)
                                                                                    -----------     -----------
          Total stockholders' equity                                                  3,715,215       4,490,341
                                                                                    -----------     -----------
          Total liabilities and stockholders' equity                                $ 9,321,465     $ 8,616,274
                                                                                    ===========     ===========
</TABLE>

The   accompanying   notes  are  an  integral   part  of  these consolidated
balance sheets.






                                      F-2
<PAGE>
                     PORTLAND BREWING COMPANY AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS




                                                 Year Ended December 31,
                                           --------------------------------
                                                 2000                1999
                                                 ----                ----

Sales                                        $12,977,848    $ 10,463,331
Less- excise tax                                 626,164         508,521
                                           -------------    ------------
          Net sales                           12,351,684       9,954,810

Cost of sales                                  8,989,853       7,221,743
                                           -------------    ------------
Gross profit                                   3,361,831       2,733,067

General and administrative expenses            1,634,091       1,278,665
Sales and marketing expenses                   2,777,255       2,436,648
                                           -------------    ------------
Loss from operations                         (1,049,515)       (982,246)

Other income (expense)
  Interest expense, net                        (284,519)       (249,850)
  Other income (expense), net                     57,096        (48,051)
                                           -------------    ------------
          Total other expense, net             (227,423)       (297,901)
                                            ------------    ------------
          Net loss                          $(1,276,938)    $(1,280,147)
                                            ============    ============

Basic and diluted net loss per share        $     (0.26)    $     (0.37)
                                            ============    ============

Shares used in per share calculations         4,920,014       3,486,842
                                            ============    ============


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






                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                     PORTLAND BREWING COMPANY AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                  FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999



                                           Common Stock
                                     ------------------------    Accumulated
                                       Shares        Amount        Deficit           Total
                                     ---------     ----------   ------------       ----------
<S>                                  <C>           <C>          <C>                <C>
BALANCE, December 31, 1998           3,365,267     $7,115,423   $(1,892,020)       $5,223,403

Common stock issued in
  Connection with acquisition
  of Harco Products, Inc.              759,447        569,585          --             569,585

Receipt and cancellation of stock
  in connection with acquisition
  of Harco Products, Inc.              (30,000)       (22,500)         --             (22,500)

Net loss                                  --             --      (1,280,147)       (1,280,147)
                                     ---------     ----------   ------------       ----------
BALANCE, December 31, 1999           4,094,714     $7,662,508   $(3,172,167)       $4,490,341

Common stock issued in
  connection with acquisition of
  Saxer Brands                         900,000        486,000          --             486,000

Reconciliation of stock
  Outstanding                              300           --            --                 --

Compensation expense on
  Variable stock option plan              --           15,812                          15,812

Net loss                                  --             --      (1,276,938)       (1,276,938)
                                     ---------     ----------   ------------       ----------
BALANCE, December 31, 2000           4,995,014    $8,164,320    $(4,449,105)       $3,715,215
                                     =========     ==========   ============       ===========
</TABLE>

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












                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                     PORTLAND BREWING COMPANY AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                  Year Ended December 31,
                                                                             --------------------------------
                                                                                 2000                1999
                                                                                 ----                ----
<S>                                                                          <C>                  <C>
Cash flows relating to operating activities:
  Net loss                                                                   $(1,276,938)         $(1,280,147)
  Adjustments to reconcile net loss to net cash
     used in operating activities-
      Depreciation                                                               888,315              909,427
      Amortization                                                               257,930              111,574
      (Gain) loss on disposition of assets                                         4,884              (17,075)
      Compensation expense on variable stock option plan                          15,812               -
     Changes in assets and liabilities, net of effect of acquisitions:
      (Increase) decrease in:
        Accounts receivable, net                                                (230,568)             148,873
        Inventories                                                             (321,111)             (22,915)
        Prepaid assets                                                            78,697               47,902
        Other assets                                                             (83,810)            (112,627)
        Accounts payable                                                         697,121              (75,466)
        Customer deposits held                                                     6,738               (1,643)
        Accrued payroll and other accrued liabilities                           (156,273)              29,988
        Other liabilities                                                        (37,500)              -
                                                                             -----------          -----------
          Net cash used in operating activities                                 (156,703)            (262,109)
                                                                             -----------          -----------
Cash flows relating to investing activities:
  Purchase of property and equipment                                            (481,392)            (535,805)
  Proceeds from sale of property and equipment                                    76,024              245,587
  Acquisitions, net of cash acquired                                            (150,000)             217,629
                                                                             -----------          -----------
        Net cash used in investing activities                                   (555,368)             (72,589)
                                                                             -----------          -----------
Cash flows relating to financing activities:
  Net borrowings under line of credit                                            315,287              111,839
  Repayments of long-term debt                                                   (70,529)             (26,707)
  Proceeds from stockholders' loans                                              400,000               -
  Issuance of preferred stock, net                                                     -              300,040
                                                                             -----------          -----------
        Net cash provided by financing activities                                644,758              385,172
                                                                             -----------          -----------
Net increase (decrease) in cash                                                  (67,313)              50,474

Cash, beginning of period                                                        103,006               52,532
                                                                             -----------          -----------
Cash, end of period                                                          $    35,693          $   103,006
                                                                             ===========          ===========
Noncash transactions:
   Common stock issued in connection with acquisitions                       $   486,000          $   569,585
   Capital lease addition                                                         27,720               -

Supplemental disclosure of cash flow information:
    Cash paid during the period for interest                                 $   325,544          $   229,850

</TABLE>

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






                                      F-5
<PAGE>
                     PORTLAND BREWING COMPANY AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  DESCRIPTION OF BUSINESS:
    ------------------------

Portland  Brewing Company ("the Company") was incorporated in Oregon in November
1983.  The Company  opened its first brewery in January 1986 at 1339 NW Flanders
Street in Portland,  Oregon which operated until November 1998, when the Company
sold the Flanders Street facility. The Company continues to operate a brewery at
2730 NW 31st Avenue in Portland,  Oregon,  which has a capacity of approximately
135,000  barrels of ale per year, and includes a restaurant,  The Tap Room, open
to the public.

The Company  experienced  significant  operating  losses  during the years ended
December  31,  2000 and 1999,  and has  continued  to incur  losses in the first
quarter of 2001. Operating results have fluctuated and may continue to fluctuate
as a result of many factors  including  lower sales volumes and selling  prices,
increased  depreciation  and other fixed  operating  costs as a percent of sales
during periods when the Company's brewery is at less than full capacity, changes
in product mix,  increased  selling and marketing  costs incurred as the Company
protects its business in existing markets and increased transportation costs.

The Company's working capital requirements over the next year are expected to be
met  partially  from cash flow through  operations,  funds  available  under the
Company's revolving line of credit and, if appropriate and available, additional
equity offerings and/or borrowings from other lenders.  The Company has a letter
of commitment from the MacTarnahan Limited Partnership to provide up to $500,000
in the form of debt or equity to fund operations  through  December 31, 2001, to
the extent the Company incurs working capital  deficiencies.  The Company's term
loan is due on August 2, 2001, with an extension of 90 days. The Company expects
to place the debt permanently with a financial institution by August 2, 2001. If
the  Company  is  unable  to  obtain  a term  loan on or  before  maturity,  the
guarantors  will be  required  to assume the debt or secure the debt with income
producing  commercial  properties  so that the loan may be amortized  within the
lender's  underwriting  standards.  In  addition,  to the extent the  Company is
unable to refinance the  $2,500,000  term loan,  MacTarnahan  has entered into a
binding commitment to repay or purchase the term loan and refinance the loan for
at least a 12 month period with a 5 year  amortization at market rates,  secured
by the assets of the  Company  and  subject to  customary  financial  covenants.
Accordingly, the debt has been classified as long term as of December 31, 2000.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
    -------------------------------------------

Principles of Consolidation
---------------------------

         The  consolidated  financial  statements  include  the  accounts of the
Company and its wholly owned subsidiary.  All significant  intercompany balances
have been eliminated.


Use of Estimates
----------------

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

Revenue Recognition
-------------------

Revenue from the sale of products is  recognized  at the time of shipment to the
customer when title has passed.



                                      F-6
<PAGE>
Inventories
-----------

Inventories  are stated at the lower of average  cost,  which  approximates  the
first-in,  first-out (FIFO) method, or market and include  materials,  labor and
manufacturing  overhead.  Raw materials include amounts related to the Company's
hand  truck  business,  which  was  purchased  in  October  1999.  See  Note  3.
Inventories consist of the following:

                                                December 31,
                                      -----------------------------
                                            2000              1999
                                            ----              ----
Raw materials                           $480,045          $352,860
Work-in-process                          159,898           177,985
Finished goods                           341,362           111,268
Merchandise                               69,659            87,740
                                      ----------        ----------
                                      $1,050,964          $729,853
                                      ==========        ==========

Property and Equipment

Property  and  equipment  is  stated  at cost.  Interest  costs  related  to the
construction of certain  long-term assets are capitalized and amortized over the
estimated useful lives of the related assets.

Property and equipment consists of the following:

                                                           December 31,
                                                 ---------------------------
                                                       2000             1999
                                                       ----             ----
Plant and equipment                              $8,248,801       $7,871,802
Leasehold improvements                            1,605,275        1,563,261
Office and laboratory equipment and vehicles        744,301          667,670
Kegs                                                627,990          707,366
Construction in progress                            156,172          109,868
                                                 ----------       ----------
           Total property and equipment          11,382,539       10,919,967
  Less- accumulated depreciation                 (4,981,393)      (4,208,710)
                                                 ----------       ----------
                                                 $6,401,146       $6,711,257
                                                 ==========       ==========

Property  and  equipment  is  depreciated  using the  straight-line  method over
estimated useful lives as follows:

                                                                   Years
                                                                   -----
Plant and equipment                                                10-20
Office and laboratory equipment and vehicles                        5-10
Leasehold improvements                                              5-15
Kegs                                                                 5

Intangible Assets
-----------------

         Intangible assets consist of package design costs, trademarks, goodwill
and brand names acquired from acquisitions.  Package design costs and trademarks
are  amortized on a  straight-line  basis over three  years.  Goodwill and brand
names are  amortized  on a  straight-line  basis over five  years.  The  Company
believes these useful lives are  appropriate  based upon such factors as product
life,  profitability  and the general industry  outlook.  Intangible  assets are
included  in other  assets  on the  accompanying  balance  sheets.  Amortization
expense  related to  intangible  assets was  $231,938  and $64,414 for the years
ended December 31, 2000 and 1999, respectively.




                                      F-7
<PAGE>
Income Taxes
------------

The Company  accounts for income taxes in accordance with Statement of Financial
Accounting  Standards  ("SFAS") No. 109,  Accounting for Income Taxes.  Deferred
taxes are  determined  based on the estimated  future tax effects of differences
between the financial  statement and tax basis of assets and  liabilities  given
the provisions of enacted tax laws and tax rates.  Deferred  income tax expenses
or credits are based on the changes in the financial  statement basis versus the
tax basis in the Company's assets or liabilities from period to period. See Note
6.

Net Loss Per Share
------------------

The Company has adopted SFAS No. 128,  Earnings per Share  ("SFAS  128").  Basic
loss per common share is computed by dividing  net loss by the weighted  average
number of shares of common stock  outstanding  for the period.  Diluted net loss
per common  share for all  periods  presented  is the same as basic net loss per
share since all  potential  dilutive  securities  are excluded  because they are
antidilutive.

The dilutive effect of stock options outstanding for the purchase of 329,750 and
375,050  shares at December  31, 2000 and 1999,  respectively,  warrants for the
purchase of 87,697.5  shares at December 31, 2000 and 1999 and 577,000 shares of
common  stock  into  which  the  outstanding  Series A  Reedeemable  Convertible
Preferred Stock are convertible at December 31, 2000, and 1999 were not included
in loss per share calculations, because to do so would have been anti-dilutive.

Advertising Costs
-----------------

Advertising  costs are  expensed  as  incurred.  Total  advertising  expense was
$344,527 and $347,040 in 2000 and 1999, respectively.

Fair Value of Financial Instruments and Concentration of Credit Risk
--------------------------------------------------------------------

All current assets and liabilities are carried at cost, which  approximates fair
value  because  of the  short-term  nature of those  instruments.  The  recorded
amounts  of the  Company's  long-term  debt  also  approximate  fair  value,  as
estimated using discounted cash flow analysis.

Financial instruments,  which potentially expose the Company to concentration of
credit risk,  consist primarily of trade accounts  receivable.  Two distributors
accounted for 37% and 13% of total trade accounts  receivable as of December 31,
2000 and 17% and 29% of total trade accounts receivable as of December 31, 1999.
For  the  year  ended   December  31,  2000  and  1999,  47%  percent  and  40%,
respectively, of net sales were through two distributors.

Impairment of Long-lived Assets
-------------------------------

SFAS 121,  Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, establishes  criteria for and requires  recognition of
impairment  losses on  long-lived  assets  and  prescribes  the  accounting  for
long-lived  assets that are  expected to be disposed of in future  periods.  The
Company's  long-lived  assets are reviewed  for  impairment  when  circumstances
indicate  that the  carrying  amount may not be  recoverable.  If the sum of the
expected future cash flows is less than the carrying amount of the asset, a loss
is recognized.  As of December 31, 2000, there were no impairments of long-lived
assets.

Comprehensive Income (Loss)
---------------------------

On January 1, 1998, the Company  adopted SFAS No. 130,  Reporting  Comprehensive
Income  ("SFAS  130"),   which   establishes   requirements  for  disclosure  of
comprehensive income (loss). The objective of SFAS 130 is to report a measure of
all changes in equity that result from  transactions  and economic  events other
than transactions with owners.  Comprehensive  income (loss) is the total of net
income (loss) and all other non-owner changes in equity.  Comprehensive loss did
not differ from reported net loss in the periods presented.

                                      F-8
<PAGE>
Reclassifications
-----------------
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.

Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting  Standards Board (FASB),  issued SFAS No.
133,  Accounting for Derivative  Instruments and Hedging Activities ("SFAS 133")
which was  subsequently  amended  by SFAS No.  137  "Accounting  for  Derivative
Instruments and Hedging  Activities"  (SFAS 137) in June 1999. SFAS 133 and SFAS
137 establish  accounting and reporting  standards  requiring  every  derivative
instrument  to be recorded in the balance  sheet as either an asset or liability
measured at its fair value.  Changes in the derivative  instrument's  fair value
must be recognized  currently in results of  operations  unless  specific  hedge
accounting  criteria are met. SFAS 133, as amended by SFAS 137, is effective for
fiscal years  beginning  after June 15, 2000. In June 2000, the FASB issued SFAS
138, which amends certain guidance within SFAS 133. The Company will adopt these
standards  for  fiscal  2001.  The effect of  adopting  these  standards  is not
expected  to have a material  impact on the  Company's  financial  condition  or
results of operations.

3. ACQUISITIONS:
   -------------

Harco Products, Inc.
--------------------
In October 1999,  the Company  acquired all of the  outstanding  common stock of
Harco Products, Inc. ("Harco"), from a related party. Harco produces hand trucks
for various  industrial  uses.  The  purchase  price of $569,585 was paid by the
issuance of shares of the Company's  common stock valued at $0.75 per share. The
common  stock  issued in  connection  with  this  acquisition  contains  certain
incidental  registration  rights.  The  acquisition  was accounted for using the
purchase  method  of  accounting,  which  requires  that the  purchase  price be
allocated  to the net  assets  acquired  based upon the  relative  fair value of
assets  acquired.  The excess of the acquisition cost over the fair value of the
net assets  acquired,  of  approximately  $36,000,  will be amortized  using the
straight-line  method over five years. In connection with the  acquisition,  the
Company  received  30,000  shares of its  common  stock that  Harco  owned,  and
recorded a corresponding  reduction to  shareholders  equity.  The  accompanying
consolidated  financial  statements  include the results of operations  from the
date of acquisition.  The proforma  results of operations as if purchased at the
beginning of 1999 are not materially different from the reported results for the
year ended December 31, 1999.

Saxer Brewing Company Brand Purchase
------------------------------------
On January 31, 2000,  the Company  purchased  brands and certain  equipment from
Saxer Brewing Company for 900,000 shares of the Company's common stock, $150,000
cash and a three year earnout  agreement  to pay a minimum of $200,000  based on
barrel sales of the Saxer and Nor'wester  brands. The earnout payment is secured
by the Saxer and Nor'wester brands. The purchase price of $929,000 was allocated
to the  estimated  fair value of the brands  acquired of $779,000 and to certain
equipment  and  vehicles  acquired of  $150,000.  The brand  intangible  will be
amortized using the straight-line method over five years.

4. LONG-TERM DEBT AND LINE OF CREDIT:
   -----------------------------------
In 1998,  the  Company  obtained  a  $2,100,000  term loan from the  MacTarnahan
Limited  Partnership  (MacTarnahan),  a  shareholder.  On January 31, 2000,  the
principal  amount of the term loan was increased to $2,500,000  and the maturity
date was  extended  from  January 31, 2000 to April 1, 2001.  This term loan was
secured by  receivables,  inventory,  equipment and general  intangibles  of the
Company,  with  interest at a per annum rate equal to the prime  lending rate of
the Bank of the  Northwest  plus 1% (9.5% at December 31,  2000).  The term loan
required  interest only payments  with the total balance due upon  maturity.  In
February  2001, the Company  refinanced  the  $2,500,000  term loan with Western
Bank.  This new term loan is secured by the Company's  assets and  guaranteed by
certain of the Company's shareholders,  including MacTarnahan. The maturity date
of the  replacement  term loan is August 2, 2001,  with an extension of 90 days.
The interest  rate is equal to the prime  lending rate of Western Bank plus 0.5%
(9.0% at February 2, 2001).  The Company

                                      F-9
<PAGE>
expects to place the debt permanently with a financial institution by August 2,
2001. If the Company is unable to obtain a term loan, the guarantors will be
required to assume the debt or secure the debt with income producing commercial
properties so that the loan may be amortized within the Lender's underwriting
standards. In addition, to the extent the Company is unable to refinance the
$2,500,000 term loan on or before maturity, MacTarnahan has entered into a
binding commitment to repay or purchase the term loan and refinance the loan for
at least a 12 month period with a 5 year amortization at market rates, secured
by the assets of the Company and subject to customary financial covenants.
Accordingly, the debt has been classified as long-term as of December 31, 2000.
To the extent the Company incurs working capital deficiencies in 2001,
MacTarnahan has committed to provide funding to the Company in the form of debt
or equity in an amount not to exceed $500,000 to remedy cash deficiencies that
may be necessary to fund operations through December 31, 2001.

In 1998, the Company  offered  several trade creditors the option of receiving a
discounted  amount of cash  immediately  or the entire amount owed to them to be
paid over a  five-year  period.  As a result,  the Company  issued  notes in the
aggregate principal amount of $148,065 to trade creditors,  of which $49,206 was
outstanding  at December 31, 2000.  The notes bear  interest at 6% per annum and
mature on September 1, 2003.  Payments  under the notes are due in equal monthly
payments of principal and interest.

The Company has a $1,000,000  revolving line of credit  ("Revolving  Line") with
Western Bank,  under which $750,752 and $435,465 was outstanding at December 31,
2000 and 1999,  respectively.  The  Revolving  Line is secured by certain of the
Company's  assets and is guaranteed  by certain of the  Company's  shareholders.
Interest  is  payable  monthly  at a per annum  rate equal to prime rate plus 1%
(9.5% at December 31, 2000).  The  expiration  date is June 1, 2001. The Company
expects to renew the Revolving  Line under  similar  terms.  The Revolving  Line
contains certain covenants including restrictions on additional indebtedness and
payment of dividends  without the  permission of the lender.  The Company was in
compliance with all covenants at December 31, 2000.

Principal payment requirements on long-term debt, reflecting the $2,500,000 term
loan as long-term,  and capital lease  obligations  are as follows for the years
ending December 31:

           2001                 $   26,779
           2002                    236,194
           2003                    515,348
           2004                    499,992
           2005                    499,992
        Thereafter                 791,691
                                ----------
                                $2,569,996
                                ==========

5.  LEASES:

The following is a schedule of minimum future  operating  lease payments for the
years ending December 31:

           2001                  $   497,197
           2002                      497,197
           2003                      490,358
           2004                      382,072
           2005                      298,872
        Thereafter                   722,274
                                  -----------
                                  $2,887,970

Rent expense  incurred on operating leases was $437,625 and $386,876 in 2000 and
1999, respectively.



                                      F-10
<PAGE>
6.  INCOME TAXES:
    -------------

The  Company is in a net  deferred  tax asset  position  and has  generated  net
operating losses to date.  Accordingly,  no provision for or benefit from income
taxes has been recorded in the  accompanying  statements of operations for 2000.
The Company will continue to provide a valuation  allowance for its deferred tax
assets until it becomes more likely than not, in management's  assessment,  that
the Company's net deferred tax assets will be realized. The Company has a pretax
net operating loss  carryforward of  approximately $6 million which is available
to offset future taxable income, if any, expiring through the year 2020.

The components of the net deferred tax assets and liabilities as of December 31,
2000 and 1999 are as follows:
                                                     December 31,
                                            ---------------------------
                                                2000             1999
                                                ----             ----
Deferred tax assets, current-
  Basis difference in inventory                $33,202          $28,510
  Other                                         42,799           36,849
                                            ----------       ----------
     Total current deferred tax assets          76,001           65,359
                                            ----------       ----------
Deferred tax assets, long-term-
  Intangible assets                             37,306               --
  Net operating loss carryforwards           2,324,574        2,096,602
  Tax credits                                  102,701          115,022
                                            ----------       ----------
     Total long-term deferred tax assets     2,464,581        2,211,624

Deferred tax liabilities, long term-
  Basis difference in property, plant
    and equipment                             (708,200)        (661,676)
                                            ----------       ----------
     Net long-term deferred tax assets       1,756,381        1,549,948
                                            ----------       ----------
Net deferred tax assets                      1,832,382        1,615,307
Less: valuation allowance                   (1,832,382)      (1,615,307)
                                            ----------       ----------
Net deferred taxes                          $     --         $     --
                                            ===========      ===========


7.  RELATED PARTY TRANSACTIONS:
    ---------------------------

Lease Agreement with Portland Brewing Building, L.L.C.
------------------------------------------------------

The Company leases the property at 2730 NW 31st Avenue in Portland,  Oregon from
Portland Brewing Building,  L.L.C.,  which is an entity controlled by an officer
and director and two other directors of the Company. The monthly rent is $24,906
plus property taxes, insurance and maintenance, with an adjustment for inflation
or changes in fair  market  rental  value on July 1, 1998 and July 1, 2003.  The
increased rental adjustment was determined subsequent to July 1, 1998, resulting
in a  $19,922  charge  which is being  paid by the  Company  in  twelve  monthly
installments which began on February 1, 1999. The lease expires in August 2008.

In connection  with the original  negotiation  of the lease in 1992, the Company
granted the lessors a warrant to purchase  87,697.5 shares of Common Stock.  The
warrants are  exercisable at any time through  December 31, 2002, at an exercise
price of $3.333 per share.



                                      F-11
<PAGE>
Lease Agreement with L & L Land Co.
-----------------------------------

In 1999, the Company entered into a lease for  approximately  23,000 square feet
of space in a building  adjacent to the main brewery with a related party, L & L
Land Co. (L & L).  The term of the lease is 5 years,  with one  option to extend
the term until June 14,  2008.  Rent  under the lease is $12,000  per month.  In
addition,  the Company  agreed to pay the real  property  taxes on the building,
provide  insurance  and to make  various  maintenance  and  repairs.  The  lease
contains a first  opportunity  to purchase the adjacent  building.  The lease is
guaranteed by two  shareholders  of the Company.  In 1999, L & L reimbursed  the
Company $218,000 for costs incurred in prior years for constructing the shipping
dock at this property.  In connection with the lease, the Company entered into a
sublease with another party for  approximately  13,000 square feet of office and
warehouse  space and a portion of the parking  lot.  The term of the sublease is
month to month  and rent is  $4,974  per  month,  plus  $365 per  month for real
property taxes, plus payment of utilities,  insurance and interior  maintenance.
In 2000,  the Company  reduced the amount of  subleased  space to  approximately
8,000 square feet on a month to month basis for $3,168 per month.

Lease Agreement with MacTarnahan Limited Partnership
----------------------------------------------------

In October 1999, in connection  with the purchase of Harco  Products,  Inc., the
Company  entered  into a lease  with a related  party.  Rent  under the lease is
$2,500 per month.  The term of the lease is five  years,  and can be  terminated
upon 60 days notice by the Company.

The Company  believes  that the terms and  conditions of its leases are fair and
reasonable  and are no less favorable to the Company than could be obtained from
unaffiliated parties.

License Agreement
-----------------

The Company has a license agreement with one of its board members to utilize his
name  and  likeness.  The  amount  of  the  royalty  owed  is $1 per  barrel  of
MacTarnahan's Ale sold.  Royalties paid under the license agreement for 2000 and
1999 were  $27,837 and  $27,245,  respectively,  based on the sale of 27,837 and
27,245 barrels, respectively, of MacTarnahan's Ale during the same periods.

8. PREFERRED STOCK:
   ----------------

On March 1, 1999, two shareholders of the Company purchased 2,885 shares each of
the Company's Series A Convertible  Redeemable  Preferred Stock ("Series A") for
$52 per share, resulting in aggregate proceeds to the Company of $300,040.

Each share of Series A is convertible on February 25, 2004,  into fully paid and
non-assessable  shares of Common  Stock at a rate of 100 shares of Common  Stock
for each share of Series A. The conversion  ratio,  which is currently 100 to 1,
is subject to adjustment in the event of stock splits or stock dividends. Unless
converted,  the Company must redeem the Series A shares on February 25, 2004, at
$52 per share plus any  declared  but unpaid  dividends,  in cash or in 24 equal
monthly payments bearing interest at 12% per annum. Each shareholder of Series A
is entitled to the number of votes equal to the number of shares of Common Stock
into  which the  Series A shares  can be  converted  and the Series A shares are
entitled to vote as a separate class.  Each  shareholder of Series A is entitled
to  receive  cumulative  dividends  at the  rate of 8% per  annum,  when  and if
declared  by the Board of  Directors,  prior to payment of  dividends  on Common
Stock.  No dividends have been declared to date. In the event of any liquidation
or dissolution of the Company, either voluntary or involuntary, each shareholder
of  Series A shall be  entitled  to  receive,  prior  and in  preference  to any
distribution  of any assets or surplus funds to the holders of Common Stock,  an
amount equal to $52.00 per share for each share of Series A and, in addition, an
amount equal to all declared but unpaid dividends on Series A.

9.  STOCK-BASED COMPENSATION PLANS:
    -------------------------------

                                      F-12
<PAGE>
Incentive Stock Option Plan
---------------------------

The Company's  Incentive Stock Option Plan ("ISOP") is administered by the Board
of  Directors  and  provides  for grants of  options  to  acquire  shares of the
Company's  common stock,  subject to the  limitations set forth in the ISOP. The
number of stock options available for grant under the ISOP is 400,000.  Pursuant
to the  ISOP,  the Board of  Directors  has the  authority  to set the terms and
conditions of the options  granted,  but cannot set the option exercise price at
less than 100 percent of the fair market  value of the subject  shares of common
stock at the time the option is granted.

In May 1999,  options  to  purchase  118,800  shares  of Common  Stock at prices
ranging from $3.33 to $7.00 per share were  repriced and  regranted on different
terms,  of which  options  to  purchase  72,000  shares  were held by  executive
officers of the  Company.  Repriced  options  were issued at exercise  prices of
$0.54  per  share to  $0.594  per  share.  All of the  repriced  options  became
exercisable on May 20, 2000. Pursuant to Accounting Principles Board Opinion No.
25 (APB 25),  options that are repriced  after June 1998 are subject to variable
plan accounting. The Company recorded compensation expense of $15,812 and $0 for
the years ended December 31, 2000 and 1999, respectively,  related to the change
in the exercise price of the options and the fair value of the Company's  common
stock.


Activity under the ISOP is summarized as follows:

                                               Shares            Exercise
                                              Subject to         Price Per
                                               Options             Share
                                               -------             -----
Balances, December 31, 1998                    123,525        $3.33-$7.00
Options granted                                363,050        $0.54-$0.594
Options canceled                              (125,025)       $0.54-$7.00
                                              --------        ------------
Balances, December 31, 1999                    361,550        $0.54-$0.594
Options canceled                               (45,300)       $0.54-$0.59
                                              --------        ------------
Balances, December 31, 2000                    316,250          $  0.54
                                              ========         ===========

Nonqualified Stock Option Plan
------------------------------

In August 1994, the Board of Directors approved a Nonqualified Stock Option Plan
("NQSOP").  The NQSOP  provides  for the  issuance  of 45,000  stock  options to
employees,  nonemployee members of the Board of Directors, consultants and other
independent  contractors  who  provide  valuable  service to the  Company,  at a
minimum of 85 percent of fair market value and have a term of 10 years.  Options
to  purchase  13,500  shares at $5.33 each and 21,000  shares at $5.33 each were
outstanding and exercisable at December 31, 2000 and 1999,  respectively.  There
were 7,500 shares cancelled during the year ended December 31, 2000.

Statement of Financial Accounting Standards No. 123 (SFAS 123)
--------------------------------------------------------------

SFAS 123 defines a fair value based  method of  accounting  for  employee  stock
options and similar equity instruments and encourages all entities to adopt that
method of accounting for all employee stock compensation plans. However, it also
allows an entity to continue to measure  compensation cost for those plans using
the method of accounting  prescribed by Accounting Principles Board No. 25 ("APB
25").  Entities  electing to remain with the  accounting in APB 25 must make pro
forma  disclosures  of net income and earnings  per share,  as if the fair value
based method of accounting defined in SFAS 123 had been applied.




                                      F-13
<PAGE>
The Company has elected to account for its stock-based  compensation plans under
APB 25; however,  the Company has computed,  for pro forma disclosure  purposes,
the value of all options granted using the Black-Scholes option-pricing model as
prescribed by SFAS 123. No options were granted in 2000. Options granted in 1999
were valued using the following weighted average assumptions:

               Risk-free interest rate            6.5%
               Expected dividend yield              0%
               Expected lives                     4 years
               Expected volatility                48%

The total value of options  granted  during 1999 was  computed as  approximately
$88,317 and is being amortized on a pro forma basis over the respective  vesting
period of the options  (one year).  The  weighted  average fair value of options
granted  during 1999 was $0.24 per share.  If the Company had  accounted for its
stock-based  compensation  plans in accordance  with SFAS 123, the Company's pro
forma net loss and pro forma net loss per share for the years ended December 31,
2000 and 1999 would have been as follows:

                                   As Reported             Pro Forma
                                   -----------             ---------
2000
Net loss                         $ (1,276,938)           $ (1,283,484)
Net loss per share               $      (0.26)           $      (0.26)

1999
Net loss                         $ (1,280,147)           $ (1,346,106)
Net loss per share               $      (0.37)           $      (0.39)

The effect of applying SFAS 123 in this pro forma  disclosure is not  indicative
of future  results.  SFAS 123 does not apply to awards prior to January 1, 1995.
Additional awards are anticipated in future years.

The  following  table sets forth the  exercise  price  range,  number of shares,
weighted average exercise price,  and remaining  contractual  lives by groups of
similar price and grant date as of December 31, 2000:
<TABLE>
<CAPTION>
                 Options Outstanding                             Options Exercisable
-------------------------------------------------------    ---------------------------
                                  Weighted
                    Number        Average      Weighted        Number         Weighted
                Outstanding at   Remaining     Average     Exercisable at      Average
                 December 31,   Contractual    Exercise     December 31,      Exercise
 Exercise Price      2000       Life (Years)    Price           2000            Price
                     ----       ------------    -----           ----            -----
<S>  <C>          <C>              <C>         <C>           <C>              <C>
     $ 0.54        316,250          8.3         $ 0.54        316,250          $ 0.54
       5.33         13,500          3.7           5.33         13,500            5.33
                  --------                                   --------
     Totals        329,750                                    329,750
                  ========                                   ========
</TABLE>

         The  Company  had  13,500  shares  exercisable  at a  weighted  average
exercise price of $5.33 as of December 31, 1999.

Cash Incentive Plan
-------------------
The  Company may award its  officers  and  employees,  under its  Restated  Cash
Incentive  Plan ("the  Plan"),  bonuses in an amount up to 10% of net  operating
profits before taxes. Awards under the Plan will be allocated among the officers
and employees in accordance with the provisions of the Plan at the discretion of
the Board of Directors. No amounts were awarded in 2000 or 1999 under the Plan.

10. SEGMENT INFORMATION:
    --------------------
                                      F-14
<PAGE>
In 1998,  the Company  adopted SFAS No. 131,  Disclosures  about  Segments of an
Enterprise and Related Information, ("SFAS 131") which establishes new standards
for defining and reporting  information about a Company's segments.  It requires
that the  information  be reported  about the  segments of the Company for which
separate financial  information is available and for which operating results are
regularly evaluated by executive management to make decisions about resources to
be  allocated to each segment and to assess  performance.  Management  evaluates
segment performance based on segment operating (loss) income.

The Company is organized into three product-based segments:  brewery operations,
restaurant  operations  and hand  truck  manufacturing.  The  Company's  brewery
segment brews and sells specialty beer in its Portland, Oregon brewery, which is
sold to  distributors  and retail  customers.  The Company's  restaurant,  which
adjoins its brewery,  sells the Company's  specialty  beers along with lunch and
dinner. In October 1999, the Company  purchased Harco Products,  Inc., a company
which produces hand trucks for various industrial uses.

All revenues are attributable  to, and all long-lived  assets are located in the
United States,  the Company's  country of domicile.  The basis of accounting for
transactions  between  segments  is  based  on  the  fair  market  value  of the
respective goods or services. Interest expense is considered a corporate expense
and is not allocated to the three segments.



































                                      F-15
<PAGE>
                                                    Year Ended December 31,
                                                ------------------------------
                                                    2000              1999
                                                ------------      ------------
Net Sales:
  Brewery                                      $ 10,497,454      $  8,529,412
  Restaurant(s)                                   1,737,283         1,625,874
Less: intersegment sales                           (299,786)         (272,126)
                                                ------------      ------------
    Subtotal                                     11,934,951         9,883,160
  Harco Products                                    416,733            71,650
                                                ------------      ------------
  Total net sales                              $ 12,351,684      $  9,954,810
                                                ============      ============

Gross Profit:
  Brewery                                      $  3,008,400      $  2,510,071
  Restaurant(s)                                     357,930           358,332
  Less: intersegment gross profit                  (165,146)         (145,084)
                                                ------------      ------------
Subtotal                                          3,201,184         2,723,319
  Harco Products                                    160,647             9,748
                                                ------------      ------------
Total gross profit                             $  3,361,831      $  2,733,067
                                                ============      ============

Depreciation and amortization expense:
  Brewery                                      $    748,460      $    771,956
  Restaurant(s)                                      74,083            90,578
  Harco Products                                     22,941             2,120
  Unallocated corporate amounts                     300,761           156,347
                                                ------------      ------------
Total depreciation and amortization expense    $  1,146,245      $  1,021,001
                                                ============      ============

                                                  ----------------------------
                                                     Year Ended December 31,
                                                  ----------------------------
                                                      2000            1999
                                                  ------------    ------------
Capital Expenditures:
  Brewery                                         $   391,656     $   459,157
  Saxer equipment                                     150,000
  Restaurant(s)                                        29,678          48,383
  Harco Products                                       12,122              --
  Unallocated corporate amounts                        75,656          28,265
                                                   -----------     -----------
Total capital expenditures                        $   659,112     $   535,805
                                                   ===========     ===========

Total Assets:
  Brewery                                         $ 8,145,659     $ 7,313,542
  Restaurant(s)                                       562,649         625,990
  Harco Products                                      324,769         352,586
  Unallocated corporate amounts                       288,388         324,156
                                                   -----------     -----------
Total assets                                      $ 9,321,465     $ 8,616,274
                                                   ===========     ===========


11. COMMITMENTS AND CONTINGENCIES:
    ------------------------------

     The  Company  is  involved  from time to time in  claims,  proceedings  and
     litigation arising in the ordinary course of business. The Company believes
     it is not presently a party to any  litigation,  the outcome of which would
     have a  material  adverse  effect  on  the  Company's  business,  financial
     condition, results of operations or cash flows.

                                      F-16