SECURITIES AND EXCHANGE COMMISSION
                                  WASHINGTON, D.C.  20549

                                   REPORT ON FORM 10-KSB

      |X|   Annual Report pursuant to Section 13 or 15(d) of the Securities 
            Exchange Act of 1934

      For the fiscal year ended March 31, 1998.

      |_|         Transition Report pursuant to Section 13 or 15(d) of
                  The Securities Exchange Act of 1934


      For the transition period from ___________________ to _______________.

                        Commission File No.      0-21079


                                  PERRY'S MAJESTIC BEER, INC.
                  (Exact name of registrant as specified in its charter)

                    Delaware                          11-3314168
            (State of or other jurisdiction     (IRS Employer of
             incorporation or organization)     Identification No.)

            38 West 32nd Street
            Suite 801
            New York, New York                            10001
             (Address of Principal                    (Zip Code)
              Executive Officers)

Registrant's telephone number, including area code: (212) 564-2260

Securities registered pursuant to Section 12(b) of the Act:  None.

Securities registered pursuant to Section 12(g) of the Act:

                       Common Stock, par value $.0001 per share
                                      (Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during the preceding 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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of the Regulation  S-B is not 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. [X]

Issuer's revenues for its most recent fiscal year were $676,716.

The  aggregate  market value of the voting stock held by non-  affiliates of the
Registrant,  computed by reference to the closing price of such stock as of June
17, 1998, was approximately $472,917.

Number of shares  outstanding  of the issuer's  Common Stock as of June 17, 1998
was 3,783,335.






<PAGE>



                                          PART I
Item 1.  BUSINESS.

General

      Perry's Majestic Beer, Inc., (the "Company") a Delaware  corporation,  was
formed in December, 1995. The Company is engaged in the marketing,  distribution
and  sale  of  all  natural   applesauce  and  applesauce   blends  through  its
wholly-owned subsidiary, Quigley's Orchard ("Quigley's"), as well as the sale of
and  marketing  of  Perry's   Majestic  Beer,  a  microbrewed  beer  which  uses
organically  grown barley and hops.  The Company  acquired  Riverosa,  Inc., the
owner of Perry's  Majestic  Beer,  Inc. in August 1996. In  September,  1996 the
Company  expanded its line of  microbrewed  products by acquiring  the Post Road
Beer  label  from  Old  Marlborough   Brewing  Company.  In  view  of  increased
competition  in  the  micro-brewing   industry,   and  the  significant  capital
requirements which would be required for further expansion in that industry, the
Company decided to diversify its product base in March 1997 with the acquisition
of all rights to produce and market Quigley's Orchard Applesauce, a product line
of 100% natural  single serve  applesauces.  Quigley's was acquired  through the
purchase  of all  issued  and  outstanding  stock  of  Orchard  Annie,  Inc.,  a
corporation  wholly-owned and controlled by Mark Butler,  Vice President,  Chief
Operating Officer, and a director of the Company. In consideration for the stock
of Orchard  Annie,  the Company  paid Mr.  Butler  $66,000 and issued him 50,000
shares of Common Stock of the Company.  The Agreement  also provided for royalty
payments to Mr.  Butler  equal to $0.50 per case on the first  500,000  cases of
Quigley's  applesauce  and $0.25 per case  thereafter  for a fifteen  (15) years
term.  The  royalty  was  subsequently  amended  to $.25 per case for the  first
500,000  twelve  (12) unit cases and $.125 a case for each twelve (12) unit case
thereafter during the fifteen (15) year term..

      In  furtherance of its plan to focus  marketing  efforts on its applesauce
products and decrease its presence in the micro-brewery  industry,  in May, 1998
the Company sold all assets, rights and inventory relating to its Post Road beer
and ale  products to The Brooklyn  Brewery  Company for  $330,000,.  The Company
received  $10,000 at  closing  and a  promissory  note for  $320,000  payable as
follows:  $150,000  on June 1, 1998,  $65,000 on July 1, 1998 and the balance in
bimonthly  payments  commencing  on  September  1, 1998.  The Company  retains a
security interest in the Post Road assets as collateral for the promissory note.

      The Company's Quigley's all natural applesauce line, is currently marketed
to supermarkets,  vending  companies,  convenience  stores such as 7-11, gourmet
stores and other retail outlets by independent  unaffiliated third party brokers
and distributors.  The Company intends to increase distribution of its Quigley's
products to food service accounts and mass merchandisers  during the next twelve
(12) months.  The Company's  applesauce  products are produced by an independent
unaffiliated food processor using  specifications  and formulations  provided by
the Company.

      The  Company's   organic  beer  is  contract   brewed  by  an  independent
unaffiliated brewery,  Hoboken Brewing Company, of Hoboken, New Jersey using the
specifications  and recipes  provided by the  Company.  During the past year the
Company  has reduced its  efforts to market its  Perry's  Majestic  brand.  Five
distributors  distribute  the beer and the Company has no plans to increase  the
distribution for this product.

      The  Company  has  shifted its  emphasis  from the sale and  marketing  of
micro-brewed  beer to the  development,  expansion  and marketing of all natural
applesauce and  applesauce  blends as a means of  establishing  an identity as a
specialty niche food marketer under the Quigley's  Orchard label.  Consequently,
the Company does not anticipate any growth of sales for Perry's Majestic Beer.

      The  Company's  executive  offices are  currently  located at 38 West 32nd
Street,  Suite 801, New York,  New York 10001 and its telephone  number is (212)
564-2260.  The  Company's  fiscal  year end is March 31. As of June 18, 1998 the
Company employed a total of three full time employees.

                                            1

<PAGE>



Recent Developments

      In May, 1998 the company sold all assets, rights and inventory related its
Post Road Ale brand to The Brooklyn  Brewery  Company for $330,000.  The Company
received  $10,000 at closing  and a  promissory  note for  $320,000,  payable as
follows:  $150,000  on June 1, 1998,  $65,000 on July 1, 1998 and the balance in
bimonthly  payments  commencing  on September 1, 1998.  The Company  maintains a
security interest in the Post Road assets as collateral for the promissory note.
As part of the agreement,  Brooklyn  Brewery placed $35,000 in escrow to satisfy
the outstanding tax liability of an officer of Old Marlborough  Brewing Company,
and entered into an employment  agreement  with A. J. Moran,  who had joined the
Company upon its acquisition of Post Road. The Company terminated its employment
agreement with Mr. Moran.

      On May 14, 1998 the Company  entered  into a letter of intent with Village
Cannery of  Vermont,  Inc.  whereby the Company was granted an option to acquire
all of the  assets of Village  Cannery  for the sum of  $2,000,000  on or before
September  1, 1998.  Village  Cannery is a producer  of organic  and all natural
applesauces  under the tradenames of Village Cannery and Vermont Village as well
as sauces,  salsas,  jams and other such items.  The Company does not  presently
have  funds  available  to  exercise  this  option  and has not  identified  any
potential source for such funds.  The Company's  ability to exercise this option
will be dependent upon its success in identifying sources for such financing, on
a timely basis, and on terms acceptable to the Company.

      On June 16, 1998 Matthew  Harriton  resigned as a member of the  Company's
Board of Directors.

      On July 2, 1998,  the Company  acquired  the rights,  title and  interest,
customer  lists,  distribution  rights and related  recipes for  applesauce  and
applesauce  blends of Leroux Creek applesauce brand for the sum of $650,000 from
the Leroux Creek Food Corporation.  The Company paid $62,500 and executed a note
with the seller in the amount of $587,500 with 9% interest  payable on or before
January 2,1999.  The parties agreed that the $62,500 would be liquidated damages
in the event the Company is not able to locate adequate financing.  In the event
the Company can not make the payment when due the  ownership of the Leroux Creek
brand will  revert to the  seller.  The Company  does not  presently  have funds
available to pay the note in full and has not  identified  any potential  source
for such funds.  The Company's  ability to pay the note and retain  ownership of
the Leroux Creek brand will be dependent upon its success in identifying sources
for such financing,  on a timely basis,  and on terms acceptable to the Company.
The Company also issued  options to purchase  250,000  shares of common stock at
fair market value at the date of the grant.


Industry Overview

Applesauce Industry

Applesauce  products  are a highly  competitive  sector  of the  food  industry.
Supermarket sales of applesauce,  which account for a majority of all applesauce
sales,  totaled  324.3  million  dollars in 1997,  an increase of 5% compared to
1996, according to National Food Institute.  The category is dominated by Motts,
Knouse and private label applesauces that the Company will compete against,  all
of  which  have  greater  financial  resources,  operating  history,  production
facilities and distribution and marketing networks than the Company

Applesauce  is sold both in glass jars and in plastic cups. It is available in a
variety of fruit blends as well as traditional apple flavor,  and in organic and
all natural styles

Sales to  supermarkets  usually  require  the payment of a fee called a slotting
allowance.  In addition to supermarket  sales,  applesauce is routinely marketed
through  natural  food  stores,  vending  machines,   food  service  operations,
convenience  stores,  retail  outlets,  mass  merchandising  stores and  gourmet
stores.

                                            2

<PAGE>





Beer Industry

The  Company  participates  in the  specialty  beer  segment of the $50  billion
domestic beer market.  The Company produces Perry's, a microbrew organic beer. A
microbrewed  beer is defined as a beer that brews fewer than 15,000  barrels per
year. The microbrewing  industry is highly competitive and is dominated by a few
large companies,  each of which is far better established and better capitalized
than the  Company.  During  the past  year the  microbrewing  industry  has seen
continued  consolidation,  making  it  increasingly  difficult  to  establish  a
significant market for a small, single product microbrewed beer or ale.

Product Diversity and Quality

      Applesauce

      The Company's  Quigley's  Orchard is a line of applesauce  and  applesauce
blends currently available in six ounce decorated cups in the following flavors:
country apple, apple-raspberry, apple-strawberry and apple-cherry. Applesauce is
primarily  sold in glass jars (pints and  quarts) or in four (4) ounce  servings
sold on grocery shelves in multi packs. Quigley's is produced in a single-serve,
individually  identified  container similar to yogurt.  This package is intended
for single serve and is a fat free,  all natural snack  alternative.  It is sold
from the  refrigeration  section  of  retail  stores as well in salad  bars,  in
convenience  stores,  and from vending machines  distinguishing the product from
other applesauces which are sold predominantly on grocery shelves.

      The Company plans to introduce a four ounce six pack in September 1998 for
sale in supermarkets, and to schools, hospitals and other food service accounts.

      The Company intends to continue to expand its product line with additional
blends such as apple-cinnamon, apple-mango during the next 12 months.

      Beer

      Perry's  Majestic  Beer is brewed  with  organic  hops and  barley.  It is
available in one style, Perry's Ploughman's Pale Ale. In view of the competition
and consolidation  occurring in the beer industry,  and the significant  capital
requirements  which  would be required in order to enable the Company to further
develop  its beer  products,  the  Company  has  decided to focus its efforts in
establishing  its Quigley's line of applesauces  and does not anticipate  adding
any new styles of beer.

Government Regulation

      Applesauce

      The  manufacture,  distribution  and  sale  of  the  Company's  applesauce
products  are subject to various  federal,  state and local laws  governing  the
production,  sale,  advertising,  labeling  and  ingredients  of food  products.
Although  the  Company  believes  it and  its  distributors  and  co-packer  are
currently in compliance with all material federal,  state and local governmental
laws  and  regulations,  there  can  be  no  assurance  that  the  Company,  its
distributors  and  co-packers  will  be  able  to  comply  with  such  laws  and
regulations in the future or that new governmental laws and regulations will not
be  introduced  which would  prevent or  temporarily  inhibit  the  development,
distribution  and sale of the  Company's  products to  consumers.  If any of the
Company's distributors or co-packers were to violate any such law or regulation,
it could result in fines, recalls,  seizure or confiscation of products marketed
by the Company.

                                            3

<PAGE>





      The Company has, to its knowledge, complied with all current food labeling
and packaging  requirements,  including  significant labeling  requirements that
became effective in 1994.

      The Company has not  experienced  any regulatory  problems in the past and
has not been  subject  to any fines or  penalties.  No  assurance  can be given,
however, that future change in applicable law, regulations or the interpretation

      Beer

      The  Company's  business is highly  regulated by federal,  state and local
laws and  regulations,  federal and state laws and regulations  govern licensing
requirements,  trade and pricing  practices,  permitted  and required  labeling,
advertising,  promotion and marketing practices, relationships with distributors
and related matters.  For example,  federal and state regulators require warning
labels and signage on the Company's  products.  The Company believes that it has
obtained all regulatory  permits and licenses  necessary to operate its business
in the states where the  Company's  products are  currently  being  distributed.
Failure  on the part of the  Company  to  comply  with  federal,  state or local
regulations  could  result  in the  loss  or  revocation  or  suspension  of the
Company's  licenses,  permits or approvals and accordingly could have a material
adverse  effect  on the  Company's  business.  Governmental  entities  also levy
various taxes,  license fees and other similar  charges and may require bonds to
ensure  compliance with applicable laws and  regulations.  The Company must also
comply with numerous federal, state and local environmental protection laws. The
Company is operating  within  existing laws and  regulations or is taking action
aimed at assuring compliance  therewith.  The Company does not expect compliance
with such laws and  regulations  to  materially  affect  the  company's  capital
expenditures, earnings or competitive position.

      The  federal  government  and  each of the  states  levy  excise  taxes on
alcoholic beverages,  including beer. The federal excise tax is currently $18.00
per barrel ($1.30 per case of 24-12 oz.  containers)  and the state excise taxes
range from  $23.80  per barrel to $1.24 per  barrel.  Federal  excise  taxes are
typically  included in the price charged to retailers by the  distributors.  All
excise taxes are  ultimately  passed on to the consumer.  It is possible that in
the future the rate of excise  taxation  could be  increased by both the federal
government and a number of state governments.  Further increases in excise taxes
on beer,  if  enacted,  could  materially  and  adversely  affect the  Company's
financial condition and results of operations.  There is a small brewers federal
excise tax credit  that  grants  each  brewing  company  with  production  under
2,000,000 barrels a year an $11.00 credit per barrel on its first 60,000 barrels
produced annually. The Company is currently able to take advantage of a $660,000
annual credit pursuant to this  exemption.  Although the Company is not aware of
any plans by the federal  government to reduce or eliminate  this small brewer's
credit or by federal or state  authorities  to increase the excise tax rate, and
such change could have a material adverse effect on the Company.

      Certain states, including California,  Connecticut, Delaware, Iowa, Maine,
Massachusetts,  Michigan,  New York,  Oregon and Vermont,  and a small number of
local  jurisdictions,  have  adopted  restrictive  beverage  packaging  laws and
regulations that require deposits on beverage containers.  Congress and a number
of additional state or local  jurisdictions  may adopt a similar  legislation in
the future,  and in such event, the Company may be required to incur significant
expenditures  in order to comply with such  legislation.  Changes to federal and
state  excise  taxes  on  beer  production,   federal  and  state  environmental
regulations,  including laws relating to packaging and waste  discharge,  or any
other federal and state laws or regulations which affect the Company's  products
could materially adversely affect the Company's results of operations.

                                            4

<PAGE>





Sales, Distribution and Marketing

      The Company sells its  Quigley's  Orchard  applesauce  through a system of
independent  unaffiliated  brokers and distributors.  Food brokers act as agents
for the Company within designated territories or specific supermarket or related
chain stores and receive commissions, usually 5%. The distributors sell directly
to retail establishments such as supermarkets,  convenience stores, food service
accounts,  mass merchandising  accounts and vending accounts and gourmet stores.
The  Company  currently  has  25  brokers  and  11  distributors.   The  Company
anticipates adding a minimum of ten new distributors over the next 12 months.

      The Company sells its beer product directly to beer  distributors who sell
directly to retail  establishments  such as grocery stores,  convenience stores,
bars,  restaurants  and  other  retail  establishments.  The  Company's  beer is
currently  distributed in five (5) states.  The Company has not entered into any
other  distribution  arrangements and there can be no assurance that the Company
will  be  able  to  enter  into  distribution   arrangements  with  other  local
distributors on terms satisfactory to the Company or at all.

      The Company's  marketing efforts for Quigley's Orchard include advertising
in vending publications, store advertising flyers, local distributor price books
as well as  tastings at  appropriate  locations.  The Company  does not have any
marketing plans for Perry's Majestic Beer.

Suppliers

      The Company  purchases its fruit  flavors from one  supplier.  The Company
does not have any written  agreement with these  suppliers and is aware of other
suppliers for  ingredients  of equal quality at comparable  pricing.  Apples are
purchased  through the  manufacturing  supplier  and are included in the cost of
production.  However,  there can be no  assurance  that  alternative  sources of
supply would be able to meet the requirements of the Company, and if the Company
were unable to arrange for alternate  source of supply in a timely manner,  such
failure  could  have  a  material  adverse  effect  on the  Companies  business,
operating results and financial condition.

The Company  purchases its barley and hops for its beers each from one supplier.
The Company has no written  agreement with these suppliers and is aware of other
suppliers for ingredients of equal quality at comparable pricing. However, there
can be no assurance that alternative sources of supply would be able to meet the
requirements  of the  Company,  and if the  Company  were  unable to arrange for
alternate  source  of supply  in a timely  manner,  such  failure  could  have a
material  adverse  effect  on the  Companies  business,  operating  results  and
financial condition.

Manufacturing/Contract Brewing

      The  Company's   Quigley's  Orchard   applesauce  is  manufactured  at  an
independent  unaffiliated  co-packer in accordance  with the  Company's  recipes
which remain the exclusive  property of the Company.  The Company has no written
agreement with this  manufacturer  and is aware of other  manufacturers of equal
quality  at  comparable  pricing.  However,  there  can  be  no  assurance  that
alternative  sources of production would be able to meet the requirements of the
Company,  and if the  Company  were unable to arrange  for  alternate  source of
production in a timely manner, such failure could have a material adverse effect
on the Companies business, operating results and financial condition.

      The Company  purchases its product as finished product.  Accordingly,  the
Company's raw materials inventory is not significant.

                                            5

<PAGE>





      Perry's  Majestic Beer is produced  under  contract  with Hoboken  Brewing
Company, an independent unaffiliated brewery which produces,  bottles and labels
Perry's using the Company's name and logo.  The contract  provides for a term of
one (1) year and for the brewing of the beer in  accordance  with the  Company's
formula.  The Company's  formula remains the exclusive  property of the Company.
There can be no assurance that this brewery will continue to provide services to
the  Company.  In the event the Company is unable to continue  its  relationship
with this  brewery  for any  reason,  the  Company  would  have to enter  into a
relationship  with another  brewery which is able to produce organic beer to the
Company's  standards.  Although the Company  believes  that there are other such
brewing facilities which would be available,  there can be no assurance that the
Company  will be able to enter  into  such an  agreement  with  another  brewing
facility, or to do so on terms which are similarly favorable.

Alcohol Beverage Regulation and Taxation

      The manufacture and sale of alcoholic  beverages is a highly regulated and
taxed  business.  The Company's  operations  may be subject to more  restrictive
regulations  and  increased  taxation by federal,  state and local  governmental
entities than are those of non-alcohol  related businesses.  Federal,  state and
local laws and regulations govern the production and distribution of beer. These
laws and regulations govern permitting,  licensing,  trade practices,  labeling,
advertising,  marketing, distributor relationships and related matters. Federal,
state and local governmental  entities also levy various taxes, license fees and
other similar charges and may require bonds to ensure compliance with applicable
laws and regulations.  Failure by the Company to comply with applicable federal,
state or local laws and regulations could result in penalties,  fees, suspension
or revocation of permits, licenses or approvals. There can be no assurances that
other or more restrictive laws or regulations will not be enacted in the future.

Licenses and Permits

      The  Company  purchases  beer  from one  contract  brewer  and sells it to
distributors  pursuant  to a federal  wholesaler's  basic  permit.  Brewery  and
wholesale operations require various federal, state and local licenses,  permits
and approvals.  In addition,  some states prohibit  wholesalers and/or retailers
from holding an interest in any supplier such as the Company.  Violation of such
regulations  can result in the loss or  revocation  of existing  licenses by the
wholesale,  retailer  and/or  suppliers.  The loss or revocation of any existing
licenses,  permits  or  approvals,  failure  to  obtain  any  additional  or new
licenses,  permits  or  approvals  or the  failure  to obtain  approval  for the
transfer of any existing  permits or  licenses,  including  those  required as a
result of the  recapitalization,  could  have a material  adverse  effect on the
ability of the Company to conduct its business.  On the federal  level,  brewers
are required to file with the Bureau of Alcohol, Tobacco and Firearms ("ATF") an
amended  Brewer's  Notice  every time there is a material  change in the brewing
process or brewing equipment,  change in the brewery's  location,  change in the
brewery's  management or a material change in the brewery's  ownership.  Brewers
must seek ATF approval of an amended  Brewer's Notice prior to the change taking
place.  Wholesalers  must  notify  ATF  within  30  days  of any  change  in the
wholesaler's  operations,  change in the wholesalers's  location,  change in the
wholesaler's management or a material change in the wholesaler's ownership.  The
Company's operations are subject to audit and inspection by ATF at any time. The
Company has never been audited or inspected by ATF.

      On the state and local level, some jurisdictions  merely require notice of
any material change in the operations, management or ownership of a permittee or
licensee.  Some  jurisdictions  require  advance  approvals and require that new
licenses,  permits or approvals must be applied for and obtained in the event of
a change in the management or ownership of the permittee or licensees. State and
local laws and regulations  governing the sale of beer within a particular state
by an out-of-state brewer or wholesaler vary from locale to locale.

      ATF  permits  and  brewer's  registrations  can be  suspended,  revoked or
otherwise adversely affected for failure to pay tax, to keep proper accounts, to
pay fees, to bond premises,  to abide by federal alcohol beverage production and
distribution  regulations and to notify ATF of any change (as described  above),
or if holders of 10% or more of the Company's equity  securities are found to be
of questionable character. Permits, licenses and approvals from state regulatory
agencies can be revoked for many of the same reasons.

                                            6

<PAGE>





      The  Company is  required  to have its  Quigley's  products  analyzed by a
laboratory  approved  by the  FDA  for  certification  of its  ingredients.  The
information is then listed on its nutritional  fact panel that appears on all of
the Quigley's products.

      Because of the many and various state and federal licensing and permitting
requirements,  there is a risk  that one or more  regulatory  authorities  could
determine  that the  Company  has not  complied  with  applicable  licensing  or
permitting  regulations  or does not maintain the approvals  necessary for it to
conduct business within their jurisdictions.  There can be no assurance that any
such regulatory action would not have a material adverse effect upon the Company
or its operating results.

Taxation

      The  federal  government  and  each of the  states  levy  excise  taxes on
alcoholic  beverages,  including  beer.  The  federal  excise  tax is $18.00 per
barrel.  For  brewers  producing  no more  than  2,000,000  barrels  of beer per
calendar  year the  federal  excise tax is $7.00 per barrel on the first  60,000
barrels of beer removed for  consumption  or sale during a calendar year. As the
brewer of record of its beers,  the Company has been able to take  advantage  of
this reduced tax on the first 60,000  barrels of its beer  produced.  Individual
states also impose excise taxes on alcoholic beverages in varying amounts, which
have also been subject to change. The state excise taxes are usually paid by the
Company's distributors.

      Congress and state  legislatures  routinely  consider various proposals to
impose  additional  excise taxes on the production and distribution of alcoholic
beverages,  including  beer,  in  connection  with various  governmental  budget
balancing or funding  proposals.  Further  increases in excise taxes on beer, if
enacted, could result in a general reduction of malt beverage sales.

Trademarks

      The Company has received a U.S.  Trademark for  Quigley's  Orchard and has
obtained US. Trademark  Registration for Perry's  Majestic.  The Company regards
its trademarks as having  substantial  value and as being an important factor in
the marketing of its products.  The Company is not aware of any infringing  uses
that could  materially  affect its  current  business  or any prior claim to the
trademarks  that would  prevent the Company  from using such  trademarks  in its
business.  The Company's policy is to pursue  registration of its marks whenever
possible and to oppose vigorously any infringements on its marks.

Management and Employees

      As of June 19, 1997, the Company employed a total of 3 employees on a full
time basis.

      The Company has  experienced  no work stoppages and considers its employee
relations to be satisfactory.  The Company's  employees are not represented by a
labor union.

Product Liability Insurance

      The Company, like other manufacturers of products that are ingested, faces
inherent  risk of exposure to product  liability  claims if, among other things,
the use of its products results in an injury.  The Company currently has product
liability insurance.  There can be no assurance that the Company will be able to
maintain product liability.  Moreover,  the amount and scope of any coverage may
be inadequate to protect the Company in the event that a product liability claim
is successfully asserted against the Company.

                                            7

<PAGE>





Note Regarding Forward Looking Information

      Certain   statements   contained   in  this   Annual   Report   constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and  Sections  21E of the  Exchange  Act.  Such  forward-looking  statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual  results,  levels of activity,  performance  or  achievements  of the
Company,  or  industry  results,  to be  materially  different  from any  future
results, levels of activity, performance or achievements expressed or implied by
such  forward-looking  statements.  Such  factors  include,  among  others,  the
following:  general economic and business conditions; the ability of the Company
to  implement  its  business  strategy;  the  ability  of the  Company to obtain
financing  for general  corporate  purposes;  competition;  availability  of key
personnel;  and  changes  in,  or  the  failure  to  com-ply  with  governmental
regulations. As a result of the foregoing and other factors, no assurance can be
given as to the future results,  levels of activity and achievements and neither
the  Company  nor  an  person  assumes   responsibility  for  the  accuracy  and
completeness of these statements.

Item 2.  PROPERTIES.

      The Company operates its executive  offices at 38 West 32nd Street,  Suite
801, New York, New York 10001 pursuant to a three (3) year lease dated as of May
1, 1997  which  provides  for a monthly  rent of $1,200  and five  percent  (5%)
increases on each of June 1, 1998 and June 1, 1999.

Item 3. LEGAL PROCEEDINGS.

      Except as set forth below,  management is not aware of any material  legal
proceedings pending against the Company.

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

      No matters were submitted to a vote of the holders of the Company's Common
Stock during the last quarter of its fiscal year ended March 31, 1997 except for
the holding of the annual  shareholders  meeting  whereby Robert J Sipper,  Mark
Butler and Matt Harriton  were elected to the  Company's  Board of Directors and
the ratification of Moore Stephens as the Company's independent certified public
accountants.

                                            8

<PAGE>



                                          PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON
        EQUITY AND RELATED STOCKHOLDER MATTERS.


      The Company's Common Stock commenced  trading on the OTC Bulletin Board on
the  effectiveness  of the Company's  Initial  Public  Offering on July 31, 1996
under the symbol "PYMB".  The Common Stock is regularly quoted and traded on the
OTC Bulletin Board.

  The  following  table  indicates the high and low bid prices for the Company's
Common  Stock for the  period  from July 31,  1996 to March 31,  1998 based upon
information  supplied by the NASDAQ system.  Prices represent quotations between
dealers without  adjustments for retail markups,  markdowns or commissions,  and
may not represent actual transactions.  The Company's stock commenced trading on
July 1, 1996.

                                     Common Stock
Year ended 3/31/97                High            Low

Second Quarter                   $11.250        $6.000
Third Quarter                    $9.188          $4.00
Fourth Quarter                   $7.0000        $5.000


Year ended 3/31/98

First Quarter                    $5.375          $.75
Second Quarter                   $1.876          $.50
Third Quarter                    $.8125          $.09
Fourth Quarter                    $.49           $.16

On June 17, 1998,  the closing  price of the Common Stock as reported on the OTC
Bulletin Board was $.125. As of June 17, 1998, the Company had  approximately 72
holders of record of its shares of Common Stock.

                                            9

<PAGE>



Item 6:

PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------


The  following  discussion  should be read in  conjunction  with the  historical
financial  statements of Perry's  Majestic Beer,  Inc. [the "Company"] and notes
thereto included elsewhere in this Form 10-KSB.

OVERVIEW

Perry's  Majestic Beer, Inc. [the "Company" or "Perry's"] was formed in December
of 1995.  There were no  operations  prior to the  formation  of Perry's for the
period  December  1995 to March 1996 nor any revenue or expense  activities  for
Perry's through March 31, 1996. The primary  activities for Perry's prior to the
proposed acquisition of Riverosa Company,  Inc.  ["Riverosa"] were investing and
financing  activities  through  March  31,  1996  [See  "Liquidity  and  Capital
Resources"].  In March of 1996, the Company entered into an agreement to acquire
Riverosa,  which was formed in  November  of 1993.  Riverosa  was engaged in the
manufacture and distribution of microbrewed beers and ales.

The Company operates in two business  segments,  the sale of natural  applesauce
and applesauce  blends, and the sale of microbrewed beer. The Company's products
are Quigley's  Orchard  [natural  applesauce and applesauce  blends] and Perry's
Majestic Beer [beer brewed with organic barley and hops].  Quigley's  Orchard is
manufactured by a co-packer and the microbrew beer is contract brewed.

The  Riverosa  division  currently  has one  style  of beer  available,  Perry's
Majestic organic beer, Ploughman's Pale Ale. All beer styles of Perry's are made
with  organic  hops and barley.  The Company has no plans to add any  additional
beer styles.

In  September  1996,  the  Company  acquired  the Post Road Beer brand and other
assets from the Old  Marlborough  Brewing  Company,  Inc. On May 18,  1998,  the
Company  sold the  Post  Road  brand to the  Brooklyn  Brewery  Corporation  for
consideration of $330,000.

In March 1997, the Company acquired all the outstanding  stock of Orchard Annie,
Inc., a manufacturer of natural  applesauces.  The Company  introduced its first
four flavors of applesauce  under the brand name Quigleys.  Quigleys is produced
by an  independent  unaffiliated  manufacturer.  The Company  has  entered  into
arrangements with twenty-five brokers to sell Quigley's. Additionally, there are
currently  eleven  distributors  of Quigley's.  The Company  expects to add more
distributors and brokers over the next 6-12 months.

On May 14,  1998,  the  Company  entered  into a letter of intent  with  Village
Cannery of Vermont, Inc. The Company was granted an option to acquire all of the
assets for $2,000,000 in cash.  This option is valid through  September 1, 1998.
Village  Cannery of  Vermont,  Inc.  is a producer  of organic  and all  natural
applesauce under the tradename of Vermont Village and Village Company as well as
a producer of sauces, salsas, jams and other such products. The Company does not
presently have funds  available to pay the $2,000,000 and has not identified any
potential source for such funds.

On May 18, 1998,  the Company sold the assets,  all rights to licenses,  permits
and  contracts,  and all  trademarks,  tradenames and processes of the Post Road
beer brand  with a net book  value of  approximately  $131,500  to the  Brooklyn
Brewery Corporation ["BBC"] for consideration of $330,000 of which $10,000 is in
cash.  The  Company  executed  a  secured  promissory  note for the  balance  of
$320,000.  In  addition,  the  purchaser  put $35,000 into escrow to satisfy the
outstanding tax liability for an executive of Old Marlborough.

On July 2, 1998, the Company acquired the rights,  title and interest,  customer
lists,  distribution  rights and related  recipes for  applesauce and applesauce
blends of Leroux Creek  applesauce brand for the sum of $650,000 from the Leroux
Creek Food  Corporation.  The Company  paid $62,500 and executed a note with the
seller in the amount of $587,500 with 9% interest  payable on or before  January
2,1999.  The parties agreed that the $62,500 would be liquidated  damages in the
event the  Company is not able to locate  adequate  financing.  In the event the
Company  can not make the payment  when due the  ownership  of the Leroux  Creek
brand will  revert to the  seller.  The Company  does not  presently  have funds
available to pay the note in full and has not  identified  any potential  source
for such funds.  The Company's  ability to pay the note and retain  ownership of
the Leroux Creek brand will be dependent upon its success in identifying sources
for such financing,  on a timely basis,  and on terms acceptable to the Company.
The Company also issued  options to purchase  250,000  shares of common stock at
fair market value at the date of the grant.

                                            10

<PAGE>



PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



RESULTS OF OPERATIONS

The  Company  had a  loss  from  operations  of  $2,372,642  and a net  loss  of
$2,341,181 for the year ended March 31, 1998, and had a loss from  operations of
$708,315 and net loss of $698,291  for the year ended March 31,  1997.  The loss
from  operations  in the year  ended  March  31,  1998 was  primarily  due to an
insufficient  gross  profit to support the selling,  general and  administrative
expenses of $1,072,756 and the writedown of intangible  assets and  amortization
of intangibles totaling $1,279,719.

The net sales for the Company  for the year ended  March 31,  1998 was  $676,716
compared to $891,225 for the year ended March 31, 1997.  This decrease  resulted
from the Company's  decision to discontinue sales of brands of beer not produced
by the Company while it was an affiliate of Bev-Tyme, Inc.

The  Company  had a gross  profit of  $129,575  or 19.1% as  compared to a gross
profit  of  $13,609  or 1.5% for the  years  ended  March  31,  1998  and  1997,
respectively.  The increase in the gross profit  percentage is  attributable  to
start up costs incurred during the year ended March 31, 1997 related to the Post
Road and  Perry's  beer  brands.  The  Company  intends  to focus on the sale of
Quigley's Orchard Natural Applesauce and applesauce blends.

The  Company's  operating  expenses  for the years ended March 31, 1998 and 1997
were  $2,352,475  and $721,924,  respectively.  The increase in total  operating
expenses was  primarily due to a write down of goodwill and  intangibles  in the
amount  of  $545,716  and  the   amortization  of  deferred   compensation   and
distribution  rights in the amount of $585,000 and $148,955,  respectively,  for
the year ended  March 31,  1998 as compared  to  amortization  of  $137,500  and
$84,276, respectively, for the year ended March 31, 1997. Selling, advertisement
and promotion  expenses  increased from $69,355 for the year ended March 31,1997
to $382,496 for the year ended March 31, 1998 due to increased  advertising  and
promotional programs related to the continued  introduction of Post Road and the
introduction of Quigley's Orchard natural  applesauce and applesauce blends. The
write down of goodwill and intangibles was due to insufficient  projected future
undiscounted   cash  flows  from  the  Riverosa  and  Old  Marlborough   Brewery
acquisitions to justify the carrying value of the goodwill and intangibles.

The Company earned interest income of $37,710 in the fiscal year ended March 31,
1998 as  compared to $17,022  earned  during the prior  year.  Interest  charges
totaling  $1,223 were  incurred on the note  payable  related to the purchase of
transportation  equipment as compared to $6,998 in the year ended March 31, 1997
incurred on the bridge note.

LIQUIDITY AND CAPITAL RESOURCES

Perry's had working  capital at March 31, 1998 of  $401,392.  For the year ended
March  31,  1998,  the  Company  utilized   $1,085,323  in  cash  for  operating
activities. The use of cash for operations is primarily due to the Company's net
loss of $2,341,181 adjusted by non-cash items of approximately  $1,256,000.  The
Company  utilized  $181,392  in cash  for  investing  activities.  Approximately
$91,000 was for the purchase of kegs,  furniture  and equipment and $100,000 was
utilized  for  a  loan  to  Bev-Tyme  on  April  13,  1997  and  the  subsequent
reacquisition  of the  Company's  7,000,000  non-convertible  Class B  Preferred
Stock,  as settlement  in full of the  promissory  note,  on June 13, 1997.  The
Company generated  $21,607 in cash from financing  activities for the year ended
March  31,1998  from  proceeds  on an auto loan.  The cash and cash  equivalents
balance at March 31, 1998 was $276,095.

                                            11

<PAGE>



PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1997, Perry's had working capital of $1,571,790. For the year ended
March  31,  1997,  the  Company  utilized  approximately  $560,000  in cash  for
operating activities.  The Company utilized  approximately $266,000 in investing
activities  for the  acquisition  of Riverosa  and the Old  Marlborough  Brewing
Company,  Inc.'s  Post Road  brand,  as well as for the  acquisition  of Orchard
Annie, Inc. as of March 31, 1997. The Company generated  $2,364,886 in cash from
financing activities for the year ended March 31, 1997, primarily resulting from
the  Company's  initial  public  offering  which  resulted  in net  proceeds  of
$2,475,086 in July 1996. The $150,000  bridge loans from the seven  unaffiliated
lenders  were  repaid at the close of the initial  public  offering on August 4,
1996. In addition,  the Company  repaid the $100,000 note payable as part of its
acquisition of Riverosa. The cash and cash equivalents balance at March 31, 1997
was $1,521,203.

As of March 31, 1998, the Company has 3 employment agreements with executives of
the  Company  that  expire  between  the years  2000  through  2001.  The annual
commitments  for   compensation   aggregate   between   $293,000  and  $250,000,
respectively.  In  addition,  the  Company  has agreed to grant to an  executive
20,000  common  stock  options  each year as a bonus for the next  three  years,
exercisable  at $6.00 per share for a period of four  years.  The 20,000  common
stock options,  exercisable  at $6.00 were not issued.  On January 16, 1998, the
Company issued  100,000 common stock options  exercisable at $0.875 to this same
executive.  The Company also agreed to grant to another executive 100,000 common
stock options on each of March 31, 1998 and March 31, 1999,  exercisable at fair
market  value at date of grant.  The  options  relating to this  agreement  were
issued on January 16, 1998 at fair market value.

During February 1997, Perry's issued a total of 400,000 shares of Perry's common
stock to two officers as consideration for extending their employment agreements
through 2001. As a result of this agreement, deferred compensation of $2,000,000
was recorded and related  amortization of $475,000 and $100,000 was expensed for
the years ended March 31, 1998 and 1997, respectively.

In February  1997,  Perry's  issued  200,000 shares of Perry's common stock to a
consultant  for  services to be  performed  over the next three  years.  On June
4,1997,  this  agreement  was  amended  extending  the  period  of  service  one
additional  year. This agreement was valued at $450,000 and recorded as deferred
compensation.  Amortization of $110,000 and $37,500 was recorded as amortization
expense for the year ended March 31, 1998 and 1997, respectively.

In March 1997,  Perry's entered into an agreement to acquire all of the stock of
Orchard  Annie,  Inc., an all natural apple sauce company from an officer of the
Company for  approximately  $67,000 in cash and  recorded  goodwill for the full
valued.  Additionally,  in September of 1997,  Perry's  issued  50,000 shares of
common stock to the same officer in connection  with the sale and the fair value
of these  shares of  $25,000  is  allocated  to  goodwill.  The  combination  is
accounted for by the purchase method. In addition,  the Company agreed to pay an
officer of the  Company,  who was also the sole  shareholder  of Orchard  Annie,
Inc.,  a royalty  payment  of $.25 for a case of 12 units for the first  500,000
cases $.125 for a case of 12 units thereafter for a period of fifteen years. For
the year ended March 31, 1998, royalty expense was $3,894.

                                            12

<PAGE>



PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------



LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]

On May 23, 1997,  the Company  entered into a consulting  agreement  whereby the
Consultant agrees to provide the Company with consulting  services in connection
with  financial  management  and other  general  consulting  as  required by the
Company.  In  consideration,  the  Company  issued  in June of 1997 an option to
purchase  100,000  shares of the Company's  common stock at an exercise price of
$0.875 per share valued at $16,000. In addition,  the agreement also calls for a
per diem payment of $300,  whenever the  consultant's  services are requested by
the Company.

In November 1997, the Company issued 25,000 shares of common stock to an officer
of the Company for past services rendered. An expense of $14,060 was recorded as
a result of this  transaction,  which  represents  the fair market  value of the
stock at time of issuance.

During the year ended March 31,  1998,  the Company  issued a total of 1,425,000
options to purchase  common  stock with an  exercise  price equal to fair market
value at time of issuance to certain  officers,  directors  and  employees.  The
Company  recorded  compensation  expense of $46,000  for  200,000  common  stock
options issued to consultants for services rendered during the year.

The Company incurred a net loss of $2,341,181 and utilized cash of approximately
$1,085,000  for  operations  for the year ended March 31, 1998. The inability of
the  Company to  generate  projected  cash  needed for  operations,  considering
currently available funds, creates an uncertainty about the Company's ability to
continue  as a going  concern.  The  financial  statements  do not  include  any
adjustments  that might be  necessary  if the Company is unable to continue as a
going  concern.  The Company is  considering  the sale of the beer  business and
various  financing options to raise capital to pursue expansion into the natural
applesauce  business.  In  addition,  the  Company is  exploring  new  marketing
strategies  to improve  revenues  and also plans to  implement  a program to cut
administrative  costs through the  reduction of payroll and reduced  promotional
expenditures.  The  continuation  of the Company as a going concern is dependent
upon the success of these plans.  There can be no assurances  that  management's
plans to reduce  operating  losses and to obtain  additional  financing  to fund
operations will be successful.

Based on a preliminary  evaluation of the year 2000 issue,  the Company does not
expect the amounts  required  to be  expensed  over the next two years to have a
material effect on its financial position or results of operations.

NEW AUTHORITATIVE PRONOUNCEMENTS

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
is  effective  for fiscal years  beginning  after  December  15,  1997.  Earlier
application is permitted.  Reclassification of financial  statements for earlier
periods  provided  for  comparative  purposes is  required.  SFAS No. 130 is not
expected to have a material impact on the Company.

The FASB has issued SFAS No. 131,  "Disclosures  About Segments of an Enterprise
and  Related  Information."  SFAS No. 131  changes how  operating  segments  are
reported in annual  financial  statements and requires the reporting of selected
information  about  operating  segments in interim  financial  reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative  information for earlier years is to be restated. SFAS No.
131 need not be applied to interim  financial  statements in the initial year of
its application.
SFAS No. 131 is not expected to have a material impact on the Company.

                                            13

<PAGE>



PERRY'S MAJESTIC BEER, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
------------------------------------------------------------------------------




IMPACT OF INFLATION

The Company does not believe that inflation has had a material adverse effect on
sales or  income  during  the  past  periods.  Increases  in  supplies  or other
operating costs could adversely affect the Company's  operations;  however,  the
Company  believes it could increase prices to offset increases in costs of goods
sold or other operating costs.

                                            14

<PAGE>



PERRY'S MAJESTIC BEER, INC.
------------------------------------------------------------------------------


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------



                                                                  Page to Page


Item 7:  Financial Statements

Independent Auditor's Report.................................    F-1......

Balance Sheet as of March 31, 1997...........................    F-2......

Statements of Operations for the years ended
 March 31, 1997 and 1996.....................................    F-3......

Statements of Stockholders' Equity for the years ended
 March 31, 1997 and 1996.....................................    F-4......F-5

Statements of Cash Flows for the years ended
 March 31, 1997 and 1996 ....................................    F-6......F-7

Notes to Financial Statements................................    F-8......F-18






                            . . . . . . . . . . . . . . .

                                         15

<PAGE>



                            INDEPENDENT AUDITOR'S REPORT


The Board of Directors and Stockholders of
  Perry's Majestic Beer, Inc.
  New York, New York


            We have  audited  the  accompanying  consolidated  balance  sheet of
Perry's Majestic Beer, Inc. and subsidiary as of March 31, 1998, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the two years in the period  ended March 31,  1998.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

            We  conducted  our  audits in  accordance  with  generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to  obtain  reasonable  assurance  about  whether  the  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  consolidated  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  consolidated  financial
position of Perry's Majestic Beer, Inc. and subsidiary as of March 31, 1998, and
the  consolidated  results of their  operations and their cash flows for each of
the two years in the period ended March 31, 1998, in conformity  with  generally
accepted accounting principles.

            The  accompanying   consolidated   financial  statements  have  been
prepared  assuming that Perry's Majestic Beer, Inc. and subsidiary will continue
as a  going  concern.  As  discussed  in  Note 3 to the  consolidated  financial
statements, the Company has incurred a net loss from operations of approximately
$2,300,000 and has utilized approximately  $1,085,000 in cash for operations for
the year ended March 31, 1998.  The  inability  of the Company to generate  cash
needed  for  operations,  considering  currently  available  funds,  creates  an
uncertainty  about  the  Company's  ability  to  continue  as a  going  concern.
Management's  plans in regard to these matters are also described in Note 3. The
consolidated  financial  statements  do not include any  adjustments  that might
result from the outcome of this uncertainty.









                                          MOORE STEPHENS, P.C.
                                          Certified Public Accountants.

Cranford, New Jersey
May 18, 1998

                                        F-1

<PAGE>



Item 7:

PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998.
------------------------------------------------------------------------------


Assets:
Current Assets:
  Cash and Cash Equivalents                                         $   276,095
  Accounts Receivable - Net                                              37,213
  Inventory                                                             241,028
  Prepaid Insurance                                                      10,461
                                                                    -----------

  Total Current Assets                                                  564,797

Furniture, Fixtures and Equipment - Net                                  94,530
                                                                    -----------

Other Assets:
  Goodwill - [Net of Accumulated Amortization of $15,969]                76,378
  Other Assets                                                            2,600
                                                                    -----------

  Total Other Assets                                                     78,978

  Total Assets                                                      $   738,305
                                                                    ===========

Liabilities and Stockholders' Equity:
Current Liabilities:
  Accounts Payable                                                  $   124,100
  Accrued Expenses                                                       30,792
  Payroll and Payroll Taxes Payable                                       2,094
  Related Party Payable                                                   2,477
  Note Payable                                                            3,942
                                                                    -----------

  Total Current Liabilities                                             163,405

Note Payable                                                             17,665

Commitments and Contingencies [15]                                           --

Stockholders' Equity:
  Preferred  Stock,  $.001 Par Value Per Share,  15,000,000 
   Blank Check  Shares Authorized,  Convertible  Class A -
   Issued and  Outstanding,  500,000 Shares; Non-Convertible 
   Class B - No Shares Issued [Aggregate Liquidation Preferences
   $100,000]                                                                500

  Common Stock - $.0001 Par Value, Authorized 25,000,000 Shares,
   Issued and Outstanding, 3,783,335 Shares                                 378

  Additional Paid-in Capital                                          5,323,329

  Retained Earnings [Deficit]                                        (3,039,472)

  Total                                                               2,284,735
  Less: Deferred Compensation                                         1,727,500

  Total Stockholders' Equity                                            557,235

  Total Liabilities and Stockholders' Equity                        $   738,305
                                                                    ===========

The  Accompanying  Notes are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-2

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------



                                                            Years ended
                                                             March 31,
                                                        1 9 9 8       1 9 9 7
                                                        -------       -------

Sales - Net                                           $  676,716   $   891,225

Cost of Goods Sold                                       547,141       877,616
                                                      ----------   -----------

  Gross Profit                                           129,575        13,609
                                                      ----------   -----------

Operating Expenses:
  Selling, Advertisement and Promotion                   382,496        69,355
  General and Administrative Expenses                    690,260       430,793
  Amortization of Deferred Compensation                  585,000       137,500
  Writedown of Goodwill and Intangibles [17]             545,764            --
  Amortization of Goodwill and Distribution Rights       148,955        84,276
                                                      ----------   -----------

  Total Operating Expenses                             2,352,475       721,924
                                                      ----------   -----------

Loss on Related Party Receivable [7]                     149,742            --
                                                      ----------   -----------

  [Loss] from Operations                              (2,372,642)     (708,315)
                                                      ----------   -----------

Other [Income] Expense:
  Interest Expense                                         1,223         6,998
  Interest Income                                        (37,710)      (17,022)
  Other Expense                                            5,026            --
                                                      ----------   -----------

  Other [Income] - Net                                   (31,461)      (10,024)
                                                      ----------   -----------

  Net [Loss]                                          $(2,341,181) $  (698,291)
                                                      ===========  ===========

  Net [Loss] Per Common Share [Basic and Diluted]     $    (0.63)  $     (0.24)
                                                      ==========   ===========

  Weighted Average Number of Shares                    3,738,452     2,965,869
                                                      ==========   ===========





The  Accompanying  Notes are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-3

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


STATEMENTS OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------

<TABLE>

                                                                                                         Unrealized
                                                                                                           Holding
                                                                                                          [Loss] on
                                                                         Additional  Retained             Available         Total
                                   Preferred Stock       Common Stock      Paid-in   Earnings  Deferred   For Sale     Stockholders'
                                  Shares     Amount   Shares     Amount    Capital  [Deficit]Compensation Investment      Equity

Common Stock Issued for Cash -
<S>                             <C>        <C>       <C>       <C>       <C>        <C>        <C>       <C>        <C>     
  January 1996                        --   $     --  2,500,000 $    250  $   49,750 $      --  $        --  $      -- $     50,000

500,000 Convertible Shares of
 Series A and 7,000,000 Shares 
 of Series B Preferred Stock 
 Issued for Cash and
  Investment in Bev-Tyme,  Inc. 7,500,000     7,500         --       --   2,142,500        --           --         --    2,150,000
                                ---------  --------  --------- --------  ----------  --------  -----------  ---------  -----------

  Balance - March 31, 1996      7,500,000     7,500  2,500,000      250   2,192,250        --           --         --    2,200,000

Net Proceeds from Public
  Offering of Common Stock             --        --    583,335       58   2,475,028        --           --         --    2,475,086

Unrealized Holding [Loss] on 
 Available for Sale Investment
  as of March 31, 1997 [7]             --        --         --       --          --        --           --   (568,560)   (568,560)

Employment Agreements -
  February 11, 1997                    --        --    400,000       40   1,999,960        --   (2,000,000)        --          --
 
Consulting Agreement -
  February 11, 1997                    --        --    200,000       20     449,980        --     (450,000)        --          --

Purchase of Old Marlborough            --        --     25,000        2     214,059        --           --         --     214,061

Amortization of Deferred 
 Compensation                          --        --        --         --       --          --      137,500         --     137,500

Net [Loss] for the year ended
  March 31, 1997                       --        --         --       --          --  (698,291)          --         --    (698,291)
                                ---------   -------  --------- --------  ---------- ---------  -----------  ---------  ----------

  Balance - March 31, 1997
   Forward                      7,500,000   $ 7,500  3,708,335 $    370  $7,331,277 $(698,291) $(2,312,500) $(568,560) $3,759,796

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

</TABLE>


                                              F-4

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------

<TABLE>

                                                                                                   Unrealized
                                                                                                     Holding
                                                                                                    [Loss] on
                                                                   Additional Retained              Available              Total
                                  Preferred Stock   Common Stock     Paid-in  Earnings    Deferred   For Sale Treasury Stockholders'
                                 Shares   Amount   Shares   Amount   Capital  [Deficit] Compensation Investment  Stock    Equity

  Balance - March 31, 1997 -
<S>                         <C>       <C>      <C>       <C>     <C>        <C>         <C>         <C>       <C>        <C>       
   Forwarded                7,500,000 $  7,500 3,708,335 $   370 $7,331,277 $  (698,291)$(2,312,500)$(568,560)$       -- $3,759,796

Exchange of Promissory Note 
 Receivable for 7,000,000 
  Shares of Series B 
  Preferred of the 
  Company [7]                      --       --        --      --   (100,000)         --          --   568,560 (2,000,000)(1,531,440)

Amortization of Deferred
  Compensation Costs               --       --        --      --         --          --     585,000        --         --    585,000

Issuance of Common Stock
  Options to Consultant [9C]       --       --        --      --     46,000          --          --        --         --     46,000

Issuance of Shares of Common 
 Stock[10D]                        --       --    25,000       3     14,057          --          --        --         --     14,060

Issuance of Shares of Common 
 Stock [10C]                       --       --    50,000       5     24,995          --          --        --         --     25,000

Cancellation of Treasury 
 Stock                     (7,000,000)  (7,000)       --      -- (1,993,000)         --          --        --  2,000,000        --

Net [Loss] for the year 
 ended March 31, 1998              --       --        --      --         --  (2,341,181)         --        --         -- (2,341,181)
                           ----------  ------- --------- ------- ----------  ---------- -----------  --------  --------- ----------

  Balance - March 31, 1998    500,000  $   500 3,783,335 $   378 $5,323,329 $(3,039,472)$(1,727,500) $     -- $       -- $  557,235
                           ==========  ======= ========= ======= ========== =========== ===========  ======== ========== ==========



The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>



                                              F-5

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------


                                                             Years ended
                                                              March 31,
                                                         1 9 9 8       1 9 9 7
                                                         -------       -------

Operating Activities:
  Net [Loss]                                           $(2,341,181) $  (698,291)
                                                       -----------  -----------
  Adjustments to Reconcile Net [Loss] to Net Cash
   [Used for] Operating Activities:
   Depreciation and Amortization                          172,388        86,802
   Deferred Compensation Expense                          585,000       137,500
   Compensation Expense for Issuance of Stock 
     and Options                                           60,060            --
   Writedown of Goodwill                                  332,444            --
   Writedown of Distribution Rights                        60,690
   Writedown of Intangibles                                54,538            --
   Bad Debt Expense                                         6,812            --
   Loss on Sale of Asset                                    5,027            --

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Accounts Receivable                                   93,510      (138,607)
     Related Party Receivable                              81,372       (76,298)
     Accrued Interest                                          --        (4,814)
     Inventory                                           (136,532)      (77,335)
     Prepaid Expenses                                     (10,461)           --
     Other Current Assets                                   2,213            --

   Increase [Decrease] in:
     Accounts Payable                                     (70,442)      194,542
     Payroll Taxes Payable                                (14,030)       16,124
     Accrued Expenses                                      30,792            --
     Related Party Payable                                  2,477            --
                                                       ----------   -----------

   Total Adjustments                                    1,255,858       137,914
                                                       ----------   -----------

  Net Cash - Operating Activities - Forward            (1,085,323)     (560,377)
                                                       ----------   -----------

Investing Activities:
  Purchase of Equipment                                   (90,729)      (26,436)
  Acquisition of Old Marlborough Brewery, Inc's Post 
     Road Brand                                                --       (85,513)
  Payments  for Distribution Rights                            --       (86,700)
  Payments for Label and Packaging Design                      --       (68,173)
  Acquisition of Orchard Annie, Inc.                           --       (67,348)
  Due from Officer                                          9,337        (9,336)
  Advances to Related Party                              (100,000)           --
                                                       ----------   -----------

  Net Cash - Investing Activities - Forward            $ (181,392)  $  (343,506)



The  Accompanying  Notes are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-6

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------


                                                             Years ended
                                                              March 31,
                                                         1 9 9 8       1 9 9 7
                                                         -------       -------

  Net Cash - Operating Activities - Forwarded          $(1,085,323) $  (560,377)
                                                       -----------  -----------

  Net Cash - Investing Activities - Forwarded            (181,392)     (343,506)
                                                       ----------   -----------

Financing Activities:
  Proceeds from Bridge Loan                                    --        60,000
  Proceeds from Issuance of Preferred Stock to 
     Bev-Tyme, Inc.                                            --        75,000
  Payment of Bridge Loan Obligation                            --      (150,000)
  Repayment to Note                                            --      (100,000)
  Proceeds of Public Offering - Net of Offering Costs          --     2,475,086
  Proceeds form Sale of Common Stock                           --         4,800
  Proceeds on Auto Loan                                    23,425            --
  Payments on Auto Loan                                    (1,818)           --
                                                       ----------   -----------

  Net Cash - Financing Activities                          21,607     2,364,886
                                                       ----------   -----------

  Net [Decrease] Increase in Cash and Cash Equivalents (1,245,108)    1,461,003

Cash and Cash Equivalents - Beginning of Years          1,521,203        60,200
                                                       ----------   -----------

  Cash and Cash Equivalents - End of Years             $  276,095   $ 1,521,203
                                                       ==========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid for the years for:
   Interest                                            $    1,223   $        --
   Income Taxes                                        $       --   $        --

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
   On June 13, 1997, the Company  converted a promissory  note  receivable  from
Bev-Tyme,  Inc. ["Bev-Tyme"] for $100,000, in consideration for 7,000,000 shares
of the Company's  Series B Preferred  Stock held by Bev-Tyme.  Treasury stock of
$2,000,000  was  recorded and the  unrealized  loss and  investment  in Bev-Tyme
eliminated.  Bev-Tyme  filed  for  bankruptcy  on April 9,  1998.  The  Series B
Preferred Treasury Stock was canceled March 31, 1998.

   In September  1997,  the Company  issued  50,000 shares of common stock to an
officer of the Company in connection  with the acquisition of Orchard Annie [See
Note 10C].  Goodwill of $25,000 was recorded as a result of these  transactions,
which represents the fair market value of the stock at time of issuance. Related
amortization of $2,500 was recorded for the year ended March 31, 1998.

   In November  1997,  the Company  issued  25,000  shares of common stock to an
employee of the Company for past  services  rendered.  An expense of $14,060 was
recorded as a result of this transaction, which represents the fair market value
of the stock at time of issuance [See Note 10D].

   In June of 1997,  the Company  issued  options  for 200,000  shares of common
stock to consultants and recorded  compensation  expense of $46,000 for services
rendered [See Note 9C].



The  Accompanying  Notes are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-7

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


[1] Organization and Nature of Business

Perry's Majestic Beer, Inc. a Delaware corporation [the "Company" or "Perry's"],
was formed in December 1995. The Company's main office is in New York, New York.
There were no revenue or expense  activities through March 31, 1996. The Company
became a subsidiary of Bev-Tyme, Inc. ["Bev-Tyme"] as of March 29, 1996. Perry's
is no longer a subsidiary of Bev-Tyme,  although the two companies  continued to
have some common  management  through July 17,  1997.  However,  for  accounting
purposes  Perry's was treated as a subsidiary of Bev-Tyme through June 30, 1997.
As a corporation,  it was a separate legal entity even when it was a subsidiary.
Bev-Tyme filed for bankruptcy on April 9, 1998.

The Company operates in two business  segments,  the sale of natural  applesauce
and applesauce  blends, and the sale of microbrewed beer. The Company's products
are Quigley's  Orchard  [natural  applesauce and applesauce  blends] and Perry's
Majestic Beer [beer brewed with organic barley and hops].  Quigley's  Orchard is
manufactured  by a co-packer and the microbrew beer is contract brewed [See Note
18].

Perry's  Majestic Beer is distributed in five states:  New York, Ohio, North and
South  Carolina  and Florida.  Quigley's  Orchard is  available  through  eleven
distributors  that  distribute  in the  following  states:  New England  states,
upstate New York, New Jersey, Pennsylvania, Ohio, Wisconsin, Michigan, Delaware,
Maryland, Virginia, West Virginia, North Carolina and South Carolina.

[2] Summary of Significant Accounting Policies

[A] Principles of Consolidation - The consolidated  financial statements include
the accounts of Perry's and its wholly-owned  subsidiary.  Material intercompany
transactions and balances have been eliminated in consolidation.

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

[C] Cash and Cash  Equivalents - The Company's  policy is to classify all highly
liquid  investments  with a maturity of three  months or less when  purchased as
cash equivalents. The Company had no cash equivalents at March 31, 1998.

[D]  Goodwill  - Amounts  paid in excess of the  estimated  value of net  assets
acquired of Riverosa,  Old Marlborough  and Orchard Annie,  Inc. were charged to
goodwill.  Goodwill  relates to revenues  the Company  anticipates  realizing in
future years.  The Company  decided to amortize its goodwill over a period of up
to five  years  under  the  straight-line  method.  The  Company's  policy is to
evaluate the periods of goodwill  amortization to determine whether later events
and  circumstances  warrant revised  estimates of useful lives. The Company will
also  evaluate  whether the carrying  value of goodwill  has become  impaired by
comparing the carrying value of goodwill to the value of projected  undiscounted
cash flows from acquired  assets or businesses.  Impairment is recognized if the
carrying  value of goodwill is less than the  projected  undiscounted  cash flow
from the acquired assets or business [See Note 17].

[E] Inventories - Inventories  are stated at the lower of cost or market.  Cost,
which includes purchases,  freight and packaging, raw materials,  brew fees, and
finished products is determined on the first-in, first-out basis.

[F]  Furniture,  Fixtures and Equipment - Furniture,  fixtures and equipment are
stated at cost and are  depreciated  over its  estimated  useful  life of 3 to 5
years.  Leasehold  improvements are amortized over the lessor of the useful life
of the  improvements  or the  lease  term.  Depreciation  and  amortization  are
calculated using the straight-line method.

                                       F-8

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------



[2] Summary of Significant Accounting Policies [Continued]

[G] Advertising  Expense - Advertising  costs are expensed as incurred.  For the
years  ended  March 31,  1998 and 1997,  advertising  costs  were  approximately
$124,800 and $22,700, respectively.

[H] Risk  Concentrations - Financial  instruments  that potentially  subject the
Company to  concentrations  of credit risk include cash and cash equivalents and
accounts  receivable  arising from its normal business  activities.  The Company
places  its  cash  and cash  equivalents  with  high  credit  quality  financial
institutions located in the New York metropolitan area.

The  Company  maintains  cash  and  cash  equivalent  balances  at  a  financial
institution in New York. Accounts at this institution are insured by the Federal
Deposit Insurance  Corporation up to $100,000.  At March 31, 1998, the Company's
uninsured cash balance totaled approximately $179,600.

The Company performs certain credit  evaluation  procedures and does not require
collateral. The Company believes that credit risk is limited because the Company
routinely  assesses  the  financial  strength of its  customers,  and based upon
factors  surrounding the credit risk of its customers,  establishes an allowance
for  uncollectible  accounts and, as a  consequence,  believes that its accounts
receivable  credit risk exposure beyond such allowances is limited.  The Company
established an allowance for doubtful accounts at March 31, 1998 of $10,812. The
Company believes any credit risk beyond this amount would be negligible.

With respect to purchases  of inventory  for the year ended March 31, 1998,  the
Company  purchased  inventory  for beer  production  from two  suppliers,  which
comprised  approximately  88% of the Company's  total cost of sales. As of March
31, 1998, the Company  distributes its beer products  primarily through fourteen
wholesale  distributors  for resale to retailers.  One distributor  accounts for
approximately 61% of the Company's sales. Accordingly,  the Company is dependent
upon this  distributor  to sell the  Company's  beer  products and to assist the
Company in promoting market acceptance of, and creating demand for the Company's
products in its territory.

The  Company  sells  its  Quigley's  Orchard  applesauce  through  a  system  of
independent  unaffiliated  brokers and distributors.  Food brokers act as agents
for the Company within designated territories or specific channels of trade. The
Company  has 25 brokers  and 11  distributors  and is  continuing  to attempt to
expand the brokerage and distribution systems.

[I] Stock  Issued to  Employees - The Company  adopted  Statement  of  Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation"
on April 1, 1996 for  financial  note  disclosure  purposes and will continue to
apply the intrinsic value method of Accounting  Principles Board ["APB"] Opinion
No. 25,  "Accounting  for Stock Issued to  Employees"  for  financial  reporting
purposes.

[J] Revenue Recognition - Revenue is recognized at the time products are shipped
and title passes.

[K] Net [Loss] Per Share -The FASB issued SFAS No. 128, "Earnings Per Share," in
February  1997.   SFAS  No.  128  simplifies  the  earnings  per  share  ["EPS"]
calculations required by Accounting Principles Board ["APB"] Opinion No. 15, and
related  interpretations,  by replacing the  presentation  of primary EPS with a
presentation of basic EPS. SFAS No. 128 requires dual  presentation of basic and
diluted EPS by entities with complex capital  structures.  Basic EPS includes no
dilution and is computed by dividing income available to common  stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS  reflects  the  potential  dilution  of  securities  that could share in the
earnings of an entity,  similar to the fully  diluted EPS of APB Opinion No. 15.
SFAS No. 128 is effective for  financial  statements  issued for periods  ending
after December 15, 1997,  including interim periods;  earlier application is not
permitted. The Company has adopted SFAS No. 128, prior period EPS data have been
restated.  Basic EPS is based on average common shares  outstanding  and diluted
EPS  include  the  effects of  potential  common  stock,  such as,  options  and
warrants, if dilutive. Adoption of SFAS No. 128 is not material to the Company.

                                       F-9

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------



[2] Summary of Significant Accounting Policies [Continued]

[L] Impairment - Certain  long-term  assets of the Company are reviewed at least
annually as to whether their  carrying  value has become  impaired,  pursuant to
guidance  established  in  Statement of  Financial  Standards  ["SFAS"] No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed  Of."  Management  considers  assets to be impaired if the  carrying
value  exceeds  the  future   projected  cash  flows  from  related   operations
[undiscounted and without interest  charges].  If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from  related   operations.   Management  also   re-evaluates   the  periods  of
amortization to determine whether  subsequent  events and circumstances  warrant
revised  estimates of useful lives.  During the year ending March 31, 1998,  the
Company  determined an impairment of goodwill and intangibles  existed [See Note
17].

[M] Income Taxes - The Company  accounts for income tax expense and  liabilities
under the asset and  liability  method.  Deferred  income taxes are provided for
temporary  differences  between  financial  and income tax  reporting,  relating
principally to depreciation, deferred compensation and amortization.

[3] Going Concern

The  accompany  financial  statements  have been  prepared  in  conformity  with
generally accepted accounting principles, which contemplates continuation of the
Company  as a  going  concern  and  realization  of  assets  and  settlement  of
liabilities and commitments in the normal course of business.

As shown in the accompanying  financial  statements,  the Company incurred a net
loss of $2,341,181 and utilized cash of approximately  $1,085,000 for operations
for the year ended  March 31,  1998.  The  inability  of the Company to generate
projected cash needed for operations,  considering  currently  available  funds,
creates  an  uncertainty  about the  Company's  ability to  continue  as a going
concern.  The financial  statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going  concern.  The Company
is considering  the sale of the beer business and various  financing  options to
raise  capital to pursue  expansion  into the natural  applesauce  business.  In
addition,  the Company is exploring new marketing strategies to improve revenues
and also plans to implement a program to cut  administrative  costs  through the
reduction of payroll and reduced promotional  expenditures.  The continuation of
the Company as a going concern is dependent upon the success of these plans.

There can be no assurances that  management's  plans to reduce  operating losses
and to obtain  additional  financing to fund operations will be successful.  The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification  of  recorded  assets,  or the  amounts  and
classification  of liabilities  that might be necessary in the event the Company
cannot continue in existence.

[4] Inventories

The  Company's  inventory  consists of raw  materials,  packaging  and  finished
products of $241,028.

                                      F-10

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------



[5] Furniture, Fixtures and Equipment and Depreciation

Furniture, fixtures and equipment and accumulated depreciation are as follows:

Furniture and Fixtures                         $   18,566
Transportation Equipment                           23,425
Kegs                                               49,864
Storage Equipment                                  22,810
Leasehold Improvements                              3,500
                                               ----------

Total - At Cost                                   118,165
Less:  Accumulated Depreciation                    23,635

  Net                                          $   94,530
  ---                                          ==========

Depreciation expense for the years ended March 31, 1998 and 1997 was $23,432 and
$2,526, respectively.

[6] Acquisitions

[A]  Riverosa - On March 29,  1996,  the Company  entered  into an  agreement to
acquire  all of the  stock of  Riverosa  Company,  Inc.  for  $250,000  of which
$150,000 in cash was put into escrow as of March 31, 1996 and a note payable was
issued for  $100,000.  The note was payable with  interest of 8% and was paid in
August of 1996 with proceeds from the Company's  initial  public  offering.  The
combination was accounted for by the purchase  method.  Goodwill of $246,000 was
recorded and was to be amortized over five years under the straight-line method.
Amortization  of goodwill of $49,200 was recorded for both years ended March 31,
1998 and 1997.  As of March 31, 1998,  the  unamortized  balance of $147,600 was
written off [See Note 17].

[B] Old  Marlborough  Brewing Co., Inc.  ["Old  Marlborough"]  - In September of
1996,  the  Company  acquired  Old  Marlborough  Brewing  Co.,  Inc.'s Post Road
microbeer  brand and other assets.  The Company paid $172,213,  of which $35,513
was for  inventory  and  equipment  and $86,700 was to  repurchase  distribution
rights.  In February  1997,  the Company  issued  25,000  shares of common stock
valued at approximately $214,000 as additional consideration for the acquisition
of Old  Marlborough.  Goodwill of $264,062 was recorded and was  amortized  over
five years under the  straight-line  method.  For the year ended March 31, 1998,
amortization of goodwill was  approximately  $52,800.  As of March 31, 1998, the
unamortized  balance of  goodwill  of $184,844  and the  unamortized  balance of
distribution rights of $60,690 were written-off [See Note 17].

[C] Orchard Annie,  Inc. - In March 1997,  Perry's  entered into an agreement to
acquire all of the stock of Orchard  Annie,  Inc.,  an all  natural  apple sauce
company  from an officer of the  Company for  approximately  $67,000 in cash and
recorded  goodwill  for the full  value.  Additionally,  in  September  of 1997,
Perry's  issued  50,000 shares of common stock to the same officer in connection
with the  sale.  The fair  value of these  shares of  $25,000  is  allocated  to
goodwill.  The combination is accounted for by the purchase method. In addition,
the  Company  agreed to pay an  officer  of the  Company,  who was also the sole
shareholder of Orchard Annie,  Inc., a royalty  payment of $.25 for a case of 12
units for the first  500,000  cases and $.125 for a case of 12 units  thereafter
for a period of  fifteen  years.  For the year  ended  March 31,  1998,  royalty
expense was $3,894.



                                      F-11

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
------------------------------------------------------------------------------




[7] Related Party Transactions

[A]  Investment - On March 29,  1996,  the Company  issued to Bev-Tyme,  Inc. [a
public  corporation]  500,000 shares of convertible  Class A Preferred Stock and
7,000,000 shares of  non-convertible  Class B Preferred Stock for 400,000 shares
of Series C Preferred Stock of Bev-Tyme, Inc. [valued at $2,000,000 at March 31,
1996] and  $150,000.  Each  share of  Series C  Preferred  Stock  paid an annual
dividend of $0.50 per share and was convertible at the option of the holder into
1.8 shares of Bev-Tyme,  Inc. common stock. On April 9, 1998, Bev-Tyme filed for
bankruptcy  and no dividends were received for the year ended March 31, 1998. As
of March 31, 1996,  $75,000 of cash was collected and the balance of $75,000 was
received  on April  4,  1996.  Each  share of  Class A  Preferred  Stock  may be
convertible  by the  holder  into one [1] share of Common  Stock.  Each share of
Class A  Preferred  Stock has  attached  to it the right to vote on all  matters
submitted to the Company.

In October of 1996, Bev-Tyme,  Inc. sold the 500,000 shares of Convertible Class
A Preferred Stock.

In January  1997,  Perry's  received a dividend  of 524,000  shares of  Bev-Tyme
common stock on the investment of 400,000 shares of Bev-Tyme  Series C Preferred
Stock.

On April 17,  1997,  the Company  loaned to  Bev-Tyme  $100,000 in the form of a
promissory  note.  Bev-Tyme  was  required  to repay the entire  principal  plus
interest on or before April 16, 1998. The Company  retained the right to convert
the  promissory  note  into  the  7,000,000  shares  of the  Company's  Series B
Preferred  Stock held by Bev-Tyme.  On June 13, 1997, the Company  converted the
promissory note receivable from Bev-Tyme,  Inc. ["Bev-Tyme"] for $100,000,  into
the 7,000,000 shares of the Company's Series B Preferred Stock held by Bev-Tyme.
Treasury stock of $2,000,000 was recorded and the unrealized loss and investment
in  Bev-Tyme  has been  eliminated.  The Series B Preferred  Treasury  Stock was
canceled  March 31, 1998.  The 400,000  shares of Series C Preferred of Bev-Tyme
and the 524,000  shares of Bev-Tyme  common stock  received as a dividend on the
investment  in Bev-Tyme are still held by Perry's and are  accounted for with no
value on the financial statements. As a result of the June 13, 1997 transaction,
Perry's was no longer a  subsidiary  of  Bev-Tyme,  although  the two  companies
continued  to have some common  management  through July 7, 1997.  However,  for
accounting purposes Perry's was treated as a subsidiary of Bev-Tyme through June
30, 1997.

[B] Loss on Related Party Receivable - In 1997, the Company had a receivable for
$149,742 from it's former parent for beer sales  distributed by Mootch and Muck,
Inc. Due to the financial condition of Bev-Tyme this receivable was written off.

[8] Income Taxes

Income tax at the federal  statutory rate reconciled to the Company's  effective
rate is as follows:

                                                           March 31,
                                                            1 9 9 8

Federal Statutory Rate                                       (34.0)%
Non-Deductible Expenses                                      (10.4)
Net Operating Loss For  Which No Tax Benefit was Received     44.4

  Effective Rate                                                --  %

The Company has net operating loss carryforwards of approximately $1,600,000 all
of which will expire in 2012 through 2013.

                                      F-12

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------


[8] Income Taxes [Continued]

The major  components  of  deferred  income tax assets  and  liabilities  are as
follows:

                                                 March 31,
                                                  1 9 9 8
Deferred Tax Liabilities
  Accelerated Depreciation                      $   (2,250)
                                                ==========

Deferred Tax Assets:
  Net Operating Loss                            $  720,311
  Excess Book Amortization Over Tax                 27,910
  Reserves                                           6,750
  Book Writedown of Goodwill                       201,452
  Deferred Compensation                            324,900
                                                ----------

  Total                                         $1,281,323

Net Deferred Tax Asset:
  Before Valuation Allowance                    $1,279,073
  Valuation Allowance                            1,279,073
                                                ----------

  Net Deferred Income Tax Asset                 $       --
  -----------------------------                 ==========

The  Company  recorded a  valuation  allowance  of  $1,279,073,  an  increase of
$732,059 over the preceding year, due to the  uncertainty  that the Company will
generate  income in the future  sufficient  to fully or partially  utilize these
carryforwards.

[9] Stock Options

[A] In March  1996,  the Board of  Directors  of the  Company  adopted,  and the
stockholders of the Company approved the adoption of the 1996 Stock Option Plan.
The maximum number of shares of common stock with respect to which awards may be
granted pursuant to the 1996 Plan is initially  2,000,000 shares. No options are
outstanding under this plan.

[B] In connection  with the initial public  offering,  the Company issued to its
underwriter in July 1996 an option to purchase  58,333 shares of common stock at
a  purchase  price of $7.20  per  share  exercisable  commencing  July  1997 and
expiring July 2001.

[C]  During  the year  ended  March  31,  1998,  the  Company  issued a total of
1,425,000  options to purchase common stock with an exercise price equal to fair
market value at time of issuance to certain  officers,  directors and employees.
The Company  recorded  compensation  expense of $46,000 for 200,000 common stock
options issued to consultants for services rendered during the year.

There was no stock option activity during the year ended March 31, 1997.

A summary of stock option activity under the plan as of March 31, 1998:

                                Weighted Average
                                               Common     Exercise Price
                                                Stock      Common Stock

Outstanding on April 1                              --             --
  Granted                                    1,625,000      $    0.48
  Exercised                                         --             --
  Forfeited/Expired                                 --             --
                                             ---------      ---------

  Outstanding and Exercisable on March 31    1,625,000      $    0.48
  ---------------------------------------    =========      =========

                                      F-13

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------



[9] Stock Options [Continued]

The following table summarizes  information about stock options  outstanding and
exercisable  at March 31,  1998.  The common stock  options  issued to officers,
directors  and  employees  do not expire and may be  exercised  at anytime.  The
200,000  common stock  options  issued to  consultants  at an exercise  price of
$0.875 have a weighted  average  remaining  contractual  life of 3.5 years.  All
other options expire in 10 years.

                                 Common Stock
                         Exercise Price     Shares

                           $    0.16        750,000
                           $    0.50        300,000
                           $   0.875        575,000
                                          ---------

                           Total          1,625,000

Had  compensation  cost for the stock option plans been determined  based on the
fair value at the grant dates for awards  under the plans,  consistent  with the
alternative  method set forth under SFAS No. 123, the Company's net loss and net
loss per share  would have been  increased.  The pro forma  amounts for the year
ended March 31, 1998 are indicated below. No options were issued during the year
ended March 31, 1997.

Year Ended March 31,:                    1 9 9 8
---------------------                    -------
Net Loss:
  As Reported                         $(2,341,181)
  Pro Forma                           $(2,930,318)

Net Loss Per Share:
  As Reported                         $     (0.63)
  Pro Forma                           $     (0.78)

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions  used for grants  during the year ended March 31,  1998,  a dividend
yield of $-0-,  an expected  volatility of 223.56%,  risk-free  interest rate of
6.5%;  and  expected  life of five  years.  The  weighted-average  fair value of
options granted was $0.42 for the year ended March 31, 1998.

[10] Common Stock

[A] In January  1996,  the Company  issued  2,500,000  shares of common stock to
seven [7]  parties for a total  consideration  of  $50,000.  At March 31,  1996,
$45,200 was collected and the balance of $4,800 was received April 4, 1996.

[B] The Company's  registration  statement for 583,335 shares of common stock at
$6.00 per share  was  declared  effective  in July of 1996 and net  proceeds  of
approximately $2,475,000 were received in August of 1996.

[C] In September  1997,  the Company  issued 50,000 shares of common stock to an
officer of the Company in connection with the acquisition of Orchard Annie, Inc.
Goodwill of $25,000 was recorded [See Note 6C].

[D] In November  1997,  the Company  issued  25,000 shares of common stock to an
employee of the Company for past  services  rendered.  An expense of $14,060 was
recorded as a result of this transaction, which represents the fair market value
of the stock at time of issuance.

                                      F-14

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
------------------------------------------------------------------------------



[11] Bridge Loan

On March 31, 1996, the Company  borrowed an aggregate of $150,000 from seven [7]
unaffiliated lenders [the "Bridge Lenders"]. In exchange for making loans to the
Company, each Bridge Lender received a promissory note [the "Bridge Note"]. Each
of the Bridge Notes bear  interest at the rate of eight  percent [8%] per annum.
As of March 31,  1996,  $90,000  was  received  in cash from the bridge loan and
$60,000 was  received  April 4, 1996.  The  principal  balance of  $150,000  and
interest for $4,208 was paid August 5, 1996.

[12] Note Payable

A note  payable  as of March 31,  1998 of $21,607 is due in October of 2002 with
interest  at 10.79%  per annum.  The note is  collateralized  by  transportation
equipment.

Maturities of the notes payable as of March 31, 1998 are as follows:

March  31,
   1999                                     $   3,942
   2000                                         4,389
   1001                                         4,887
   2002                                         5,441
   2003                                         2,948
   Thereafter                                      --
                                            ---------

   Total                                    $  21,607
   -----                                    =========

[13] New Authoritative Pronouncements

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
is  effective  for fiscal years  beginning  after  December  15,  1997.  Earlier
application is permitted.  Reclassification of financial  statements for earlier
periods  provided  for  comparative  purposes is  required.  SFAS No. 130 is not
expected to have a material impact on the Company.

The FASB has issued SFAS No. 131,  "Disclosures  About Segments of an Enterprise
and  Related  Information."  SFAS No. 131  changes how  operating  segments  are
reported in annual  financial  statements and requires the reporting of selected
information  about  operating  segments in interim  financial  reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December 15,
1997, and comparative  information for earlier years is to be restated. SFAS No.
131 need not be applied to interim  financial  statements in the initial year of
its  application.  SFAS No. 131 is not expected to have a material impact on the
Company.

                                      F-15

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------



[14] Financial Instruments

Generally  accepted  accounting  principles require disclosing the fair value of
financial  instruments to the extent practicable for financial instruments which
are  recognized  or  unrecognized  in the balance  sheet.  The fair value of the
financial instruments disclosed herein is not necessarily  representative of the
amount  that  could be  realized  or  settled,  nor does the fair  value  amount
consider the tax consequences of realization or settlement.

For  certain  instruments,   including  cash  and  cash  equivalents,   accounts
receivable  and  accounts  payable,  it was  assumed  that the  carrying  amount
approximated  fair value because of the short  maturities of these  instruments.
The fair  value  of  long-term  debt is  estimated  based on rates at which  the
Company could borrow funds with similar remaining maturities.  The fair value of
the Company's debt approximates its carrying value.

[15] Commitments and Contingencies

[A]  Employment  Agreements - As of March 31, 1998, the Company has 3 employment
agreements  with  executives  of the Company that expire  between the years 2000
through 2001. The annual commitments for compensation aggregate between $293,000
and $250,000,  respectively.  In addition, the Company has agreed to grant to an
executive  20,000  common stock  options each year as a bonus for the next three
years,  exercisable  at $6.00 per share for a period of four  years.  The 20,000
common stock options, exercisable at $6.00 were not issued. On January 16, 1998,
the Company issued  100,000  common stock options  exercisable at $0.875 to this
same executive.  The Company also agreed to grant to another  executive  100,000
common stock  options on each of March 31, 1998 and March 31, 1999,  exercisable
at fair market value at date of grant.  The options  relating to this  agreement
were issued on January 16, 1998 at fair market value [See Note 9].

During February 1997, Perry's issued a total of 400,000 shares of Perry's common
stock to two officers as consideration for extending their employment agreements
through 2001. As a result of this agreement, deferred compensation of $2,000,000
was recorded and related  amortization of $475,000 and $100,000 was expensed for
the years ended March 31, 1998 and 1997, respectively.

[B] Consulting  Agreements - In February 1997,  Perry's issued 200,000 shares of
Perry's  common stock to a consultant for services to be performed over the next
three years. On June 4,1997,  this agreement was amended extending the period of
service one additional  year. This agreement was valued at $450,000 and recorded
as deferred  compensation.  Amortization of $110,000 and $37,500 was recorded as
amortization expense for the year ended March 31, 1998 and 1997, respectively.

[C]  Consulting  Agreement  - On  May  23,  1997,  the  Company  entered  into a
consulting  agreement  whereby the Consultant agrees to provide the Company with
consulting  services in connection  with financial  management and other general
consulting as required by the Company. In consideration for these services,  the
Company  issued  in June of 1997 an  option to  purchase  100,000  shares of the
Company's  common  stock at an  exercise  price of $0.875  per  share  valued at
$16,000.  In addition,  the agreement also calls for a per diem payment of $300,
whenever the consultant's services are requested by the Company.

[D] Royalty  Agreements - In connection  with the  acquisition of Orchard Annie,
Inc.,  the  Company  has agreed to pay a royalty  payment of $0.25 for a 12 pack
case for each of the first 500,000 cases sold and $0.125 per case thereafter for
a period of fifteen years.  Royalty  expense of $3,894 was recorded for the year
ended March 31, 1998.

In addition, the Company has agreed to pay to a graphic design firm a royalty of
$0.0125 for a 12 pack case sold for design services rendered. Royalty expense of
$207 was recorded for the year ended March 31, 1998 under this agreement.

                                      F-16

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------


[15] Commitments and Contingencies [Continued]

[E] Loan Guarantee - During the year, the Company  recognized a preexisting lien
on the assets of Old  Marlborough  to guarantee a loan of the previous  owner of
Old Marlborough,  a current employee of the Company.  On May 14, 1998, a lien on
Perry's  assets was  issued.  All the assets of Perry's  guarantees  the debt of
approximately  $76,000 at March 31, 1998. The debt is being paid by the previous
owner of Old Marlborough.

[F] Pledged  Inventory - In October of 1996, the Company's former Parent entered
into a loan and pledged all assets,  including Perry's finished goods inventory,
as collateral.

[16] Leases

[A]  Future  minimum   payments  under   non-cancelable   operating  leases  for
transportation  equipment,  kegs and  office  space are as  follows at March 31,
1998:

1999                                $  28,507
2000                                   22,200
2001                                    2,634
2002                                       --
2003                                       --
Thereafter                                 --
                                    ---------

  Total Minimum Lease Payments      $  53,341

[B] Rent  expense  for the year ended  March 31,  1998 and 1997 was  $12,480 and
$4,880,  respectively.  During the year ended March 31,  1997,  rent of $750 was
paid on a monthly  basis to an officer of the Company  for use of office  space.
This  arrangement  was  terminated  in June of 1997,  when the Company moved its
office to its current address.

[C] Rental  Agreement - In May of 1997,  the Company  entered  into a three year
lease for office space with  monthly  rent of $1,200 for the first year,  $1,248
and $1,297 for each of the two years thereafter.

[17] Impairment of Long-Lived Assets

During the fiscal year ending March 31, 1998, the Company recorded an impairment
loss of $545,764  from the write down of goodwill  and other  intangibles.  As a
result of the current  year's loss and the necessary  revisions to the projected
future  undiscounted  cash  flows,  there  is no  longer  justification  for the
carrying  value of the  goodwill and  intangibles  allocated to Riverosa and Old
Marlborough Brewing Co., Inc., including unamortized distribution rights and the
unamortized balance of intangible assets related to design work done for Perry's
and Post Road beer brands.  Fair value of goodwill and  intangibles was based on
the  present  value of  estimated  expected  future  cash flows from the related
assets.  As of March 31,  1998,  goodwill  of $92,348  and  related  accumulated
amortization  of $15,970  relates to the purchase of Orchard Annie,  Inc. and is
expected to be fully recoverable.

The following  table  presents the write down of good will and other  intangible
assets at March 31, 1998:

                                                 Accumulated
                                        Cost    Amortization   Writedown

Goodwill Riverosa                   $  246,000  $   98,400    $  147,600
Goodwill Old Marlborough            $  264,062  $   79,218       184,844
Other Intangible Assets             $  166,264  $   13,634       152,630
Distribution Rights                 $   86,700  $   26,010        60,690
                                                              ----------

  Total                                                       $  545,764
  -----                                                       ==========

                                      F-17

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------



[18] Subsequent Events

[A] Letter of Intent - On May 14,  1998,  the Company  entered  into a letter of
intent with Village  Cannery of Vermont,  Inc. The Company was granted an option
to acquire  all of the  assets  for  $2,000,000  in cash.  This  option is valid
through  September 1, 1998.  Village  Cannery of Vermont,  Inc. is a producer of
organic and all natural  applesauce  under the tradename of Vermont  Village and
Village  Company as well as a producer  of sauces,  salsas,  jams and other such
products.  The  Company  does not  presently  have  funds  available  to pay the
$2,000,000 and has not identified any potential source for such funds.

[B] Post Road Sale - On May 18, 1998, the Company sold the assets, all rights to
licenses, permits and contracts, and all trademarks, tradenames and processes of
the Post Road beer brand with a net book value of approximately  $131,500 to the
Brooklyn  Brewery  Corporation  ["BBC"] for  consideration  of $330,000 of which
$10,000  is in cash.  The  Company  executed a secured  promissory  note for the
balance of  $320,000.  In  addition,  the  purchaser  put $35,000 into escrow to
satisfy the outstanding tax liability for an executive of Old Marlborough.

[19] Subsequent Event [Unaudited]

Acquisition  of Leroux  Creek Food  Corporation  - On July 2, 1998,  the Company
acquired the rights, title and interest, customer lists, distribution rights and
related recipes for applesauce and applesauce  blends of Leroux Creek applesauce
brand for the sum of  $650,000  from the  Leroux  Creek  Food  Corporation.  The
Company  paid  $62,500  and  executed  a note with the  seller in the  amount of
$587,500  with 9%  interest  payable on or before  January  2,1999.  The parties
agreed that the $62,500 would be liquidated  damages in the event the Company is
not able to locate adequate financing. In the event the Company can not make the
payment  when due the  ownership  of the Leroux  Creek  brand will revert to the
seller.  The Company does not presently have funds  available to pay the note in
full and has not identified any potential  source for such funds.  The Company's
ability to pay the note and retain  ownership  of the Leroux Creek brand will be
dependent  upon its  success in  identifying  sources for such  financing,  on a
timely basis,  and on terms  acceptable to the Company.  The Company also issued
options to purchase  250,000  shares of common stock at fair market value at the
date of the grant.




                            . . . . . . . . . . . . .


                                      F-18

<PAGE>



Item 8.  CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
              ON ACCOUNTING AND FINANCIAL DISCLOSURE.

  None.



                                       16

<PAGE>



                                    PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
        COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Directors and Executive Officers

  The  names  and ages of the  directors,  executive  officers  and  significant
employees, and promoters of the Company are set forth below.

      Name                             Age              Position Held

Robert Sipper                          44          President, Chief Executive
                                                   Officer, Chief Financial 
                                                   Officer, Principal ccounting 
                                                   Officer and Director

Mark Butler                            46          Vice President-Sales and
                                                   Secretary and Director

Background of Executive Officers and Directors

  Robert Sipper has been Chief Executive  Officer and Chief Financial Officer of
the Company since March 1, 1996.  He has served as a director of Bev-Tyme,  Inc.
since November 1993 and Chief Executive Officer and President of Bev-Tyme,  Inc.
since January,  1994. He graduated with a J.D. degree from Vermont Law School in
1978 and entered private practice. He was associated with Dubbs, Leopold,  Davis
& DePodwin, Attorneys at Law from 1979-1981. He became a partner in the law firm
of Leopold & Sipper,  Attorneys at Law, from 1981 to March 1989. In March, 1989,
Mr.  Sipper  left  the  private  practice  of law  and  became  Chief  Operating
Officer/Executive  Vice  President of Mootch & Muck,  which was the master Evian
distributor for the  Metropolitan New York - New Jersey territory as well as the
distributor of many other  beverages and selected  specialty  foods.  Mr. Sipper
established  a  subdistributor  network  for Evian and  other  products  in this
territory.  In 1990,  Mr.  Sipper  negotiated  the sale of Mootch & Muck's Evian
Master Distributor Agreement to Canada Dry Bottling Company of New York.

  Mark  Butler has been  President,  Vice  President  - Sales and  Secretary  of
Riverosa since January 1990. Mr. Butler was appointed to the Company's  Board of
Directors  on April 1,  1996.  He has been the Vice  President-Sales  and  Chief
Operating  Officer of the Company since April 4, 1996.  Mr. Butler was President
of Mill Hill Associates, a company which brokers various beverages to wholesaler
and  distributor  networks from January 1990 to October 1996. From April 1988 to
January  1990,  Mr. Butler was National  Sales Manager for Snapple  Beverage Co.
From February  1986 to March 1988,  he was National  Sales Manager for Glenville
Importers.  From November 1984 to January  1986,  Mr. Butler was National  Sales
Manager of American  Natural Beverage Corp. From September 1980 to October 1984,
he was president of  Newport-Cambridge  Provisions which distributed  beverages,
including exclusive distribution of Soho Natural Soda in New England.

                                       17

<PAGE>



  Matthew L.  Harriton  has served on the  Company's  Board of  Directors  since
January  3,  1996.  Mr.  Harriton  is the  Chief  Financial  Officer  of  Embryo
Development  Corporation.  Embryo  Development  Corporation  is a public company
which trades on NASDAQ and which  specializes  in  developing  and  distributing
medical devices. Prior to joining Embryo Development Corporation, Mr. Harriton's
professional  experience  included  positions  at  CIBC  Wood  Gundy  Securities
Corporation as an associate  from June 1994 to December 1995,  Coopers & Lybrand
as a senior  associate  from  December  1990 to May 1994,  and The First  Boston
Corporation as a senior accountant from June 1986 to June 1988.  Through private
investments  Mr. Harriton has been involved with the start-up and development of
several restaurants located in Manhattan. Mr. Harriton also serves as a director
of Decor Group,  Inc., a public  company which trades on the OTC Bulletin  Board
and is involved in the home decorating  industry.  Mr. Harriton also serves as a
director of Superior Supplements, Inc., a public company which trades on the OTC
Bulletin  Board  and  which  manufactures  and  sells  dietary  supplements  and
specialty nutritional supplements in bulk tablet, capsule and powder form. He is
a graduate of Lehigh  University and received his M.B.A.  from Duke University's
Fuqua School of Business.  On June 16, 1998 Mr. Harriton resigned from the Board
of Directors.

  There are no family  relationships  among any of the  directors  or  executive
officers  of the  Company.  Each  director of the Company is entitled to receive
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors  of the Company.  The members of the Board of Directors  meet at least
quarterly during the Company's fiscal year, and at such other times duly called.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

  Section  16(a) of the  Securities  Exchange Act of 1934 requires the Company's
directors  and  executive  officers,  and  persons who own more than ten percent
(10%) of a registered class of the Company's equity securities, to file with the
Securities and Exchange  Commission  initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Officers,  directors and greater than ten percent  shareholders  are required by
SEC  regulation  to furnish the Company  with copies of all Section  16(a) forms
they file.

  Except as provided  below,  to the  Company's  knowledge,  based solely on its
review of the copies of such reports  furnished  to the Company  during the year
ended March 31, 1998,  all Section 16(a) filing  requirements  applicable to its
officers,  directors  and  greater  than  ten  percent  beneficial  owners  were
satisfied.

Item 10. EXECUTIVE COMPENSATION.

  The following  table sets forth the  compensation  paid to the Named Executive
Officers for the fiscal year ending March 31, 1998.

                           Summary Compensation Table

                              Annual Compensation Awards Long-Term Compensation

     (a)                      (b)   (c) (d)      (e)        (f)
                                            Other Annual Restricted Stock Option
Name and Principal Position   Year  Salary   Compensation   Award        Grants

Robert Sipper, President 
 and Chief Executive 
 Officer                      1998 $116,296         -0-        -0-         -0-

Mark Butler                   1998 $111,940         -0-        -0-         -0-
  Vice President - Sales

                                       18

<PAGE>




The  following  table sets forth  certain  information  with  respect to options
granted during the last fiscal year to the Company's Chief Executive Officer and
the other executive officers named in the above Summary Compensation Table.

                      Option/SAR Grants In Last Fiscal Year

    Name      Number of Securities   Percent of Total   Exercise or
                   Underlying     Options/SARS Granted toBase Price  Expiration
                  Options/SARS   Employees in Fiscal Year ($/Sh)        Date
                 Granted (#) (1)

Robert Sipper     6/97- 125,000          8.8%            0.875         2012
                 9/97 - 100,000          7.0%            0.50          2012
                 1/98 - 200,000          14.0%           0.16          2013
Mark Butler      6/97 - 125,000          8.8%            0.875         2012
                 9/97 - 100,000          7.0%            0.50          2012
                 1/98 - 200,000          14.0%           0.16          2013
----------------------------
(1) Options are exercisable for shares of Common Stock.

      The following table sets forth certain information with respect to options
exercised  during the last fiscal year by the Company's Chief Executive  Officer
and the executive  officers named in the Summary  Compensation  Table,  and with
respect  to  unexercised  options  held by such  persons  at the end of the last
fiscal year:

     Aggregate  Option/SAR  Exercises  In Last Fiscal  Year And Fiscal  Year-End
Option/SAR Values


<TABLE>

                                     Number of
                                     Securities               Value of
                                    Unexercised              Unexercised
              Shares       Value     Underlying              in the Money
           Acquired on    Realized  Options/SARS             Options/SARs
Name      Exercise (#)(1)    $      at FY-End(#)            at FY-End($)(2)

                                    Exercisable Unexercisable Exercisable Unexercisable

<S>              <C>         <C>                                  <C>           <C> 
Robert Sipper   -0-         -0-      --------   --------          $-0-          $-0-

Mark Butler     -0-         -0-      --------   --------          $-0-          $-0-
</TABLE>

      Each   director  of  the   Company  is  entitled  to  receive   reasonable
out-of-pocket  expenses incurred in attending meetings of the Board of Directors
of the Company.  The members of the Board of Directors  meet at least  quarterly
during the Company's fiscal year, and at such other times duly called.

Employment Agreements

      As of April 4, 1996, and as amended in November 1996, February 1997 and in
March 1997, the Company entered into a five (5) year  employment  agreement with
Mark Butler  pursuant to which Mr. Butler serves as the Company's Vice President
of Sales and Chief  Operating  Officer and was elected to the Company's Board of
Directors. The employment agreement, as amended, provides

                                      19

<PAGE>



for Mr. Butler to receive a salary of $25,000 per annum until the closing of the
Initial  Public  Offering,  and  thereafter  $50,000 per annum until November 1,
1996,  and  thereafter  $75,000 per annum until March 10, 1997,  and  thereafter
$110,000 per annum.  The  employment  agreement,  as amended,  also provides for
payment of an annual  bonus at the sole  discretion  of the  Company's  Board of
Directors.  In  addition,  on each of March 31, 1998,  and March 31,  1999,  the
Company agreed,  pursuant to the employment agreement,  as amended, to grant Mr.
Butler an option to purchase 100,000 shares of Common Stock  exercisable at fair
market  value on the date of  issuance.  Further,  the  employment  agreement as
amended  provides  that the Company issue to Mr.  Butler  200,000  shares of the
Company's Common Stock on February 11, 1997. Such shares were issued in February
1997. In March 1997, Mr.  Butler's salary was increased to $110,000 per annum in
accordance with his employment agreement, as amended.

      As of April 4, 1996 and as  amended  on  February  1,  1997,  the  Company
entered into a five (5) year employment agreement with Robert Sipper pursuant to
which Mr. Sipper serves as the Company's  President and Chief Executive Officer.
The agreement  provides for Mr. Sipper to receive a salary of $50,000 per annum.
In October 1996,  Mr. Sipper  exercised  his option  pursuant to the  employment
agreement  to transfer  his  Bev-Tyme  salary of $106,650  to the  Company.  Mr.
Sipper's  salary was  subsequently  reduced  voluntarily to $120,000,  until Mr.
Sipper gives notice that his full salary should be reinstated.

Stock Option Plans and Agreements

      In March 1996,  the Board of  Directors  of the Company  adopted,  and the
stockholders  of the  Company  approved  the  adoption  of,  the 1996 Stock Plan
(hereinafter called the "1996 Plan"). The purpose of the 1996 Plan is to provide
an incentive and reward for those executive  officers and other key employees in
a position  to  contribute  substantially  to the  progress  and  success of the
Company,  to closely align the interests of such employees with the interests of
stockholders  of the  Company by linking  benefits to stock  performance  and to
retain the services of such employees,  as well as to attract new key employees.
In furtherance of that purpose, the 1996 Plan authorizes the grant to executives
and other key employees of the Company and its  subsidiaries  of stock  options,
restricted stock,  deferred stock, bonus shares,  performance  awards,  dividend
equivalent  rights,  limited  stock  appreciation  rights and other  stock-based
awards,  or any  combination  thereof.  The 1996  Plan is  expected  to  provide
flexibility   to  the   Company's   compensation   methods,   after  giving  due
consideration to competitive conditions and the impact of federal tax laws.

      The maximum  number of shares of Common Stock with respect to which awards
may be granted pursuant to the 1996 Plan is initially 2,000,000 shares. To date,
300,000 options have been granted under the 1996 Plan. Shares issuable under the
1996 Plan may be either treasury shares or authorized but unissued  shares.  The
number of shares available for issuance will be subject to adjustment to prevent
dilution in the event of stock splits,  stock  dividends or other changes in the
capitalization of the Company.

      The 1996 Plan will be administered  by a committee  consisting of not less
than two (2) members of the Board of Directors  who are  "disinterested"  within
the  meaning of Rule  16b-3  promulgated  under the  Exchange  Act and  "outside
directors"  within the meaning of Section 162(m) of the Code (including  persons
who may be deemed outside directors by virtue of any transitional rule which may
be adopted by the Internal Revenue Service implementing such Section). The Board
will  determine  the persons to whom  awards will be granted,  the type of award
and, if applicable,  the number of shares to be covered by the award. During any
calendar  year, no person may be granted under the 1996 Plan awards  aggregating
more than 100,000 shares (which number shall be subject to adjustment to prevent
dilution  in the event of stock  splits,  stock  dividends  or other  changes in
capitalization of the Company).


                                      20

<PAGE>



      Types of Awards

      Stock Options. Options granted under the 1996 Plan may be "incentive stock
options" ("Incentive  Options") within the meaning of Section 422 of the Code or
stock  options which are not incentive  stock options  ("Non-Incentive  Options"
and, collectively with Incentive Options, hereinafter referred to as "Options").
The persons to whom  Options  will be granted,  the number of shares  subject to
each Option granted,  the prices at which Options may be exercised  (which shall
not be less than the fair market  value of shares of Common Stock on the date of
grant), whether an Option will be an Incentive Option or a Non-Incentive Option,
the time or times and the extent to which Options may be exercised and all other
terms and conditions of Options will be determined by the Committee.
      Each  Incentive  Option shall  terminate no later than ten (10) years from
the date of grant,  except as provided  below with respect to Incentive  Options
granted to 10% Stockholders (as hereinafter defined). No Incentive Option may be
granted  at any  time  after  October  2006.  Each  Non-Incentive  Option  shall
terminate not later than fifteen (15) years from the date of grant. The exercise
price at which the shares may be purchased  may not be less than the Fair Market
Value of shares of Common  Stock at the time the  Option is  granted,  except as
provided below with respect to Incentive  Options  granted to 10%  Stockholders.
Options granted to executive  officers may not be exercised at any time prior to
six (6) months after the date of grant.

      The exercise price of an Incentive  Option granted to a person  possessing
more than 10% of the total  combined  voting power of all shares of stock of the
Company or a parent or subsidiary of the Company ("10% Stockholder") shall in no
event be less than 110% of the Fair  Market  Value of the  shares of the  Common
Stock at the time the  Incentive  Option is  granted.  The term of an  Incentive
Option  granted to a 10%  Stockholder  shall not exceed  five (5) years from the
date of grant.

      The exercise  price of the shares to be purchased  pursuant to each Option
shall be paid (i) in full in cash, (ii) by delivery (i.e.,  surrender) of shares
of the Company's  Common Stock owned by the optionee at the time of the exercise
of the Option,  (iii) in  installments,  payable in cash,  if  permitted  by the
Committee or (iv) any combination of the foregoing.  The stock-for-stock payment
method permits an optionee to deliver one (1) or more shares of previously owned
Common Stock of the Company in  satisfaction of the exercise price of subsequent
Options. The optionee may use the shares obtained on each exercise to purchase a
larger  number  of  shares  on the next  exercise.  (The  foregoing  assumes  an
appreciation  in  value  of  previously  acquired  shares).  The  result  of the
stock-for-stock  payment  method  is  that  the  optionee  can  generally  avoid
immediate tax  liability  with respect to any  appreciation  in the value of the
stock utilized to exercise the Option.

      Shares received by an optionee upon exercise of a Non-Incentive Option may
not be sold or otherwise  disposed of for a period  determined by the Board upon
grant of the Option, which period shall be not less than six (6) months nor more
than three (3) years from the date of acquisition of the shares (the "Restricted
Period"),  except that,  during the Restricted Period (i) the optionee may offer
the shares to the Company and the Company may, in its discretion, purchase up to
all the  shares  offered  at the  exercise  price  and  (ii)  if the  optionee's
employment   terminates   during  the  Restricted   Period  (except  in  limited
instances),  the optionee,  upon written  request of the Company,  must offer to
sell the shares to the Company at the  exercise  price within seven (7) business
days. The Restricted  Period shall terminate in the event of a Change in Control
of the  Company  (as  defined),  or at the  discretion  of the Board.  After the
Restricted  Period,  an optionee wishing to sell must first offer such shares to
the Company at the Fair Market Value.

      Limited  Stock  Appreciation  Rights.  The  Committee  is  authorized,  in
connection  with any Option  granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference  between the exercise price of the Option and the market
value of the Common Stock on the  effective  date of the Change in Control.  The
LSAR may be

                                      21

<PAGE>



granted in tandem with an Option or subsequent to grant of the Option.  The LSAR
will only be exercisable  to the extent the related  Option is  exercisable  and
will terminate if and when the Option is exercised.

      Restricted and Deferred  Stock.  An award of restricted  stock or deferred
stock may be  granted  under  the 1996  Plan.  Restricted  stock is  subject  to
restrictions on transferability  and other restrictions as may be imposed by the
Committee at the time of grant. In the event that the holder of restricted stock
ceases to be employed by the Company during the applicable  restrictive  period,
restricted stock that is at the time subject to restrictions  shall be forfeited
and reacquired by the Company.  Except as otherwise provided by the Committee at
the time of grant,  a holder of restricted  stock shall have all the rights of a
stockholder  including,  without limitation,  the right to vote restricted stock
and the right to recover  dividends  thereon.  An award of deferred  stock is an
award that  provides  for the  issuance of stock upon  expiration  of a deferral
period  established  by the  Committee.  Except as otherwise  determined  by the
Committee,  upon  termination of employment of the recipient of the award during
the  applicable  deferral  period,  all  stock  that is at the time  subject  to
deferral  shall be forfeited.  Until such time as the stock which is the subject
of the  award  is  issued,  the  recipient  of the  award  has  no  rights  as a
stockholder.

      Dividend  Equivalent Awards. A dividend equivalent gives the recipient the
right to receive cash or other  property  equal in value to the  dividends  that
would be paid if the  recipient  held a  specified  number  of  shares of Common
Stock.  A dividend  equivalent  right may be granted as a  component  of another
award or as a free standing award.

      Bonus Shares and other Share Based Awards.  The 1996 Plan  authorizes  the
Committee to grant shares as a bonus, or to grant shares or other awards in lieu
of  obligations  of the Company to pay cash under  other  plans or  compensatory
arrangements,  upon such terms as shall be determined by the Committee. The 1996
Plan also  authorizes  the  Committee to grant other forms of awards based upon,
payable  in,  or  otherwise  related  in  whole  or in part  to,  Common  Stock,
including,  without limitation,  convertible or exchangeable debentures or other
debt securities,  other rights convertible or exchangeable into shares, purchase
rights for shares, awards contingent upon performance of the Company, and awards
valued by  reference  to the book  value of  shares  of  Common  Stock or awards
determined by reference to the value of securities  of, or the  performance  of,
specified subsidiaries.



                                      22

<PAGE>



Item 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT.

      The following  table sets forth as of June 17, 1998,  certain  information
with respect to the beneficial  ownership of Common Stock and Preferred Stock by
each person or entity known by the Company to be the  beneficial  owner of 5% or
more of such shares, each officer and director of the Company,  and all officers
and directors of the Company as a group:



                                     Percentage (%)               Percentage (%)
Name and Address of Shares of Common      of         Shares of       of Total
Beneficial Owner (1)  Stock Owned    Common Stock Preferred Stock Combined Vote

Robert Sipper            625,000(2)       14.2          0.0          14.2

Hartley T. Bernstein(3)  300,000(4)        7.3          0.0           7.3

Matthew Harriton         425,000(5)       10.1          0.0          10.1

Mark Butler              675,000(6)       15.1          0.0          15.1

All officers and  
directors as a group 
(three (3) persons)    1,725,000          31.3          0.0          31.3

(1)  The address of each Stockholder shown above except as otherwise indicated 
     is c/o Perry's  Majestic  Beer,  Inc., 38 West 32nd Street,  Suite 801, New
     York, New York 10001.

(2)  Includes 425,000 shares of Common Stock underlying options to purchase 
     425,000 shares of Common Stock of the Company.

(3)  Mr.  Bernstein  is a  consultant  to the  Company  and legal  counsel to
     the Company.

(4)  Includes 100,000 shares of Common  Stock underlying an option to purchase
     100,000 shares of Common Stock of the Company.

(5)  Includes 425,000 shares of Common Stock underlying options to purchase
     425,000 shares of Common Stock of the Company.

(6)  Includes 425,000 shares of Common Stock underlying options to purchase
     425,000 shares of Common Stock of the Company.

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     On October 26,  1995,  Bev-Tyme,  Inc.  entered  into a letter of intent to
acquire  Riverosa  for the  sum of  $250,000.  As  part  of that  understanding,
Bev-Tyme  agreed that  Riverosa or its  successors  would enter into a three (3)
year employment  agreement with Mark Butler at an annual salary of $25,000 year,
subject  to  appropriate  increase  in the  event  Riverosa  (or it  successors)
successfully completed an initial public offering of its securities resulting in
net  proceeds  in excess of  $2,000,000.  The  Employment  Agreement  would also
provide for an annual bonus as well as stock options based upon performance.  In
January 1996,  Bev-Tyme,  Inc. assigned its rights under the letter of intent to
the Company,  which entered into a definitive  agreement  with Riverosa on March
29,  1996,  pursuant to which the  Company  agreed to pay the sum of $250,000 to
acquire Riverosa. As of April 4, 1996, and as amended in November 1996, February
1997 and  March  1997,  the  Company  entered  into a five  (5) year  employment
agreement with Mark Butler  pursuant to which Mr. Butler serves as the Company's
Vice  President  of Sales and Chief  Operating  Officer  and was  elected to the
Company's Board of Directors. The employment agreement, as amended, provides for
Mr.  Butler to receive a salary of $25,000  per annum  until the  closing of the
Initial Public Offering, and thereafter $50,00 per annum until November 1, 1996,
and thereafter $75,000 per annum until March 10, 1997, and

                                      23

<PAGE>



thereafter  $110,000  per annum.  The  employment  agreement,  as amended,  also
provides for payment of an annual bonus at the sole  discretion of the Company's
Board of Directors.  In addition, on each of March 31, 1998, and March 31, 1999,
the Company agreed,  pursuant to the employment agreement,  as amended, to grant
Mr. Butler an option to purchase  100,000 shares of Common Stock  exercisable at
fair market value on the date of issuance. Further, the employment agreement, as
amended  provides  that the Company issue to Mr.  Butler  200,000  shares of the
Company's Common Stock on February 11, 1997. Such shares were issued in February
1997. In March 1997, Mr.  Butler's salary was increased to $110,000 per annum in
accordance with his employment  agreement,  as amended.  The Agreement  provides
further  that Mark  Butler,  one of the  principal  shareholders  of Riverosa be
appointed  to the  Company's  board of  directors  on April 1, 1996.  A contract
deposit of $150,000 was paid into escrow upon execution of the agreement and the
balance of $100,000 was paid pursuant to a promissory note bearing interest at a
rate of 12 percent (12%) per year on the closing of the Initial Public Offering.

     Prior to the  acquisition of Riverosa,  Bev-Tyme,  through its  subsidiary,
acted as a distributor  of Perry's  Majestic  Beer. In January 1996, the Company
issued an aggregate of 2,500,000 shares of its common stock to seven (7) parties
for total  consideration  of  $50,000.  These  shareholders  are Robert  Sipper,
Hartley  Bernstein,  Matthew  Harriton,  Marketing  Specialities,  Inc.,  Ulster
Investments  and Judith Pace.  Robert  Sipper is a Director and President of the
Company and of Bev-Tyme.  Matthew Harriton is a Director of the Company. Hartley
Bernstein is a consultant  to the Company and a member of Bernstein & Wasserman,
LLP,  counsel to the  Company.  In March 1996,  the  Company  issued to Bev-Tyme
500,000 shares of convertible  Series A Preferred Stock and 7,000,000  shares of
Series B Preferred  Stock for $150,000 and 400,000  shares of Series C Preferred
Stock of  Bev-Tyme.  Each share of  Bev-Tyme  Series C  Preferred  Stock pays an
annual dividend of $.50 per share and is convertible at the option of the holder
into 1.8 shares of Bev-Tyme Common Stock.  The Bev-Tyme Series C Preferred Stock
has the right to vote on all matters  presented to Bev-Tyme  shareholders at the
rate of 1.8 votes per  share and is  redeemable  at a price of $.05 per share so
long as the  closing  bid price of the  Bev-Tyme  Common  Stock has  equaled  or
exceeded $20.00 per share for twenty (20)  consecutive  days. The Company issued
these  shares in  January  1996 and  March  1996 in order to  generate  funds to
acquire  Riverosa,  produce and market its product  prior to the Initial  Public
Offering, and pay the expenses of the Initial Public Offering. Each share of the
Company's Class A Preferred Stock issued to Bev-Tyme is convertible into one (1)
share of Common Stock and is entitled to one vote on all corporate matters.  The
Class B Preferred  Stock  issued to Bev-Tyme is not  convertible.  Each share of
Class B Preferred Stock is entitled to one vote on all corporate  matters.  Each
share  of the  Bev-Tyme  Series C  Preferred  Stock  issued  to the  Company  is
convertible  into 18  shares  of  common  stock  and  possesses  one vote on all
corporate  matters.  On April 17, 1997 the Company  loaned  Bev-Tyme  the sum of
$100,000  pursuant to the terms of a Promissory  Note issued in connection  with
that loan.  Bev-Tyme was required to repay the entire principal plus interest on
or before April 16, 1998. The Company  retained the right in its sole discretion
to reacquire  7,000,000 shares of the Company's Series B Preferred Stock held by
Bev-Tyme or to receive  payment of the principal and accrued  interest.  On June
13, 1997, the Company  exercised its right to reacquire the 7,000,000  shares of
the Company's Series B Preferred Stock held by Bev-Tyme in full  satisfaction of
the Note payable.

     In March,  1996,  the Company  borrowed an aggregate of $150,000 from seven
(7) unaffiliated lenders (the "Bridge Lenders"). In exchange for making loans to
the Company,  each Bridge Lender received a promissory note (the "Bridge Note").
Each of the Bridge  Notes bears  interest at the rate of eight  percent (8%) per
annum. The Bridge Notes were paid at the closing of the Company's Initial Public
Offering  including all accrued  interest.  The Bridge  Lenders were granted the
right to receive a total of  3,000,000  Class A  Warrants.  The  Bridge  Lenders
subsequently  waived  their right to receive  the Class A Warrants.  The Company
entered into the bridge financing  transactions  because it required  additional
financing  and no other  sources of financing  were  available to the Company at
that

                                      24

<PAGE>



time. The proceeds from the bridge financing transaction,  in part, were used in
the initial $150,000 payment of the acquisition of Riverosa.

     On April 19,  1996,  the  Company  made a loan of $75,000 to Bev-Tyme at an
interest  rate of 8% per  annum.  All  principal  and  interest  was  repaid  on
September 9, 1996.

     On July 30, 1996,  the Company  completed  its Initial  Public  Offering of
583,335 shares of Common Stock at $6.00 per share,  and the concurrent  offering
of  securities  by certain  selling  security  holders.  The net proceeds of the
offering were approximately $2,500,000.

     On September 20, 1996,  the Company  acquired the  operating  assets of Old
Marlborough Brewing Company, Inc. ("Old Marlborough"),  a Massachusetts producer
of microbrewed beer and ale. The acquisition  included all rights to produce and
market  Post  Road  Pale  Ale,  a  microbrewed  product  distributed  throughout
Massachusetts.  The  aggregate  purchase  price was $85,513 and the  issuance of
25,000  shares of Common Stock of the Company.  The Company also paid  [$86,700]
[$75,000] to reacquire the distribution  rights for Post Road. In addition,  the
Company entered into a four (4) year employment  agreement with Austin J. Moran,
a principal of Old Marlborough,  pursuant to which Mr. Moran serves as a manager
of the  Company  and  receives  an annual  salary of $50,000 for the first year,
$55,000  for the second  year,  $60,000  for the third year and  $65,000 for the
fourth year. The Agreement  provides further that, as additional  consideration,
on each of August 31,  1997,  August 31, 1998 and August 31,  1999,  the Company
shall grant Mr. Moran options to purchase 20,000 shares of the Company's  Common
Stock exercisable at $6.00 per share, for a period of four (4) years.

     In October  1996,  Bev-Tyme  sold all of its shares of Class A  Convertible
Preferred Stock in the Company to The Skyes Corp. for a total  consideration  of
$250,000.

     On January 1, 1997,  the Company  entered into a consulting  agreement with
Hartley T.  Bernstein,  a partner in the firm of  Bernstein  &  Wasserman,  LLP,
counsel to the Company,  pursuant to which Mr.  Bernstein  agreed to provide the
Company with consulting services in connection with acquisitions,  divestitures,
joint ventures and other strategic business initiatives in consideration for the
issuance to Mr.  Bernstein of 200,000 shares of the Company's  Common Stock. The
consulting  agreement was amended on June 4, 1997 to provide for the issuance of
100,000 options to purchase 100,000 shares of Common Stock exercisable at $0.875
per share in consideration for the extension of the term of the agreement for an
additional one year period.

     In January  1997,  the Company was paid a dividend of 1.31 shares of common
stock for each share of the 400,000 Series C Preferred Stock of Bev-Tyme held by
the Company as of December 27, 1996 (convertible into 7,200,000 shares of Common
Stock of Bev-Tyme).

     During  February 1997,  Perry's issued a total of 400,000 shares of Perry's
common stock to two officers as  consideration  for extending  their  employment
agreements through 2001.

     In March 1997, the Company  entered into an agreement to acquire all of the
issued and outstanding stock of Orchard Annie, Inc., a corporation  wholly-owned
and controlled by Mark Butler, the Vice President-Sales, Chief Operating Officer
and a director of the Company.  The aggregate purchase price was $67,000 and the
issuance of 50,000 shares of Common Stock of the Company in June 1997.  Pursuant
to the purchase, the Company acquired all rights to produce and market Quigley's
Applesauce,  a line of premium, 100% natural,  single-served sized apple sauces.
The Agreement further provided for the payment to Mr. Butler of royalty payments
equal to $0.50 per case of Quigley's  Applesauce for the first 500,000 cases and
$0.25 per case  thereafter  during  the  period of  fifteen  (15) years from the
closing date.  The royalty was  recalculated  to $.25 for a case of 12 units for
the first 500,000 cases and $.125 for a case of 12 units thereafter

                                      25

<PAGE>



     On April 17,  1997,  the  Company  loaned to  Bev-Tyme  the sum of $100,000
pursuant to the terms of a Promissory  Note issued in connection with that loan.
Bev-Tyme was required to repay the entire  principal  plus interest on or before
April 16, 1998.  The Company  retained  the right,  in its sole  discretion,  to
reacquire  7,000,000  shares of the Company's  Series B Preferred  Stock held by
Bev-Tyme in full satisfaction of the Note or to receive payment of the principal
plus  accrued  interest.  On June 13,  1997 the Company  exercised  its right to
reacquire the 7,000,000 shares of the Company's Series B Preferred Stock held by
Bev-Tyme in full satisfaction of the Note payable.

     In June 1997, the Company issued 375,000 options to purchase 375,000 shares
of Common Stock  exercisable at $0.875 per share for a period of 10 years.  Each
of Robert  Sipper,  the Company's  President,  Mark Butler,  the Company's  Vice
President-Sales and Matthew Harriton, a director of the Company received 125,000
options.  Hartley T.  Bernstein,  a  consultant  to the  Company and a member of
Bernstein & Wasserman, LLP, counsel to the Company received 100,000 options.

     On May 23, 1997, the Company entered into a consulting agreement The Falcon
Management Company, Inc. ("Falcon"),  pursuant to which Falcon agreed to provide
the Company with consulting  services in connection  with financial  management,
accounting  controls,  inventory  management,  product costing and other general
consulting  as  required  by the Company in  consideration  for the  issuance to
Falcon of an option to purchase  100,000 shares of the Company's Common Stock at
an exercise price of $0.875 per share and a per diem payment of $300.

     On September 23, 1997, the Company  issued an aggregate of 300,000  options
to purchase 300,000 shares of Common Stock  exercisable at $0.50 per share for a
period of 10 years. Each of Robert Sipper, the Company's President, Mark Butler,
the Company's Vice President,  Matthew Harriton,  a director of the Company each
received 100,000 options.

     In September  1997,  the Company issued 50,000 shares of common stock to an
officer of the Company in connection with the acquisition of Orchard Annie, Inc.

     On November 21, 1997, the Company issued 25,000 shares of common stock to A
J Moran, an employee of the Company.

     On January 16, 1998 the Company  issued an aggregate of 600,000  options to
purchase  600,000  shares of Common Stock  exercisable  at $0.16 per share for a
period of 10 years. Each of Robert Sipper, the Company's President, Mark Butler,
the Company's Vice President,  Matthew Harriton,  a director of the Company each
received 200,000 options.

     On January 16, 1998 the Company issued an option to purchase 100,000 shares
of Common Stock,  exercisable  at $.16 per share for a period of ten years to A.
J. Moran, an employee of the Company as a bonus.

     On January 21, 1998 the Company issued an option to purchase  50,000 shares
of  Common  Stock,  exercisable  at $.16 per  share for a period of ten years to
Jesus Cardona, an employee of the Company, as a bonus.


General

     The Company  believes that  material  affiliated  transactions  between the
Company and its directors,  officers,  principal  shareholders or any affiliates
thereof  have  been and will be in the  future on terms no less  favorable  than
could be obtained from unaffiliated third parties.


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ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

Item                       1.              EXHIBITS AND REPORTS ON FORM 8-K

(a)(1)  Financial Statements.

     The following financial statements are included in Part II, Item 7:

Index to Financial Statements

Report of Independent Certified Public Accountants                F-1

Consolidated Balance Sheet as of March 31, 1998                   F-2

Consolidated Statements of Operations for the years ended
 March 31, 1998 and 1997                                          F-3

Consolidated Statements of Stockholders' Equity for the years
  ended March 31, 1998 and 1997                                   F- 4  F-5

Consolidated Statements of Cash Flows for the years ended
  March 31, 1998 and 1997                                         F-6   F-7

Notes to consolidated financial statements                        F-8 - F-18

(a) (2)Exhibits

      A list and  description  of exhibits  filed as part of this Form 10-KSB is
provided in the attached Exhibit Index.

Item 27.    Exhibits.

1.01*       Form of Underwriting Agreement.

1.02*       Form of Selected Dealers Agreement.

3.01*       Certificate of Incorporation of the Company.

3.02*       Amendment of Certificate of Incorporation.

3.03*       By-Laws of the Company.

3.04*       Form of Certificate of Designation of Series A Preferred Stock.

3.05*       Form of Certificate of Designation of Series B Preferred Stock.

4.01*       Specimen Certificate for shares of Common Stock.

4.02*       Specimen Certificate for Class A Redeemable Common Stock Purchase 
            Warrant.

4.03*       Form of Warrant Agreement by and among the Company and American
            Stock Transfer & Trust Company.

4.04*       Form of Underwriter's Unit Purchase Option.

                                      27

<PAGE>



10.01*      Bridge Loan Agreements and Related Promissory Notes.

10.02*      1996 Stock Plan.

10.03*      Agreement by and between the Company and Riverosa dated March 31,
            1996.

10.04*      Form of  Financial  Consulting  Agreement by and between the Company
            and VTR Capital, Inc.

10.05*      Agreement by and between the Company and Frankenmuth Brewery.

10.06*      Agreement  by and between the  Company and Hoboken  Brewing  Company
            dated July 15, 1996.

10.07*      Employment Agreement by and between the Company and Robert J. Sipper
            dated April 4, 1996.

10.08*      Employment  Agreement  by and  between  the  Company and Mark Butler
            dated April 4, 1996.

10.09**     Asset Purchase Agreement by and between the Company and Old 
            Marlborough Brewing Company, Inc. dated September 20, 1996.

10.10**     Consulting  Agreement  by and  between  the  Company  and Hartley T.
            Bernstein dated January 1, 1997.

10.11**     Stock Purchase  Agreement by and between the Company and Mark Butler
            dated March , 1997.

10.12**     Amendment No. 1 to Employment Agreement by and between the Company 
            and Robert J. Sipper dated February 3, 1997.

10.13**     Amendment No. 1 to Employment Agreement by and between the Company 
            and Mark Butler dated November 1, 1997.

10.14**     Amendment No. 2 to the Employment Agreement by and between the 
            Company and Mark Butler dated February 3, 1997.

10.15**     Amendment  No.3  to the  Employment  Agreement  by and  between  the
            Company and Mark Butler dated March 10, 1997.

10.16**     Employment Agreement by and between the Company and A.J. Moran dated
            September 17, 1996.

10.17**     Promissory Note made by Bev-Tyme, Inc. dated April 17, 1997.

                                      28

<PAGE>





10.18**     Consulting Agreement by and between the Company and The Falcon 
            Management Company, Inc. dated May 23, 1997.

10.19**     Amendment  to  Consulting  Agreement  by and between the Company and
            Hartley T. Bernstein dated June 4, 1997.

10.20       Letter of Intent with Village Cannery of Vermont dated May 4, 1998

10.21       Asset Purchase Agreement by and between Company and The Brooklyn 
            Brewery Corporation dated May 18, 1998.

10.22       Agreement  to  Purchase  and Market  Brand  Name and  Recipes by and
            between Leroux Creek Food Corporation and the Company dated June 30,
            1998.


*     Incorporated by reference to Registrant's Registration Statement on Form 
      SB-2, and amendments thereto, Registration No. 333-3458 declared effective
      on July 30, 1996.

**    Incorporated by reference to the Company's Annual Report on Form 10KSB 
      for the fiscal year ended March 31, 1997 (File No. 0-21079).


(b)   Reports on Form 8-K.

      (i)   Form 8-K dated May 22, 1998 wherein the Company reported information
            under Item 2 -  Acquisition  or  Disposition  of Assets and Item 7 -
            Financial Statements and Exhibits.

      (ii)  Form 8-K dated July 2, 1998 wherein the Company reported information
            under Item 2 -  Acquisition  or  Disposition  of Assets and Item 7 -
            Financial Statements and Exhibits.



                                      29

<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
executed on this 13 day of July, 1998.

                                         PERRY'S MAJESTIC BEER, INC.

                                         By:/s/Robert J. Sipper
                                            ----------------------
                                            Robert J. Sipper
                                            President, Chief Executive Officer,
                                            Chief Financial Officer and Chief
                                            Principal Accounting Officer


  In  accordance  with the  Exchange  Act,  this  report has been  signed by the
following persons on behalf of the registrant in the capacities and on the dates
indicated

Signature                             Title                     Date

/s/Robert J. Sipper          Chief Executive Officer,       July 13, 1998
---------------------------
Robert J. Sipper             Chief Financial Officer,
                             Principal Accounting Officer
                             and Director


/s/Mark Butler               Vice President                 July 13, 1998
Mark Butler                  Secretary and Director