UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549
                                    ---------

                                   FORM 10-QSB

                Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For the quarter ended     September 30, 1998    Commission File Number  0-21079

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

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

            38 West 32nd Street, Suite 801
            New York, New York                                 10001  
            (Address of principal executive offices)        (Zip code)

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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the  Securities  and  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 the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of November 11, 1998 was 3,783,335.


<PAGE>



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


INDEX
------------------------------------------------------------------------------



                                                              Page to Page
Item 1.  Financial Statements

   Consolidated Balance Sheet as of September 30, 1998
   [Unaudited]................................................. 1.....

   Consolidated Statements of Operations for the three and
   six months ended September 30, 1998 and 1997 [Unaudited].... 2.....

   Consolidated Statement of Stockholders' Equity for the six
   months ended September 30, 1998 [Unaudited]................. 3.....

   Consolidated Statements of Cash Flows for the six months
   ended September 30, 1998 and 1997 [Unaudited]............... 4.....  5

   Notes to Consolidated Financial Statements [Unaudited]...... 6..... 18

Item 2.  Managements' Discussion and Analysis of the Financial
         Condition and Results of Operations.................. 19..... 24

Signature..................................................... 25..... 





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


<PAGE>



Item 1:

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


CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998.
[UNAUDITED]
------------------------------------------------------------------------------

<TABLE>

Assets:
Current Assets:
<S>                                                                     <C>        
  Cash                                                                  $    51,239
  Accounts Receivable - Net                                                 114,590
  Inventory                                                                 122,243
  Prepaid Insurance                                                          36,291
  Note Receivable                                                            70,002
                                                                        -----------

  Total Current Assets                                                      394,365

Furniture, Fixtures and Equipment - Net                                      51,260
                                                                        -----------

Other Assets:
  Goodwill - [Net of Accumulated Amortization of $59,265]                   714,282
  Other Assets                                                                2,600
  Note Receivable                                                            23,331
  Deposit                                                                     1,000
                                                                        -----------

  Total Other Assets                                                        741,213

  Total Assets                                                          $ 1,186,838
                                                                        ===========

Liabilities and Stockholders' Equity:
Current Liabilities:
  Accounts Payable                                                      $   102,643
  Accrued Expenses                                                           22,293
  Note Payable                                                              591,491
                                                                        -----------

  Total Current Liabilities                                                 716,427

Note Payable                                                                 15,670

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                                              5,357,529

  Retained Earnings [Deficit]                                            (3,465,916)

  Total                                                                   1,892,491
  Less: Deferred Compensation                                            (1,437,750)

  Total Stockholders' Equity                                                454,741

  Total Liabilities and Stockholders' Equity                            $ 1,186,838
                                                                        ===========

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

                                         1

<PAGE>



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


CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
------------------------------------------------------------------------------


                                    Three months ended          Six months ended
                                       September 30,              September 30,
                                       -------------              -------------
                                    1 9 9 8     1 9 9 7       1 9 9 8      1 9 9 7
                                    -------     -------       -------      -------

<S>                                <C>        <C>          <C>          <C>        
Sales - Net                        $  274,951 $  148,726   $  317,645   $   447,051

Cost of Goods Sold                    199,118     99,214      239,464       333,558
                                   ---------- ----------   ----------   -----------

  Gross Profit                         75,833     49,512       78,181       113,493
                                   ---------- ----------   ----------   -----------

Selling, General and Administrative
  Expenses:
  Selling, Advertisement and
   Promotion                           17,672     51,057       54,548        95,371
  General and Administrative
   Expenses                           158,182    199,200      300,435       350,555
  Amortization of Deferred
   Compensation                       146,500    146,250      292,750       292,500
  Amortization of Goodwill and
   Distribution Rights                 38,679     41,048       43,296        77,662
                                   ---------- ----------   ----------   -----------

  Total Selling, General and
   Administrative Expenses            361,033    437,555      691,029       816,088
                                   ---------- ----------   ----------   -----------

Loss on Related Party Receivable           --         --           --       149,743
                                   ---------- ----------   ----------   -----------

  [Loss] from Operations             (285,200)  (388,043)    (612,848)     (852,338)
                                   ---------- ----------   ----------   -----------

Gain on Sale of Post Road Brand            --         --      197,727            --
                                   ---------- ----------   ----------   -----------

Other [Income] Expense:
  Interest Expense                     14,483         --       15,057            --
  Interest Income                      (2,186)   (11,330)      (3,734)      (24,407)
                                   ---------- ----------   ----------   -----------

  Other Expense [Income] - Net         12,297    (11,330)      11,323       (24,407)
                                   ---------- ----------   ----------   -----------

  [Loss] Before Income Taxes         (297,497)  (376,713)    (426,444)     (827,931)

Provision for Income Taxes                 --         --           --            --
                                   ---------- ----------   ----------   -----------

  Net [Loss]                       $ (297,497)$ (376,713)  $ (426,444)  $  (827,931)
                                   ========== ==========   ==========   ===========

  Weighted Average Number of Shares 3,783,335  3,708,335    3,783,335     3,708,335
                                   ========== ==========   ==========   ===========

  Net [Loss] Per Share             $     (.08)$     (.10)        (.11)         (.22)
                                   ========== ==========   ==========   ===========



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

                                         2

<PAGE>



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


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
------------------------------------------------------------------------------


                                                                        Additional   Retained                   Total
                                 Preferred Stock     Common Stock        Paid-in     Earnings      Deferred  Stockholders'
                                Shares    Amount    Shares    Amount     Capital     [Deficit]   Compensation   Equity

<S>               <C>           <C>      <C>       <C>        <C>       <C>         <C>          <C>          <C>      
  Balance - April 1, 1998       500,000  $    500  3,783,335  $    378  $5,323,329  $(3,039,472) $(1,727,500) $ 557,235

Amortization of Deferred
  Compensation                       --        --         --        --          --           --      292,750    292,750

Issuance of 750,000 Common Stock
  Options Issued in Connection with
  the Acquisition of Leroux Creek
  Food Corp. - July 1998 [6D] [9D]   --        --         --        --      34,200           --       (3,000)    31,200

Net [Loss] for the six months
  ended September 30, 1998           --        --         --        --          --     (426,444)          --   (426,444)
                               -------- ---------  ---------  --------  ----------  -----------   ----------   ---------

  Balance - September 30, 1998
   [Unaudited]                  500,000 $    500   3,783,335  $    378  $5,357,529  $(3,465,916) $(1,437,750)  $ 454,741
                               ======== ========   =========  ========  ==========  ===========  ===========   =========



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



                                           3

<PAGE>



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


CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
------------------------------------------------------------------------------


                                                                Six months ended
                                                                  September 30,
                                                             1 9 9 8       1 9 9 7
                                                             -------       -------

<S>                                                        <C>          <C>         
  Net Cash - Operating Activities                          $ (398,023)  $  (436,349)
                                                           ----------   -----------

Investing Activities:
  Purchase of Kegs                                                 --       (41,470)
  Purchase of Furniture and Fixtures                               --       (25,855)
  Payments for Label and Packaging Design                          --       (70,688)
  Payments for Post Road Brand                                     --        (3,268)
  Partial Payment for Leroux Creek Acquisition                (62,500)           --
  Other Deposits                                               (1,000)           --
  Proceeds from Sale of Post Road Assets                      236,667            --
                                                           ----------   -----------

  Net Cash - Investing Activities                             173,167      (141,261)
                                                           ----------   -----------

Financing Activities:
  Loan Receivable from Bev-Tyme, Inc.                              --      (100,000)
                                                           ----------   -----------

  Net [Decrease] in Cash                                     (224,856)     (677,610)

Cash - Beginning of Periods                                   276,095     1,521,203
                                                           ----------   -----------

  Cash - End of Periods                                    $   51,239   $   843,593
                                                           ==========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid for the periods for:
   Interest                                                $   10,561   $        --
   Income Taxes                                            $       --   $        --

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
  In connection with the acquisition of Leroux Creek Food  Corporation,  Inc. on
July  2,1998,  the  Company  executed  a note with the  Seller in the  amount of
$587,500. In addition, the Company issued options to purchase a total of 750,000
shares of common stock at fair market  value at the date of grant.  Amortization
of goodwill of $34,060 was recorded  related to the  acquisition of Leroux Creek
Food Corporation for the three months ended September 30, 1998 [See Notes 6D and
9D].

  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 for $330,000. The Company executed a promissory note for $320,000 and
received $236,667 in payments as of September 30, 1998.

  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.



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

                                         4

<PAGE>



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


CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
------------------------------------------------------------------------------



Supplemental  Disclosures  of Non-Cash  Investing and Financing  Activities
[Continued]: 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. 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  represented  the fair market
value of the stock at time of issuance.

  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.




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

                                         5

<PAGE>



PERRY'S MAJESTIC BEER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
------------------------------------------------------------------------------



[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 has completed its transformation  from a microbrew beer company to a
natural  food  company.  The Company  sold its Post Road line of ales on May 18,
1998. During the second quarter,  it ceased brewing the Perry's Majestic line of
organic  beers.  The  Company   produces  two  applesauce   brands  through  two
independent unaffiliated applesauce manufacturers.

The  Company's  Leroux  Creek  applesauce  line is produced  with apples  "grown
without pesticides" and is available in ten flavors in both 24 ounce and 4 ounce
cups sold in a four pack.  There are currently seven brokers and 21 distributors
selling the Leroux Creek line of applesauces.

The Company's other line of applesauce is Quigley's  Orchard, a single serve all
natural  applesauce  sold in  decorated  six ounce cups.  There are  currently 6
brokers and 8 distributors.

[2] Summary of Significant Accounting Policies

[A] Basis of Reporting - The accompanying  unaudited  financial  statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim financial  information and with the instructions to Form 10-QSB and Item
310(b)of Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting  principles for complete
financial statements. In the opinion of management,  such statements include all
adjustments  which  are  considered  necessary  in  order  to make  the  interim
financial  statements not misleading.  The results of operations for any interim
period are not  necessarily  indicative of the results for the full year.  These
financial statements should be read in conjunction with the financial statements
and notes,  thereto,  contained in the annual report on Form 10-KSB for the year
ended March 31, 1998.

[B] 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.

[C] 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.

[D] 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 September 30, 1998.





                                        6

<PAGE>



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



[2] Summary of Significant Accounting Policies [Continued]

[E]  Goodwill  - Amounts  paid in excess of the  estimated  value of net  assets
acquired of Riverosa,  Old  Marlborough,  Orchard  Annie,  Inc. and Leroux Creek
Food,  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].

[F] 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.

[G]  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.

[H] Advertising  Expense - Advertising  costs are expensed as incurred.  For the
six  months  ended  September  30,  1998  and  1997,   advertising   costs  were
approximately $24,274 and $37,450, respectively.

[I] 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 September 30, 1998, the Company
had no uninsured cash balance.

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 September 30, 1998 of $6,628.
The Company believes any credit risk beyond this amount would be negligible.

The Company sells applesauce brands 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 7 brokers
and 21 distributors  for its Leroux Creek brand and 6 brokers and 8 distributors
for its  Quigley's  Orchard  brand.  It is  continuing  to attempt to expand the
brokerage and distribution systems.

[J] 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.

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

                                        7

<PAGE>



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



[2] Summary of Significant Accounting Policies [Continued]

[L] 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. The Company has potentially dilutive securities that were
not included in the  computation of diluted  earnings per share because to do so
would have been  anti-dilutive  for the periods  presented.  Such securities may
dilute EPS in future years.

[M] 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].

[N] 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.

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.

                                        8

<PAGE>



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



[3] Going Concern [Continued]

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 $122,243.

[5] Furniture, Fixtures and Equipment and Depreciation

Furniture,  fixtures and equipment and  accumulated  depreciation as of June 30,
1998 are as follows:

Furniture and Fixtures                         $   18,566
Transportation Equipment                           23,425
Kegs                                                8,395
Storage Equipment                                  22,810
Leasehold Improvements                              3,500
                                               ----------

Total - At Cost                                    76,696
Less:  Accumulated Depreciation                    25,436

  Net                                          $   51,260
  ---                                          ==========

Depreciation  expense for the six months ended  September  30, 1998 and 1997 was
$9,345 and $9,304, 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 $12,300 was recorded for the three months ended June
30, 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 three months ended June 30,
1997,  amortization of goodwill was approximately $13,203. 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].

                                        9

<PAGE>



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



[6] Acquisitions [Continued]

[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.  Amortization
of goodwill of $9,236 was recorded for the six months ended  September 30, 1998.
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 six months ended September 30,
1998 and 1997, royalty expense was $883 and $1,591, respectively.

[D]  Acquisition of Leroux Creek Food  Corporation,  Inc. - 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
and recorded the full amount as goodwill to be amortized  over 5 years.  On June
2, 1998,  the Company paid $62,500 and on July 2, 1998  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 cannot 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  valued  at  $31,200.  Amortization  of
goodwill of $34,060 was recorded related to the acquisition of Leroux Creek Food
Corporation for the three months ended September 30, 1998.

[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.

                                       10

<PAGE>



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



[7] Related Party Transactions [Continued]

[A]  Investment  [Continued] - 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.

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

                                       11

<PAGE>



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



[8] Income Taxes [Continued]

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.

[D] In July 1998,  the Company  issued an option to purchase  250,000  shares of
common  stock at fair market value at the date of grant in  connection  with the
acquisition of Leroux Creek Food Corporation.  In addition,  the Company entered
into a consulting  agreement  for services to be provided  over the next 3 years
with the former owner of the Leroux Creek  brand.  The former owner  received an
option to acquire  500,000 shares of the Company's  common stock, at fair market
value as follows: 200,000 options exercisable  immediately,  and 100,000 options
exercisable per year for the following three years.  This agreement was value at
$3,000 and recorded as deferred compensation.  Amortization of $250 was recorded
for the three months ended September 30, 1998.

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

A summary of stock option activity is as follows:
                                                         Weighted Average
                                               Common     Exercise Price
                                                Stock      Common Stock

Outstanding and Exercisable on April 1, 1997        --             --
  Granted                                    1,625,000      $    0.48
  Exercised                                         --             --
  Forfeited/Expired                                 --             --
                                             ---------      ---------

Outstanding and Exercisable on March 31, 1998
  Forward                                    1,625,000      $    0.48



                                       12

<PAGE>



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



[9] Stock Options [Continued]
                                                         Weighted Average
                                               Common     Exercise Price
                                                Stock      Common Stock

Outstanding and Exercisable on March 31, 1998
  Forwarded                                  1,625,000      $    0.48

  Granted                                      750,000           0.13
  Exercised                                         --             --
  Forfeited/Expired                                 --             --
                                             ---------      ---------

  Outstanding on September 30, 1998          $2,375,000     $    0.40
  ---------------------------------          ==========     =========

  Exercisable on September 30, 1998          $2,075,000     $    0.13
  ---------------------------------          ==========     =========

The following table summarizes  information  about stock options  outstanding at
June 30,  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 years.  The 750,000 options
issued  at an  exercise  price  of  $0.13  have  a  weighted  average  remaining
contractual life of 4.75 years. All other options expire in 9.5 years.
                                 Common Stock       
                         Exercise Price     Shares

                           $    0.13        750,000
                           $    0.16        750,000
                           $    0.50        300,000
                           $   0.875        575,000
                                          ---------

                           Total          2,375,000

[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.



                                       13

<PAGE>



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



[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

Debt as of September 30, 1998 consists of the following:

Note payable - due in October 2002 with interest at
 10.79% per annum                                                   $   19,661

Note payable - due on or before January 2,1999 with
 interest at 9% per annum                                              587,500

Total                                                                  607,161
Less:  Current Portion                                                 591,491

  Non-Current Portion                                               $   15,670
  -------------------                                               ==========

Maturities of the notes payable as of September 30, 1998 are as follows:

September 30,
   1999                                     $ 591,491
   2000                                         3,340
   2001                                         4,838
   2002                                         5,392
   2003                                         2,100
   Thereafter                                      --
                                            ---------

   Total                                    $ 607,161
   -----                                    =========

[13] New Authoritative Pronouncements

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. The Company expects to adopt the provisions
of SFAS No. 131 in its annual financial statements.

                                       14

<PAGE>



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



[13] New Authoritative Pronouncements [Continued]

In February  1998,  the FASB issued SFAS No. 132,  "Employers  Disclosure  about
Pension and Other Postretirement  Benefits," which is effective for fiscal years
beginning after December 15,1997. The modified disclosure  requirements will not
have a  material  impact  on the  Company's  results  of  operations,  financial
position or cash flows.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  accounting  for  changes in the fair value of a  derivative
depends on the intended use of the  derivative  and how it its  designated,  for
example, gain or losses related to changes in the fair value of a derivative not
designated  as a hedging  instrument  is recognized in earnings in the period of
the  change,  while  certain  types of hedges  may be  initially  reported  as a
component  of  other   comprehensive   income   [outside   earnings]  until  the
consummation of the underlying transaction.

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15,  1999.  Initial  application  of SFAS No. 133 should be as of the
beginning  of a fiscal  quarter;  on that date,  hedging  relationships  must be
designated  anew and  documented  pursuant  to the  provisions  of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged,  but
it is permitted only as of the beginning of any fiscal quarter.  SFAS No. 133 is
not to be applied  retroactively to financial  statements of prior periods.  The
Company does not currently have any derivative  instruments and is not currently
engaged in any hedging activities.

[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  September  30,  1998,  the  Company  has 2
employment  agreements  with  executives  of the Company that expire in the year
2001. The annual  commitments for  compensation are  approximately$230,000  each
year. 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].



                                       15

<PAGE>



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



[15] Commitments and Contingencies [Continued]

[A] Employment  Agreements  [Continued] - 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 $237,500 was expensed for both of the six months ended September
30, 1998 and 1997.

[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 $55,000 was recorded as amortization
expense for both the six months ended September 30, 1998 and 1997.

[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 $883 and $1,591 was recorded for
the six months ended September 30, 1998 and 1997, respectively.

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
$442 was  recorded  for the six  months  ended  September  30,  1998  under this
agreement.

[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 former 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  $70,000  at  September  30,  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 and office space are as follows at September 30, 1998:

1999                                $  18,719
2000                                   12,626
2001                                       --
2002                                       --
2003                                       --
Thereafter                                 --
                                    ---------

  Total Minimum Lease Payments      $  31,345


                                       16

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
[UNAUDITED]
------------------------------------------------------------------------------



[16] Leases [Continued]

[B] Rent expense for the six months ended September 30, 1998 and 1997 was $7,392
and $3,940, 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 June 30,  1998,  goodwill  of  $92,348  and  related  accumulated
amortization  of $20,587  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
  -----                                                       ==========

[18] 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 option expired
without the Company exercising the option.

[19] 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
and has received  $236,667 on this note as of September  30, 1998.  In addition,
the purchaser put $35,000 into escrow to satisfy the  outstanding  tax liability
for an executive of Old Marlborough.  As of September 30, 1998,  $93,333 remains
outstanding.

                                       17

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
[UNAUDITED]
------------------------------------------------------------------------------



[20] Subsequent Event

On October 22,  1998,  the Company  entered into a letter of intent to acquire a
minimum of 80% of the capital  stock of a beverage  company  through an exchange
with the shareholders of this company of up to 93% of the issued and outstanding
shares of Perry's  capital stock as of the closing of the exchange  transaction,
whereby  this  company  will become a  subsidiary  of Perry's.  Scheduled  to be
completed by November 30, 1998,  the  transaction  is subject to the  successful
closing of at least $500,000  financing,  the proceeds of which will be used for
additional operating capital.

The Company produces and markets a line of "microbrewed" fruit drinks, lemonades
and ready-to-drink teas.





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

                                       18

<PAGE>



Item 2:

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



For the six months ended  September  30, 1998 compared with the six months ended
September 30, 1997.

The following  discussion of the Company's  financial  condition as of September
30, 1998 and results of operations  for the six months ended  September 30, 1998
and 1997 includes Perry's Majestic Beer, Inc. and its subsidiary  [collectively,
the "Company"] and should be read in conjunction with the consolidated financial
statements and notes appearing elsewhere in this 10-QSB.

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 has completed its transformation  from a microbrew beer company to a
natural  food  company.  The Company  sold its Post Road line of ales on May 18,
1998. During the second quarter,  it ceased brewing the Perry's Majestic line of
organic  beers.  The  Company   produces  two  applesauce   brands  through  two
independent unaffiliated applesauce manufacturers.

The  Company of Leroux  Creek  applesauce  line is produced  with apples  "grown
without  pesticide" and is available in ten flavors in both 24 ounce and 4 ounce
cups sold in a four pack.  There are currently seven brokers and 21 distributors
selling the Leroux Creek line of applesauces.

The Company's other line of applesauce is Quigley's  Orchard, a single serve all
natural  applesauce  sold in  decorated  six ounce cups.  There are  currently 6
brokers and 8 distributors.

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  six  brokers  to sell  Quigley's.  Additionally,  there  are
currently  eight  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 option date
expired without the Company exercising the option.



                                       19

<PAGE>



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


For the six months ended  September  30, 1998 compared with the six months ended
September 30, 1997

OVERVIEW [CONTINUED]

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 was
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. On June 2, 1998, the Company paid $62,500 and on July 2,
1998  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. As
of September  30, 1998,  the Company has entered  into  arrangements  with seven
brokers and twenty-one distributors to sell the Leroux Creed brand.

During July 1998,  the Company  entered  into a consulting  agreement  with
Edward Tuft, the former owner of the Leroux Creek brand. Mr. Tuff's company will
continue to produce Leroux Creek applesauces for the Company.  Mr. Tuft received
an option to acquire  500,000  shares of the  Company's  common  stock,  at fair
market value as follows:  200,000 options  immediately,  and 100,000 options per
year for the following three years.

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 option expired
without the Company exercising the option.

On October 22,  1998,  the Company  entered into a letter of intent to acquire a
minimum of 80% of the capital  stock of a beverage  company  through an exchange
with the shareholders of this company of up to 93% of the issued and outstanding
shares of Perry's  capital stock as of the closing of the exchange  transaction,
whereby  this  company  will become a  subsidiary  of Perry's.  Scheduled  to be
completed by November 30, 1998,  the  transaction  is subject to the  successful
closing of at least $500,000  financing,  the proceeds of which will be used for
additional operating capital.

The Company produces and markets a line of "microbrewed" fruit drinks, lemonades
and ready-to-drink teas.

RESULTS OF OPERATIONS

The Company had a loss from  operations  of $612,848  and a net loss of $426,444
for  the  six  months  ended  September  30,  1998 as  compared  to a loss  from
operations  of  $852,338  and a net loss of  $827,931  for the six months  ended
September 30, 1997. The loss from  operations for the six months ended September
30,1998 is  primarily  due to  insufficient  gross  profit to  support  selling,
general and administrative expenses of $354,983 and amortization of $336,046.


                                       20

<PAGE>



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



For the six months ended  September  30, 1998 compared with the six months ended
September 30, 1997

RESULTS OF OPERATIONS [CONTINUED]

The net sales for the Company for the six months ended  September  30, 1998 were
$317,645 as compared to $447,051  for the six months ended  September  30, 1997.
This decrease is due to the consolidation of the beer industry and the fact that
the Company  was in the process of selling its Post Road brand.  The Company has
changed  the  focus  of its  business  from a  micro  brew  beer  company  to an
applesauce  and natural food company.  Consistent  with this change of focus was
the acquisition of the Leroux Creek brand in July 1998.

The Company had a gross profit of $78,181 or 24.6% as compared to a gross profit
of  $113,493  or 25.4% for the six months  ended  September  30,  1998 and 1997,
respectively.  The slight  reduction in the gross  profit  percent is due to the
change in the focus of the business from  microbrewed beer to the applesauce and
natural food business.

The Company's selling,  general and  administrative  expenses for the six months
ended September 30, 1998 and 1997 were $691,029 and $816,088,  respectively. The
decrease is due to a reduction  of goodwill  amortization  of $34,366 due to the
write off of goodwill  related to Riverosa and Old Marlborough  Brewing Company,
Inc. during the year ended March 31,1998, a decrease in selling, advertising and
promotion expenses of $40,823 which resulted from fewer price support promotions
necessary  to promote  sales of the  natural  applesauce  in  comparison  to the
microbeer  products  and a decrease  in general and  administrative  expenses of
$50,120  which is due to the  general  downsizing  that has taken place over the
last year.

The  Company  earned  interest  income of $3,734 and  $24,407 for the six months
ended  September 30, 1998 and 1997,  respectively.  Interest  charges of $15,057
were  incurred on the notes  payable  related to the purchase of  transportation
equipment and the  acquisition of the Leroux Creek Food  Corporation  during the
six months ended September 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES

Perry's  had a  working  capital  deficit  at  September  30,  1998 of  $322,062
resulting  primarily from the note payable  entered into to acquire Leroux Creek
Food Corp.,  which is due on or before January 2, 1999. For the six months ended
September  30,  1998,  the  Company  utilized  $398,023  in cash  for  operating
activities as compared to $436,349 for the six months ended  September 30, 1997.
The  decrease  is  primarily  due to the sale of the Post Road Beer  brand.  The
Company utilized  $62,500 in cash for investing  activities as a deposit for the
Leroux Creek acquisition and the Company received $236,667 in cash from the sale
of Post Road  assets for the six  months  ended  September  30,  1998.  The cash
balance at September 30, 1998 was $51,239.

Perry's had working  capital at  September  30,  1997 of  $937,323.  For the six
months ended  September  30,  1997,  the Company  utilized  $436,349 in cash for
operating  activities  primarily  resulting  from  the  Company's  net  loss  of
$827,931. The Company utilized $141,261 in cash for investing activities for the
purchase of kegs, furniture and equipment and for label and packaging design for
new beer styles. The Company utilized $100,000 in cash for financing  activities
for the six months ended  September 30, 1997 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.

                                       21

<PAGE>



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



For the six months ended  September  30, 1998 compared with the six months ended
September 30, 1997

LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]

As of  September  30,  1998,  the  Company  has  2  employment  agreements  with
executives of the Company that expire in the year 2001.  The annual  commitments
for compensation are approximately  $230,000 each year. 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 $237,500 was expensed for both the six
months ended September 30, 1998 and 1997.

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 $55,000 was recorded as amortization  expense for
both the six months ended September 30, 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 six months ended  September 30, 1998 and 1997,  royalty expense was $883 and
$1,591, respectively.

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.






                                       22

<PAGE>



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



For the six months ended  September  30, 1998 compared with the six months ended
September 30, 1997

LIQUIDITY AND CAPITAL RESOURCES [CONTINUED]

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 and recorded the full amount as goodwill to be amortized
over 5 years.  On June 2, 1998,  the  Company  paid  $62,500 and on July 2, 1998
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  cannot  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
valued at $31,200.  Amortization of goodwill of $34,060 was recorded  related to
the  acquisition  of Leroux  Creek Food  Corporation  for the three months ended
September 30, 1998.

In connection with the acquisition of Leroux Creek Food Corporation, the Company
entered into a consulting  agreement for services to be provided over the next 3
years with the former owner of the Leroux Creek brand. The former owner received
an option to acquire  500,000  shares of the  Company's  common  stock,  at fair
market value as follows:  200,000 options exercisable  immediately,  and 100,000
options exercisable per year for the following three years. Amortization of $250
was recorded for the three months ended September 30, 1998.

The financial  statements do not include any adjustments that might be necessary
if the  Company  is unable to  continue  as a going  concern.  In May 1998,  the
Company sold the assets of the Post Road Beer brand and is  considering  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  continues  to  explore  options  to  cut
administrative  costs.  There can be no  assurance  that  management's  plans to
reduce  operating losses and to obtain  additional  financing to fund operations
will be successful.  The absence of such additional financing on terms favorable
to the  Company  could  have a  material  adverse  effect  on the  business  and
operations of the Company.

YEAR 2000

The Company has  evaluated the impact of the year 2000 issue on its business and
does not  expect  the  amounts  to be  expensed  over the next 15  months  to be
material.  No such costs have been expensed to date,  since the Company utilizes
an off the shelf software package which is year 2000 compliant.

Currently,  the Company is in the process of communicating  with its significant
vendors and customers to determine the extent that year 2000  compliance  issues
of such parties may affect the Company.  At this time, the Company believes that
there will be no disruption  in business due to its  customers' or vendors' year
2000 readiness. The Company has not established a contingency plan. There can be
no guarantee that the systems of such other  companies will be timely  converted
without a material adverse effect on the Company's business, financial condition
or results of operations.





                                       23

<PAGE>



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



NEW AUTHORITATIVE PRONOUNCEMENTS

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. The Company expects to adopt the provisions
of SFAS No. 131 in its annual financial statements.

In February  1998,  the FASB issued SFAS No. 132,  "Employers  Disclosure  about
Pension and Other Postretirement  Benefits," which is effective for fiscal years
beginning after December 15,1997. The modified disclosure  requirements will not
have a  material  impact  on the  Company's  results  of  operations,  financial
position or cash flows.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  accounting  for  changes in the fair value of a  derivative
depends on the intended use of the  derivative  and how it its  designated,  for
example, gain or losses related to changes in the fair value of a derivative not
designated  as a hedging  instrument  is recognized in earnings in the period of
the  change,  while  certain  types of hedges  may be  initially  reported  as a
component  of  other   comprehensive   income   [outside   earnings]  until  the
consummation of the underlying transaction.

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15,  1999.  Initial  application  of SFAS No. 133 should be as of the
beginning  of a fiscal  quarter;  on that date,  hedging  relationships  must be
designated  anew and  documented  pursuant  to the  provisions  of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged,  but
it is permitted only as of the beginning of any fiscal quarter.  SFAS No. 133 is
not to be applied  retroactively to financial  statements of prior periods.  The
Company does not currently have any derivative  instruments and is not currently
engaged in any hedging activities.

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.

                                       24

<PAGE>


SIGNATURE
------------------------------------------------------------------------------




Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-QSB to be signed on its behalf
by the undersigned thereon duly authorized.


                              PERRY'S MAJESTIC BEER, INC.




November 12, 1998            By:/s/ Robert J. Sipper                  
                             --------------------------------------
                             Robert J. Sipper, President, Chief Executive
                             Officer, Chief Financial Officer and Chief
                             Principal Accounting Officer

                                       25

<PAGE>