<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

(Mark One)
     [X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
           ACT OF 1934

                   For the fiscal year ended December 31, 2003

     [ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
           EXCHANGE ACT OF 1934

     For the transition period from _________________ to ___________________


                         Commission file number: 1-13636

                         MENDOCINO BREWING COMPANY, INC.
                 (Name of small business issuer in its charter)

             CALIFORNIA                                       68-0318293
  (State or other jurisdiction of                          (I.R.S. Employee
  incorporation or organization)                          Identification No.)

        1601 AIRPORT ROAD, UKIAH, CA                             95482
  (Address of principal executive offices)                    (Zip code)

                    Issuer's telephone number: (707) 463-6610

Securities registered under Section 12(b) of the Act:

    Title of each class                Name of each exchange on which registered
    -------------------                -----------------------------------------
        COMMON STOCK,                              OTC BULLETIN BOARD
     WITHOUT PAR VALUE

Securities registered under Section 12(g) of the Act:  NONE

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year:  $ 28,864,200

The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid price of $0.20 and ask price of $0.35 of such
stock as of March 22, 2004 was: $481,900.

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The number of shares the issuer's Common Stock outstanding as of MARCH 22, 2004
is: 11,266,874

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE

Transitional Small Business Disclosure Format        Yes [ ]          No [X]









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                           FORWARD-LOOKING INFORMATION

       Various portions of this Annual Report on Form 10-KSB, including but not
limited to the sections captioned "Description of Business" and "Management's
Discussion and Analysis or Plan of Operation," contain forward-looking
information. Such information involves risks and uncertainties that are based on
current expectations, estimates and projections about the Company's business,
Management's beliefs, and assumptions made by Management. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
and variations of those and similar words are intended to identify such
forward-looking information. Actual outcomes and results may differ materially
from what is expressed or forecasted in such forward-looking information due to
numerous factors, including, but not limited to, availability of financing for
operations, successful performance of internal operations, the impact of
competition, changes in distributor relationships or performance, and other
risks discussed elsewhere in this Form 10-KSB and from time to time in the
Company's Securities and Exchange Commission (the "Commission") filings and
reports. In addition, such statements could be affected by general industry and
market conditions and growth rates, and in general domestic and European
economic and political conditions. Readers are cautioned not to place undue
reliance on these forward-looking statements.


                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS.

OVERVIEW

       Mendocino Brewing Company, Inc., a California corporation, was founded in
1983. It was one of the first of the modern craft brewers, having opened the
first new brewpub in California and the second in the United States since the
repeal of Prohibition, and it has been recognized for its innovations in the
brewpub concept, its craft brew style and its distinctive labels. (In this
Annual Report, the term "the Company" and its variants is generally used to
refer to Mendocino Brewing Company, Inc. and its subsidiaries, while the term
"MBC" is used to refer to Mendocino Brewing Company, Inc. as an individual
entity.)

       The Company operates in two market and geographic areas, domestic (the
United States) and European (including Austria, Belgium, Denmark, Ireland,
Italy, the Netherlands, France, Finland, Germany, Greece, Iceland,
Liechtenstein, Luxembourg, Norway, Portugal, Spain, Sweden, Switzerland, and the
United Kingdom (the "European Territory"), as well as Canada).

       The Company's domestic operations consist primarily of brewing and
marketing a variety of proprietary craft beers, including among others Red Tail
Ale, Blue Heron Pale Ale, Black Hawk Stout, Eye of the Hawk Select Ale, White

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Hawk Original IPA, and Raptor Red Lager, and a licensed international specialty
beer, Kingfisher Premium Lager. For domestic distribution, the Company brews its
brands in its own facilities, which are located in Ukiah, California and
Saratoga Springs, New York, and these beers are distributed in 36 states and the
District of Columbia.

       The Company's European operations, which are conducted through its
wholly-owned subsidiary United Breweries International (UK) Limited ("UBI") and
UBI's own subsidiary UBSN, Ltd. ("UBSN"), consist primarily of the marketing and
distribution of Kingfisher Lager throughout the European Territory, and to a
lesser extent the marketing and distribution of Sun Lik Chinese Lager in the
U.K., in both cases through ethnic restaurants (Indian for Kingfisher Lager and
Chinese for Sun Lik), chain retail grocers, liquor stores, and other retail
outlets (such as convenience stores). The Company holds the license to brew and
distribute Kingfisher from United Breweries Limited ("UB Limited"), an Indian
corporation. The Company's Chairman of the Board, Dr. Vijay Mallya, is also the
Chairman of the Board of UB Limited.

       Shepherd Neame, Ltd. ("Shepherd Neame"), a prominent English brewer,
holds the license to brew and distribute Sun Lik (in the U.K. only) from an
unrelated entity, the San Miguel Corporation; and in September 2001 Shepherd
Neame granted UBSN a sublicense to distribute this beer (also in the U.K. only).
One of the Company's Directors, R.H.B. (Bobby) Neame, is the Chairman and Chief
Executive Officer of Shepherd Neame. All of the Company's beers sold in the
European market and Canada are brewed in England under contract by Shepherd
Neame, a related party. Although UBSN is the sole distributor of Kingfisher in
the U.K., Ireland, continental Europe, and Canada, and of Sun Lik in the U.K.,
it does not physically distribute its products to its ultimate trade customers,
relying instead on specialist restaurant trade distributors in the U.K. and
Shepherd Neame, acting as UBSN's agent, on a commission basis, for the
supermarket and liquor and convenience store trade.

COMPANY BACKGROUND

       MBC was originally formed in March 1983. It first bottled its flagship
brand, Red Tail Ale, in December 1983, and made its initial public offering in
February 1995. The Company completed construction of its brewery in Ukiah,
California in May 1997. This facility, which has a current annual capacity of
60,000 brewers' barrels ("bbl."), was designed to enable the Company's
production to be expanded to 200,000 bbl. per year with the addition of
necessary equipment.

       The Company's New York subsidiary, Releta Brewing Company, LLC, d/b/a Ten
Springs Brewery ("Releta"), which is located in Saratoga Springs, New York,
commenced production in its leased facilities in February 1998, with an initial
capacity of 60,000 bbl. per year expandable to 150,000 bbl. per year.

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       In July 1998, the Company purchased certain of the assets of Carmel
Brewing Company, Inc., a California corporation ("Carmel Brewing"), such as
trademarks, trade names, and other brand related assets as well as certain point
of sales and brewing ingredient inventory.

       On August 13, 2001, the Company acquired United Breweries International
(UK) Limited ("UBI") together with UBI's own subsidiary UBSN, Ltd. ("UBSN"),
from Inversiones Mirabel, S. A., a Panamanian corporation ("Inversiones"), in
exchange for MBC stock valued at approximately $4,468,750 (the "UBI
Acquisition"). The UBI Acquisition was considered to be a related-party
transaction because at the time Inversiones was owned by a trust in which the
Company's Chairman, Dr. Mallya, may be deemed to be a beneficial owner. The
Company operates UBI and UBSN primarily in the marketing, sale, and distribution
of Kingfisher Lager in the Company's European Territory, and in the marketing
and distribution of Sun Lik Chinese Lager in the U.K. Kingfisher Lager, which is
the flagship brand of UB Limited, an India-based brewing and distribution
company, is a recognized international brand, with wide distribution outside the
Company's market areas.

       As a result of the UBI Acquisition, the Company now holds, in addition to
UBI and UBSN, the United States brewing and distribution rights for Kingfisher
Lager. The Company brews Kingfisher Lager for US distribution to the United
States in both of its US brewing facilities -- Saratoga Springs and Ukiah. The
Company has engaged Shepherd Neame to brew Kingfisher Lager for distribution in
European Territory, and Sun Lik Chinese Lager for distribution in the U.K. only.
(The Company does not brew or distribute Sun Lik Chinese Lager outside the
United Kingdom.)

INDUSTRY OVERVIEW

       DOMESTIC MARKET

       The domestic beer market falls into a number of market categories,
including among others low-priced, premium, super premium, lite, import, and
specialty/craft beers. Domestically, the Company competes in the specialty/craft
category, which is estimated to be in the range of 6 million barrels per year
and comprised approximately 3% of total U.S. beer sales in both 2003 and 2002.
Craft beers are typically all malt, characterized by their full flavor, and are
usually produced using methods similar to those of traditional European brews.

       EUROPEAN TERRITORY

       The Company's European Territory consists of Austria, Belgium, Denmark,
Ireland, Italy, the Netherlands, France, Finland, Germany, Greece, Iceland,
Liechtenstein, Luxembourg, Norway, Portugal, Spain, Sweden,

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Switzerland, and the United Kingdom as well as Canada, although during 2003 and
2002 Company sales were primarily in the U.K. Through its subsidiaries UBI and
UBSN, the Company competes exclusively in the specialty category in the European
Territory and Canada.

       The category in which the Company competes in Europe is primarily the
Indian restaurant niche, although the Company does distribute its beers through
other licensed premises and through other retail outlets such as supermarkets,
liquor stores, and licensed shops and convenience stores. In the U.K., this
market niche is estimated to be in the range of 150,000 to 175,000 bbl. per
year. Management believes that, for Europe as a whole, this market niche is
substantially larger. The Company offers two brands of beer in its European
Territory: Kingfisher Lager (both within and outside the U.K.) and Sun Lik
Chinese Lager (in the U.K. only). With approximately 7,000 premises in the U.K.,
the Indian restaurant niche is substantially larger than the equivalent Chinese
restaurant market, which currently includes only about 3,500 premises in the
U.K. The Company believes that Kingfisher Lager is the fastest growing ethnic
brand in the U.K. Indian restaurant niche.

       In both the domestic and European markets, the rate at which the sales in
the craft and specialty categories grow will have a material affect on the
Company's business, financial condition, and results of operations. Actual
industry performance will depend on many factors that are outside the control of
the Company.

BUSINESS OF THE COMPANY

       PRODUCTS

       Beverage sales (wholesale and retail combined) constituted over 98% (by
revenue) of the Company's total sales in both 2003 and 2002, with food and
merchandise retail sales (at the Hopland tavern) making up the balance in both
years. In the US market, beverage sales constituted approximately 98% of total
sales for 2003 and 97% in 2002, while in the European Territory beverage sales
constituted virtually all of total sales for both years.

       Domestically, the Company brews seven ales, one wheat beer, three lagers,
and one stout on a year-round basis, and a root beer, all of which are brewed at
the Company's proprietary facilities in Ukiah, California, and Saratoga Springs,
New York.

       The Company's principal products are as follows.

o      RED TAIL ALE, a full flavored amber ale, is the Company's flagship brand.
       It is available year-round in 12 oz. six-packs and twelve-packs,
       half-barrel kegs, and 5 gallon kegs.

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o      BLUE HERON PALE ALE is a golden ale with a full body and a distinctive
       hop character. It is available year-round in 12 oz. six-packs and
       twelve-packs, half-barrel kegs, and 5 gallon kegs.

o      BLACK HAWK STOUT is a rich bodied stout with big traditional flavors. It
       is available year-round in 12 oz. six-packs, half-barrel kegs, and 5
       gallon kegs.

o      EYE OF THE HAWK SELECT ALE is a strong rich bodied amber ale. It is
       available year round in 12 oz. six-packs, half-barrel kegs, and 5 gallon
       kegs.

o      WHITE HAWK ORIGINAL IPA is a heavily hopped ale with distinctive hop
       character and bold malt flavor. It is available year round in 12 oz. six
       packs and half barrel kegs.

o      KINGFISHER PREMIUM LAGER is a conventionally fermented specialty lager
       with a smooth crisp taste. In the domestic market, Kingfisher is
       currently available year around in twelve ounce six-packs, 22 oz. bottles
       on-draft. In the European market, it is available year-round, in 330ml
       and 660ml bottles in multi packs in the U.K., Ireland, and continental
       Europe and in 330ml bottles in Canada, as well as in a variety of keg
       sizes. In the U.K., it is also available on draft through Indian
       restaurants.

o      RAPTOR RED LAGER is a traditional lager, with a smooth light feel and a
       crisp dry finish. It is currently available year round only on the West
       Coast in 12 oz. six packs and half barrel kegs.

       DISTRIBUTION METHODS

       In the United States, the Company's bottled products are sold through
distributors to consumers at supermarkets, warehouse stores, liquor stores,
taverns and bars, restaurants, and convenience stores. Most of the Company's
brands are also available on draft. The Company's products are delivered to
retail outlets by independent distributors whose principal business is the
distribution of beer and in some cases other alcoholic beverages, and who
typically also distribute one or more national beer brands. Together with its
distributors, the Company markets its products to retail outlets and relies on
its distributors to provide regular deliveries, to maintain retail shelf space,
and to oversee timely rotation of inventory. The Company also offers a variety
of ales and lagers directly to consumers at the tavern and merchandise store in
Hopland, California.

       In the European Territory, the Company's products are distributed
primarily through sales by Indian restaurants. Such sales represent
approximately 95% of the Company's total European sales volume, with the
remaining sales coming through other ethnic restaurants (primarily Chinese) and
in sales by supermarkets, liquor stores, and licensed shops and convenience
stores. In the U.K., Kingfisher has a market share of approximately 22% of the
Indian restaurant market, through sales by some 7,000 Indian

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restaurants and other licensed premises. The majority of the Company's sales in
these restaurants is through its approximately 3,500 on-tap draft installations.
UBI also exports Kingfisher to 16 European markets outside of the U.K. and to
Canada, and its growth in those markets typically develops alongside the growth
of Indian restaurants in those markets.

       The Company does not physically distribute its products to its ultimate
trade customers in the European Territory, relying instead on specialist
restaurant trade distributors and Shepherd Neame, acting as UBSN's agent on a
commission basis, for the supermarket and liquor and convenience store trade.

       COMPETITION

       In its domestic markets, the Company competes against a variety of
brewers in the craft beer segment, including brewpubs, microbrewers, regional
craft brewers, and craft beer products of major national breweries.
Additionally, the entire craft beer segment competes to some extent with other
segments of the U.S. beer market, including major national brands like Budweiser
and Miller and imported beers such as Heineken and Becks.

       The U.K. lager market is dominated by major international brands such as
Carling, Budweiser, Becks, and Holsten Pils, both in the restaurant and pub
segment and in sales through supermarkets and other retail outlets. The
Company's products are marketed both through Indian and other restaurants and
through major supermarket chains, smaller chains, and individual stores. In all
these sectors, the Company faces competition from other ethnic and international
brands, many of which are produced by local and large international brewers.

       The Company believes that Kingfisher, which during 2002 had a market
share of approximately 22% of the U.K. Indian restaurant market, is also the
fastest growing ethnic brand in the grocery multiple sector in terms of volume
and distribution. The Company vigorously promotes Kingfisher as the No.1.
selling premium Indian Lager brand in the U.K. and continental Europe. The
profile of this brand has been raised significantly through the Company's
sponsorship of Kingfisher World Curry Week and Kingfisher Curry Capital of
Britain.

       Increased competition in either the domestic or European market could
hinder distribution of the Company's products, and have a material adverse
effect on the Company's business, financial condition, and results of
operations.

       SOURCES AND AVAILABILITY OF RAW MATERIALS

       Production of the Company's beverages requires quantities of various
agricultural products, including barley for malt, hops, malt, and malted wheat
for beer. The Company fulfills its commodities requirements by purchases from

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various sources, including both contractual arrangements and on the open market.
In its European Territory, these purchases are made directly by or for Shepherd
Neame, which brews the Company's products on a contract basis. Although the
Company believes that adequate supplies of these agricultural products are
available at the present time, it cannot predict future availability or prices
of such products and materials. The commodity markets have experienced and will
continue to experience price fluctuations. The price and supply of raw materials
will be determined by, among other factors, the level of crop production,
weather conditions, export demand, and government regulations and legislation
affecting agriculture. The Company does not use any hedges or unconditional
purchase obligations to purchase these products.

       The Company's major suppliers in the United States are Great Western
Malting Co., Yakima, Washington, and Briess Malting, Milwaukee, Wisconsin
(malt); Yakima Chief, Inc., Sunnyside, Washington and S S Steiner, Inc, New
York, New York (hops); Gamer Packaging Inc. Minneapolis, Minnesota (bottles and
crown corks); Inland Paper Board and Packaging, Inc., Antioch, California and
Empire State Container, Inc. Syracuse, New York (cartons); Sierra Pacific
Packaging, Oroville, California and Caraustar, Ashland, Ohio (carriers); and
Inland Printing Company Inc., Lacrosse, Wisconsin (labels).

       The Company's major supplier in Europe is Shepherd Neame, which brews on
a contract basis all of the Company's products that are sold in Europe. The
Company does not directly purchase any material amounts of agricultural
commodities or other products in Europe.

       DEPENDENCE ON MAJOR CUSTOMERS

       Sales to the Company's top five customers in 2003 totaled $7,088,800, or
approximately 25%, of the Company's total sales, as compared to $6,718,100, or
26% of total sales, for 2002.

       In the Company's domestic market, sales to its principal customer, Alta
Marketing, during 2003 constituted approximately 10.1% of the Company's domestic
sales (or approximately 4.2% of its total sales). In 2002, by comparison, sales
to the Company's largest US customer constituted approximately 12.7% of its
domestic sales (or approximately 5.7% of total sales).

       Sales during 2003 to the Company's principal European customer, Shepherd
Neame, represented approximately 15.5% of the Company's European Territory sales
(or approximately 9% of the Company's total sales) for the year, as compared to
approximately 14.6% of European Territory sales (or approximately 8.1% of total
sales) in 2002. No other individual customer accounted for more than 5% of the
Company's total sales during either 2003 or 2002.

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TRADEMARKS

       The Company has U.S. federal trademark registrations on the principal
register of the United States Patent and Trademark Office for the following
marks: MENDOCINO BREWING COMPANY word mark (Reg. No. 2,441,141), RED TAIL ALE
word mark (Reg. No. 2,032,382), RED TAIL design mark (Reg. No. 2,011,817), BLUE
HERON PALE ALE design mark (Reg. No. 2,011,816), EYE OF THE HAWK SELECT ALE word
mark (Reg. No. 1,673,594), EYE OF THE HAWK SELECT ALE design mark (Reg. No.
2,011,818), EYE OF THE HAWK SPECIAL EDITION ANNIVERSARY ALE design mark (Reg.
No. 2,011,815), YULETIDE PORTER word mark (Reg. No. 1,666,891), BREWSLETTER word
mark (Reg. No. 1,768,639), FROLIC SHIPWRECK ALE 1850 and design composite mark
(Reg. No. 2,080,761), PEREGRINE GOLDEN ALE word mark (Reg. No. 2,475,222),
HOPLAND BREWING COMPANY word mark (Reg. No. 2,509,464), BLACK EYE ALE word mark
(Reg. No. 2,667,078), SUN LAGER PREMIUM HANDCRAFTED BREW word and design mark
(Reg. No. 2,583,446), and PEREGRINE GOLDEN ALE word mark (Reg. No. 2,475,522).

       The Company uses the BLUE HERON word mark under a concurrent use
agreement with Bridgeport Brewing Company which gives the Company the exclusive
right to use the BLUE HERON word mark throughout the United States with the
exception of Oregon, Idaho, Washington, and Montana. Bridgeport Brewing Company,
the other concurrent use party, has the exclusive right to use the BLUE HERON
word mark in those states.

       The Company's use of the BLACK HAWK STOUT word mark is, by agreement with
Hiram Walker & Sons, Inc., subject to the restriction that it be used solely to
identify and distinguish malt beverage products namely, beer, ale and stout, and
only in conjunction with the words "Mendocino Brewing Company."

       The Company's United States federal trademark registrations for the BLUE
HERON word mark (Cancelled Reg. No. 1,820,076) and BLACK HAWK STOUT word mark
(Cancelled Reg. No. 1,791,807) were cancelled as a result of alleged technical
deficiencies in registration compliance filings. The Company continues to use
the BLUE HERON and BLACK HAWK STOUT word marks and claims common law trademark
rights in and to such marks. The Company presently has pending applications on
file with the United States Patent and Trademark Office for the re-registration
of the BLACK HAWK STOUT and BLUE HERON word marks.

       The Company claims common law trademark rights in and to the WHITE HAWK
ORIGINAL IPA word mark and WHITE HAWK ORIGINAL IPA word and design mark. The
Company has applied to register the WHITE HAWK ORIGINAL IPA word and design mark
with the United States Patent and Trademark Office (Ser. No. 78/304,844) and the
application is currently pending. Similarly, the

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Company claims common law trademark rights in and to the RAPTOR RED LAGER word
mark and RAPTOR RED LAGER word and design mark. The Company has applied to
register the RAPTOR RED LAGER word and design mark with the United States Patent
and Trademark Office (Ser. No. 78/304,831) and the application is currently
pending. Additionally, the Company claims common law trademark rights in and to
the TALON BARLEY WINE ALE word mark and TALON BARLEY WINE ALE word and design
mark and intends to register the marks with the United States Patent and
Trademark Office.

       The Company has acquired the trademark CARMEL BREWING COMPANY and any
other variation of the same as used by Carmel Brewing Company and claims common
law trademark rights in and to all such marks. The Company has also acquired the
rights to use the RAZOR EDGE word mark through a License Agreement with Beverage
Mates, Ltd. However, the Company is currently not using the RAZOR EDGE mark, and
it is unclear whether it will use the mark in the future. The RAZOR EDGE License
Agreement expires in 2008, but will be automatically renewed unless specifically
terminated. License fees are calculated based on sales of the product. The
Company did not have any material sales of this brand during 2001.

       Releta has federal trademark registrations on the principal register of
the United States Patent and Trademark Office for the FAT BEAR word mark (Reg.
No.2,267,709), TEN SPRINGS word mark (Reg. No. 2,243,852), and WHITEFACE word
mark (Reg. No. 2,322,226). Releta has a federal trademark registration on the
supplemental register of the United States Patent and Trademark Office for the
SARATOGA CLASSIC PILSNER word mark (Reg. No. 2,396,601).

       LICENSE AND FRANCHISE AGREEMENTS

       In August 2001, the Company acquired UBI and its wholly-owned subsidiary
UBSN, which hold the exclusive brewing and distribution rights for Kingfisher
Premium Lager in the U.K., Ireland, continental Europe, and Canada through a
Licensing Agreement with United Breweries Limited ("UB Limited"); and to Sun Lik
Chinese Lager in the U.K. as a sub-licensee of Shepherd Neame, which holds a
license to this trademark through a Licensing Agreement with San Miguel
Corporation. (See "Certain Relationships and Related Transactions," below.)

       In July 2001 MBC entered into a Kingfisher Trademark and Trade Name
License Agreement with Kingfisher America, Inc., pursuant to which MBC obtained
a royalty-free, exclusive license to use the Kingfisher trademark and trade name
in connection with the brewing and distribution of beer in the United States.
Under its terms, this agreement is currently scheduled to remain in effect until
October of 2013.

       Since 1998, UBI and UBSN have licensed to Shepherd Neame, an affiliated
entity, the exclusive right to brew, keg, bottle, can, label, and package all
beers

                                      -11-

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and related products sold under the Kingfisher trademark in the U.K., Ireland,
and continental Europe. (See "Certain Relationships and Related Transactions -
Brewing Agreement Between UBI and Shepherd Neame," below.)

       GOVERNMENTAL REGULATION

       The Company's United States operations are subject to licensing by both
state and Federal governments, as well as to regulation by a variety of state
and local governments and agencies. The Company is licensed to manufacture and
sell beer by the Departments of Alcoholic Beverage Control in California and New
York. A federal permit from the United States Bureau of Alcohol, Tobacco, and
Firearms ("BATF") allows the Company to manufacture fermented malt beverages. To
keep these licenses and permits in force the Company must pay annual fees and
submit timely production reports and excise tax returns. Prompt notice of any
changes in the operations, ownership, or company structure must also be made to
these regulatory agencies. BATF must also approve all product labels, which must
include an alcohol use warning. These agencies require that individuals owning
equity securities in aggregate of 10% or more in the Company be investigated as
to their suitability. The Company's production operations must also comply with
the Occupational Safety and Health Administration's workplace safety and worker
health regulations and comparable state laws. Management believes that the
Company is presently in compliance with the aforementioned laws and regulations.
In addition, the Company has implemented its own voluntary safety program. The
Hopland tavern is regulated by the Mendocino County Health Department, which
requires an annual permit and conducts spot inspections to monitor compliance
with applicable health codes.

       In the United States, taxation of alcohol has increased significantly in
recent years. Currently, the Federal tax rate is $7.00 per bbl. for up to 60,000
bbl. per year and $18.00 per bbl. for over 60,000 bbl. The California tax rate
is $6.20 per bbl. The State of New York presently imposes an excise tax of $3.88
per bbl. on brewers for over 100,000 bbl. per year.

       The Company's European operations are subject to regulation by U.K. and
European laws, as well as by the laws of various individual countries in which
UBI distributes its products. Because Shepherd Neame is contracted to perform
the brewing operations for the European market, Shepard Neame is subject to the
various laws of the European countries regarding production, bottling,
packaging, and labeling in lieu of the Company. The Company does not anticipate
any significant increase in its applicable taxes in its European markets during
2004.

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       COMPLIANCE WITH ENVIRONMENTAL LAWS

       The Company is subject to various federal, state, and local environmental
laws which regulate the use, storage, handling, and disposal of various
substances.

       The Company's waste products consist of water, spent grains, hops, and
glass and cardboard. The Company has instituted a recycling program for its
office paper, newspapers, magazines, glass, and cardboard at minimal cost to the
Company. The Company sells or gives away its spent grain to local cattle
ranchers. The Company has not purchased any special equipment and does not incur
any identifiable fees in connection with its environmental compliance at its
Hopland site.

       The Company has built its own wastewater treatment plant for the Ukiah
facility. As a consequence, the Company is not currently required to incur sewer
hook-up fees at that location. If the Company's discharge exceeds 55,000 gallons
per day, which Management does not expect to occur until annual capacity exceeds
100,000 bbl., the Company may be required to pay additional fees. The estimated
cost of the wastewater treatment facility was $900,000, and the estimated cost
of operating the plant is between $6,000 and $10,000 per month. The cost may
increase with increased production. The Company has contracted to have the
liquid sediment that remains from the treated wastewater trucked to a local
composting facility for essentially the cost of transportation. The Company
obtained a Mendocino County Air Quality Control Permit to operate the natural
gas fired boiler in Ukiah; this permit is valid until August 30, 2004.
Management expects this permit to be renewed.

       The Saratoga Springs facility is subject to various federal, state, and
local environmental laws which regulate use, storage and disposal of various
materials. The Company's solid waste products consist of spent grain, cardboard,
glass, and liquid waste. As for solid waste, the Company has instituted at this
facility a recycling program for cardboard, office papers and glass at a minimal
cost to the Company. The Company sells spent grain to local cattle dairy farms.
The Company pays approximately $1,400 per month towards sewer fees for liquid
waste. The sewer discharge from the brewery is monitored and is within the
standards set by the Saratoga County Sewer Department. The Company follows and
operates under the rules and regulations of the New York Department of
Environmental Conservation for Air Pollution Control.

       Various states in which the Company sells its products in the U.S.,
including California and New York, have adopted certain restrictive packaging
laws and regulations for beverages that require deposits on packages. The
Company continues to do business in these states, and such laws have not had a
significant effect on the Company's sales. The adoption of similar legislation

                                      -13-
<PAGE>

by Congress or a substantial number of states or additional local jurisdictions
might require the Company to incur significant capital expenditures to comply.

       In Europe, various countries require information to be displayed on
packaging in the national language. In general, European packaging regulations
are covered by specifications provided by the European Union, with which the
Company believes itself to be in compliance. Trade with Canada is subject to,
and in compliance with, the regulation of the provincial Liquor Boards.

       The Company has not received any notice from any governmental agency that
it is a potentially responsible person under any environmental law.

       EMPLOYEES

       As of December 31, 2003, MBC employed 57 full-time and 12 part-time
individuals in the United States, including 11 in management and administration,
42 in brewing and production operations, 4 in retail and tavern operations and
12 in sales and marketing positions. By comparison, in England, UBI and UBSN
together employed ten people in sales and marketing and six in managerial and
administrative positions.

       Management believes that the Company's relations with its employees are
generally good.

       On February 28, 2003, approximately 21 employees engaged in brewing,
bottling, warehousing, and shipping at the Ukiah brewery elected Teamsters Local
No. 896, International Brotherhood of Teamsters, AFL-CIO ("Union") to represent
them as a collective bargaining agent. The Company and the Union executed a
collective bargaining agreement effective November 17, 2003 through July 31,
2008. All of such 21 employees' positions henceforth must be held and filled by
members of the union.

       THE HOPLAND TAVERN AND MERCHANDISE STORE

       An important marketing tool for the Company's domestic market has been
the Hopland tavern and merchandise store. Located on a tourist route in Hopland,
California, 100 miles north of San Francisco, the Hopland Brewery opened in 1983
as the first new brewpub in California and the second in the United States since
the repeal of Prohibition.

       Beverages served at the Hopland tavern include Red Tail Ale, Blue Heron
Pale Ale, Black Hawk Stout, Eye of the Hawk Select Ale, Peregrine Golden Ale,
White Hawk IPA, and a seasonal brew on tap, along with local wines and soft
drinks, as well as hand pumped cask conditioned ales. The adjacent merchandise
store sells the Company's brews and merchandise such as hand-screened label
T-shirts, posters, engraved glasses and mugs, logo caps and other
brewery-related gifts.

                                      -14-
<PAGE>

       In October 2003, the Company closed the restaurant located at the Hopland
property. Management decided to close the restaurant because the space available
for renewal at the end of the term of the current lease is limited, and the
restaurant has traditionally done less business during the winter months.
However, the Company continues to operate the bar and merchandise stores. There
was no signifant cost incurred by the Company in shutting down the restaurant
facility.

ITEM 2.      DESCRIPTION OF PROPERTY.

       In the United States, the Company owns nine acres of land in Ukiah,
California on which its Ukiah brewery is operated. This facility is adequate for
Company's current capacity and also has space for future expansion. Savings Bank
of Mendocino County currently holds a first deed of trust on this property in
connection with a loan advanced to the Company. (See PART II, Item 6,
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") - Liquidity and Capital Resources - Long-Term Debt," below.)
The principal amount outstanding on the loan as of December 31, 2003 was
$2,421,300. CIT Group holds a second deed of trust on this property, securing a
working capital facility granted to the Company. The amount owed to CIT Group by
the Company under this capital facility was $1,674,000 as of December 31, 2003.
(See MD&A -" Liquidity and Capital Resources -- Other Loans and Credit
Facilities - CIT Group/Credit Finance Line of Credit," below). The Company owes
approximately $618,000 to the County in overdue property taxes and accrued
interest (See MD&A -" Liquidity and Capital Resources -- Other Loans and Credit
Facilities - Overdue Property Taxes," below).

       Although it has now received a Certificate of Occupancy, the Company has
yet to complete the build-out of its administrative space and the exterior
landscaping of the Ukiah facility, and does not plan completion of the project
until it has the available funds to do so. There is about $40,000 of work
remaining to complete the construction and landscaping. The Company has
estimated the life of the building at 40 years and depreciates the cost of the
building on a straight-line method over its anticipated life. The Company does
not depreciate the cost of the land. The Company's tax basis on the Ukiah
facility is $7,584,000. Various other assets incorporated in this facility are
being depreciated, on a straight-line basis, at between 10 and 20 years.
Property taxes are currently assessed on the Ukiah property at a rate of 1.1%,
for an annual tax of $106,800.

       The Company also currently leases a 15,500 square foot building in
Hopland on which the Hopland tavern and merchandise store are located. The lease
on this property expires in August 2004, and the Company is currently in
negotiations with the property owner for renewal of the lease.

       The Company also leases 3.66 acres in Saratoga Springs, New York, on
which Ten Springs Brewery operates under a lease. In June 2002, the Company

                                      -15-
<PAGE>

exercised its option to extend the lease for an additional five years and
extended the lease until October 30, 2007. The Company has the option to renew
the lease for two successive terms of five years if it is not in default at the
time each option to extend the lease is exercised, and to purchase the land at
the time the lease expires.

       The Company leases certain equipment and vehicles under capital and
operating leases which expire at varying times from May 2004 to November 2006.
Additionally, the Company leases equipment under various smaller leases. As
these leases expire, it is anticipated that the equipment will be acquired
pursuant to the terms of the leases and the vehicles will be surrendered.

       In the U.K., UBSN currently has one year remaining of a six year lease
for offices located at Faversham, Kent, in England. The Company does not own or
lease any other material properties in Europe.

       The Company considers its land, buildings, improvements, and equipment to
be well maintained and in good condition, and adequate to meet the operating
demands placed upon them. In the opinion of Management, all of these properties
are adequately covered by insurance.

ITEM 3.      LEGAL PROCEEDINGS.

       Effective March 28, 2003, the Company terminated a written distribution
agreement with the House of Daniels, Inc., dba Golden Gate Distributing Company
("GGDC"). On April 1, 2003, GGDC filed an action in Marin County Superior Court,
naming the Company and Mr. Mark Anderson (who is employed by the Company as a
sales manager) as defendants, and seeking actual and punitive damages in an
amount not stated in the complaint. GGDC's action asserts claims for breach of
contract, breach of the covenant of good faith and fair dealing, unfair business
practices, and negligent and intentional interference with economic
relationships, all arising out of the allegedly wrongful termination of the GGDC
distribution agreement.

       On January 21, 2004, GGDC filed an amended complaint, naming as
additional defendants Dr. Vijay Mallya, the Company's Chairman; United Breweries
of America, Inc., one of its principal shareholders; and the distribution
companies now servicing the territory formerly handled by GGDC. The amended
complaint seeks to impose a constructive trust on $655,000 that the Company
received from its new distributors, and alleges new causes of action for
conspiracy and conversion. The Company could be found to have an obligation to
indemnify some or all of the other defendants for their legal costs and expenses
and for all or a portion of any judgment against them in the action.

       The Company disputes GGDC's allegations, and intends to vigorously defend
the action. The Company has filed a cross-complaint against GGDC, alleging
breach of contract, tortious interference with prospective economic advantage,
and unfair business practices. The Company is seeking the appropriate remedies,
including compensatory and punitive damages.

       The Company is unable at this time to evaluate the likelihood of an
unfavorable outcome in this litigation, or to provide an estimate of the amount
or range of the potential loss in such an event.

                                      -16-
<PAGE>

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

       The Company held its Annual Meeting of Shareholders on October 27, 2003.
At that meeting, the Company's shareholders voted to re-elect each of the
Company's Directors for an additional term. The votes cast for each of the
Directors were as follows. There were no broker non-votes; ballots for a total
of 1,038,411 shares were not cast with respect to any candidate.

       Director Name                  For               Withheld
       -------------                  ---               --------

       Vijay Mallya                   10,126,949        101,514
       H. Michael Laybourn            10,126,674        101,789
       Jerome G. Merchant             10,127,074        101,389
       R.H.B. Neame                   10,127,074        101,389
       Sury Rao Palamand              10,126,949        101,514
       Kent D. Price                  10,127,074        101,389
       Yashpal Singh                  10,126,849        101,614
       David Townshend                10,126,974        101,489

       The Company's shareholders also voted to ratify the selection of Moss
Adams, LLP as independent certified accountants to audit the Company's financial
statements for the fiscal year ending December 31, 2003. The votes were cast as
follows: for, 10,139,536; against, 23,195; abstain, 65,732. There were no broker
non-votes; ballots for a total of 1,038,411 shares were not cast with respect to
the selection of Moss Adams, LLC.

                                      -17-
<PAGE>

                                     PART II

ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

       Since May of 2002, the Company's Common Stock has been quoted on the
Nasdaq OTC Bulletin Board, under the symbol "MENB". The Company's stock had
previously been listed on the Pacific Exchange. However, because the stock did
not maintain a minimum bid price of $1.00 per share as required by the rules of
the Pacific Exchange, trading was suspended on the Pacific Exchange effective as
of September 19, 2002, and the Common Stock was finally delisted on December 12,
2002. Management had previously determined that due to the low volume of trading
in the Company's stock on the Pacific Exchange, the Company's Common Stock is
better suited to the OTC Bulletin Board, and the Board of Directors did not
contest or appeal the suspension of trading or the delisting of the Common Stock
by the Pacific Exchange.

       The high and low prices or bids for the Company's Common Stock are set
forth below for the quarters indicated. All prices for the first and second
quarters of 2002 are the high and low sales prices as reported on the Pacific
Exchange. The prices for the third and fourth quarters of 2002 and all prices
for 2003 are the high and low bid information as reported from the OTC Bulletin
Board. That information reflects inter-dealer prices, without retail mark-up,
mark-down, or commission, and may not represent actual transactions.

<TABLE>
<CAPTION>

                               2003                                    2002
             ---------------------------------------- --------------------------------------
                   1st      2nd      3rd       4th        1st      2nd      3rd      4th
                 Quarter  Quarter  Quarter   Quarter    Quarter  Quarter  Quarter  Quarter

<S>               <C>      <C>      <C>       <C>        <C>      <C>      <C>      <C>
           High   $0.35    $0.35    $0.40     $0.45      $0.69    $0.60    $0.35    $0.33

            Low   $0.21    $0.16    $0.19     $0.18      $0.45    $0.55    $0.26    $0.27
</TABLE>

       The Company had approximately 2,348 holders of its common stock of record
as of December 31, 2003. The Company has never paid a cash dividend on its
Common Stock and Management does not expect the Company to pay cash dividends in
the foreseeable future. The Company's credit agreements provide that the Company
may not declare or pay any dividend or other distribution on its Common Stock
(other than a stock dividend), or purchase or redeem any Common Stock, without
the lender's prior written consent. Management anticipates that similar
restrictions will remain in effect for as long as the Company has significant
bank financing.

       The holders of the Company's 227,600 outstanding shares of Series A
Preferred Stock (which is not listed for trading on any market or to the

                                      -18-
<PAGE>

Company's knowledge quoted on any bulletin board or other public quotation
system) are entitled to aggregate cash dividends and liquidation proceeds of
$1.00 per share before any dividend may be paid with respect to the Common
Stock. The Series A Preferred Shares must be canceled after the holders of these
shares have received their $1.00 per share aggregate dividend. Management does
not have any present intention to declare or pay a dividend on the Series A
Preferred Stock.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

       As of December 31, 2003, the Company has authorized and issued equity
compensation in the following amounts:

<TABLE>
<CAPTION>

--------------------------------- ----------------------- -------------------------- --------------------------------
                                  Number of securities to  Weighted-average exercise  Number of securities remaining
                                  be issued upon exercise    price of outstanding      available for future issuance
                                  of outstanding options,    options, warrants and    under equity compensation plans
                                    warrants and rights             rights            (excluding securities reflected
                                                                                              in column (a))
--------------------------------- ----------------------- -------------------------- --------------------------------
                                            (a)                       (b)                           (c)
--------------------------------- ----------------------- -------------------------- --------------------------------
<S>                                       <C>                        <C>                          <C>
    Equity compensation plans
   approved by security holders           429,273                    $0.82                        570,727
--------------------------------- ----------------------- -------------------------- --------------------------------
  Equity compensation plans not              *                         *                             *
   approved by security holders
--------------------------------- ----------------------- -------------------------- --------------------------------
              Total                       429,273                    $0.82                        570,727
--------------------------------- ----------------------- -------------------------- --------------------------------
</TABLE>

------------
* See " Recent Sales of Unregistered Securities; Use of Proceeds from Registered
Securities," below for a description of the status of the Company's Director's
Stock Grant Plan in 2003 and currently.

RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED
SECURITIES

       The Company's policy for compensation of its non-employee Directors has
in the past included the annual issuance of options, pursuant to the Company's
1994 Stock Option Plan (the "Plan"), to purchase a number of shares of the
Company's Common Stock having a fair market value of $25,000. In addition to
such option grants, the Company had a policy of granting shares of Common Stock
to non-employee Directors as compensation for their attendance at meetings of
the Board of Directors and of Committees of the Board on which

                                      -19-
<PAGE>

they serve the "Directors' Stock Grant Plan"). However, because the market value
of the Company's Common Stock was consistently below fifty cents per share
during the latter half of 2002 and all of 2003 (at times falling below twenty
cents per share), the Compensation Committee of the Company's Board of Directors
has taken both of these policies under review. Pending completion of that review
and a decision by the Committee and the Board as to appropriate compensation
levels under these circumstances, no stock options or stock grants have been
approved during 2003 or to date in 2004 in connection with any Director's
service on the Board for that year.

       Pursuant to the Master Line of Credit Agreement (discussed in Item 6
below under the heading "Liquidity and Capital Resources - Master Line of Credit
Agreement"), the Company issued thirteen (13) promissory notes to United
Breweries of America, Inc. ("UBA") between September, 1999, and July, 2001. The
outstanding principal amount of the notes and the unpaid interest thereon may be
converted, at UBA's discretion, into shares of the Company's unregistered Common
Stock at a conversion rate of $1.50 per share. As of December 31, 2003, the
outstanding principal and interest on the notes totaled approximately
$1,921,500, and was convertible into 1,281,017 shares of the Company's Common
Stock. In the event the convertible notes are deemed to be securities, the
Company's Management believes that the issuance of the notes to UBA was exempt
from registration pursuant to Section 4(2) of the Act because UBA, the sole
offeree and recipient of the Notes, has significant business experience,
financial sophistication, and knowledge of and familiarity with the business of
the Company. Management believes that if the notes are converted into the
Company's Common Stock, the issuance of such shares will also be exempt from
registration pursuant to Section 4(2) of the Act.

ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

       The following discussion and analysis should be read in conjunction with
the Financial Statements and the Notes thereto and other financial information
included elsewhere in this Report. The discussion of results and trends does not
necessarily imply that these results and trends will continue. With respect to
certain forward-looking statements contained in the following discussion, please
refer to the paragraph captioned "Forward Looking Statements" set forth
immediately prior to Part I of this Annual Report, above.

CRITICAL ACCOUNTING POLICIES

       In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.

                                      -20-
<PAGE>

Actual results could differ significantly from those estimates under different
assumptions and conditions. The Company believes that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of the Company's financial condition and
results. The Company constantly re-evaluates these significant factors and makes
adjustments where facts and circumstances dictate. Historically, actual results
have not significantly deviated from those determined using the necessary
estimates inherent in the preparation of financial statements. Estimates and
assumptions include, but are not limited to, customer receivables, inventories,
assets held for sale, fixed asset lives, contingencies and litigation. The
Company has also chosen certain accounting policies when options were available,
including:

       o      The first-in, first-out (FIFO) method to value a majority of our
              inventories;

       o      The intrinsic value method, or APB Opinion No. 25, to account for
              our common stock incentive awards;

       o      A full valuation allowance of deferred tax assets for net
              operating loss carryforwards that are expected to expire prior to
              utilization;

       o      The carrying value of certain plant and equipment in not impaired
              under FASB 144 based on expected future cash flows from
              operations; and

       o      The decision by the Company not to accrue any amounts in
              connection with the litigation involving GGD, based on the
              Company's belief that it will prevail in the litigation.

These accounting policies are applied consistently for all years presented. Our
operating results would be affected if other alternatives were used. Information
about the impact on our operating results is included in the footnotes to our
consolidated financial statements.

OVERVIEW

       The Company reported a net profit for the year 2003 - its first yearly
net profit since 1995 -- primarily as a result of increased beverage sales in
the United Kingdom; advantageous exchange-rate fluctuations; increased contract
brewing sales at the Company's Releta facility in Saratoga Springs, New York;
and a reduced provision for income taxes. The Company's sales gains were
partially offset by significantly higher costs of goods sold, as well as by
slightly lower sales in Canada and Continental Europe.

       The Company's brewing operation's sales in the United States during 2003
increased to 60,871 bbl., an increase of 2,255 bbl., or 3.85%, over the 58,616
bbl. sold in 2002. Sales out of the Ukiah facility during 2003 amounted to
47,315 barrels and the sales out of the Saratoga Springs facility amounted to
13,556 barrels. This compares to 47,440 barrels out of Ukiah and 11,176 barrels
out of the Saratoga Springs facility in 2002.

                                      -21-
<PAGE>

       The Company sold 61,040 bbl. in its European Territory during 2003, an
increase of 3,968 bbl. or 6.9%, as compared to 57,072 bbl. sold during 2002.
This increase was confined largely to the United Kingdom, however, where sales
improved to 55,425 bbl. an increase of 7.8% as compared to sales of 51,426 bbl.
during 2002. Sales to continental Europe and Canada actually decreased to 5,614
bbl. or 0.5% during 2003, as compared to sales of 5,645 during 2002.

       Total sales during 2003 were approximately $28,864,000, an increase of
approximately $2,779,000, or 10.58%, over sales of approximately $26,085,000 in
2002. Net sales, after deducting excise taxes, were approximately $28,190,000
for 2003, an increase of approximately $ 2,756,000, or 10.85%, over net sales of
25,434,000 in 2002. The Company ended 2003 with a net income of approximately
$47,000, an improvement of approximately $1,777,000 as compared with a net loss
of approximately $1,730,000 for 2002. As discussed more fully under "Results of
Operations," below, the amount of net income recorded for 2003 was also
significantly affected by increases in the Company's cost of goods sold and
operating expenses, as well as by decreases in its provision for income taxes
and other expenses.

       During the second quarter of 2003, the Company launched Red Tail Ale in a
commemorative 22 oz. bottle, and started brewing products of Monterey County
Ales, Inc. at its breweries located in Ukiah and Saratoga Springs. `Raptor Red
Lager', a new craft lager beer sold in the West Coast market, was introduced
during the third quarter of the year. In October of 2003, the Company closed the
restaurant located at the Hopland tavern property, because the space available
for renewal at the end of the term of the current lease is limited, and the
restaurant has traditionally done less business during the winter months.
However, the Company continues to operate the bar and merchandise store at that
location.

Segment Information

       Prior to 2001, the Company's business operations were exclusively located
in the United States, where it was divided into two segments, manufacturing and
distribution of beer, which accounted for the majority of the Company's gross
sales, and retail sales (primarily at the Company's Hopland, California, tavern
and merchandise store) which generally accounted for less than 5% of gross sales
(by revenue). With the Company's acquisition of UBI and UBSN in August 2001,
however, the Company gained a new business segment, distribution of beer outside
the United States, primarily in the U.K. and Ireland, continental Europe, and
Canada (the "European Territory"). This segment accounted for 58% of the
Company's gross sales during 2003 (as compared to 55% in 2002), with the
Company's United States operations, including manufacturing and distribution of
beer as well as retail sales (the "Domestic Territory") accounting for the
remaining 42%. With expanded wholesale

                                      -22-
<PAGE>

distribution of beer and closure of restaurant at Hopland, Management expects
that retail sales, as a percentage of total sales, will decrease proportionally
to the expected increase in the Company's wholesale sales.

RESULTS OF OPERATIONS

       The following tables set forth, as a percentage of net sales, certain
items included in the Company's Statements of Operations. See the accompanying
Financial Statements and Notes thereto.

<TABLE>
<CAPTION>

                                                          ---------------------------------
                                                               YEAR ENDED DECEMBER 31
                                                          ---------------------------------
                                                              2003                2002
     STATEMENTS OF OPERATIONS DATA:                             %                   %
                                                               ---                 ---
<S>                                                           <C>                 <C>
     Sales                                                    102.39              102.56
     Less Excise taxes                                          2.39                2.56
                                                             -------             -------
     NET SALES                                                100.00              100.00
     Cost of Goods Sold                                        67.92               66.42
                                                             -------             -------
     GROSS PROFIT                                              32.08               33.58
                                                             -------             -------
     Retail Operating Expenses                                  1.14                1.32
     Marketing Expense                                         15.69               16.69
     General and Administrative Expenses                       11.78               10.74
                                                             -------             -------
     Total Operating Expenses                                  28.61               28.75
                                                             -------             -------
     INCOME FROM OPERATIONS                                     3.47                4.83
     Other (Income)                                            (0.58)              (0.75)
     Interest Expense                                           2.94                3.64
                                                             -------             -------
     Income before income taxes                                 1.11                1.94
     Provision for income taxes                                 0.94                8.74
                                                             -------             -------
     NET INCOME (LOSS)                                          0.17%              (6.80%)
                                                             =======             =======
</TABLE>


                                      -23-
<PAGE>

<TABLE>
<CAPTION>

                                                        ------------------------------------
                                                               YEAR ENDED DECEMBER 31
                                                        -------------------------------------
                                                              2003                2002
     BALANCE SHEET DATA:                                        $                  $
                                                                -                  -
<S>                                                      <C>                  <C>
     Cash and Cash Equivalents                               554,300              146,800
     Working Capital                                     (1,795,600)          (4,509,700)
     Property and Equipment                               13,874,800           14,159,400
     Deposits and Other Assets                               188,600               73,600
     Total Assets                                         23,471,700           22,289,600
     Long-term Debt                                        3,730,200            3,290,200
     Obligation Under Capital Lease                          204,100              193,900
     Total Liabilities                                    16,965,100           15,943,200
     Accumulated Deficit                                 (8,447,600)          (8,494,500)
     Shareholder's equity                                  6,506,600            6,346,400
</TABLE>

NET SALES

       As used herein, the term "net sales" refers to gross sales less excise
taxes. Other expenses, such as cost of goods sold, are not deducted from gross
sales to determine net sales. Overall net sales for 2003 were $28,190,300, an
increase of $2,756,800, or 10.8%, as compared to $25,433,500 in 2002. Sales
volume and (in the European Territory) price increases contributed to the
increase in sales.

       DOMESTIC OPERATIONS: Net U.S. sales were $11,341,500 in 2003, compared to
$11,017,900 for 2002, representing an increase of 2.9%. Sales volume for the
year increased by 2,255 barrels, to 60,871 barrels an increase of 3.84% as
compared to 58,616 barrels in 2002 The growth reflects increases in the sale of
the Company's brands (other than Kingfisher) by 1,307 bbl., contract brands by
857 bbl, and by 91 bbl. of Kingfisher Lager. The increase in overall net sales
during 2003 was achieved mainly by higher wholesale shipments, which represented
an increase of $409,700 over the wholesale shipments during 2002. Retail sales
for the year decreased by $86,100, to $425,300, a decrease of 16.84% when
compared to retail sales of $511,400 during 2002.

       EUROPEAN TERRITORY: Net sales in the Company's European Territory were
$16,848,800 ((pound)10,310,700) in 2003, compared to $14,415,600
((pound)9,594,400) during 2002. Because of exchange rate fluctuations, when the
net sales results are compared in dollars they amount to an increase of 16.88%,
as compared to 2002, while when measured in Pounds Sterling, the increase is
only 7.47%. During 2003, the Company sold 61,040 barrels in its European
Territory, an increase of 3,968 barrels, or 6.9%, as compared to 57,072 barrels
during 2002. The Company increased its selling prices in all its European
Territory markets by approximately 2.5% in March 2003, and about 1.7% of the
increase in net sales is attributable to those price hikes.

                                      -24-
<PAGE>

COST OF GOODS SOLD:

       Overall cost of goods sold during 2003 was $19,145,500, as compared to
$16,892,800 during 2002, an increase of $2,252,700, or 13.34%. As a percentage
of net sales, costs of goods sold was 67.9% in 2003, as compared to 66.4% during
2002. (The foregoing amounts are calculated in US dollars, and do not take into
account the effect of exchange rate fluctuations on the actual costs of goods
sold in the Company's European Territory.)

       DOMESTIC OPERATIONS: Cost of goods sold as a percentage of net sales in
the United States during 2003 was 70.3%, as compared to 67.1% during the year
2002, representing an increase of 3.2%. During 2003, there were increases in the
price of packaging material (mainly bottles), rent, and insurance costs. The
Company relies heavily on natural gas to operate its brewing operations, and
electricity to operate its bottling and refrigeration units. Any significant
increase in the use or charges of these utilities could significantly impact
operations.

       EUROPEAN TERRITORY: Cost of goods sold in 2003 was $11,249,900
((pound)6,884,500), as compared to similar costs of $9,470,700
((pound)6,303,300) in 2002. As a percentage of net sales, cost of goods sold in
the United Kingdom during 2003 was 66.8%, as compared to 65.9% during 2002 (in
each case as calculated in U.S. dollars, after taking into account the effects
of exchange rate fluctuations). The increase was mainly due to exchange rate
fluctuations and price increase by Shepherd Neame.

GROSS PROFIT

       As a result of the higher sales volumes, price increases, and exchange
rate fluctuations described above, gross profit for 2003 (expressed in dollars)
grew to approximately $9,044,800, an increase of approximately $504,100, or
5.9%, as compared to gross profit of $8,540,700 achieved in 2002. As a
percentage of net sales, however, the Company's overall gross profit during the
year 2003 decreased to 32.1%, as compared to 33.6% for 2002, largely as a result
of increases in costs of goods sold and excise taxes.

OPERATING EXPENSES

       Operating expenses for the year 2003 were $8,067,300, an increase of
$755,300, or 10.3%, as compared to $7,312,000 for 2002. Operating expenses
consist of marketing and distribution expenses, general and administrative
expenses, and retail operating expenses.

       MARKETING AND DISTRIBUTION EXPENSES: The Company's marketing and
distribution expenses consist of salesmen's salaries and commissions,
advertising costs, product and sales promotion costs, travel expenses, and
related costs. For 2003, such expenses were $4,423,900, an increase of

                                      -25-
<PAGE>

$179,500, or 4.2%, as compared to $4,244,400 in 2002. As a percentage of net
sales, the Company's marketing and distribution expenses decreased to 15.7% in
2003, as compared to 16.7% in 2002.

       DOMESTIC OPERATIONS: Domestic marketing and distribution expenses in 2003
were $1,339,700, a decrease of $42,600, or 3.09%, as compared to the $1,382,300
incurred during 2002. These expenses were equal to only 11.8% of U.S. net sales
during the year 2003, as compared to 12.6% during 2002. This decrease is
primarily due to a reduction in the Company's U.S. sales staff, which resulted
in lower compensation, travel, entertainment and sampling expenses. Partially
offsetting these reductions were increases in the Company's sales promotion
expenses, including media advertising costs and point of sales materials.

       EUROPEAN TERRITORY: Marketing and distribution expenses in the European
Territory during 2003 were $3,084,200, an increase of $222,100, or 7.76%, as
compared to $2,862,100 during 2002. As a percentage of net sales in the United
Kingdom, such expenses decreased to 18.31% during 2003, as compared to 19.85%
during 2002 (in each case as calculated in U.S. dollars, after taking into
account the effects of the exchange rate calculation). The increase was due
primarily to increased promotional activities, including marketing and sales
promotion expenses, which increased by $190,000, to $932,000 in 2003 as compared
to $742,000 in 2002; higher personnel costs; personnel costs and sales
commissions due to increased sales in supermarkets and convenient stores;
increased distribution and promotional expenses relating to Sun Lik beer; and
increases in the costs of repair and replacement of beer dispensing equipment
installed in bars by the Company. These increases were partially offset by
decreases in freight costs due to a reduction in export sales, and other
miscellaneous distribution expenses.

       GENERAL AND ADMINISTRATIVE EXPENSES: The Company's general and
administrative expenses were $3,320,000 for 2003, representing an increase of
$587,700, or 21.5%, over $2,732,300 for 2002. These expenses were equal to 11.8%
of net sales for 2003, as compared to 10.7% of net sales for 2002.

       DOMESTIC OPERATIONS. Domestic general and administrative expenses were
$1,833,600 for 2003, representing an increase of $189,400, or 11.5%, over
$1,644,200 for 2002. The increase was primarily due to $289,800 in increased
legal and professional expenses caused by negotiation of a collective bargaining
agreement at the Company's Ukiah, California, facility, and a legal dispute with
a distributor. This increase was partly offset by decreases in bad debt, rent,
certain lease fees and bank charges, investor related expenses, and travel
expenses.

       EUROPEAN TERRITORY. General and administrative expenses related to the
European Territory were $1,486,400 for 2003, representing an increase of
$418,300, or 39.2%, as compared to $1,068,100 for 2002. These increases were

                                      -26-
<PAGE>

led by $181,200 in higher personnel costs and $110,000 in increased depreciation
expenses.

       RETAIL OPERATING EXPENSES: Retail operating expenses for 2003 were
$323,400, representing a decrease of $11,900, or 3.5%, from $335,300 in 2002. As
a percentage of net sales, retail operating expenses decreased to 1.1% as
compared to 1.3% for the year 2002. The decrease in retail operating expenses
consisted mainly of decreases in labor expenses as a result of reduced hours of
operation of the tavern and closure of the associated restaurant.

OTHER EXPENSES

       Other expenses totaled $665,900 in 2003, representing a decrease of
$69,500, or 9.5%, when compared to $735,400 in 2002. The decrease was primarily
a result of lower interest expenses and miscellaneous income.

INCOME TAXES

       The Company's provision for income taxes was $264,700 for 2003, a drop of
$1,958,400, or 88.1%, as compared to $2,223,100 for 2002. The provision for
taxes includes $263,400 related to the estimated amount of taxes that will be
imposed by taxing authorities in the United Kingdom.

       As of December 31, 2003, the Company had approximately $9,888,400,
$2,966,700, and $1,496,200 of Federal, California, and New York net operating
losses, respectively, available to carry forward. Of the Federal and New York
net operating losses, approximately $2,079,700 will expire in 2012, and the
remainder will expire through 2023. The State of California has suspended the
ability to use net operating loss carryforwards until 2005. The Company
anticipates that any taxable income in California during this period will be
offset by investment tax credits. The California net operating losses begin to
expire in 2005 and will continue to expire through 2012. The Company also has
$58,000 of California Manufacturers' Investment Tax Credits that can be carried
forward to offset future taxes until they begin to expire in 2007. The Company
has recorded a valuation allowance of $3,117,600 on deferred tax assets for net
operating loss carryforwards that may expire prior to utilization. Management
believes that the Company could still utilize the deferred tax assets in the
ordinary course of business, but due to the significant time period that may
elapse before utilization, Management has decided that a valuation allowance was
necessary. The Company is implementing various strategies to achieve profits
sufficient to utilize these assets.

NET INCOME

       The Company's net income for 2003 was $46,900, an improvement of
$1,775,700 as compared to a net loss of $1,729,800 for the year 2002. After

                                      -27-
<PAGE>

providing for a foreign currency translation adjustment of $113,300 for 2003
($42,500 for 2002), the Company's comprehensive 2003 income was $160,200, as
compared to a loss of $1,687,300 in 2002.

SEASONALITY

       DOMESTIC OPERATIONS: Beer consumption nationwide has historically
increased by approximately 20% during the summer months. It is not clear to what
extent seasonality will affect the Company as it expands its capacity and its
geographic markets.

       EUROPEAN OPERATIONS: Beer consumption in the United Kingdom, Ireland, and
continental Europe has historically increased during the winter months. Although
it is not clear to what extent seasonality and the expansion of its geographic
markets will affect the Company, it is believed that the seasonality difference
between the United States and United Kingdom-European markets will benefit the
Company overall.

CAPITAL DEMANDS

       The Saratoga Springs facility commenced brewing operations in February
1998. Both the Ukiah and Releta facilities have been operating at significantly
less than full capacity during 2003. Both breweries have placed demands upon the
Company's assets and liquidity. Failure to adequately meet those demands may
have a material adverse affect on the Company's business, financial condition,
and results of operations.

       The Company has yet to complete the build-out of its administrative space
and the exterior landscaping of its Ukiah facility, and does not plan to revisit
completion of the project until it has the available funds to do so. If, in the
future, the Company decides to complete the construction and landscaping, the
remaining work and the currently cost thereof are estimated to be as follows:
covering the parking lot with asphalt, approximately $30,000; and building a
concrete sidewalk to one of the entrances of the brewery building, approximately
$10,000.

PROCEEDS FROM OPERATIONS INSUFFICIENT TO SUSTAIN OPERATIONS

       Unused capacity at the Ukiah and Saratoga Springs facilities has placed
severe demands on the Company's working capital. Beginning approximately in the
second quarter of 1997, the time at which the Ukiah brewery commenced
operations, proceeds from operations have not been able to provide sufficient
working capital for day to day operations. To fund its operating deficits, the
Company has relied upon lines of credit and other credit facilities, including
loans from Company affiliates and loans and lines of credit from banks and other
third party lenders (see "Liquidity and Capital Resources," below).

                                      -28-
<PAGE>

       Even though the Company's overall operations have resulted in net profit
during the year 2003, continuing losses in its United States operations and the
maturing of certain of its debts in April and June of 2004 could have a serious
adverse effect on the Company's operations. The Company does not currently have
sufficient funds available to repay these currently maturing loans (which are
secured by substantially all of MBC's assets) as they become due. The Company
has successfully negotiated refinancing arrangements in the past, and is
currently in discussion with potential new lenders to refinance the maturing
debts. In the event that refinancing negotiations are not successful, one of the
Company's principal shareholders has committed to provide financial assistance
in order to avoid default under the currently maturing loans when they become
due, although the terms of such financial assistance have not yet been agreed
upon (see "Liquidity and Capital Resources," below). Despite this commitment,
however, Management does not anticipate that renewing or replacing the existing
loans would in itself correct its ongoing operating deficits.

LIQUIDITY AND CAPITAL RESOURCES

       The Company has entered into a substantial number of loans, lines of
credit, other credit facilities, and lease agreements over the last several
years, with the result that a substantial majority of its assets are encumbered
and it is carrying a relatively large debt burden. In order to continue its
operations, the Company will have to make timely payments of its debt and lease
commitments as they fall due. Any breach of a loan or lease which actually leads
to default, or to an attempt by a creditor to exercise its rights in the
Company's tangible or intangible assets, could potentially make it impossible,
at least in the short term, for the Company to continue its operations.

       In particular, MBC's line of credit from CIT Group and its temporary loan
from Savings Bank of Mendocino (both of which are more fully described below
under "Other Loans and Credit Facilities") are scheduled to fall due on April 30
and June 23, 2004, respectively. A failure to replace, renegotiate, or extend
either of these agreements would have a significant adverse impact on the
Company's liquidity and operations. Although Management has been able to do so
in the past, there can be no assurance that the Company will have access to the
same or equivalent sources of funds in the future, either on a comparable basis
or on any other terms acceptable to the Company.

       On April 4, 2004, MBC received a commitment from United Breweries of
America, Inc. ("UBA"), one of its major shareholders, to the effect that UBA
would provide MBC with such financial assistance as may be in UBA's power to
prevent or avoid any default under either the CIT Group line of credit or the
temporary loan from Savings Bank of Mendocino County when they become due. The
terms of any such assistance have not yet been determined, however.

       MASTER LINE OF CREDIT. On August 31, 1999, MBC and United Breweries of
America, Inc. ("UBA"), one of the Company's principal shareholders, entered into
a Master Line of Credit Agreement, which was subsequently amended in April 2000
and February 2001 (the "Credit Agreement"). The terms of the Credit Agreement
provide the Company with a line of credit in the principal amount of up to
$1,600,000. The Company and UBA executed an Extension of Term of Notes under
Master Line of Credit Agreement in February 2002, which was later amended in
August 2002, and again in March and August 2003 (the "Extension Agreement"). The
Extension Agreement confirms the Company's and UBA's extension of the terms of
the UBA Notes for a period ending on August 14, 2004. On December 28, 2001, the
Company and UBA entered into a Confirmation of Waiver which confirms that as of
August 13, 2001, UBA waived its rights with regard to all conversion rate
protection as set forth in the UBA Notes.

       As of the date of this filing, UBA has made thirteen (13) separate
advances to the Company under the Credit Agreement, pursuant to a series of
individual eighteen (18) month promissory notes issued by the Company to UBA
(the "UBA Notes"). The aggregate outstanding principal amount of the UBA Notes
as of

                                      -29-
<PAGE>

February 27, 2003, was $1,515,371, and the accrued but unpaid interest thereon
was equal to approximately $406,155. These amounts reflect an increase of
approximately $85,200 in the interest currently due on the UBA Notes, as
compared to December 31, 2002.

       The UBA Notes require the Company to make quarterly interest payments to
UBA on the first day of April, July, October, and January. To date, UBA has
permitted the Company to capitalize all accrued interest; therefore, the Company
has borrowed the maximum amount available under the facility. Upon maturity of
any UBA Note, unless UBA has given the Company prior instructions to commence
repayment of the outstanding principal balance, the outstanding principal and
accrued but unpaid interest on such Note may be converted, at the option of UBA,
into shares of the Company's common stock. If UBA does not elect to so convert
any UBA Note upon maturity, it has the option to extend the term of such UBA
Note for any period of time mutually agreed upon by UBA and the Company. During
the extended term of any UBA Note, UBA has the right to require the Company to
repay the outstanding principal balance, along with the accrued and unpaid
interest thereon, to UBA within sixty (60) days.

       The outstanding principal amount of the Notes and the unpaid interest
thereon may be converted, at UBA's discretion, into shares of the Company's
unregistered Common Stock at a conversion rate of $1.50 per share. As of
December 31, 2003, the outstanding principal and interest on the notes was
convertible into 1,281,017 shares of the Company's Common Stock. On December 28,
2001, the Company and UBA entered into a Confirmation of Waiver which provides a
written confirmation that as of August 13, 2001, UBA waived its rights with
regard to all conversion rate protection as set forth in the UBA Notes.

       (For further information about the Credit Agreement please refer to "PART
III, Item 12 - Certain Relationships and Related Transactions -Master Line of
Credit Agreement," below.)

       LONG TERM DEBT: MBC has obtained a $2.7 million loan from Savings Bank of
Mendocino County ("SBMC"), secured by a first priority deed of trust on the
Ukiah land, fixtures, and improvements. The loan is payable in partially
amortizing monthly installments of $24,443 including interest at the rate of
7.24%, maturing December 2012 with a balloon payment in the amount of $932,600.
The interest rate is adjusted on every five year anniversary of the agreement to
the Treasury Constant Maturity Rate plus 4.17%. The amount of the balloon
payment will vary depending on the change in interest rates over the years. In
addition to the Ukiah land and facility, this loan is secured by some of the
other assets of the Company (other than the Releta facility), including, without
limitation, most of the Company's equipment.

                                      -30-
<PAGE>

       EQUIPMENT LEASE: From 1996 until 2003, Finova Capital Corporation
("Finova") leased new brewing equipment with an original total cost of
approximately $1.78 million to MBC, with monthly rental payments of
approximately $27,100 each. During 2003, the Company exercised its option to
purchase the equipment at a cost of approximately $576,200.

OTHER LOANS AND CREDIT FACILITIES.

       CIT GROUP/CREDIT FINANCE LINE OF CREDIT: The CIT Group/Credit Finance,
Inc. has provided MBC a $3,000,000 maximum line of credit with an advance rate
of 80% of the qualified accounts receivable and 60% of the inventory at an
interest rate of the prime rate of Chase Manhattan Bank of New York plus 2.25%
payable monthly, originally scheduled to mature on September 23, 2002. The line
of credit is secured by all accounts, general intangibles, inventory, and
equipment of MBC except for the specific equipment and fixtures of the Company
leased from Finova Capital Corporation, as well as by a second deed of trust on
the Company's Ukiah land improvements. $1,484,000 of the line of credit was
advanced to MBC as an initial term loan, which was repayable in sixty
consecutive monthly installments of principal, each in the amount of $24,700.

       On January 17, 2003, the term of this facility was extended to November
30, 2003. At the same time, the maximum credit available was increased to
$3,500,000, and MBC was provided a term loan of $750,000 consisting of the
original balance of $346,300 and a new term loan of $403,700 repayable in 30
equal consecutive monthly installments of $24,700, commencing February 1, 2003,
with a final payment of $8,000. CIT Group amended the facility on December 1,
2003, January 30, 2004 and February 27, 2004 and extended the term of the
facility to expire on April 30, 2004 in order to allow MBC time to refinance.
Based on MBC's current level of accounts receivable and inventory, MBC has drawn
the maximum amount permitted under the line of credit. As of December 31, 2003,
the total amount outstanding on the line of credit was approximately $1,674,000.
Management believes that it will be successful in refinancing this agreement,
but failure to do so would have a significant impact on the Company's liquidity
and operations.

       SAVINGS BANK OF MENDOCINO TEMPORARY LOAN: On December 31, 2003, Savings
Bank of Mendocino County ("SBMC") extended a temporary loan in the principal
amount of $576,200 to MBC in order to finance a buy-out of equipment leased
through Finova Capital Corporation. This loan, which is due for repayment on
June 23, 2004, is secured by the existing assets of the Company and the assets
released by Finova on lease termination. The rate of interest on the loan is 7%.
Management believes that it will be successful in refinancing this agreement,
but failure to do so would have a significant impact on the Company's liquidity
and operations.

                                      -31-
<PAGE>

       NEDBANK BANK LIMITED OPTION FACILITY: Nedbank Limited (formerly Necor
Bank Limited), a South African registered company, has provided UBSN with a
multi-currency option facility of 1,250,000 Pounds Sterling. This overdraft
facility is secured by all of the assets of UBSN. The amount outstanding on this
line of credit as of December 31, 2003 was approximately $765,600.

       SHEPHERD NEAME LOAN: Shepherd Neame has a contract with UBSN to brew
Kingfisher Lager for the Company's European and Canadian markets. As
consideration for extending the brewing contract, Shepherd Neame advanced a loan
of (pound)600,000 (Pounds Sterling) to UBSN, repayable in annual installments of
(pound)60,000 (Pounds Sterling) per year, commencing in June 2003. The loan
carries a fixed interest rate of 5% per year. (For more information about this
loan please see "PART III -- Certain Relationships and Related Transactions --
Loan Agreement Between UBSN and Shepherd Neame," below.)

       WEIGHTED AVERAGE INTEREST: The weighted average interest rates paid on
the Company's U.S. debts (including the long term capital lease of equipment by
Finova Capital Corporation Inc.) was 7.38% for the year 2003 and 8.19% for the
year 2002. For loans primarily associated with Company's European territory, the
weighted average rate paid was 6.42% in 2003 and 6.94% in 2002. Overall the
weigted average rates were 7.26% for 2003 and 8.03% for 2002.

       KEG MANAGEMENT ARRANGEMENT: The Company entered into a keg management
agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar
provides the Company with half-barrel kegs for which the Company pays a filling
and use fee. Distributors return the kegs to MicroStar instead of the Company.
MicroStar then supplies the Company with additional kegs. The agreement has been
extended on a monthly basis since September 2002. The Company is currently
negotiating a new contract. If, on any given month, the agreement is not
extended and terminates, the Company is required to purchase a certain number of
kegs from MicroStar. The Company would probably finance the purchase through
debt or lease financing, if available. However, there can be no assurance that
the Company will be able to finance the purchase of kegs. Failure to extend the
contract or failure to purchase the necessary kegs from MicroStar on termination
of contract is likely to have a material adverse effect on the Company.

       CURRENT RATIO: The Company's ratio of current assets to current
liabilities on December 31, 2003 was 0.84 to 1.0 and its ratio of total assets
to total liabilities was 1.4 to 1.0. On December 31, 2002, the Company's ratio
of current assets to current liabilities was 0.64 to 1.0 and its ratio of total
assets to total liabilities was 1.4 to 1.0.

       OVERDUE PROPERTY TAXES: As of June 30, 2003, the delinquent property
taxes due on the Company's Ukiah property, including penalties and interest,
totaled $710,600, representing overdue taxes for the period from April 1999 to

                                      -32-
<PAGE>

June 2003. On July 31, 2003, the Company entered into a payment plan to settle
these issues, pursuant to which it made an initial payment to the County of
$143,000. The balance of the overdue taxes will be paid in four annual
installments, due on or before April 10, 2005, 2006, 2007, and 2008, each
representing 20% or more of the original overdue balance, along with accrued
interest calculated at 18% per year. Because of the large amount of taxes owed,
and the County's ability to sell the Ukiah property to satisfy a delinquency,
failure to settle these tax issues (including payments due under the payment
plan) could have, or have had, a serious adverse effect on the Company's
business and financial condition.

       RESTRICTED NET ASSETS. The Company's wholly-owned subsidiary, UBI, has
undistributed earnings of approximately $2,238,000. Under UBI's line of credit
agreement, distributions and other payments to the Company from its subsidiary
are limited to approximately $200,000 per year.

       RELATED PARTY TRANSACTIONS: In the last several years, MBC and its
subsidiaries have entered into or amended several agreements with affiliated and
related entities. Among these have been a Brewing Agreement and a Loan Agreement
between UBSN and Shepherd Neame; a Market Development Agreement, a Distribution
Agreement, and a Brewing License Agreement between MBC and UBSN; a Distribution
Agreement between UBI and UBSN; a Trademark Licensing Agreement between MBC and
Kingfisher of America, Inc.; and a License Agreement between UBI and UB Limited.
(For more information on all of these agreements please see "PART III - Item 12
-- Certain Relationships and Related Transactions," below.)

ITEM 7.      FINANCIAL STATEMENTS.

       The information required by this item is set forth at Pages F-1 through
F-16 to this Annual Report.

ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE.

         None.

ITEM 8A.     CONTROLS AND PROCEDURES.

       The Company's Management including the Chief Executive Officer, President
and Chief Financial Officer, have evaluated, within 90 days prior to the filing
of this annual report, the effectiveness of the design, maintenance, and
operation of the Company's disclosure controls and procedures. Management
determined that the Company's disclosure controls and procedures were effective
in ensuring that information required to be disclosed by the Company in the
reports that it files under the Exchange Act is accurate and is recorded,

                                      -33-
<PAGE>

processed, summarized, and reported within the time periods specified in the
Commission's rules and forms.

       Disclosure controls and procedures, no matter how well designed and
implemented, can provide only reasonable assurance of achieving an entity's
disclosure objectives. The likelihood of achieving such objectives is affected
by limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision making can be faulty and that breakdowns in
internal controls can occur because of human failures such as simple errors or
mistakes or intentional circumvention of the established process.

       There have been no significant changes in internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation thereof, including any corrective actions with regard to
significant deficiencies and material weaknesses.

                                    PART III

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

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

       The following table sets forth the names, ages as of February 28, 2004 ,
and certain information regarding each of the Company's current Directors and
executive officers:

<TABLE>
<CAPTION>

                                                                                        Director
Name                             Age     Position                                         Since
----                             ---     --------                                         -----

<S>                              <C>    <C>                                                <C>
H. Michael Laybourn              65      Director                                          1993
Vijay Mallya, Ph.D.              49      Director, Chairman of the Board, and Chief        1997
                                         Executive Officer
Jerome G. Merchant*+             42      Director                                          1997
Mahadevan Narayanan              46      Chief Financial Officer and Secretary              ---
R.H.B. (Bobby) Neame             70      Director                                          1998
Sury Rao Palamand, Ph.D.*+       73      Director                                          1998
Kent D. Price*+                  60      Director                                          1998
Yashpal Singh                    58      Director and President                            1997
David R. Townshend               57      Director                                          2001
</TABLE>

---------------
   *     Member of the Audit/Finance Committee.
   +     Member of the Compensation Committee.

                                      -34-
<PAGE>

       H. Michael Laybourn, co-founder of the Company, served as the Company's
President from its inception in 1982 through December, 1999, and as its Chief
Executive Officer from inception through October 1997. Mr. Laybourn was elected
a Director in November 1993 when the Company began the process of converting
from a limited partnership to a corporation and served as Chairman of the Board
from June 1994 through October 1997. Mr. Laybourn is a former Vice President of
the California Small Brewers Association and a former Chairman of the Board of
Directors of the Brewers Association of America. Mr. Laybourn holds a Bachelor
of Fine Arts degree from Arizona State University.

       Vijay Mallya, Ph.D., became Chairman of the Board and Chief Executive
Officer of the Company in October 1997. Dr. Mallya is Chairman of UBICS, Inc.,
United Breweries Limited, UB Engineering Limited, Mangalore Chemicals and
Fertilizers Ltd., Herbertsons Limited, McDowell & Co. Ltd., and other affiliated
companies (collectively the "UB Group"). (See "Security Ownership of Certain
Beneficial Owners and Management," below.) United Breweries Limited and McDowell
& Co., Ltd. are two of Asia's leading beer and spirits companies. The UB Group
has annual sales in excess of (US) $1 Billion. He also sits on boards of several
foreign companies and organizations including companies comprising the UB Group,
The Institute of Economic Studies (India), and the Federation of the Indian
Chamber of Commerce and Industries. Dr. Mallya was recently elected to serve as
a member of the Upper House of the Indian Parliament. Dr. Mallya holds a
Bachelor of Commerce degree from the University of Calcutta in India and an
honorary Doctorate in Business Administration from the University of California,
Irvine.

       Jerome G. Merchant became a Director in October 1997 and was Chief
Financial Officer of the Company from November 1997 to October, 1998. Mr.
Merchant currently serves as the Strategic Planning Consultant to the Chairman's
Office of the Company and has served in such capacity since July 1996. Between
April 1993 and December 2003, Mr. Merchant served in various capacities for Cal
Fed Investments, a wholly owned subsidiary of Cal Fed Bank. His responsibilities
included due diligence review and monitoring of investment products for Cal Fed
Investments. As a result of the acquisition of Cal Fed Bank by Citigroup, since
January 2003 Mr. Merchant has been serving as a Vice President and Regional
Sales Director for Citigroup. Mr. Merchant received his Bachelor of Science
degree in Managerial Economics-Finance from the University of California, Davis.

       Mahadevan Narayanan joined the company in early 2001 as Secretary,
Corporate Controller and Chief Financial Officer. Before joining the Company, he
served the United Breweries Group in India for the prior 17 years in various
financial and accounting capacities. Mr. Mahadevan was most recently

                                      -35-
<PAGE>

employed as Senior Manager of Accounting Services of Herbertsons Ltd. for the
past six years. He holds a Bachelor of Science degree in Mathematics from
Madurai Kamaraj University in India and is an associate member of the Institute
of Chartered Accountants of India.

       R.H.B. (Bobby) Neame became a Director in January 1998. Mr. Neame has
served as the Chairman of Shepherd Neame Ltd. for more than thirty years.
Shepherd Neame Ltd. has operated as a brewery in England for 300 years, making
it England's oldest continuously operating brewery.

       Sury Rao Palamand, Ph.D., became a Director in January 1998. Dr. Palamand
is the president of Summit Products, Inc., a beverage development firm serving
the beverage industry; Chairman of the Southend Management, LLC which owns and
operates a chain of restaurant breweries in the States of North Carolina, South
Carolina, and Florida; and President of the Historic Lemp Brewery, LLC, which
develops micro breweries and restaurants. From 1966 to 1989, Dr. Palamand served
as Director, Beer and New Beverage Development for Anheuser-Busch Companies,
Inc. Dr. Palamand holds a Master of Science in Chemistry from the University of
Bombay, India and a Master of Science and Doctorate in Food and Flavor
Technology from the Ohio State University, Columbus Ohio, USA.

       Kent D. Price became a Director in January 1998. He is currently the
President and CEO of Robert Kent and Company, an investment and consulting
company. Additionally, he is currently the Chairman of Fluid, Inc., President of
Parker Price Venture Capital, and a Director of Capital Markets Company. From
August 1994 until July 1998, he was employed by IBM Banking, Finance and
Securities Industries as General Manager of Securities and Capital Markets. From
1993 through August 1994, he served as Chairman and Chief Executive Officer of
the Bank of San Francisco. He currently serves as a Director of The San
Francisco Company, which is the holding company for the Bank of San Francisco.
He also sits on the board of the American Bridge Company. Mr. Price received a
Bachelor of Arts in history and politics and a Master of Arts in Slavic studies
from the University of Montana and attended Oxford University as a Rhodes
Scholar.

       Yashpal Singh, President of the Company since January 2000, became a
Director in October 1997 and has served as its Executive Vice President and
Chief operating Officer since May 1998. From May 1997 to March 1998, Mr. Singh
served as Executive Vice-President- Operations for UBA, an affiliate of the
Company (see "Security Ownership of Certain Beneficial Owners and Management,"
below). In that capacity, he was responsible for UBA's United States brewing
operations. Between 1992 and 1997, Mr. Singh also served as Senior Vice
President-Operations for United Breweries Ltd., an Indian Corporation, where he
was responsible for the operations of 12 breweries, instituting new projects,
and technical and operational evaluation of potential

                                      -36-
<PAGE>

acquisition opportunities worldwide. Mr. Singh has over 38 years of experience
in the brewing industry. Mr. Singh holds a Bachelors degree in Science from
Punjab University in India, and has graduate training in the fields of Brewing,
Malting, and Mineral Water Technology. Mr. Singh is an associate member of the
Institute of Brewing, London; a member of the Master Brewers Association of
America; and was a former executive member of the Managing Committee of the All
India Brewer's Association.

       David Townshend became a Director in 2001. He is also a Director of UBSN,
and has been the General Manager of UBSN since 1990. Mr. Townshend's
responsibilities encompass all aspects of UBSN's operations. Prior to his
promotion to General Manager of UBSN, Mr. Townshend served as Transport Manager
for Shepherd Neame Limited, where his responsibilities included distribution and
customer services. Mr. Townshend remains an employee of Shepherd Neame, which
pays his compensation directly to him, although UBSN's agreements with Shepherd
Neame provide for reimbursement of all or part of his salary and related
expenses.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

       Based solely on its review of the Forms 4 and 5 furnished to the Company
during and with respect to the year 2003, the Company is not aware of any person
that was a Director, officer, or greater than 10% beneficial owner of the
Company that failed to file on a timely basis reports required by Section 16(a)
of the Exchange Act during the most recent fiscal year.

AUDIT COMMITTEE FINANCIAL EXPERT

       The Company's Board of Directors believes that at least one member of the
Company's Audit Committee - Mr. Kent D. Price - is both an independent Director
and qualifies as an "audit committee financial expert" as that term is defined
in the regulations of the Securities and Exchange Commission.

CODE OF ETHICS

       The Company has adopted a Code of Ethics that applies to its Chief
Executive Officer, Chief Financial Officer, and principal accounting officer.
The Code of Ethics is posted on the Company's Internet website at
www.mendobrew.com. Any person desiring a free copy of the Code of Ethics should
send a written request to the Company's Secretary, N. Mahadevan at the Company's
principal executive offices located at 1601 Airport Road, Ukiah, CA 95482.





                                      -37-
<PAGE>

ITEM 10.     EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

       The following table sets forth the annual compensation, including salary,
bonuses, and certain other compensation, paid by the Company to its Chief
Executive Officer and most highly-compensated executive officers and employees
during each of the fiscal years ended December 31, 2003, 2002 and 2001. None of
the Company's other executive officers received total compensation in excess of
$100,000 in any of those years.

SUMMARY COMPENSATION TABLE









                                      -38-
<PAGE>

<TABLE>
<CAPTION>

                                         ANNUAL COMPENSATION                                          LONG-TERM COMPENSATION
                   -------------------------------------------------------------------------------------------------------------

                                                                                     AWARDS                     PAYOUTS
                                                                         -------------------------------------------------------
                                                                            RESTRICTED    SECURITIES
                                                            OTHER ANNUAL      STOCK       UNDERLYING      LTIP       ALL OTHER
       NAME                      SALARY        BONUS        COMPENSATION     AWARD(S)      OPTIONS/      PAYOUTS   COMPENSATION
   AND PRINCIPAL   YEAR           ($)           ($)             ($)            ($)           SARS          ($)         ($)
     POSITION                                                                                  (#)
--------------------------------------------------------------------------------------------------------------------------------
<S>                <C>          <C>             <C>               <C>
Vijay Mallya,      2003         $158,129*       $0.00             $0.00
Chief Executive
Officer

                   2002         $120,000        $0.00             $0.00

                   2001         $120,000        $0.00             $0.00


Yashpal Singh,     2003         $118,875      $41,887         $13,538**
President

                   2002         $115,500      $37,035         $11,539**

                   2001         $115,965      $33,212          $9,983**


Mark Anderson,     2003          $79,200      $27,091           .$7,847
Sales Manager

                   2002          $79,200      $27,606            $6,421

                   2001          $79,200      $45,297***         $5,502
</TABLE>

       *Includes (pound)23,333 (Pounds Sterling) (approximately $38,129 in U.S.
       Dollars at current exchange rates) paid to Dr. Mallya by UBI during the
       period beginning September 1, 2003, as compensation for promoting the
       Company's products in the European Territory outside the U.K. This
       compensation is expected to equal approximately (pound)70,000 (Pounds
       Sterling) on an annual basis in the future (approximately $129,500 in
       U.S. Dollars at current exchange rates).

       **The value of the executive's medical benefits makes up approximately
       80% of each of these amounts.

       ***Includes 25,000 common shares granted to Mr. Anderson as a stock bonus
       during 2001, valued at $0.688 per share.

COMPENSATION OF DIRECTORS

       In the past, the Company has compensated each non-employee Director for
his attendance at the meetings of the Board of Directors and for his

                                      -39-
<PAGE>

attendance at meetings of committees of the Board of Directors, annually
granting each non-employee Director both (a) that number of shares of the
Company's common stock which had a fair market value of $3,000 for each board
meeting, and $1,000 for each committee meeting he attended during the prior year
and (b) options to purchase that number of shares of the Company's common stock
which had a fair market value of $25,000. In the last two years, however, noting
the drop in the trading or quoted price for the Company's stock to less than
$1.00 per share, the Board of Directors has suspended both the Company's stock
option and stock grant programs. The Compensation Committee is currently
considering a proposal to significantly modify the previous plans, and it is
expected that one or more new plans and guidelines may be adopted later in the
year.

ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
             RELATED STOCKHOLDER MATTERS.

       The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock and Series A
Preferred Stock as of February 27, 2004, for (a) each shareholder known by the
Company to own beneficially 5% or more of the outstanding shares of its Common
Stock or Series A Preferred Stock; (b) each Director; and (c) all Directors and
executive officers of the Company as a group. Except as noted, the Company
believes that the beneficial owners of the Common Stock and Series A Preferred
Stock listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.

<TABLE>
<CAPTION>

                                                              Shares
                                                           Beneficially   Approximate
                            Name                             Owned(1)     Percentage
                            ----                             --------     ----------
<S>                                                       <C>               <C>
      United Breweries of America, Inc.+                  3,087,818(2)      27.4%

      Inversiones Mirabel S.A.                               5,500,000      48.8%
      Hong Kong Bank Building
      6th Floor, Samuel Lewis Avenue
      P O Box 6-4298, El Dorado
      Panama City

      Vijay Mallya, Ph.D.+                                8,587,818(3)      76.2%

      H. Michael Laybourn++                                 354,254(4)       3.1%

</TABLE>

                                      -40-
<PAGE>

<TABLE>
<CAPTION>

<S>                                                            <C>              <C>
      R.H.B. (Bobby) Neame                                     127,810(5)       1.1%
               c/o Shepherd Neame, Ltd.
               17 Court Street.
               Faversham, Kent ME13 3AX
               United Kingdom

      Kent Price                                               180,097(5)       1.6%
               c/o Robert Kent and Company
               Wood Island #308
               60 E. Sir Francis Drake Blvd.
               Larkspur, CA 94939

      Sury Rao Palamand, Ph.D.                                 147,500(5)       1.2%
               50 Crestwood Executive Center, Suite 207
               St. Louis, MO 63126

      Jerome G. Merchant+                                      195,964(5)       1.7%

      Yashpal Singh++                                                  --        --

      David Townshend                                                  --        --
               c/o UBSN Limited
               17 Court Street
               Faversham, Kent ME13 3AX
               United Kingdom

      All Directors and executive officers as a group
     (8 persons)                                                9,593,443(6)     82%

      SERIES A PREFERRED STOCK:

      H. Michael Laybourn                                           6,100       2.7%
      All Directors and executive officers as a group
      (8 persons)                                                   6,100       2.7%
      ---------------------
       +      2400, Bridgeway, Suite 290, Sausalito, CA 94965
       ++     1601 Airport Road, Ukiah, CA 95402
</TABLE>

       (1)    Applicable percentages of ownership are based on 11,266,874 shares
              of Common Stock outstanding. Shares of Common Stock subject to a
              contract of purchase or options currently exercisable or
              exercisable within 60 days after the date of this Statement are
              deemed outstanding

                                      -41-
<PAGE>

              for computing the percentage ownership of the person obligated to
              purchase the shares or holding the options, but are not deemed
              outstanding for computing the percentage of any other person.

       (2)    Does not include (i) 1,281,017 shares issuable upon conversion of
              certain convertible notes issued to UBA to terminate an existing
              Master Line of Credit Agreement and convert certain outstanding
              Notes into shares of Common Stock (see "PART III - Item 12,
              Certain Relationships and Related Transactions," below), or (ii)
              882,057 outstanding shares which are held in the aggregate by
              Messrs. Laybourn, Scahill, Franks, and Barkley and which, pursuant
              to a Shareholders' Agreement, are subject to (A) a right of first
              refusal to purchase, held by the Company, which may become
              exercisable within 60 days, and (B) the requirement that the
              owners of record vote such shares for four Directors designated by
              UBA and two additional independent Directors who are acceptable to
              UBA.

       (3)    Includes all shares held by the Company's two largest
              shareholders, United Breweries of America, Inc. ("UBA") and
              Inversiones Mirabel. S.A., a Panamanian corporation
              ("Inversiones"). Dr. Mallya may be deemed to be a beneficial owner
              of UBA and Inversiones because they are both controlled by Golden
              Eagle Trust, an Isle of Mann trust which in turn is controlled by
              persons who may exercise discretion in Dr. Mallya's favor among
              others. Dr. Mallya is also the Chairman and Chief Executive
              Officer of UBA. Does not include (i) 1,281,017 shares issuable
              upon conversion of certain convertible notes issued to UBA to
              terminate an existing Master Line of Credit Agreement and convert
              certain outstanding Notes into shares of Common Stock. (See "PART
              III - Item 12, Certain Relationships and Related Transactions,"
              below).

       (4)    Includes 68,077 shares subject to options exercisable or will be
              exercisable within 60 days. Does not include 3,683,698 currently
              outstanding shares held by UBA, Messrs. Scahill, Franks, and
              Barkley, all of which are subject to Shareholders' Agreement which
              requires the parties thereto to vote for one Director designated
              by Mr. Laybourn.

       (5)    Includes 90,299 shares subject to options which are presently
              exercisable or will be exercisable within 60 days.

       (6)    Does not include 595,880 outstanding shares held by Messrs.
              Scahill, Franks, and Barkley pursuant to a Shareholders' Agreement
              which requires the parties thereto to vote for four Directors
              designated by UBA, one Director designated by Mr. Laybourn, and
              two additional independent Directors who are acceptable to UBA,
              and which grants UBA a right of first refusal with respect to such
              shares. Includes

                                      -42-
<PAGE>

              429,273 shares subject to options which are presently exercisable
              or will be exercisable within 60 days.

ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

       MASTER LINE OF CREDIT AGREEMENT

       On August 31, 1999, the Company and UBA entered into a Master Line of
Credit Agreement, which was subsequently amended in April of 2000, and February
of 2001 (the "Credit Agreement"). The terms of the Credit Agreement provide the
Company with a line of credit in the principal amount of up to $1,600,000. As of
the date of this filing, UBA has made thirteen (13) separate advances to the
Company under the Credit Agreement, pursuant to a series of individual eighteen
(18) month promissory notes issued by the Company to UBA (the "UBA Notes"). As
of February 28, 2003, the aggregate outstanding principal amount of the UBA
Notes was $1,515,371, and the accrued but unpaid interest thereon was equal to
approximately $406,155. (For more information on the Master Line of Credit
Agreement, please refer to Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL INFORMATION AND RESULTS OF OPERATIONS - Liquidity and Capital
Resources," above.)

       LICENSE OF THE KINGFISHER TRADEMARK

       UBI licenses the trademark Kingfisher (the "Mark") from UB Limited,
pursuant to a License Agreement dated October 9, 1998 and amended pursuant to a
Supplemental Agreement dated October 22, 2001 (together, the "License
Agreement"). Under the terms of the License Agreement, UB Limited has granted
UBI and UBSN the exclusive right to use the Mark in a number of European
countries, including among others Austria, Belgium, Italy, France, Germany,
Ireland, the Netherlands, Spain, Sweden and the United Kingdom, as well as in
Canada (collectively, the "Licensed Territory"). UB Limited, which owns the
Mark, is responsible for maintaining the registration of the Mark in all
relevant market areas. The License Agreement, which will expire on October 9,
2013, also provides that neither party may transfer its rights or obligations
thereunder to any other person or entity unless the transferee enters into an
agreement to be bound by the obligations of the transferor.

       In July 2001 MBC entered into a Kingfisher Trademark and Trade Name
License Agreement with Kingfisher America, Inc., a Delaware corporation
affiliated with UB Limited, pursuant to which MBC obtained a royalty-free,
exclusive license to use the Kingfisher trademark and trade name in connection
with the brewing and distribution of beer in the United States. Under its terms,
this agreement will remain in effect for so long as the Distribution Agreement
(described below) between UBI and UBSN does. Currently, that agreement is
scheduled to expire in October 2013.

                                      -43-
<PAGE>

       Because the Company's Chairman of the Board, Dr. Vijay Mallya, is also
the Chairman of the Board of UB Limited, the transactions represented by these
license agreements may be deemed to be related party transactions.

DISTRIBUTION AGREEMENT

       UBI entered into a Distribution Agreement with its wholly-owned
subsidiary UBSN on October 9, 1998. Under this agreement, which was subsequently
amended by a Supplemental Agreement dated as of October 24, 2001 (together, the
"Distribution Agreement"), UBI granted UBSN an exclusive sublicense for the
distribution of all lager and other beer products brewed or prepared for sale in
the Company's European Territory, and a sublicense to use the Kingfisher
trademark and trade name, to manufacture, package, market, distribute, and sell
beer and other products using the Kingfisher trademark and logo, and to enter
into the Brewing Agreement described below. The Distribution Agreement, which
also requires UBSN to pay UBI a royalty fee of 50 British pence (approximately
$0.82, at the average exchange rates during 2003) for every 100 liters (26
gallons) of beer brewed for sale in the European Territory, will expire (unless
its term is extended) in October 2013.

BREWING AGREEMENT BETWEEN UBI AND SHEPHERD NEAME

       On October 9, 1998, UBI and UBSN entered into a Brewing Agreement with
Shepherd Neame, and on October 24, 2001, this agreement was amended by a
Supplemental Agreement (as so amended, the "Brewing Agreement"). Since R.H.B.
(Bobby) Neame, who is the Chairman and Chief Executive Officer of Shepherd
Neame, has been a member of the Company's Board since January 1998, the
transaction represented by the Brewing Agreement may be deemed to be a related
party transaction.

       The Brewing Agreement, which was entered into (and amended) in
conjunction with the Loan Agreement described below, grants Shepherd Neame the
exclusive right to brew, keg, bottle, can, label, and package all beers and
related products sold under the Kingfisher trademark in the United Kingdom, and
with respect to the distribution of such products elsewhere in the European
Territory, UBI and UBSN further agreed that they would require any other
distributor of such products (subject to applicable laws and regulations) both
to obtain such products directly from a company related to UBI or its
subsidiaries and to refrain from seeking customers, or establishing a
distribution network for such products, in the United Kingdom. In exchange,
Shepherd Neame agreed to brew and/or supply Kingfisher Lager and related
products to UBSN for destinations within (and, with the consent of Shepherd
Neame, outside) the United Kingdom. The price UBSN pays to Shepherd Neame for
brewing Kingfisher Lager for distribution in the United Kingdom is set by a
formula which varies according to the applicable duty on Kingfisher Lager and
other factors.

                                      -44-
<PAGE>

LOAN AGREEMENT BETWEEN UBSN AND SHEPHERD NEAME

       Concurrently with the Brewing Agreement described above, UBSN and
Shepherd Neame entered into a Loan Agreement, under which on or about October
24, 2001, Shepherd Neame advanced to UBSN (pound)600,000 (Pounds Sterling) (the
full amount available under the Loan Agreement), at a fixed interest rate of 5%,
for general corporate purposes. This loan is payable in ten annual installments
of (pound)60,000 (Pounds Sterling) each, commencing on June 30, 2003 and
continuing on each anniversary thereof until the Loan is fully repaid. Any
remaining balance of principal or interest will become due and payable (and the
loan will terminate) on June 30, 2013. It would be an event of default under the
Loan Agreement, and the lender would have the right, at will, not only to cancel
the Loan Agreement and accelerate all sums due under it, but also to terminate
the Brewing Agreement, if UBSN were to terminate or default under the Brewing
Agreement, or if either of the License Agreements that UBI and UBSN have entered
into with UB Limited (see "License of the Kingfisher Trademark, above) are
terminated (except in accordance with their terms or in connection with the
parties' entry into an equivalent Brewing Agreement).

MARKET DEVELOPMENT AGREEMENT

       Effective October 26, 2001, MBC and UBSN entered into a Market
Development, General and Administrative Services Agreement (the "Market
Development Agreement"), under the terms of which UBSN engaged MBC to perform a
variety of advertising, promotional, and other market development activities in
the United States, in connection with Kingfisher beer and related consumer
products (the "Products"), provide certain legal and business management support
services to UBSN, and provide assistance with the establishment and management
of distribution channels for the Products in the United States. In consideration
for performing these services, UBSN agreed to make periodic payments of service
fees to MBC, amounting in the aggregate to $1,500,000 over a period of three
years ($1,000,000 during calendar 2001, $300,000 during 2002, and $200,000
during 2003). The Market Development Agreement will continue in force during the
term of the Distribution Agreement described above.

BREWING LICENSE AGREEMENT

       Concurrently with the Market Development Agreement described above, MBC
entered into a Brewing License Agreement with UBSN, under the terms of which
UBSN granted to MBC an exclusive license to brew and distribute Kingfisher
Premium Lager in the United States, in exchange for a royalty, payable to UBSN,
of eighty cents ($0.80) for each case of Kingfisher Premium Lager brewed by MBC
under this agreement.

                                      -45-
<PAGE>

ANNOUNCEMENT OF INTEREST BY UNITED BREWERIES HOLDINGS LTD.

       On September 30, 2002, the shareholders of United Breweries Holdings,
Ltd. (formerly Kingfisher Properties & Holdings, Ltd.) ("UBHL"), a corporation
based and incorporated in India and publicly-held in that country, approved
resolutions authorizing UBHL's board of directors to consider a transaction by
which UBHL would purchase some or all of the Company's outstanding shares. Dr.
Mallya, the Company's Chairman of the Board and Chief Executive Officer, is also
the Chairman of the Board of UBHL.

       To date, UBHL has not proposed any specific transaction to the Company,
nor has it indicated when (if ever) it may make a specific proposal or commence
negotiations with the Company for an actual acquisition of any of its shares.

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K.

       (a)    Exhibits

<TABLE>
<CAPTION>

  Exhibit
  Number                  Description of Document
  ------                  -----------------------
<S>          <C>     <C>
     3.1     (T)     Articles of Incorporation of the Company, as amended.
     3.2     (T)     Bylaws of the Company, as amended.
    10.1     (A)     Mendocino Brewing Company Profit Sharing Plan.
    10.2     (T)     Amended 1994 Stock Option Plan
    10.3     (A)     Wholesale Distribution Agreement between the Company and Bay Area Distributing.
    10.4     (A)     Wholesale Distribution Agreement between the Company and Golden Gate Distributing.
    10.5     (B)     Liquid Sediment Removal Services Agreement with Cold Creek Compost, Inc.
    10.6     (A)     Lease Agreement between the Company and Kohn Properties.
    10.7     (C)     Commercial Real Estate Purchase Contract and Receipt for Deposit (previously filed as
                     Exhibit 19.2).
    10.8     (D)     Commercial Lease between Stewart's Ice Cream Company, Inc. and Releta Brewing Company LLC.
    10.9     (E)     Agreement between United Breweries of America Inc. and Releta Brewing Company LLC regarding
                     payment of certain liens.
    10.10    (F)     Keg Management Agreement with MicroStar Keg Management LLC.
    10.11    (G)     Agreement to Implement Condition of Approval No. 37 of the Site Development Permit 95-19 with
                     the City of Ukiah, California (previously filed as Exhibit 19.6).
</TABLE>

                                      -46-
<PAGE>

<TABLE>
<CAPTION>

  Exhibit
  Number                  Description of Document
  ------                  -----------------------
<S>          <C>     <C>
    10.12    (H)     Manufacturing Business Expansion and Relocation Agreement with the City of Ukiah.

    10.13    (H)     Manufacturing Business Expansion and Relocation Agreement with the Ukiah Redevelopment Agency.

    10.14    (I)     $2,700,000 Note in favor of the Savings Bank of Mendocino County.

    10.15    (I)     Hazardous Substances Certificate and Indemnity with the Savings Bank of Mendocino County.

    10.16    (J)     Equipment Lease with Finova Capital Corporation.

    10.17    (J)     Tri-Election Rider to Equipment Lease with Finova Capital Corporation.

    10.18    (J)     Master Lease Schedule with Finova Capital Corporation.

    10.19    (K)     Investment Agreement with United Breweries of America, Inc.

    10.20    (K)     Shareholders' Agreement Among the Company, United Breweries of America, Inc.,

                     H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley.

    10.21    (K)     Registration Rights Agreement Among the Company, United Breweries of America, Inc.,
                     H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley.

    10.22    (L)     Indemnification Agreement with Vijay Mallya.

    10.23    (L)     Indemnification Agreement with Michael Laybourn.

    10.24    (L)     Indemnification Agreement with Jerome Merchant.

    10.25    (L)     Indemnification Agreement with Yashpal Singh.

    10.27    (L)     Indemnification Agreement with Robert Neame.

    10.28    (L)     Indemnification Agreement with Sury Rao Palamand.

    10.29    (L)     Indemnification Agreement with Kent Price.

    10.30    (M)     Loan and Security Agreement between the Company, Releta Brewing Company LLC and The CIT
                     Group/Credit Finance, Inc. regarding a $3,000,000 maximum line of credit.

    10.31    (M)     Patent, Trademark and License Mortgage by the Company in favor of The CIT Group/Credit
                     Finance, Inc.

    10.32    (M)     Patent, Trademark and License Mortgage by Releta Brewing Company LLC in favor of The CIT
                     Group/Credit Finance, Inc.

    10.33    (N)     Employment Agreement with Yashpal Singh.
</TABLE>


                                      -47-
<PAGE>

<TABLE>
<CAPTION>

  Exhibit
  Number                  Description of Document
  ------                  -----------------------
<S>          <C>     <C>
    10.35    (O)     Master Loan Agreement between the Company and the United Breweries of America Inc.

    10.36    (O)     Convertible Note in favor of the United Breweries of America Inc. dated Sept. 7, 1999

    10.37    (P)     Convertible Note in favor of the United Breweries of America Inc. dated October 21, 1999

    10.38    (P)     Convertible Note in favor of the United Breweries of America Inc. dated November 12, 1999

    10.39    (P)     Convertible Note in favor of the United Breweries of America Inc. dated December 17, 1999

    10.40    (P)     Convertible Note in favor of the United Breweries of America Inc. dated December 31, 1999

    10.41    (P)     Convertible Note in favor of the United Breweries of America Inc. dated February 16, 2000

    10.42    (P)     Convertible Note in favor of the United Breweries of America Inc. dated February 17, 2000

    10.43    (P)     Convertible Note in favor of the United Breweries of America Inc. dated April 28, 2000

    10.44    (P)     First Amendment to Master Loan Agreement between the Company and United Breweries of America,
                     Inc., dated April 28, 2000

    10.45    (Q)     Convertible Note in favor of the United Breweries of America Inc. dated September 11, 2000

    10.46    (Q)     Convertible Note in favor of the United Breweries of America Inc. dated September 30, 2000

    10.47    (Q)     Convertible Note in favor of the United Breweries of America Inc. dated December 31, 2000

    10.48    (Q)     Convertible Note in favor of the United Breweries of America Inc. dated February 12, 2001

    10.49    (R)     Convertible Note in favor of the United Breweries of America Inc. dated July 1, 2001

    10.50    (S)     Confirmation of Waiver Between Mendocino Brewing Company, Inc. and United Breweries of
                     America, Inc., dated as of December 28, 2001

    10.51    (S)     Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing
                     Company, Inc. and United Breweries of America, Inc., dated February 14, 2002
</TABLE>

                                      -48-
<PAGE>

<TABLE>
<CAPTION>

  Exhibit
  Number                  Description of Document
  ------                  -----------------------
<S>          <C>     <C>
    10.52    (T)     License Agreement between United Breweries Limited and United Breweries International (UK),
                     Limited

    10.53    (T)     Supplemental Agreement to License Agreement between United Breweries Limited and United
                     Breweries International (UK), Limited

    10.54    (T)     Distribution Agreement between United Breweries International (UK), Limited. and UBSN, Ltd.

    10.55    (T)     Supplemental Agreement to Distribution Agreement between United Breweries International (UK),
                     Limited. and UBSN, Ltd.

    10.56    (T)     Market Development, General and Administrative Services Agreement between Mendocino Brewing
                     Company, Inc. and UBSN, Ltd.

    10.57    (T)     Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United
                     Breweries International (UK), Limited. and UBSN, Ltd.

    10.58    (T)     Supplemental Agreement to Contract to Brew and Supply Kingfisher Products among Shepherd
                     Neame, Limited, United Breweries International (UK), Limited. and UBSN, Ltd.

    10.59    (T)     Loan Agreement between Shepherd Neame, Limited and UBSN, Ltd.

    10.60    (T)     Brewing License Agreement between UBSN, Ltd. and Mendocino Brewing Company, Inc.

    10.61    (T)     Kingfisher Trade Mark and Trade Name License Agreement between Kingfisher of  America, Inc.
                     and Mendocino Brewing Company, Inc.

    10.62    (U)     First Amendment to Extension of Term of Notes Under Master Line of Credit Agreement between
                     Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated November 13, 2002.

    10.63    (U)     Second Amendment to Extension of Term of Notes Under Master Line of Credit Agreement between
                     Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated March, 2003.

    10.64            Amendment to Loan and Security Agreement between Mendocino Brewing Company, Inc. and Releta
                     Brewing Company, LLC and the CIT Group/Business Credit, Inc., dated January 17, 2003.

    10.65            Commitment Letter from United Breweries of America, Inc. dated March 31, 2004.

    14.1             Code of Ethics
</TABLE>

                                      -49-
<PAGE>

<TABLE>
<CAPTION>

  Exhibit
  Number                  Description of Document
  ------                  -----------------------
<S>          <C>     <C>
    31.1            Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)

    31.2            Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)

    32.1            Certification of Chief Executive Officer Pursuant to U.S.C. 1350

    32.2            Certification of Chief Financial Officer Pursuant to U.S.C. 1350


                     NOTES:  Each Exhibit listed above that is annotated with one or more of the following letters
                     is incorporated by reference from the following sources:

             (A)     The Company's Registration Statement dated June 15, 1994, as amended, previously filed with
                     the Commission, Registration No. 33-78390-LA.

             (B)     The Company's Annual Report on Form 10-KSB for the period ended December 31, 1995.

             (C)     The Company's Quarterly Report on Form 10-QSB for the period ended March 31, 1995.

             (D)     The Company's Quarterly Report on Form 10-QSB/A No. 1 for the  period ended September 30, 1997.

             (E)     The Company's Quarterly Report on Form 10-QSB for the quarterly period ended September 30,
                     1997.

             (F)     The Company's Annual Report on Form 10-KSB for the period ended December 31, 1996

             (G)     The Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1995

             (H)     The Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1996

             (I)     The Company's Annual Report on Form 10-KSB for the period ended December 31, 1997

             (J)     The Company's Registration Statement dated February 6, 1997, as amended, Registration No.
                     33-15673

             (K)     Schedule 13D filed November 3, 1997, by United Breweries of America, Inc. and Vijay Mallya

             (L)     The Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1998
</TABLE>

                                      -50-
<PAGE>

<TABLE>
<CAPTION>

  Exhibit
  Number                  Description of Document
  ------                  -----------------------
<S>          <C>     <C>
             (M)     The Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1998

             (N)     The Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1999

             (O)     Amendment No. 5 to Schedule 13D filed September 15, 1999, by United Breweries of America, Inc.
                     and Vijay Mallya.

             (p)     Amendment No. 6 to Schedule l3D filed May 12, 2000, by United Breweries of America, Inc. and
                     Vijay Mallya.

             (Q)     Amendment No. 7 to Schedule 13D filed February 22, 2001, by United Breweries of America, Inc.
                     and Vijay Mallya.

             (R)     Amendment No. 8 to Schedule 13D filed August 22, 2001, by United Breweries of America, Inc.
                     and Vijay Mallya.

             (S)     The Company's Current Report on Form 8-K filed as of February 19, 2002

             (T)     The Company's Annual Report on Form 10-KSB for the period ended December 31, 2001

             (U)     Amendment No. 9 to Schedule 13D filed March 31, 2003, by United Breweries of America, Inc. and
                     Vijay Mallya

       (b)   CURRENT REPORTS ON FORM 8-K

       During the fourth quarter of 2002, the Registrant did not file any Current Reports on Form 8-K.
</TABLE>


                                      -51-
<PAGE>

                                   SIGNATURES

       Pursuant to the requirements of Section 13 of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereto duly authorized.

                                 (Registrant) Mendocino Brewing Company, Inc.


                                      By:
                                         ---------------------------------------
                                           Dr. Vijay Mallya
                                             Its Chairman of the Board and
                                             Chief Executive Officer
                                           Date: April 14, 2004

       Pursuant to the requirements of Section 13 of the Exchange Act, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.


                                      By:
                                         ---------------------------------------
                                           Dr. Vijay Mallya
                                             Its Chairman of the Board and
                                             Chief Executive Officer
                                           Date: April 14, 2004

                                      By:
                                         ---------------------------------------
                                           Yashpal Singh
                                             Its President and Director
                                           Date: April 14, 2004

                                      By:
                                         ---------------------------------------
                                           Jerome G. Merchant, Director
                                           Date: April 14, 2004

                                      By:
                                         ---------------------------------------
                                           N. Mahadevan
                                             Its Secretary and
                                             Chief Financial Officer
                                           Date: April 14, 2004

                                      By:
                                         ---------------------------------------
                                           H. Michael Laybourn, Director
                                           Date: April 14, 2004

                                      -52-
<PAGE>

                                      By:
                                         ---------------------------------------
                                           R.H.B. Neame, Director
                                           Date: April 14, 2004

                                      By:
                                         ---------------------------------------
                                           Kent Price, Director
                                           Date: April 14, 2004

                                      By:
                                         ---------------------------------------
                                           Sury Rao Palamand, Director
                                           Date: April 14, 2004

                                      By:
                                         ---------------------------------------
                                           David Townshend, Director
                                           Date: April 14, 2004





                                      -53-
<PAGE>

                                  Exhibit List
                                  ------------

                                                                       Page
                                                                       ----
No.
---

10.64    Amendment to Loan and Security Agreement between
         Mendocino Brewing Company, Inc. and Releta Brewing
         Company, LLC and the CIT Group/Business Credit, Inc.,
         dated January 17, 2003.

10.65    Commitment Letter from United Breweries of America,
         Inc. dated March 31, 2004.

14.1     Code of Ethics

31.1     Certification of Chief Executive Officer pursuant to
         Rule 13a-14(a)/15d-14(a)

31.2     Certification of Chief Financial Officer pursuant to
         Rule 13a-14(a)/15d-14(a)

32.1     Certification of Chief Executive Officer pursuant to
         Section 1350

32.2     Certification of Chief Financial Officer pursuant to
         Section 1350


                                      -54-

<PAGE>

--------------------------------------------------------------------------------






                          INDEPENDENT AUDITOR'S REPORT
                                       AND
                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2003 AND 2002







<PAGE>

--------------------------------------------------------------------------------





                                    CONTENTS


                                                                           PAGE

INDEPENDENT AUDITOR'S REPORT...............................................F - 1


CONSOLIDATED FINANCIAL STATEMENTS

     Balance sheets........................................................F - 2

     Statements of operations and comprehensive income.....................F - 3

     Statements of stockholders' equity....................................F - 4

     Statements of cash flows..............................................F - 5

     Notes to financial statements.........................................F - 6



<PAGE>





INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Mendocino Brewing Company, Inc.


We have audited the accompanying consolidated balance sheets of Mendocino
Brewing Company, Inc., as of December 31, 2003 and 2002, and the related
consolidated statements of operations and comprehensive income, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mendocino Brewing
Company, Inc., as of December 31, 2003 and 2002, and the results of its
operations and cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.


                                                  /S/ MOSS ADAMS LLP

Santa Rosa, California
February 20, 2004


                                                                      PAGE F - 1
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>
                                                                               MENDOCINO BREWING COMPANY, INC.
                                                                                   CONSOLIDATED BALANCE SHEETS
                                                                                    DECEMBER 31, 2003 AND 2002

--------------------------------------------------------------------------------------------------------------

                                                  ASSETS
                                                                                2003               2002
                                                                           ---------------    ----------------
CURRENT ASSETS
   Cash                                                                     $     554,300      $     146,800
   Accounts receivable, net of allowance for doubtful accounts
       of $37,800 and $157,300                                                  7,017,700          5,924,900
   Inventories                                                                  1,186,100          1,474,300
   Prepaid expenses                                                               555,500            403,400
                                                                           ---------------    ----------------
       Total current assets                                                     9,313,600          7,949,400
                                                                           ---------------    ----------------
PROPERTY AND EQUIPMENT                                                        13,874,800         14,159,400
                                                                           ---------------    ----------------
OTHER ASSETS
   Deposits and other assets                                                      188,600             73,600
   Intangibles, net of amortization                                                94,700            107,200
                                                                           ---------------    ----------------
                                                                                  283,300            180,800
                                                                           ---------------    ----------------
       Total assets                                                         $  23,471,700      $  22,289,600
                                                                           ===============    ================

                                    LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Line of credit                                                           $   1,974,800      $   2,264,500
   Note payable                                                                   576,200                  -
   Accounts payable                                                             5,340,100          5,598,700
   Accrued liabilities                                                          1,275,100            898,500
   Deferred gain                                                                  655,200                  -
   Income taxes payable                                                           465,100            443,500
   Current maturities of long-term debt                                           693,700            581,200
   Current maturities of capital lease obligations                                129,000            836,400
                                                                           ---------------    ----------------
       Total current liabilities                                               11,109,200         10,622,800
NOTES TO RELATED PARTY                                                          1,921,500          1,836,300
LONG-TERM DEBT, less current maturities                                         3,730,300          3,290,200
CAPITAL LEASE OBLIGATIONS, less current maturities                                204,100            193,900
                                                                           ---------------    ----------------
       Total liabilities                                                       16,965,100         15,943,200
                                                                           ---------------    ----------------
STOCKHOLDERS' EQUITY
  Preferred stock, Series A, no par value, with aggregate
       liquidation preference of $227,600; 10,000,000 shares
       authorized, 227,600 shares issued and outstanding                          227,600            227,600
  Common stock, no par value; 30,000,000 shares authorized,
       11,266,874 shares issued and outstanding                                14,648,600         14,648,600
  Accumulated comprehensive income (loss)                                          78,000            (35,300)
  Accumulated deficit                                                          (8,447,600)        (8,494,500)
                                                                           ---------------    ----------------
       Total stockholders' equity                                               6,506,600          6,346,400
                                                                           ---------------    ----------------
       Total liabilities and stockholders' equity                           $  23,471,700      $  22,289,600
                                                                           ===============    ================

SEE ACCOMPANYING NOTES.
--------------------------------------------------------------------------------------------------------------
                                                                                                    PAGE F - 2
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>

                                                                               MENDOCINO BREWING COMPANY, INC.
                                                CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                                                        YEARS ENDED DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------------------------------------

                                                                                2003               2002
                                                                           ---------------    ----------------

SALES                                                                       $  28,864,200      $  26,085,100
LESS EXCISE TAXES                                                                 673,900            651,600
                                                                           ---------------    ----------------
NET SALES                                                                      28,190,300         25,433,500
COST OF GOODS SOLD                                                             19,145,500         16,892,800
                                                                           ---------------    ----------------
GROSS PROFIT                                                                    9,044,800          8,540,700
                                                                           ---------------    ----------------

OPERATING EXPENSES
    Retail operating                                                              323,400            335,300
    Marketing                                                                   4,423,900          4,244,400
    General and administrative                                                  3,320,000          2,732,300
                                                                           ---------------    ----------------
                                                                                8,067,300          7,312,000
                                                                           ---------------    ----------------
INCOME FROM OPERATIONS                                                            977,500          1,228,700
                                                                           ---------------    ----------------
OTHER INCOME (EXPENSE)
    Miscellaneous income                                                          162,900            200,200
    Loss on sale of equipment                                                        (300)            (9,200)
    Interest expense                                                             (828,500)          (926,400)
                                                                           ---------------    ----------------
                                                                                 (665,900)          (735,400)
                                                                           ---------------    ----------------
INCOME BEFORE INCOME TAXES                                                        311,600            493,300
PROVISION FOR INCOME TAXES                                                        264,700          2,223,100
                                                                           ---------------    ----------------
NET INCOME (LOSS)                                                                  46,900         (1,729,800)
OTHER COMPREHENSIVE INCOME, net of tax
    foreign currency translation adjustment                                       113,300             42,500
                                                                           ---------------    ----------------
COMPREHENSIVE INCOME (LOSS)                                                 $     160,200      $  (1,687,300)
                                                                           ===============    ================

NET INCOME  (LOSS) PER COMMON SHARE - Basic and diluted                     $           -     $       (0.15)
                                                                           ===============    ================

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - Basic and diluted                 11,266,874         11,173,686
                                                                           ===============    ================







SEE ACCOMPANYING NOTES.
--------------------------------------------------------------------------------------------------------------
                                                                                                    PAGE F - 3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>

                                                                                                  MENDOCINO BREWING COMPANY, INC.
                                                                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                                           YEARS ENDED DECEMBER 31, 2003 AND 2002
---------------------------------------------------------------------------------------------------------------------------------

                                        SERIES A
                                     PREFERRED STOCK          COMMON STOCK        ACCUMULATED
                                ----------------------- ------------------------ COMPREHENSIVE   ACCUMULATED          TOTAL
                                   SHARES      AMOUNT     SHARES        AMOUNT   INCOME (LOSS)     DEFICIT           EQUITY
                                ----------- ----------- ----------- ------------ -------------- --------------- -----------------

Balance, December 31, 2001        227,600    $ 227,600  11,083,228  $ 14,476,500 $    (77,800)  $  (6,764,700)    $ 7,861,600

Stock issued for services               -            -     135,665       125,100            -               -         125,100

Stock issued to Board of
  Directors                             -            -      47,981        47,000            -               -          47,000

Currency translation adjustment         -            -           -             -       42,500               -          42,500

Net loss                                -            -           -             -            -      (1,729,800)     (1,729,800)
                                ----------- ----------- ----------- ------------ -------------- --------------- -----------------

Balance, December 31, 2002        227,600      227,600  11,266,874    14,648,600      (35,300)     (8,494,500)      6,346,400

Currency translation adjustment         -            -           -             -      113,300               -         113,300

Net income                              -            -           -             -            -          46,900          46,900
                                ----------- ----------- ----------- ------------ -------------- --------------- -----------------

Balance, December 31, 2003        227,600    $ 227,600  11,266,874  $ 14,648,600 $     78,000   $  (8,447,600)    $ 6,506,600
                                =========== =========== =========== ============ ============== =============== =================










SEE ACCOMPANYING NOTES.
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       PAGE F - 4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>                                                                             <C>
                                                                               MENDOCINO BREWING COMPANY, INC.
                                                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                        YEARS ENDED DECEMBER 31, 2003 AND 2002

--------------------------------------------------------------------------------------------------------------


                                                                                2003                2002
                                                                           ---------------    ----------------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                                         $      46,900      $  (1,729,800)
  Adjustments to reconcile net income (loss) to net
    cash from operating activities:
       Depreciation and amortization                                            1,127,400          1,049,000
       Allowance for doubtful accounts                                           (122,700)            18,700
       Loss on sale of assets                                                         300              9,200
       Deferred income taxes                                                            -          1,922,600
       Stock issued for services                                                        -             44,000
    Changes in:
       Accounts receivable                                                       (519,800)             4,800
       Inventories                                                                288,200           (199,700)
       Prepaid expenses                                                          (124,200)           (68,100)
       Deposits and other assets                                                   (5,800)            13,800
       Accounts payable                                                           155,800            (21,000)
       Accrued liabilities                                                        334,200             12,500
       Income taxes payable                                                       (24,400)           170,200
                                                                           ---------------    ----------------
            Net cash from operating activities                                  1,155,900          1,226,200
                                                                           ---------------    ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                                            (728,600)          (368,100)
  Proceeds from new distributors                                                  655,200                  -
  Proceeds from sale of fixed assets                                               15,200             23,700
                                                                           ---------------    ----------------
            Net cash from investing activities                                    (58,200)          (344,400)
                                                                           ---------------    ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net repayments (borrowings) on line of credit and note payable                  347,600           (350,900)
  Net repayments (borrowings) on long-term debt                                  (331,000)           (356,400)
  Payments on obligations under capital lease                                    (680,900)          (359,000)
  Disbursements in excess of deposits                                            (134,300)           134,300
  Proceeds from notes payable to related party                                     85,200             93,500
                                                                           ---------------    ----------------
            Net cash from financing activities                                   (713,400)           (838,500)
                                                                           ---------------    ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH                                            23,200             13,700
                                                                           ---------------    ----------------
NET CHANGE IN CASH                                                                407,500             57,000
CASH, beginning of year                                                           146,800             89,800
                                                                           ---------------    ----------------
CASH, end of year                                                           $     554,300      $     146,800
                                                                           ===============    ================
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the year for:
    Interest                                                                $     743,300      $     950,600
    Income taxes                                                            $     305,600      $     147,700
  Non-cash investing and financing activities:
    Seller financed equipment                                               $     173,900      $     117,400
    Accounts payable converted to note payable                              $     752,600      $           -


SEE ACCOMPANYING NOTES.
--------------------------------------------------------------------------------------------------------------
                                                                                                    PAGE F - 5
</TABLE>

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 1 -      DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

DESCRIPTION OF OPERATIONS - Mendocino Brewing Company, Inc. (the Company), and
its subsidiary, Releta Brewing Company, operate two breweries that produce beer
and malt beverages for the specialty "craft" segment of the beer market. The
breweries are located in Ukiah, California, and Saratoga Springs, New York. The
Company also owns and operates a brewpub and gift store located in Hopland,
California. The majority of sales for Mendocino Brewing Company are in
California. The Company brews several brands, of which Red Tail Ale is the
Flagship brand. In addition, the Company performs contract brewing for several
other brands.

The Company acquired United Breweries International, Limited (UK) (UBIUK), a
holding company for UBSN Limited, in August 2001. UBSN is a distributor of
alcoholic beverages, mainly Kingfisher Lager, in the United Kingdom and Europe.
The distributorship is located in Faversham, Kent, in the United Kingdom.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements present the
accounts of Mendocino Brewing Company, Inc., and its wholly owned subsidiaries,
Releta Brewing Company, LLC, and UBIUK. All material inter-company balances,
profits, and transactions have been eliminated.

INVENTORIES - Inventories are stated at the lower-of-average cost or market.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
depreciated or amortized using straight-line and accelerated methods over the
assets' estimated useful lives. Leasehold improvements are amortized over the
shorter of the life of the related asset or the life of the lease. Costs of
maintenance and repairs are charged to expense as incurred; significant renewals
and betterments are capitalized. Estimated useful lives are as follows:

      Building                                              40 years
      Machinery and equipment                           3 - 40 years
      Equipment under capital lease                     3 - 20 years
      Leasehold improvements                            7 - 20 years
      Vehicles                                          2 -  5 years
      Furniture and fixtures                            5 - 10 years


INTANGIBLES - Intangibles consist of receipts, trade names, trademarks, and
other intangibles. Amounts are amortized using the straight-line method over 20
years, which is the estimated useful life of the intangibles. Assets determined
to have indefinite lives are no longer amortized in accordance with SFAS No.
142, GOODWILL AND OTHER INTANGIBLES, but are tested for impairment on an annual
basis.

CONCENTRATION OF CREDIT RISKS - Financial instruments that potentially subject
the Company to credit risk consist principally of trade receivables, cash
deposits in excess of FDIC limits, and assets located in the United Kingdom. The
Company's cash deposits are placed with major financial institutions. Wholesale
distributors account for substantially all accounts receivable; therefore, this
risk concentration is limited due to the number of distributors and the laws
regulating the financial affairs of distributors of alcoholic beverages. The
Company has approximately $252,800 in cash and $5,560,600 of accounts receivable
located in the United Kingdom.

INCOME TAXES - The provision for income taxes is based on pre-tax earnings
reported in the financial statements and adjusted for requirements of current
tax law plus the change in deferred taxes. Deferred tax assets and liabilities
are recognized using enacted tax rates and reflect the expected future tax
consequences of temporary differences between the recorded amounts of assets and
liabilities for financial reporting purposes and the tax basis of such assets
and liabilities, and the future benefits from net operating loss carryforwards.

SHIPPING COSTS - Shipping costs are included in marketing expense and totaled
$576,500 and $600,200 for the years ended December 31, 2003 and 2002.

REVENUE RECOGNITION - The Company recognizes revenue from the brewing and
distribution operations when product is shipped. Revenues from the brewpub and
gift store are recognized when services have been completed.

--------------------------------------------------------------------------------
                                                                      PAGE F - 6

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


STOCK-BASED COMPENSATION - The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion (APB) No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and complies with the disclosure provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Under APB No.
25, compensation expense is the excess, if any, of the fair value of the
Company's stock at a measurement date over the amount that must be paid to
acquire the stock. SFAS No. 123 requires a fair value method to be used when
determining compensation expense for stock options and similar equity
instruments. SFAS No. 123 permits a company to continue to use APB No. 25 to
account for stock-based compensation to employees, but pro forma disclosures of
net income and earnings per share must be made as if SFAS No. 123 had been
adopted in its entirety. Stock options issued to non-employees are valued under
the provisions of SFAS No. 123.

Had compensation cost for the Company's options been determined based on the
methodology prescribed under SFAS No. 123, the Company's net loss and loss per
share would have been as follows:

                                                      2003           2002
                                                  ------------   -------------
Net income (loss) - as reported                   $     46,900   $  (1,729,800)
Compensation expense                                         -          99,100
                                                  ------------   -------------
Net income (loss) - pro forma                     $     46,900   $  (1,828,900)
                                                  ============   =============
Income (loss) per share - pro forma               $       0.00   $       (0.16)

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:

                                                      2003           2002
                                                  ------------   -------------
Dividends                                              N/A           None
Expected volatility                                    N/A           107%
Risk free interest rate                                N/A           4.50%
Expected life                                          N/A          5 years


INCOME (LOSS) PER COMMON SHARE - Income (loss) per common share is computed
using the weighted average number of common shares outstanding. A diluted
earnings per share number is not presented because the inclusion of common stock
equivalents in the computation would be antidilutive. Common stock equivalents
associated with convertible notes and stock options, which are exercisable into
1,710,290 and 1,653,474 of common stock at December 31, 2003 and 2002, could
potentially dilute earnings per share in future years.

FOREIGN CURRENCY TRANSLATION - The assets and liabilities of UBIUK were
translated at the United Kingdom pound sterling - U.S. dollar exchange rates in
effect at December 31, 2003 and 2002, and the statements of operations were
translated at the average exchange rates for the years then ended. Gains and
losses resulting from the translations were deferred and recorded as a separate
component of consolidated stockholders' equity. Cash at UBIUK was translated at
exchange rates in effect at December 31, 2003 and 2002, and its cash flows were
translated at the average exchange rates for the years then ended. Changes in
cash resulting from the translations are presented as a separate item in the
statements of cash flows.

USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the Company to make estimates and assumptions affecting the reported
amounts of assets, liabilities, revenues and expenses, and disclosure of
contingent assets and liabilities. The amounts estimated could differ from
actual results. Significant estimates include the future utilization of deferred
tax assets and possible impairment of certain plant and equipment. The Company
has determined that deferred tax assets associated with net operating loss
carryforwards may expire prior to utilization. The Company has placed a
valuation allowance on these assets. The Company has estimated that its future
cash flows from operations will be sufficient over the estimated useful lives to
utilize all assets in the normal course of business.

ACCOUNTS RECEIVABLE - Accounts receivable are reported at net realizable value.
The Company has established an allowance for doubtful accounts based on factors
pertaining to the credit risk of specific customers, historical trends, and
other information. Delinquent accounts are written-off when it is determined
that the amounts are uncollectible.

--------------------------------------------------------------------------------
                                                                      PAGE F - 7

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

ADVERTISING - Advertising costs are expensed as incurred, and were $1,196,100
and $972,400 for the years ended December 31, 2003 and 2002.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and assumptions were
used by the Company in estimating its fair value disclosures for financial
instruments:

         Long-term debt: Based on the borrowing rates currently available to the
         Company for loans with similar terms and average maturities, the fair
         value of long-term debt approximates cost.

COMPREHENSIVE INCOME (LOSS) - Comprehensive income (loss) is composed of the
Company's net income (loss) and changes in equity from non-stockholder sources.
The accumulated balances of these non-stockholder sources are reflected as a
separate item in the equity section of the balance sheet.

NOTE 2 -  LIQUIDITY AND MANAGEMENT PLANS

       Even though the Company's overall operations have resulted in net profit
during the year 2003, continuing losses in its United States operations and the
maturing of certain of its debts in April and June of 2004 could have a serious
adverse effect on the Company's operations. The Company does not currently have
sufficient funds available to repay the loans in question (which are secured by
substantially all of the Company's assets) as they become due. The Company has
successfully negotiated refinancing arrangements in the past and is currently in
discussion with potential new lenders to refinance the maturing debts. In the
event that refinancing negotiations are not successful, one of the Company's
principal shareholders has committed to provide financial assistance in order to
avoid default under the relevant loans when they become due.

NOTE 3 -  INVENTORIES

<TABLE>
<CAPTION>
                                                               2003              2002
                                                          ---------------   ---------------
<S>                                                       <C>               <C>
           Raw materials                                  $       459,600   $       398,300
           Work-in-process                                        190,400           169,200
           Finished goods                                         510,000           881,000
           Merchandise                                             26,100            25,800
                                                          ---------------   ---------------
                                                          $     1,186,100   $     1,474,300
                                                          ===============   ===============
</TABLE>

NOTE 4 - PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                               2003              2002
                                                          ---------------   ---------------
<S>                                                       <C>               <C>
          Machinery and equipment                         $    10,323,800   $     7,998,700
          Buildings                                             7,202,300         7,202,300
          Equipment under capital lease                           573,300         2,370,200
          Land                                                    810,900           810,900
          Leasehold improvements                                1,432,400         1,383,000
          Vehicles                                                100,300           319,100
          Furniture and fixtures                                  167,800            37,300
          Equipment in progress                                   256,800                 -
                                                          ---------------   ---------------
                                                               20,867,600        20,121,500
          Less accumulated depreciation and amortization        6,992,800         5,962,100
                                                          ---------------   ---------------
                                                          $    13,874,800   $    14,159,400
                                                          ===============   ===============
</TABLE>

The Company has property and equipment located in the United Kingdom with a net
book value of approximately $1,196,100.

NOTE  5 -     LINE OF CREDIT AND NOTE PAYABLE

The Company has available a $3,500,000 line of credit, with interest at the
prime rate plus 2.25%. Approximately $1,484,000 was advanced to the Company in
the form of a term loan (see Note 6). The bank's commitment under the line of
credit matures April 2004. The agreement is secured by substantially all the
assets of the Releta Brewing Company, LLC, accounts receivable, inventory,
certain securities pledged by a stockholder, and a second position on the real
property of Mendocino Brewing Company. The Company had $1,674,000 and $1,549,000
outstanding as of December 31, 2003 and 2002.

--------------------------------------------------------------------------------
                                                                      PAGE F - 8

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


The Company has available a temporary note loan of $576,200 from Savings Bank of
Mendocino County to finance end of term buy-out of certain leased equipment.
This note is secured against existing collateral with Savings Bank in addition
to assets that were originally under capital lease. This loan matures in June
2004. The loan is expected to be refinanced but no agreement has been entered
into subsequent to year end.

UBSN Limited has available a (pound)1,250,000 (approximately $2,230,300 at
December 31, 2003) line of credit with interest at the bank's base rate plus
1.5%. The bank's commitment under the line of credit is available on an on-going
basis until further notice. The agreement is secured by substantially all of the
assets of UBSN Limited. The subsidiary had (pound)429,100 and (pound)360,900
($765,500 and $581,000) outstanding as of December 31, 2003 and 2002. The
agreement restricts dividends to approximately (pound)122,500 ($218,500 at
December 31, 2003) per year.


NOTE  6 -     LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                    2003               2002
                                                                                -------------     --------------
<S>                                                                             <C>               <C>
Note to a bank; payable in monthly installments of $24,400, including
interest at the Treasury Constant Maturity Index, plus 4.17%(currently
7.24%); maturing December 2012, with a balloon payment; secured by
substantially all of the assets of Mendocino Brewing Company                    $   2,421,300     $    2,534,700

Note to a financial institution; payable in monthly installments of
$24,700, plus interest at the prime rate plus 2.25%; maturing April
2004; secured by substantially all assets of the Releta Brewing
Company, certain securities pledged by a stockholder, accounts
receivable, inventory, and a second position on the remaining assets
of Mendocino Brewing Company                                                          464,700            371,000

Payable to Mendocino County in 4 annual installments of $143,600,
plus interest at 18%, beginning April 2005; maturing April 2008                       574,500                  -

Note payable to Sheperd Neame, Ltd., a related party; payable in
annual installments of $107,000 plus interest at 5% beginning June
2003; maturing December 2012; unsecured                                               963,500            965,700
                                                                                -------------     --------------
                                                                                    4,424,000          3,871,400
Less current maturities                                                               693,700            581,200
                                                                                -------------     --------------
                                                                                $   3,730,300     $    3,290,200
                                                                                =============     ==============

Maturities of long-term debt for succeeding years are as follows:

                                 Year Ending December 31,
                                 ------------------------
                                             2004                               $     693,700
                                             2005                                     381,900
                                             2006                                     391,500
                                             2007                                     402,100
                                             2008                                     413,600
                                          Thereafter                                2,141,200
                                                                                -------------
                                                                                $   4,424,000
                                                                                =============
</TABLE>


--------------------------------------------------------------------------------
                                                                     PAGE F - 9

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE  7 -     CAPITAL LEASE OBLIGATIONS

The Company leases brewing and office equipment under various capital lease
agreements with various financial institutions. Future minimum lease payments
under these capital lease agreements are as follows:

                    Year Ending December 31,
                    ------------------------
                              2004                           $    176,000
                              2005                                164,800
                              2006                                 53,300
                              2007                                 13,100
                              2008                                  3,400
                                                            -------------
                                                                  410,600
        Less amounts representing interest                         77,500
                                                            -------------
        Present value of minimum lease payments                   333,100
        Less current maturities                                   129,000
                                                            -------------
                                                             $    204,100
                                                            =============

NOTE  8 -     NOTES TO RELATED PARTY

Notes payable to a related party consist of convertible notes to United
Breweries of America (UBA), with interest at the prime rate plus 1.5%, but not
to exceed 10% per year. The notes are convertible into common stock at $1.50 per
share or may be repaid in 60 monthly installments. The notes include $406,100
and $320,900 of accrued interest at December 31, 2003 and 2002. The notes are
unsecured and subordinated to bank debt.


NOTE  9 -     PROFIT-SHARING PLAN

The Company has a profit-sharing retirement plan under which it may make
employer contributions at the discretion of the Board of Directors, although no
such contributions are required. Employer contributions vest over a period of
six years. The plan covers substantially all full-time employees meeting certain
minimum age and service requirements. There were no contributions made for the
years ended December 31, 2003 and 2002.

--------------------------------------------------------------------------------
                                                                     PAGE F - 10

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

NOTE 10 -     COMMITMENTS AND CONTINGENCIES

Effective March 28, 2003, the Company terminated a written distribution
agreement with the House of Daniels, Inc., dba Golden Gate Distributing Company
(GGD), in accordance with the provisions of the agreement, upon 30 days' written
notice to GGD. On April 1, 2003, GGD filed an action in Marin County Superior
Court, naming the Company and Mark Anderson (Mr. Anderson is employed by the
Company as a sales manager) as defendants. Because Mr. Anderson is an employee
of the Company, the Company may have some obligation to indemnify Mr. Anderson
for his costs and expenses in connection with these claims. GGD claims that the
termination of the agreement was wrongful and sued the Company for breach of
contract, breach of the covenant of good faith and fair dealing, unfair business
practices, negligent and intentional interference with economic relationships.

The Company believes that cause was not required to terminate the agreement, but
even if cause was required, the Company believes it had sufficient cause to
terminate the agreement. The Company filed a cross-complaint against GGD
alleging breach of contract, tortious interference with prospective economic
advantage, and unfair business practices. The Company is seeking the appropriate
remedies, including compensatory and punitive damages.

During the second quarter of the year 2003, the Company received $655,200 from
the two new distributors for the territories of Napa, Solano, Marin, and Sonoma
Counties. The Company has treated this receipt as deferred gain pending disposal
of the lawsuit.

OPERATING LEASES - The Company and its subsidiaries have various lease
agreements for the brewpub and gift store in Hopland, California; land at its
Saratoga Springs facility; a building in the United Kingdom; and certain
personal property. The land lease includes a renewal option for two additional
five-year periods, which the Company intends to exercise, and some leases are
adjusted annually for changes in the consumer price index. The land lease also
contains an option to purchase. The leases begin expiring in 2004. Management
expects to renew leases expiring in the near term at rates that are competitive
in the marketplace. Rent expense charged to operations was $210,500 and $221,300
for the years ended December 31, 2003 and 2002.

Future minimum lease payments under these agreements are as follows:

                    Year Ending December 31,
                    ------------------------
                              2004                           $    194,400
                              2005                                167,300
                              2006                                147,400
                              2007                                147,400
                              2008                                 37,200
                                                            -------------
                                                                  693,700
                                                            =============

KEG MANAGEMENT AGREEMENT - In January 1997, the Company entered into a keg
management agreement with MicroStar Keg Management LLC. Under this arrangement,
MicroStar provides all kegs for which the Company pays a service fee between $5
and $15, depending on territory. The agreement is effective on a month-to-month
basis. If terminated, the Company is required to purchase three times the
average monthly keg usage for the preceding six-month period from MicroStar at
purchase prices ranging from $54 to $84 per keg. The Company expects to continue
this relationship and also negotiating a new contract. Rental expense associated
with this agreement was $76,200 and $84,400 for the years ended December 31,
2003 and 2002.


NOTE 11 -     RELATED-PARTY TRANSACTIONS

The Company conducts business with United Breweries of America (UBA), which owns
approximately 76% of the Company's common stock through common ownership.
Additionally, UBSN Limited has significant transactions with Sheperd Neame,
Ltd., which is related to a Board member. The Company also has transactions with
AUBI, a company affiliated with one of the Board members. The following table
reflects balances outstanding and the value of the transactions with these
related parties for the years ended December 31, 2003 and 2002.

--------------------------------------------------------------------------------
                                                                     PAGE F - 11

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                          2003              2002
                                                                     --------------   --------------
<S>                                                                  <C>              <C>
TRANSACTIONS
------------

Sales to Sheperd Neame, Ltd.                                         $    2,536,000   $    2,110,200
Purchases from Sheperd Neame, Ltd.                                       11,240,000        9,470,700
Expense reimbursements to Sheperd Neame, Ltd.                               743,000          710,600
Interest expense associated to UBA convertible notes
payable (see Note 8)                                                         85,200           93,500
Interest paid to Sheperd Neame, Ltd. (see Note 6)                            46,600           52,300

ACCOUNT BALANCES
----------------

Accounts payable and accrued liabilities to Sheperd Neame, Ltd.           3,510,100        3,004,200
Accounts receivable and prepayments from Sheperd Neame, Ltd.                660,600          224,400
Amounts payable to AUBI                                                      20,000           20,000

</TABLE>

NOTE 12 -     MAJOR CUSTOMERS

Sales to the top five customers totaled $7,088,800 and $6,718,100 for the years
ended December 31, 2003 and 2002, which represents 25% and 26% of sales for the
years ended December 31, 2003 and 2002. Two customers, Alta Marketing and
Sheperd Neame, Ltd., generated 13% of sales for the year ended December 31,
2003,and Golden Gate Distributing and Sheperd Neame, Ltd., generated 14% of
sales for the year ended December 31, 2002.


NOTE 13 -     STOCKHOLDERS' EQUITY

COMMON STOCK - In 2001, common stock authorized to be issued was increased from
20 million shares to 30 million shares.

In August 2001, 5,500,000 shares were issued to Inversiones Mirabel S.A., for
the outstanding stock of United Breweries International (UK) Limited. Since
Mendocino Brewing and United Breweries International (UK) were under common
control, the business combination was recorded as if it were a pooling of
business interest, and the assets and liabilities were recorded at historical
cost (see Note 17). As part of this transaction, the Company agreed to issue
shares of common stock as payment for various acquisition costs totaling
$69,200. These shares were issued in 2002. Dissenting stockholders were given
the option to have the Company repurchase their stock at $.81 per share. 22,270
shares were acquired at a cost of $18,100.

Independent outside members of the Board of Directors are compensated for
attending Board of Directors and committee meetings. Compensation is with common
stock. Expenses related to this compensation totaled $45,000 and $47,000 for the
years ended December 31, 2003 and 2002. Stock has not yet been issued for the
2003 and 2002 expense as the Company is reviewing the policy.

PREFERRED STOCK - Ten million shares of preferred stock have been authorized, of
which 227,600 are designated as Series A. Series A shareholders are entitled to
receive cash dividends and/or liquidation proceeds equal, in the aggregate, to
$1.00 per share before any cash dividends are paid on the common stock or any
other series of preferred stock. When the entire Series A dividend/liquidation
proceeds have been paid, the Series A shares are automatically canceled and will
cease to be outstanding. Only a complete corporate dissolution will cause a
liquidation preference to be paid.

--------------------------------------------------------------------------------
                                                                     PAGE F - 12

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


NOTE 14 -     STOCK OPTION PLAN

Under the 1994 Stock Option Plan, the Company may issue options to purchase up
to 1,000,000 shares of common stock. The Plan provides for both incentive stock
options, as defined in Section 422 of the Internal Revenue Code, and options
that do not qualify as incentive stock options. The Plan terminates upon the
earlier of (a) the tenth anniversary of its adoption by the Board or (b) the
date on which all shares available for issuance under the Plan have been issued.

The exercise price of incentive options must be no less than the fair-market
value of such stock at the date the option is granted, while the exercise price
of non-statutory options will be no less than 85% of the fair-market value per
share on the date of grant. With respect to options granted to a person
possessing more than 10% of the combined voting power of all classes of the
Company's stock, the exercise price will be no less than 110% of the fair-market
value of such share at the grant date. During 2002, 240,385 non-statutory stock
options with a five-year term were issued to the independent members of the
Board of Directors at the market price on the date of grant. All options are
exercisable at the date of grant. There were no options issued during 2003.
Outstanding options expire through January 2007, with 88,888 options expiring in
2004; 100,000 options expiring in 2005; and 240,385 options expiring in 2007.

The following table summarizes the number of options granted and exercisable and
the weighted average exercise prices.

                                               SHARES UNDER    WEIGHTED-AVERAGE
                                                  OPTION        EXERCISE PRICE
                                              ---------------- ----------------
Balance at December 31, 2001                          188,888   $         1.19
Options granted                                       240,385   $         0.52
                                              ----------------
Balance at December 31, 2002                          429,273   $         0.82
                                              ----------------
Balance at December 31, 2003                          429,273   $         0.82
                                              ================

NOTE 15 -     INCOME TAXES

The continuing losses in the U.S. operations has resulted in the Company
determining that the deferred tax assets associated with net operating loss
carryforwards and investment tax credits may expire prior to utilization. The
Company recorded a valuation allowance of $3,117,000 for deferred tax assets
that may expire prior to utilization. The Company also has $57,900 of California
Manufacturers' Investment Tax Credits that can be carried forward to reduce
future taxes. These credits begin expiring in 2008.

<TABLE>
<CAPTION>

                                                                     2003             2002
                                                               ---------------- ----------------
<S>                                                              <C>              <C>
Provision for income taxes
  Federal                                                        $           -    $          -
  United Kingdom                                                       263,400         298,400
  States                                                                16,300           8,900
  Benefit of state investment tax credit carryforwards                 (15,000)         (6,800)
                                                               ---------------- ----------------
                                                                       264,700         300,500
  Change in deferred income taxes                                            -       1,922,600
                                                               ---------------- ----------------
                                                                 $     264,700    $  2,223,100
                                                               ================ ================
</TABLE>

--------------------------------------------------------------------------------
                                                                     PAGE F - 13

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


The difference between the actual income tax provision and the tax provision
computed by applying the statutory federal income tax rate to earnings before
taxes is attributable to the following:

<TABLE>
<CAPTION>

                                                                                  2003            2002
                                                                             -------------    -------------
<S>                                                                          <C>              <C>
Income tax expense at 34%                                                    $     105,800    $     167,700
State taxes                                                                         12,900           20,300
Undistributed earnings                                                             209,500          359,400
United Kingdom tax                                                                 (71,200)         (61,000)
Intercompany foreign dividends                                                      76,200                -
Recognition of future tax revenues or expenses                                      75,800          (39,000)
Valuation allowance                                                               (144,300)       1,775,700
                                                                             -------------    -------------
                                                                             $     264,700    $   2,223,100
                                                                             =============    =============

Temporary differences and carryforwards that give rise to deferred tax assets
and liabilities are as follows:

                                                                                  2003            2002
                                                                             -------------    -------------

Allowance for doubtful accounts                                              $       8,000    $      19,100
Inventories                                                                          6,300            8,000
Accruals                                                                            73,000           56,500
Depreciation and amortization                                                     (317,500)        (253,800)
Benefit of net operating loss carryforward                                       3,758,900        3,614,400
Undistributed earnings of United Breweries Interanational (UK), Ltd.              (800,300)        (582,100)
Investment in United Breweries International (UK) Ltd.                             328,400          328,300
Other                                                                               60,400           71,200
                                                                             -------------    -------------
                                                                                 3,117,200        3,261,600
Less valuation allowance                                                        (3,117,200)      (3,261,600)
                                                                             -------------    -------------
                                                                             $           -    $           -
                                                                             =============    =============

Valuation allowance - beginning of year                                      $   3,261,600    $   1,486,000
Valuation allowance - end of year                                                3,117,300        3,261,600
                                                                             -------------    -------------
Change in valuation allowance                                                $    (144,300)   $   1,775,600
                                                                             =============    =============

Net operating losses available for carryforward will expire as follows:

                              DATE OF EXPIRATION           FEDERAL         CALIFORNIA           NEW YORK
                              ------------------        -------------    ---------------     --------------
                                     2005               $           -    $     2,417,200     $            -
                                     2010                           -            250,900                  -
                                     2011                           -            153,700                  -
                                     2012                   1,802,300            144,900            277,400
                                     2018                   2,758,800                  -            424,700
                                     2019                   2,153,100                  -            320,300
                                     2020                     965,600                  -            134,200
                                     2021                   1,041,100                  -            160,200
                                     2022                     615,800                  -             94,400
                                     2023                     551,700                  -             85,000
                                                        -------------    ---------------     --------------
                                                        $   9,888,400    $     2,966,700     $    1,496,200
                                                        =============    ===============     ==============
</TABLE>

--------------------------------------------------------------------------------
                                                                     PAGE F - 14

<PAGE>

                                                 MENDOCINO BREWING COMPANY, INC.
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


--------------------------------------------------------------------------------


NOTE 16 -     SEGMENT INFORMATION

The Company's business presently consists of three segments. The first is
brewing for wholesale to distributors and other retailers. This segment
accounted for 43% and 46% of the Company's gross sales during 2003 and 2002. The
second consists of distributing alcoholic beverages to retail establishments and
restaurants in the United Kingdom and Europe. This segment accounted for
approximately 55% and 52% of the Company's gross sales during 2003 and 2002. The
third segment consists of brewing beer for sale along with food and merchandise
at the Company's brewpub and retail merchandise store located at the Hopland
Brewery. This segment accounted for 2% of the Company's gross sales during 2003
and 2002. A summary of each segment is as follows:

<TABLE>
<CAPTION>

                                                                  YEAR ENDED DECEMBER 31, 2003
                                      ---------------------------------------------------------------------------------
                                          BREWING         TAVERN &       DISTRIBUTOR       CORPORATE
                                        Operations     TASTING ROOM       OPERATIONS        AND OTHER        TOTAL
                                      --------------  ---------------  ----------------  --------------  --------------
<S>                                   <C>              <C>               <C>              <C>             <C>
Sales                                 $  11,590,100    $   425,300       $  16,848,800    $         -     $ 28,864,200
Operating income                            (19,400)       (31,400)          1,028,300              -          977,500
Identifiable assets                      13,695,200        102,400           6,676,900      1,336,700       21,811,200
Depreciation and amortization               736,500          6,000             358,800         26,100        1,127,400
Capital expenditures                        268,600              -             459,200              -          727,800

                                                                  YEAR ENDED DECEMBER 31, 2002
                                      ---------------------------------------------------------------------------------
                                          BREWING         TAVERN &       DISTRIBUTOR       CORPORATE
                                        Operations     TASTING ROOM       OPERATIONS        AND OTHER        TOTAL
                                      --------------  ---------------  ----------------  --------------  --------------
Sales                                 $  11,158,100    $   511,400       $  14,415,600    $         -     $  26,085,100
Operating income                            221,400         22,800             984,500              -         1,228,700
Identifiable assets                      14,500,800         99,600           5,973,100      1,716,100        22,289,600
Depreciation and amortization               758,900          5,700             246,500         37,900         1,049,000
Capital expenditures                        133,900              -             350,900          2,700           487,500

</TABLE>




--------------------------------------------------------------------------------
                                                                     PAGE F - 15