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                               UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549

                                FORM 1O-KSB

[X] ANNUAL REPORT UNDER  SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934
       For the fiscal year ended December 31, 1996

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934
       For the transition period from ________ to ________

                      Commission File Number : 0-27458

                      NOR'WESTER BREWING COMPANY, INC.
              (Name of small business issuer in its charter)
                   OREGON                           93-1099661
       (State or other jurisdiction              (I.R.S. Employer
       of incorporation or organization)         Identification No.)
                           66 SE MORRISON STREET
                          PORTLAND, OREGON  97214
          (Address of principal executive offices and zip code)
                               (503) 232-9771
                        (Issuer's telephone number)

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:   NONE
    SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
                        COMMON STOCK, NO PAR VALUE
                             (Title of Class)

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

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

Issuer's revenues for its most recent fiscal year were $6,820,691.

The aggregate market value of voting stock held by non-affiliates of the
registrant was $7,302,506 as of February 28, 1997,  based upon the last sales
price ($2.625) as reported on the Nasdaq System-Small Cap Market.

The number of shares outstanding of the Registrants Common Stock as of
February 28, 1997 was 3,711,097 shares.
The index to exhibits appears on page 28 of this document.
Transitional Small Business Disclosure Format (check one):  Yes [   ]  No [ X ]

                      DOCUMENTS INCORPORATED BY REFERENCE

None.
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                       NOR'WESTER BREWING COMPANY, INC.
                              FORM 10-KSB  INDEX


                                   PART I
                                                                        PAGE
                                                                        ----
Item 1.  Description of Business                                          2

Item 2.  Description of Property                                          8

Item 3.  Legal Proceedings                                                8

Item 4.  Submission of Matters to a Vote of Security Holders              8

                                   PART II

Item 5.  Market for Common Equity and Related Stockholder Matters         9

Item 6.  Management's Discussion and Analysis or Plan of Operation        9

Item 7.  Financial Statements                                            19

Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure                                        19

                                  PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act               19

Item 10. Executive Compensation                                          22

Item 11. Security Ownership of Certain Beneficial Owners and Management  24

Item 12. Certain Relationships and Related Transactions                  25

Item 13. Exhibits and Reports on Form 8-K                                28

         Signatures                                                      30

                                      1

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                                   PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

Nor'Wester Brewing Company, Inc. (the "Company" or "Nor'Wester") has been a
brewer of fresh, high quality, full-flavored premium beers, generally known
as craft beers, since November 1993.  The Company's leading brews include its
Hefe Weizen, Raspberry Weizen and the White Forest Scottish Ale.  The key
elements of the Company's brewing process include milling a unique blend of
malted Pacific Northwest and European grown wheat and barley grains, brewing
in small batches using Pacific Northwest and European hops, yeast developed
and cultured at the brewery, and conditioning for long periods at near
freezing temperatures.  Although the Company uses advanced technology in
small batch brewing, its brewers deliberately perform certain operations by
hand to ensure quality and achieve the desired flavors in their beers.  The
Company's initial brewery located in Portland, Oregon (the "Portland
Brewery")  currently has an annual production capacity of approximately
41,000 barrels. The Company is the sole owner of North Country Joint Venture,
LLC ("North Country LLC"), which owns and operates a brewery in Saratoga
Springs, New York  (the "Saratoga Springs Brewery").  The Saratoga Springs
Brewery began producing and selling beer in October, 1996 and currently has
an annual production capacity of 30,000 barrels.

Mr. James Bernau, Director, President and Secretary of the Company, owns
approximately 25 percent of the Company's Common Stock.  Mr. Bernau also owns
62 percent of Willamette Valley, Inc. Microbreweries Across America ("WVI"),
a brewery development company and affiliate of the Company.  WVI currently
holds the following ownership interests in each of the following brewing
subsidiaries: Aviator Ales, Inc., the owner and operator of the Seattle
Brewery ("Aviator Ales") -- 51%; Mile High Brewing Company, Inc., the owner
and operator of the Denver Brewery  ("Mile High Brewing") -- 51%; and
Bayhawk Ales, Inc., the owner and operator of the Southern California Brewery
("Bayhawk Ales") -- 57%. See also "Management's Discussion and Analysis -
Subsequent Events."

STRATEGY

In January 1996, the Company established a strategic alliance (the
"Alliance") with WVI, Aviator Ales, Mile High Brewing and Bayhawk Ales.  The
Alliance is created through a Strategic Alliance Agreement among the Alliance
members, a General Services Agreement between the Company and WVI and
separate Cooperative Brewing Agreements between the Company and each of
Aviator Ales, Mile High Brewing and Bayhawk Ales (the "Cooperative Brewers").
For a more complete description of the agreements under the Alliance, see
Item 12 "Certain Relationships and Related Transactions."

The initial purpose of the Alliance was to develop a national market for the
Nor'Wester brand.  As the Company and some of its competitors attempted to
expand their brands nationally, the Company learned that a national marketing
strategy for the Nor'Wester brand is not currently cost effective.  Consumers
have shown strong support for craft beers brewed in or near their local
markets and the Company believes the appropriate strategy is to develop and
protect strong local craft beer brands.  The Company further believes that
this strategy can be strengthened through the Affiliated Companies' ability
to build a network of breweries each producing their own brand with local
appeal while benefiting

                                      2

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from operating efficiencies, the decrease in production, marketing and
distribution costs and the increase in the ability of the Affiliated
Companies to finance growth and provide shareholders with a liquid market for
their shares.  Once these local brands are established, the Affiliated
Companies may expand the distribution of one or more of their beer styles
into additional selected markets.

To implement this new strategy, the Boards of Directors of the Affiliated
Companies have elected to consolidate their entities under a single entity,
United Craft Breweries, Inc. ("UCB").  Furthermore, on January 30, 1997 the
Affiliated Companies entered into a definitive investment agreement with
United Breweries of America, Inc. ("UBA") for the purpose of funding
operations until the consolidation is completed and provide for future growth
thereafter.  For additional information, see "Management's Discussion and
Analysis - Subsequent Events."

Should the proposed consolidation occur, the Cooperative Brewing Agreements,
the Strategic Alliance Agreement and the General Services Agreement will
terminate.

THE INDUSTRY

The craft brewing segment of the United States brewing industry is comprised
of regional craft brewers such as the Company (i.e. brewers that produces
between 15,000 and 1,000,000 barrels a year), contract brewers (i.e.
companies that formulate and market products brewed by third-party
mass-production brewers), microbrewers (i.e. brewers that produce under
15,000 barrels of craft beer a year) and brewpubs (i.e. a combination
restaurant and brewery which produces principally for on-site consumption).
Craft beers are full-flavored beers, brewed in traditional European brewing
styles with quality hops, malted barley, yeast and water.

Beginning in California, Oregon and Washington and more recently in the New
England states, Colorado and other regions across the country, regional craft
brewers, contract brewers, microbrewers, and brewpubs emerged to form the
craft beer industry.  Certain craft brewers, such as the Company, have been
able to grow from microbrewers into regional craft brewers by increasing the
size of their breweries, while maintaining traditional European brewing
methods.  Contract brewers, who generally do not have their own brewing
facilities, have taken advantage of demand by retaining industrial brewers to
perform contract brewing at otherwise underutilized industrial brewing
facilities.  Industrial brewers have also sought to appeal to this demand for
craft beers by introducing their own fuller-flavored specialty beers or by
acquiring or forming partnerships with existing craft brewers.

PRODUCTION AND PRODUCTS

The Company's products are currently produced at the Portland Brewery and the
Saratoga Springs Brewery.  Each brewery is designed to brew selected, high
quality grains and hops into ales and/or lager beers.  The particular beer
styles produced by each brewery are dependent on local taste, climate, ethnic
influences and lifestyles. Quality in the ingredients and the brewing process
is the primary guiding principle in the development and production of each
brewery's products.  Each brewery is equipped with a superior and efficient
brewhouse that utilizes modern electronic temperature controls in the
fermentation and conditioning tanks, and each brewery employs a brewmaster
experienced in producing

                                      3

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high quality craft beer.  Products currently produced by each of the
Company's breweries are as follows:

PORTLAND BREWERY:  Hefe Weizen, Best Bitter Ale, Dunkel Weizen, Raspberry
Weizen, Blacksmith Porter, Honey Weizen, Oregon Amber Ale, Peach Cream Ale,
White Forest Scottish Ale, Dead Eye Rye, Smith Rock Bock and Maple Ale.

SARATOGA SPRINGS BREWERY:  North Country branded products: Whiteface Pale
Ale, Fat Bear Stout and Maple Amber.  Nor'Wester branded products:  Raspberry
Weizen, Hefe Weizen, Best Bitter Ale and Blacksmith Porter.

RAW MATERIALS

Raw materials used by the breweries consist primarily of malted grains, hops,
brewers' yeast and water filtered through activated charcoal filters. The
breweries typically purchase all of their malted barley and wheat from one or
two single suppliers, although several comparable, alternative suppliers
exist. Each brewery typically selects the variety and grower of its
high-quality, whole-flower Pacific Northwest hops, and purchases them through
two major brokers.  The Company believes that alternative sources of malted
grains and hops are available at competitive prices.  Each brewery currently
cultivates its own yeast supply and multiple competitive sources of supply
for most packaging materials, such as bottles, labels, six-pack carriers,
crowns and shipping cases are available to the breweries

DISTRIBUTION

Each brewery markets its products under a locally-based brand name developed
specifically for that brewery.  The Portland Brewery markets its products
under the Company's "Nor'Wester-Registered Trademark-" trademark while the
Saratoga Springs Brewery markets its products under the "North Country-TM-"
trademark.  The Saratoga Springs Brewery also produces and markets products
under the Nor'Wester brand.  Each brewery sells its draft beers directly to
consumers visiting the respective brewery and through wholesale distribution
to pubs, taverns, and restaurants. Products from each of the Company's
breweries are also purchased by consumers in bottles at supermarkets,
warehouse clubs, convenience stores and liquor stores, depending on state and
local laws.  The products are delivered to these retail outlets through a
network of over 100 independent distributors.

The Portland Brewery products are sold to distributors who serve multiple
states, including Oregon, Washington, Idaho, Alaska, California, Colorado,
Montana and New Mexico, as well as southwestern Canada. Two distributors,
Maletis Beverage and Youngs Market, accounted for approximately 17 percent
and 10 percent, respectively, of the Portland Brewery's sales in 1996.  No
other customer accounted for more than 10 percent of the Portland Brewery's
sales in 1996.  The loss, without replacement, of either of these
distributors could have a material adverse effect on the Company's business,
financial condition and results of operation.

The Saratoga Brewery products are sold to distributors who serve multiple
states, including New York, Illinois, Virginia, Connecticut, Vermont, Rhode
Island, Pennsylvania, Maine, Massachusetts, Georgia, New Hampshire, New
Jersey, Maryland, Florida and South Carolina.  Two distributors, DeCrescente
Distributing and East Coast Distributing accounted for approximately 30
percent and 13 percent, respectively, of the Saratoga

                                      4

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Brewery's sales in 1996.  No other customer accounted for more than 10
percent of the Saratoga Brewery's sales in 1996.  The loss of either of these
distributors could have a material adverse effect on the Company's business,
financial condition and results of operation.

The Company's distributors also represent competing specialty beer brands, as
well as national beer brands, and are to varying degrees influenced by their
continued business relationships with other brewers.  The Company's
independent distributors may be influenced by a large brewer if they rely on
that brewer for a significant portion of their sales.  While the Company
believes that its relationships with its distributors are generally good,
these relationships are relatively new and untested and there can be no
assurance that the Company's distributors will continue to effectively market
and distribute the Company's beer.

Each of the Company's distribution agreements covers a specific geographic
area, and appoints the distributor as the exclusive distributor in that
geographic area, subject in certain cases to the Company's rights to engage
in certain limited retailing activities. The distribution agreements provide
that payment shall be made in full not more than 30 days after the date of
delivery.  The distribution agreements also provide for general cooperation
among the distributors and the Company in marketing, merchandising and
promotional efforts.  Each distribution agreement may be terminated by either
party 60 days after written notice of dissatisfaction with performance
specifying the grounds for such dissatisfaction if the specified deficiencies
have not been cured by the end of the 60-day period.

Craft beers generally sell at a price premium relative to domestic industrial
beers, with retail prices for craft beers typically ranging from $4.99 to
$7.99 per six pack of 12 ounce bottles versus approximately $2.99 to $3.99
for industrial beers.  This price premium provides generally higher profit
margins for the distributors and retailers that offer craft beers.  The
Company believes that distributors and retailers are eager to increase their
sales of higher margin craft beers as industrial brewers continue to wage
price wars to gain market share in this flat growth segment thereby
decreasing distributor's margins.

To further promote retail product sales, the Company periodically offers
"post-offs," or price discounts to its distributors.  Distributors and
retailers often participate in these price discounts.

COMPETITION

The craft beer segment is highly fragmented and competitive, especially in
the Pacific Northwest, which the Company believes is one of the most
developed craft beer markets in terms of number of breweries and consumer
awareness.  The Company's breweries compete primarily with other craft
brewers, contract brewers, producers of imported beers and mass-market
industrial brewers.  The principal means of competition in the craft beer
segment are product quality, taste, consistency and freshness, brand and
product differentiation, distribution methods and area coverage, promotional
methods, packaging, development of new products and, to a lesser extent,
pricing.

The craft beer industry has become saturated with numerous brands each
comprised of several beer styles.  As a result, growth rates are slowing,
especially in the Pacific

                                      5

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Northwest where there are many brands vying for available shelf space and
taps.  The industry is also facing a loss of shelf space, and therefore
sales, to the industrial brewers, who have created fuller-flavor specialty
beers and are threatening to withdraw their business from distributors who
also distribute brewery brands.

Specifically, during 1996, the Company experienced significant competition
from a competitor who began selling its weizen (wheat) based beer in bottles
into the same principal channels of distribution as the Company's Nor'Wester
brand.  This competitor already held a majority of the draft market share for
weizen based beers in and around Portland.  The entry of this competitor into
the bottled market resulted in a significant decline in market share for the
Company, as well as for  Aviator Ales, an affiliated company, which had a
significant negative impact on 1996 results.  To date, the Company has been
unable to regain this market share.  This competitor also utilizes the same
primary distributor within the Portland market as the Company.

The Company expects competition among craft brewers to continue to increase,
possibly resulting in decreases in market share, growth rates and product
prices.

Many of the Company's competitors in the craft beer segment, including
Pyramid Breweries, Redhook Ale Brewery, Widmer Brewing, Full Sail Brewing and
Boston Beer Company, have greater financial and other resources than the
Company.

RESEARCH AND DEVELOPMENT

To meet varying consumer style and flavor preferences, the Company's
breweries continually engage in the development and testing of new products.
The Company pilot brews small batches of new products for sampling at its
breweries, in community tastings and, in the case of the Portland Brewery, at
the Nor'Wester Public House.  The Company also performs numerous tastings and
surveys with its distributors and consumers on beer styles and brand imagery.

REGULATION AND DRAM SHOP LIABILITY

The Company's business is highly regulated at federal, state and local
levels.  Various permits, licenses and approvals necessary to the Company's
brewery and pub operations and the sale of alcoholic beverages are required
from various agencies, including the U.S. Treasury Department, Bureau of
Alcohol, Tobacco and Firearms (the "BATF"); the United States Department of
Agriculture; the United States Food and Drug Administration; state alcohol
regulatory agencies in the states in which the Company sells its products;
and state and local health, sanitation, safety, fire and environmental
agencies.  In addition, the beer industry is subject to substantial federal
and state excise taxes.

Management believes that the Company currently has all licenses, permits and
approvals necessary for its current operations and is in material compliance
with all applicable government regulations.  However, existing permits or
licenses could be revoked if the Company were to fail to comply with the
terms of such permits or licenses, and additional permits or licenses could,
in the future, be required for the Company's  existing or expanded
operations.  If licenses, permits or approvals necessary for the
subsidiaries' brewery or pub operations were unavailable or unduly delayed,
or if any such permits or licenses were revoked, the Company's ability to
conduct its business could be substantially and adversely affected.

                                      6


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The serving of alcoholic beverages to a person known to be intoxicated may,
under certain circumstances, result in the server's being held liable to third
parties for injuries caused by the intoxicated customer.  The Company's Public
House has addressed this concern by establishing early closing hours and
employee training and designated-driver programs. In addition, the Company has
obtained host liquor and legal liquor liability insurance coverage and intends
to continue such coverage if it remains available at a reasonable cost.
Future increases in premiums could make it prohibitive for the Company to
maintain adequate insurance coverage.  Any large uninsured damage awards
against the Company could have a material adverse affect on the Company's
business and financial condition.

TRADEMARKS
Nor'Wester-Registered Trademark- and the Nor'Wester compass logo (a
miscellaneous design mark) are federally registered trademarks of the Company
and the Company has filed for federal trademark protection for certain of its
flavor styles which include, but are not limited to,  "Blacksmith-TM-", "Peach
Creme-TM-", "Deadeye-TM-" and "Smith Rock Bock-TM-". The Company's policy is
to preserve registration of its marks whenever possible and to oppose
vigorously an infringement of its marks.

EMPLOYEES

At December 31, 1996, the Company had a total of 50 full time and 4 part time
employees, including 15 full time employees of North Country LLC , the
Company's 100 percent owned subsidiary which owns and operates the Saratoga
Springs Brewery. None of the Company's employees are covered by collective
bargaining agreements, there have been no work stoppages and the Company
believes that relations with its employees are adequate.


                                       7
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ITEM 2.  DESCRIPTION OF PROPERTY

THE PORTLAND BREWERY.  In November 1993, the Company opened the Portland
Brewery in a leased building directly across the Willamette River from
Portland's downtown core area. The Portland Brewery is located in a 12,200
square foot facility which includes the Nor'Wester Public House, a 2,200
square foot pub/restaurant with a serving capacity of 140 persons.  The
Company's corporate offices are also located in this facility.  The Company's
lease expires on January 31, 2002, and contains renewal options for up to an
additional 10 years.  The Portland Brewery has a current maximum annual
production capacity of 41,000 barrels.  Due to current space limitations, no
further brewing capacity may be added in this facility.  However, the Company
has a first right of refusal to lease an additional 19,300 square feet of the
building which is currently leased to another party through December 31, 1998.
The Company also has a first right of refusal to purchase the building.  The
Portland Brewery also has a bottling line and a labeler.


THE SARATOGA SPRINGS BREWERY.  The Saratoga Springs Brewery, is located in an
approximately 16,750 square foot leased facility on approximately 3.65 acres
in Saratoga Springs, New York.  This lease expires in February 2001 and has
three, five year renewal options. The brewery also has a high speed bottling
line and a labeler.  The Saratoga Springs Brewery has a current maximum annual
production capacity of 30,000 barrels which can be increased to 200,000
barrels by adding additional brewing equipment and fermentation tanks within
the existing facility structure.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company was a
party.  From time to time, The Company becomes involved in ordinary, routine
or regulatory legal proceedings incidental to the business of the Company

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

No matters were submitted to a vote of the Company's shareholders during the
quarter ended December 31, 1996.


                                       8
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                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is quoted on the over-the-counter market on the
Nasdaq National Market System under the symbol "ALES." The following table
sets forth the high and low sales prices as reported by the Nasdaq National
Market System for the periods indicated. The Company's Common Stock commenced
trading on January 18, 1996.


Year Ended December 31, 1996                          High            Low
--------------------------------------------------   ------         ------
Quarter 4                                            $ 6.75         $ 2.50
Quarter 3                                              6.75           3.63
Quarter 2                                              7.00           4.88
Quarter 1 (from January 18, 1996)                      9.50           6.00


The approximate number of shareholders of record on December 31, 1996  was
4,403.  There were no cash dividends declared or paid in fiscal years 1996 or
1995. The Company does not anticipate declaring such dividends in the
foreseeable future.

There were no sales of unregistered securities by the Company during the year
ended December 31, 1996.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

RESULTS OF OPERATIONS
The following table reflects selected data from the Company's statements of
operations stated as a percentage of net sales:

                                                 YEAR ENDED DECEMBER 31,
                                                 -----------------------
                                                     1996       1995
                                                   --------   --------
 Gross sales . . . . . . . . . . . . . . . . . .    104.5%     105.1%
 Less excise taxes . . . . . . . . . . . . . . .      4.5        5.1
                                                   --------   --------
 Net sales . . . . . . . . . . . . . . . . . . .    100.0      100.0
 Cost of goods sold. . . . . . . . . . . . . . .     79.1       61.9
 Selling, general and administrative expenses. .     73.1       25.2
                                                   --------   --------
 Operating income (loss) . . . . . . . . . . . .    (52.2)      12.9
                                                   --------   --------
 Income (loss) before income taxes . . . . . . .    (51.6)      12.6
                                                   --------   --------
 Net income (loss) . . . . . . . . . . . . . . .    (45.6)%      7.9%
                                                   --------   --------
                                                   --------   --------


GROSS REVENUES.  Gross revenues from beer and retail products totaled $6.8
million for the year ended December 31, 1996 and $5.9 million for the year
ended December 31, 1995.  The increase in sales is primarily a result of a
national roll-out of Nor'Wester branded beers.  This increase was offset by
the challenges the Company faced both in its home markets, with increased
competition and changing consumer tastes, and in other markets where the
Company struggled to establish and maintain relationships with distributors.
In addition, one of the Company's competitors began selling its Hefe Weizen
beer in bottles into the Company's principal distribution channels in the
Portland area during 1996, thus decreasing the Company's market share in its
most significant market.  The Company's Saratoga Brewery began producing and
selling beer in October 1996.


                                       9

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The Company's Portland Brewery currently has an annual production capacity of
41,000 barrels.  The Company sold 35,287 barrels (including beer produced at
the Affiliated Companies under Cooperative Brewing Agreements) and 32,375
barrels during 1996 and 1995, respectively.

The Company's Saratoga Brewery currently has an annual production capacity of
30,000 barrels and sold 1,041 barrels during 1996.

EXCISE TAXES.  Excise taxes increased to $296,609 (4.3 percent of gross sales)
for the year ended December 31, 1996 from $283,979 (4.8 percent of gross
sales) for the year ended December 31, 1995.  The decrease as a percent of
gross sales is a result of the increase in sales to states in which no state
excise tax is paid by the producer.

COST OF GOODS SOLD.  Cost of goods sold totaled $5.2 million (79 percent of
net sales) for the year ended December 31, 1996 compared to $3.5 million (62
percent of net sales) for the year ended December 31, 1995.  The increase in
cost of goods sold as a percentage of net sales is due primarily to the
following factors:  1) purchasing beer from Affiliated Companies under
Cooperative Brewing Agreements resulting in higher costs than could be
incurred if the beer was produced by the Company; 2) the sale in the second
quarter of approximately 12,500 cases of beer at cost to a national beer club,
for sale to its 25,000 members, as a national sales promotion strategy; 3)
costs associated with the commencement (and subsequent cessation) of
production of Nor'Wester beer at affiliated breweries under the Cooperative
Brewing Agreements; 4)  additional storage costs resulting from the build-up
of finished goods inventory produced to meet projected sales that never
materialized; 5)  the write-down of approximately $110,000 for excess finished
goods inventory that was moved through an alternate distribution channel; and
6) increased cost structure developed to meet projected sales volumes that
never materialized.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses increased to $4.8 million (73 percent of net sales) for the
year ended December 31, 1996 from $1.4 million (25 percent of net sales) for
the year ended December 31, 1995.  The increase in SG&A expenses is primarily
attributable to 1) the addition of salaried sales personnel to establish and
oversee the Company's anticipated growth in new markets; 2) increased shipping
costs associated with bringing beer to markets located considerable distances
away from the Portland Brewery; 3)  increased advertising costs as the Company
expanded its sales efforts in order to quickly penetrate target markets 4)
Start-up and operating costs of $202,000 associated with the construction and
operation of the Saratoga Springs Brewery; and 5) the write-off of
approximately $500,000 of point-of-sale materials and excess finished goods
inventory.  In the third quarter of 1996, the Company restructured sales
related compensation, implemented expense controls and reduced staff in an
effort to reduce SG&A expenses while still increasing sales.

NET INCOME (LOSS). As a result of the individual line items discussed above,
net loss was $3.0 million for the year ended December 31, 1996 compared to net
income of $442,727 for the year ended December 31, 1995.

                                      10

<PAGE>

SEASONALITY.  Beer consumption nationwide has historically increased by
approximately 20% during the summer months.  In 1994 and 1995, seasonality had
little measurable effect on sales as the Company experienced rapid growth in
the sale of its products during those years.  In 1996, as a result of a
downturn in the Company's sales following the introduction of bottled wheat
(weizen) beers by one of the Company's competitors in May 1996, the Company
has had difficulty measuring the impact of seasonality in 1996. Further, it is
not clear to what extent seasonality will affect the Company as it expands its
capacity at the Saratoga Springs Brewery.  The Company brews seasonal beers
which augment sales during the periods in which they are available.

LIQUIDITY AND CAPITAL RESOURCES
In January 1996, the Company, in its underwritten public offering (the
"Offering"), issued 1,287,500 shares of Common Stock at $7.00 per share,
generating net proceeds of approximately $7,694,000.  Prior to the Offering,
the Company funded its operations and capital requirements through cash
generated from two self-underwritten public stock offerings, sales from
operations, and bank borrowings.

Cash and cash equivalents decreased $24,758 to $252,049 at December 31, 1996
from $276,807 at December 31, 1995.   The decrease is primarily a result of
$7.7 million provided from the sale of common stock in the Offering and net
proceeds from borrowings of $2.1 million, including $250,000 borrowed from Jim
Bernau, the Company's President (see "Certain Relationships and Related
Transactions") and $900,000 in bridge loans from United Brewers of America,
Inc. ("UBA") (see "Subsequent Events" below), offset by cash used in
operations of $1.1 million, purchases of property and equipment (primarily for
the Saratoga Springs Brewery) of $7.9 million and advances to affiliates of
$875,853.

Working capital deficit was $1.8 million at December 31, 1996 compared to a
working capital deficit of $803,604 at December 31, 1995.   The current ratio
decreased to .67:1 at December 31, 1996 from 1.4:1 at December 31, 1995.

Advances to the Affiliated Companies increased $875,853 to approximately $1.6
million at December 31, 1996 from $700,000 at December 31, 1995.  This
increase resulted from the need to increasingly support the affiliated
breweries throughout the year, each of which was engaged to cooperatively brew
the Company's beer and each of which reported operating losses for the year
ended December 31, 1996.

Capital expenditures for 1996 totaled $7.9 million.  The capital expenditures
relate primarily to the costs associated with construction of the new brewery
in Saratoga Springs, New York. The Company substantially completed
construction of its Saratoga Springs Brewery in September 1996 at a total cost
of approximately $7.0 million, including all brewing equipment and
fermentation tanks.  Commercial brewing began in October 1996. Nor'Wester's
investment in the Saratoga Spring's Brewery was approximately $8.7 million,
which is approximately $4.7 million more than was originally planned.  There
are three principal reasons for the increase in Nor'Wester's investment: (i)
the decision of North Country Brewing, Inc., Nor'Wester's intended joint
venture partner in the Saratoga Springs Brewery, to terminate its direct
public stock offering to raise its planned $2.55 million capital contribution
to the Saratoga Springs joint venture, (ii) the Company's inability to obtain
$2.0 million in planned bank financing to finance construction and operation
of the brewery, and (iii) an increase of approximately $200,000 in the cost of
brewery construction and structural improvements to the leased building over
initial estimates.


                                      11
<PAGE>

Accounts payable at December 31, 1996 totaled $2.4 million, compared to
$870,731 at December 31, 1995.  Of the $2.4 million outstanding at December
31, 1996, $1.9 million was past due.  As of the date of this report, $2.1
million of accounts payable were past due. See also "Risk Factors - Amounts
Past Due to Contractors, Suppliers and Equipment Vendors."


At December 31, 1996, the Company had outstanding $2.9 million under its bank
credit facilities consisting of a $1 million revolving line of credit and a
$2 million term loan.  The term loan bears interest at 8.62% and calls for
equal monthly installments over a 7-year period.  The revolving line of
credit expired on December 31, 1996 and remains unpaid.  Under the credit
facilities, the Company must (i) maintain certain financial ratios, (ii) not
incur further debt or create or assume any other lien on its property without
the banks' prior approval, and (iii) make no payment of dividends without the
bank's prior approval.  The Company is in violation of items (i) and (ii).
The Company is involved in discussions with the lender in order to (i) renew
the $1.0 million credit facility to mature on the earlier of September 30,
1997, or 10 days following closing of the investment by UBA and (ii) waive
the loan covenants associated with these loans so long as the Company remains
in compliance with all terms of the Investment Agreement and achieves
reasonable progress toward closing the investment with UBA. However, formal
approval of amendment to the bank's loan agreements has not yet been
received.  See "Risk Factors--Risks of Debt and Default on Bank Loans."

In 1996, the Company utilized capital primarily to finance the construction
and start-up of the Saratoga Springs Brewery and increases in brewing capacity
to its existing facilities.  In addition, the Company required capital to
finance operations and continues to require capital for ongoing operations.
The recently completed construction and start-up of the Saratoga Springs
Brewery and the Company's attempts to regain market share in the Portland area
for its Nor'Wester branded products has had and is expected to continue to
have a material impact on the Company's assets, liabilities, capital
expenditure commitments, and liquidity.

The Company believes that current working capital together with projected
income from operations are not sufficient to meet the Company's cash needs
over the next twelve months.

SUBSEQUENT EVENTS

PENDING CONSOLIDATION, BRIDGE LOANS, SUBSEQUENT INVESTMENT AND RENEGOTIATIONS
OF THE TERMS

On January 30, 1997, the Company, WVI, Aviator Ales, Mile High Brewing and
Bayhawk Ales (together the "Affiliated Companies"), entered into a definitive
Investment Agreement (the "Investment Agreement") with United Breweries of
America, Inc. ("UBA").  Under the terms of the Investment Agreement, UBA has
agreed to invest $8.63 million in exchange for a 45 percent equity interest in
the consolidated businesses of the Affiliated Companies.  UBA, an affiliate of
The UB Group of Bangalore, India, was formed for the purpose of investing in
the U.S. craft beer industry.  The UB Group is a diversified multi-national
corporation whose major operations consist of the production and sale of beer
and spirits through affiliated companies which operate in 20 countries on four
continents.

Under the terms of the Investment Agreement, the Affiliated Companies have
each agreed to consolidate under the ownership of a new entity, United Craft
Brewers, Inc. ("UCB").


                                      12
<PAGE>

UCB will serve as a holding company for companies which operate each of the
five affiliated breweries--the Portland Brewery, the Saratoga Springs Brewery,
the Seattle Brewery, the Denver Brewery and the Southern California Brewery.
The proposed consolidation is a condition to receipt of UBA's investment which
will be made directly in UCB.

CONSOLIDATION.  Under the proposed consolidation each of the Affiliated
Companies will become a wholly-owned subsidiary of UCB pursuant to a merger
and share exchange by which newly registered shares of UCB will be issued in
exchange for outstanding shares of the Affiliated Companies based on the share
exchange rates described below.  The merger and share exchange has been
unanimously approved by the Boards of Directors of each of the Affiliated
Companies but remains subject to approval by shareholders of each Affiliated
Company.  Following completion of the consolidation, shareholders of each
Affiliated Company will hold shares in UCB, which is intended to be listed for
trading on the Nasdaq National Market System under the symbol "ALES".  The
consolidation is primarily an administrative step designed to simplify the
ownership structure of the Affiliated Companies, increase the operating
efficiencies of each brewery, decrease the production, marketing and
distribution costs of each brewery, increase the ability of the combined
breweries to finance operations and possible growth and provide all
shareholders with a liquid market for their shares.

The outstanding shares of each of the Affiliated Companies will be exchanged
for shares in UCB according to the following exchange ratios which are based
on the average closing price of Nor'Wester's Common Stock for the 20 trading
days immediately preceding January 30, 1997, the date of execution of the
Investment Agreement:


COMPANY                          EXCHANGE RATIO
--------------------------      ----------------
Nor'Wester                             1:1
WVI                                 1.99159:1
Aviator Ales                        2.98739:1
Bayhawk Ales                        1.99159:1
Mile High Brewing                   2.98739:1

BRIDGE LOANS.  Under the Investment Agreement, UBA is obligated to provide
Nor'Wester with up to $2.75 million in bridge loans as interim financing
during the consolidation phase. Advances under the bridge loan are expected to
be used by Nor'Wester to help cover operating expenses and pay existing
creditors of the Affiliated Companies until closing of the investment, at
which time the balance of UBA's $8.6 million investment is expected to be
made.  Of the $2.75 million, $1.5 million has already been advanced and spent
as of the date of this report.  All bridge loans are made pursuant to a Credit
Agreement between Nor'Wester and UBA, the principal terms of which are as
follows:

     (1)  The bridge loans will be made at times and in amounts mutually
     determined by UBA and Nor'Wester based on a periodic review of the cash
     flow needs and creditor demands of the Affiliated Companies;

     (2)  Interest on the bridge loan accrues at 11.25% per annum and is
     payable to UBA in cash at closing of UBA's investment.


                                      13

<PAGE>

     (3)  All principal and interest is secured by the assets of North Country
     Joint Venture, LLC (owner and operator of the Saratoga Springs Brewery)
     and by Nor'Wester's ownership interest in the joint venture LLC.
     Repayment of all principal and interest is guaranteed personally by Jim
     Bernau.

     (4)  As a condition to each advance under the bridge loan, neither Jim
     Bernau nor any of the Affiliated Companies shall be in breach of any
     representation, warranty or covenant under the credit documents or the
     Investment Agreement and there shall not be any "material adverse effect"
     in the businesses of the Affiliated Companies as a whole.

     (5)  Unless converte d at closing, all advances under the bridge
     loan mature 60 days after termination of the Investment Agreement or the
     occurrence of certain events of default under the credit documents
     (including the breach by an Affiliated Company or Mr. Bernau of any
     representation, warranty or covenant under the Investment Agreement),
     except that the bridge loan becomes due immediately if a "material
     adverse effect" occurs in the businesses of the Affiliated Companies as a
     whole or there is a breach by any Affiliated Company or Mr. Bernau of any
     representation, warranty or covenant under the credit documents.

INVESTMENT.  Following completion of the consolidation and assuming all
closing conditions have been met as required under the Investment Agreement,
UBA will invest an additional $5.88 million in cash combined with the
anticipated conversion of the $2.75 million bridge loan in exchange for a 45
percent equity interest in UCB.

Closing of the proposed investment remains subject to (i) approval by the
shareholders of each of the Affiliated Companies, (ii) achievement of certain
aggregate operating results by the breweries, (iii) maintenance of certain
operating conditions and covenants, including that there shall be no "material
adverse change" in the businesses of the Affiliated Companies taken as a
whole, (iv) approval by the U.S. Bureau of Alcohol, Tobacco and Fire Arms and
applicable state liquor control commissions, (v) registration with the U.S.
Securities and Exchange Commission of the UCB shares to be exchanged in the
consolidation; (vi) extension of Nor'Wester's $1.0 million line of credit
through September 30, 1997, the bank shall have waived any defaults under the
line of credit agreement and the line of credit shall have been converted to a
term loan and (vii) such other customary conditions for transactions of this
type.

As a further condition to UBA's investment, Jim Bernau has agreed to transfer
to UBA 1,124,195 of the UCB shares he receives in the consolidation (or
approximately 46% of his total UCB shares at consolidation).  This
transfer, for which Mr. Bernau will receive no cash consideration, is being
done principally to provide UBA with the necessary equity interest in UCB
(45%) to cause UBA to make the investment.

Following completion of the consolidation and closing of UBA's investment, the
approximate ownership interests in UCB will be as follows: (i) UBA -- 45.0%,
(ii) Jim Bernau -- 10%, and (iii) the public shareholders of each Affiliated
Company will own the following interests:  Nor'Wester--21.6%, WVI--7.1%,
Aviator Ales--6.7%, Mile High Brewing--5.9%, and Bayhawk Ales--3.7%.  The
initial Board of Directors of UCB will be composed of 7 members consisting of
(i) one person appointed by Jim Bernau, (ii) four persons

                                      14

<PAGE>

appointed by UBA (one of whom shall be Vijay Mallya, Chairman of The UB Group,
who shall be chairman) and (iii) two outside Directors who shall be mutually
satisfactory to Jim Bernau and UBA.  The initial Board will serve until the
next regular meeting of shareholders.  At that time, UBA, with its 45%
interest, will be in a position to effectively elect all members of the Board
of Directors and thereby control UCB and in turn its subsidiary breweries.

Subject to completion or waiver of all closing conditions, closing of UBA's
investment will occur as soon as practicable following approval of the
consolidation by the shareholders of each of the Affiliated Companies which is
currently expected to occur in or about July 1997.  In the event that the
investment is not closed by August 31, 1997, either party may terminate the
transaction and repayment of any outstanding bridge loan is due 60 days
thereafter.

While the Company is dependent upon the receipt of further loans under the
credit facility and closing of the UBA investment, the Company does not
control the business or operations of the other Affiliated Companies and can
not assure that it or another Affiliated Company will not violate one or more
covenants in the Investment Agreement or that a closing condition will not be
met.  Accordingly, there can be no assurance that the Company will receive
further bridge loan amounts or that the investment will ultimately close or
will close on the terms set forth in the Investment Agreement.

RENEGOTIATION OF THE TERMS OF THE UBA INVESTMENT. In light of lower than
anticipated 1996 results, lower than anticipated first quarter 1997 sales and
other operating results and adverse conditions within the craft beer industry
in general, representatives of UBA and management and the investment bankers
of the Affiliated Companies are in the process of renegotiating the terms of
the UBA investment. The renegotiation will reflect a significantly lower
valuation for the Affiliated Companies, a reduction in the amount of cash to
be invested by UBA to $5.5 million and a reduction of UBA's percentage
ownership position in UCB to 40% following the consolidation. It is not
anticipated that the $2.75 million bridge loan amount will be reduced.  The
existing shareholders in the Affiliated Companies would retain a 60% interest
in UCB.  The exact distribution of ownership interests among shareholders of
the Affiliated Companies has not yet been determined.  Management will soon
seek Board approval by each of the Affiliated Companies of any renegotiated
terms.  Failure of the parties to reach a mutually agreeable renegotiated
Investment Agreement could lead to a loss of the bridge loans and the
remainder of the UBA investment which would materially and adversely affect
the Company's financial condition and results of operations.

RISK FACTORS AND FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results
of Operation and other sections of this Form 10-KSB contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 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 such words and similar
expressions are intended to identify such forward-looking statements.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements due to numerous
factors, including, but not


                                      15
<PAGE>

limited to, those discussed below, as well as those discussed elsewhere in
this Form 10-KSB and from time to time in the Company's Securities and
Exchange Commission filings and reports, including but not limited to the
Company's Prospectus dated January 18, 1996.  Copies of the Prospectus are
available from the Company.  In addition, such statements could be affected by
general industry and market conditions and growth rates, and general domestic
economic conditions.

RECENT LOSSES.  During 1996, the Company incurred significant losses
associated with efforts to increase production and distribution of its
products through its Cooperative Brewing Agreements with Affiliated Companies
and higher than expected costs associated with the construction and start-up
of the Saratoga Springs Brewery.  In addition, as a result of the entry of a
significant competitor in the bottled Hefe Weizen market in the second
quarter of 1996, the Company has experienced a significant reduction in the
sale of its flagship Hefe Weizen beer style in its principal Pacific
Northwest market. As a consequence, although the Company experienced an
increase in net sales of $6,524,082 in 1996 over sales of $5,587,758 in 1995,
the Company also experienced historically high production, marketing, general
and administrative, and one-time expenses which resulted in a loss in the
second, third and fourth quarters of 1996 and for 1996 as a whole.
Specifically, Nor'Wester experienced a net profit of $63,057 in the first
quarter of 1996, but had net losses of $267,098, $869,821 and $1,774,447 in
the second, third and fourth quarters, respectively, for an aggregate net
loss of $2,974,423 in 1996 as compared to a profit of $442,727 in 1995.
Although the Company has terminated efforts to cooperatively brew its beer
through Affiliated Companies, management anticipates that the Company will
continue to experience losses until sales at the Saratoga Springs Brewery
have increased to a level sufficient to cover operating expenses at that
facility and the Company has regained a portion of the market share for its
products in the Pacific Northwest.  See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations -Results of Operations."

INCREASING COMPETITION.  The domestic market in which the Company competes is
highly competitive due to the continuing proliferation of new craft brewers,
efforts by regional craft brewers to expand their production capacities and
distribution, the introduction of fuller-flavored products by certain major
national brewers, and underutilized domestic brewing capacity, which
facilitates expansion by existing contract brewers and the entry of new
contract brewers.  Although it is difficult to predict, the Company
anticipates that intensifying competition and increased capacity in the craft
beer segment may cause pressure on the Company to reduce its prices in certain
areas.  In addition, the larger national brewers have developed or are
developing beer styles and brands to compete directly with craft beers.  These
national competitors and many of the Company's other craft beer competitors
have significant advantages such as lower production costs, larger marketing
budgets, greater financial and other resources and more developed and
extensive distribution networks than the Company.  There can be no assurance
that Nor'Wester will be able to maintain its selling prices in existing
markets or as it enters new markets.

MATURING MARKETS.  55 percent of the Company's 1996 sales were in the states
of Washington and Oregon.  The Company believes that craft beer sales in 1996
accounted for approximately 12 percent of total beer sales in those states,
compared to approximately 2.0 percent nationwide.  Craft beer sales in the
states of Washington and Oregon


                                      16
<PAGE>

combined increased by 30 percent from 1994 to 1995, but have been estimated by
the Company to have increased at a slower pace from 1995 to 1996.  No
assurance can be given that the sales increases in the market will continue or
even be maintained.  The Company anticipates that as the Washington and Oregon
market matures, craft brewers may begin more aggressive pricing as a means of
maintaining market share, which could adversely affect the Company's margins.

DEPENDENCE UPON BRIDGE LOANS AND INVESTMENT FROM UNITED BREWERIES OF AMERICA,
INC.  The Company has been and continues to be highly dependent upon the
receipt of bridge loans and investment funds from UBA to pay creditors and
sustain the Company's operations during the expected periods of loss until
profitability is restored.  Since October 1996 through the date of this
report, UBA has provided $1.5 million in bridge loans under the $2.75 million
credit facility.  The receipt of additional advances under the credit facility
and closing of the investment is subject to the Affiliated Companies'
compliance with certain covenants and conditions set forth in the Investment
Agreement and credit documents, including the condition that no "material
adverse effect" occurs in the businesses of the Affiliated Companies as a
whole.  While the Company is dependent upon the receipt of further bridge and
closing of the UBA investment, the Company does not control the business or
operations of the other Affiliated Companies and can not assure that it or
another Affiliated Company will not violate one or more covenants in the
Investment Agreement or that a closing condition will not be met.
Accordingly, there can be no assurance that the Company will receive further
bridge loan amounts or that the investment will ultimately close or will close
on the terms set forth in the Investment Agreement. See "Management's
Discussion and Analysis--Subsequent Events."

If for any reason, the Company is unable to pay past due creditors and finance
working capital requirements through an investment by UBA, alternative methods
of financing would have to be obtained.  No assurance can be given that
alternative methods of financing would be obtained.  No assurance can be given
that alternative methods of financing would be available on terms acceptable
to the Company, or at all.  Having to develop alternative means of financing
would likely slow development of the existing breweries and such alternative
financing may be costly.  The inability of the Company to obtain additional
capital would adversely affect the Company's business and results of
operations.

AMOUNTS PAST DUE TO CONTRACTORS, SUPPLIERS AND EQUIPMENT VENDORS.  At December
31, 1996 and as of the date of this report, the Company was past due on $1.9
million and $2.1, respectively, of its accounts payable.  The Company has
communicated with these creditors and has negotiated acceptable payment terms
to be funded primarily through bridge loans from UBA.  If the Company does not
have the cash needed to pay the amounts due and is not able to work out
satisfactory alternative payment arrangements, these contractors, suppliers
and vendors may seek to exercise their remedies, including the filing of liens
against the Company's assets.  As of the date of this report, management is
aware of three creditors who have filed liens to secure an aggregate of
$414,103 owed.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."  Resolving the Company's payment
obligations to its contractors, suppliers and vendors may distract Management
from its other duties, involve additional expense, and result in production
delays which in turn could have a material adverse impact on the Company's
business, financial condition, and results of operations.


                                      17
<PAGE>

RISKS OF DEBT AND DEFAULT ON BANK LOANS.  As of the date of this report,
Nor'Wester has incurred approximately $4.7 million in debt to finance
operations of the Portland Brewery and Saratoga Springs Brewery, including
$1.5 million of bridge loans from UBA.  The ratio of the Company's long-term
debt to equity as of December 31, 1996, is .36 to 1.  See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Capital Resources."  Loan and lease payments for the
Company's facilities must be paid regardless of the Company's revenue.  The
Company is in default on its $1.0 million bank line of credit facility which
was due on December 31, 1996.  Further,  the Company is not in compliance with
certain loan covenants relating to both the $1.0 million line of credit
facility and a $2.0 million term loan with the bank.  These loans are secured
by substantially all of the Company's assets.  The Company is involved in
discussions with the lender in order to (i) renew the $1.0 million line of
credit facility to mature on the earlier of September 30, 1997, or 10 days
following closing of the investment by UBA and (ii) waive the loan covenants
associated with these loans so long as the Company remains in compliance with
all terms of the Investment Agreement and achieves reasonable progress toward
closing the investment with UBA.  However, final approval of amendment to the
bank's loan agreements has not yet been received.  If final approval is not
received or if received but the Company subsequently violates the terms of the
amendment, then the Company would be in default of its loans which could lead
to foreclosure and sale of all or an important part of the Company's assets.
Such an event would have a material adverse impact on the Company's business,
financial condition, and results of operations.

VARIABILITY OF MARGINS AND OPERATING RESULTS.  The Company anticipates that
margins will fluctuate and may decline as a result of many factors, including
(i) disproportionately high operating costs when the Company's breweries are
producing below maximum designed production capacity, which typically occurs
upon commencing operations at a new facility such as the Saratoga Springs
Brewery, (ii) increasing sales and marketing costs as the Company seeks to
penetrate new markets and regain market share lost in its Northwest market,
(iii) changes in product sales mix, including, for example, beers which
contain costly fruit concentrates, or beer requiring longer conditioning time,
or an increase in the percentage of sales derived from 12 ounce bottles, which
have a much lower gross margin than 22 ounce bottles or kegs;  (iv) increased
shipping costs, including where the Company must ship its products a
substantial distance to supply a particular market; (v) further decreases in
the Company's market share due to increased competition, and (vi) the possible
need to lower prices for the Company's products to meet competition.  Many
other factors could cause the Company's profit margins to decline, including,
declining sales prices due to increasing competition, possible increases in
the cost of packaging materials and brewing ingredients, potential increases
in federal or state excise taxes and the impact of an increasing average
federal excise tax rate as production levels increase.  In addition, the
Company has historically operated with little or no sales backlog, and its
ability to predict sales for an upcoming quarter is limited.  Significant
fluctuations in the Company's quarterly results of operations may also result
from the timing of expansion into new markets, new product introductions,
seasonality of demand, increased competition and general economic conditions.

                                      18
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

The information required by this item begins on page F-1 of this report.

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

None.

                                   PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS
The names and ages of the Company's Directors are as follows:

                                                                        DIRECTOR
 NAME                     AGE       POSITION(S) WITH COMPANY              SINCE
--------------------------------------------------------------------------------
 James W. Bernau           43   Chairperson of the Board, President       1992
                                 and Secretary
 Winser P. Acton           71   Director                                  1993
 William V. Cross          49   Director                                  1992
 Andrew C. Kerr            34   Director                                  1993
 Donald E. Voorhies        73   Director                                  1993

Mr. Bernau has been Chairperson of the Board of Directors, President and
Secretary since the Company's inception in December 1992.  Mr. Bernau is also
the President and Chairperson of the Board of Directors of five other public
companies and has held these positions since the dates indicated: Willamette
Valley Vineyards ("WVV") since May 1988, WVI since December 1993 and three
majority owned subsidiaries of WVI, Aviator Ales and Bayhawk Ales since
February 1994 and Mile High Brewing since June 1994.  Mr. Bernau also serves
as one of the three Managers of the North Country Joint Venture LLC, a wholly
owned subsidiary of the Company, since its inception in January 1996. Mr.
Bernau began this alliance of consumer/investor owned companies by first
co-founding WVV in 1988 with Donald Voorhies.  From 1981 to September 1989,
Mr. Bernau was Director of the Oregon Chapter of the National Federation of
Independent Businesses (NFIB), an association of 15,000 independent businesses
in Oregon.  While at NFIB, his responsibilities primarily involved
communicating with association members and lobbying the Oregon state
legislature regarding issues impacting the members.

Mr. Acton has been a Director of the Company since January 1993.  Mr. Acton
has been President of Acton Associates, a consulting firm that offers
marketing and sales services, since 1988.  From 1985 to 1988, Mr. Acton served
as director of worldwide pulp sales for ITT Rayonier, Inc.  Mr. Acton holds a
B.S. degree from Willamette University and an M.S. degree and a Ph.D. in
Chemistry from Pennsylvania State University.

Mr. Cross has been a Director of the Company since December 1992, and also
served as the Company's Vice President and Marketing Director through October
1995.  From

                                      19
<PAGE>

October 1992 to present, Mr. Cross has been President of W. V. Cross
Enterprises, Inc., a professional services consulting firm.  From 1993 to
1995, Mr. Cross also served as Director of Marketing for WVI.  Mr. Cross was
Executive Vice President of the Oregon Restaurant Association from 1990
through 1992, representing over 3,000 restaurants, taverns and hotels and was
previously the Executive Director of the Oregon Restaurant and Beverage
Association.

Mr. Kerr has been a Director of the Company since January 1993.  Mr. Kerr is
Secretary and Treasurer and co-owner of Capital Farms, Inc., a family-owned
hop growing operation in the Willamette Valley.  He is a member of the Hop
Growers of America, the Oregon Hop Growers Association and the Keizer City
Chamber of Commerce.

Mr. Voorhies has served as a Director of the Company since January 1993.  Mr.
Voorhies has also served as Vice President and Director of Willamette Valley
Vineyards, Inc. since its inception in 1988.  Mr. Voorhies also serves as a
member of the Board of Directors of Willamette Valley, Inc. Microbreweries
Across America, Inc. and Bayhawk Ales, Inc.  From 1981 to 1995, Mr. Voorhies
owned and operated a 30-acre vineyard, Salem Hills Vineyard, which he
developed from raw land purchased in 1981.  Prior to his retirement in 1983,
Mr. Voorhies was employed by General Electric Company as Sales Manager of the
Lighting Products Division for the Pacific Northwest Region.  Mr. Voorhies
holds a B.S. in Electrical Engineering from University of California at
Berkeley.  Mr. Voorhies currently serves as a liaison between the Oregon Wine
Growers Association and the Oregon Wine Advisory Board.

EXECUTIVE OFFICER AND SIGNIFICANT EMPLOYEES
The names, ages and positions of the Company's executive officers and
significant employees are as follows:


 NAME                     AGE     CURRENT POSITION(S) WITH COMPANY        SINCE
--------------------------------------------------------------------------------
 James W. Bernau           43   Chairperson of the Board, President and    1992
                                 Secretary
 Robert L. Craven          39   Director, Manager and Vice President of    1996
                                 Operations of North Country LLC
 E. J. Harkins             38   Manager and Vice President of Sales of     1996
                                 North Country LLC
 Gordon Herzog             38   Chief Financial Officer                    1997
 Yashpal Singh             51   Executive Vice President of Operations     1997

For information on the business background of Mr. Bernau see "Directors"
above.

Mr. Craven joined the Company in 1996 as Director, Manager and Vice President
of Operations of North Country LLC.  From 1988 to 1994, Mr. Craven worked for
C. R. Bard, an international manufacturer of medical devices.  From 1983 to
1988, Mr. Craven was Project Engineer with General Electric and from 1981 to
1983, Mr. Craven was with International Paper.  Mr. Craven holds a B.S. degree
in Mechanical Engineering from Pennsylvania State University.

Mr. Harkins joined the Company in April 1996 as Manager and Vice President of
Sales of North Country LLC.  From 1981 to 1996, Mr. Harkins was the General
Sales Manager for


                                      20
<PAGE>

Great State Beverages, Inc.   Mr. Harkins holds a marketing degree from New
Hampshire college.

Mr. Herzog joined the Company in March 1997 as Chief Financial Officer.  From
1990 to April 1996 Mr. Herzog was the Senior Vice President and Controller for
Alliance Broadcasting L.P. ("Alliance"), a holding company that owned  radio
stations in major markets around the country.  Since April 1996, Mr. Herzog
has been retained by the seller of Alliance on a consulting basis to wind down
the business of Alliance following the sale of all of its assets.  Mr. Herzog
earned a B.S. degree in Finance and Accounting from Southern Oregon State
College in 1986.

Mr. Singh became Executive Vice President of Operations for the Company in
March 1997. From 1994 to date, Mr. Singh has been Senior Vice President,
Operations for United Breweries Ltd., in Bangalore, India.  From 1990 to 1994,
Mr. Singh served in various capacities at Kalyani Brewery of United Breweries
Ltd., most recently as Chief Executive. In addition, in 1992, Mr. Singh became
Chief Executive of Jupiter Breweries and Industries Ltd.  Mr. Singh holds
degrees in Chemistry, Botany and Zoology from Punjab University in India.  Mr.
Singh is a member of the Master Brewers Association of America.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and Directors, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC") and the National Association of Securities
Dealers, Inc. Executive officers, Directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on its review of the copies
of such forms received by it, or written representations from certain
reporting persons, the Company believes that, for the fiscal year ended
December 31, 1996, all executive officers, Directors and greater than 10%
shareholders complied with all applicable filing requirements, except for in
the following instances: 1) Mr. Cross, a Director of the Company, failed to
timely file one Form 4, Statement of Changes in Beneficial Ownership, and one
Form 5, Annual Statement of Changes in Beneficial Ownership for the receipt of
an option grant; 2) Messrs. Acton, Voorhies and Kerr,  Directors of the
Company, each failed to timely file one Form 5, Annual Statement of Changes in
Beneficial Ownership for the receipt of an option grant; and 3)  Mr. Bernau, a
Director and Named Executive Officer of the Company, failed to timely file one
Form 5, Annual Statement of Changes in Beneficial Ownership for the gifting of
a portion of his shares of the Company's Common Stock.


                                      21


<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and other executive officers of the Company whose total annual salary
and bonus exceeded $100,000 (collectively, the "named executive officers")
for fiscal years 1996, 1995 and 1994.
<TABLE>
<CAPTION>
                          SUMMARY COMPENSATION TABLE
                                                                                        Annual Compensation
                                                                                      -------------------------
<S>                       <C>      <C>                                                <C>          <C>
Name and Principal
Position (A)               Year    Employer                                            Salary($)     Bonus($)
-----------------------  --------  ------------------------------------------------  ------------  -----------
James W. Bernau (B)        1996    Nor'Wester Brewing Company, Inc.                     61,987             --
  Chairperson of the       1996    All affiliated companies except                      24,106             --
  Board, President and             Nor'Wester Brewing Company, Inc.
  Secretary                1995    Nor'Wester Brewing Company, Inc.                     65,600             --
                           1995    All affiliated companies except                      30,400         10,882
                                   Nor'Wester Brewing Company, Inc.
                           1994    Nor'Wester Brewing Company, Inc.                     12,952          8,400
                           1994    All affiliated companies                             70,548         26,785
                                   except Nor'Wester Brewing Company, Inc.
</TABLE>

(A) Other than Mr. Bernau, no other individuals earned more than $100,000 in
    1996, 1995 or 1994.
(B) Mr. Bernau serves as the President of the Company, WVV, WVI,  Aviator Ales,
    Bayhawk Ales, Mile High Brewing and North Country.  Each of these companies
    pays a pro rata portion of Mr. Bernau's monthly salary based on the amount
    of time which Mr. Bernau has devoted to the respective company's business
    in that month.

STOCK OPTION GRANTS
No stock options were granted to Mr. Bernau during 1996.

OPTION EXERCISES AND HOLDINGS
No options were exercised by Mr. Bernau during 1996 and no options are held
by Mr. Bernau at December 31, 1996.

JAMES BERNAU EMPLOYMENT AGREEMENT
The Company has entered into an Employment Agreement with James Bernau, its
President and Secretary.  Under the Employment Agreement, Mr. Bernau must
spend not less than 70 percent of his business time and attention on the
affairs of the Company.  In consideration of Mr. Bernau's services to all of
the Affiliated Companies, he will receive a salary of $96,000 per year.  The
initial term of the Employment Agreement extended through December 26, 1996
and was automatically extended for an additional one year period, and will
continue to be automatically extended for one year periods unless notice of
termination is provided by either party within 60 days prior to the
anniversary date.  In addition, the agreement may be terminated at any time
by the Company's Board of Directors upon 120 days prior written notice
thereof.  Currently, upon mutual agreement thereof, Mr. Bernau is not
receiving the entire $96,000 annual salary.


                                      22
<PAGE>

COMPENSATION OF DIRECTORS OF THE COMPANY
Directors receive no cash compensation for serving on the Board of Directors.
Beginning in 1996, however, pursuant to the 1996 Non-Employee Director's
Stock Option Plan (the "Plan"), non-employee Directors of the Company each
receive an option grant covering 1,000 shares of the Company's Common Stock
upon becoming a non-employee Director of the Company and additional grants
covering 750 shares of the Company's Common Stock on the date of each
subsequent Annual Meeting of Shareholders.  Pursuant to the Plan, each
non-employee Director received a non-qualified stock option grant covering
750 shares of the Company's Common Stock on June 25, 1996.  Such options  are
fully vested upon grant and expire ten years from the date of grant.  The
options were granted at an exercise price of $5.25 per share, the fair market
value of the Company's Common Stock on the date of grant.  The total number
of shares covered by options that were granted to the Company's Directors
during 1996 was 3,000.  Each Director who is a non-employee Director on the
date of each subsequent Annual Meeting of Shareholders will receive a like
option grant covering 750 shares of the Company's Common Stock.

In addition to the grant described above, in exchange for lobbying the Oregon
Legislature with respect to various legislative matters affecting the
Company, William Cross, a Director of the Company, was awarded an option on
June 1, 1996 exercisable for 2,000 shares of the Company's Common Stock at an
exercise price of $5.75 per share, the fair market value of the Company's
Common Stock on the date of grant.  Such option vests as to 10 percent of the
covered shares on each of the first through tenth anniversaries of the grant
date and expires ten years and one day from the date of grant.

Subsequent to the granting of the options covering all 5,000 shares of the
Company's Common Stock described above, the Company repriced these options
and the exercise price of the options is now $3.25 per share.





                                      23

<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of February 28, 1997 as to (i)
each person who is known by the Company to own beneficially 5% or more of the
outstanding shares of Common Stock, (ii) each Director of the Company, (iii)
each of the executive officers named in the Summary Compensation Table above
and (iv) all Directors and executive officers as a group. Except as otherwise
noted, the Company believes the persons listed below have sole investment and
voting power with respect to the Common Stock owned by them.

                                                        COMMON STOCK
---------------------------------------    -----------------------------------
                                                 SHARES         APPROXIMATE
                                              BENEFICIALLY       PERCENTAGE
           NAME AND ADDRESS                      OWNED(1)           OWNED
---------------------------------------    -----------------------------------

  James W. Bernau                                910,618             24.5%
   8800 Enchanted Way SE
   Turner, Oregon  97392
  Black & Company, Inc.                          688,251             18.3%
   One SW Columbia Street, Suite 1200
   Portland, Oregon  97258
  Winser P. Acton (3)                             12,077                 *
   2685 Bolton Terrace South
   Salem, Oregon  97302
  Donald E. Voorhies (4)                           6,777                 *
   1715 Wickshire Court
   Salem, Oregon  97302
  William V. Cross (5)                             4,869                 *
   114 Collidge Street
   Silverton, Oregon  97381
  Andrew C. Kerr (4)
   8985 Winsor Island Road                         1,961                 *
   Salem, Oregon  97303
  All Directors and executive officers as a      936,302             25.2%
   group (7 people) (6)

------------------
Less than 1%





                                      24
<PAGE>

(1) Applicable percentage of ownership is based on 3,711,097 shares of
    Common Stock outstanding as of February 28, 1997 together with
    applicable options for such shareholders.  Beneficial ownership is
    determined in accordance with the rules of the Securities and Exchange
    Commission, and includes voting and investment power with respect to
    such shares.  Shares of Common Stock subject to options or warrants
    currently exercisable or exercisable within 60 days after February 28,
    1997 are deemed outstanding for computing the percentage ownership of the
    person holding such options or warrants, but are not deemed outstanding
    for computing the percentage of any other person.
(2) According to Schedule 13G, as filed by Black & Company, Inc.
    ("Black"),  on  January 23, 1997:  the securities referred to herein
    are deemed to be beneficially owned by Black, a Broker registered under
    Section 15 of the Securities Exchange Act of 1934, as a result of
    1) its direct ownership of 552,001 shares; 2) its direct ownership of
    51,750 shares issuable  pursuant to an Underwriters' Warrant granted
    to Black in connection with the Company's initial pubic offering
    completed on January 17, 1996; and 3) its indirect ownership of 84,500
    shares which are held by Black & Company Asset Management, a
    wholly-owned subsidiary of Black.  399,625 of the shares referred to
    herein are held in discretionary investment accounts, none of the
    beneficial owners of which holds in excess of  5 percent of the class
    of securities.  Black has shared voting and  investment power with
    respect to all 688,251 shares.
(3) Includes 750 shares subject to options granted pursuant to the Company's
    1996  Non-Employee Stock Option Plan and exercisable within 60 days of
    February 28,  1997 and 2,349 shares held by Mr. Acton's wife and son.
(4) Includes 750 shares subject to options granted pursuant to the Company's
    1996  Non-Employee Stock Option Plan and exercisable within 60 days of
    February 28,  1997.
(5) Includes 4,862 shares subject to options granted pursuant to the
    Company's 1996 Non-Employee Stock Option Plan and exercisable within 60
    days of February 28, 1997.
(6) Includes 7,112 shares subject to options granted pursuant to the Company's
    1996 Non-Employee Stock Option Plan and exercisable within 60 days of
    February 28, 1997.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

GENERAL
Each of WVI, Aviator Ales, Bayhawk Ales and Mile High is affiliated with the
Company in that James W. Bernau, the Company's founder, President and
Chairperson of the Board of Directors, is also President and Chairperson of
the Board of Directors of each such affiliated company.  Mr. Bernau is also a
significant equity owner of each affiliated company either directly, as in
the case of  Nor'Wester, in which Mr. Bernau owns approximately 25% of the
outstanding capital stock, or indirectly through his controlling interest in
WVI (62%), which in turn owns a controlling interest in each of Aviator Ales
(51%), Bayhawk Ales (57%) and Mile High Brewing (51%). As a result of certain
arrangements between the Company and its affiliates, as well as Mr. Bernau's
positions and/or ownership interests in each of these companies, inherent
conflicts of interest exist with respect to the pricing of services, the
sharing of resources and the allocation of the Company's President's time.

ADVANCES TO AFFILIATES
In 1995 and 1996, the Company loaned or advanced funds to Aviator Ales and
Mile High Brewing for purchases of capital assets and for working capital
needs.

                                      25
<PAGE>

The Company also paid certain bills on behalf of WVI, Aviator Ales,
Mile High Brewing, Bayhawk Ales and WVV and provided these companies with
services under the General Services Agreement.  As a result, at December 31,
1996, these companies owed the following amounts to the Company:
WVI-$196,324, Aviator Ales-$570,090, Mile High Brewing-$703,446, Bayhawk
Ales-$72,179 and WVV-$33,814.  These amounts are unsecured, do not bear
interest, are payable on the Company's demand and are reflected as
"receivables from affiliated companies" on the Company's balance sheet.

LOAN FROM JIM BERNAU
In the fourth quarter of 1996, Jim Bernau, President and a Director of the
Company, loaned the Company $250,000.  The loan bears interest at 10 percent
and is payable on demand.

STRATEGIC ALLIANCE
In January 1996, the Company established a strategic alliance with Aviator
Ales, Mile High Brewing, Bayhawk Ales and WVI (the "Alliance").  The Alliance
is created through a Strategic Alliance Agreement among the Alliance members,
a General Services Agreement between the Company and WVI and separate
Cooperative Brewing Agreements between Nor'Wester and each of Aviator Ales,
Mile High Brewing and Bayhawk Ales (the "Cooperative Brewers").

The terms of the Strategic Alliance Agreement, the Cooperative Brewing
Agreements and the General Services Agreement are four years, unless earlier
terminated under limited circumstances.  However, due to the fact that the
Portland Brewery is not currently operating at capacity as well as the fact
that the Company has changed its strategy and is not currently attempting to
develop other regional markets for its products, the Cooperative Brewing
Agreement is not being utilized.  Certain other aspects of the Strategic
Alliance Agreement are also not being utilized due to industry and individual
company circumstances that have changed since the Strategic Alliance
Agreement was put in place.

In addition, should the consolidation occur as described under "Subsequent
Events", all such agreements will terminate.

Details of the agreements are as follows (although, as indicated, many of the
terms are no longer applicable):

STRATEGIC ALLIANCE AGREEMENT.  Under the terms of the Strategic Alliance
Agreement, each Alliance member has agreed to (i) support the expansion of
the Nor'Wester's products into the Alliance member's market by cooperatively
brewing Nor'Wester's beer and facilitating Nor'Wester's access to local
distributors; (ii) employ at least one Nor'Wester trained brewer at all times
during the term of the Agreement; and (iii) use the services, expertise and
personnel available within the Alliance before obtaining such resources from
outside sources.  The Strategic Alliance Agreement does not preclude an
Alliance member from promoting its products in markets served by other
Alliance members.  The Agreement provides that no Alliance member will use
the proprietary information or technology of another Alliance member to
produce any beer with a flavor profile or appearance of such other Alliance
member's beer.  With the consent of all Alliance members, additional entities
owning and/or operating brewing facilities may be added as parties to the
Alliance.

COOPERATIVE BREWING AGREEMENTS.  Under the terms of the Cooperative Brewing
Agreements, each of the Cooperative Brewers has agreed to produce
Nor'Wester's beer, in the amounts and packaged as specified in firm orders
submitted by the Nor'Wester on a periodic basis. All orders made by
Nor'Wester are subject to certain volume limits.  The Cooperative Brewer's
production of Nor'Wester beer must comply with Nor'Wester's specifications
concerning recipes, quality control procedures, flavor profile and
appearance.  Nor'Wester has a right to reject beer not meeting its
specifications. Pricing for the purchase of beer produced under Cooperative
Brewing Agreements are at the lesser of cost plus 10% or Nor'Wester's average


                                      26
<PAGE>

cost of production at its Portland Brewery, plus a mark-up of 10%. The
Agreement provides that no Alliance Member will use the proprietary
information or technology of another Alliance Member to produce any beer with
a flavor profile or appearance that is substantially similar to such Alliance
Member's beer.

GENERAL SERVICES AGREEMENT.  The General Services Agreement requires that WVI
perform for the Company and WVI's subsidiaries certain services relating to
(i) human resources support; (ii) stock transfer and (iii) investor
relations.  Under the General Services Agreement, Nor'Wester is to provide
WVI and its subsidiaries certain services relating to (i) accounting and
finance support; (ii) sales and marketing management; (iii) executive
services; and (iv) production management; (v) point of sale and advertising
services; and (vi) centralization and coordination among the Alliance members
of certain operational and purchasing matters.  Nor'Wester, in turn
subcontracts with WVV for point of sale and advertising services and certain
sales and marketing management support services.

The Company paid WVI and WVV $48,600 and $17,550, respectively, for such
services during 1996.  Amounts charged by the Company from each of its
affiliates during 1996 are as follows:

Company Name                                Amount
-------------------------------------    -----------
WVI                                     $   29,000
Aviator Ales                                52,550
Bayhawk Ales                                16,350
Mile High Brewing                           51,500
                                         -----------
    Total                               $  149,500
                                         -----------
                                         -----------

NORTH COUNTRY JOINT VENTURE AGREEMENT AND TERMINATION THEREOF
On January 1, 1996, the Company and North Country Brewing Company, Inc.
("North Country"), a wholly-owned subsidiary of WVI, entered into an
Operating Agreement which details the respective rights and obligations of
the owners in a joint venture to develop, own and operate a brewery in
Saratoga Springs, New York (the "North Country Joint Venture").  The
Company's initial contribution to the North Country Joint Venture consisted
of (i) $3,500,000 in cash; (ii) deposits toward the purchase of equipment
with a value of approximately $500,000; (iii) use of the Company's beer
recipes pursuant to a licensing agreement between the Company and the North
Country Joint Venture.  North Country's initial contribution consisted of (i)
an unsecured, non-interest bearing $2,550,000 promissory note payable by
North Country to the North Country Joint Venture on or before the completion
of North Country's planned self-underwritten public stock offering or October
1, 1996, whichever occurs first; (ii) use of North Country's beer recipes
pursuant to a licensing agreement between the North Country Joint Venture and
North Country; and (iii) North Country's brewery development efforts
consisting of a business and operating plan for the Saratoga Springs Brewery,
a lease agreement for the facility in which the brewery will be established,
and a local brand name and imagery.  The Company's and North Country's
capital accounts with the North Country Joint Venture were credited with
$4,000,000 and $2,550,000, respectively, upon formation.

North Country's public offering was canceled in September 1996 and North
Country did not pay the $2,550,000 due under the note.  Accordingly, on


                                      27
<PAGE>

October 1, 1996, North Country withdrew from the North Country Joint Venture
Agreement and transferred its interest to the Company.  Concurrently, the
Company executed a promissory note payable to WVI evidencing the purchase
price for North Country's membership interest in the amount of $192,358,
which amount represents WVI's out of pocket development expenses to establish
the Saratoga Springs Brewery and to develop North Country's beer recipes and
brand imagery.  The note is due in eight equal installments of principal and
interest beginning December 31, 1997.

ARMS-LENGTH TRANSACTIONS
The Company believes that the transactions set forth above were made on terms
no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal shareholders and affiliates will be
approved by a majority of the independent outside members of the Company's
Board of Directors who do not have an interest in the transactions, and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

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

(a) Exhibits included herein:

    Exhibit
    Number   Description
    -------  -----------
    3.1      Amended and Restated Articles of Incorporation of the Company (1)
    3.2      Bylaws of the Company (1)
    10.1     1994 Stock Incentive Plan (1)
    10.2     1996 Stock Option Plan for Nonemployee Directors (1)
    10.3     Form of Indemnity Agreement between the Company and each of its
             executive officers and directors (1)
    10.4     Business Loan Agreement dated October 10, 1995 between Bank of
             America Oregon and the Company (1)
    10.5     Security Agreement dated October 10, 1995 between Bank of America
             Oregon and the Company (1)
    10.6     Employment Agreement between the Company and James W. Bernau (1)
    10.7     Lease Agreement dated January 29, 1993, as amended, between the
             Company and Sequoia Development.
    10.8     Strategic Alliance Agreement between the Company, Willamette
             Valley, Inc. Microbreweries across America, Aviator Ales, Inc.
             (formerly Seattle Brewing Company), Mile High Brewing Company,
             Bayhawk Ales, Inc. and North Country Joint Venture, LLC (1)
    10.9     Cooperative Brewing Agreement between the Company and Aviator Ales,
             Inc. (formerly Seattle Brewing Company) (1)
    10.10    Cooperative Brewing Agreement between the Company and Mile High
             Brewing Company (1)
             10.11Cooperative Brewing Agreement between the Company and Bay
             Hawk Ales, Inc. (1)
    10.12    General Services Agreement between Willamette Valley, Inc. and
             the Company (1)


                                      28
<PAGE>

    Exhibit
    Number   Description
    -------  -----------
    10.13    Joint Venture Agreement between the Company and North Country
             Brewing Company relating o the North Country Joint Venture (1)
    10.14    Membership Termination Agreement dated February 27, 1997, between
             the Company and Willamette Valley, Inc. Microbreweries Across
             America, North Country Brewing Company, Inc. and North Country
             Joint Venture, LLC.
    10.15    Brokerage Agreement dated January 16, 1995 between the Company
             and Winser Paul Acton (1)
    10.16    Commercial Lease between North Country Brewery, Inc. and Stewart's
             Ice Cream Company, Inc.
    10.17    Investment Agreement dated as of January 30, 1997 by and among
             Nor'Wester Brewing Company, Inc., North Country Joint Venture,
             LLC, Willamette Valley, Inc. MicrobreweriesAcross America, Aviator
             Ales, Inc., Bayhawk Ales, Inc., Mile High Brewing Company,Inc.,
             James W. Bernau and United Breweries of America, Inc., which
             includes the Credit Agreement between Nor'Wester Brewing Company,
             Inc. and United Breweries of America,Inc.
    10.18    Assignment of Commercial Lease between North Country Brewery, Inc.
             and Stewart's Ice Cream Company, Inc. to North Country Joint
             Venture, LLC.
    21       Subsidiaries of the Registrant
    27       Financial Data Schedule

(1) Incorporated by reference to Exhibits to Registrant's Registration
    Statement on Form SB-2, as amended and declared effective by the Securities
    and Exchange Commissionon January 17, 1996 (Commission Registration No.
    33-98976).

(b) Reports on Form 8-K

No reports were filed on Form 8-K during the quarter ended December 31, 1996.

















                                      29
<PAGE>


SIGNATURES

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

Dated:   March 25, 1997       NOR'WESTER BREWING COMPANY, INC.


                              By:/s/ JAMES W. BERNAU
                              ----------------------
                              James W. Bernau
                              Chairperson of the Board, President and Secretary


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in their capacities on March 25, 1997:

Signature                     Title


/s/JAMES W. BERNAU            Chairperson of the Board, President and Secretary
------------------
James W. Bernau               (Principal Executive Officer and Principal
                              Financial and Accounting Officer)



/s/WINSER P. ACTON            Director
------------------
Winser P. Acton



/s/ WILLIAM V. CROSS          Director
--------------------
William V. Cross



ANDREW C. KERR                Director
--------------
Andrew C. Kerr



DONALD E. VOORHIES            Director
------------------
Donald E. Voorhies


                                      30

<PAGE>













NOR'WESTER BREWING
COMPANY, INC.
REPORT AND CONSOLIDATED FINANCIAL
STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994


<PAGE>




NOR'WESTER BREWING COMPANY, INC.

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


Report of Independent Accountants. . . . . . . . . . . . . .F-1

Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . .F-2

Statement of Operations. . . . . . . . . . . . . . . . . . .F-3

Statement of Shareholders' Equity. . . . . . . . . . . . . .F-4

Statement of Cash Flows. . . . . . . . . . . . . . . . . . .F-5

Notes to Financial Statements. . . . . . . . . . . . . . . .F-6








<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of Nor'Wester Brewing Company, Inc.


In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity and
of cash flows present fairly, in all material respects, the financial
position of Nor'Wester Brewing Company, Inc. and its subsidiary at December
31, 1996, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.  These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits.  We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation.  We believe that our audits provide a
reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern.  As discussed in Note 1 to the financial
statements, the Company has incurred significant losses in 1996, has negative
working capital of $1,786,003 at year end, is not in compliance with its debt
covenants, and has limited access to capital with which to fund future
operations.  Such factors, among others, raise substantial doubt as to its
ability to continue as a going concern.  Management's plans in regard to
these matters are also described in Note 1.  The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.

As discussed in Note 12 to the financial statements, the Company intends to
be consolidated with other affiliated companies and convert its stock into
shares of a new publicly traded entity.

Nor'Wester Brewing Company, Inc. is a member of a group of affiliated
companies and, as disclosed in the financial statements, has extensive
transactions and relationships with members of the group.  Because of these
relationships, it is possible that the terms of these transactions are not
the same as those that would result from transactions among wholly unrelated
parties.

PRICE WATERHOUSE LLP
Portland, Oregon
March 21, 1997, except as to Note 13 which is as of March 24, 1997

                                      F-1


<PAGE>

NOR'WESTER BREWING COMPANY, INC.

CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------

                                                              DECEMBER 31,
                                                           1996          1995
                                                      -----------    -----------
ASSETS
Current assets:
  Cash and cash equivalents                           $   252,049    $   276,807
  Accounts receivable                                     606,642        582,584
  Income receivables                                      103,761        103,761
  Receivables from affiliates (Note 9)                  1,575,853        200,000
  Inventories (Note 2)                                    720,507        663,058
  Assets held for sale (Note 1)                                 -        218,000
  Marketing supplies                                       77,530        134,452
  Deferred stock offering costs                                 -        386,573
  Prepaid expenses and other current assets (Note 8)      221,223        123,407
                                                      -----------    -----------
    Total current assets                                3,557,565      2,688,642
  Property and equipment, net (Note 3)                 11,968,471      4,117,558
  Advances to affiliates (Note 9)                               -        500,000
  Other noncurrent assets                                  40,000         67,244
                                                      -----------    -----------

  Total assets                                        $15,566,036    $ 7,373,444
                                                      -----------    -----------
                                                      -----------    -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Line of credit (Note 4)                             $ 1,041,000    $   500,000
  Current portion of long-term debt
    and capital leases (Note 5)                         1,435,318         41,182
  Accounts payable                                      2,427,073        870,731
  Container deposits                                      130,921         50,000
  Accrued stock offering costs                                  -        206,000
  Accrued payroll and other liabilities                   309,256        217,125
                                                      -----------    -----------
    Total current liabilities                           5,343,568      1,885,038

Long-term debt and capital lease (Note 5)               1,664,796      1,474,339
Deferred tax liability (Note 8)                                 -        189,964
                                                      -----------    -----------
    Total liabilities                                   7,008,364      3,549,341
                                                      -----------    -----------

Commitments and Contingencies (Notes 5, 10, 12 and 13)

Shareholders' equity (Notes 6, 7, 12 and 13):
  Preferred stock, 15,000,000 shares authorized
    in 1996, no shares issued and outstanding                   -
  Common stock, no par value, 10,000,000 shares
    authorized, 3,711,097 and 2,421,554 shares issued
    and outstanding at December 31, 1996 and 1995      11,064,480      3,356,488
  Retained earnings (accumulated deficit)              (2,506,808)       467,615
                                                      -----------    -----------
    Total shareholders' equity                          8,557,672      3,824,103
                                                      -----------    -----------

Total liabilities and shareholders' equity            $15,566,036    $ 7,373,444
                                                      -----------    -----------
                                                      -----------    -----------


The accompanying notes are an integral part of this financial statement.
                                      F-2


<PAGE>

NOR'WESTER BREWING COMPANY, INC.

CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------

                                             YEAR ENDED DECEMBER 31,
                                       1996            1995            1994
                                   ------------    ------------    ------------
Revenues (Note 10)                 $  6,820,691    $  5,871,737    $  2,564,994
Less excise taxes                      (296,609)       (283,979)       (112,079)
                                   ------------    ------------    ------------
Net revenue                           6,524,082       5,587,758       2,452,915

Cost of goods sold                    5,159,889       3,459,902       1,434,139
                                   ------------    ------------    ------------

Gross margin                          1,364,193       2,127,856       1,018,776

Selling, general and
  administrative expenses (Note 9)    4,768,056       1,409,023         741,712
                                   ------------    ------------    ------------

Income (loss) from operations        (3,403,863)        718,833         277,064

Interest and other income
  (expense), net                         38,943         (17,152)         19,840
                                   ------------    ------------    ------------

Income (loss) before income
  taxes and minority interest
  in losses of consolidated
  subsidiary companies               (3,364,920)        701,681         296,904

Income tax (benefit) expense
  (Note 8)                             (168,000)        258,954           4,900
                                   ------------    ------------    ------------

Net income (loss) before
  minority interest in losses
  of consolidated subsidiary
  companies                          (3,196,920)        442,727         292,004

Minority interest in losses
  of consolidated
  subsidiary companies                  222,497               -               -
                                   ------------    ------------    ------------

Net income (loss)                   $(2,974,423)     $  442,727      $  292,004
                                   ------------    ------------    ------------
                                   ------------    ------------    ------------

Net income (loss) per common share  $     (0.80)     $     0.18      $     0.12
                                   ------------    ------------    ------------
                                   ------------    ------------    ------------

Weighted average number of common
  shares outstanding                  3,696,041       2,420,787       2,339,849
                                   ------------    ------------    ------------
                                   ------------    ------------    ------------


The accompanying notes are an integral part of this financial statement.
                                      F-3


<PAGE>

NOR'WESTER BREWING COMPANY, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------


                                                         RETAINED
                                   COMMON STOCK          EARNINGS
                               ---------------------   (ACCUMULATED
                                SHARES     DOLLARS       DEFICIT)       TOTAL
                               --------- -----------    ----------   ----------
Balances at December 31, 1993  2,233,799  $2,260,038    $(267,116)   $1,992,922

Net cash proceeds from common
  stock offerings (Note 6)       183,198   1,083,609            -     1,083,609

Issuance of common stock to
  employees and distributors
  (Note 7)                        3,276        5,616            -         5,616

Net income                            -            -       292,004      292,004
                               --------- -----------    ----------   ----------
Balances at December 31, 1994  2,420,273   3,349,263        24,888    3,374,151

Issuance of common stock
  to employees and
  distributors (Note 7)            1,281       7,225             -        7,225

Net income                             -           -       442,727      442,727
                               --------- -----------    ----------   ----------
Balances at December 31, 1995  2,421,554   3,356,488       467,615    3,824,103

Net proceeds from common
  stock offering (Note 6)      1,287,500   7,693,916             -    7,693,916

Issuance of common stock
  to employees and
  distributors (Note 7)            2,043      14,076             -       14,076

Net loss                               -           -    (2,974,423)  (2,974,423)
                               --------- -----------    ----------   ----------

Balances at December 31, 1996  3,711,097 $11,064,480   $(2,506,808)  $8,557,672
                               --------- ------------  ------------  ----------
                               --------- ------------  ------------  ----------

The accompanying notes are an integral part of this financial statement.
                                      F-4



<PAGE>

NOR'WESTER BREWING COMPANY, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                         1996          1995          1994
                                                      -----------   -----------    ---------
<S>                                                   <C>           <C>            <C>
Cash flows from operating activities:
 Net income (loss)                                    $(2,974,423)  $   442,727    $ 292,004
 Adjustments to reconcile net income (loss) to net
   cash provided by (used for) operating activities:
   Depreciation                                           438,388       198,464      133,572
   Amortization                                            12,032         6,912        4,362
   Deferred income tax expense (benefit)                 (189,964)      174,900       (6,900)
   Stock grants                                            14,076         7,225            -
   Changes in assets and liabilities:
     Accounts receivable                                  (24,058)     (179,661)    (362,012)
     Other receivables                                          -      (116,173)      (3,997)
     Inventories                                          (57,449)     (383,161)    (169,642)
     Assets held for sale                                       -      (218,000)           -
     Marketing supplies                                    56,922       (80,545)     (53,907)
     Prepaid expenses and other current assets            (97,816)      (55,172)       2,171
     Accounts payable                                   1,556,342       675,182     (108,299)
     Container deposits                                    80,921         4,984       45,016
     Accrued payroll and other liabilities                 92,131       157,897        4,605
                                                      -----------   -----------    ---------
Net cash provided by (used for) operating activities   (1,092,898)      635,579     (223,027)
                                                      -----------   -----------    ---------

Cash flows from investing activities:
 Purchases of equipment                                (7,873,255)   (2,094,388)  (1,000,086)
 Advances to affiliates                                  (875,853)     (700,000)           -
 Increase in other noncurrent assets                            -       (33,055)     (18,199)
                                                      -----------   -----------    ---------
Net cash used for investing activities                 (8,749,108)   (2,827,443)  (1,018,285)
                                                      -----------   -----------    ---------

Cash flows from financing activities:
 Stock offering proceeds, net                           7,693,916             -    1,083,609
 Increase in deferred stock offering costs                      -      (386,573)           -
 Increase in accrued stock offering costs                       -       206,000            -
 Principal payments on capital lease obligation            (2,261)         (633)           -
 Proceeds from long-term debt and line of credit        2,125,593     2,000,000            -
                                                      -----------   -----------    ---------
Net cash provided by financing activities               9,817,248     1,818,794    1,083,609
                                                      -----------   -----------    ---------
Net decrease in cash and cash equivalents                 (24,758)     (373,070)    (157,703)

Cash and cash equivalents - beginning of period           276,807       649,877      807,580
                                                      -----------   -----------    ---------
Cash and cash equivalents - end of period              $  252,049      $276,807     $649,877
                                                      -----------   -----------    ---------
                                                      -----------   -----------    ---------
</TABLE>

      The accompanying notes are an integral part of this financial statement.

                                     F-5

<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

  ORGANIZATION AND OPERATIONS
  Nor'Wester Brewing Company, Inc. (the Company) is engaged in the production
  and sale of high-quality, hand-crafted ales which are sold primarily to
  distributors in the State of Oregon and at the Company's public house in
  Portland, Oregon.  The Company was organized in December 1992 in the State of
  Oregon under the name Willamette Valley Brewing Company.  The Company was
  considered a development stage enterprise until December 31, 1993.  Through
  December 31, 1993, the Company devoted significant efforts to raising
  capital, acquiring property and equipment, and developing viable ales and a
  market for those ales.  The Company recognized its first sales in November
  1993.  The Company's products are marketed under the "Nor'Wester" label.

  USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
  The accompanying financial statements have been prepared in accordance with
  generally accepted accounting principles which require management to make
  certain estimates and assumptions.  These estimates and assumptions affect
  the reported amounts of assets and liabilities, the disclosure of contingent
  assets and liabilities as of the date of the financial statements, and the
  reported amounts of revenues and expenses during the reporting period.
  Actual results could differ from those estimates.

  The Company has recorded significant losses in the current year, has negative
  working capital of $1,786,003, is not in compliance with its debt covenants,
  and has limited access to capital with which to fund future operations.
  There can be no assurance that the proposed transaction will be finalized or
  that the Company will produce and sell its products on a profitable basis to
  sustain operations.  Such factors, among others, raise substantial doubt as
  to its ability to continue as a going concern.  Management expects the
  Company to be merged with other affiliated companies and convert its stock
  into shares of a new publicly traded entity as discussed in Note 12.

  PRINCIPLES OF CONSOLIDATION
  The consolidated financial statements include the accounts of Nor'Wester
  Brewing Company and its subsidiary, North Country Joint Venture (NCJV) (see
  Note 9).  NCJV was formed in January 1996.  For the first nine months of
  1996, the Company owned 61% of NCJV and the remaining 34% was owned by North
  Country Brewing Company, Inc., an affiliated company.  In October 1996, NCJV
  became a wholly-owned subsidiary of the Company.  All significant
  intercompany accounts and transactions have been eliminated in consolidation.

  REVENUE RECOGNITION
  The Company recognizes revenue upon shipment of its product to customers.
  Sales are recorded as trade accounts receivable and no collateral is
  required.

  INVENTORIES
  Inventories are stated at the lower of cost (first-in, first-out basis) or
  market.  Cost includes the purchase price of materials, direct labor and an
  allocation of indirect production expenses.

                                     F-6

<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  INCOME TAXES RECEIVABLE
  Other receivables consist primarily of income taxes receivable.

  ASSETS HELD FOR SALE
  Assets held for sale at December 31, 1995 consisted of unused brewing
  equipment.  Management was unable to sell these assets; therefore, they were
  shipped to an affiliated brewery in the State of Washington for use in the
  cooperative brewing agreement (see Note 9).  These assets are included with
  property, plant and equipment at December 31, 1996.

  DEFERRED STOCK OFFERING COSTS
  As of December 31, 1995, the Company had deferred stock offering costs
  aggregating $386,573 in connection with a public stock offering which was
  declared effective by the United States Securities and Exchange Commission
  (SEC) in January 1996; see also Note 6.  In January 1996, these deferred
  costs were charged against the proceeds received from the common stock
  offering.

  PROPERTY AND EQUIPMENT
  Property and equipment are stated at cost and are depreciated on the
  straight-line basis over their estimated useful lives as follows:

     Leasehold improvements                5-21 years
     Machinery and equipment               5-15 years

  Expenditures for repairs and maintenance are charged to operating expenses as
  incurred.  Expenditures for additions and improvements are capitalized.
  Leasehold improvements are depreciated over the life of the lease or the life
  of the asset, whichever is shorter.

  In March 1995, the Financial Accounting Standards Board issued Statement of
  Financial Accounting Standards No. 121, "Accounting for the Impairment of
  Long-Live Assets and for Long-Lived Assets to Be Disposed Of."  The Company
  adopted the statement in fiscal 1996; however, the adoption has not had a
  significant impact on the Company's financial statements.  Management expects
  the Company's long-lived assets to be used by the newly formed public company
  (see Note 12).

  INCOME TAXES
  The Company accounts for income taxes using the asset and liability approach
  prescribed by Statement of Financial Accounting Standards No. 109,
  "Accounting for Income Taxes."  Under this approach, deferred income taxes
  are calculated for the expected future tax consequences of temporary
  differences between the book basis and tax basis of the Company's assets and
  liabilities.

  NET INCOME (LOSS) PER COMMON SHARE
  All share and per share amounts have been restated to reflect the .602-for-1
  reverse stock split discussed in Note 6.

                                     F-7

<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

  NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)
  Net income (loss) per common share is computed based on the weighted average
  number of common shares outstanding, including common stock equivalent shares
  from stock options if their effect is dilutive.

  STATEMENT OF CASH FLOWS
  The Company considers short-term investments which are highly liquid, are
  readily convertible into cash and have original maturities of fewer than
  three months to be cash equivalents for the purposes of cash flows.  For the
  years ended December 31, 1996, 1995, and 1994, the Company paid interest of
  $85,166, $56,249, and $0, respectively.  Income tax payments of $0, $191,000,
  and $18,500 were made in 1996, 1995, and 1994, respectively.  During 1996,
  $218,000 in equipment previously recorded as asset held for sale were
  transferred into the property, plant and equipment balance (see Note 1).  In
  addition, certain equipment was transferred to the Company from affiliated
  companies.  These non-cash transactions have been excluded from the
  accompanying statement of cash flows.  During 1995, the Company obtained
  approximately $15,000 of assets under a capital lease obligation.

  FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
  The fair market value of the Company's recorded financial instruments
  materially approximate their respective recorded balances, as the recorded
  assets and liabilities are stated at amounts expected to be realized or paid,
  or carry interest rates commensurate with current rates for instruments with
  a similar duration and degree of risk.

  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
  The Company adopted Statement of Financial Accounting Standards No. 123 (SFAS
  123), "Accounting for Stock-Based Compensation," for its year ended December
  31, 1996.  SFAS 123 was issued by the Financial Accounting Standards Board in
  October 1995, and allows companies to choose whether to account for stock-
  based compensation under the current intrinsic method as prescribed in
  Accounting Principles Board Opinion No. 25 (APB 25) or use the fair value
  method prescribed in SFAS 123.  The Company plans to continue to follow the
  provisions of APB 25.  The impact of adoption does not have a significant
  effect on the Company's financial position or results of operations (see Note
  7).

  RECLASSIFICATIONS
  Certain reclassifications have been made to the 1995 financial statements to
  conform with financial statement presentation for the year ended December 31,
  1996.  These reclassifications have no effect on previously reported results
  of operations or shareholders' equity.

                                     F-8

<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.   INVENTORIES

  Inventories consist of:

                                                       DECEMBER 31,
                                                     1996        1995
                                                   --------   --------
     Beer-making and packaging materials           $460,423   $378,384
     Work in process (costs relating to
       unprocessed or unbottled beer products)       75,553     68,101
     Finished goods (beer and related products)     184,531    216,573
                                                   --------   --------
                                                   $720,507   $663,058
                                                   --------   --------
                                                   --------   --------

3.   PROPERTY AND EQUIPMENT

  Property and equipment consist of:
                                                       DECEMBER 31,
                                                     1996        1995
                                                -----------   ----------
     Land and improvements                      $   243,071   $  237,072
     Leasehold improvements                       2,338,391      485,200
     Equipment                                    9,612,828    3,034,972
     Construction in progress                       547,792      705,568
                                                -----------   ----------
                                                 12,742,082    4,462,812
     Less accumulated depreciation                 (773,611)    (345,254)
                                                -----------   ----------
                                                $11,968,471   $4,117,558
                                                -----------   ----------
                                                -----------   ----------

4.   LINE OF CREDIT AND SHORT TERM NOTES PAYABLE

  In October 1995, the Company obtained a $1,000,000 revolving line of credit
  bearing interest at the bank's reference rate plus 0.5% (8.75% at December
  31, 1996).  This revolving line of credit expired on December 31, 1996.  It
  is secured by the Company's assets, and contains certain covenants and
  restrictions (see Note 5).  At December 31, 1996 and 1995, $1,000,000 and
  $500,000, respectively, was outstanding under this line of credit.  In
  addition, the Company's North Country subsidiary obtained a $50,000 line of
  credit in 1996 bearing interest at 9.75% of which the outstanding balance was
  approximately $41,000 at December 31, 1996.

  In October 1996, the president of the Company loaned the Company $250,000 at
  10% interest. Repayment of the loan is required upon completion of the
  proposed merger with UBA (see Note 12).

                                      F-9

<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.   LONG-TERM DEBT

  In October 1995, the Company obtained a non-revolving credit facility which
  permits borrowings up to $2,000,000 bearing interest at the bank's reference
  rate plus 0.5% (8.63% at December 31, 1996).  Amounts borrowed under this
  facility are payable in equal monthly instalments over seven years.  At
  December 31, 1996, $1,936,831 was borrowed under this facility.  This non-
  revolving credit facility and the revolving credit facility discussed in Note
  4 are secured by the Company's assets and contain covenants which require the
  Company to maintain certain financial ratios and prohibit the Company from
  making any dividend payments without the bank's approval.

  At December 31, 1996, the Company was not in compliance with certain of its
  loan covenants relating both to the non-revolving credit facility and the
  revolving line of credit discussed in Note 4.  The Company is involved in
  discussions with the lender in order to (i) renew the $1 million line of
  revolving line of credit facility to mature on the earlier of September 30,
  1997, or 10 days following closing of the investment by UBA (see Note 12) and
  (ii) waive the loan covenants associated with these loans so long as the
  Company remains in compliance with all terms of the investment agreement and
  achieves reasonable progress toward closing the investment with UBA.
  However, final approval of amendment to the lender's loan agreements has not
  yet been received.  If final approval is not received or if received but the
  Company subsequently violates the terms of the amendment, then the Company
  would be in default of its loans which could lead to foreclosure and sale of
  all or an important part of the Company's assets.  Such an event would have a
  material adverse impact on the Company's business, financial condition and
  results of operations.

  During 1995, the Company also entered into a capital lease obligation related
  to the acquisition of certain assets.  This lease requires monthly payments
  of $248 through 2002.  Principal payments under the Company's credit facility
  and capital lease are summarized as follows:



                                    CAPITAL LEASES
    YEAR ENDED          ------------------------------------------
   DECEMBER 31,         PRINCIPAL  INTEREST     TOTAL      DEBT
   ------------         ---------  --------   -------   ----------
       1997               $ 1,878   $ 1,051   $ 2,929   $1,474,440
       1998                 2,056       888     2,944      283,440
       1999                 2,239       712     2,951      283,440
       2000                 2,443       521     2,964      283,440
       2001                 2,657       313     2,970      283,440
       Thereafter           2,010        90     2,100      519,631
                          -------   -------   -------   ----------
                          $13,283   $ 3,575   $16,858    3,127,831
                          -------   -------   -------
                          -------   -------   -------
       Less current portion                              1,474,440
                                                        ----------
                                                        $1,653,391
                                                        ----------
                                                        ----------


                                     F-10

<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.   SHAREHOLDERS' EQUITY

  The Company is authorized to issue 10,000,000 shares of its common stock.
  Each share of common stock entitles the holder to one vote.  At its
  discretion, the Board of Directors may declare dividends on shares of common
  stock, although the Board does not anticipate paying dividends in the
  foreseeable future.

  In November 1995, the Board of Directors authorized, and the shareholders
  subsequently approved, a .602-for-1 reverse stock split of the Company's
  common stock.  All share and per share amounts in the accompanying financial
  statements have been adjusted to retroactively reflect this reverse stock
  split.

  During 1994, the Company sold 183,496 shares at $6.89 per share,
  respectively, pursuant to a Regulation A public offering filed with the U.S.
  Securities and Exchange Commission.  Cash proceeds, net of offering expenses
  of $178,489 aggregated $1,083,609 during 1994.

  On January 18, 1996, the Company completed a public offering of 1,115,000
  shares of common stock at $7.00 per share.  On February 7, 1996, the
  underwriters exercised an over-allotment option for an additional 172,500
  shares of common stock at $7.00 per share. Proceeds to the Company totaled
  approximately $7,693,000, after offering expenses of approximately
  $1,320,000.

  In January 1996, the shareholders of the Company authorized 15,000,000 shares
  of preferred stock to be available for issuance, the terms of which the Board
  of Directors have the authority to establish.  There are no current
  agreements or understandings for the issuance of any shares of preferred
  stock.


7.   STOCK INCENTIVE AND STOCK GRANT PLANS

  In 1993, the Board of Directors established a pool of 128,482 shares for a
  stock incentive plan for issuance to employees, consultants, distributors and
  their employees, and directors of the Company pursuant to the exercise of
  stock options granted under the plan or stock grants or stock sales.
  Administration of the plan, including determination of the number of shares
  to be issued, the term of exercise of any option, the option exercise price,
  and type of options to be granted, lies with the Board of Directors or a duly
  authorized committee of the Board of Directors.  At December 31, 1994, 39,109
  options issued under this plan were outstanding.  Of these, 33,687 have an
  exercise price of $1.99 per share, and 5,442 have an exercise price of $6.89
  per share.  The options began vesting ratably over a five- to ten-year period
  beginning in January 1995.  During the year ended December 31, 1995, an
  additional 71,110 options were granted and 40,450 were subsequentially
  cancelled.  Of the options granted in 1995, 68,100 had an exercise
  price of $7.00 per share, 30,000 of which vest ratably over ten years and
  38,100 of which vest ratably over five years and 3,010 had an exercise price
  of $6.65 per share and a vesting period of five years.

                                     F-11

<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

7.   STOCK INCENTIVE AND STOCK GRANT PLANS (CONTINUED)

     During the year ended December 31, 1996, 78,150 options were granted, and
     20,500 were subsequently canceled.  Of the options granted in 1996 and
     still outstanding at December 31, 1996, 17,500 have an exercise price of
     $7.00 per share and a vesting period of five years; 1,250 have an
     exercise price of $7.00 per share and a vesting period of five years;
     18,500 have an exercise price of $6.75 per share and a vesting period of
     ten years; 15,000 have an exercise price of $6.75 per share and a
     vesting period of five years; 2,000 have an exercise price of $5.75 per
     share and a vesting period of ten years and 3,000 have an exercise price
     if $5.75 and a vesting period of one year.

     No compensation expense has been recorded as a result of granting any of
     the options as all such options were granted with an exercise price equal
     to the market price on the date of grant.  No options have been exercised
     to date.

     In January 1996, the shareholders of the Company approved an increase to
     the number of shares available under the Company's stock incentive plan to
     360,000 shares.  In January 1996, the shareholders also approved the
     adoption of a non-employee director's stock option plan and the reservation
     of 40,000 shares thereunder.  Additionally, the Company grants shares of
     common stock to distributors and their employees to establish the Company's
     distribution network.  Eligible persons receive seven shares of stock each.
     During the years ended December 31, 1996, 1995, and 1994, the Company
     granted 2,043, 1,281, and 3,276 shares, respectively, to distributors and
     their employees. Selling, general and administrative expenses for the years
     ended December 31, 1996, 1995, and 1994 include $14,076, $7,225, and
     $5,615, respectively, related to the grant of these shares.

     The Company has elected to account for its stock-based compensation under
     Accounting Principles Board Opinion No. 25.  The Company has determined
     that the pro forma effects of applying SFAS 123 would have resulted in
     proforma net loss of $3,117,430 ($0.84 per share) for the year ended
     December 31, 1996 and proforma net income of $332,596 ($0.14 per share)
     for the year ended December 31, 1995.  This determination was made using
     the Black-Scholes option pricing model.  The weighted average assumptions
     used for stock option grants for 1996 and 1995 were a risk-free interest
     rate of 6.27% and 5.88%, respectively, an expected dividend yield of 0% and
     0%, respectively, an expected life of 7.07 years and 7.55 years,
     respectively, and an expected volatility of 57% and 54%, respectively.
     The weighted average fair value of stock options granted in 1996 and 1995
     was $4.06 and $4.01, respectively.

     Options were assumed to be exercised upon vesting for purposes of this
     valuation.  Adjustments are made for options forfeited prior to vesting.
     For the years ended December 31, 1996 and 1995, the total value of the
     options granted was computed to be $232,435 and $831,494, respectively,
     which would be amortized on a straight-line basis over the vesting period
     of the options.

     Note that all options granted by the Company are expected to be converted
     to options of the new company expected to be formed at the same conversion
     rate as the conversion of common stock as discussed in Note 12.

                                  F-12
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

8.   INCOME TAXES

     The provision for income taxes consists of:
                                                         DECEMBER 31,
                                                1996        1995         1994
                                           ---------       --------     -------
        Current tax expense:
            Federal                            $   -     $   75,740    $  8,100
            State                                  -          8,314       3,700
                                           ---------       --------     -------

                                                   -         84,054      11,800
                                           ---------       --------     -------

        Deferred (benefit):
            Federal                         (148,905)       155,660      (4,800)
            State                            (19,095)        19,240      (2,100)
                                           ---------       --------     -------
                                            (168,000)       174,900      (6,900)
                                           ---------       --------     -------

                                           $(168,000)      $258,954     $ 4,900
                                           ---------       --------     -------
                                           ---------       --------     -------

     The benefit for income taxes differs from the amount of incomes taxes
     determined by applying the U.S. statutory graduated federal rate due to the
     following:

                                                       DECEMBER 31,
                                                 1996     1995      1994
                                               -------   ------   -------
       Federal statutory rate (graduated)        34.0 %   33.3 %    33.4 %
       State taxes, net of federal benefit        4.2 %    3.8       4.4
       Reserve of net deferred tax assets       (33.1)%      -         -
       Permanent differences                     (0.4)%    0.5         -
       Utilization of fully reserved tax assets     -          -   (36.1)
       Other                                      0.3     (0.7)        -
                                               -------   ------   -------

                                                  5.0 %   36.9 %     1.7 %
                                               -------   ------   -------
                                               -------   ------   -------

                                  F-13
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

8.   INCOME TAXES (CONTINUED)

     Deferred tax assets (liabilities) consist of:

                                                          DECEMBER 31,
                                                 1996        1995       1994
                                             -----------   ---------   -------
      Tax credit carryforwards               $    10,109   $  10,108   $     -
      Fixed assets                                     -           -     3,300
      Net operating loss carryforward          1,639,738           -         -
      Other                                       20,489      11,856     3,600
                                             -----------   ---------   -------

      Gross deferred tax assets                1,670,336      21,964     6,900
                                             -----------   ---------   -------

      Fixed assets                              (558,839)    189,964         -
                                             -----------   ---------   -------

      Gross deferred tax liabilities            (558,839)    189,964         -
                                             -----------   ---------   -------

      Deferred tax asset (liability) before
        valuation allowance                    1,111,497    (168,000)    6,900

      Deferred tax valuation allowance        (1,111,497)          -         -
                                             -----------   ---------   -------

      Net deferred (liability) asset         $         -   $(168,000)  $ 6,900
                                             -----------   ---------   -------
                                             -----------   ---------   -------

     Deferred tax assets (liabilities) are classified as follows:

                                            DECEMBER 31,
                                       1996       1995      1994
                                     --------  ---------   -------

      Non-current asset              $     -   $       -   $ 6,900
      Non-current liability                -    (189,964)        -
      Current asset                               21,964         -
                                     --------  ---------   -------

                                     $     -   $(168,000)  $ 6,900
                                     --------  ---------   -------
                                     --------  ---------   -------

     The current deferred tax asset at December 31, 1995 is included in prepaid
     expenses and other current assets in the accompanying balance sheet.

     As of December 31, 1996, the Company had a net operating loss carryforward
     aggregating approximately $4,168,000 for federal purposes, which may be
     used to offset future taxable income, if any.  The annual utilization of
     this carryforward may be limited after the Company undergoes the ownership
     change anticipated by management or fails to meet the continuity of
     business requirements defined by the Internal Revenue Code.  The Company's
     net operating loss carryforward expires in 2012.

                                  F-14
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

9.   RELATED PARTIES

     NATURE OF RELATED PARTIES
     The Company's president partially owns and controls Willamette Valley
     Vineyards (WVV), a winery in Oregon, and Willamette Valley Inc.
     Microbreweries across America (WVI), a company organized to establish
     microbreweries throughout the United States.  Additionally, the Company's
     president is the president of each of the following subsidiaries of WVI:
     Aviator Ales, Inc. (AAI); Mile High Brewing Company (MHBC); Bayhawk Ales,
     Inc. (BAI); and North Country Brewing Company, Inc. (NCBCI); development
     stage companies located in Washington, Colorado, California, and New York,
     respectively.  As a result of certain arrangements between the Company and
     its affiliates, as well as the Company president's positions with and/or
     ownership interests in each of these companies, inherent conflicts of
     interest exist with respect to the pricing of services, the sharing of
     resources and the allocation of the Company president's time.

     RELATED PARTY TRANSACTIONS
     The Company has purchased management services from WVV and WVI, consisting
     of secretarial, accounting, marketing, administrative, stock transfer, and
     brewery payroll services provided on a cost-plus basis.  WVV provided such
     services through June 1994, at which time WVI began providing these
     services. In 1994, charges for services provided to the Company by WVV and
     WVI aggregated approximately $260,000, of which approximately $218,000 is
     included in selling, general and administrative expenses, and $41,500 has
     been charged against stock offering proceeds in the 1994 financial
     statements.  At December 31, 1995, accounts payable include approximately
     $45,000 owed to WVI as a result of these transactions.  During the year
     ended December 31, 1995, charges for services provided to the Company by
     WVI aggregated approximately $363,000 of which approximately $51,000 is
     included in deferred stock offering costs, and approximately $312,000 is
     included in selling, general and administrative expenses in the statement
     of operations for the year ended December 31, 1995.  During 1996, charges
     for services provided to the Company by WVI and WVV aggregated
     approximately $66,000 all of which is included in selling, general and
     administrative expenses in the 1996 statement of operations.

     The Company continues to purchase certain management and administrative
     services from WVI and WVV.  In 1996, the Company began providing certain
     management and administrative services to WVI and WVV as well as to AAI,
     MHBC, BAI, and NCBCI.

     The Company purchased brewery equipment costing approximately $72,500 in
     1994 from one of its shareholders.  The Company also purchased brewing
     equipment costing approximately $53,000 in 1995 from MHBC.  In addition,
     for the years ended December 31, 1996, 1995, and 1994, the Company paid
     approximately $0, $15,000, and $21,500, respectively, to a shareholder,
     officer, and member of the Board of Directors for marketing consulting
     services.

                                  F-15
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

9.   RELATED PARTIES (CONTINUED)

     STRATEGIC ALLIANCE AND COOPERATIVE BREWING AGREEMENTS
     The Company has entered into a Strategic Alliance (the "Alliance") with
     AAI, MHBC, BAI, NCBCI, and WVI.  The Company, AAI, MHBC, BAI, NCBCI, and
     WVI are collectively referred to as "Alliance members," and the Company,
     AAI, MHBC, and BAI are collectively referred to as the "Cooperative
     Brewers" and individually referred to as a "Cooperative Brewer."  The
     purpose of the Alliance is to promote and support the growth of all of the
     Alliance members by increasing production at each Cooperative Brewer's
     facility and supporting the entry of Nor'Wester products into new markets.
     To achieve this goal, each Cooperative Brewer has agreed to cooperatively
     brew Nor'Wester's products, and to support the entry of these products into
     new markets by facilitating Nor'Wester's access to the Cooperative Brewer's
     network of distributors.

     The Alliance is created through a Strategic Alliance Agreement between
     Nor'Wester and AAI, MHBC and BAI.  The terms of the Strategic Alliance
     Agreement and the Cooperative Brewing Agreements are four years, unless
     earlier terminated under limited circumstances, which include material
     breach in the case of the Cooperative Brewing Agreements.  The Agreements
     are subject to renewal.  Pricing for the purchase of beer produced under
     the Cooperative Brewing Agreement is at the lesser of cost plus 10% or
     Nor'Wester's average cost of production at its Nor'Wester Brewery, plus a
     mark-up of 10%.  The Agreement provides that no Alliance member will use
     the proprietary information or technology of another Alliance member to
     produce any beer with a flavor profile or appearance that is substantially
     similar to such Alliance member's beer.  With the consent of all Alliance
     members, additional parties may be added to the Alliance.

     Under the terms of the Cooperative Brewing Agreements, each cooperative
     brewer will produce Nor'Wester beer, in the amounts and packaging as
     specified in firm orders submitted by Nor'Wester on a periodic basis.  Each
     cooperative brewer's production of Nor'Wester beer must comply with
     specifications concerning recipes, quality control procedures, flavor
     profile and appearance.  Nor'Wester has a right to reject beer not meeting
     its specifications.

     Nor'Wester has acquired certain specified brewing equipment for use of AAI
     and MHBC in producing Nor'Wester's beer.  To the extent that this equipment
     is not needed for the production of Nor'Wester beers, AAI and MHBC may,
     upon notice to Nor'Wester, use this equipment to produce their own beer
     subject to the payment of an agreed-upon lease fee.

     The Cooperative Brewing Agreement requires that the Cooperative Brewer
     maintain the equipment supplied by Nor'Wester, that Nor'Wester insure this
     equipment, and that the Cooperative Brewer and Nor'Wester each indemnify
     the other for damages and losses in connection with the Agreement.
     Nor'Wester may, at its cost, remove or replace its equipment at any time if
     market conditions or other circumstances make such action desirable to
     Nor'Wester.

                                  F-16
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

9.   RELATED PARTIES (CONTINUED)

     Cooperative brewing purchases totaled $1,375,000, which is 27% of the
     Company's cost of goods sold.  Because of the pricing terms surrounding
     cooperative brewing discussed above, sales of cooperative-brewed beer
     resulted in reduced margins for the Company.  In addition, a significant
     portion of the beer brewed by AAI and MHBC and purchased by the Company was
     determined to be unusable.  Accordingly, both AAI and MHBC ceased
     cooperative brewing of Nor'Wester beers in January 1997.

     ADVANCES TO AFFILIATES
     In connection with the Cooperative Brewing Agreements with AAI and MHBC
     described above, Nor'Wester advanced $250,000 to each of AAI and MHBC in
     December 1995 for the purchase of ingredients and packaging materials for
     the cooperative brewers' initial production of Nor'Wester's products.  In
     1996, the Company advanced $350,000 and $500,000 to AAI and MHBC,
     respecitvely, for cooperative brewing purchases and for operating expenses.
     These advances remain outstanding although the cooperative brewing
     agreement has been terminated.  Because these advances will eventually be
     eliminated when the proposed merger occurs, as discussed in Note 12, these
     advances have been classified as current receivables from affiliates at
     December 31, 1996.

     JOINT VENTURE AGREEMENT
     On March 5, 1996, the Company entered into a joint venture agreement with
     NCBCI.  Under the terms of the agreement, the Company contributed
     $4,000,000 in cash and equipment which was used to construct and operate a
     brewery in Saratoga Springs, New York, as well as certain intangible assets
     for a 61% interest in the joint venture known as North Country Joint
     Venture, LLC (NCJV).  The Company also advanced $2,550,000 to the joint
     venture.  NCBCI was to repay the Company $2,550,000 in cash by October 1996
     for its 39% of the joint venture in accordance with the agreement.  NCBCI
     did not repay the Company by the date required per the agreement.

     JOINT VENTURE AGREEMENT (CONTINUED)
     Accordingly, NCBCI's rights to NCJV terminated and Nor'Wester became the
     100% owner of NCJV.  NCBCI owned 39% of NCJV for the first nine months of
     the year.  Accordingly, the minority interest share in the first-year loss
     of NCJV is included in the accompanying statement of operations.  Because
     Nor'Wester owned 100% of NCJV at December 31, 1996, no minority interest is
     recorded in the accompanying balance sheet.  The Saratoga Springs brewery
     makes up approximately 57% of the Company's net fixed assets, and it
     contributed approximately $154,000 in net revenues since production began
     in September 1996.  The Saratoga Springs brewery has generated losses
     totaling approximately $979,000 since its inception.  The losses are
     primarily related to start-up expenses and a low level of production during
     1996.

     RECEIVABLES FROM AFFILIATES
     The Company has not been repaid for a significant portion of the services
     provided and cash advanced to the affiliated companies.  Accordingly, the
     Company has recorded on the accompanying balance sheet receivables from
     affiliates aggregating $ $1,575,853.  Because these receivables are

                                  F-17
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

9.   RELATED PARTIES (CONTINUED)

     expected to be eliminated or received in cash after the expected merger
     with UBA occurs (see Note 12), these receivables have been classified as
     current at December 31, 1997.  Receivables from each of the affiliated
     companies are as follows:

       WVV                                 $   33,814
       WVI                                    101,093
       AAI                                    570,090
       MHBC                                   703,446
       BAI                                     72,179
       NCBCI                                   95,231
                                           ----------

                                           $1,575,853
                                           ----------
                                           ----------

     These balances are not expected by management to be fully collected in
     cash. Instead, a portion will be collected when the assets of MHBC are sold
     subsequent to December 31, 1996, and the remainder will be considered when
     the companies are merged into the new company expected to be formed (see
     Note 12).


10.  COMMITMENTS AND CONTINGENCIES

     COMMITMENTS
     The Company has signed five-year leases for its brewery and pub facilities
     in Oregon and New York which expire on January 31, 2000 and February 15,
     2002, respectively.  The term of the lease in Oregon is renewable for an
     additional 10 years.  The New York lease has three five-year renewal
     options.  The Company has also entered into a one-year lease, which has a
     one-year renewal option for storage in Oregon.  Annual payments under this
     lease are $10,800. Annual payments under the leases total $178,740 plus net
     charges for property taxes, fire insurance, and utilities.  Rent payments
     are adjusted annually based on increases in the consumer price index,
     limited to no more than a four percent annual increase.  The Company paid
     lease consideration of $50,000 in 1995 to hold the New York facility until
     construction began.  This payment was capitalized and is being amortized
     over a period of five years.

     Approximate future minimum lease payments for both facilities, including
     payments under the renewal terms, are:

        1997                                  $ 178,740
        1998                                    178,740
        1999                                    167,940
        2000                                    167,940
        2001                                    167,940
        Thereafter                            1,226,417
                                             ----------
                                             $2,087,717
                                             ----------
                                             ----------

                                  F-18
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

10.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

     Rent expenses aggregated approximately $190,000, $91,000, and $82,000 for
     the years ended December 31, 1996, 1995, and 1994, respectively, and are
     allocated between cost of goods sold and selling, general and
     administrative expenses in the accompanying statement of operations.

     The Company has entered into agreements with independent distributors for
     the distribution of the Company's products throughout the United States of
     America.  These agreements contain normal distribution provisions and are
     cancelable by either the Company or the distributors.

     IMPAIRMENT OF ASSETS AT MHBC
     The Company has assets with a net book value of approximately $400,000
     located in Denver, Colorado at the MHBC brewery for use by MHBC for
     cooperative brewing.  Subsequent to December 31, 1996, the management of
     MHBC formulated a plan to sell all of the operating assets of MHBC.
     Potential buyers may wish to purchase assets owned by Nor'Wester located
     at the MHBC brewery.  Management of the Company and of MHBC intend to
     reimburse Nor'Wester in cash at net book value for any of the Company's
     assets which are sold.  The financial statements do not include any
     adjustments to reflect the outcome of this uncertainty.


11.  SIGNIFICANT CUSTOMERS

     In 1996, the Company sold approximately 47% of its products to wholesale
     distributors located in Oregon.  Sales to the Company's largest customers
     represented 16% of total revenues.  For the year ended December 31, 1995,
     sales to the Company's largest customer represented 19% of total revenues,
     respectively.  For the year ended December 31, 1994, sales to the Company's
     largest customer represented 28% of total revenues, respectively.


12.  PROPOSED MERGER AND INVESTMENT BY UBA

     Subsequent to December 31, 1996 the Company and its subsidiary (NCJV) along
     with its affiliates (WVI, AAI, MHBC and BAI) entered into an investment
     agreement with United Breweries of America, Inc. (UBA), an entity
     controlled by the UB Group of Bangalore, India. The agreement provides for
     Nor'Wester, WVI, AAI, MHBC and BAI to consolidate into a company to be
     known as United Craft Brewers, Inc. (UCB).  This merger will result in the
     issuance of newly registered shares of UCB common stock in exchange for
     shares of Nor'Wester, WVI and its subsidiaries.  The merger and share
     exchange will require approval by the Boards of Directors and shareholders
     of each of the entities. Following consolidation, all shareholders in the
     Nor'Wester/WVI alliance will hold shares in UCB, a company which is
     intended to be listed for trading on the Nasdaq National Market system
     under the symbol ALES. Proposed exchange ratios for each of the entities
     are as follows, based on an average closing price of $2.63 for Nor'Wester's
     common stock for the 20 trading days immediately preceding execution of the
     merger:

                                  F-19
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

12.  PROPOSED MERGER AND INVESTMENT BY UBA (CONTINUED)

         COMPANY                            EXCHANGE RATIO
       -----------                         ----------------

       Nor'Wester                                   1:1
       WVI                                    1.99159:1
       AAI                                    2.98739:1
       BAI                                    1.99159:1
       MHBC                                   2.98739:1

     Following the merger, UBA has proposed to invest $8.63 million in exchange
     for a 45% equity interest in the new entity, UCB.  Of the $8.63 million
     proposed investment by UBA, $2.75 million is in the form of bridge loans
     conditionally available to Nor'Wester during the consolidation phase.  As
     of March 21, 1997, $1,500,000 has already been loaned to Nor'Wester, the
     majority of which has been advanced to North Country.  At closing, it is
     anticipated that the bridge loans will be converted into shares of UCB and
     the remaining $5.88 million cash investment will be made directly in shares
     of UCB.

     All principal and interest related to the bridge loans is secured by the
     assets of North Country Joint Venture, the Company's wholly-owned
     subsidiary, and by the Company's ownership interest in North Country
     Joint Venture. Repayment of all principal and interest is guaranteed
     personally by the Company president.

     The closing of the proposed investment remains subject to (i) approval by
     the shareholders of each of the companies, (ii) achievement of certain
     operating results at each of the breweries, (iii) maintenance of certain
     operating conditions and covenants, including that there shall be no
     material adverse change in the businesses of the affiliated breweries taken
     as a whole, (iv) approval by federal and state liquor control agencies,
     (v) registration with the U.S. Securities and Exchange Commission of UCB
     shares to be exchanged in the merger, (vi) extension of the Company's $1
     million revolving line of credit through September 30, 1997 (see Note 4);
     and the lender shall have waived any defaults under the line of credit
     agreement and the line of credit shall have been converted to a term loan
     (see Note 5), and (vii) such other customary conditions for transactions of
     this type.

     Immediately following the proposed investment by UBA, UBA would own 45% and
     the Company's president would own 10% of UCB.  The public shareholders of
     Nor'Wester, WVI, and WVI's subsidiaries would own the remaining 45% of UCB.


13.  SUBSEQUENT EVENTS

     In light of lower than anticipated 1996 results, lower than anticipated
     first quarter 1997 sales and other operating results and adverse conditions
     within the craft beer industry in general, representatives of UBA and
     management and the investment bankers of the affiliated companies are in
     the process of renegotiating the terms of the UBA investment discussed in
     Note 12.  The renegotiation will reflect a significantly lower valuation
     for the affiliate companies, a reduction in the total amount of cash to be
     invested by UBA to $5.5 million and a reduction of UBA's percentage
     ownership position in UCB to 40% following the consolidation.  It is
     anticipated that the $2.75 million bridge loan amount will not be reduced.
     The existing shareholders in the affiliated Companies would retain a 60%
     interest in UCB.  The exact distribution of ownership interests among
     shareholders of the affiliated companies has not yet been determined.
     Management will soon

                                  F-20
<PAGE>

NOR'WESTER BREWING COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

13.  SUBSEQUENT EVENTS (CONTINUED)

     seek Board approval by each of the affiliated companies of any renegotiated
     terms.  Failure of the parties to reach a mutually agreeable renegotiated
     investment agreement could lead to a loss of the bridge loans and the
     remainder of the UBA investment which would materially and adversely affect
     the Company's financial condition and results of operations.


                                  F-21