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     June 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 August 10, 1998 was 3,783,335.


<PAGE>



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



                                                              Page to Page
Item 1.  Financial Statements

   Consolidated Balance Sheet as of June 30, 1998 [Unaudited].. 1.....  2

   Consolidated Statements of Operations for the three months ended
   June 30, 1998 and 1997 [Unaudited].......................... 3.....

   Consolidated Statement of Stockholders' Equity for the three months ended
   June 30, 1998 [Unaudited]................................... 4.....

   Consolidated Statements of Cash Flows for the three months ended
   June 30, 1998 and 1997 [Unaudited].......................... 5.....

   Notes to Consolidated Financial Statements [Unaudited]...... 6..... 17

Item 2.  Managements' Discussion and Analysis of the Financial
         Condition and Results of Operations...................18......22

Signature......................................................23......





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


<PAGE>



Item 1:

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


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



<TABLE>

Assets:
Current Assets:
<S>                                                                     <C>        
  Cash                                                                  $   134,195
  Accounts Receivable - Net                                                  61,589
  Inventory                                                                 111,413
  Prepaid Insurance                                                           5,254
  Note Receivable                                                           111,668
                                                                        -----------

  Total Current Assets                                                      424,119

Furniture, Fixtures and Equipment - Net                                      57,104
                                                                        -----------

Other Assets:
  Goodwill - [Net of Accumulated Amortization of $20,587]                    71,761
  Other Assets                                                                2,600
  Note Receivable                                                            58,332
  Deposit                                                                    63,500
                                                                        -----------

  Total Other Assets                                                        196,193

  Total Assets                                                          $   677,416
                                                                        ===========
</TABLE>


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

                                         1

<PAGE>



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


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


<TABLE>


Liabilities and Stockholders' Equity:
Current Liabilities:
<S>                                                                     <C>        
  Accounts Payable                                                      $    65,442
  Accrued Expenses                                                           16,775
  Note Payable                                                                3,991
                                                                        -----------

  Total Current Liabilities                                                  86,208

Note Payable                                                                 16,670

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                                              5,323,329

  Retained Earnings [Deficit]                                            (3,168,419)

  Total                                                                   2,155,788
  Less: Deferred Compensation                                             1,581,250

  Total Stockholders' Equity                                                574,538

  Total Liabilities and Stockholders' Equity                            $   677,416
                                                                        ===========

</TABLE>


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

                                         2

<PAGE>



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


CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>


                                                             Three months ended
                                                                   June 30,
                                                             1 9 9 8       1 9 9 7
                                                             -------       -------

<S>                                                        <C>          <C>        
Sales - Net                                                $   42,694   $   298,325

Cost of Goods Sold                                             40,346       234,344
                                                           ----------   -----------

  Gross Profit                                                  2,348        63,981
                                                           ----------   -----------

Selling, General and Administrative Expenses:
  Selling, Advertisement and Promotion                         36,876        44,314
  General and Administrative Expenses                         142,253       151,355
  Amortization of Deferred Compensation                       146,250       146,250
  Amortization of Goodwill                                      4,617        36,614
                                                           ----------   -----------

  Total Selling, General and Administrative Expenses          329,996       378,533
                                                           ----------   -----------

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

  [Loss] from Operations                                     (327,648)     (464,295)
                                                           ----------   -----------

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

Other [Income] Expense:
  Interest Income                                              (1,548)      (13,077)
  Interest Expense                                                574            --
                                                           ----------   -----------

  Other [Income] Expense                                         (974)      (13,077)
                                                           ----------   -----------

  [Loss] Before Income Taxes                                 (128,947)     (451,218)

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

  Net [Loss]                                               $ (128,947)  $  (451,218)
                                                           ==========   ===========

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

  Net [Loss] Per Share                                     $    (0.03)  $     (0.12)
                                                           ==========   ===========

</TABLE>


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

                                         3

<PAGE>



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


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>


                                                                    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                       --       --        --       --          --          --      146,250   146,250

Net [Loss] for the three months
  ended June 30, 1998                --       --        --       --          --    (128,947)          --  (128,947)
                               -------- -------- --------- --------  ---------- -----------  ----------- ---------

  Balance - June 30, 1998       500,000 $    500 3,783,335 $    378  $5,323,329 $(3,168,419) $(1,581,250)$ 574,538
                               ======== ======== ========= ========  ========== ===========  =========== =========



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

</TABLE>
                                           4

<PAGE>



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


CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
------------------------------------------------------------------------------
<TABLE>


                                                             Three months ended
                                                                   June 30,
                                                             1 9 9 8       1 9 9 7
                                                             -------       -------

<S>                                                        <C>          <C>         
  Net Cash - Operating Activities                          $ (238,400)  $  (314,306)
                                                           ----------   -----------

Investing Activities:
  Purchase of Kegs                                                 --       (41,438)
  Purchase of Furniture and Fixtures                               --       (20,070)
  Payments for Label and Packaging Design                          --       (30,373)
  Payments for Post Road Brand                                     --        (3,268)
  Deposit for Leroux Creek Acquisition                        (62,500)           --
  Other Deposits                                               (1,000)           --
  Proceeds from Sale of Post Road Assets                      160,000            --
                                                           ----------   -----------

  Net Cash - Investing Activities                              96,500       (95,149)
                                                           ----------   -----------

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

  Net [Decrease] in Cash                                     (141,900)     (509,455)

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

  Cash - End of Periods                                    $  134,195   $ 1,011,748
                                                           ==========   ===========

Supplemental Disclosures of Cash Flow Information:
  Cash paid for the periods for:
   Interest                                                $      574   $        --
   Income Taxes                                            $       --   $        --
</TABLE>

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
   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 has  received  $160,000  in cash.  As of June  30,  1998,  $170,000  remains
outstanding [See Note 19].

   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.

                                         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 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] 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 June 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  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].

[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
three months ended June 30, 1998 and 1997,  advertising costs were approximately
$15,139 and $11,737, 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 June 30, 1998, the Company's
uninsured cash balance totaled approximately $28,000.

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 June 30, 1998 of $19,472.  The
Company believes any credit risk beyond this amount would be negligible.

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.

[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 $111,413.

[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                    19,592

  Net                                          $   57,104
  ---                                          ==========

Depreciation  expense  for the three  months  ended  June 30,  1998 and 1997 was
$3,501 and $3,616, 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. 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 three  months  ended June 30,  1998 and
1997, royalty expense was $542 and $1,097, respectively.

[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.

                                       10

<PAGE>



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



[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

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.

                                       11

<PAGE>



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



[9] Stock Options [Continued]

[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 is as follows:

                                                         Weighted Average
                                               Common     Exercise Price
                                                Stock      Common Stock

Outstanding on April 1, 1998                        --             --
  Granted                                    1,625,000      $    0.48
  Exercised                                         --             --
  Forfeited/Expired                                 --             --
                                             ---------      ---------

  Outstanding and Exercisable on March 31 and
   June 30, 1998                             1,625,000      $    0.48
   -------------                             =========      =========

The following table summarizes  information about stock options  outstanding and
exercisable  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 3.5 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

[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].




                                       12

<PAGE>



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



[10] Common Stock [Continued]

[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.

[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 June 30,  1998 of  $20,661 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 June 30, 1998 are as follows:

June 30,
   1999                                     $   3,991
   2000                                         4,340
   2001                                         4,838
   2002                                         5,392
   2003                                         2,100
   Thereafter                                      --
                                            ---------

   Total                                    $  20,661
   -----                                    =========

[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.


                                       13

<PAGE>



PERRY'S MAJESTIC BEER, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
[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 are not
expected  to 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,"  which is  effective  for  fiscal  years
beginning  after June  15,1999.  The Company  will  evaluate the new standard to
determine any required new disclosures or accounting.

[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 June 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].

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 $118,750 was expensed for both of the
three months ended June 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 $27,500 was recorded as amortization
expense for both the three months ended June 30, 1998 and 1997.






                                       14

<PAGE>



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



[15] Commitments and Contingencies [Continued]

[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 $542 and $1,097was  recorded for
the three months ended June 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
$27 was recorded for the three months ended June 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 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  $74,000 at June 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, kegs and office space are as follows at June 30, 1998:

1999                                $  18,756
2000                                   17,289
2001                                       --
2002                                       --
2003                                       --
Thereafter                                 --
                                    ---------

  Total Minimum Lease Payments      $  36,045

[B] Rent  expense for the three  months  ended June 30, 1998 and 1997 was $3,756
and $1,500, 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.





                                       15

<PAGE>



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



[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 Company does not
presently have funds  available to pay the $2,000,000 and has not identified any
potential source for such funds.

[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  $160,000 on this note. In addition,  the purchaser put $35,000
into escrow to satisfy the  outstanding  tax  liability  for an executive of Old
Marlborough.

                                       16

<PAGE>



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




[20] Subsequent Event

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. 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.

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.


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

                                       17

<PAGE>



Item 2:

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



For the three  months ended June 30, 1998  compared  with the three months ended
June 30, 1997.

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.



                                       18

<PAGE>



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



For the three  months ended June 30, 1998  compared  with the three months ended
June 30, 1997.

OVERVIEW [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. 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.

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.

RESULTS OF OPERATIONS

The Company had a loss from  operations  of $327,648  and a net loss of $128,947
for the three months  ended June 30, 1998 as compared to a loss from  operations
of $464,295 and a net loss of $451,218 for the three months ended June 30, 1997.
The loss from  operations  for the three  months ended June 30,1998 is primarily
due to insufficient gross profit to support selling,  general and administrative
expenses of $179,129 and amortization of $150,867.

The net sales for the  Company  for the three  months  ended June 30,  1998 were
$42,694 as compared to $298,325 for the three  months ended June 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 $2,348 or 5.5% as compared to a gross  profit
of  $63,981  or  21.4%  for the  three  months  ended  June 30,  1998 and  1997,
respectively.  The 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  and start up costs  related to the  applesauce  and natural food
business.

The Company's selling,  general and administrative expenses for the three months
ended June 30,  1998 and 1997 were  $329,996  and  $378,533,  respectively.  The
decrease is due primarily to a reduction of goodwill amortization of $31,997 due
to the write off of goodwill  related to Riverosa  and Old  Marlborough  Brewing
Company, Inc. during the year ended March 31,1998.

The Company  earned  interest  income of $1,548 and $13,077 for the three months
ended  June  30,1998  and  1997,  respectively.  Interest  charges  of $574 were
incurred on the note payable related to the purchase of transportation equipment
during the three months ended June 30, 1998.

                                       19

<PAGE>



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



For the three  months ended June 30, 1998  compared  with the three months ended
June 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

Perry's had working  capital at June 30, 1998 of $337,911.  For the three months
ended  June 30,  1998,  the  Company  utilized  $238,400  in cash for  operating
activities as compared to $314,306 for the three months ended June 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  $160,000 in cash from the sale of
Post Road assets for the three months  ended June 30, 1998.  The cash balance at
June 30, 1998 was $134,195.

At June 30,  1997,  Perry's had  working  capital of  $1,168,492.  For the three
months ended June 30, 1997, the Company  utilized  $95,149 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 three  months  ended June 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.

As of June 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 $118,750  was expensed for both the
three months ended June 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 $27,500 was recorded as amortization  expense for
both the three months ended June 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 three  months  ended June 30,  1998 and 1997,  royalty  expense was $542 and
$1,097, respectively.



                                       20

<PAGE>



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



For the three  months ended June 30, 1998  compared  with the three months ended
June 30, 1997.

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.

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.

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.

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 are not
expected  to 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,"  which is  effective  for  fiscal  years
beginning  after June  15,1999.  The Company  will  evaluate the new standard to
determine any required new disclosures or accounting.

                                       21

<PAGE>



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



For the three  months ended June 30, 1998  compared  with the three months ended
June 30, 1997.

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.

                                       22

<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.




August 7, 1998                         By:/s/ Robert J. Sipper
                                          --------------------
                                          Robert J. Sipper, President,
                                          Chief Executive Officer,
                                          Chief Financial Officer and Chief
                                          Principal Accounting Officer

                                       23
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