AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 1997

REGISTRATION NO. 333-11789
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2
TO

FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

BEVERAGE WORKS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

CALIFORNIA 2000 95-4550937
(STATE OF JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

9800 SOUTH SEPULVEDA BLVD., SUITE 720
LOS ANGELES, CALIFORNIA 90045
(310) 642-5643
(ADDRESS AND TELEPHONE NUMBER
OF PRINCIPAL EXECUTIVE OFFICES)

LYLE MAUL

9800 SOUTH SEPULVEDA BLVD., SUITE 720
LOS ANGELES, CALIFORNIA 90045
(310) 642-5643
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPIES TO:

CHARLES J. HECHT, ESQ. RICHARD F. DAHLSON, ESQ.
HECHT & STECKMAN, P.C. JACKSON & WALKER, L.L.P.
60 EAST 42ND STREET, SUITE 5101 901 MAIN STREET, SUITE 6000
NEW YORK, NEW YORK 10165-5101 DALLAS, TEXAS 75202-3797

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.

CALCULATION OF AMENDED REGISTRATION FEE

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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE FEE

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Common Stock, no par value(3)............................. 1,725,000 $ 6.00 $ 10,350,000 $ 3,568.97
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Class A Warrants to purchase Common Stock(4).............. 1,725,000 $ 0.15 $ 258,750 $ 89.22
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Common Stock, no par value, underlying Class A Warrants... 1,725,000 $ 6.00 $ 10,350,000 $ 3,568.97
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Common Stock, no par value, offered by Selling
Securityholders......................................... 728,229 $ 6.00 $ 4,369,374 $ 1,506.68
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Common Stock, no par value, underlying Class E Warrants
offered by Selling Securityholders...................... 892,000 $ 6.00 $ 5,352,000 $ 1,715.17
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Common Stock, no par value, underlying Class B Warrants
offered by Selling Securityholders...................... 70,000 $ 6.00 $ 420,000 $ 144.83
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Common Stock, no par value, in Representative's Purchase
Option.................................................. 150,000 $ 7.20 $ 1,080,000 $ 372.41
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Representative's Warrants in Representative's Purchase
Option.................................................. 150,000 $ 0.18 $ 27,000 $ 9.31
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Common Stock, no par value, underlying Warrants in
Representative's Purchase Option........................ 150,000 $ 7.20 $ 1,080,000 $ 372.41
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Total...................................................................................... $ 33,260,129 $ 11,347.91
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Amount previously paid...................................................................................... $ 17,252.48
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Amount due.................................................................................................. $ 0.00
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(1) Pursuant to Rule 416 under the Securities Act of 1933, this Registration
Statement covers such additional indeterminate number of shares of Common
Stock as may be issued by reason of adjustments in the number of shares of
Common Stock pursuant to anti-dilution provisions contained in the
Representative's Purchase Option and the Class A Warrant, Class B Warrant
and Class E Warrant Agreements.

(2) Estimated for purposes of computing the registration fee in accordance with
Rule 457(c) and Rule 457(g) under the Securities Act of 1933.

(3) Includes 225,000 shares of Common Stock issuable pursuant to the
Representative's over-allotment option.

(4) Includes 225,000 Class A Warrants issuable pursuant to the Representative's
over-allotment option.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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2

CROSS REFERENCE TABLE

ITEM INFORMATION REQUIRED IN PROSPECTUS LOCATION OR CAPTION
NO. UNDER FORM SB-2 IN PROSPECTUS
- ---- ------------------------------------------- -------------------------------------------

1 Front of Registration Statement and Outside
Front Cover Page of Prospectus........... Outside Front Cover Page
2 Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Outside Back Cover
Page
3 Summary Information and Risk Factors....... "Prospectus Summary"; "Risk Factors"
4 Use of Proceeds............................ "Use of Proceeds"
5 Determination of Offering Price............ "Underwriting"
6 Dilution................................... "Dilution"
7 Selling Security Holders................... Alternate Pages
8 Plan of Distribution....................... "Underwriting"
9 Legal Proceedings.......................... "Business -- Legal Proceedings"
10 Directors, Executive Officers, Promoters
and Control Persons...................... "Management"
11 Security Ownership of Certain Beneficial
Owners and Management.................... "Principal Stockholders"
12 Description of Securities.................. "Description of Securities"
13 Interest of Named Experts and Counsel...... "Experts"
14 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. "Undertakings" (Part II)
15 Organization within Last Five Years........ "Management -- Certain Transactions"
16 Description of Business.................... "Business"
17 Management's Discussion and Analysis or
Plan of Operations....................... "Management's Discussion and Analysis of
Financial Condition and Results of
Operations"; "Business -- Plan of
Operation/Business Strategy"
18 Description of Property.................... "Business -- Properties"
19 Certain Relationships and Related
Transactions............................. "Management -- Certain Transactions"
20 Market for Common Equity and Related
Stockholder Matters...................... "Risk Factors -- Shares Available for
Future Sale; -- Dividend Policy";
"Description of Securities -- Dividends"
21 Executive Compensation..................... "Management -- Executive Compensation"
22 Financial Statements....................... "Selected Financial Data"; "Financial
Statements"
23 Changes In and Disagreements with
Accountants on Accounting and Financial
Disclosure............................... Not Applicable

EXPLANATORY NOTE

This Registration Statement covers the registration of (i) 1,500,000 shares
of Common Stock and 1,500,000 Class A Warrants ("Class A Warrants") to be
offered by the Company, plus 225,000 shares of Common Stock and 225,000 Class A
Warrants available from the Company pursuant to the Underwriters' over-allotment
option (the "Offering"); (ii) 1,500,000 shares of Common Stock, plus 225,000
shares of Common Stock pursuant to the Underwriters' over-allotment option,
issuable upon exercise of the Class A Warrants ("Class A Warrant Shares"); (iii)
892,000 shares of Common Stock issuable upon exercise of the Class E Warrants
issued by the Company originally in October 1995 as amended December 1996
("Class E Warrant Shares"); (v) 728,229 shares of Common Stock previously issued
by the Company ("Issued Shares"); (vi) 70,000 shares of Common Stock issuable
upon exercise of Class B Warrants issued by the Company in April 1996 and
December 1996 ("Class B Warrant Shares").

The Issued Shares (the "Selling Shareholders"), the Class E Warrant Shares
(the "Class E Warrantholders"), the Class B Warrant Shares (the "Class B
Warrantholders") are being offered by certain holders of such securities
(collectively the "Selling Securityholders") and not for the account of the
Company. See "Underwriting." Following the Prospectus included in this
Registration Statement are certain pages of the Prospectus relating to the
Issued Shares, the Class E Warrant Shares, the Class B Warrant Shares, including
alternate front and back cover pages, an alternate "The Offering" section of the
"Prospectus Summary," and sections entitled "Concurrent Sales by Company" and
"Selling Securityholders." All other sections of the Prospectus for this
Offering, other than "Underwriting," are used in the Prospectus relating to the
Issued Shares, the Class E Warrant Shares and Class B Warrant Shares. All
references in this Prospectus to the "Offering" or "this Offering" will be
changed to the "Company Offering" in the Prospectus relating to the Issued
Shares, the Class E Warrant Shares, and the Class B Warrant Shares. In addition,
cross-references in this Prospectus shall be adjusted to refer to the
appropriate alternate Prospectus pages.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION DATED JANUARY 13, 1997

1,500,000 SHARES OF COMMON STOCK

1,500,000 CLASS A WARRANTS

BEVERAGE WORKS, INC.

Beverage Works, Inc., a California corporation ("Company"), is offering
("Offering") 1,500,000 shares ("Shares") of its common stock, no par value
("Common Stock") and 1,500,000 Class A Warrants. See "Description of
Securities." The Shares and Class A Warrants are purchased separately and will
be transferable immediately following completion of this Offering. Each Class A
Warrant entitles the holder to purchase one share of the Company's Common Stock
at an exercise price of $6.00, subject to adjustment during the five-year period
commencing from the date of this Prospectus. At any time that the Class A
Warrants are exercisable, the Class A Warrants are also subject to redemption by
the Company on not less than 30 days notice at $0.05 per Class A Warrant,
provided the closing bid price of the Common Stock (or the average of the last
reported sales price if the Common Stock is traded on a national securities
exchange) exceeds $12.00 per share (200% of the Shares' offering price) for ten
consecutive trading days ending within five days prior to the date on which
notice is sent. This Prospectus also relates to the shares of Common Stock
issuable upon exercise of the Class A Warrants. See "Description of Securities."
Prior to the Offering, there has been no public market for the Common Stock or
the Class A Warrants of the Company. The price and other terms of the Offering
have been determined by negotiation between the Company and First London
Securities Corporation, as Representative of the Underwriters. See
"Underwriting."

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AND "DILUTION."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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ESTIMATED UNDERWRITING
MAXIMUM DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(2) COMPANY(3)
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Per Share................................. $6.00 $0.60 $5.40
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Per Warrant............................... $0.15 $0.015 $0.135
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Total(1).................................. $9,225,000 $922,500 $8,302,500

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(1) The Company has granted to the Representative a 30-day option to purchase up
to 225,000 additional Shares and 225,000 additional Class A Warrants solely
to cover over-allotments, if any. If the Representative exercises its option
in full, the Price to Public will total $10,608,750, Underwriting Discounts
and Commissions will be $1,060,875 and Proceeds to Company will be
$9,547,875 (before deduction of expenses -- see Note (3) below). See
"Underwriting."

(2) The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the gross proceeds of the Offering to the Company.
The Company has also sold to the Representative an option to purchase
150,000 shares of Common Stock at $7.20 per share and 150,000 warrants to
purchase Common Stock at $7.20 per share exercisable for a period of four
years commencing one year from the date of this Prospectus
("Representative's Purchase Option"). The Company has agreed to indemnify
the Underwriters for certain liabilities, including liabilities under the
Securities Act of 1933, as amended ("1933 Act"). See "Underwriting."

(3) Before deduction of expenses payable by the Company estimated at $756,002.

The Shares and Class A Warrants are offered by the several Underwriters
named herein when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject any order in whole or in part. It is expected
that delivery of certificates representing the Shares and Class A Warrants will
be made against payment therefor on or about , 1997.

------------------------
FIRST LONDON SECURITIES CORPORATION

The date of this Prospectus is , 1997

The Company is not a reporting company under the Securities Exchange Act of
1934. The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and such other reports as the Company deems appropriate.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
6

PROSPECTUS SUMMARY

The following summary is qualified in its entirety and should be read in
conjunction with the more detailed information and Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share and financial information in this Prospectus
assumes no exercise of the Representative's over-allotment option to purchase up
to 225,000 shares of Common Stock and 225,000 Class A Warrants, no exercise of
any warrants or options previously issued by the Company or the Class A Warrants
made in this Offering, no exercise of the Representative's Purchase Option to
purchase up to 150,000 shares of Common Stock and 150,000 warrants and no
exercise of stock options by employees and others to purchase up to 2,433,500
shares of Common Stock. See "Business," "Management -- Executive Compensation,"
"Description of Securities," "Management -- Incentive Stock Option Plan,"
"Management -- Nonqualified Stock Option Plan," "Management -- Director
Compensation" and "Underwriting."

THE COMPANY

Beverage Works, Inc. ("the Company") was formed on August 2, 1995 as a
California corporation, for the purpose of creating a multi-brand,
multi-regional specialty beer company that is capable of assuming a leadership
role in the increasingly consolidating, competitive craft brewing industry.
Craft breweries are mostly small to medium sized independent brewing companies
that generally use only traditional brewing processes and ingredients. These
include regional specialty brewers, microbrewers and brewpub restaurants. The
Company's growth strategy is distinctly different from most other companies in
the craft brewing industry that have recently raised capital through initial
public offerings. Rather than allocating resources and capital towards the
development or improvement of a single local or regional brand and brewing
facility, the Company's growth strategy focuses on acquiring a variety of
existing regional brands with growth potential and existing production capacity,
and/or entering strategic alliances with key industry players. The Company plans
to allocate resources towards creating operating efficiencies by consolidating
production capacity, sales and marketing operations, distribution channels, and
effective multi-brand management. Thus the Company expects to achieve
competitive strength and operating efficiencies in line with leaders in the
craft brew industry, and use its capital to spur revenue growth by effectively
marketing its portfolio of existing and new products and services in targeted
local and regional markets nationwide. Where appropriate to its strategy, the
Company will acquire and operate other specialty beverage companies and brewpub
restaurants. See "Business -- Plan of Operation/Business Strategy."

The Company has acquired one Southern California-based craft brewery and,
as soon as practicable after the date of this Prospectus, the Company will have
consummated the acquisition of an additional Southern California-based craft
brewery and entered into a partnership with one Northern California-based
brewery (the "Breweries"). The Company will market a total of 26 beer brands, a
number of which have won awards, utilizing a combined brewing capacity among the
Breweries of approximately 82,000 barrels per year. In addition, the Company
will operate as a contract brewery for a number of brands owned by other
brewers. See "Business -- Products" and "-- Breweries."

The Company has acquired, in a stock for stock transaction, approximately
95% of the outstanding capital stock of Heritage Brewing Company ("Heritage" or
"HBC") of Lake Elsinore, California, for 142,276 of the Company's Common Stock.
See "Business -- Breweries -- Heritage Brewing Company."

The Company has also entered into an agreement to acquire all of the
outstanding capital stock of Orange Empire Brewing Company ("OEBC"), the parent
of Riverside Brewing Company ("Riverside" or "RBC") of Riverside, California,
effective upon the close of this Offering. RBC operates both a brewpub
restaurant with a 5,000 barrel per year capacity, and a separate 35,000 barrel
per year brewery. Under the terms of the Share Purchase Agreement, the Company
will issue to the shareholders of OEBC 141,063 shares of Common Stock and, if
certain operating criteria are obtained, an additional 155,000 shares of Common
Stock. The Company has also entered into a Debt Exchange Agreement with certain
debtholders of OEBC which provides that such debtholders agree to cancel
approximately $644,000 of debt owned to them by OEBC in return for $301,000
cash, 24,125 shares of the Company's Common Stock and 50,000 warrants. The
Company will issue, concurrently with the closing of the OEBC acquisition,
27,618 shares of Common Stock to two

3
7

former shareholders of OEBC for assuming $220,940 of the principal amount of a
loan to OEBC by Riverside National Bank. The Company and OEBC will assume the
balance of the loan in the approximate amount of $313,000. See
"Business -- Breweries -- Riverside Brewing Company."

BWI-St. Stan's, Inc. ("BWISS"), a wholly owned subsidiary of the Company,
has entered into a partnership agreement with Prost Partners, L.P. ("Prost")
forming BWI-Prost Partners (the "Partnership"), to own and operate St. Stan's
Brewing Company ("St. Stan's") of Modesto, California. BWISS will own 51% of the
capital and profits interest in the Partnership and will effectively control the
business of the Partnership. As its capital contribution, BWISS will assume
approximately $1,128,000 of the debt of Prost and contribute approximately
$1,167,000 cash over the next 36 months. This cash contribution will be
distributed to Prost. Prost will contribute all of its assets, including all of
the operating assets of St. Stan's. The Company anticipates advancing $100,000
to $250,000 over the next twelve months to the Partnership for working capital
and marketing. See "Use of Proceeds." Over the next three years, BWISS has the
option to acquire Prost's interest in the Partnership by paying $2,205,000 plus
any unpaid required capital contributions. See "Risk Factors -- St. Stan's
Brewing Company Partnership" and "Business -- Breweries -- St. Stan's Brewing
Company."

Initially, the Company's profitability will be adversely affected as the
result of its acquisition and financing strategies. The Company has incurred,
and will continue to incur, substantial expense pursuant to its acquisition
strategy. Until the consummation of the acquisition and partnership agreements
concurrent with this Offering, the Company has limited influence on the
operations of these companies, and is restricted in achieving certain operating
efficiencies and income growth. Furthermore, until such time that a certain
number of craft breweries have been acquired or joint ventured and functioning
according to the Company's operating performance standards and consolidation and
marketing strategies, the Company's profitability will be adversely affected.

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8

THE OFFERING

Securities Offered............... 1,500,000 shares of Common Stock, no par
value (the "Shares") and 1,500,000 Class A
Warrants to purchase Common Stock at an
exercise price of $6.00 subject to
adjustment. See "Description of
Securities."

Price per Share.................. $6.00

Price per Class A Warrant........ $0.15

Common Stock Outstanding Prior to
the Offering(1)................ 1,670,453 Shares

Class A Warrants Outstanding
Prior to the Offering.......... None

Common Stock to be Outstanding
upon Completion of the
Offering(1)(2)................... 3,170,453 Shares

Class A Warrants to be
Outstanding
Upon Completion of the
Offering......................... 1,500,000 Class A Warrants

Use of Proceeds.................. Acquisition of Riverside Brewing Company,
Formation of St. Stan's Partnership;
Expansion of product lines; Marketing and
sales; Repayment of notes and other
indebtedness; Acquisition of capital
equipment; Costs of consolidation of
operations; Working capital. See "Use of
Proceeds."

Proposed Nasdaq Common Stock
Symbol.........................

Proposed Nasdaq Class A
Warrant Symbol.................

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

(1) Includes 141,063 shares of Common Stock to be issued as soon as practical
after this Offering to shareholders of OEBC pursuant to the Share Purchase
Agreement, 10,000 shares of Common Stock to be issued under the Brewpub
Management Agreement, 24,125 shares of Common Stock to be issued pursuant to
the Debt Exchange Agreement, 60,000 shares of Common Stock to be issued to
Brewery Leasing Company pursuant to the equipment lease agreement amendment
and brewing equipment consulting agreement, and 27,618 shares of Common
Stock to be issued to certain former OEBC shareholders to assume a portion
of the Riverside National Bank Loan. Excludes up to 155,000 shares of Common
Stock to be issued to shareholders of OEBC under the earnout provisions of
the Share Purchase Agreement See "Business -- Breweries -- Riverside Brewing
Company." Includes 30,000 shares of Common Stock to be issued pursuant to
the tentative settlement agreement with Tamkin Capital Partners. See
"Business -- Legal Proceedings."

(2) Excludes 225,000 shares and 225,000 Class A Warrants issuable pursuant to
the Underwriter's over-allotment option. See "Underwriting."

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9

SUMMARY OF HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following summary of financial data is derived from and should be read
in conjunction with the historical and pro forma financial statements of the
Company, Orange Empire Brewing Company and the St. Stan's Brewery and Brewpub
Operations, as listed on the "Index to Financial Statements" included elsewhere
in this Prospectus. See also "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

HISTORICAL
---------------------------------------- PRO FORMA
AUGUST 2, 1995 TO -----------------------------------
DECEMBER 31, NINE YEAR ENDED
1995 MONTHS ENDED DECEMBER 31,
----------------- SEPTEMBER 30, 1996 1995
------------------ ------------
NINE (UNAUDITED) (UNAUDITED)
MONTHS ENDED
SEPTEMBER 30, 1996
------------------
(UNAUDITED)

STATEMENT OF OPERATIONS
DATA:
Net sales................... $ 195,552 $ 44,810 $ 3,903,084 $ 4,975,962
========== ========== ========== ==========
Net loss.................... $ (2,273,654) $ (548,761) $ (3,835,098) $ (2,496,317)
========== ========== ========== ==========
Net loss per share.......... $ (0.85) $ (0.23) $ (1.13) $ (0.82)
========== ========== ========== ==========
Common shares and
equivalents outstanding... 2,687,359 2,362,806 3,384,390 3,059,837
========== ========== ========== ==========

HISTORICAL
----------------------------------- PRO FORMA
DECEMBER 31, ------------------
1995 SEPTEMBER 30, 1996
------------ ------------------
SEPTEMBER 30, 1996 (UNAUDITED)
------------------
(UNAUDITED)

Working capital (deficiency)............... $ (1,573,444) $ 814,541 $ 3,637,337
Total assets............................... 2,473,429 2,665,591 14,124,210
Total liabilities.......................... 2,699,011 1,086,850 5,915,414
Stockholders' equity (capital deficiency) (225,582) 1,578,741 8,208,796

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10

RISK FACTORS

INVESTMENT IN THE COMPANY IS HIGHLY SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. PRIOR TO THE PURCHASE OF ANY OF THE SECURITIES OFFERED HEREBY, A
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS
WELL AS OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE FINANCIAL
STATEMENTS AND NOTES THERETO CONTAINED ELSEWHERE HEREIN:

Absence of Combined Operating History and Future Combined Operating
Results. The Company has acquired one of the Breweries, and, simultaneously
with the completion of the Offering, the Company will consummate and finalize
the transactions with the other two Breweries. Although each of the Breweries
has been in business for some time, the Company has no operating history and
there can be no assurance that the Company will be able to successfully
integrate the Breweries, operations or assets of the Breweries, or of any other
businesses it may subsequently acquire. See "Business -- Breweries."
Furthermore, results of operations of the Breweries for the year ended December
31, 1995 and the nine-months ended September 30, 1996, which are reflected in
the historical and pro forma financial statements included elsewhere herein,
will likely significantly change as the Breweries are integrated into the
Company's strategy. There can be no assurance that the actual results of
operations will not reflect adverse developments in revenues, expenses or net
loss of any of the Breweries. There can be no assurance that, following any
transaction, the Company will be able to operate the Breweries or future brewery
joint ventures or acquisitions on a profitable basis.

Determination of Offering Price. The public offering prices of the Shares
and Class A Warrants have been determined by negotiation between the Company and
the Representative and is not necessarily related to the Company's asset value,
net worth or other established criteria of value. See "Underwriting."

No Prior Trading Market. Prior to this Offering, there has been no public
market for the Company's Common Stock or Class A Warrants and there can be no
assurance that an active market will develop or be sustained. The Company
believes factors such as announcements of financial condition, liquidity,
results of operations and new products by the Company and its competitors may
cause the market price of the Common Stock and Class A Warrants to fluctuate,
perhaps substantially. In addition, in recent years the stock market in general,
and the securities of first time public issuers in particular, have experienced
extreme price fluctuations. These broad market and industry fluctuations may
adversely affect the market price of the Company's Common Stock and Class A
Warrants.

Ability to Manage Growth; Expansion Into New Markets. The Company's future
success will depend in part on its ability to manage potentially rapid growth as
it attempts to increase its production capacity and broaden distribution of its
products to new markets. In attempting to expand distribution, the Company will
be required to establish and manage relationships with distributors, retailers
and consumers in numerous new markets. Consumer tastes may vary from market to
market and, therefore, there can be no assurance that the Company will be
successful in entering new markets or in maintaining its share of existing
markets. Continued expansion of the Company's business will require recruiting
and hiring several additional key employees, such as sales, brewery and brewpub
managers, and will require further upgrading of the Company's information
systems. There can be no assurance that the Company will be able to hire such
persons when needed or on favorable terms, that any such new employees will be
successfully assimilated into the Company's management, or that any such
information systems upgrade would be successfully accomplished.

Increased Competition for Specialty Beers. The beer industry is highly
competitive. Although there is an overall trend of declining beer sales in the
United States, domestic sales of craft beers have increased at an average annual
rate of 39% from 1990 through 1994, and in 1995 sales for the U.S. craft-brewing
industry grew by 50% (The New Brewer, May-June, 1996). The Company expects
competition in the craft segment of the beer industry to increase as new craft
brewers emerge and existing craft brewers expand their capacity. In addition,
the large national domestic brewers are expected to increase efforts to position
products in the craft brew category. Although the sale and consumption of craft
brewed beer has increased dramatically in recent years, there can be no
assurance that the demand for craft brewed beer will continue to grow at present
rates or at all. Many of the Company's competitors, including national and
regional domestic brewers, foreign brewers

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11

and more established craft and microbrewers, have greater financial, production,
distribution and marketing resources than the Company.

Acquisitions; Need for Capital; Construction of New Regional
Breweries. The Company's expansion strategy involves acquisitions, strategic
alliances and internal growth. There can be no assurance that suitable
acquisition candidates will be found, that acquisitions will be consummated on
favorable terms or that any such acquisitions will be successfully integrated
into the Company's operations. The Company intends to finance future
acquisitions, if any, by using cash and debt or equity securities, including
shares of its Common Stock. The Company will need additional debt or equity
financing to implement its acquisition strategy. There can be no assurance that
the Company will be able to obtain financing for such purposes on terms
acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Plan of Operation/Business Strategy." Successful
expansion of the Company's production capacity will require careful management
of various factors associated with the construction of new, or the expansion of
existing, facilities, including site selection, local land use requirements,
adequacy of municipal infrastructure, environmental uncertainties, possible cost
estimation errors or overruns, construction delays, the availability or cost of
financing and other factors, many of which are beyond the Company's control. The
Company believes it will also be faced with various organizational challenges
typically associated with commissioning new brewing facilities and increasing
production to maximum designed capacity levels, as well as the challenges of
establishing and maintaining management control over numerous geographically
separated facilities.

St. Stan's Brewing Company Partnership. BWI-St. Stan's, Inc. ("BWISS"), a
wholly-owned subsidiary of the Company has entered into a partnership agreement
with Prost Partners, L.P. ("Prost") doing business as St. Stan's Brewing Company
to form the partnership BWI-Prost Partners ("Partnership"). In addition to the
initial capital contribution to the Partnership, which includes assumption of
approximately $1,128,000 of Prost's debt, BWISS is required to contribute to the
Partnership approximately $1,167,000 over the next 36 months. In the event BWISS
fails to make such payments, Prost may acquire BWISS' interest in the
Partnership based on (i) the fair market value of the Partnership's tangible
assets plus (ii) the Partnership's modified net income for the preceding twelve
months multiplied by three less (iii) accrued and contingent liabilities. This
amount would likely be substantially less than the amount contributed by BWISS.

BWISS may buy-out Prost's interest in the Partnership by paying $2,205,000
within three years, plus any of the approximately $1,167,000 required additional
capital contribution not made at the date of the buy-out ("Option"). If BWISS
does not exercise the Option within three years, Prost has the first right to
acquire BWISS's interest in the Partnership based on the fair market value of
the Partnership's net assets. If Prost does not exercise its right of first
refusal, BWISS shall have the right to buy-out Prost on the same terms. If
neither Prost or BWISS exercises its right to buy-out the other partner, the
Partnership shall be dissolved. There can be no assurance that the Company or
BWISS will be able to make the Option payment or otherwise acquire Prost's
interest in the Partnership. In such case, the assets of the Partnership will be
liquidated, which BWISS may or may not desire, or be in the financial position,
to purchase, and the return to BWISS will likely be substantially less than its
contribution.

In addition, the Partnership will obtain nearly all of its future working
capital from BWISS, unless generated from the Partnership's sales. Prost has
limited financial resources to provide the Partnership with meaningful working
capital. The Partnership agreement provides for either partner to loan money to
the Partnership. However, repayment of such loans shall be made only from the
assets of the Partnership and the lending partner may not seek repayment from
the other partner. As such, repayment of any advance made by BWISS to the
Partnership, which Management anticipates will be between $100,000 and $250,000
over the next twelve months, is subject to the Partnership's assets exceeding
its other liabilities. See "Business -- Breweries -- St. Stan's Brewing
Company."

Product Liability Risk. The Company's operations are subject to certain
hazards and liability risks faced by all brewers, such as potential
contamination of ingredients or products by bacteria or other external agents
that may be wrongfully or accidentally introduced into products or packaging.
The occurrence of such a problem could result in a costly product recall and
serious damage to the Company's reputation for product

8
12

quality. There is no assurance that any such contamination will not occur and,
if it does, the Company's business will likely be materially and adversely
affected. Although the Breweries have product liability insurance, such
insurance may not fully cover losses that may be incurred from such
contamination and may have a material adverse effect on the Company because of
the potential impact on market share and other factors. The Company's operations
are also subject to certain injury and liability risks normally associated with
the operation and possible malfunction of brewing and other equipment. Although
the Company maintains insurance against certain risks under various general
liability and product liability insurance policies, there can be no assurance
that the Company's insurance will be adequate.

Government Regulation; Taxation. The manufacture and sale of alcoholic
beverages is regulated by both federal and state authorities. Brewery, wholesale
and retail operations require various federal, state and local licenses, permits
and approvals. Violation of such regulations can result in the loss or
revocation of existing licenses. The loss or revocation of any existing
licenses, permits or approvals, failure to obtain any additional or new
licenses, permits or approvals or the failure to obtain approval for the
transfer of any existing permits or licenses could have a material adverse
effect on the ability of the Company to conduct its business. Because of the
many and various state and federal licensing and permitting requirements, there
is a risk that one or more regulatory authorities could determine that the
Company has not complied with applicable licensing or permitting regulations or
does not maintain the approvals necessary for it to conduct business within
their jurisdictions. There can be no assurance that any such regulatory action
would not have a material adverse effect upon the Company or its operating
results. Congress and many state legislatures are considering various proposals
to impose additional excise taxes on the production and sale of alcoholic
beverages including beer. Any increase in the taxes imposed on beer can be
expected to have an adverse impact on overall sales of such products. Each of
the Breweries enjoy the benefit of the small brewers exemption from the $18 per
barrel federal excise tax. See "Business -- Taxation." There is no assurance
that federal regulators will not consider the Company as a single brewer and
that it will not lose the small brewers exemption.

Public Attitudes. The alcoholic beverage industry has become the subject
of considerable societal and political attention in recent years due to
increasing public concern over alcohol-related social problems, including drunk
driving, underage drinking, and health consequences from the misuse of alcohol,
including alcoholism. As an outgrowth of these concerns, the possibility exists
that advertising by beer producers could be restricted, that additional
cautionary labeling or packaging requirements might be imposed, or that there
may be renewed efforts to impose increased excise or other taxes on beer sold in
the United States. If beer consumption in general were to come into disfavor
among domestic consumers, or if the domestic beer industry were subjected to
significant additional governmental regulations, the Company's business could be
materially adversely affected.

Dependence on Management. The Company is dependent on the efforts of its
management. See "Management." The Company intends to obtain key person life
insurance, in an amount of $1 million each, covering its chief executive officer
and chief financial officer. However, the Company cannot determine if, and there
is no assurance that, such coverage, if available, would be sufficient to offset
the financial loss to the Company in the event of the loss of such officers.

History of Losses, Going Concern Considerations. The Company, since its
inception, and its acquisition target, Orange Empire Brewing Company and its
proposed partner, Prost Partners, L.P., doing business as St. Stan's Brewing
Company, have, and continue to incur, substantial losses from operations. The
report of the Company's certified public accountants includes an explanatory
paragraph which expresses substantial doubt concerning the Company's and Orange
Empire Brewing Company's ability to continue as a going concern. Management's
plans are described elsewhere in this prospectus. See "Managements Discussion
and Analysis of Financial Condition and Results of Operations." There are no
assurances that Management's plans can be effected within a reasonable period of
time.

9
13

Company. The Company has distribution agreements with several distributors,
including significant relationships with Southern Wine and Spirits of America,
Inc. and Wine Warehouse. The loss of either or both as distributors would have a
material adverse effect on the Company's ability to bring its products to market
in California and therefore adversely effect its sales and results of
operations. The Company's distribution agreements are generally terminable by
the distributor on short notice. While these distribution agreements contain
provisions regarding the Company's enforcement and termination rights, some
state laws prohibit the Company from exercising these contractual rights. The
Company's ability to maintain existing distribution agreements or enter new
distribution agreements may be adversely affected by the fact that many
distributors are reliant on one of the major beer producers for a large
percentage of their revenue and, therefore, may be influenced by such producers
to restrict distribution of the Company's products.

Shares Eligible For Future Sale. The 1,500,000 Shares and 1,500,000 Class
A Warrants being sold in the Offering (without giving effect to any exercise of
the over-allotment option) will be freely tradeable unless acquired by
affiliates of the Company. The market price of the Common Stock and Class A
Warrants could be adversely affected by the sale of substantial amounts of
Common Stock in the public market following this Offering. Of the Company's
3,170,453 shares of Common Stock that will be outstanding upon completion of
this Offering, 942,224 shares are "restricted securities" under Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
Ordinarily, under Rule 144, a person who has held restricted securities for a
period of two years may, every three months, sell in ordinary brokerage
transactions or in transactions directly with a market maker an amount equal to
the greater of one percent of the Company's then-outstanding Common Stock or the
average weekly trading volume during the four calendar weeks prior to such sale.
Rule 144 also permits the sale of shares without any quantity limitations by a
person who is not an affiliate of the Company and has satisfied a three-year
holding period. Of the 942,224 restricted shares, officers and directors hold an
aggregate of 365,213 shares. Of the remaining restricted securities, 135,000
shares have demand registration rights which grant the holders the right to
demand the Company to register these shares (thereby making such shares eligible
for sale) within days of the date of this Prospectus, and shares
will be eligible for sale under Rule 144 within days from the date of this
Prospectus. Sale of Common Stock pursuant to Rule 144 or subsequently registered
under the Securities Act may have a depressive effect on the market price of the
Common Stock.

The Company has reserved 2,433,500 shares of Common Stock for issuance to
key employees and officers, pursuant to the Company's Nonqualified Stock Option
Plan and Incentive Stock Option Plan, and options for 933,500 and 1,091,000,
respectively, of such shares are granted as of the date of this Prospectus. See
"Management -- Nonqualified Stock Option Plan" and " -- Incentive Stock Option
Plan." The Company has further reserved 892,000 shares of Common Stock issuable
upon exercise of the Class E Warrants, 70,000 shares of Common Stock issuable
upon exercise of the Class B Warrants, 300,000 shares of Common Stock issuable
upon exercise of the Representative's Purchase Option and Warrant, 80,583 shares
of Common Stock issuable upon exercise of other outstanding options and
warrants, and 155,000 shares for issuance to certain former stockholders of
OEBC, subject to Riverside Brewing Company's achievement of certain financial
goals. Other than the Company's Class A Warrants, and Class E Warrants and Class
H Warrants, substantially all of these options and warrants have an exercise
price that is substantially less than the offering price of the shares in this
Offering. The existence of such options and warrants may hinder future equity
financing by the Company. Further, the holders of such warrants and options may
exercise them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company. The 892,000
shares of Common Stock issuable upon exercise of the Class E Warrants and 70,000
shares of Common Stock issuable upon exercise of the Class B Warrants which are
registered along with the Offering may not be sold or otherwise disposed of for
180 days after the effective date of the registration statement without the
prior written consent of the Representative. Upon expiration of this period or
if consent is given, such shares shall be freely transferable. See "Description
of Securities" and "Underwriting."

Holders of 728,229 shares of Common Stock (approximately 23% of the shares
of Common Stock to be outstanding immediately following completion of this
Offering or 21% if the over-allotment option is exercised in full) which are
registered along with this Offering have agreed with the Company and the
Representative

10
14

not to sell or otherwise dispose of any such shares of Common Stock for a period
ranging from sixty days to thirteen months after the date of this Prospectus
without the prior written consent of the Representative. Upon expiration of this
period or if consent is given, such shares shall be freely transferable and may
be sold. See "Description of Securities -- Registration Rights." The Company
expects that it will issue shares of Common Stock and warrants to purchase
Common Stock in connection with future acquisitions. Such shares of Common
Stock, including shares issuable upon exercise of warrants, will become eligible
for sale in the public market from time to time in the future. See
"Business-Plan of Operation/Business Strategy -- Acquisitions."

Dividend Policy. The Company has never paid dividends and does not
anticipate paying dividends in the foreseeable future. See "Description of
Securities -- Dividends."

Preferred Stock Authorized. The Company's Articles of Incorporation
authorizes the issuance of 5,000,000 shares of preferred stock which rights,
preferences and privileges are to be determined by the Company's Board of
Directors. Although the Company has no intention at the present to issue any
preferred stock, the Company may issue and sell preferred stock which will
likely have dividend, distribution and liquidation preferences senior to common
shareholders and voting rights which may dilute the common shareholder voting
rights. See "Description of Securities -- Preferred Stock."

Effect of Anti-Takeover Provisions. Certain provisions of the Company's
Articles of Incorporation, By-Laws and certain executive employment agreements
could, together or separately, discourage potential acquisition proposals, delay
or prevent a change in control of the Company, and limit the price that certain
investors might be willing to pay in the future for the Company's Common Stock.
In addition, the provisions of certain executive employment agreements and stock
option agreements may result in economic benefits to the holders thereof upon
the occurrence of a change in control. See "Management -- Employment
Agreements," " -- Nonqualified Stock Option Plan," and " -- Incentive Stock
Option Plan."

Part of Net Proceeds From This Offering Not Specifically
Allocated. Approximately 24% of the net proceeds which are to be derived from
this Offering are allocated to working capital reserves, and their uses have not
been specifically identified by Management. These proceeds will be applied to
cover negative cash flow from operations and as business exigencies arise, none
of which Management may presently anticipate. Decisions as to the application of
these funds will be made without shareholder input; thus, investors in this
offering will be entrusting this portion of their funds to Management without
any commitment as to their use. See "Use of Proceeds."

Business and Revenues of Company are Seasonal in Nature. The Company's
business is seasonal in nature and is subject to economic fluctuations. As a
result of this seasonality, the Breweries have historically reported lower sales
and larger losses in the first and second quarters and higher sales and smaller
losses in the third and fourth quarters. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

Inability to Exercise Class A Warrants May Result In Loss of Value In Class
A Warrants. The Company must have an effective registration statement on file
with the Commission before any Class A Warrant may be exercised or redeemed. It
is possible that the Company may be unable to cause a registration statement
covering the Common Stock underlying the Class A Warrants to be effective. It is
also possible that the Class A Warrants could be acquired by persons residing in
states where the Company is unable to qualify the Common Stock underlying the
Class A Warrants for sale. In either event the Class A Warrants may expire
unexercised, which would result in the holders losing all of the value of the
Class A Warrants. See "Description of Securities -- Class A Warrants."

Immediate and Substantial Dilution Will Be Suffered By Investors In This
Offering. Purchasers of Shares will suffer an immediate, substantial dilution
of approximately 77% in the net tangible book value of their shares of Common
Stock since the purchase price of the Shares substantially exceeds the current
tangible book value per share of Common Stock. See "Dilution."

Disclosure Relating to Penny Stocks. The Securities may be subject to the
"penny stock rules" adopted pursuant to Section 15(g) of the Securities Exchange
Act of 1934. The "penny stock rules" apply to companies whose common stock
trades at less than $5.00 per share or which have a tangible net worth of less

11
15

than $5,000,000 ($2,000,000 if the Company has been operating for three or more
years). Such rules require, among other things, that brokers who trade "penny
stock" to persons other than "established customers" complete certain
documentation, make suitability inquiries of investors and provide investors
with certain information concerning trading in the security, including a risk
disclosure document and quote information under certain circumstances. Many
brokers have decided not to trade "penny stocks" because of the requirements of
the penny stock rules and, as a result, the number of broker-dealers willing to
act as market makers in such securities is limited.

Limited Protection For Intangible Assets; Realization of Goodwill. The
Company and the Breweries have trademarks and tradenames registered with the
Federal Patent and Trademark Office and/or California Secretary of State,
including "Beverage Works" and "St. Stan's" tradenames and several of the
Breweries' beers' tradenames. Although the Company is unaware of claims or
potential claims by third parties as to the use of such names, there is no
assurance that such claims may not be made in the future or that such claims
will not be successful. The Company has limited protection for its other
intangible assets. Thus, the Company is relying upon common law protection for
those assets. There is no assurance the Company would be successful in any suit
to protect its intangible assets. Any loss of the exclusive right to the use of
these assets would result in increased competition to the Company and have a
negative effect on cash flows and revenues. See "Business -- Trademarks." In
addition, the Company will have substantial goodwill relating to its acquisition
of Orange Empire Brewing Company and future acquisitions. There can be no
assurances that the Company will be able to realize such goodwill through future
operations.

Potential "Dram Shop" Liability. Some states have enacted "dram shop" laws
and legislation which impose criminal and civil liability on licensed alcoholic
beverage servers for injuries or damages caused by their negligent service of
alcoholic beverages to a visibly intoxicated person or to a minor, if such
service is the proximate cause of the injury or damage and such injury or damage
is reasonably foreseeable. California has enacted legislation granting broad
immunity to servers of alcoholic beverages from civil liability, except for the
sale of alcoholic beverages to minors, but does not extend such immunity to
criminal liability. While the Company maintains liquor liability insurance as
part of its comprehensive general liability insurance which management believes
is adequate to protect against such liability, there can be no assurance that
the Company will not be subject to a judgment or fine in excess of such
insurance coverage or that it will be able to continue to maintain such
insurance coverage at reasonable costs or at all. The imposition of a judgment
or fine substantially in excess of the Company's insurance coverage would have a
material adverse effect on the Company. Similarly, the failure of the Company to
obtain and maintain insurance coverage could also materially and adversely
affect the Company. See "Business -- Regulation."

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CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996, (i) on a historical basis (unaudited) and (ii) on a pro
forma condensed consolidated basis (unaudited) to reflect: (A) the Offering
(based on an initial Offering price of $6.00 per Share of Common Stock and $0.15
per Class A Warrant), (B) the issuance of 141,063 shares of Common Stock to
acquire OEBC (which includes the assumption of certain indebtedness) valued at
$719,421, and the related payment of $301,000 in cash and the issuance of 51,743
shares of Common Stock in satisfaction of $795,133 of OEBC indebtedness, the
issuance of 20,000 shares pursuant to an OEBC related management and an OEBC
related consulting agreement, and the issuance of 50,000 shares of Common Stock
to reduce $500,000 in principal on an OEBC capital lease due a related party,
(C) the assumption of $668,927 and the related partial repayment of $168,927 of
certain notes payable, the assumption and full repayment of notes payable to
related parties totaling $459,120, and to establish minority interest of
$304,116 and a distribution payable of $1,166,953 in connection with the
consummation of BWI-Prost Partners Partnership Agreement, (D) the establishment
of $750,000 and repayment of $1,250,000 of bridge notes used for working capital
purposes, (E) the establishment and repayment of $175,000 of a note payable to a
related party used for working capital purposes, (F) the establishment and
repayment of advances up to $150,000 from a related party used for working
capital purposes, (G) the issuance of 60,000 shares of Common Stock under a
consulting agreement, (H) the issuance of 30,000 shares relating to a legal
settlement, (I) the retirement of 1,160,216 shares of Common Stock, and (J) the
issuance of 20,000 shares of Common Stock related to a bridge note extension.
The information set forth in the following table should be read in conjunction
with the historical and pro forma financial statements and notes thereto, listed
on the "Index to Financial Statements" elsewhere in this Prospectus and the
discussion set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

SEPTEMBER 30, 1996
------------------------
ACTUAL AS ADJUSTED
---------- -----------

Short-term debt...................................................... $ 640,133 $ 628,837
========= ==========
Long-term obligations................................................ $ 363,089 $ 2,567,704
---------- -----------
Minority interest.................................................... -- 304,116
---------- -----------
Stockholders' equity:
Preferred Stock, no par value;
5,000,000 shares authorized; no
shares issued or outstanding.................................... -- --
Common Stock, no par value;
20,000,000 shares authorized;
2,457,863 shares issued and outstanding
(and 3,170,453 shares as adjusted)(1)........................... 2,596,833 12,110,640
Accumulated deficit................................................ (2,822,415) (3,901,844)
---------- -----------
Net stockholders' equity................................... (225,582) 8,208,796
---------- -----------
Total capitalization....................................... $ 137,507 $11,080,616
========= ==========

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

(1) Excludes 1,500,000 shares of Common Stock reserved for future issuance under
the Company's Incentive Stock Option Plan. See "Management -- Incentive
Stock Option Plan." Excludes 933,500 shares of Common Stock reserved for
future issuance under the Company's Non-Qualified Stock Option Plan. See
"Management -- Nonqualified Stock Option Plan." Excludes 155,000 shares of
Common Stock reserved for future issuance under the earnout provisions and
50,000 shares of Common Stock reserved for issuance under exercise of
warrants in the debt repayment provisions in the acquisition of Orange
Empire Brewing Company. See "Business -- Breweries -- Riverside Brewing
Company." Excludes 892,000

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17

shares of Common Stock reserved for issuance under the Class E Warrant
Agreement, 15,583 shares of Common Stock reserved for issuance under the
Class C Warrant Agreement, 70,000 shares of Common Stock reserved for
issuance under the Class B Warrant Agreement, 15,000 shares of Common Stock
reserve for issuance under the Class H Warrant Agreement, 100,000 shares of
Common Stock reserved for issuance under the Directors' Compensation Plan,
and 1,500,000 shares of Common Stock reserved for issuance under the Class A
Warrants included in this Offering. See "Description of Securities" and
"Management -- Director Compensation." Also excludes up to 225,000 shares
and 225,000 shares reserved for issuance under the warrants under the
Underwriter overallotment and 300,000 shares for issuance under the
Representative's Purchase Option. Excludes retirement of 1,160,216 shares of
Common Stock on November 22, 1996. See "Underwriting."

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18

DILUTION

The unaudited net tangible book deficiency of the Company on a historical
cost basis as of September 30, 1996 was approximately $(903,547), or $(0.37) per
share of Common Stock. Net tangible book value per share represents the amount
of total tangible assets less total liabilities, divided by the number of shares
of Common Stock then outstanding. After giving effect to (A) the sale by the
Company of the 1,500,000 shares of Common Stock offered by the Company herein
(after deduction of underwriting discounts and commissions, and estimated
offering expenses payable by the Company), (B) the issuance of 141,063 shares of
Common Stock to acquire OEBC, the issuance of 51,743 shares of Common Stock in
satisfaction of $494,133 of OEBC indebtedness and the issuance of 20,000 shares
pursuant to an OEBC related management and an OEBC related consulting agreement,
(C) the issuance of 60,000 shares of Common Stock pursuant to a consulting
agreement, (D) the issuance of 50,000 shares of Common Stock in connection with
the $500,000 reduction to a capital lease obligation due to a related party (E)
the issuance of 30,000 shares of Common Stock in connection with a legal
settlement, (F) the issuance of 20,000 shares of Common Stock in connection with
the extension of a bridge note, and (G) the retirement of 1,160,216 shares of
Common Stock. The Company's pro forma tangible book value at September 30, 1996
would have been $4,349,167 (which consists of pro forma stockholders' equity of
$8,208,796 less goodwill and other intangible assets of $3,859,629), or $1.37
per share of Common Stock. This represents an immediate increase in net tangible
book value of $1.74 per share to existing stockholders and an immediate dilution
of $4.63 per share (or 77%) to the new public investors. The following table
illustrates the per share dilution:

Initial public offering price per share.................................... $ 6.00
Net tangible book value per share before offering........................ $ (0.37)
Increase in net tangible book value per share attributable to new
investors............................................................. 1.74
-----
Pro forma net tangible book value per share after offering................. 1.37
-----
Dilution per share to new public investors................................. $ 4.63
=====

The following table summarizes, on a pro forma basis as of September 30,
1996, the difference between the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share paid
by the existing and other stockholders and by new public investors purchasing
shares in this Offering (before deduction of underwriting discounts and
commissions and estimated offering expense payable by the Company):

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------

Existing stockholders........................ 2,457,863 77.5% $ 2,771,520 20.2% $1.13
New public investors......................... 1,500,000 47.3 9,000,000 65.6 6.00
Stockholders as a result of acquisition and
debt reduction............................. 192,806 6.1 983,311 7.1 5.10
Other........................................ 180,000 5.7 972,000 7.1 5.40
Retirement of Common Stock................... (1,160,216) (36.6) -- -- --
--------- ----- ----------- -----
Total...................................... 3,170,453 100.0% $13,726,831 100.0%
========= ===== =========== =====

The foregoing computations exclude the proceeds expected to be received
from the sale of the 1,500,000 Class A Warrants and assume no exercise of stock
options or warrants after September 30, 1996. Accordingly it excludes 1,500,000
shares of Common Stock reserved for future issuance under the Company's
Incentive Stock Option Plan. See "Management -- Incentive Stock Option Plan."
Excludes 933,500 shares of Common Stock reserved for future issuance under the
Company's Non-Qualified Stock Option Plan. See "Management -- Nonqualified Stock
Option Plan." Excludes 155,000 shares of Common Stock reserved for future
issuance under the earnout provisions, and 50,000 shares of Common Stock
reserved for the exercise of the Class D Warrants under the debt repayment
provisions under the acquisition of Orange Empire Brewing Company. See
"Business -- Breweries." Excludes 892,000 shares of Common Stock reserved for
issuance upon exercise of the Class E Warrants, 15,583 shares of Common Stock
reserved for issuance upon exercise of

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the Class C Warrants, 70,000 shares of Common Stock reserved for issuance upon
exercise of the Class B Warrants, 300,000 shares reserved for issuance upon
exercise of the Representative's Purchase Option, 15,000 shares of Common Stock
reserved for issuance upon exercise of the Class H Warrants, 100,000 shares of
Common Stock reserved for issuance under the Directors' Compensation Plan, and
1,500,000 shares of common stock reserved for issuance upon exercise of the
Class A Warrants included in this Offering. See "Description of Securities" and
"Management -- Director Compensation." Also excludes up to 225,000 shares and
225,000 shares of Common Stock reserved for issuance upon exercise of the Class
A Warrants reserved for issuance under the Representative's overallotment. See
"Underwriting."

Assuming the exercise of all options and warrants to purchase an aggregate
of 1,863,500 shares of Common Stock, granted and/or issued to directors,
officers, promoters and affiliates which have an average exercise price of
$5.15, the Company's pro forma tangible book value at September 30, 1996 would
have been $13,946,017, or $2.77 per share. This would represent an immediate
increase in the net tangible book value of $1.40 per share to the new public
investors. The dilution per share to new public investors, before assuming the
issuance of such options and warrants, and after assuming such issuance, is
$4.63 and $3.23, respectively.

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20

USE OF PROCEEDS

The net proceeds of this offering, after deduction of underwriting
commissions and offering expenses, will be approximately $7,546,498. The Company
expects to apply the net proceeds of the offering as follows:

AMOUNT PERCENT
---------- -------

BWI-Prost Partners Partnership(1)........................... $ 628,000 8%
Riverside Acquisition(2).................................... 451,000 6
Sales and Marketing(3)...................................... 1,500,000 20
Notes Payable(4)............................................ 1,250,000 17
Short-Term Line of Credit(5)................................ 175,000 2
Property and Equipment(6)................................... 250,000 3
Acquisitions and New Products(7)............................ 1,000,000 13
Accounts Payable(8)......................................... 500,000 7
Consolidation of Operations(9).............................. 30,000 --
Working Capital............................................. 1,762,498 24
---------- ----
Total............................................. $7,546,498 100%
========== ====

The Company anticipates that the proceeds of this offering will be
sufficient to finance its working capital requirements for at least 12 months
following this offering. Pending application, the net proceeds will be invested
in deposits with banks, investment grade securities and short-term income
producing investments, including U.S. Treasury securities and other money market
instruments. In the event of the exercise of the Representative's over-allotment
option, the net proceeds from such exercise will also be applied to working
capital.
- ---------------

(1) See "Business -- Breweries-St. Stan's Brewing Company." Approximately
$169,000 will be used to pay a portion of the Owens Financial Note down to a
principal balance of $500,000 in accordance with the agreement with Owens
Financial to refinance such note. Approximately $459,000 will be paid to
Romy Angle as repayment of advances made by her to Prost Partners. At the
consummation of the BWI-Prost Partners Partnership, Ms. Angle will become
the Company's Purchasing and Restaurant Manager.

(2) See "Business -- Breweries -- Riverside Brewing Company." Up to $150,000 of
non-interest bearing advances will be repaid to Michael Hagerman, a former
shareholder of RBC, for working capital provided to RBC and $301,000 will be
paid to Orange Empire Brewing Company debtholders as part of refinancing
approximately $644,000 of Orange Empire debts.

(3) The net proceeds allocated to marketing and sales are expected to be applied
towards the promotion of the Breweries' main brands in their respective key
markets over the next 18 months. The proceeds are intended to be applied to
product development, market research, point of sale materials, event
participation and sponsorships, paid media advertising, post-offs,
distributor incentive programs and sales person incentive programs.

(4) The Company is obligated under a secured bridge note in the aggregate
principal amount of $500,000. The note accrues interest on the principal
amount at the rate of eighteen percent (18%) per annum and matures on April
15, 1997. The Company is also obligated to pay $250,000 from the issuance of
a note at 12% interest per annum in December 1996. The proceeds from these
notes were used for working capital purposes. Up to an additional $500,000
in bridge loans are expected to be provided through January 1997, accruing
interest at 12% to 18% and to be repaid from proceeds of the IPO. The
primary use of these additional funds is $300,000 for working capital
purposes and $200,000 to pay half of the legal settlement on the Tamkin
Capital Partners law suit.

(5) Up to $175,000 will be paid to Brewery Leasing Company, a company controlled
by Michael Hagerman, under a line of credit with the Company. The line of
credit, the proceeds of which are to be used for the Company's working
capital needs, provides for interest at 11% with a maturity date of June 30,
1997.

(6) The net proceeds allocated to property and equipment purchases in the next
18 months are expected to be applied towards the expansion and improvement
of the Company's brewing capacity.

17
21

(7) The Company plans for the expansion of the Company's product lines and
activities by one or more means, including internal development, joint
ventures, strategic alliances, and acquisition of product lines or
complementary businesses. See "Business -- Plan of Operations/Business
Strategy."

(8) This includes approximately $500,000 to pay-off existing current and past
due accounts payable.

(9) The Company intends to move the Heritage Brewing Company operations to the
Riverside Brewing Company location during the first six months of 1997. The
Heritage Brewing Company facility lease expires in April of 1997, and the
lease for additional storage is on a month to month lease. It is anticipated
that the Company will incur minimal costs relating to the removal,
transportation and installation of the equipment.

18
22

SELECTED FINANCIAL DATA

The following selected financial data is derived from and should be read in
conjunction with the historical and pro forma financial statements of the
Company and its subsidiary HBC, OEBC and its subsidiary RBC, which operates a
brewery and a brewpub, and St. Stan's, as listed on the "Index to Financial
Statements" included elsewhere in this Prospectus. The historical statement of
operations data for the period August 2, 1995 to December 31, 1995, and the
balance sheet data as of December 31, 1995, are derived from the consolidated
financial statements of the Company which have been audited by Corbin & Wertz,
independent certified public accountants, whose report thereon is included
elsewhere herein. The historical statements of operations data for the nine
months ended September 30, 1996, and the historical balance sheet data as of
September 30, 1996 are unaudited, and have been derived from the Company's books
and records. Such unaudited data has been prepared on the same basis as the
audited financial data and, in the opinion of management, reflects all
adjustments (consisting only of normally recurring adjustments) which are
necessary for a fair presentation in accordance with Generally Accepted
Accounting Principles. The operating data is derived from unaudited information
maintained by the Company. The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of results to be expected for
any future periods.

The unaudited pro forma statements of operations data for the year ended
December 31, 1995 and the nine months ended September 30, 1996, and the pro
forma balance sheet data as of September 30, 1996 is presented, giving effect to
the following:

(1) The consummation of the Beverage Works, Inc. proposed Initial Public
Offering and the application of the proceeds therefrom as described in
"Use of Proceeds."

(2) The consummation of the Beverage Works, Inc. and Orange Empire Brewing
Company Share Purchase Agreement and related agreements.

(3) The consummation of the BWI-Prost Partners Contribution and Partnership
Agreements and related agreements.

The unaudited pro forma balance sheet data has been prepared as though the
transactions and arrangements described above had taken effect on September 30,
1996, and the unaudited pro forma statements of operations data have been
prepared as though the transactions and arrangements had taken effect at the
beginning of each period presented. In management's opinion, all adjustments
have been made necessary to reflect the effects of the consummation of the
Initial Public Offering and the application of the proceeds therefrom, the
consummation of the Beverage Works, Inc. and Orange Empire Brewing Company Share
Purchase Agreement and related agreements, and the consummation of the BWI-Prost
Partners Contribution and Partnership Agreements and related agreements.

The unaudited pro forma financial data does not purport to be indicative of
the financial condition or results of operations of the Company that would have
been obtained for the periods presented had the transactions and arrangements
taken effect on the assumed dates, nor does it purport to represent the
financial condition or results of operations of the Company for any future
period.

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23

HISTORICAL
------------------------------------ PRO FORMA
AUGUST 2, 1995 TO -------------------------------
DECEMBER 31, NINE MONTHS
1995(1) ENDED
----------------- SEPTEMBER 30,
1996
NINE MONTHS --------------
ENDED (UNAUDITED)
SEPTEMBER 30,
1996
-------------- YEAR ENDED
DECEMBER 31,
(UNAUDITED) 1995
------------
(UNAUDITED)

STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 195,552 $ 44,810 $ 3,903,084 $ 4,975,962
Cost of sales...................... 421,158 81,627 3,063,902 3,814,479
---------- ---------- ---------- ----------
Gross profit..................... (225,606) (36,817) 839,182 1,161,483
Selling, general and administrative
expenses......................... 1,443,607 491,330 3,781,913 3,543,436
Provision for legal settlements.... 571,000 -- 737,000 --
---------- ---------- ---------- ----------
Operating loss................... (2,240,213) (528,147) (3,679,730) (2,381,953)
Interest and other expenses, net... 76,960 28,320 409,139 402,661
Minority interest in loss of
consolidated partnership......... -- -- (116,940) (104,552)
---------- ---------- ---------- ----------
Loss before income tax benefit..... (2,317,173) (556,467) (3,970,929) (2,680,062)
Income tax benefit................. 43,519 7,706 135,830 183,745
---------- ---------- ---------- ----------
Net loss........................... $ (2,273,654) $ (548,761) $ (3,835,098) $ (2,496,317)
========== ========== ========== ==========
Net loss per common share.......... $ (0.85) $ (0.23) $ (1.13) $ (0.82)
========== ========== ========== ==========
Common shares and equivalents
outstanding...................... 2,687,359 2,362,806 3,384,390 3,059,837
========== ========== ========== ==========
OPERATING DATA (IN BARRELS):
Barrels shipped(2)................. 1,715 392 10,127 12,684
========== ========== ========== ==========
Production capacity, end of
period(3)........................ 12,000 6,500 82,000 76,500
========== ========== ========== ==========

HISTORICAL
------------------------------- PRO FORMA
DECEMBER 31, --------------
1995 SEPTEMBER 30,
------------ 1996
--------------
SEPTEMBER 30, (UNAUDITED)
1996
--------------
(UNAUDITED)

BALANCE SHEET DATA (END OF PERIOD):
Current assets......................... $ 424,726 $1,121,377 $ 5,221,042
Working capital (deficiency)........... (1,573,444) 814,541 3,637,337
Property and equipment................. 1,335,939 1,296,434 4,996,282
Total assets........................... 2,473,429 2,665,591 14,124,210
Current liabilities.................... 1,998,170 306,836 1,583,705
Total liabilities...................... 2,699,011 1,086,850 5,915,414
Stockholders' equity (capital
deficiency).......................... (225,582) 1,578,741 8,208,796

- ---------------
(1) The Company was incorporated August 2, 1995 and acquired Heritage on
November 8, 1995. The historical statement of operations for 1995 reflects
the operations of the Company and Heritage for the periods beginning August
2, 1995 and November 8, 1995, respectively.

(2) A barrel is equivalent to 31 gallons, two American kegs, or 13.8 cases of
twenty-four 12-ounce bottles of beer.

(3) Based on the Company's estimate of the Breweries' production capacity, as of
the end of such period. The Company's estimate of production capacity should
not be considered indicative of actual production

20
24

levels for any period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

The Breweries' capacity or output is derived from a combination of
equipment, in particular the breweries' brewhouse, fermentation tanks and
packaging line. The capacity also depends on the type of brews produced,
some of which require a longer fermentation period than others. St. Stan's
and RBC operate breweries that can potentially support an output of
approximately 30,000 and 35,000 barrels per year, respectively, but their
fermentation capacity varies. RBC's brewpub operates at approximately 5,000
barrels per year. Some capital improvements will be made to expand
fermentation upon the close of the Offering. See "Use of Proceeds."

Heritage's capacity has increased from approximately 6,500 barrels per year
to approximately 12,000 barrels per year by adding additional fermentation
tanks and other support equipment to the existing equipment. See also
"Business -- Brewing Facilities."

21
25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company was founded for the purpose of creating a multi-brand,
multi-regional specialty beer company, capable of assuming a leadership role in
the craft brewing industry. The Company's growth strategy is distinctly
different from most other companies in the craft brewing industry, as it does
not allocate resources and capital towards the development or improvement of a
single local or regional brand and brewing facility, but focuses on acquiring a
variety of existing regional brands with growth potential and existing
production capacity, and/or entering strategic alliances with key industry
players.

According to the Institute for Brewing Studies, The New Brewer, May-June
1995 issue, the craft brewing industry has grown 30% to 50% annually since 1988,
and is expected to grow in excess of 30% annually. The craft beer market is very
fragmented and distribution channels are getting crowded from the proliferation
of brands. The large craft brewers are becoming increasingly dominant and
Budweiser, Miller and Coors have all recently introduced product entries, and
are focussing their main brand advertising campaigns to appeal to craft brew
consumers. The Company believes that craft brewing is entering a phase of
development characterized increasingly by consolidation. This requires increased
marketing and selling skills, operating efficiencies, and integrated production
as well as appropriate distribution capabilities and access to capital to enable
the craft brewers to effectively compete with the dominant companies in this
industry.

Management of the Company intends to acquire and/or joint venture with
craft brewers with promising brands and strategically located craft breweries
and brewpub restaurants. This should enable the Company to obtain operating
efficiencies and competitive strength by consolidating production capacity,
sales and marketing operations, distribution channels, and effective multi-brand
management.

The Company has been funded, to date, with a private placement of
$1,654,984 at $4.00 per common share, an 18% bridge loan of $500,000 to be
repaid from proceeds of the proposed Offering, a $150,000 private placement of
equity units at $5.00 per equivalent share, a 12% $250,000 bridge loan to be
repaid from proceeds of the proposed offering, a variable rate (not to exceed
11% per annum) $175,000 line of credit with a related party, and up to $500,000
in additional bridge loans which are expected to close in January 1997, to be
repaid from proceeds of the proposed offering. The Company has insufficient
capital and inadequate cash flows from operations to continue as an operating
entity without additional working capital in the immediate future and will not
be able to implement its plan without completing this Offering.

Initially, the Company's profitability will be adversely affected by its
growth and financing strategies. The Company has incurred, and will continue to
incur, substantial expenses pursuant to its growth strategy. Until the
consummation of the acquisition and partnership agreements which are expected to
occur concurrent with this Offering, the Company has limited influence on the
operations of these companies, and is restricted in achieving certain operating
efficiencies and reducing losses from operations. Furthermore, until such time
that a certain number of craft breweries have been acquired or joint ventured
and are functioning according to the Company's operating performance standards,
consolidation and marketing strategies, the Company's operations will be
adversely affected.

The Company's initial proposed acquisition, partnership and operating
agreements are primarily with smaller breweries that have not been operating
profitably and in all likelihood could not operate profitably without operating
efficiencies, financial, distribution and marketing assistance. The Company will
need to spend substantial funds on sales and marketing in order to increase
sales volume and enhance the distribution channels. It will also need to invest
in brewing facilities, equipment and improvements in order to consolidate and
increase production capacity, reduce operating costs and improve operating
efficiencies. Management of the Company currently has sales and marketing
skills, as well as substantial distribution contacts. Upon the completion of the
proposed Offering, management believes they will have the capital necessary to
offer financial assistance for marketing and advertising, expanding of
distribution channels, and for capital improvements to enable the combined
companies to achieve lower operating costs and to improve operating
efficiencies.

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26

Pro forma financial information is presented for the year ended December
31, 1995 and the nine months ended September 30, 1996, both of which are
unaudited. Consolidated information for the Company is presented only on a
historical basis and cannot be compared for the period August 2, 1995 to
December 31, 1995 and for the nine months ended September 30, 1996, as the
Company was only established in August, 1995. The financial data and analysis
pertaining to its proposed acquisition of OEBC and partnership with St. Stan's
Brewery and Brewpub operations are presented, comparing December 31, 1994 with
December 31, 1995, and the nine months ending September 30, 1995 with the same
period ended September 30, 1996.

The proposed acquisition of OEBC and the proposed partnership with St.
Stan's will be accounted for upon the consummation of the transactions.
Accordingly, the operating results of the companies will be consolidated and
reported on a prospective basis from the date of closing. The discussions of the
proforma financial information are for analytical purposes only, and do not
purport to represent the actual financial reporting of the combined companies
upon the closing of the proposed transactions.

PROFORMA RESULTS OF OPERATIONS

The following tables set forth the unaudited proforma condensed
consolidated results of operations for the periods indicated as a percentage of
net sales. Such information includes the accounts of the Company, its subsidiary
HBC, OEBC and its subsidiary RBC, and St. Stan's as if the acquisition, the
partnership and Offering were consummated during the beginning of the respective
periods. Such information is not necessarily indicative of the results which may
have been achieved had the transactions been consummated at the beginning of
such periods. Such information is as follows:

PERCENTAGE OF SALES

NINE MONTHS ENDED SEPTEMBER 30, 1996

(UNAUDITED)

ORANGE
BEVERAGE EMPIRE ST. STAN'S PROFORMA
WORKS BREWERY BREWERY ADJUSTMENTS(1) PROFORMA TOTAL
-------- ------- ---------- -------------- --------------

Net Sales................................ 100.0% 100.0% 100.0% 100.0%
Cost of Sales............................ 215.4 70.3 72.9 78.5
Gross Profit............................. (115.4) 29.7 27.1 21.5
Selling, General and Administrative...... 738.2 46.3 29.9 96.9
Provision for Settlements................ 292.0 7.0 -- 18.9
Interest and Other (Income) Expense...... 39.4 9.6 5.9 10.5
Minority Interest in loss of consolidated
Partnership............................ -- -- -- (3.0)
Tax Benefit.............................. (22.3) -- -- (3.5)
------- ----- ----- -----
Net Loss................................. (1,162.7)% (33.2)% (8.7)% (98.3)%
======= ===== ===== =====

- ---------------
(1) Refer to Unaudited Proforma Condensed Consolidated Statement of Operations.

23
27

PERCENTAGE OF SALES
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

ORANGE
BEVERAGE EMPIRE ST. STAN'S PROFORMA
WORKS BREWERY BREWERY ADJUSTMENTS(1) PROFORMA TOTAL
-------- ------- ---------- -------------- --------------

Net Sales................................ 100.0% 100.0% 100.0% 100.0%
Cost of Sales............................ 182.2 71.4 68.8 76.7
Gross Profit............................. (82.2) 28.6 31.2 23.3
Selling, General and Administrative...... 1,096.4 38.8 28.8 71.2
Interest................................. 63.2 6.4 4.8 8.1
Other (Income) Expense................... -- -- -- --
Minority Interest in Loss of Consolidated
Partnership............................ -- -- -- (2.1)
Tax Benefit.............................. (17.2) .1 -- (3.7)
-------- ----- ----- -----
Net Loss................................. (1,224.6)% (16.7)% (2.4)% (50.2)%
======== ===== ===== =====

- ---------------
(1) Refer to Unaudited Proforma Condensed Consolidated Statement of Operations.

Sales: The unaudited pro forma sales for the first nine months of 1996
totaled $3,903,084, which is a slight increase over the comparable period for
1995; however, there are no assurances that the companies will actually have
higher sales in 1996 than in 1995 as management does not believe that the
companies have sufficient working capital to sustain operations without
financial assistance from the Company's proposed Offering or other sources.

Cost of Sales: The unaudited pro forma cost of sales of 76.7% and 78.5% of
net sales for the year ending December 31, 1995 and the nine months ended
September 30, 1996, respectively, were above industry levels for breweries of
this size. The Company estimates that it must lower cost of sales to
approximately 67% of net sales in order to be competitive. The Company believes
that it can substantially reduce cost of sales through consolidation of
operations, centralized purchasing, improved quality control, increased plant
utilization and greater automation. The Company has already initiated this
process by combining certain operations of HBC. The Company will also lower cost
of sales as a percentage of net sales by increasing sales through expansion of
existing and new brands, contract brewing agreements and acquisitions. Even if
the Company is successful in lowering cost of sales, it can not accurately
forecast the potential effect of competitive pressures on pricing which could
have the effect of lowering the gross profit and possibly offsetting all or a
portion of the cost savings realized, if any. There are no assurances that
management's plans to reduce their cost of sales will be successful.

Selling, General and Administrative Expenses: Unaudited pro forma selling,
general and administrative expenses for the year ended December 31, 1995 were
71.2% of net sales and for the nine months ended September 30, 1996 was 96.9% of
net sales which is high in comparison to the industry leaders that range from
16% to 45%. Selling, general and administrative expenses include $723,019 of
costs, detailed below, indirectly associated with the acquisitions and public
offering process. Adjusting for these costs would lower selling, general and
administrative expense to 78.4% of net sales before factoring in savings that
will be gained from consolidation of duplicate functions. These indirect
acquisition and public offering process related costs for the Company include
$268,444 in professional fees, $32,000 for a loss on an investment in Seaborn
Beverages Corporation, $50,000 in bonuses related to obtaining the Hussong's
license, $377,500 of costs incurred through the issuance of 70,000 shares of
common stock in connection with a one year consulting agreement providing
financial advisory services and a one year consulting agreement providing
assistance for the acquisition and disposition of brewing equipment and $262,392
of compensation through the issuance of 65,598 shares of common stock to
Heritage officers and former shareholders. Additionally, the Company's selling,
general and administrative expenses for the nine months ended September 30, 1996
included substantial costs associated with the administration of these companies
on a decentralized basis.

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28

Selling, general and administrative expenses are also adversely affected as
the result of additional noncash charges of $264,256 for goodwill amortization
expense on the OEBC acquisition and $16,500 in amortization expense for St.
Stan's formation costs. The Company expects an increase in selling, general and
administrative expense, primarily marketing and advertising, in terms of actual
dollars over time but a decrease in such expenses as a percent of net sales.
Certain incentive compensation will be paid when the Company achieves
profitability and, accordingly, management compensation is expected to decrease
in total dollars, as well as a percentage of sales in the next twelve months.

Provision for Settlements: Unaudited pro forma provision for settlements
consists of a provision of $571,000 for settlement of the Tamkin lawsuit as
discussed under "Legal Proceedings," and $166,000, of which $136,000 relates to
a shareholder dispute, for settlement of claims against OEBC. In total, these
charges were 18.9% of net sales.

Interest and Other Expenses (Income): Unaudited pro forma interest and
other expenses are 10.5% of net sales primarily as a result of interest paid on
bridge notes on common stock and warrants issued in connection with a bridge
note.

Net Loss: The unaudited pro forma net loss of $2,496,317 and $3,835,098 or
50.2% of net sales for the year ending December 31, 1995 and 98.3% for the nine
months ended September 30, 1996, respectively, is attributable to a number of
important factors as described above. Almost 50% of the nine-month pro forma net
loss can be attributed to legal settlements, consulting fees, legal and
accounting fees, which were incurred in preparation of becoming a public company
and establishing an infrastructure necessary for expansion of operations;
however, the Company still incurred a substantial pro forma net loss from
operations for the nine months ended September 30, 1996 of approximately
$2,066,000 after adjusting for depreciation and amortization of approximately
$645,000 and other noncash expenses aggregating approximately $1,124,000.

HISTORICAL RESULTS OF OPERATIONS -- BEVERAGE WORKS, INC. AND SUBSIDIARY

The following tables set forth for the periods indicated certain items
included in the Company's historical consolidated statements of operations as a
percentage of net sales. The Company's consolidated statements of operations on
a historical basis include financial data for Beverage Works, Inc., excluding
proposed acquisitions, but, including operations for Heritage for the period
November 8, 1995 (acquisition date) and thereafter.

PERCENTAGE OF NET SALES
---------------------------------------
AUGUST 2, 1995
TO
DECEMBER 31, 1995
NINE MONTHS ENDED -----------------
SEPTEMBER 30,
1996
-----------------
(UNAUDITED)

Net Sales.......................................... 100.0% 100.0%
Cost of Sales...................................... 215.4 182.2
------ --------
Gross Profit....................................... (115.4) (82.2)
Selling, General and Administrative................ 738.2 1,096.4
Provision for Settlement........................... 292.0 --
Interest........................................... 39.4 63.2
Benefit for Income Taxes........................... (22.3) (17.2)
------ --------
Net Loss........................................... (1,162.7)% (1,224.6)%
====== ========

Sales: Net sales of $44,810 for the period August 2, 1995 to December 31,
1995 only reflect sales for HBC beginning from the November 8, 1995 acquisition
date; BWI had no sales. Net sales of $195,552 for the nine-month period ending
September 30, 1996 were adversely affected as a result of construction
interruptions associated with improving and expanding the brewery and certain
quality control problems resulting from these activities. As a result of these
quality control problems, HBC had to temporarily discontinue the production "Red
Pig" for its largest contract brewing customer resulting in a $30,000 write down
of accounts receivable due to spoilage. Sales of the Mulligan and Red Fox brands
decreased as HBC did not have

25
29

sufficient funds to participate in the distributor and retail sales and
promotional programs at acceptable levels. The Company made a decision in early
1995 to stop actively marketing these brands until they could be repackaged and
properly marketed which is planned for early 1997. In September 1996, the
Company reported its first sales of the Hussong's products, which although
insignificant through such date, are expected to increase significantly over the
next twelve (12) months.

Cost of Sales: Cost of sales were $421,158 or 215.4% of net sales for the
nine month period ending September 30, 1996. Cost of sales was adversely
affected as a result of production inefficiencies caused by construction at HBC
and reduced sales volume. Accordingly, the Company was unable to absorb the
fixed costs of HBC's production facility. Depreciation expense for nine months
ended September 30, 1996 included in cost of sales amounted to approximately
$168,000.

The Company has decided to consolidate HBC operations into the OEBC
operations in order to improve operating efficiencies and lower production
costs. The consolidation process will commence once the acquisition of OEBC is
completed at an estimated cost of $30,000. The HBC facility lease expires in
April 1997 and the lease for offsite storage is on a month-to-month arrangement.
The positive effect of consolidating the operations can be evidenced by the
following costs that are expected to be eliminated. The actual costs for the
nine-month period, where appropriate, were annualized for the purposes of this
analysis. Workman's Compensation Insurance -- $500, liability
insurance -- $4,508, rent -- $45,260, property taxes -- $1,743, temporary
help -- $2,833, payroll and related taxes -- $29,700 for a total savings of
$84,544 annually. The savings does not account for potential savings in
purchasing and other economies of scale gained through a more efficient brewery.
There are no assurances that such costs can be eliminated by management or that
the Company will achieve savings through purchasing and other economies of
scale.

Selling, General and Administrative Expense: Selling, general and
administrative expenses were $1,443,607 or 738.2% of net sales for the nine
month period ending September 30, 1996. However, a substantial amount of the
expenses were nonrecurring expenses associated with the acquisitions and public
offering process. Specifically, included in selling, general and administrative
were $513,909 in professional fees primarily for legal, accounting and director
fees pertaining to the acquisition and public offering process; $201,000 for
losses on two investments, $50,000 in bonuses related to the Hussong's license;
and approximately $30,000 in travel, telephone and miscellaneous office cost.
Based on this analysis the recurring Operating Expenses for the nine month
period ending September 30, 1996 are $607,698.

Provision for Settlement: Provision for settlement represents a provision
of $571,000 for settlement of the Tamkin lawsuit as discussed under "Legal
Proceedings."

PERIOD TO PERIOD COMPARISON OF RESULTS -- ORANGE EMPIRE BREWING COMPANY
(RIVERSIDE BREWING COMPANY)

The following table sets forth certain items included in OEBC's statements
of operations as a percentage of net sales:

PERCENTAGE OF NET SALES
-----------------------------------------
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------
1995 1996 1994 1995
----- ----- ----- -----
(UNAUDITED)

Net sales............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 63.2 70.3 74.4 71.4
----- ----- ----- -----
Gross profit.......................................... 36.8 29.7 25.6 28.6
Selling, general and administrative................... 42.4 53.3 45.2 38.8
Interest.............................................. 7.0 9.0 6.9 6.8
Other (income) expense................................ (0.3) 0.6 .3 (.4)
Income Taxes provision................................ .1 0 .1 .1
----- ----- ----- -----
Net Loss.............................................. (12.4)% (33.2)% (26.9)% (16.7)%
===== ===== ===== =====

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30

NINE MONTHS ENDED SEPTEMBER 30, 1995 AND NINE MONTHS ENDED SEPTEMBER 30,
1996 -- ORANGE EMPIRE BREWING COMPANY (RIVERSIDE BREWING COMPANY)

Sales: Sales, net of excise taxes, increased 30.6% from $1,816,276 for the
nine months ended September 30, 1995 to $2,372,629 for the nine months ended
September 30, 1996. Excise taxes for the nine months ended September 30, 1995
were $72,252 compared to $45,837 for the comparable period in 1996. The increase
in sales can be primarily attributed to increased shipments of bottled product
from the brewery division and to a lesser extent from increased sales at the
brewpub. The brewery went through a major expansion that was completed in the
fourth quarter of 1995, which increased brewery capacity and enabled OEBC to
pursue additional business. Sales increased substantially during the first seven
months of 1996, as a result of OEBC obtaining several new large accounts in
California and expanding shipment to a number of other states. OEBC had a number
of quality control problems, distribution and customer relations problems and
lacked adequate working capital to support the marketing and sales programs
required by the new accounts. As a result, OEBC lost a substantial portion of
this new business and will need additional working capital and new personnel,
both of which the acquisition is intended to provide.

Gross Profit: Gross profit increased by $37,413 from $667,890 for the
nine-month period ending September 30, 1995 to $705,303 for the nine-month
period ending April 30, 1996. However, as a percentage of sales gross profit
decreased 7.1% from 36.8% for the nine-month period ending September 30, 1995 to
29.7% for the nine-month period ending September 30, 1996. The decrease in gross
profit as a percentage of sales is primarily attributable to production
inefficiencies, distributor discounts, and increases in freight associated with
shipping product to other states. In addition, competition caused management to
lower the per unit sale prices in order to increase its market share. With the
decline in business and the fixed cost associated with running the expanded
brewery, OEBC actually had a negative gross profit in August and September.

Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased in actual dollars, and as a percentage of net
sales for the comparable periods. Selling, general and administrative expenses
increased by $495,179 from $769,884 for the nine-month period ending September
30, 1995 to $1,265,063 for the nine-month period ending September 30, 1996.
Selling, general and administrative expenses increased 10.9% as a percentage of
sales from 42.4% for the nine-month period ending September 30, 1995 to 53.3%
for the nine-month period ending September 30, 1996. Selling, general and
administrative expenses increased primarily as a result of supporting the 30.6%
increase in sales. Selling, general and administrative expenses increased as the
result of non-recurring accounting and legal cost associated with the
acquisition and as the result of increased lease expense, rent expense and
interest expense. As part of the acquisition terms, the lease and interest
expenses are being reduced.

Interest: Interest expense increased by 65.6% from $127,784 for the
nine-month period ending September 30, 1995 to $211,671 for the nine-month
period ending September 30, 1996. Interest expense increased primarily as the
result of interest charges associated with increased equipment leases and notes
payable to related parties.

Net Loss: The net loss increased in actual dollars, and as a percentage of
net sales for the comparable periods. The net loss increased $562,462 from
$(224,832) for the nine-month period ending September 30, 1995 to $(787,294) for
the nine-month period ending September 30, 1996. The net loss increased as a
percentage of sales by 20.8% from 12.4% for the nine-month period ending
September 30, 1995 to 33.2% for the nine-month period ending September 30, 1996.

YEARS ENDED DECEMBER 31, 1995 AND 1994 -- ORANGE EMPIRE BREWING COMPANY
(RIVERSIDE BREWING COMPANY)

Sales: Net sales increased by $1,175,507 or 85.3% from $1,378,470 (net of
$21,045 in excise taxes) for 1994 to $2,553,977 (net of $52,596 in excise taxes)
for 1995. The increase in sales can be primarily attributed to increased
shipments of bottled product from the brewery division and to a lesser extent
from increased sales at the brewpub. Distribution was expanded not only in
California with the appointment of Wine Warehouse as distributor for California,
but distribution was also expanded into approximately 27 other states.

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Gross Profits: Gross Profit increased in terms of dollars and as a
percentage of net sales for the comparable periods. Gross profit increased
106.6% from $353,279 in 1994 to $729,912 in 1995. Gross profit increased 3.0% as
a percentage of sales from 25.6% in 1994 to 28.6% in 1995. Gross profit improved
as a result of the Company's ability to cover fixed overhead through increased
sales.

Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased, in actual dollars, but decreased as a
percentage of sales for the comparable periods. Selling, general and
administrative expenses increased 58.7% from $624,209 in 1994 to $990,701 in
1995. However, as a percentage of sales decreased 6.4% from 45.3% in 1994 to
38.8% in 1995. The increase is primarily attributable to the 85.3% increase in
sales. The decrease and a percentage of sales is primarily attributable to the
fact that some selling, general and administrative expenses are relatively fixed
and did not increase proportionately with increase in sales.

Interest Expense: Interest expense increased 83% or $78,408 from $94,516
in 1994 to $172,924 in 1995. The increase is primarily the result of leasing (at
approximately 14% per annum) additional brewing equipment for the brewery which
commenced operation in its expanded facility in October 1995.

Income Tax Provision: OEBC has a $1,600 provision for income taxes in both
1994 and 1995 related to California minimum state taxes. OEBC has substantial
net operating loss carryforwards, the use of which will be limited in future
periods pursuant to the provisions of the Tax Reform Act of 1986. does not
expect to pay regular income taxes for the foreseeable future. A valuation
allowance for such net operating losses has been recorded, therefore, no benefit
for income taxes has been reflected in operations.

Net Loss: The net loss increased 14.6% or $54,363, from 1994 to 1995, but
decreased as a percentage of sales by 10.2% from 26.9% in 1994 to 16.7% in 1995.

PERIOD TO PERIOD COMPARISON OF RESULTS -- ST. STAN'S BREWERY AND BREWPUB
OPERATIONS

The following table sets forth certain items included in the St. Stan's
Brewery and Brewpub statements of operations as a percentage of net sales:

PERCENTAGE OF NET SALES

NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------
1995 1996 1994 1995
----- ----- ----- -----
(UNAUDITED)

Net sales............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................................... 66.8 72.9 72.7 68.8
----- ----- ----- -----
Gross profit.......................................... 33.2 27.1 27.3 31.2
Selling, general and administrative................... 27.1 29.9 27.4 28.8
----- ----- ----- -----
Income (loss) from operations......................... 6.1 (2.8) (.1) 2.4
Interest.............................................. 5.0 5.9 5.5 4.8
----- ----- ----- -----
Net income (loss)..................................... 1.1% (8.7)% (5.6)% (2.4)%
===== ===== ===== =====

NINE MONTHS ENDED SEPTEMBER 30, 1995 AND NINE MONTHS ENDED SEPTEMBER 30,
1996 -- ST. STAN'S BREWERY AND BREWPUB OPERATIONS

Sales: Net sales decreased by 8.4% from $1,529,253 for the nine month
period ending September 30, 1995 to $1,401,453 for the nine month period ending
September 30, 1996. Sales declined as the result of the loss of certain key
distributors and the inefficiencies created by transferring business to
replacement distributors, competitive pressures and insufficient working capital
to fund marketing and selling programs. Insufficient working capital prevented
St. Stan's from initiating the marketing, sales and promotional activities
required by their distributors and chain accounts, resulting in these
distributors paying more attention to better financed brands and causing the
discontinuation of St. Stan's products at a number of retail accounts.

Between June and September of 1996, six of St. Stan's key distributors, all
Budweiser Distributors, decided to discontinue distributing any craft brews
other than the products from Red Hook Brewery, a

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company in which Anheuser Busch (Budweiser) has a 25% ownership interest. This
caused St. Stan's and other craft brewers to seek replacement distributors. This
process and the inefficiencies resulting from such a significant transfer,
resulted in loss of accounts and sales volume, in spite of identified demand for
St. Stan's products at account and consumer level. To date, St. Stan's has not
been able to recover from these distributor changes, as it has lacked the
working capital and effective marketing programs needed to promote its brands
and get significant attention from its new distributors, retail accounts and
consumers.

The Company has introduced St. Stan's to Southern Wine & Spirits ("SWS"),
whose distribution and sales organization covers all of California, for the
purpose of exploring the opportunity of SWS distributing St. Stan's throughout
California. Due to the nature of SWS's operations, its substantial retail
account base and its relationship with Beverage Works, this could have a
substantial positive effect on St. Stan's sales in 1997.

Sales declined at the brewpub/restaurant approximately $46,000 or 7.6% for
the first nine months of 1996, when compared to the similar period in 1995. The
primary reason was increased competition from several restaurants and two
multi-tap brewpubs, and the lack of an effective marketing program for the
brewpub.

Gross Profit: Gross profits decreased by 25.4% from $508,240 for the nine
months ended September 30, 1995 to $379,104 for the nine months ended September
30, 1996. Gross profit decreased in terms of actual dollars and as a percentage
of sales primarily as the result of competitive pressures that required St.
Stan's to lower prices to distributors faster than St. Stan's could lower
production costs and increase sales.

Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased less than 1.0% from $415,163 or 27.1% of sales
for the nine months ended September 30, 1995 to $418,706 or 29.9% of sales for
the nine months ended September 30, 1996. Selling, general and administrative
expenses remained basically the same as St. Stan's was forced to scale back in
most areas and try to allocate more funds for sales and marketing activities.
St. Stan's was unable to generate sufficient working capital and unable to re-
allocate enough funds to marketing and sales to counter competitive pressures
and grow the brands.

Interest: Interest expense increased 8.6% from $76,028 for the nine months
ended September 30, 1995 to $82,597 for the nine months ended September 30,
1996. Such increase is due to an increase in related party notes payable.

Net Income (Loss): Net income was $17,049 or 1.1% of net sales for the
nine months ended September 30, 1995 versus a net loss of $(122,199) or (8.7)%
of net sales for the period ended September 30, 1996. Overall competition has
significantly affected margins, and coupled with increased selling and interest
costs, caused the St. Stan's to incur a loss in 1996.

YEARS ENDED DECEMBER 31, 1995 AND 1994 -- ST. STAN'S BREWERY AND BREWPUB
OPERATIONS

Sales: Volume increased by 7.3% from $1,891,554 in 1994 to $2,029,424 in
1995. The increase in sales was primarily attributable to the introduction of
new products.

Gross Profit: Gross profit increased by 22.4% from $517,236 or 27.3% in
1994 to $633,207 or 31.2% in 1995. The improvement in gross profit is primarily
attributable to price increases in 1995, improved operating efficiencies and
lower costs of raw materials.

Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased by 12.5% from $518,763 or 27.4% in 1994 to
$583,568 or 28.8% in 1995. In general, this increase can be attributed primarily
to an increase in sales, marketing and promotional activities.

Interest: Interest expense decreased by 5.7% from $104,351 in 1994 to
$98,398 in 1995.

Net Income (Loss): The net loss decreased by 53.9% from $105,878 or 5.6%
of sales in 1994 to $48,759 or 2.4% of sales.

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LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has funded operations primarily from the
private placement of common stock grossing approximately $1,655,000 in one
offering and $150,000 in another, netting approximately $1,569,000 million after
costs of the offerings, and $750,000 in two debt financings of $500,000 and
$250,000 as of December 20, 1996 to be repaid from proceeds from the Offering.
The Company has also secured a $175,000 line of credit from a related party of
OEBC. Through December 20, 1996, the Company has borrowed $121,941 on such line
of credit. The Company intends to close up to an additional $500,000 in debt in
January 1997 to be repaid from proceeds of the proposed Offering. The Company's
operations have used substantial cash in the November 8, to December 31, 1995,
post acquisition period and for the nine month period ending September 30, 1996.
The Company has insufficient capital to fund cash used in operations to enable
the Company to continue as going concern without additional working capital in
the immediate future and cannot implement its strategy to lower cost of sales on
a percent of sales basis, initiate its sales and marketing plans or its growth
strategy without completing the planned Offering.

Initially, the Company's profitability will be adversely affected as the
result of its growth strategy. The Company has incurred, and will continue to
incur, substantial expense pursuant to its growth strategy which includes
expanded marketing and advertising expenses, as well as legal and accounting
expenses pursuant to its planned expansion through strategic alliances and
acquisitions. Until the consummation of the acquisition and partnership
agreements concurrent with this Offering, the Company has limited influence on
the operations of these companies, and is restricted in achieving certain
operating efficiencies and income growth. Furthermore, until such time that a
certain number of craft breweries have been acquired or joint ventured, and
functioning according to the Company's operating performance standards, and
consolidation and marketing strategies, the Company's profitability will be
adversely affected.

The Company's initial acquisitions and operating agreements are primarily
with smaller breweries that have not been operating profitably, and in all
likelihood, could not operate profitably without operating efficiencies,
financial, sales and marketing assistance. Furthermore, the Company will need to
spend substantial funds on sales and marketing in order to increase sales
volume. It will also need to invest in brewing facilities, equipment and
improvements in order to increase production capacity and reduce production
costs and improve operating efficiencies. Management plans to centralize
purchasing to reduce costs of materials on a per-unit basis. Management also
intends to consolidate its operations in Lake Elsinore, California with
Riverside, California operations during 1997 in an effort to reduce its
operating expenses. Management has estimated that such cost will be $30,000.
(See "Use of Proceeds"). There are no assurances that management's plans will be
implemented in a manner which will attain profitable operations after the
consummation of the Offering.

The Company's reciprocal marketing and production agreement with Chicago
Brewing Company should have a limited positive effect on the Company's cash
flow, but is important strategically as it enables the Company to produce and
market incremental business from existing wholesale and contract-brew accounts,
and enhance its competitive position in the craft brewing industry. Under this
agreement, the Company currently produces Red Pig for Cabo Distributing
Company's East Coast accounts at the Chicago Brewing Company facility.

The Company's production agreement with Minnesota Brewing Company should
have a positive effect on cash flow as it does not require the Company to incur
any additional capital or production related expenditures. Under this agreement,
the Company will package, store and sell Humpback Ale (draught only,
approximately 500 kegs per month) to SWS.

The Company currently has approximately $100,000 cash on hand, a credit
facility for $175,000 with approximately $50,000 credit available. However, the
Company has insufficient cash flow to remain current with certain trade vendors
for a prolonged period of time as a result of launching its Hussong's brands in
September 1996, and costs incurred with its acquisition and arrangements and its
Offering.

The Company expects to receive approximately $7.5 million from the
Offering, net of expenses, of which $3.5 million is contractually committed to
or is expected to be utilized almost immediately and specifically for

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34

the payment of a legal settlement ($200,000), paydown of accounts payable
($500,000), costs associated with consolidating operations ($30,000), repayment
of bridge ($1,250,000) and short-term debt obligations ($175,000), and cash
outlays associated with acquiring new property and equipment ($250,000) and with
completing the acquisition and partnership ($1,079,000). See "Use of Proceeds."
The Company is expected to have a current ratio of approximately 3 to 1
immediately after the public offering. The remaining net proceeds of $4.0
million refers to the following line items in the use of proceeds that will be
expended over the 12 to 18 month period following the Offering, including
marketing and sales ($1,500,000), acquisitions and new products ($1,000,000) and
working capital ($1,562,498). Even though the Company has plans to improve cash
flows through increased sales and reductions in cost of sales through improved
operating efficiencies (of which there are no assurance), it does not expect to
have positive cash flows until at least the fourth quarter of 1997 or early
1998. The craft brew industry is seasonal with sales lower in the first and
second calendar quarters and higher in the third and fourth calendar quarters.

The Company also anticipates spending substantially on sales and marketing,
with planned expenditures for the first 18 months after the offering totaling
approximately $1.5 million. The Company will also invest approximately $250,000
to increase production capacity, quality control and consolidate and standardize
brewing operations. The Company will also seek additional acquisition candidates
to expand its product lines, at an estimated cost of $1.0 million. Management
intends to compliment its product line expansion through the issuance of its
common stock. General and administrative costs will increase as a result of new
expenses associated with operating as a public company, and legal and accounting
costs involved with subsequent acquisitions. The Company will try to utilize
debt and equipment financing as may be available to the Company to extend
working capital.

Since the Company cannot forecast with certainty the cost associated with
implementing its growth strategy, management intends to maintain as much
flexibility as reasonably possible in regards to managing capital expenditures
and operations, so as to more effectively manage cash.

The Company believes that the net proceeds from this Offering, after taking
into consideration its use of a portion of such net proceeds for debt reductions
(including accounts payable) and Partnership contributions totaling $3,004,000,
will be sufficient to support the Company's capital expenditures, expansion of
product lines and working capital requirements for the next 12 months. However,
the craft brew industry is undergoing significant changes and management can
make no assurance that they will be able to implement marketing and sales
changes, consolidate operations or improve operating efficiencies fast enough in
the face of increased competitive pressures. Management must stabilize
operations and improve cash flows adequately to remain a viable entity.
Furthermore, the Company cannot make any assurance that it will be able to
acquire additional breweries or brands at reasonable prices or terms. If the
Company cannot implement its growth strategy in a timely manner, then there can
be no assurance that additional capital will be available, or that such
financing will be available on terms favorable to the Company or its
shareholders. To the extent the Company raises additional capital by issuing
equity or convertible debt securities, ownership dilutions to the Company's
shareholders may result. In the event that adequate funds are not available, the
Company's business may be adversely affected.

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BUSINESS

The Company was formed on August 2, 1995 as a California corporation, for
the purpose of creating a multi-brand, multi-regional specialty beer company,
capable of assuming a leadership role in the craft brewing industry. The
Company's growth strategy is distinctly different from most other companies in
the craft brewing industry, as it does not allocate resources and capital
towards the development or improvement of a single local or regional brand and
brewing facility, but focuses on acquiring a variety of existing regional brands
with growth potential and existing production capacity, and/or entering
strategic alliances with key industry players. The Company plans to allocate
resources towards creating operating efficiencies by consolidating production
capacity, sales and marketing operations, distribution channels, and effective
multi-brand management. Thus the Company expects to achieve operating
efficiencies, and plans to use its capital to spur revenue growth by effectively
marketing its portfolio of existing and new products and services in targeted
local and regional markets nationwide.

The Company has acquired Heritage Brewing Company of Lake Elsinore,
California ("Heritage" or "HBC"), and as soon as practicable after the date of
this Prospectus will have acquired Orange Empire Brewing Company ("OEBC"), the
parent of Riverside Brewing Company of Riverside, California ("Riverside" or
"RBC"), which operates a brewpub-restaurant and a separate craft brewery and
have become a majority partner with Prost Partners L.P. ("Prost") in BWI-Prost
Partners, doing business as St. Stan's Brewing Company of Modesto, California
("St. Stan's"), operating a brewpub restaurant and a brewery (collectively the
"Breweries").

BREWERIES

Heritage Brewing Company

On November 8, 1995, the Company acquired approximately 95% of all of the
issued and outstanding shares of common stock of Heritage in exchange for
142,276 shares of the Company's Common Stock. Heritage shareholders are
permitted to call their Heritage stock in the event the Company does not
complete a public offering of securities raising gross proceeds of at least
$5,000,000 prior to March 31, 1997 or if the Company has not funded at least
$500,000 of interim financing during the period November 4, 1996 through January
10, 1997. The exercise of the call option requires Heritage to repay all monies
advanced by the Company for payments of its Small Business Administration loan
and Liberty National Bank loan, and advances for brewery capital equipment and
leasehold improvements. Repayment shall be made in a note which is payable
without interest over 36 months. Heritage shall return all shares of the
Company's common stock initially issued to its former shareholders. The
completion of this Offering terminates Heritage's shareholders' call option.

Heritage was established in 1989 as one of the first microbrewers in
California. Heritage's brands are Red Fox Ale and Mulligan. Heritage also
currently acts as a contract brewer for other craft brands, such as Catalina
Ale, Airship, Rodeo Colt, and Belmont Brewing Co. Heritage also obtained the
license rights for Hussong's Cerveza, which was successfully launched by the
Company in September 1996.

Heritage has a brewery in Lake Elsinore, California in a building
containing approximately 5,400 square feet with a warehouse of 4,000 square feet
located across the street. The brewery's production capacity was recently
expanded to 12,000 barrels per year, which was financed by the Company with the
proceeds of its November 1995 private placement. The annual rent for the brewery
facility, which expires in March, 1998, is currently $39,600, and the warehouse
is leased month to month at $1,200 per month. After the consummation of the
Offering or the expiration of its lease, the Company intends to consolidate the
Heritage production facility into the Riverside facility.

Riverside Brewing Company

The Company has agreed to acquire all of the outstanding shares of OEBC,
the parent of RBC. The closing of the sale is expected to occur as soon as
practicable following the closing of this Offering. In exchange for the OEBC
shares, the Company will issue 141,063 shares of its common stock to OEBC
shareholders. In addition, certain non-management shareholders of OEBC will
receive an additional 155,000

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shares of the Company's Common Stock based on a specified number of barrels of
beer produced and sold by OEBC ("Earnout Shares"). For each barrel of beer over
7,000 that the OEBC produces, ships and sells from the closing date of the
acquisition through December 31, 1998, the Company will issue an additional four
Earnout Shares up to a maximum of 120,000 Earnout Shares. If OEBC produces,
ships and sells 40,000 or more barrels of beer during that same period, then
those shareholders will receive an additional 35,000 Earnout Shares. The Company
has agreed to provide up to 80 percent of the current potential maximum capacity
(i.e., 24,000 barrels out of a 35,000 barrel capacity) per year for production
of the OEBC products to meet the Earnout Shares criteria. In the event that such
product is not produced because of capacity constraints at the OEBC facilities
and additional capacity cannot be provided elsewhere, then the number of barrels
required for OEBC to produce, ship and sell in order for the shareholders to be
entitled to receive any or all of the Earnout Shares shall be adjusted in good
faith by the Company and the OEBC shareholders. The number of shares issued to
the OEBC shareholders will be increased (or decreased) dollar for dollar by the
amount by which the net book value of OEBC on the closing date is greater (or
less) than a deficit of $1,411,542 (the OEBC April 30, 1996 unaudited
shareholders deficit of $911,542 plus $500,000) based on a share price of $8.00
per share. Based on the September 30, 1996 unaudited OEBC consolidated financial
statements included elsewhere herein, Management does not believe shares issued
will be adjusted upward under this provision.

At the closing of the OEBC acquisition, Brewery Leasing Company, a company
wholly-owned by Michael Hagerman, a director and principal shareholder of OEBC,
has agreed to amend the terms of certain equipment leases it currently has with
OEBC in exchange for 50,000 shares of the Company's Common Stock. The amendments
include (i) reducing the effective interest rate of the equipment leases to 10%,
(ii) reducing the lease obligation by $500,000, (iii) granting the Company the
option to purchase the leased equipment for $1.00 upon the expiration of such
leases, and (iv) increasing the lease obligation $61,950 for delinquent lease
payments through December 1995.

Also, concurrently with the closing of the OEBC acquisition, Michael
Hagerman and Norman Kretschmar agree to assume $220,941 of the principal amount
of a loan to OEBC by Riverside National Bank, which has agreed to release OEBC
from that portion of the loan. The Company and OEBC will assume the balance of
the loan in the amount of $312,552. To induce Messrs. Hagerman and Kretschmar to
assume that portion of the loan, the Company has agreed to issue a total of
27,618 shares of Common Stock.

The Company has also entered into a Debt Exchange Agreement whereby the
certain debtholders of OEBC have agreed to forgive approximately $644,000 of
loans to OEBC. In return the debtholders will receive a total of $301,000 in
cash and 24,125 shares of the Company's Common Stock and Class D Warrants to
acquire up to a maximum of 50,000 shares of the Company's Common Stock at an
exercise price of $5.00 per share.

Assuming the acquisition of OEBC is consummated, the Company has agreed to
repay Mike Hagerman $175,000 for advances Mr. Hagerman made to OEBC to finance
working capital. These advances are to be repaid out of the proceeds of this
Offering. Any additional advances currently totalling approximately $121,941
will be repaid by the Company after 30 months from the close of this Offering.

The Company has also entered into a two year consulting agreement with
Brewery Leasing Company, whereby Brewery Leasing Company will provide the
Company advisory services on the brewery equipment and assist on the disposition
and acquisition of brewery equipment. Brewery Leasing Company will receive
10,000 shares of the Company's Common Stock over the term of this consulting
agreement. This consulting agreement is effective on the close of the OEBC
acquisition.

The Company has entered into a Brewpub Management Agreement with Mike
Hagerman and Norman Kretschmar. Messrs. Hagerman and Kretschmar have agreed to
manage the Riverside Brewing Company brewpub over the next two years and have
agreed to guarantee the brewpub's cashflow to at least break even during that
period. In return, the Company will issue a total of 10,000 shares of its Common
Stock to Messrs. Hagerman and Kretschmar.

RBC, which started in 1993 as a brewpub and restaurant with a production
capacity of 1,500 barrels a year, is located in the historic Mission Inn
district of Riverside, California. RBC then began to sell a full line of
specialty craft beers outside its brewpub. In October 1995, RBC began additional
production in a new

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18,000 square feet leased facility, independent of its brewing facilities at the
pub, which has an initial production capacity of 35,000 barrels per year and can
be expanded to 80,000 barrels per year. RBC currently brews five styles of draft
beer. Its beers have won numerous awards in local, state, national and
international competitions.

The brewpub restaurant produces its products in draught only, mostly for
on-site sales from its 5,000 barrel annual capacity brewery. The brewery sells
its products in draught and bottled package (both 12-oz. and 22-oz. bottles).
The majority of RBC beers are sold in California. To a limited extent, its beers
are sold in 27 other states and Japan. In addition, the brewery produces private
label brands for the Claim Jumper restaurant chain and the Rusty Pelican Chain,
both in California. RBC has also entered into contract brewing agreements with
various companies, including La Jolla Brewing Company of California, Water
Street Brewing Company of Texas, Copperhead Brewing Company of California, and
Rodeo Colt of California. RBC also produces Humpback Ale (draft only), in a
joint venture operation with Minnesota Brewing Company, for Southern Wine and
Spirits of California.

St. Stan's Brewing Company

BWI-St. Stan's, Inc. ("BWISS") a wholly-owned subsidiary of the Company,
has entered into a partnership agreement with Prost Partners, L.P. ("Prost")
doing business as St. Stan's Brewing Company to form BWI-Prost Partners
("Partnership"), which closes upon the consummation of this Offering. BWISS and
Prost will share profits, losses, distributions, and capital 51% and 49%
respectively, except that Prost will receive priority distributions of $2,500
quarterly to meet certain minimum financial obligations. The Partnership will be
managed by a five member committee, three of whom are appointed by BWISS.

Prost is contributing to the Partnership all of its assets, which is the
St. Stan's Brewing Company operations, and the Partnership will assume the St.
Stan's operating obligations. In addition, the Partnership will assume two
demand notes executed by Prost totaling $459,120 owed to Romy Angle, who is an
officer and a controlling shareholder of Stanislaus Brewing Company, Inc.
("Stanislaus"), Prost's general partner, and, as of the close of this Offering,
the Purchasing Manager of the Company. As part of BWISS' initial capital
contribution, BWISS will pay these notes owed to Ms. Angle upon the consummation
of this Offering. The Partnership will also assume the note owed to Owens
Financial Group ("Owens Note") in the principal amount of $668,927. The note is
secured by the Partnership's fixed assets and ground lease for the Partnership's
building. As part of BWISS' initial capital contribution, BWISS will assume the
Owens Note. The Company has obtained written assurance from Owens Financial
Group to amend, after a principal reduction payment of $168,927, the terms of
the Owens Note to allow for principal and interest payable to be based on a 15
year amortization period, the extension of the maturity date to five years at a
variable interest rate ranging from 11% to 16% per annum and for prepayment
without penalty. The Partnership is not assuming Prost's obligations to
Stanislaus.

In addition to the initial capital contribution to the Partnership, BWISS
is required to contribute to the Partnership $1,166,953 payable quarterly over
18 months commencing 18 months after the consummation of this Offering. In the
event BWISS fails to make such payments, Prost may acquire BWISS's interest in
the Partnership over four years based on (i) the fair market value of the
Partnership's tangible assets plus (ii) the Partnership's net income before
interest, taxes, depreciation and amortization for the preceding twelve months
multiplied by three less (iii) accrued and contingent liabilities. This amount
will likely be substantially less than the amount paid by BWISS.

BWISS may buy-out Prost's interest in the Partnership by paying $2,205,000
within three years, plus that portion of the required capital contribution not
made as of the date of the buy-out (the "Option"). By making such payment, BWISS
will acquire all of Prost's interest in the Partnership. If BWISS fails to
exercise the Option within three years, Prost has the initial right to acquire
BWISS's interest in the Partnership based on the fair market value of the
Partnership's assets, tangible and intangible, less accrued liabilities. If
Prost does not exercise its right, BWISS has the right to buy-out Prost on the
same terms. If neither Prost or BWISS exercises its right to buy-out the other
party, the Partnership shall be dissolved. See "Risk Factors -- St. Stan's
Brewing Company Partnership."

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St. Stan's was the first "altbier" brewery in the United States. Altbiers
are made in the old German pre-1700's tradition, before lager beers. Thus the
name "alt" (old/old fashioned) beer. The difference between altbier and lager
beer is that altbier has a cold storage period in the fermentation tanks, and
unlike a lager, uses a top fermenting yeast, rather than a bottom fermenting
yeast. The result is a beer that generally is perceived as smoother than British
or American style brews. Since this style of beer was not found in the United
States, St. Stan's was developed to fill this niche. The majority of St. Stan's
sales are in Northern California.

The brewery will be owned by the Partnership, is subject to a ground lease
and is located in a custom-built facility in the downtown area of Modesto,
California. The brewery was completed in October 1990 and is part of a 14,500
sq. ft. facility which includes a brewpub and gift shop. The two-story pub
facility has a contemporary European appearance with classic European touches.
Seating is more than 300, including a biergarten and pub. The brewery currently
has an annual capacity of approximately 30,000 barrels per year. St. Stan's
currently sells its products in kegs and in twelve ounce bottles. It produces
four beer types on a regular basis and produces several seasonal and specialty
brews from time to time. St. Stan's will be involved in the production and sale
of Hussong's Cerveza for the Northern California and North-West markets under an
agreement with Heritage starting January 1, 1997.

RECIPROCAL PRODUCTION AND MARKETING AGREEMENTS

The Company has entered a reciprocal marketing and production agreement
with Chicago Brewing Company ("CBC"). CBC operates a 30,000 barrel per year
brewery in Chicago, Illinois. Under the agreement, the Company can cause
production of its own brands and contract brews destined for Mid-West and East
Coast markets at CBC. The Company has entered an agreement with Minnesota
Brewing Company ("MBC") for the joint production and packaging of Humpback Ale,
a brand owned by Southern Wine and Spirits of California, one of the Company's
primary distributors.

INDUSTRY BACKGROUND

The terms micro brew, craft brew and specialty brew are used
interchangeably by consumers and within the industry to describe the products
made by small, independent brewers, who generally use only traditional brewing
processes and ingredients. Craft brewers include contract brewers which use
third party's brewing facilities), regional specialty brewers, microbrewers and
brewpub/restaurants. Craft beers are full-flavored beers brewed with quality
hops, malted barley, yeast and water, without adjuncts such as rice, corn,
stabilizers or water dilution.

The craft beer market is still very small in the context of the overall
U.S. beer industry. In 1995, this segment accounted for approximately 2% of
domestic beer sales. However, the category has become one of the fastest growing
niche markets in the U.S. beverage industry. According to a recent publication
of the Institute for Brewing Studies (May-June 1996 issue of The New Brewer),
since 1988, craft beer shipments have grown 30%-50% annually, while total
domestic beer industry shipments have basically remained flat. The rapid growth
of the craft brewing industry is related to an increased consumer awareness of
and demand for high quality, high end and high priced consumer food products in
general, and consumers' discovery and continued education of more traditional,
fresh brewed, full flavored and premium priced beers. Prior to prohibition, the
U.S. beer industry consisted of hundreds of small breweries that brewed
distinctive, full flavored beers, delivered fresh to local markets. Following
prohibition, U.S. brewers have narrowed production to lighter, milder beers, to
appeal to the broadest market segment. These beers use lower cost ingredients
and can be mass produced, while taking advantage of economies of scale in
production and marketing. Competition among the industrial brewers has been
primarily through costly mass advertising and pricing, rather than through
flavor and quality. Mass production has coincided with industry consolidation.
At present, more than 75% of domestic beer shipments are controlled by three
major brewers.

Since the early eighties, domestic per capita beer consumption has
declined. At the same time, consumers increasingly focussed their consumption on
more flavorful beer. Initially this demand was met by beers imported from
Europe, Canada and Mexico. However, in the late 1980's, as state laws began to
allow

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pubs and restaurants to brew and sell beer on premise, a number of domestic
specialty brewers began to offer a variety of more flavorful, traditionally
brewed beers. In response to consumer demand, the number of craft brewed beers
has increased in the last five years. Certain craft brewers have quickly grown
from microbreweries into regional craft breweries, some with operations in
multiple locations. Contract brewers, such as Samuel Adams and Pete's Wicked
Ale, have taken advantage of this growing demand by retaining industrial brewers
to perform contract brewing at otherwise under-utilized brewing facilities. At
present, there are more than 800 craft breweries in the U.S. In addition, the
major brewers have introduced their own fuller flavored specialty beers, and
have acquired or established partnerships with existing craft brewers.

PLAN OF OPERATION/BUSINESS STRATEGY

Industry forecasts (according to the Institute for Brewing Studies, The New
Brewer, May-June 1996 issue) report continuing rapid growth of the craft brewing
industry in excess of 30% annually. The craft beer market is very fragmented,
and distribution channels are getting crowded from the proliferation of brands.
The large craft brewers are becoming increasingly dominant and Budweiser, Miller
and Coors have all recently introduced product entries, and are focussing their
main brand advertising campaigns to appeal to craft brew consumers. The Company
believes that craft brewing is entering a phase of development, characterized
increasingly by consolidation requiring marketing and sales resources, operating
efficiencies, integrated production and appropriate distribution capabilities
and access to capital to enable the craft brewers to effectively compete with
the dominant companies in this industry.

The Company plans to position itself as an industry leader in the craft
brewing industry with regional strongholds and nationwide access to the major
markets, through a combination of acquisitions, strategic alliances, brand
strategies, high profile introduction of new products, and consolidation of
brewing, sales and marketing, distribution and administrative operations. The
Company plans to utilize the proceeds from this Offering to spur revenue growth
by effectively marketing its portfolio of products and services in local and
regional markets nationwide. There is no assurance, however, that the Company's
strategy will be successful.

Acquisitions

The Company's initial acquisition strategy focused on smaller,
undercapitalized craft breweries located in or close to craft brew growth
markets, with proven, award winning products and a potential to expand their
market share and gain strong regional and/or national distribution.

A second phase of the Company's acquisition and joint venture strategy will
focus on acquiring medium sized regional craft breweries (25,000 to 50,000
barrels annually). The Company believes that it will become increasingly
difficult for these breweries to successfully compete independently in an
increasingly consolidating, competitive market. The Company's strategy is
designed to acquire and provide such companies with the resources and tools
needed to professionally and rapidly improve operating efficiencies and expand
their businesses. Factors critical to implement the Company's acquisition
strategy are discussed below:

Capital: The craft brew industry has always been capital intensive in
terms of equipment and has now become capital intensive for marketing and
sales as well. The dual strain of these capital requirements prevents many
of the craft breweries from achieving their true growth potential in an
increasingly competitive industry. The ability of the Company to
successfully implement its business strategy is dependent on the Company
obtaining the necessary capital to increase production, improve quality,
lower production cost, implement the necessary management and operating
systems and provide the professional marketing programs that are essential
to gaining and maintaining strong sales and distribution networks. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Operating Efficiencies: An essential element of competing
successfully in a high growth, consolidating industry is the ability to
constantly improve operating efficiencies at a faster rate than competitive
pressures lower margins. A fundamental aspect of the Company's strategy is
to realize these operating efficiencies, while preserving the traditional
aspects of craft brewing.

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Standardized Production and Centralized Purchasing. The Company
plans to aggressively consolidate brewing operations where appropriate,
and standardize production methods and equipment throughout its
breweries while setting the highest quality assurance standards,
implementing cost efficient production techniques, optimizing production
utilization and gaining savings through centralized purchasing and
centralized production planning.

Centralized Accounting & Administration. The Company expects to
realize significant manpower savings and efficiencies by centralizing
all accounting, order processing, inventory management, scheduling,
legal, compliance, licensing and M.I.S. functions and activities. The
Company is centralizing its accounting department in charge of all its
functions, and its customer service department in charge of order
processing, inventory management, scheduling and shipping.

Centralized Sales, Marketing Planning and Support. The Company
expects to benefit from available resources, efficiencies and cost
savings in the field of sales, sales management, brand management,
marketing, planning, advertising and promotion. The Company's sales and
marketing department coordinates all field sales marketing planning,
product development and ATF and ABC compliance activities for all
brands. It manages point of sale materials development, purchasing and
inventory, events planning, distributor incentive programs, promotion
and advertising campaign development and scheduling.

Distribution Network: Combined, the Breweries utilize more than 100
distributors in 35 states. With some of these distributors, the Breweries
have a multi-faceted relationship which may include several of the
Company's brands, private label and contract brewing. The Company's
consolidated sales force is organized to properly service and support these
distributors, promote the Breweries' products, make joint retail account
calls and be involved in events and promotions in the distributors'
territories.

Management: The Company has assembled a management team skilled in
managing entrepreneurial growth companies and consumer food products
marketing. The Breweries provide additional brewing and brewpub restaurant
expertise and sales manpower. The Company has started the process of
coordinating sales and marketing, brewpub restaurant management, production
and administrative activities of the Breweries in anticipation of the
closing of the transactions.

Brewing Capacity Expansion

The Company plans to substantially increase combined brewing and bottling
capacity within the first 18 months after the close of this Offering, up to
approximately 150,000 barrels per year. In the twelve month period following
thereafter, the Company plans to increase its production capacity up to 240,000
barrels per year. The increases in capacity assume the acquisition of additional
breweries and the availability of capital, of which no assurances can be
provided.

Key to the Company's short to medium term strategy is to significantly
increase its regional brewing operations in Southern California, and to expand
its operations into the Mid-West and the South-East United States. As a first
step to improving its Southern California operating efficiency, the Company is
considering plans to integrate Heritage's brewing operation and Riverside's
brewery into a single, highly efficient, state-of-the-art facility, while
keeping capital expenditures at a minimum.

The Company plans to become a low cost operator through the implementation
of uniform operating systems, economies of scale, and creating a truly
integrated nationwide multi-location operation. The Company plans to
aggressively standardize and increase overall production capacity while setting
the highest possible quality assurance standards, implementing cost efficient
production techniques, and optimizing production utilization. Implementing these
plans depend on the availability of capital.

The Company utilizes sterile filtration in all its breweries. The Company
plans to utilize flash pasteurisation, tunnel pasteurisation or other methods to
provide additional assurances for product stability and extended shelf life
under extreme distribution and storage conditions.

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Marketing Strategies

The Company plans to utilize its resources and capital to spur revenue
growth by effectively marketing its portfolio of existing and new products and
services in targeted local and regional markets nationwide. The Company's
marketing and marketing communication strategies focus on developing strong
local brand awareness and following of the Company's brands at distributor,
retail account and consumer level, in particular in those markets in which the
Breweries currently are located. The Company wants to emphasize the advantage of
consuming fresh locally produced beer over beer imported from out-of-state
utilizing the Breweries and the brewpub restaurants as "anchors". At the same
time it plans to utilize its multi-location brewing capacity and comprehensive
distribution network to establish a nationwide presence for some of its brands;
and grow its contract brew business from medium sized contract brewers, thus
optimizing the Company's competitive position and use of brewing capacity.

Products/New Products

The Company is involved in the ongoing development of unique quality brews
aimed at high growth niche market segments. It utilizes the combined experience
of its marketing staff and eight experienced and acclaimed brewmasters whose
brews have won numerous awards.

PRODUCTS

The Company, upon the closing of the Offering, will market a total of 26
different beers on a regular basis. Although most of these brews are sold
year-round, some are seasonal. All of the Company's beers are hand-crafted in
100 to 200 barrel batches using traditional European brewing methods. The
Breweries brew their beers using only high quality hops, malted barley, wheat,
rye and other natural ingredients, and do not use any corn, rice, syrups or
other adjuncts.

In addition to its own brands, the Breweries operate as contract breweries
for various contract brew brands, and produce private label contract brews for
several well-known restaurant chains such as Claim Jumper and Rusty Pelican,
both of which are in California. All brews are marketed on the basis of quality,
freshness and unique, distinctive flavor profiles.

Riverside Brewing Company

Golden Spike Pilsner: A European style pilsner, with a hoppy aroma and a
dry crisp Czech hop flavor and long dry hop aftertaste (Bronze Certificate-1996
California State Fair, World Champion-1995 World Beer Championships, Gold
Medal-1995 Colorado State Fair, Silver Medal-1995 California State Fair, Silver-
1995 California State Fair, Silver-1995 Karnival of Beers, Bronze Medal-1993
Great American Beer Festival).

Pullman Pale Ale: A deep gold, pleasantly hopped ale with a malty aroma
and unique flavor (Silver Medal-1996 World Beer Championships, Silver Medal-1996
World Beer Cup, Silver Certificate-1996 California State Fair, Gold Medal-1995
California Beer Festival, Gold Medal-1995 Karnival of Beers, Silver Medal-1995
World Beer Championships, Silver Medal-1995 Great American Beer Festival).

Victoria Avenue Amber Ale: Deep amber colored (Scottish) ale with a malt
aroma and a medium dry malt aftertaste, made with English Goldings hops (Bronze
Medal-1996 World Beer Championships, Gold Medal-1995 California State Fair,
Silver Medal-1995 Karnival of Beers, Silver Medal-1995 Colorado State fair,
Bronze Medal-1995 California Beer festival, Bronze Medal-1995 World Beer
Championships, Gold Medal-1994 Great American Beer Festival).

Raincross Cream Ale: A beautiful gold-colored brew with a well-hopped
aroma and flavor (World Champion-1995 World Beer Championships, Silver
Medal-1996 World Beer Championships, Bronze Certificate-1996 California State
Fair, Silver Medal-1995 California Beer Festival, Gold Medal-1995 California
State Fair, Bronze Medal-1995 Colorado State Fair).

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7th Street Stout: A sophisticated, deep brown stout with a very pleasant
aftertaste (Silver Medal-1996 World Beer Championships, Gold Medal-1995 Karnival
of Beers, Bronze Medal-1994 Great American Beer Festival).

#119 Maybock: A traditional, malty maybock with slightly more hop flavor
(Bronze Medal-1996 World Beer Championships, Silver Certificate-1996 California
State Fair, Bronze-1996 BTI).

#119 Seasonal: (Silver Medal-1996 World Beer Championships).

St. Stan's Brewing Co.

St. Stan's Red Sky Ale: This red-hued pale ale with a medium body is St.
Stan's top selling brew
(Silver Medal-1996 World Beer Championships, Gold Medal-1994 Malt Advocate,
Silver Medal-1994,
Wine Enthusiast).

St. Stan's Amber Alt: An amber colored, smooth beer made in the "Altbier"
style of Dusseldorf, Germany (Silver Medal-1996 World Beer Championships, Silver
Medal-1995 World Beer Championships, Bronze Medal-1987 Great American Beer
Festival).

St. Stan's Dark Alt: A dark colored brew with a chocolate roasted malt
flavor, made in the "Altbier" style of Dusseldorf, Germany (Gold Medal-1995
World Beer Championships, Bronze Medal-1993 Karnival of Beers).

St. Stan's Whistlestop Ale: A light and clean traditional British Pale Ale
with a golden straw color (Bronze Award-1996 Wine Journal).

St. Stan's Fest Beer: A copper colored winter brew (Silver Medal-1994
Karnival of Beers, Gold Medal-1991 Beer Connoisseur Guide).

St. Stan's Graffiti Wheat: A light and slightly hazy, refreshing and
fruity summer wheat brew, with a unique "American Graffiti" marketing theme.

Heritage Brewing Company

Hussong's Cerveza Extra: Hussong's (produced under license of Hussong's
Cantina in Ensenada, Mexico) is a uniquely positioned lifestyle type of
specialty beer. The Hussong's product line include two beer types: Hussong's
Extra, a high-end, light, crisp Mexican Style beer, and

Hussong's Cerveza Negra: A very smooth, deep amber ale.

Mulligan: An easy to drink, light colored brew with a crisp, well-hopped
aroma and flavor.

Red Fox: A robust, flavorful, classic American pale ale, generously dry
hopped (Bronze Medal-1993 Great American Beer Festival).

Contract Brews/Private Label Brands/Other

Claimjumper Honey Blond Ale: Private label brew for Claimjumper
restaurants, brewed at Riverside.

Claimjumper Original Red Ale: Private label brew for Claimjumper
restaurants, brewed at Riverside. (Silver Medal-1996 World Beer Championships).

Red Pig Ale: Contract brew for Cabo Distributing, California, brewed at
Heritage, Riverside and Chicago.

Humpback Ale (draft only): Contract brew for Southern Wine and Spirits of
Southern California, packaged at Riverside in a joint production agreement with
Minnesota Brewing Company.

Copperhead Ale: Contract brew for Copperhead Brewing Co. brewed at
Riverside.

La Jolla Red Roost Ale: Contract brew for La Jolla Brewing Co. brewed at
Riverside.

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Rowdy's Perfect Ale: Contract brew for Waterstreet Brewing Co. brewed at
Riverside.

BREWING FACILITIES

Heritage Brewing Company, Lake Elsinore, California

Heritage operates a 12,000 barrels per year brewery in a 5,400 square feet
brewing facility and 4,000 square feet warehouse in Lake Elsinore, California.
The brewery has a 50 barrel brewhouse and twelve 50 barrel fermentation tanks.
The brewery has a 120 bottles per minute bottling line for 12 ounce and 22 ounce
bottles and a kegging line that can clean and fill 15 kegs per hour.

Riverside Brewing Company, Riverside, California

The brewpub is located in a leased, 75 year old brick building in the
historic Mission Inn district of Riverside, California. The production capacity
of the brewpub facility is 5,000 barrels per year. The brewpub has a 14 barrel
brewhouse, four 14-barrel fermentation tanks, twelve 7 barrel bright beer tanks
and other brewing equipment. It has no bottling line. The brewpub consists of a
bar area that seats 175, a restaurant that seats 148, and outside seating
locations that seat 220. The brewpub mainly serves its own brews and features a
variety of food items on its menu. From time to time the brewpub features live
music or other events such as cigar and beer tasting nights. The brewpub employs
30 full time and 40 part time staff, including a full-time brewmaster.

The brewery is located in an industrial park in Riverside in a 18,000
square feet leased facility which has an initial production capacity of up to
35,000 barrels per year which can be expanded to 80,000 barrels per year. The
brewery has a 50-barrel capacity brewhouse and ten 100-barrel fermentation
tanks. The brewery has a bottling line with a throughput of approximately 160
bottles per minute, with the ability to produce both 22-fluid oz. and 12-fluid
oz. bottles. The brewery's kegging line can clean and fill approximately 30 kegs
per hour.

The Company had purchased tunnel pasteurization equipment, which was
initially planned for installation at Heritage, but which can be put to use more
effectively at Riverside's operation. The pasteurizer has an initial capacity of
60 bottlers per minute at a rate of 12 pasteurization units, and can be upgraded
to 120 or 180 bottles per minute.

St. Stan's Brewing Company, Modesto, California

St. Stan's is located in a custom-built facility in the downtown area of
Modesto, California. The facility was completed in October 1990 and is part of a
14,500 sq. ft. which includes the brewery, a brewpub and gift shop. The brewery
currently has an annual capacity of approximately 30,000 barrels per year. The
brewery has a 60-barrel capacity brewhouse and eight 120-barrel fermentation
tanks and certain other equipment. The divisions's kegging machine is staff
built and has a production capacity of approximately 30 kegs per hour. Its
bottling line has throughput of approximately 180 bottles per minute. The
brewery can be expanded to an annual capacity of approximately 50,000 barrels
through the addition of fermentation tanks, but would require expansion into the
brewpub area or the installation of external insulated fermentation tanks. The
two-story brewpub has a contemporary European appearance, and has a combined
seating of approximately 300 in its restaurant and bar area. The brewpub mainly
serves beers brewed in the brewery and features a variety of food items on its
menu. From time to time the brewpub features live music. The brewpub employs 28
full time and part time staff. The brewpub and brewery share management,
administrative and office resources.

BREWING OPERATIONS

Brewing Ingredients

The Company's beers are made only from four natural ingredients: malted
barley, hops, yeast, and water. The most commonly used source of sugars for beer
fermentation is provided by barley grain. The grain contains complex sugars
which, after processed in the malting plant, provide the simple sugars for

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fermentation. The barley variety used by the Company is two-row which provides
fewer undesirable components than the six-row varieties used by many large US
breweries. Selected world class hops, including many European varieties, provide
bitterness, aromatics and flavor. Yeast is a single-celled organism whose
metabolism converts sugar into alcohol and carbon dioxide. The yeast ferments
the sugar water, known as "wort," which is derived from the malted barley.

Malting

The maltster steeps the barley grain in water to induce a controlled
germination followed by air drying and in some cases roasting via kilning. This
process, known as "malting", prepares the malt, through the creation of enzymes,
so that upon mashing, simple sugars are easily obtained from the complex sugars.
The malting process also imparts color and flavor characteristics to the grain.
The malted barley, referred to as "malt" is then sold to the brewery.

Mash/Lautering

The purpose of the mashing process is to create food for the yeast. Various
roasted and non-roasted malts are milled, and mixed with hot water in the mash
tun. Mashing is performed at either a constant temperature, or a series of
rising temperatures, depending on the brewing equipment, the raw materials being
used and the type of beer being brewed. During the mash, the complex
carbohydrates are converted into fermentable sugars. Enzymes, created in the
malting process, facilitate this conversion. The mash is then rinsed either in
the lauter tun or the mash tun to produce the wort which is high in fermentable
sugars. The mash system variables are controlled to determine the composition of
the wort and, ultimately, the taste and type of beer being brewed.

Brew Kettle Boiling

Before entering fermentation, the wort flows into a brew kettle to be
boiled, concentrated and clarified. Hops are added during the boil to impart
bitterness, aroma and flavor balance. The specific mixture of hops and the
timing of their addition is critical to produce the desired type beer. The
Company selects its hops from specific growing areas around the world and from
among a number of specific varieties cultivated within those growing areas.

Fermentation

After the boil, the wort is strained, cooled, aerated and then transferred
to the fermentation cellar. Here a controlled amount of a proprietary yeast
strain, at a selected temperature, is added ("pitched") to create fermentation.
Some of the carbon dioxide is recaptured and absorbed back into the beer,
providing a natural source of carbonation. The yeast may be either saccharomyces
carlsbergensis (used in lager beers) or saccharomyces cervisiae (used in alts,
ales, porters and stouts). Primary fermentation can take up to five days during
which time the yeast multiplies a number of time by "budding". At the end of
fermentation, a quantity of yeast is removed and stored for re-pitching. At the
conclusion of the fermentation, the beer is usually transferred to another tank.

The selection of krausening and/or lagering storage processes is an
important choice of the brewer as it determines the length of time required to
produce each batch of beer and therefore, the capacity of a brewery as well as
the cost of producing the beer. Krausening is a process which adds about one
week to the normal brewing cycle and is an important step in producing quality
beers. Many of the Company's beers undergo the kruasening process. During
Krausening, a small portion of young, still actively fermenting beer and yeast
is added to a tank of beer at the end of primary fermentation to produce a
second fermentation. Krausening produces a smoother, balanced beer flavor and
body. The carbon dioxide is produced is allowed to naturally carbonate the beer.

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Lagering is a process, used with beers fermented with bottom yeasts, during
which the temperature of the beer is slowly reduced. This helps reduce harsh
flavor products resulting from this type of yeast, as well as clarifying and
mellowing the beer. Lagering may take from one week to several months.

Maturation/Finishing

After fermentation, the beer is cooled for several days while the beer is
clarified and full flavor develops. Depending on the style of product, the fully
conditioned beer may be filtered for clarity and/or carbonated for bottling or
keg racking. Filtration removes unwanted protein, yeast and bacteria. At this
point, the beer is in its peak condition and ready for bottling or keg racking.
The entire brewing process of ales, from mashing through filtration, is
typically completed in 10 to 17 days, depending on the formulation and style of
the product being brewed. For lager beers the period ranges from one to six
months.

Quality Control

The Company currently monitors its beer production with in-house analytical
and micro biological tests. These tests monitor product quality, retail shelf
stability, CO(2), color and bitterness, oxidation, yeast condition and unwanted
bacteria. The Company also utilizes independent laboratories for further product
analysis.

Kegging and Bottling

The Company packages its craft beers in both bottles and kegs. The
packaging of beer is mechanically complex requiring the beer be handled under
pressure, with minimal loss of its carbonation, while being sanitary packaged
into a variety of packages, some with specific labeling for various states. The
Company has a variety of options for packaging its bottle and keg
configurations.

SUPPLIERS

The Company deals with a variety of suppliers for the sourcing and
purchasing of raw materials for the Breweries. Two suppliers accounted for
approximately 60.0% (unaudited) of product purchases for the nine months ended
September 30, 1996. No one supplier accounts for 10% or more of total accounts
payable at September 30, 1996 (unaudited). St. Stan's purchased certain products
from two companies which accounted for approximately 27.3% and 12.0% of total
purchases in 1995, and 26.0% and 11.3% of total purchases in 1994. Purchases
from these suppliers during the nine-month periods ended September 30, 1996 and
1995 totaled approximately 47.4% (unaudited) and 38.8% (unaudited),
respectively. Riverside purchased certain products from two companies which
accounted for approximately 31.0% (unaudited) and 57.0% (unaudited) of
consolidated purchases for the nine months ended September 30, 1996 and 1995,
respectively. One company accounted for approximately 40.0% and 38.0% of product
purchases for the years ended December 31, 1995 and 1994, respectively. No one
vendor made up 10% or more of accounts payable as of September 30, 1996.
Accounts payable to one company accounted for 26.0% as of December 31, 1995.
Management believes that the loss of any major supplier would not have a
material adverse effect on the Company.

DISTRIBUTION

The Breweries' products are currently distributed through a network of
independent beer and liquor wholesale distributors. These products are generally
sold in bottles and kegs to restaurants, brewpubs, bars and taverns, as well as
in bottles to supermarkets, warehouse clubs, convenience stores and liquor
stores. The Company's distribution strategy is to select its distributors on the
basis of who it believes is best able to promote a variety if not all of the
Company's products in a given market. In each of its targeted markets, the
Company selects its distributors based on certain criteria, including: (i)
market strength measured in terms of financial resources and number and size of
accounts served, (ii) commitment to expend resources to educate consumers and
retailers about the high quality and unique tastes of craft beer, (iii) ability
to properly execute marketing and promotions programs, and (iv) reputation for
customer service, including the ability to frequently service retail accounts,
rotate stock to maintain freshness, monitor tap lines and beer storage.
Distributors selected to date include distributors whose primary products are
produced by Anheuser-Busch,

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Miller and Coors and wine and spirits makers. The Company spends considerable
time and effort to establish, maintain and support its relationship with
distributors. The Company also offers its products directly to consumers at the
Company's brewpub-restaurants in Modesto and Riverside, California.

The Company demonstrates its commitment to the Breweries' independent
distributors in many ways, including its refusal to sell directly to retail
accounts within the appointed distributors' territories and, where permitted by
law, involving distributors' sales representatives in the Company's distributor
incentive programs.

Each of the Breweries' distribution agreements appoints the distributor as
the exclusive distributor for one or more of the Breweries' products in a
specific geographic area, subject in certain cases to the Breweries' rights to
engage in certain limited retailing activities. The distribution agreements
provide that payment shall be made in full not less than 30 days after the date
of delivery. The distribution agreements also provide for general cooperation
among the distributors and the Breweries' in marketing, merchandising and
promotional efforts. These distribution agreements may be terminated by either
party 30 or 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 30 or 60-day period. In some states, the
terms of the Breweries' contracts with its distributors may be affected by laws
that restrict enforceability of some contract terms, especially those related to
the Breweries' right to terminate the services of its distributors.

At the time of this offering, the Breweries' products are not necessarily
distributed through the same wholesale distributors in certain markets.
Riverside has appointed 40 distributors in 28 states. St. Stan's has appointed
35 distributors in 19 states. The Company may consolidate distribution of the
Breweries' brands through the same distributors in certain markets if
efficiencies and marketing advantages can be obtained. Such plans may be
subjected to or constrained by state regulations.

Four distributors accounted for 27.0%, 17.0%, 24.0% and 11.0% of Heritage
net sales (unaudited), respectively, for the nine-month period ended September
30, 1996. Two distributors accounted for 57.0% and 35.0% of the accounts
receivable balance (unaudited), respectively, as of September 30, 1996.

For St. Stan's, five distributors accounted for 35.4% and 28.9% of sales,
of which one distributor accounted for 10.1% of 1995 sales, during the years
ended December 31, 1995 and 1994, respectively. For the nine months ended
September 30, 1996 (unaudited), one distributor accounted for 10.0% of sales. No
distributor accounted for more than 10% of sales during the nine-month period
ended September 30, 1995 (unaudited). Five distributors accounted for 69.5% of
the accounts receivable balance at December 31, 1995, of which one distributor
accounted for 33.6%. No distributors accounted for more than 10.0% of the
accounts receivable balance at September 30, 1996 and 1995 (unaudited).

For Riverside, one distributor accounted for approximately 25.0%
(unaudited) of consolidated net sales for the nine months ended September 30,
1996. No one distributor accounted for 10.0% or more of consolidated net sales
for the nine months ended September 30, 1995 (unaudited). One distributor
accounted for approximately 12.0% of consolidated net sales for the year ended
December 31, 1995 and one distributor accounted for approximately 18.0% of net
sales for the year ended December 31, 1994. Four distributors accounted for
38.0%, 22.0%, 14.0% and 14.0%, respectively, of the accounts receivable balance
at September 30, 1996 (unaudited). Four distributors accounted for 23.0%, 18.0%,
18.0% and 16.0% respectively, of the accounts receivable balance at December 31,
1995.

SALES AND MARKETING

Marketing Strategies

The Company plans to spur revenue growth by effectively marketing its
portfolio of existing and new products and services in targeted local and
regional markets nationwide. Its marketing and marketing communication
strategies focus on developing strong local brand awareness and consumer
following for the Company's brands and brewpub restaurants at distributor,
retail and consumer levels, in particular in those markets in which the
Breweries are currently located, while assisting further volume throughput,
broader account penetration and encouraging an increased level of trial
purchases. The Company wants to emphasize

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the advantage of consuming fresh locally produced beer over beer imported from
out-of-state, utilizing its breweries and its brewpub restaurants to gain
additional corporate and brand recognition. At the same time it plans to utilize
its multi-location brewing capacity and comprehensive distribution network to
establish a nationwide presence for some of its brands. The Company also plans
to grow its contract brew business from medium sized contract brewers to
optimize Company's competitive position and utilization of brewing capacity and
resources. This will be achieved through effective regional communications
campaigns, retail and distributor incentive programs. The Company has prepared
such programs for all of its main brands, scheduled for implementation
throughout the first and second quarter of 1997.

Advertising & Promotion

The Company has allocated approximately $1.5 million from the proceeds of
the Offering towards product development, market research, point of sale
materials, promotion and paid advertising, to be spent over the next 18 months.
See "Use of Proceeds."

The Company has retained the creative services of Paragon Design, a well
respected creative agency known for its marketing communication programs for
clients that include Disney Consumer Products, MCA/Universal Entertainment
(Jurassic Park, Apollo 13), Mattel Toys, Baskin Robbins, L.A. Gear, AirTouch,
Nextel and others. Paragon has been assigned with formulating brand strategies,
creative campaigns, new packaging designs, market research and creating a
corporate identity program for the Company and the Breweries.

Pricing

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

New Products

Key to the Company's success is the ongoing development of unique quality
brews for high growth market segments. It utilizes the combined experience of
its marketing staff and its brewmasters whose brews have won numerous awards.
Among other market segments, the Company plans to focus on small batch, high
margin brews.

Contract Brews

The Breweries close proximity to key markets positions the Company to
improve utilization of its current and future brewing capacity and generate
additional income by expanding its already strong contract brewing and private
label business. The Company is currently having discussions with several
potential contract brew customers.

International Operations

The Company is having discussions with N.V. Pauwels, owned by one of the
Company's overseas investors, a Belgian corporation operating in the field of
consumer food products manufacturing, marketing and distribution, regarding the
possible import, manufacture and distribution of the Company's products in
Europe.

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COMPETITION

The craft-brewed and high-end segments in the U.S. beer market are highly
competitive due to continuing proliferation of microbrewers and contract
brewers, the recent introduction of fuller flavored beers by national brewers,
efforts by other microbrewers to expand their production capacities and a
general surplus of under-utilized domestic brewing capacity, which facilitates
existing contract brewer expansion and the entry of new contract brewers. Recent
growth in the sales of craft-brewed beers are expected to increase competition
and, as a result, prices and market share of the Company's products may
fluctuate and possibly decline.

Direct competitors of the Company include all large contract brewers,
regional brewers and local micro brewers. Indirect competitors include the major
national mass producers such as Anheuser Busch, Inc. and Adolph Coors Brewing.
The national brewers, recognizing the significant growth potential and the
slight but growing shift in market share from national mass-produced beers to
craft brews, have made significant investment in the craft brew industry. The
Company expects that certain of the major national brewers, with their greater
financial resources and established national distribution networks, will seek
further participation in the continuing growth of the craft beer segment through
investments in, or formation of distribution alliances with, craft brewers. The
increasing participation of the major national brewers will likely increase
competition for market share and increase price competition within the craft
beer segment. Many of the Company's competitors in the craft beer segment have
greater financial and other resources than the than the Company. See "Risk
Factors -- Increased Competition for Specialty Beers."

The Company's products also compete generally with other alcoholic
beverages including other segments of the beer industry and low alcohol
products. The Company competes with other beer and beverage companies not only
for consumer acceptance and loyalty but also for shelf and tap space in retail
establishments and for marketing focus by the Company's distributors and their
accounts, all of which also distribute and sell other craft brews, beers and
alcoholic beverage products. The Company also competes against producers of
imported beers. Although imported beers currently account for a much greater
share of the U.S. beer market than craft beers, the Company believes that local
craft brewers possess some competitive advantages over certain importers,
including lower shipping and no importation costs, proximity to and familiarity
with local consumers, a higher degree of product freshness, eligibility for
lower federal excise taxes and freedom from currency fluctuations.

The principal methods of competition in the craft-brewed segment of the
beer industry include product quality and taste, brand advertising, trade and
consumer promotions, pricing, packaging and the development of new products. The
Company believes that its competitive position is enhanced by its dedication to
product quality and its ability to deliver fresh product brewed locally in
multiple markets, lower production and transportation costs resulting from
operating efficiencies, innovative marketing and advertising methods, a broad
and diverse product/brand lineup, new product launches and award winning quality
brews.

REGULATION

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

The Breweries produce beer and sell it to distributors or retailers and to
consumers at its brewpub restaurants. Brewery, wholesale and retail operations
require various federal, state and local licenses, permits and approvals. In
addition, some states prohibit wholesalers and/or retailers from holding an
interest in any

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supplier such as the Company and the Breweries. Violation of such regulations
can result in the loss or revocation of existing licenses by the wholesaler,
retailer and/or the supplier. The loss or revocation of any existing licenses,
permits or approvals, failure to obtain any additional or new licenses, permits
or approvals or the failure to obtain approval for the transfer of any existing
permits or licenses could have a material adverse effect on the ability of the
Company to conduct its business. On the federal level, brewers are required to
file with the Bureau of Alcohol, Tobacco and Firearms ("ATF") an amended
Brewer's Notice every time there is a material change in the brewing process or
brewing equipment, change in the brewery's location, change in the brewery's
management or a material change in the brewery's ownership. Brewers must seek
ATF approval of an amended Brewer's Notice prior to the change taking place. The
Company's operations are subject to audit and inspection by ATF at any time.

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

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

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

TAXATION

The federal government and each of the states levy excise taxes on
alcoholic beverages, including beer. For brewers producing no more than
2,000,000 barrels of beer per calendar year, the federal excise tax in $7.00 per
barrel on the first 60,000 barrels of beer removed for consumption or sale
during a calendar year, and $18.00 per barrel for each barrel in excess of
60,000. For brewers producing more than 2,000,000 barrels of beer in a calendar
year, the federal excise tax is $18.00 per barrel. None of the breweries
currently produces more than 60,000 barrels per year. Individual states also
impose excise taxes on alcoholic beverages in varying amounts, which have also
been subject to change. The state excise taxes are usually paid by the Company's
distributors.

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

TRADEMARKS

The Company and the Breweries have obtained or applied for U.S. Trademark
Registrations for the names of several of its products, and in some cases for
most of its logo designs. The Company regards its trademarks as having
substantial value and as being an important factor in the marketing of its
products. The Company is not aware of any infringing uses that could materially
affect its current business of any prior claim to the trademarks that would
prevent the Company from using such trademarks in its business. The Company's
policy is to pursue registration of its marks whenever possible and to oppose
vigorously any infringements of its marks.

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EMPLOYEES

The Company and its subsidiaries will employ 135 employees after the
closing of the Offering, including 26 in brewery operations, 98 in the
brewpub-restaurants, 4 in administration and 8 in sales and marketing. These
include all employees of St. Stan's, of which the Company owns 51% in a
joint-venture. None of the Company's employees is represented by a labor union.
The Company has experienced no work stoppages and believes that its employee
relations are good.

PROPERTIES

The St. Stan's Brewery and Brewpub is located at 821 L Street in Modesto,
California. The 14,500 square foot building was constructed in 1991. The
building is subject to a 50-year ground lease which expires in 2038, at which
time the building and ground lease revert back to the lessor. The ground lease,
which was originally entered into between the lessor and Stanislaus Brewing
Company, Inc., was subleased to Prost Partners. The sublease includes base rent
increases over the term of the lease at the lesser of (1) the percentage change
that occurs in the Consumer Price Index or (b) five percent (5%). In addition to
base rent increases, appraisals are required at scheduled dates. The minimum
annual rental payments, after a land appraisal, shall be based on no less than
12% of the appraisal amount. In addition to the base rental payments, the
sublease agreement requires the payment of the real property taxes and insurance
costs. The monthly rental under the ground lease and sublease is $4,250.

The Riverside Brewing Company brewery is located in an industrial park, in
Riverside, California. The brewery occupies five suites of approximately 26,000
square feet. The total monthly rent is $9,889.00. The Riverside Brewing Company
pays an additional 18% of the common area operating expenses. The leases expire
March 31, 1998. The brewery leases are in the name of John Barnicoat, the former
president of Orange Empire Brewing Company, who has assigned these leases to the
Riverside Brewing Company. The Riverside Brewing Company brewpub is located in
Riverside, California's Mission Inn District. The brewpub occupies approximately
5,000 square feet. The total monthly rent is $6,365.40. This lease expires
August 2003. In addition, the Riverside Brewing Company leases substantially all
of its equipment and other personal property under a capital lease with a
related party expiring through August 2003.

Heritage's Brewery is located in Lake Elsinore, California. Total monthly
rent is $2,170. The lease expires in 1997. The Company does not intend to renew
the lease.

The Company's principal executive offices are located at 9800 South
Sepulveda Boulevard, Suite. 720, Los Angeles, California. The monthly rent is
$1,280, on a month-to-month lease and includes: maintenance, security, cleaning,
utilities and office equipment. The Company subleases this office from The
Deretin Group, an entity wholly owned by Lyle Maul an executive officer and
director of the Company. The company's other executive office is located in
Newport Beach at 200 Newport Center Drive, Suite. 205, Newport Beach,
California. The monthly rent payment is $900 and the term is for three years.

ENVIRONMENTAL REGULATIONS AND OPERATING CONSIDERATIONS

The Company's brewing operations are subject to a variety of extensive and
changing federal, state and local environmental laws, regulations and ordinances
that govern activities or operations that may have adverse effects on human
health or the environment. Such laws, regulations ordinances may impose
liability for the cost of remediating, and for certain damages resulting from,
sites of past releases of hazardous materials. The Company believes that it
currently conducts, and in the past has conducted, its activities and operations
in substantial compliance with applicable environmental laws, and believes that
costs arising from existing environmental laws will not have a material adverse
effect on the Company's financial condition or results of operations. There can
be no assurance, however, that environmental laws will not become more stringent
in the future or that the Company will not incur costs in the future in order to
comply with such laws.

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or accidentally introduced into products or packaging. See "Business -- Brewing
Operations." The occurrence of such a problem could result in a costly product
recall and serious damage to the Company's reputation for product quality, as
well as claims for product liability which may negatively impact the Company.
The Company maintains insurance which the Company believes is sufficient to
cover any liability claims which might result from a contamination problem in
its products, but which may not cover any damage to the Company's reputation.
See "Risk Factors -- Product Liability Risk."

LEGAL PROCEEDINGS

The Company and its subsidiaries are not currently involved in any material
pending legal proceedings, and the Company is not aware of any material legal
proceedings threatened against it, other than discussed below.

Tamkin Capital Partners ("Tamkin") has filed a suit in Los Angeles County
Superior Court alleging that it has been damaged by the Company negotiating and
entering the acquisition agreement with Riverside and the partnership agreement
with St. Stan's in violation of a confidentiality agreement and letter agreement
dated January 18, 1996 and January 16, 1996, respectively. The confidentiality
agreement provided that the Company would not negotiate with these companies
while these companies were under letters of intent with Tamkin. Management has
reached a tentative settlement with Tamkin whereby the Company will pay $400,000
in cash and will issue 30,000 shares of its common stock. The Company is
expected to pay $200,000 upon the execution of a settlement agreement, $150,000
upon the close of the Offering and $50,000 13 months from January 1, 1997. The
30,000 shares of common stock have demand registration rights 180 days after the
effective date of the Offering.

Riverside Brewing Company has been threatened with litigation where the
plaintiff is claiming damages against Riverside in the amount of $130,000.
Controlling principals of OEBC, RBC's parent corporation, have agreed to
indemnify the Company for any loss, if any, incurred by RBC arising out of this
threatened litigation.

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MANAGEMENT

DIRECTORS AND OFFICERS

The directors(*) and officers of the Company are:

NAME AGE POSITION
- ---------------------------- ---- ---------------------------------------------------

Lyle R. Maul................ 44 President, Chief Executive Officer and Chairman of
the Board of Directors
Frederik G.M. Rodenhuis..... 41 Executive Vice President and Acting Chief Financial
Officer
Janet Lee Johns............. 47 Secretary
Garith Helm................. 53 Vice President of Brewing Operations
Kathleen Burke.............. 43 Vice President -- Sales
John Stoner................. 38 Vice President of New Breweries and Director
Jim S. McClusky............. 39 Director
Robert Hutchison............ 44 Director

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

* The Company's bylaws provide that the authorized number of directors shall be
no fewer than five (5) nor more than nine (9). The present number of
authorized directors is six (6), which may be changed within the limits
specified above by either the board of directors or by the shareholders. If
the number of directors is increased, the board may fill such vacancy. The
Representative has the right to appoint one member to the board of directors.
The Representative has not yet appointed such person to the board. Directors
are elected at the annual shareholders meeting. Each director's term will
expire at the next shareholder meeting scheduled for May 1997.

MANAGEMENT BIOGRAPHIES

Lyle R. Maul, Chairman, President and Chief Executive Officer. Mr. Maul
has been the Company's Chief Executive Officer and Chairman of the Board of
Directors since January 1997. Prior to that, Mr. Maul was the Company's Chief
Financial Officer since November 1995 and Chief Operations Officer since
September 1996. From October 1990 to April 1996, Mr. Maul was the President of
Deretin Enterprises, Inc. also known as The Deretin Group after January 1995, a
business consulting firm with clients in the following industries, among others:
consumer products, publishing, microcomputer products, communications, and real
estate development. Mr. Maul is a co-founder and former Executive Vice President
Finance of Government Technology Services, Inc., which was listed as the fifth
fastest growing private company in the U.S. until it went public. It is now the
leading reseller of microcomputer equipment to the federal government. Prior to
this, Mr. Maul was a principal and Chief Financial Officer of Softeam, Inc., a
leading distributor of microcomputer products. Mr. Maul has been directly
involved with over ten entrepreneurial ventures and has extensive experience
with equity and debt financings for small businesses. Mr. Maul has a bachelors
degree in business administration and a masters degree in entrepreneurship and
venture management from the University of Southern California. Mr. Maul is also
a co-author of The Entrepreneur's Road Map to Success -- a winner of the
Benjamin Franklin Award as the Best Business/Career Book.

Frederik G.M. Rodenhuis, Executive Vice President and Acting Chief
Financial Officer. Prior to becoming the Executive Vice President in January
1997, Mr. Rodenhuis was the Chief Executive Officer and Chairman of the Board of
Directors of the Company since November 1995. Mr. Rodenhuis is considered the
driving force behind the formulation and implementation of the Company's
strategic plans, including capitalization, key acquisitions, industry alliances,
and long term product, marketing & distribution strategies. From June 1993 to
October 1995, Mr. Rodenhuis was the chief executive officer of Seaborn Beverages
Company. From April 1991 to September 1992, he was Director International
Marketing Development for Original New York Seltzer, and was responsible for
international and domestic marketing and sales policies. From June 1989 to April
1991, Mr. Rodenhuis was President of Interex Corp., a United States subsidiary
of KLM Royal Dutch Airlines, engaged in the specialty freight business. From
1987 to 1989, he was Director of Corporate Marketing of Burlington Air Express.
Mr. Rodenhuis has a law degree and a masters degree in

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business administration from Erasmus University, The Netherlands. Mr. Rodenhuis
brings a wealth of domestic and international experience in strategic product
development, marketing and sales management and corporate administration. Mr.
Rodenhuis has conducted business in key markets worldwide, speaks several
foreign languages and has made numerous media appearances nationwide. Mr.
Rodenhuis has advised the Company that in 1994 and 1995, during his tenure at
Seaborn Beverages Company, he forwent salary and expense payments and dedicated
his personal resources and assets to cover payment obligations of that company.
In March of 1995, he was forced to seek Chapter 13 reorganization bankruptcy
protection against forced collection of some of these obligations and a personal
indebtedness resulting from these commitments. Seaborn Beverages Company filed
for bankruptcy in May 1996.

Garith Helm, Vice President of Brewing Operations. Mr. Helm will oversee
all brewing production and quality control. Mr. Helm co-founded St. Stan's
Brewing Company along with Romy Angle in 1984. He designed and constructed the
company's first brewery and designed and coordinated the construction of the
current 50,000 barrel capacity brewery and pub. He currently teaches Practical
Brewing and Applications, a certified 180 hour course, at California State
University, Turlock. Since 1984, Mr. Helm has been the Chief Executive Officer
and brewmaster for Stanislaus Brewing Company and has provided the direction for
the growth of that company. His brewing education was acquired at the University
of California Davis, in brewing science and as a practical home brewer from 1975
to 1984. From 1979 to 1989, Mr. Helm was employed by Lawrence Livermore National
Laboratory, first as an Engineer then as Engineering Manager responsible for
thirty-one research support engineers. From 1982 to 1988, he was resource
Manager in the Engineering Department with direct responsibility for developing
and managing a $51 million budget funding 600 full-time employees. Additional
responsibilities were supervising all engineering facilities, and manpower
allocations for 3,000 mechanical and electronic engineering employees. As one of
six members of the Engineering Executive Committee, he developed policy on broad
issues affecting the laboratory and was Chief of Staff to the Associate Director
for Engineering. From 1969 to 1979, Mr. Helm was a lecturer at California State
University Stanislaus in the Physics Department and was also the Electronics
Design Department Manager. From 1969 to 1972, he was a part-time lecturer in the
Electronics Department at Modesto Junior College. Mr. Helm received his bachelor
degree in physics in 1975.

Kathleen Burke, Vice President -- Sales. Ms. Burke has been the Vice
President -- Sales for the Company since December 1995. From 1993 to 1995, Ms.
Burke was Vice-President of Sales of Seaborn Beverages Co. From 1987 to 1993 she
was Vice President of Sales for Southern California for Original New York
Seltzer. Ms. Burke has obtained a Bachelor's Degree of Arts at Mt. Saint Mary's
College and a California Teaching Credential. Ms. Burke brings a wealth of
distributor and their account sales and sales management experience to the
Company.

John Stoner, Vice President of New Breweries. Mr. Stoner, the Company's
Chief Operations Officer from October 1995 to June 1996, is the chief executive
officer of Heritage Brewing Company, which he co-founded in September 1989. From
1981 to 1989, he was employed with Rockwell International being appointed
Manager of Operations. Mr. Stoner has a bachelor's degree in finance management
and operations and a masters degree in business administration from California
State University Long Beach.

Janet Lee Johns, Secretary. Ms. Johns has been the Company's secretary
since January 1997. Since January 1993, she has been the secretary of Orange
Empire Brewing Company and since June, 1996 she has been the chief financial
officer of Orange Empire Brewing Company. From March 1986 to December 1992, she
was an insurance agent for Talbot Insurance Agency.

Mr. Jim S. McCluskey, Director. Mr. McCluskey has been Southern California
State Manager for Domec Importers, Inc. since May of 1996. Between 1989 and
1996, Mr. McCluskey was Specialty Brands Manager and Division Manager for Jim
Beam Brands Company. Prior thereto, Mr. McCluskey worked for E&J Gallo Winery,
the Seagram Wine Company and Christian Brothers Sales Company and brings 15
years of alcoholic beverage expertise, in particular the field of distribution
and brand management. Mr. McCluskey obtained a Bachelor's Degree in Business
Administration from California State University Long Beach.

Robert H. Hutchison, Director. Mr. Hutchison is a partner in the public
accounting firm of Belden-Hutchison & Co. in Costa Mesa, California. He
graduated from the University of Southern California

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in 1975 with a degree in business with an accounting emphasis. Mr. Hutchison
spent four years with Arthur Andersen & Company in the audit division obtaining
a variety of experience dealing with larger corporations. Since 1979, he has
worked in both public accounting and private industry gaining expertise in the
tax accounting and management areas of small to medium size businesses. Mr.
Hutchison joined his current firm in 1987. He is licensed in California and his
home state of Oregon. He is a member of the American Institute of Certified
Public Accountants.

SIGNIFICANT EMPLOYEES

Mark Mericle, Operations Manager. Mr. Mericle is the other co-founder of
Heritage Brewing Company and is responsible for the brewing operations of
Heritage. From 1981 to 1989, he was employed with Rockwell International. Mr.
Mericle has a bachelor's degree in communications from California State
University Fullerton and has studied at the Institute for Brewing Studies.

EXECUTIVE COMPENSATION

Compensation of Executive Officers. The following table sets forth the
cash compensation paid by the Company to its President and Chief Executive
Officer and its other officers for services rendered during the fiscal year
ended December 31, 1996.

SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------- UNDERLYING ALL
OTHER ANNUAL OPTIONS/ OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION SARS COMPENSATION(1)
- ---------------------------------------------- ---- -------- ----- ------------ ------------ ---------------

Lyle R. Maul.................................. 1996 $ 75,000 $ 0 $5,000 682,491 $ --
President and Chief Executive Officer
Frederik G.M. Rodenhuis....................... 1996 120,000 0 6,000 682,491 --
Executive Vice President
Kathleen Burke................................ 1996 75,000 0 5,500 111,350 --
Vice President -- Sales
John Stoner................................... 1996 75,000 0 5,000 113,584 123,032
Vice President of New Breweries
Mark Mericle.................................. 1996 75,000 0 5,000 113,584 123,028
Operations Manager

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

(1) Messrs. Stoner and Mericle received 24,508 and 24,507 shares of Common
Stock, respectively, valued at $4.00 per share as consideration for
consulting services provided to the Company and $25,000 each as a one time
cash bonus in connection with obtaining the rights to produce and market
Hussong's products in the western United States.

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OPTIONS GRANT TABLE

COMMON STOCK OPTIONS GRANTED IN FISCAL YEAR 1996*

% OF TOTAL OPTIONS
NUMBER OF SHARES OF GRANTED TO
COMMON STOCK EMPLOYEES AND EXERCISE
UNDERLYING OTHERS IN FISCAL PRICE EXPIRATION
NAME OPTIONS GRANTED YEAR 1995 PER SHARE DATE
- ------------------------------------------ ------------------- ------------------ --------- ----------

Lyle R. Maul.............................. 682,491 33.7 * 9/3/06
Chief Executive Officer and President
Frederik G. M. Rodenhuis.................. 682,491 33.7% * 9/3/06
Executive Vice President
Kathleen Burke............................ 111,350 5.5 * 9/3/06
Vice President-Sales
John Stoner............................... 113,584 5.6 * 9/3/06
Vice President of New Breweries
Mark Mericle.............................. 113,584 5.6 * 9/3/06
Operations Manager

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

* The figures in this table describe the total number of options granted under
the Company's Nonqualified Stock Option Plan and Incentive Stock Option Plan
in fiscal year 1996. See "Management -- Nonqualified Stock Option Plan" and
"Incentive Stock Option Plan." Messrs. Rodenhuis and Maul were each granted
382,491 options (or 41% each of the total granted) under the Nonqualified
Stock Option Plan exercisable at $5.10 per share and 300,000 options (or 27.4%
each of the total granted) under the Incentive Stock Option Plan exercisable
at $5.20 per share. Ms. Burke was granted 41,350 options (or 4% of the total
granted) under the Nonqualified Stock Option Plan exercisable at $5.10 per
share and 70,000 options (or 6.4% of the total granted) under the Incentive
Stock Option Plan exercisable at $5.20 per share. Messrs. Stoner and Mericle
were each granted 63,584 options (or 7% each of the total granted) under the
Nonqualified Stock Option Plan exercisable at $5.10 per share and 50,000
options (or 4.6% each of the total granted) under the Incentive Stock Option
Plan exercisable at $5.20 per share.

EMPLOYMENT AGREEMENTS

The Company has an employment agreement with Lyle R. Maul, pursuant to
which Mr. Maul is to serve as Chief Executive Officer and President. The
employment agreement, which becomes effective on the close of the Offering,
provides for a minimum base salary of $150,000 per annum, a $500 monthly car
allowance, which increases $50 annually, health insurance premiums for family
members, personal professional fees in 1997 of $2,500 increasing to $5,000
annually, life insurance premiums for the benefit of Mr. Maul's beneficiaries
premiums increasing to $5,000 annually, $500 nonaccountable monthly expense
allowance, and such other benefits available to other Company employees.
Although Mr. Maul presently devotes, and is required under the employment
agreement to devote, his full business time to the Company, his employment
agreement permits him to engage in other business activities that are not
competitive with the business of the Company and that do not materially
interfere with his performance of his duties and responsibilities to the
Company.

The Company has an employment agreement with Frederik G.M. Rodenhuis,
pursuant to which Mr. Rodenhuis is to serve as Executive Vice President of the
Company for four years. The employment agreement, which becomes effective on the
close of the Offering, provides for a minimum base salary of $152,000 per annum,
a $500 monthly car allowance, which increases $50 annually, health insurance
premiums for family members, personal professional fees in 1997 of $2,500
increasing to $5,000 annually, life insurance premiums for the benefit of Mr.
Rodenhuis' beneficiaries increasing to $5,000 annually, $600 nonaccountable
monthly expense allowance, and such other benefits available to other Company
employees. Although Mr. Rodenhuis presently devotes, and is required under the
employment agreement to devote, his full business time to the Company, his
employment agreement permits him to engage in other business activities that are

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not competitive with the business of the Company and that do not materially
interfere with his performance of his duties and responsibilities to the
Company.

Each of Mr. Maul's and Mr. Rodenhuis' employment agreements grant to the
subject employee the right to receive his salary and benefits through the
scheduled expiration date of such employment agreement in the event that the
Company terminates such individual's employment other than "for cause."

The Company also has employment agreements with other officers and
significant employees of the Company. Mr. Stoner's employment agreement provides
for a base salary of $75,000 per annum. Ms. Burke's employment agreement
provides for a base salary of $75,000 per annum. Mr. Mericle's employment
agreement provides for a base salary of $75,000 per annum. Mr. Helm's employment
agreement is for three years at a base salary of $75,000 per annum. Ms. Angle's
employment agreement is for three years and provides for a base salary of
$70,000 per annum. Each of these employment agreements provides for benefits
comparable to those provided to other Company employees, and $500 monthly car
allowance.

Mr. Maul will receive a cash bonus of $10,000 upon the close of this
Offering if it closes prior to March 31, 1997. Mr. Maul will also be entitled to
a $10,000 bonus, up to a maximum of $20,000, for each acquisition or joint
venture completed or approved by the Company's Board of Directors prior to March
31, 1997.

INCENTIVE STOCK OPTION PLAN

Effective August 26, 1996, the Incentive Stock Option Plan (the "Incentive
Stock Option Plan") was adopted by the Company. A total of 1,500,000 authorized
but unissued shares of Common Stock are reserved for issuance under the
Incentive Stock Option Plan. As of the date of this Prospectus, options to
purchase 1,091,000 shares of Common Stock have been granted to certain employees
and consultants of the Company. The purpose of the Incentive Stock Option Plan
is to attract and retain employees (including officers) of the Company
(including its subsidiaries) and other affiliates (if any) of the Company and
provide such people with additional incentives by increasing their equity
ownership in the Company. Options granted under the Incentive Stock Option Plan
are intended to qualify as incentive options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or be non-qualified. The
Incentive Stock Option Plan is intended to satisfy the conditions of Section 16
of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder ("Rule
16b-3"). The Incentive Stock Option Plan is administered by a committee of the
Company's Board of Directors comprised of directors who are disinterested within
the meaning of Rule 16b-3. Subject to the terms of the Incentive Stock Option
Plan, the committee administering the plan has the sole authority and discretion
to grant options, construe the terms of the plan and make all other
determinations and take all other action with respect to the Incentive Stock
Option Plan.

Options are exercisable during the period specified by the committee
administering the Incentive Stock Option Plan, except that options become
immediately exercisable in the event of a change in control of the Company. See
"Risk Factors -- Effect of Anti-Takeover Provisions." The grants made as of the
date of this Prospectus provide that options will become exercisable over a
four-year period, 25% each year at $5.20 per share. No option is exercisable
more than 10 years from the date of grant (or such other period as may be
required by the Code) or after the option holder leaves the Company's employ
(other than by reason of death or disability). Options are non-transferable,
except by will or the laws of intestate succession or pursuant to a qualified
domestic relations order. Shares underlying options that terminate unexercised
are available for reissuance under the Incentive Stock Option Plan. The per
share exercise price of options granted under the Incentive Stock Option Plan
will be determined by the committee of the Board of Directors administering the
Incentive Stock Option Plan, except that incentive stock options may not be
exercised for less than 100% of the fair market value of a share of the
Company's Common Stock on the date of grant.

NONQUALIFIED STOCK OPTION PLAN

Effective August 26, 1996, the 1996 Nonqualified Stock Option Plan (the
"Nonqualified Plan") was adopted by the Company. A total of 933,500 authorized
but unissued shares of Common Stock are reserved for issuance under the
Nonqualified Plan. On September 3, 1996, options to purchase 933,500 shares of

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Common Stock have been granted to certain employees of the Company. The purpose
of the Nonqualified Plan is to retain certain key employees (including officers)
of the Company and provide such people with additional incentives by increasing
their equity ownership in the Company. Options granted under the Nonqualified
Plan are not intended to qualify as incentive options under Section 422 of the
Code. The Plan is intended to satisfy the conditions of Rule 16b-3. The
Nonqualified Plan is administered by a committee of the Company's Board of
Directors comprised of directors who are disinterested within the meaning of
Rule 16b-3. Subject to the terms of the Nonqualified Plan, the committee
administering the plan has the sole authority and discretion to grant options,
construe the terms of the plan and make all other determinations and take all
other action with respect to the Nonqualified Plan.

Options are exercisable during the period specified by the committee
administering the Nonqualified Plan, except that options become immediately
exercisable in the event of a change in control of the Company. See "Risk
Factors -- Effect of Anti-Takeover Provisions." Each grantee of options under
the Nonqualified Plan may exercise such options at $5.10 per share four years
after the date of grant. However options become exercisable earlier if the
Company meets certain earnings criteria. One third of the options granted become
exercisable if the Company's modified net income (net income before interest,
income taxes, depreciation, and amortization and excluding certain other gains
or losses not in the ordinary course of business) for any fiscal year exceeds
$1,000,000, two-third of the options become exercisable if modified net income
exceeds $2,000,000 for any fiscal year, and all of the options are exercisable
if modified net income exceeds $3,000,000 for any fiscal year. No option is
exercisable more than 10 years from the date of grant or after the option holder
leaves the Company's employ (other than by reason of death or disability).
Options are non-transferable, except by will or the laws of intestate succession
or pursuant to a qualified domestic relations order. Shares underlying options
that terminate unexercised are available for reissuance under the Nonqualified
Plan. The per share exercise price of options granted under the Nonqualified
Plan are determined by the committee of the Board of Directors administering the
Nonqualified Plan.

INCENTIVE COMPENSATION PLAN

The Company adopted a cash incentive bonus compensation plan, the 1996
Incentive Compensation Plan, (the "Incentive Plan"). The Incentive Plan is
intended to promote the interests of the Corporation and its shareholders by
providing eligible employees with the opportunity to earn incentive compensation
that is linked to the financial performance of the Corporation. The Incentive
Plan is intended to qualify as performance based compensation under Section
162(m) of the Code. The Incentive Plan is administered by the regularly
appointed compensation committee of the Board, which shall have at least two (2)
members and no member of the Board may serve on the Committee unless such person
is an "outside director" within the meaning of Section 162(m)(4)(C)(i) of the
Code.

The Incentive Plan provides that qualifying employees may receive as a cash
bonus an amount equal to the Company's modified earnings, calculated before
interest, taxes, depreciation and amortization ("Modified EBITDA"), for a
particular fiscal year. The total cash bonus that the Incentive Plan provides is
8.45% of Modified EBITDA up to $4,000,000 for such fiscal year and 12.45% of
Modified EBITDA if Modified EBITDA exceeds $4,000,000 for such fiscal year.

DIRECTOR COMPENSATION

The Company's Directors' Compensation Plan ("Directors' Plan"), which was
adopted by the Board of Directors in January 1997 provides that, effective upon
the close of this Offering, each outside director is to receive cash
compensation in the amount of $1,250 per quarter. In addition, each outside
director will receive 1,250 warrants per quarter to acquire the Company's Common
Stock exercisable at $5.20 per share. The Company has reserved 100,000 shares of
Common Stock for issuance under the Directors' Plan. In addition, each outside
director will be reimbursed for travel expenses related to board meetings and
other pre-approved Company business expenses.

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CERTAIN TRANSACTIONS

The Company has agreed to pay Lyle Maul, the Company's President and Chief
Executive Officer, the amount of $82,745 to reimburse Mr. Maul for various
expenses incurred on behalf of the Company, including
travel, delivery services and telephone costs, and $3,000 for furniture and
computer equipment contributed to the Company. These costs incurred by Mr. Maul
on the Company's behalf were accrued for in the Company's financial statements
in the same period such expenses were incurred. The cost of such furniture and
computer equipment to Mr. Maul was approximately $7,500. Mr. Maul is repaid the
principal amount in monthly installments equal to three percent ($3%) of the
Company's net monthly sales. Mr. Maul to date has been paid approximately
$3,700.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock as of the date of this Prospectus by (i)
each person who is known by the Company to be the beneficial owner of more than
five percent (5%) of the issued and outstanding shares of Common Stock, (ii)
each of the Company's directors and executive officers and (iii) all directors
and executive officers as a group.

PERCENT OWNED
------------------------------
BEFORE AFTER
NAME AND ADDRESS NUMBER OF SHARES(1) OFFERING(2) OFFERING(2)(3)
- ------------------------------------------------ ------------------- ----------- --------------

Guy Schebovitz(4)............................... 178,684 10.71% 5.64%
Frederik G.M. Rodenhuis(5)...................... 112,479 6.74 3.55
Patrick and Lee Miller(6)....................... 100,000 5.99 3.16
Gerald Cochran(7)............................... 100,000 5.99 3.16
Johan Vets(8)................................... 99,996 5.99 3.16
Robert E. Reale(9).............................. 85,720 5.14 2.71
Lyle R. Maul(10)................................ 68,406 4.10 2.16
John Stoner(11)................................. 62,785 3.76 1.98
All executive officers and directors as a 243,643 14.60 7.69
group.........................................

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

(1) Except as indicated in the footnotes to this table, to the knowledge of the
Company, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them, except to the extent authority is shared by spouses under
applicable law.

(2) Includes 141,063 shares of Common Stock which are to be issued to the
former of OEBC shareholders in accordance with the Share Purchase
Agreement, 24,125 shares of Common Stock to be issued to the OEBC
debtholders in accordance with the Debt Exchange Agreement, 10,000 shares
of Common Stock to be issued pursuant to the Brewpub Management Agreement,
60,000 shares of Common Stock to be issued to Brewery Leasing Company
pursuant to the equipment lease agreement and the brewery equipment
consulting agreement and 27,618 shares to be issued to certain former OEBC
shareholders for assuming a portion of OEBC bank debt. Does not include
155,000 shares of Common Stock which may be issued pursuant to the former
OEBC shareholders pursuant to the earnout provisions of the Share Purchase
Agreement see "Business -- Breweries -- Riverside Brewing Company."
Includes 30,000 shares of Common Stock to be issued pursuant to the
tentative settlement agreement with Tankin Capital Partners. See
"Business -- Legal Proceedings." Does not include 2,433,500 shares of
Common Stock issuable upon exercise of authorized options granted under the
Company's stock option plans or shares of Common Stock issuable upon
exercise of other outstanding warrants or options. See
"Management -- Incentive Stock Option Plan," "-- Nonqualified Stock Option
Plan," "Description of Securities" and "Management -- Director
Compensation."

(3) Does not include 1,500,000 shares of Common Stock issuable upon exercise of
the Class A Warrants, 225,000 shares of Common Stock pursuant to the
Underwriter's over-allotment option, 225,000 shares of Common Stock
issuable upon exercise of the Class A Warrants pursuant to the
Underwriter's over-

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allotment option, or 300,000 shares of Common Stock issuable upon exercise
of the Representative's Purchase Option and Warrants. See "Description of
Securities" and "Underwriting."

(4) Mr. Schebovitz' address is 931 East 77th Street, 2nd Floor, Brooklyn, New
York 11236.

(5) Mr. Rodenhuis' address is 9800 S. Sepulveda Boulevard, Suite 720, Los
Angeles, California 90045. This figure includes the proportional number of
shares held by Manhattan Enterprises, Inc., which is the owner of 55,369
shares. Mr. Rodenhuis is the beneficial owner of 89.8% of Manhattan
Enterprises, Inc.

(6) The Millers' address is 1300 W. Garmon Road, SW, Atlanta, Georgia 30327.

(7) Dr. Cochran's address is 400 Horton Road, SW, Rainsville, Alabama 35986.

(8) Mr. Vets' address is 39 Graaf de Granvellelaan, 2650 Edegem, Belgium, 6,250
of the 99,996 shares are owned by Group Nollet-Vets, of which Mr. Vets is a
principal.

(9) Mr. Reale's address is 6501 5th Avenue, Brooklyn, New York 11220.

(10) Mr. Maul's address is 9800 S. Sepulveda Boulevard, Suite 720, Los Angeles,
California 90045. This figure includes the proportional number of shares
held by Manhattan Enterprises, Inc., which is the owner of 55,369 shares.
Mr. Maul is the beneficial owner of 10.2% of Manhattan Enterprises, Inc.

(11) Mr. Stoner's address is 9800 S. Sepulveda Boulevard, Suite 720, Los
Angeles, California 90045.

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DESCRIPTION OF SECURITIES

COMMON STOCK

The Company is authorized to issue 20,000,000 shares of Common Stock, no
par value, of which, as of the date of this Prospectus, 1,670,453 shares were
issued and outstanding, which includes shares issued under the Orange Empire
Brewing Company acquisition. Holders of shares of Common Stock are entitled to
one vote per share on all matters to be voted upon by the stockholders
generally. The approval of proposals submitted to stockholders at a meeting
other than for the election of directors requires the favorable vote of a
majority of the shares voting, except in the case of certain fundamental matters
(such as certain amendments to the Articles of Incorporation, and certain
mergers and reorganizations), in which cases California law and the Company's
By-laws require the favorable vote of at least two-thirds of all outstanding
shares. Stockholders are entitled to receive such dividends as may be declared
form time to time by the Board of Directors out of funds legally available
therefor, and in the event of liquidation, dissolution or winding up of the
Company to share ratably in all assets remaining after payment of liabilities.
The holders of shares of Common Stock have no preemptive or subscription rights.
Holders of shares of Common Stock may cumulate their votes for electing
directors if candidates' names are placed in nomination prior to commencement of
voting and a holder has given notice at the meeting, before voting has begun of
the holders intent to cumulate votes. All shares of Common Stock sold in this
offering will be, when issued, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors of the Company is authorized, subject to certain
limitations prescribed by applicable law, from time to time to issue up to an
aggregate of 5,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, in each case without further vote or action by the stockholders.
The issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of Common Stock. The issuance of Preferred Stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others. At present, the Company has no
plans to issue any of the Preferred Stock.

REGISTRATION RIGHTS

The Company has outstanding 728,229 shares of common stock with certain
registration rights. These shares are being registered along with this Offering
subject to certain lock-up provisions. These lock-up provisions may be waived
with the prior written consent of the Representative. 65,000 shares will become
freely tradeable 60 days after the date of the registration statement of which
this Prospectus is a part, 40,000 shares will become freely tradeable 90 days
after the date of the registration statement, 10,000 shares will become freely
tradeable 120 days after the date of the registration statement, 30,000 shares
will become freely tradeable 150 days after the date of the registration
statement, 92,484 shares will become freely tradeable one year after the date of
the registration statement, and 486,745 shares will become freely tradeable 13
months after the closing date of this Offering. Of the 486,745 shares being
registered subject to the 13 month lockup, 4,000 of the shares are owned by
Kathleen Burke, the Company's Vice President -- Sales. The Company has also
granted certain registration rights to holders of Class B Warrants and Class E
Warrants. The 70,000 shares of Common Stock issuable upon exercise of the Class
B Warrants at $4.75 and the 892,000 shares of Common Stock issuable upon
exercise of the Class E Warrants at $6.30 per share are being registered along
with this Offering. However, such shares may not be sold for a period of 180
days after the effective date of the registration statement without the prior
written consent of the Representative. The Company has also granted demand
registration rights to certain shareholders which provides that such holders may
demand 180 days after the effective date of the registration statement that the
Company seek to register up to 135,000 shares of Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale."

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WARRANTS

Class A Warrants. Each Class A Warrant entitles the holder to purchase, at
a price of $6.00, one share of Common Stock for a period of five years
commencing on the date of this Prospectus unless redeemed by the Company prior
to such expiration date. The exercise price of the Class A Warrants and the
number of shares of Common Stock or other securities or property to be obtained
upon exercise of the Class A Warrants, are subject to adjustment under certain
circumstances, including, issuance by the Company of any shares of its Common
Stock as a dividend, or subdivision or combination of the Company's outstanding
shares of Common Stock into a greater or lesser number of shares. Reference is
hereby made to the complete text of the form of Class A Warrant Agreement filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part.

The Class A Warrants are redeemable by the Company for $0.05 per Class A
Warrant, upon 30 days' prior written notice, if the market price of the Common
Stock equals or exceeds $12.00 per share. In the event that the Company gives
notice of its intention to redeem the Class A Warrants, holders would be forced
to exercise their Class A Warrants or accept the redemption price. For purposes
of redemption, market price means (i) the average closing bid price for any 10
consecutive trading days within a period of 30 consecutive trading days, ending
within five days of the date of the notice of redemption, of the Common Stock as
reported by Nasdaq or (ii) the average of the last reported sale price for the
10 consecutive business days ending within five days of the date of the notice
of redemption, on the primary exchange on which the Common Stock is traded, if
the Common Stock is traded on a national securities exchange.

The Class A Warrants may be exercised by filling out and signing the
appropriate notice of exercise form attached to the Class A Warrant and mailing
or delivering it (together with the Class A Warrant) to American Stock Transfer
& Trust Company of New York, New York, the Warrant Agent, in time to reach the
Warrant Agent prior to the time fixed for termination or redemption of the Class
A Warrants, accompanied by payment of the full warrant exercise price.

The holders of the Class A Warrants are not entitled to vote, receive
dividends, or exercise any of the rights of the holders of shares of Common
Stock for any purpose until the Class A Warrants have been duly exercised and
payment of the Class A Warrant exercise price has been made. Although it is
anticipated that the Class A Warrants will commence trading on Nasdaq following
the issuance of such Class A Warrants, there can be no assurance that a trading
market for the Class A Warrants will ever develop.

For the life of the Class A Warrants, the holders are given the opportunity
to profit from the rise, if any, in the market price of the Common Stock at the
expense of the remaining holders of the Common Stock. However, during the
outstanding period of the Class A Warrants, the Company might be deprived of
favorable opportunities to secure additional equity capital for its business,
since holders of Class A Warrants may be expected to exercise their Class A
Warrants at a time when the Company would be able to obtain equity capital by a
public sale of new securities on terms more favorable than those provided in the
Class A Warrants.

Class B Warrants. As part of the Company's May 1996 bridge loan (See
"Description of Securities -- Bridge Notes.") the Company issued Class B
Warrants entitling the holder thereof to purchase, at any time through April 20,
1999, up to 70,000 shares of Common Stock at an exercise price of $4.75 per
share, subject to adjustment upon the occurrence of any stock dividends, stock
splits, combinations of shares or reclassification of the Common Stock, or upon
any consolidation or merger of the Company with or into another corporation. The
shares of Common Stock issuable upon exercise of the Class B Warrants were
registered in this Offering, subject to a 180 day lockup.

Class C Warrants. The Company issued to Hecht & Steckman, P.C., legal
counsel to the Company, warrants to purchase up to 15,583 shares of the
Company's Common Stock at any time through October 31, 2002 at the exercise
price of $4.50 per share. The exercise price and the number of shares of Common
Stock purchasable upon exercise of the Class C Warrants are subject to
adjustment upon the occurrence of certain events, including stock dividends,
stock splits, combinations or reclassification of the Common Stock or sale by
the Company of shares of Common Stock (or other securities convertible into or
exercisable for Common Stock) at a price per share or share equivalent below the
greater of the then-applicable exercise price of the

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Class C Warrants or the then-current market price of the Common Stock. These
warrants and the common stock issuable upon exercise of the warrants are
"restricted securities" under Rule 144.

Class D Warrants. As part of the Company's acquisition of Orange Empire
Brewing Company warrants to purchase up to 50,000 shares of the Company's Common
Stock were issued to debtholders of Orange Empire Brewing Company. The Class D
warrants may be exercised at any time at $5.00 per share through the period
ending three (3) years after the close of this Offering. The exercise price and
the number of shares of Common Stock purchasable upon exercise of the Class D
Warrants are subject to adjustment upon the occurrence of certain events,
including stock dividends, stock splits, combinations or reclassification of the
Common Stock. These warrants and the common stock issuable upon exercise of the
warrants are "restricted securities" under Rule 144.

Class E Warrants. There are currently issued and outstanding warrants
issued in connection with the Company's initial financing in 1995, entitling the
holders to purchase an aggregate of 892,000 shares of Common Stock, subject to
adjustment in certain circumstances (the "Class E Warrants"). Each Class E
Warrant entitles the holder thereof to purchase, at any time through the period
ending five years after December 18, 1996, one share of Common Stock at a price
per share of the lower of 105% of the offering price of the Shares in the
Offering or $8.25, subject to adjustment in accordance with the anti-dilution
and other provisions referred to below. The Class E Warrants may be exercised at
any time in whole or in part at the applicable exercise price until the date of
expiration. No fractional shares will be issued upon the exercise of the Class E
Warrants. At any time that the Class E Warrants are exercisable, the Class E
Warrants are also subject to redemption by the Company on not less than 30 days
notice at $0.01 per Class E Warrant, provided the average closing bid price (or
the average of the last reported sale price if the Common Stock is traded on a
national securities exchange) of the Company's Common Stock for any ten (10)
consecutive trading days exceeds 200% of the exercise price.

The exercise price and the number of shares of Common Stock purchasable
upon the exercise of the Class E Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the Common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation,
or sale of all or substantially all of the assets of the Company, in order to
enable Class E Warrant holders to acquire the kind and number of shares of stock
or other securities or property receivable in such event by a holder of that
number of shares of Common Stock that would have been issued upon exercise of
the Class E Warrant immediately prior to such event. No adjustment to the
exercise price of the shares subject to the Class E Warrants will be made for
dividends (other than stock dividends), if any, paid on the Common Stock or for
securities issued pursuant to the Company's stock option plans or other employee
benefit plans of the Company, or upon exercise of the Class E Warrants or any
other options or warrants.

Class H Warrants. The Company issued warrants to purchase 15,000 shares of
the Company's Common Stock in a private placement to accredited investors. The
Class H Warrants may be exercised at any time at $7.00 per share through the
period ending September 10, 2001. The exercise price and the number of shares of
Common Stock purchasable upon exercise of the Class H Warrants are subject to
adjustment upon the occurrence of certain events, including stock dividends,
stock splits, combinations or reclassification of the Common Stock. The
adjustment provisions of the Class H Warrants are otherwise substantially
equivalent to the adjustment provisions for the Class A Warrants, as described
immediately above. These warrants and the Common Stock issuable upon exercise of
the warrants are "restricted securities" under Rule 144.

Directors' Warrants. As part of the Directors' Compensation Plan, warrants
to purchase up to 100,000 shares of the Company's Common Stock are reserved for
future issuance to the Company's non-employee directors ("Directors' Warrants").
The Directors' Warrants may be exercised at any time after issuance at $5.20 per
share through the period ending three (3) years after issuance. The Directors'
Compensation Plan becomes effective after the completion of the Offering and no
Directors' Warrants have been issued as of the date of this Prospectus. The
exercise price and the number of shares of Common Stock purchasable upon
exercise of the Directors' Warrants are subject to adjustment upon the
occurrence of certain events, including

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stock dividends, stock splits, combinations or reclassification of the Common
Stock. These warrants and the common stock issuable upon exercise of the
Directors' Warrants are "restricted securities" under Rule 144. See
"Management -- Director Compensation."

REPRESENTATIVE PURCHASE OPTION

For nominal consideration, the Company has granted to the Representative of
the Underwriters the Representative's Purchase Option which allows the
Representative to acquire 150,000 shares of Common Stock at $7.20 per share and
150,000 common stock purchase warrants at the price of $0.18 per share. See
"Underwriting." The Representative's Purchase Option entitle the holders to
purchase an aggregate of 150,000 shares of Common Stock, subject to adjustment
in certain circumstances. The Representative's Purchase Option entitles the
holders to purchase an aggregate of 150,000 warrants at any time one year after
exercise of the Representative's Purchase Option through the date five years
from the date of the Prospectus, one share of Common Stock at a price of $7.20
per share, subject to adjustment in accordance with the anti-dilution and other
provisions referred to below. The warrants underlying the Representative's
Purchase Option shall have generally the same terms and conditions as provided
in the Class A Warrants except that the warrants underlying the Representative's
Purchase Option shall not be subject to redemption. The Representative's
Purchase Option may be exercised at any time in whole or in part at the
applicable exercise price until the date of expiration. No fractional shares
will be issued upon the exercise of the Representative's Purchase Option. The
exercise price and the number of shares of Common Stock purchasable upon
exercise of the Representative's Purchase Option, and the exercise price and the
number of shares of Common Stock purchasable upon exercise of the warrants
underlying the Representative's Purchase Option, are subject to adjustment upon
the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the Company's Common Stock. See
"Underwriting."

BRIDGE NOTES

In May 1996, the Company issued a $500,000 principal amount note secured by
the Company's assets due on the earlier of the completion of any equity public
offering which results in the Company receiving gross proceeds of $6 million or
more, on April 15, 1997. Under the terms of this note and an extension
agreement, the investor received 20,000 shares of Common Stock and 70,000 Class
B Warrants. The shares of Common Stock underlying the Class B Warrants are being
registered along with this Offering subject to a lock-up period of 180 days
following the effective date of the Registration Statement for this Offering.
The note bears interest at the rate of 18.0% per annum. The Bridge Note will be
repaid in full out of the net proceeds of this Offering. See "Use of Proceeds."

In December, 1996, the Company issued a $250,000 unsecured promissory note
to Patrick Miller, a shareholder of the Company. The note, which pays simple
interest at 12% per annum, matures on the earlier of (i) closing of a public
offering by the Company with aggregate gross proceeds of no less than
$6,000,000, or (ii) September 1, 1997. Interest is payable at maturity. The note
will be repaid in full out of the proceeds of this Offering. See "Use of
Proceeds."

DIVIDENDS

The Company has never paid and does not anticipate the payment of cash
dividends on its Common Stock in the foreseeable future.

TRANSFER AGENT

The Transfer Agent and Warrant Agent for the Company's Common Stock and
Class A Warrants is American Stock Transfer & Trust Company.

60
64

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom First London Securities Corporation is acting
as Representative, have severally agreed to purchase from the Company an
aggregate of 1,500,000 Shares of Common Stock ("Shares") and 1,500,000 Class A
Warrants (collectively the "Securities"). The number of Shares and Class A
Warrants which each Underwriter has agreed to purchase is set forth opposite its
name.

NUMBER OF NUMBER OF
UNDERWRITER SHARES WARRANTS
-------------------------------------------- --------- ---------

First London Securities Corporation.........
--------- ---------
TOTAL............................. 1,500,000 1,500,000
======== ========

The Securities are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to approval
of certain legal matters by counsel and certain other conditions. The
Underwriters are committed to purchase all Securities offered by this
Prospectus, if any are purchased.

The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities offered hereby to the public at the
offering price set forth on the cover page of this Prospectus. The
Representative has advised the Company that the Underwriters propose to offer
the Securities through members of the National Association of Securities
Dealers, Inc. ("NASD"), and may allow a concession, in their discretion, to
certain dealers who are members of the NASD and who agree to sell the Securities
in conformity with the NASD Conduct Rules. Such concessions shall not exceed the
amount of the underwriting discount that the Underwriters are to receive.

The Company has granted to the Representative options, exercisable for 30
days from the date of this Prospectus, to purchase up to an additional 225,000
Shares and an additional 225,000 Class A Warrants at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus
(the "Over-Allotment Option"). The Representative may exercise this option
solely to cover over-allotments in the sale of the Securities being offered by
this Prospectus.

Officers and directors of the Company may introduce the Representative to
persons to consider this offering and purchase Securities either through the
Representative, other Underwriters, or through participating dealers. In this
connection, officers and directors will not receive any commissions or any other
compensation.

The Company has agreed to pay the Representative a commission of ten
percent (10%) of the gross proceeds of the offering (the "Underwriting
Discount"), including the gross proceeds from the sale of the Over-Allotment
Option, if exercised. In addition, the Company has agreed to pay to the
Representative a non-accountable expense allowance of three percent (3%) of the
gross proceeds of this Offering, including proceeds from any Securities
purchased pursuant to the Over-Allotment Option. The Representative's expenses
in excess of the non-accountable expense allowance will be paid by the
Representative. To the extent that the expenses of the Representative are less
than the amount of the non-accountable expense allowance received, such excess
shall be deemed to be additional compensation to the Representative. The
Representative has informed the Company that it does not expect sales to
discretionary accounts to exceed five (5%) of the total number of Securities
offered by the Company hereby.

The Representative shall have a preferential right for a period of one year
from this Offering to represent the Company in any private or public offering of
the Company's securities.

61
65

The Company will pay the Representative a fee of five (5%) percent of the
aggregate exercise price of each Class A Warrant exercised commencing one year
after the Effective Date, provided: (i) the market price of the common stock on
the date of exercise was greater than the exercise price on that date, (ii)
exercise of the Class A Warrant was solicited by a member of the NASD, (iii) the
Class A Warrant was not held in a discretionary account, (iv) disclosure of
compensation was made both at the time of the Offering and the exercise of the
Class A Warrant, and (v) the solicitation and the exercise of the Class A
Warrant was not in violation of Rule 10b-6 of the Securities Exchange Act of
1934.

Prior to the date of this Prospectus, the Company's officers and directors
have agreed in writing not to sell, assign or transfer any of the Company's
securities beneficially owned by them without the Representative's prior written
consent for a period of twenty four (24) months from the Effective Date.
Furthermore, all sales of the Company's securities owned by the officers and
directors are required to be effected only through the Representative. The
Representative may designate a member of the Company's Board of Directors and to
appoint one person to act as an observer at the Company's Board of Directors'
meeting for three years.

Prior to the Offering, there has been no public market for the Shares of
Common Stock or Class A Warrants of the Company. Consequently, the initial
public offering price for the Securities, and the terms of the Class A Warrants
(including the exercise price of the Warrants), have been determined by
negotiation between the Company and the Representative. Among the factors
considered in determining the public offering price were the history of, and the
prospect for, the Company's business, an assessment of the Company's management,
its past and present operations, the Company's development and the general
condition of the securities market at the time of the offering. The initial
public offering price does not necessarily bear any relationship to the
Company's assets, book value, earnings or other established criterion of value.
Such price is subject to change as a result of market conditions and other
factors, and no assurance can be given that a public market for the Shares
and/or Class A Warrants will develop after the close of the Offering, or if a
public market in fact develops, that such public market will be sustained, or
that the Shares and/or Class A Warrants can be resold at any time at the
offering or any other price. See "Risk Factors." Certain transactions between
third parties as discussed below may be deemed by prospective investors to
reflect the value of the Company. In determining the price of the Shares and
Class A Warrants offered in this Offering, the Company and the Representative
did not consider these transactions as factors. On November 22, 1996, Adam
Wachtel, a former director of the Company sold 182,484 shares of Common Stock to
an investor for $250,000, or $1.37 per share. These shares have registration
rights which provide for the sale of such shares as follows: 30,000 shares are
freely tradeable 60 days after the effective date of the registration statement
to which this Prospectus is a part, 30,000 shares after 90 days, 30,000 shares
after 150 days and 92,484 shares after one year. Simultaneous which this
transaction, Mr. Wachtel retired 1,160,216 shares of Common Stock, all of the
remaining shares owned by Mr. Wachtel, to the Company in return for general
releases from the Company and certain other shareholders. On May 16, 1996,
Imafina, S.A. sold 100,000 warrants to purchase the Company's Common Stock for
$8.25 per share at $3.00 per warrant to Patrik and Lee Miller. On December 10,
1996, Imafina S.A. transferred 400,000 additional warrants to the Millers for
$4,000 as part of a settlement and general release of the original warrant sale
agreement. After the transfer of these warrants, Imafina, S.A. agreed to retire
2,110,000 warrants to the Company. The remaining outstanding 892,000 warrants
were exchanged by the $8.25 warrantholders in return for 892,000 Class E
Warrants.

At the closing of the Offering, the Company will issue to the
Representative and/or persons related to the Representative, for nominal
consideration, Representative's Purchase Option to purchase up to 150,000 shares
and 150,000 warrants. The Representative's Purchase Option will be exercisable
for a five year period commencing one year from the effective date of the
Registration Statement. The initial exercise price of each share shall be $7.20
per share (120% of the public offering price). The initial exercise price of
each warrant shall be $7.20 per warrant (120% of the public offering price).
Each warrant will be exercisable for a five (5) year period commencing one year
from the date of this Prospectus to purchase one share of Common Stock at an
exercise price of $7.20 per share of Common Stock. The Representative's Purchase
Option will not be transferable for one year from the date of this Prospectus,
except (i) to officers of the Representative, other Underwriters, and members of
the selling group and officers and partners thereof; (ii) by will; or (iii) by
operation of law.

62
66

The Representative's Purchase Option contains provisions providing for
appropriate adjustment in the event of any merger, consolidation,
recapitalization, reclassification, stock dividend, stock split or similar
transaction. The Representative's Purchase Option contains net issuance
provisions permitting the holders thereof to elect to exercise the
Representative's Purchase Option in whole or in part and instruct the Company to
withhold from the securities issuable upon exercise, a number of securities,
valued at the current fair market value on the date of exercise, to pay the
exercise price. Such net exercise provision has the effect of requiring the
Company to issue shares of Common Stock without a corresponding increase in
capital. A net exercise of the Representative's Purchase Option will have the
same dilutive effect on the interests of the Company's shareholders as will a
cash exercise. The Representative's Purchase Option does not entitle the holders
thereof to any rights as a shareholder of the Company until such
Representative's Purchase Option is exercised and shares of Common Stock are
purchased thereunder.

The Representative's Purchase Option and the securities issuable thereunder
may not be offered for sale except in compliance with the applicable provisions
of the Securities Act of 1933. The Company has agreed that if it shall cause a
post-effective amendment, a new registration statement, or similar offering
document to be filed with the Commission, the holders shall have the right, for
seven years from the date of this Prospectus, to include in such registration
statement or offering statement the Representative's Purchase Option and/or the
securities issuable upon its exercise at no expense to the holders.
Additionally, the Company has agreed that, upon request by the holders of 50% or
more of the Representative's Purchase Option during the period commencing one
year from the date of this Prospectus and expiring four years thereafter, the
Company will, under certain circumstances, register the Representative's
Purchase Option and/or any of the securities issuable upon its exercise.

The Company has also agreed that if the Company participates in any merger,
consolidation or other such transactions which the Representative has brought to
the Company during a period of five years after the closing of this Offering,
and which is consummated after the closing of this Offering (including an
acquisition of assets or stock for which it pays, in whole or in part, with
Shares or other securities), then the Company will pay for the Representative's
services in an amount equal to 5% of up to one million dollars of value paid or
received in the transaction, 4% of the next million dollars of such value, 3% of
the next million dollars of such value, 2% of the next million dollars of such
value and 1% of the next million dollars and all of such value above $4,000,000.

The Company has agreed to indemnify the Underwriters against any costs or
liabilities incurred by the Underwriters by reasons of misstatements or
omissions to state material facts in connection with the statements made in the
Registration Statement and the Prospectus. The Underwriters have in turn agreed
to indemnify the Company against any liabilities by reason of misstatements or
omissions to state material facts in connection with the statements made in the
Prospectus, based on information relating to the Underwriters and furnished in
writing by the Underwriters. To the extent that this section may purport to
provide exculpation from possible liabilities arising from the federal
securities laws, in the opinion of the Commission, such indemnification is
contrary to public policy and therefore unenforceable.

The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."

LEGAL MATTERS

The law firm of Hecht & Steckman, P.C., New York, New York, has acted as
counsel for the Company in connection with this offering and has rendered its
opinion to the Company on the legality of the securities covered in this
Prospectus. Hecht & Steckman, P.C. acquired 14,000 shares of Common Stock and a
warrant to purchase 15,583 shares of Common Stock at the exercise price of $4.50
per share. The firm of Jackson & Walker, L.L.P., Dallas, Texas, has acted as
counsel for the Underwriters in connection with certain legal matters relating
to this Offering.

63
67

EXPERTS

The 1995 and 1994 historical financial statements of the Company, Orange
Empire Brewing Company and the St. Stan's Brewing & Brewpub Operations as listed
on "Index to Financial Statements" and as included elsewhere in this Prospectus,
have been audited by Corbin & Wertz, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports. Reference is made to said reports for the Company and Orange
Empire Brewing Company which include an explanatory paragraph which states that
there is substantial doubt about the Company's and Orange Empire Brewing
Company's ability to continue as a going concern. Furthermore, reference is made
to said report for the St. Stan's Brewery and Brewpub Operations which includes
an explanatory paragraph which identifies a substantial need for ongoing
financial support.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission, a
registration statement on Form SB-2 under the 1933 Act with respect to the
Shares and Class A Warrants being offered hereby and shares of the Company's
Common Stock being offered by certain selling securityholders. This Prospectus
does not contain all of the information set forth in the registration statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the Shares and Class A Warrants being offered hereby, and shares
of the Company's Common Stock being offered by selling securityholders,
reference is hereby made to such registration statement and the exhibits and
schedules thereto, which may be inspected without charge at the Commission's
offices and copies of all or any part of which may be obtained from such offices
upon payment of prescribed fees. Statements contained in the Prospectus
regarding the provisions of documents filed with such registration statement as
exhibits are necessarily summaries of such documents, and each such statement is
qualified in all respects by reference to the copy of the applicable document
filed with the Commission.

64
68

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
------------

BEVERAGE WORKS, INC. AND SUBSIDIARY, PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Introduction To Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................................ F-3
Pro Forma Condensed Consolidated Balance Sheet As Of September 30, 1996
(Unaudited)............................................................... F-4
Pro Forma Condensed Consolidated Balance Sheet, Summary of Pro Forma
Adjustments (Unaudited)................................................... F-5 to F-8
Pro Forma Condensed Consolidated Statement Of Operations For The Nine Months
Ended September 30, 1996 (Unaudited)...................................... F-9
Pro Forma Condensed Consolidated Statement Of Operations For The Year Ended
December 31, 1995 (Unaudited)............................................. F-10
Pro Forma Condensed Consolidated Statement Of Operations, Summary Of Pro
Forma Adjustments (Unaudited)............................................. F-11 to F-12
Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)... F-13 to F-27
BEVERAGE WORKS, INC. AND SUBSIDIARY, HISTORICAL CONSOLIDATED FINANCIAL
STATEMENTS
Independent Auditor's Report................................................. F-28
Consolidated Balance Sheets As Of September 30, 1996 (Unaudited) and
December 31, 1995......................................................... F-29
Consolidated Statements Of Operations For The Nine Months Ended September 30,
1996 (Unaudited), and For The Period From Incorporation (August 2, 1995)
To September 30, 1995 (unaudited), and for the period from Incorporation
(August 2, 1995) to December 31, 1995..................................... F-30
Consolidated Statements Of Stockholders' Equity For The Nine Months Ended
September 30, 1996 (Unaudited) and For The Period From Incorporation
(August 2, 1995) To December 31, 1995..................................... F-31
Consolidated Statements Of Cash Flows For The Nine Months Ended September 30,
1996 (Unaudited), and For The Period From Incorporation (August 2, 1995)
To September 30, 1995 (unaudited), and for the period from Incorporation
(August 2, 1995) to December 31, 1995..................................... F-32 to F-33
Notes to Consolidated Financial Statements................................... F-34 to F-59
ST. STAN'S BREWERY AND BREWPUB OPERATIONS
Independent Auditors' Report................................................. F-60
Historical Statements of Assets and Liabilities To Be Contributed to
BWI -- Prost Partners General Partnership As Of September 30, 1996
(Unaudited) and
December 31, 1995......................................................... F-61
Historical Statements Of Historical Operations Of Assets and Liabilities To
Be Contributed to BWI -- Prost Partners General Partnership For The Nine
Months Ended September 30, 1996 (Unaudited) and 1995 (Unaudited), and For
The Years Ended December 31, 1995 and 1994................................ F-62
Historical Statements Of Changes In Equity Of Assets and Liabilities To Be
Contributed to BWI -- Prost Partners General Partnership For The Nine
Months Ended September 30, 1996 (Unaudited), and For The Years Ended
December 31, 1995 and 1994................................................ F-63
Historical Statements Of Cash Flows Of Assets and Liabilities To Be
Contributed to BWI -- Prost Partners General Partnership For The Nine
Months Ended September 30, 1996 (Unaudited) and 1995 (Unaudited), and For
The Years Ended December 31, 1995 and 1994................................ F-64

F-1
69

PAGE
------------

Notes To Historical Financial Statements Of Assets and Liabilities To Be
Contributed To BWI -- Prost Partners General Partnership.................. F-65 to F-75
ORANGE EMPIRE BREWING COMPANY AND SUBSIDIARY
Independent Auditors' Report................................................. F-76
Consolidated Balance Sheets As Of September 30, 1996 (Unaudited) and
December 31, 1995......................................................... F-77
Consolidated Statements Of Operations For The Nine Months Ended September 30,
1996 (Unaudited) and 1995 (Unaudited), and For The Years Ended December
31, 1995 and 1994......................................................... F-78
Consolidated Statements Of Stockholders' Equity (Capital Deficiency) For The
Nine Months Ended September 30, 1996 (Unaudited) and For The Years Ended
December 31, 1995 and 1994................................................ F-79
Consolidated Statements of Cash Flows For The Nine Months Ended September 30,
1996 (Unaudited) and 1995 (Unaudited), and For The Years Ended December
31, 1995 and 1994......................................................... F-80 to F-81
Notes To Consolidated Financial Statements................................... F-82 to F-96

F-2
70

BEVERAGE WORKS, INC.

INTRODUCTION TO
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

The following unaudited pro forma condensed consolidated information as of
and for the nine months ended September 30, 1996, and for the year ended
December 31, 1995, is based on the historical financial statements of Beverage
Works, Inc., and Subsidiary, Orange Empire Brewing Company and Subsidiary, and
the St. Stan's Brewery and Brewpub Operations. The unaudited pro forma condensed
consolidated financial information has given effect to the following:

(1) The consummation of the Beverage Works, Inc. proposed Initial Public
Offering and the application of the proceeds therefrom as described in
"Use of Proceeds".

(2) The consummation of the proposed Beverage Works, Inc. and Orange Empire
Brewing Company Share Purchase Agreement, and related agreements.

(3) The consummation of the proposed BWI-Prost Partners Contribution and
Partnership Agreements, and related agreements.

The unaudited pro forma condensed consolidated balance sheet has been
prepared as though the transactions and arrangements described above had taken
effect on September 30, 1996, and the unaudited pro forma condensed consolidated
statements of operations have been prepared as though the transactions and
arrangements had taken effect at the beginning of each period presented. The
unaudited pro forma information should be read in conjunction with the notes
related thereto and the historical financial statements of the Beverage Works,
Inc. and Subsidiary, Orange Empire Brewing Company and Subsidiary, and the St.
Stan's Brewery and Brewpub Operations, which are included elsewhere in this
registration statement. In management's opinion, all adjustments have been made
necessary to reflect the effects of the consummation of the proposed initial
public offering and the application of the proceeds therefrom, the consummation
of the proposed Beverage Works, Inc. and Orange Empire Brewing Company Share
Purchase Agreement, and the consummation of the proposed BWI-Prost Partners
Contribution and Partnership Agreements.

The unaudited proforma condensed consolidated financial information does
not purport to be indicative of the consolidated financial condition or results
of operations of the Company that would have been obtained for the periods
presented had the transactions and arrangements taken effect on the assumed
dates, nor does it purport to represent the consolidated financial position or
results of operations of the Company for any future period.

F-3
71

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 1996

(UNAUDITED)

ST. STAN'S
BEVERAGE ORANGE BREWERY AND PRO FORMA
WORKS, EMPIRE BREWPUB PRO FORMA SEPTEMBER 30,
INC. BREWING CO. OPERATIONS SUBTOTAL ADJUSTMENTS REF 1996
---------- ----------- ----------- ---------- ----------- ---- -------------

ASSETS
Cash and cash equivalents (Notes 1, 2,
3, 4, 5, 8 and 10)................... $ 159,716 $ 33,419 $ 26,223 $ 219,358 $ 4,132,485 (a) $ 4,351,843
Accounts receivable, net............... 40,992 45,326 110,456 196,774 -- 196,774
Inventories............................ 171,451 233,868 194,262 599,581 -- 599,581
Prepaid expenses and other (Note 2).... 52,567 17,629 22,359 92,555 (19,711) (b) 72,844
---------- ---------- ---------- ---------- ---------- -----------
Total current assets.......... 424,726 330,242 353,300 1,108,268 4,112,774 5,221,042
Property and equipment, net (Notes 2
and 3)............................... 1,335,939 1,328,422 2,373,283 5,037,644 (41,362) (c) 4,996,282
Goodwill and other intangible assets
(Notes 1 and 2)...................... 191,619 -- -- 191,619 3,633,410 (d) 3,825,029
Investments in and advances to
affiliates
(Notes 2 and 9)...................... 206,511 55,475 -- 261,986 (261,986) (e) --
Deferred offering costs (Notes 1 and
2)................................... 300,034 -- -- 300,034 (300,034) (f) --
Other assets (Notes 2 and 4)........... 14,600 21,710 25,547 61,857 20,000 (g) 81,857
---------- ---------- ---------- ---------- ---------- -----------
$2,473,429 $1,735,849 $2,752,130 $6,961,408 $ 7,162,802 $14,124,210
========== ========== ========== ========== ========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Accounts payable and accrued expenses
(Notes 2, 5, 8 and 9)................ $1,257,530 $ 612,167 $ 153,014 $2,022,711 $(1,250,532) (h) $ 772,179
Notes payable (Note 4)................. 546,237 171,698 25,534 743,469 (507,777) (i) 235,692
Capital lease due to related party
(Note 8)............................. -- 143,498 -- 143,498 76,587 (j) 220,085
Notes payable to related parties (Note
5)................................... 93,896 668,297 459,120 1,221,313 (1,048,253) (k) 173,060
Due to affiliate (Note 9).............. 42,500 -- -- 42,500 (42,500) (l) --
Deferred income taxes (Note 2)......... 58,007 -- -- 58,007 124,682 (m) 182,689
---------- ---------- ---------- ---------- ---------- -----------
Total current liabilities..... 1,998,170 1,595,660 637,668 4,231,498 (2,647,793) 1,583,705
Notes payable, net of current portion
(Note 4)............................. 363,089 394,581 643,393 1,401,063 (382,091) (n) 1,018,972
Capital lease, net of current
portion.............................. -- 29,955 -- 29,955 -- 29,955
Capital lease due to related party, net
of current portion (Note 8).......... -- 866,461 -- 866,461 (514,637) (o) 351,824
Deferred income taxes, net of current
portion (Note 2)..................... 337,752 -- -- 337,752 1,122,137 (p) 1,459,889
Distribution payable (Notes 6 and 7)... -- -- -- -- 1,166,953 (q) 1,166,953
Minority Interest (Notes 6 and 7)...... -- -- -- -- 304,116 (r) 304,116
---------- ---------- ---------- ---------- ---------- -----------
Total liabilities............. 2,699,011 2,886,657 1,281,061 6,866,729 (951,315) 5,915,414
Total stockholders' equity
(capital deficiency) (Notes
1, 2, 4, 5, 7, 8 and 10).... (225,582) (1,150,808) 1,471,069 94,679 8,114,117 (s) 8,208,796
---------- ---------- ---------- ---------- ---------- -----------
$2,473,429 $1,735,849 $2,752,130 $6,961,408 $ 7,162,802 $14,124,210
========== ========== ========== ========== ========== ===========

See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements

F-4
72

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS
(UNAUDITED)

AS OF
SEPTEMBER 30,
REFERENCE ADJUSTMENT 1996
--------- -------------------------------------------------- -------------

ASSETS
Cash and cash equivalents (a) Net proceeds from BWI initial public offering, net
of deferred offering costs (see Notes 1 and
2).............................................. $ 7,846,532
Payment of costs incurred in connection with the
consolidation of operations (see Note 1)........ (30,000)
Paydown of accounts payable from IPO proceeds (see
Note 2)......................................... (500,000)
Purchases of property and equipment from IPO
proceeds (see Note 3)........................... (250,000)
Paydown of St. Stan's note payable by BWISS (see
Note 4)......................................... (168,927)
Payment of loan costs associated with paydown of
St. Stan's note payable (See Note 4)............ (20,000)
Repayment of bridge note payable from IPO proceeds
(see Note 4).................................... (500,000)
Payment of St. Stan's notes payable to related
parties (see Note 5)............................ (459,120)
Paydown of OEBC notes payable to related parties,
plus accrued interest (see Note 5).............. (301,000)
Repayment of notes payable to related party from
IPO proceeds (see Note 5)....................... (175,000)
Payment of consulting fees (see Note 8)........... (10,000)
Payment of legal settlement (see Note 8).......... (400,000)
Repayment of additional bridge notes payable from
IPO proceeds (see Note 10)...................... (750,000)
Repayment of advances from related party from IPO
proceeds (see Note 10).......................... (150,000)
----------
4,132,485
----------
Prepaid expenses and (b) Write-off of deferred financing costs (see Note
other 2).............................................. (19,711)
----------
INCREASE IN CURRENT ASSETS............................................................... 4,112,774
----------
Property and equipment, (c) Adjustment to machinery and equipment to fair
net value in connection with the acquisition of OEBC
(see Note 2).................................... (291,362)
Purchases of property and equipment from IPO
proceeds (see Note 3)........................... 250,000
----------
(41,362)
----------

F-5
73

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUMMARY OF PRO FORMA ADJUSTMENTS -- (CONTINUED)
(UNAUDITED)

AS OF
SEPTEMBER 30,
REFERENCE ADJUSTMENT 1996
--------- -------------------------------------------------- -------------

Goodwill and other (d) Goodwill from acquisition of OEBC (See Notes 1 and
intangible assets 2).............................................. 3,408,410
Costs related to the acquisition of OEBC; costs
classified as OEBC Goodwill (see Notes 1 and
2).............................................. 42,023
Costs related to the formation of BWI-Prost
Partnership (see Note 2)........................ 11,265
Reclassification of investments in affiliates to
intangible assets; costs classified as OEBC
Goodwill (see Notes 1 and 2).................... 72,977
Reclassification of investments in affiliates to
intangible assets; BWI-Prost Partnership
Formation costs (see Note 2).................... 98,735
-------------
3,633,410
-------------
Investments in and (e) Reclassification of investments in affiliates to
advances to affiliates intangible assets (see Note 2).................. (72,977)
Reclassification of investments in affiliates to
intangible assets (see Note 2).................. (98,735)
Eliminate intercompany activity between OEBC and
BWI (see Note 9)................................ (90,274)
-------------
(261,986)
-------------
Deferred offering costs (f) Reclassification of deferred offering costs (see
Notes 1 and 2).................................. (300,034)
-------------
Other assets (g) Establish deferred loan costs (see Note 4)........ 20,000
-------------
INCREASE IN TOTAL ASSETS................................................................. $ 7,162,802
==========
LIABILITIES AND EQUITY
Accounts payable and (h) Paydown of accounts payable from IPO proceeds (see
accrued expenses Note 2)......................................... $ (500,000)
Repayment of OEBC accrued interest on notes
payable to related parties (see Note 5)......... (69,808)
Payment of legal settlement (see Note 8).......... (571,000)
Effect of renegotiation of capital lease due to
related party (see Note 8)...................... (61,950)
Eliminate intercompany activity between OEBC and
BWI (see Note 9)................................ (47,774)
-------------
(1,250,532)
-------------
Notes payable (i) Paydown of BWISS note (see Note 4)................ (7,777)
Repayment of bridge note payable from IPO proceeds
(see Note 4).................................... (500,000)
Establishment and repayment of additional bridge
notes payable (see Note 10)..................... --
-------------
(507,777)
-------------

F-6
74

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SUMMARY OF PRO FORMA ADJUSTMENTS -- (CONTINUED)

(UNAUDITED)

AS OF
SEPTEMBER 30,
REFERENCE ADJUSTMENT 1996
---------- -------------------------------------------------- -------------

Capital lease due to (j) Effect of renegotiation of capital leases due to
related party related party (see Note 8)...................... 76,587
----------
Notes payable to related (k) Repayment of OEBC notes payable to related parties
parties (see Note 5).................................... (574,192)
Repayment of St. Stan's note payable to related
party (see Note 5).............................. (459,120)
Repayment of BWI notes payable to related parties
(see Note 5).................................... (14,941)
Establishment and repayment of BWI related party
advances (see Note 5)........................... --
----------
(1,048,253)
----------
Due to affiliate (l) Eliminate intercompany activity between OEBC and
BWI (see Note 9)................................ (42,500)
----------
Deferred income taxes (m) Establish current portion of deferred tax
liability from tax-free acquisition of OEBC (see
Note 2)......................................... 124,682
----------
DECREASE IN TOTAL CURRENT LIABILITIES.................................................... (2,647,793)
----------
Notes payable, net of (n) Paydown of BWISS note payable (see Note 4)........ (161,150)
current portion
Debt assumed by related parties in connection with
OEBC debt exchange agreement (see Note 4)....... (220,941)
----------
(382,091)
----------
Capital lease due to (o) Effect of renegotiation of capital lease due to
related party, net of related party (see Note 8)...................... (514,637)
current portion ----------
Deferred income taxes, (p) Establish deferred tax liability, net of current
net of current portion portion, from tax-free acquisition of OEBC (see
Note 2)......................................... 1,122,137
----------
Distribution payable (q) Establish distribution payable to minority
interest partners (see Notes 6 and 7)........... 1,166,953
----------
Minority interest (r) Establish historical minority interest in
BWI-Prost Partners (see Note 7)................. 1,471,069
Establish distribution payable to minority
interest partners (see Notes 6 and 7)........... (1,166,953)
----------
304,116
----------
DECREASE IN TOTAL LIABILITIES............................................................ (951,315)
----------

F-7
75

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SUMMARY OF PRO FORMA ADJUSTMENTS -- (CONTINUED)

(UNAUDITED)

AS OF
SEPTEMBER 30,
REFERENCE ADJUSTMENT 1996
--------- -------------------------------------------------- -------------

Stockholders' equity (s) Net proceeds from BWI initial public offering, net
(capital deficiency) of deferred offering costs of $300,034 (See
Notes 1 and 2).................................. 7,546,498
Issuance of common stock in connection with OEBC
Exchange Agreement (see Note 1)................. 719,421
Reversal of historical OEBC capital deficiency
(see Note 1).................................... 1,150,808
Costs incurred in connection with the
consolidation of operations (see Note 1)........ (30,000)
Costs related to formation of BWI-Prost
Partnership (see Note 2)........................ 11,265
Costs related to the acquisition of OEBC (see Note
2).............................................. 42,023
Write-off of deferred financing costs (see Note
2).............................................. (19,711)
Issuance of common stock in connection with OEBC
debt exchange agreement (see Note 4)............ 140,850
Extraordinary gain in connection with the OEBC
debt exchange agreement (see Note 4)............ 80,091
Establish BWI notes payable to related parties
used for working capital purposes (see Note
5).............................................. (160,059)
Issuance of common stock in connection with
repayment of OEBC notes payable to related
parties (see Note 5)............................ 123,038
Extraordinary gain in connection with repayment of
OEBC notes payable to related parties (see Note
5).............................................. 219,962
Establish historical minority interest in
BWI-Prost Partners (see Note 7)................. (1,471,069)
Issuance of common stock in connection with
renegotiation of capital lease due related party
(Note 8)........................................ 255,000
Extraordinary gain in connection with the
renegotiation of capital lease due related party
(Note 8)........................................ 245,000
Consulting fees paid (see Note 8)................. (10,000)
Issuance of stock in connection with legal
settlement (see Note 8) 171,000
Establish BWI notes payable used for working
capital purposes (see Note 10).................. (750,000)
Establish unused portion BWI related party
advances used for working capital purposes (see
Note 10)........................................ (150,000)
----------
8,114,117
----------
INCREASE IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY).................................... $ 7,162,802
==========

See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements

F-8
76

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996

(UNAUDITED)

ST. STAN'S
BEVERAGE ORANGE BREWERY AND PRO FORMA
WORKS, EMPIRE BREW PUB PRO FORMA SEPTEMBER 30,
INC. BREWING CO. OPERATIONS SUBTOTAL ADJUSTMENTS REF 1996
----------- ----------- ----------- ----------- ----------- --- -------------

Net sales (Note 2 and 9)............ $ 195,552 $ 2,372,629 $ 1,401,453 $ 3,969,634 $ (66,550) (a) $ 3,903,084
Cost of sales (Notes 2, 3 and 9).... 421,158 1,667,326 1,022,349 3,110,833 (46,931) (b) 3,063,902
----------- ---------- ---------- ----------- --------- -----------
Gross profit...................... (225,606) 705,303 379,104 858,801 (19,619) 839,182
Selling, general and administrative
expenses (Notes 2, 8 and 9)....... 1,443,607 1,099,063 418,706 2,961,376 820,537 (c) 3,781,913
Provision for settlements........... 571,000 166,000 -- 737,000 -- 737,000
----------- ---------- ---------- ----------- --------- -----------
Operating loss...................... (2,240,213) (559,760) (39,602) (2,839,575) (840,156) (3,679,731)
Interest and other expenses, net
(Notes 2, 4, 5, 6, 8 and 10)...... 76,960 226,334 82,597 385,891 22,248 (d) 408,139
Minority interest in loss of
partnership (Note 7).............. -- -- -- -- (116,942) (e) (116,942)
----------- ---------- ---------- ----------- --------- -----------
Loss before income tax benefit...... (2,317,173) (786,094) (122,199) (3,225,466) (745,462) (3,970,928)
Income tax (expense) benefit (Notes
1 and 2).......................... 43,519 (1,200) -- 42,319 93,511 (f) 135,830
----------- ---------- ---------- ----------- --------- -----------
Net loss............................ $(2,273,654) $ (787,294) $ (122,199) $(3,183,147) $(651,951) $ (3,835,098)
=========== ========== ========== =========== ========= ===========
Net loss per share.................. $ (1.13)
===========
Common shares and equivalents
outstanding (Note 2).............. 3,384,390
===========

See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements

F-9
77

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

ST. STAN'S
BEVERAGE ORANGE BREWERY AND PRO FORMA
WORKS, EMPIRE BREW PUB PRO FORMA DECEMBER 31,
INC. BREWING CO. OPERATIONS SUBTOTAL ADJUSTMENTS REF 1995
--------- ----------- ----------- ----------- ----------- --- ------------

Net sales (Note 2 and 9)............ $ 44,810 $ 2,553,977 $ 2,029,424 $ 4,628,211 $ 347,751 (a) $ 4,975,962
Cost of sales (Notes 2, 3 and 9).... 81,627 1,824,065 1,396,217 3,301,909 512,570 (b) 3,814,479
--------- ---------- ---------- ---------- --------- ----------
Gross profit...................... (36,817) 729,912 633,207 1,326,302 (164,819) 1,161,483
Selling, general and administrative
expenses (Notes 2, 8 and 9)....... 491,330 990,701 583,568 2,065,599 1,477,837 (c) 3,543,436
--------- ---------- ---------- ---------- --------- ----------
Operating profit (loss)............. (528,147) (260,789) 49,639 (739,297) (1,642,656) (2,381,953)
Interest and other expenses (Notes
2, 4, 5, 6, 8 and 10)............. 28,320 163,169 98,398 289,887 112,774 (d) 402,661
Minority interest in loss of
partnership (Note 7).............. -- -- -- -- (104,552) (e) (104,552)
--------- ---------- ---------- ---------- --------- ----------
Loss before income tax benefit...... (556,467) (423,958) (48,759) (1,029,184) (1,650,878) (2,680,062)
Income tax (expense) benefit
(Notes 1 and 2)................... 7,706 (1,600) -- 6,106 177,639 (f) 183,745
--------- ---------- ---------- ---------- --------- ----------
Net loss............................ $(548,761) $ (425,558) $ (48,759) $(1,023,078) $(1,473,239) $ (2,496,317)
========= ========== ========== ========== ========= ==========
Net loss per share.................. $ (0.82)
==========
Common shares and equivalents
outstanding (Note 2).............. 3,059,837
==========

See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements

F-10
78

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

SUMMARY OF PRO FORMA ADJUSTMENTS
(UNAUDITED)

NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
REFERENCE ADJUSTMENT 1996 1995
--------- -------------------------------------------------- ------------- ------------

Net sales (a) Revenues of Heritage prior to November 8, 1995
(date of acquisition) (see Note 2).............. $ -- $ 347,751
Eliminate intercompany activity (see Note 9)...... (66,550) --
--------- -----------
(66,550) 347,751
--------- -----------
Cost of sales (b) Cost of sales of Heritage prior to November 8,
1995 (date of acquisition) (see Note 2)......... -- 448,379
Reduction to depreciation for adjustment to fair
value of OEBC property and equipment, net (see
Note 2)......................................... (31,217) (41,623)
Additional depreciation related to assets under
capital lease (see Note 2)...................... -- 70,100
Additional depreciation related to capital
expenditures from IPO proceeds (see Note 3)..... 26,786 35,714
Eliminate intercompany activity (see Note 9)...... (42,500) --
--------- -----------
(46,931) 512,570
--------- -----------
DECREASE IN GROSS PROFIT................................................................. (19,619) (164,819)
--------- -----------
Selling, general and (c) Estimated incremental BWI selling, general and
administrative expenses administrative expenses and actual Heritage
selling, general and administrative expenses
(see Note 2).................................... 261,581 700,496
Amortization of OEBC goodwill (see Note 2)........ 264,256 352,341
Amortization of St. Stan's formation costs (see
Note 2)......................................... 16,500 22,000
Shares and warrants issued for consulting services
(see Note 8).................................... 283,125 377,500
Issuance of stock for brewpub management services
(see Note 8).................................... 19,125 25,500
Eliminate intercompany activity (see Note 9)...... (24,050) --
--------- -----------
820,537 1,477,837
--------- -----------
INCREASE TO OPERATING LOSS............................................................... (840,154) (1,642,655)
--------- -----------
Interest and other (d) Write-off of deferred financing costs (see Note
expenses 2).............................................. 19,711 --
(income), net Reduction of historical interest expense due to
OEBC debt exchange agreement (see Note 4)....... (16,571) (22,094)
Reduction of historical interest due to paydown of
St. Stan's notes payable (see Note 4)........... (15,265) (17,426)
Amortization of St. Stan's deferred loan costs
(see Note 4).................................... 3,000 4,000
Reduction of historical interest expense due to
repayment of OEBC notes payable to related
parties (see
Note 5)......................................... (54,790) (59,786)
Reduction of historical interest expense due to
repayment of St. Stan's notes payable to related
party (see Note 5).............................. (24,800) (26,658)
Interest expense related to warrants issued in
connection with the extension of the April 1996
Bridge Note (see Notes 4 and 10)................ 24,938 33,250

F-11
79

BEVERAGE WORKS, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

SUMMARY OF PRO FORMA ADJUSTMENTS -- (CONTINUED)

(UNAUDITED)

NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
REFERENCE ADJUSTMENT 1996 1995
--------- -------------------------------------------------- ------------- ------------

Interest expense related to common stock issued in
connection with the extension of the April 1996
Bridge Note (see Notes 4 and 10)................ 85,500 114,000
Interest expense related to OEBC debt exchange
warrants (see Note 5)........................... 3,750 5,000
Interest expense on Distribution Payable (Note
6).............................................. 87,521 116,695
Reduction to interest expense due to OEBC related
party lease amendment (see Note 8).............. (90,746) (34,207)
--------- -----------
22,248 112,774
--------- -----------
Minority interest in loss (e) Reflect minority interest in net loss of St.
of partnership Stan's (see Note 7)............................. (59,878) (23,892)
Reflect minority interest in pro forma adjustments
related to St. Stan's (see Note 7).............. (57,064) (80,660)
--------- -----------
(116,942) (104,552)
--------- -----------
INCREASE TO NET LOSS BEFORE INCOME TAX BENEFIT........................................... (745,462) (1,650,877)
Income tax benefit (f) Income tax benefit attributable to nondeductible
amortization of OEBC goodwill (see Note 2)...... 93,511 124,682
Income tax benefit attributable to nondeductible
depreciation of the fixed asset step-up and
nondeductible goodwill recorded in connection
with the Heritage acquisition (see Note 2)...... -- 52,957
--------- -----------
93,511 177,639
--------- -----------
INCREASE TO NET LOSS..................................................................... $(651,950) $ (1,473,239)
========= ===========

See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements

F-12
80

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 -- PROPOSED INITIAL PUBLIC OFFERING, ACQUISITION AND JOINT VENTURE

Proposed Initial Public Offering

Beverage Works, Inc. ("BWI" or the "Company") intends to file a
registration statement on Form SB-2 with the Securities and Exchange Commission
(the "Commission") of 1,500,000 shares of common stock at an estimated offering
price of $6.00 per share, and warrants to purchase 1,500,000 shares of common
stock exercisable at $6.00 per share at an estimated offering price of $0.15 per
warrant. The letter of intent (see below) provides for an overallotment of units
to be offered not to exceed 15% of the proposed offering. Total estimated gross
proceeds from the proposed offering, excluding the underwriter's overallotment,
is $9,225,000.

In connection with the proposed initial public offering (the "IPO"), the
Company received a letter of intent on a proposed "firm commitment" basis with
an underwriter, whereby for services rendered in connection with the proposed
IPO, the underwriter will receive a commission of 10% of the gross proceeds, and
assuming the underwriter does not exercise its overallotment option, such fees
and costs will be $922,500, plus an additional 3% for nonaccountable expenses,
amounting to $276,750. As of September 30, 1996, BWI had incurred $300,034 of
costs related to the proposed IPO. Such costs are reflected as deferred offering
costs on the historical BWI condensed consolidated balance sheet (see Note 2).
BWI estimates that it will incur an additional $179,218 of costs related to this
proposed offering, excluding the underwriters fees and expenses.

Assumed net cash proceeds, excluding the underwriters overallotment
provision, included in the accompanying unaudited pro forma condensed
consolidated balance sheet related to the proposed IPO totals $7,846,532 and
$7,546,498 (after giving effect to the $300,034 of deferred offering costs at
September 30, 1996).

Orange Empire Brewing Company Exchange Agreement

On September 11, 1996, the Company entered into a proposed stock-for-stock
exchange (the "Exchange Agreement") with Orange Empire Brewing Company ("OEBC")
contingent upon the successful consummation of the proposed IPO (see below).
Pursuant to the Exchange Agreement, BWI is to issue 141,063 shares of its common
stock in exchange for all of the outstanding shares of OEBC. Such shares have
been valued at $719,421, or $5.10 per share, based on the estimated IPO price
per share of $6.00 (see Note 2). Due to certain transferability restrictions
under Rule 144 of the Securities Act of 1933, the valuation of the common stock
of BWI to be issued reflects a discount of 15%. The common stock of BWI to be
issued in the exchange is subject to adjustment (based on the change in net
assets of OEBC, as defined). Management has estimated direct acquisition costs
to be $115,000. Assuming the Exchange Agreement was consummated on September 30,
1996, the purchase price, plus the net liabilities assumed over the fair value
of the assets acquired, is estimated at $3,523,410 as follows:

Purchase price........................................ $ 834,421
----------
Fair value of assets to be acquired (see Note 2)...... 1,444,487
Less -- Liabilities assumed, including deferred tax
liability of $1,246,819............................. (4,133,476)
----------
Excess liabilities assumed............................ (2,688,989)
----------
Goodwill.............................................. $ 3,523,410
==========

Management of BWI and OEBC intend for the Exchange Agreement to be a
statutory tax-free exchange under the Internal Revenue Code. Accordingly, in
accordance with Statement of Financial Accounting Standards No. 109, a deferred
tax liability has been reflected in the accompanying unaudited pro forma

F-13
81

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 1 -- PROPOSED INITIAL PUBLIC OFFERING, ACQUISITION AND JOINT VENTURE --
(CONTINUED)

condensed consolidated balance sheet as of September 30, 1996 for goodwill which
is not expected to be deductible for Federal and state tax reporting purposes.

In addition, up to 155,000 additional shares of the Company's common stock
may be issued if OEBC reaches certain production levels, as defined. Pursuant to
the Exchange Agreement, the exchange is to occur concurrently with the
consummation (the "Closing Date") of the Company's proposed IPO. If for any
reason the proposed IPO does not occur on or before March 31, 1997, or the
proposed IPO does not raise aggregate proceeds of $6,000,000, either party may
unilaterally terminate the Exchange Agreement. Should such additional shares of
the Company's common stock be issued, the value of such shares will be deemed
additional purchase consideration. Accordingly, such will be deemed additional
goodwill at the time the contingency is achieved. The effects of this contingent
consideration are not reflected in the accompanying unaudited pro forma
condensed consolidated financial statements.

BWI -- Prost Partner's Agreement

On December 17, 1996, the Company's wholly-owned subsidiary, BWI -St.
Stan's Inc. ("BWISS") entered into a partnership agreement with Prost Partners
Limited Partnership (dba St. Stan's Brewing Company -- "St. Stan's"), named
BWI-Prost Partners (the "Partnership"). Pursuant to the terms of the BWI-Prost
Partners partnership agreement (the "Partnership Agreement"), St. Stan's has
agreed to contribute substantially all of its assets, net of certain
liabilities, to the Partnership for a 49% minority interest in the Partnership.
BWISS has agreed to contribute $2,295,000 to the Partnership for a 51%
controlling interest in the Partnership. The BWISS consideration is to be
tendered in cash commencing 18 months from the consummation of the proposed IPO
and the assumption and partial repayment of certain debt (see Notes 4, 5 and 6)
at the date of contribution, the "Contribution Date", the date of the successful
consummation of the proposed IPO of BWI's common stock, occurring on or before
March 31, 1997, realizing minimum gross proceeds of at least $8,000,000. Also
see Note 9 in the Notes to the St. Stan's Brewery and Brewpub Operations
Financial Statements which represent the Historical Financial Statements of
Assets and Liabilities to be Contributed to BWI -- Prost Partners General
Partnership, included elsewhere in this registration statement, for discussion
regarding the timing and nature of contributions.

Heritage Brewing Company

During 1997, BWI intends to combine the operations of Heritage Brewing
Company with the operations of Riverside Brewing Company. The combined
operations are to be located at Riverside Brewing Company. The Heritage Brewing
Company facility lease expires in April 1997, and the storage lease is on a
month-to-month basis. In connection with the combining of operations, BWI
anticipates it will incur certain costs for the removal, transportation and
installation of equipment estimated at $30,000.

Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is an adjustment to reflect the payment of such costs (shown as a
reduction to equity). No adjustment has been made to the unaudited pro forma
condensed consolidated statements of operations as such costs are non recurring
in nature.

NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS

Basis of Presentation

The accompanying unaudited pro forma condensed consolidated financial
statements include the effects of the proposed IPO, and the accounts of the
Company and the accounts of the entities which, in management's opinion, are
probable of being acquired by or joint ventured with the Company (see Note 1).

F-14
82

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)

The accompanying unaudited pro forma condensed consolidated balance sheet is
presented as if the transactions had been effected as of September 30, 1996, and
the accompanying unaudited pro forma condensed consolidated statements of
operations are presented as if the transactions had been effected at the
beginning of each period presented. The unaudited pro forma condensed
consolidated financial statements have been prepared for analysis purposes only,
and do not purport to be indicative of what the actual consolidated financial
condition of the Company would have been at September 30, 1996, and the actual
results of operations of the Company would have been for the nine months ended
September 30, 1996 and the year ended December 31, 1995, nor does it purport to
represent the future consolidated financial position or results of operations of
the Company.

Principles of Consolidation

The historical consolidated financial statements include the accounts of
BWI and its substantially-owned subsidiary, Heritage Brewing Company
("Heritage"). The accounts of BWI have been included in the historical
consolidated financial statements beginning August 2, 1995 (date of
incorporation). The accounts of Heritage have been included in the historical
consolidated financial statements beginning November 8, 1995 (date of
acquisition). The historical consolidated operations of BWI and of Heritage do
not include a full year of activity for 1995. Accordingly, management estimated
certain expenses for BWI on an ongoing basis, and adjusted the historical
accounts for Heritage based on the actual results of operations of Heritage for
the period January 1, 1995 to November 8, 1995.

For the nine months ended September 30, 1996, an increase totaling $261,581
was made to selling, general and administrative expense in the accompanying
unaudited pro forma condensed consolidated statement of operations to effect
expected incremental salaries of BWI estimated at $186,581 and certain expected
ongoing expenses of BWI associated with conducting business as a public entity
estimated at $75,000 (insurance, public relations, etc.).

For the year ended December 31, 1995, the accompanying unaudited pro forma
condensed consolidated statements of operations have been adjusted to reflect
management's estimates of certain ongoing general and administrative expenses
for BWI and the actual results of operations for Heritage as follows:

BWI HERITAGE COMBINED
-------- --------- ---------

Net sales.................................................. $ -- $(347,751) $(347,751)
Cost of sales.............................................. -- 448,379 448,379
Selling, general and administrative expenses............... 577,820 122,676 700,496
Interest................................................... -- -- --
Income tax benefit......................................... -- (52,957) (52,957)
-------- --------- ---------
Increase to net loss....................................... $577,820 $ 170,347 $ 748,167
======== ========= =========

The net adjustment to BWI for the year ended December 31, 1995, represents
the effect of the expected incremental salaries and operating expenses of
$477,820 and other incremental operating expenses aggregating approximately
$100,000 (for insurance, public relations, etc.). The adjustments to Heritage
for the year ended December 31, 1995, represent the actual sales, cost of sales
and selling, general and administrative expenses for Heritage for the period
January 1, 1995 to November 8, 1995, adjusted for depreciation of assets
adjusted to fair value, and the related tax effects, recorded in connection with
the stock-for-stock exchange as discussed

F-15
83

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)

above and in Note 1 to the Consolidated Financial Statements of Beverage Works,
Inc. and Subsidiary included elsewhere in this registration statement.

The historical consolidated financial statements also include the accounts
of OEBC and its wholly-owned subsidiary, Riverside Brewing Company, and the
assets and liabilities expected to be contributed to the Partnership by St.
Stan's, and the operations related thereto. All significant intercompany
accounts have been eliminated in the pro forma consolidation.

Cash and Cash Equivalents

Management intends to invest the proceeds from the IPO in highly liquid
instruments with maturities of 90 days or less. The estimated increase to cash
balances which are expected to arise from the IPO (see Note 1) is estimated at
$4,132,485. Management expects that such unused cash balances will be invested
in interest bearing accounts. The accompanying unaudited pro forma condensed
consolidated statements of operations do not include adjustments for any
interest that would be earned.

Property and Equipment

In connection with the OEBC Exchange Agreement (see Note 1), certain
machinery and equipment (see Note 3) was reduced by $291,362 to reflect its fair
market value. In connection with this property adjustment, depreciation and
amortization expense was reduced $31,217 and $41,623 for the nine months ended
September 30, 1996 and the year ended December 31, 1995, respectively. Such
reduction is reflected in cost of sales in the accompanying unaudited pro forma
condensed consolidated statements of operations.

A substantial portion of the assets of OEBC under capital leases (see Note
3) were placed into service in late 1995. As a result, cost of sales in the
accompanying unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1995 has been increased by $70,100 to reflect
depreciation of such assets for a full twelve-month period.

Goodwill and Other Intangible Assets

Goodwill

Goodwill of $3,523,410 (including $115,000 of estimated OEBC acquisition
costs discussed below) has been estimated in connection with the OEBC Exchange
Agreement (see Notes 1 and 2), assuming the exchange was consummated on
September 30, 1996, and is expected to be amortized on a straight-line basis
over a period of 10 years. Amortization of OEBC goodwill has been included in
the accompanying unaudited pro forma condensed consolidated statements of
operations amounting to $264,255 and $352,341 for the nine months ended
September 30, 1996 and the year ended December 31, 1995, respectively. Such
amortization is reflected as an increase to selling, general and administrative
expenses.

The Company will assess the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through projected undiscounted cash flows. The amount of
goodwill impairment, if any, will be measured based on projected undiscounted
cash flows and will be charged to operations in the period in which goodwill
impairment is determined by management. The methodology that management is
expected to use to project results of operations will be based on a five-year
trend line of expected cash flows.

F-16
84

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)

OEBC Acquisition Costs

The Company has incurred $72,977 through September 30, 1996 of costs
consisting primarily of legal and accounting fees, which are directly related to
the Exchange Agreement. Such costs have been reflected as investments in and
advances to affiliates in the accompanying unaudited pro forma condensed
consolidated balance sheet at September 30, 1996. The Company anticipates to
incur additional acquisition costs of $42,023, totaling $115,000, which is
considered additional consideration towards the purchase price of OEBC. Such
amounts have been considered in goodwill as discussed above.

Partnership Formation Costs

The Company has incurred $98,735 through September 30, 1996 of costs
consisting primarily of legal and accounting fees, which are directly related to
the formation of the Partnership. Such costs have been reflected as investments
in and advances to affiliates on the accompanying unaudited pro forma condensed
consolidated balance sheet at September 30, 1996. Management expects to incur
additional formation costs of $11,265. Partnership formation costs will be
amortized over a period of five (5) years. Accordingly, selling, general and
administrative expenses have been increased by $16,500 and $22,000 in the
unaudited pro forma condensed consolidated statements of operations for the nine
months ended September 30, 1996 and the year ended December 31, 1995,
respectively.

Deferred Financing Costs

Deferred financing costs, included in prepaid and other current assets,
arose from the issuance of BWI warrants to purchase common stock, as well as
cash paid for loan fees, which represent interest costs associated with a bridge
financing which was funded in May 1996. The remaining unamortized balance of
such costs, totaling $19,711 at September 30, 1996, have been written off and
reflected as a reduction to prepaid and other current assets and stockholders'
equity in the accompanying unaudited pro forma condensed consolidated balance
sheet.

An increase to interest expense has been made in the accompanying unaudited
pro forma condensed consolidated statements of operations for the nine months
ended September 30, 1996 to reflect such write-off. Also see Note 10 for
additional warrants and common stock issued in connection with such bridge
financing.

Deferred Offering Costs

Deferred offering costs represent costs associated with BWI's proposed IPO
(see Note 1). Such costs, totaling $300,034 at September 30, 1996, have been
netted against the assumed IPO proceeds and reflected as a reduction to equity
on the accompanying unaudited pro forma condensed consolidated balance sheet.

Accounts Payable

Accounts payable generally represent amounts due vendors in the normal
course of business. Management is expected to use $500,000 from proceeds of the
proposed IPO (see Note 1) to reduce past due accounts and contractual
commitments. Accordingly, accounts payable and cash have been reduced in the
accompanying unaudited pro forma condensed consolidated balance sheet.

F-17
85

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 2 -- PRINCIPLES OF ACCOUNTING FOR CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS -- (CONTINUED)

Per Share Information

Pro forma net loss per share is computed by dividing the pro forma net loss
by the sum of the historical number of shares of common stock and common stock
equivalents outstanding during the respective periods, common stock expected to
be issued in the proposed IPO (excluding the underwriters' overallotment) and
common stock expected to be issued in connection with the proposed OEBC
acquisition and BWI-Prost Partners joint venture (see Note 1). Common stock
equivalents include common shares issuable upon the exercise of the Company's
stock options and warrants. Pursuant to the Securities and Exchange Commission
(the "Commission"), Staff Accounting Bulletin No. 83, common shares issued for
consideration below an assumed IPO price (estimated at $6.00 per share as
discussed in Note 1) have been considered outstanding for all periods presented,
and common stock purchase options and warrants granted with exercise prices
below the IPO price during the twelve-month period preceding the date of the
initial filing of the registration statement have been included in the
calculation of the common shares outstanding, using the treasury stock method,
as if they were outstanding for all periods presented, including loss years
where the impact is anti-dilutive. Such calculation had been adjusted for the
effect of the shares and warrants which have been retired subsequent to
September 30, 1996. See discussion in the notes to the Historical Financial
Statements of the Company included elsewhere in the Registration Statement.

Income Taxes

In connection with the OEBC Exchange Agreement (see Note 1), management
established a deferred income tax liability totaling $1,246,819, of which
$124,682 is classified as a current liability in the accompanying unaudited pro
forma condensed consolidated balance sheet, which is attributable to goodwill
which is not expected to be deductible for Federal and state income tax
reporting. Management believes the acquisition of OEBC will qualify as a
statutory tax-free exchange under the Internal Revenue Code.

In connection with the nondeductible amortization of goodwill relating to
the acquisition of Heritage and OEBC, as discussed in Notes 1 and 2, and the
depreciation related to the acquisition of Heritage (please refer to the
historical financial statements of BWI), an adjustment to record the related
deferred tax benefit amounting to $93,511 and $124,682 for the nine months ended
September 30, 1996 and the year ended December 31, 1995, respectively, has been
reflected in the accompanying unaudited pro forma condensed consolidated
statements of operations.

NOTE 3 -- PROPERTY AND EQUIPMENT, NET

Property and equipment, as adjusted, in the accompanying unaudited pro
forma condensed consolidated balance sheet consists of the following as of
September 30, 1996:

Machinery and equipment................................................. $ 2,930,791
Building and leasehold improvements..................................... 2,280,920
Equipment under capital lease........................................... 915,254
Furniture and equipment................................................. 13,859
----------
6,140,824
Less accumulated depreciation and amortization.......................... (1,144,542)
----------
$ 4,996,282
==========

F-18
86

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 3 -- PROPERTY AND EQUIPMENT, NET -- (CONTINUED)

Management expects to expand its brewing capacity in excess of current
capacity and that of its proposed acquisition and joint venture. Accordingly,
management expects to use approximately $250,000 of its IPO proceeds for
purchases of equipment. The Company reflected a reduction to cash and a
corresponding increase to property and equipment in the accompanying unaudited
pro forma condensed consolidated balance sheet.

In connection therewith, depreciation expense in the accompanying unaudited
pro forma condensed statements of operations was increased by $26,786 and
$35,714 for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.

NOTE 4 -- NOTES PAYABLE

OEBC Note Payable to Bank

In connection with the OEBC Exchange Agreement and concurrent with the
Closing Date, a note payable, which aggregated approximately $533,493 at
September 30, 1996, will be divided into two notes. The predecessor stockholders
will assume a note totaling $220,941 without further obligation to OEBC, and the
remaining principal balance of the note totaling $312,552 will be paid to the
bank by OEBC. In consideration for assuming a portion of the OEBC's debt
obligations, the stockholders will be issued 27,618 shares of BWI common stock
valued at $140,850 using 85% of the estimated IPO price per share of $6.00 (see
Note 2). Due to transferability restrictions under Commission Rule 144 of the
1933 Act, the valuation reflects a discount of 15%. If on January 1, 1999, the
per share market value of BWI common stock is less than $6.00, the Company will
issue to such stockholders an additional 9,227 shares of its common stock.

Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is a reduction to notes payable of $220,941, and an increase in
stockholders' equity of $140,850. The difference of $80,091, deemed to be an
extraordinary gain, has also been reflected as a reduction to equity (see Notes
1 and 2). No adjustment has been reflected in the accompanying unaudited pro
forma condensed consolidated statement of operations for the nine months ended
September 30, 1996, as such gain is non-recurring in nature.

In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations was reduced by $16,571 and
$22,094 for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.

BWISS New Note Payable

BWISS has obtained a commitment letter from a lender to refinance a note
with a balance of $668,927 at September 30, 1996 that BWISS is to assume from
the Partnership on the Contribution Date. The lender requires a principal
reduction payment be made such that the outstanding balance of the note will be
$500,000. Accordingly, the accompanying unaudited pro forma condensed
consolidated balance sheet reflects a reduction of $168,927 to cash and a
corresponding reduction to notes payable.

In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations was reduced by $15,265 and
$17,426 for the nine months ended September 30, 1996 and the year ended December
31, 1995, respectively.

BWISS will be charged $20,000 for loan fees by the lender upon the
assumption. Accordingly, the accompanying unaudited pro forma condensed
consolidated balance sheet reflects the payment of such costs as a reduction to
cash and an increase to other assets. The accompanying unaudited pro forma
condensed consolidated statements of operations have been adjusted to reflect
the amortization of such costs totaling $3,000 and $4,000 for the nine months
ended September 30, 1996 and the year ended December 31, 1996, respectively.

F-19
87

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 4 -- NOTES PAYABLE -- (CONTINUED)

Bridge Note

In April 1996, the Company entered into an agreement whereby the Company
issued a $500,000 promissory note (the "Bridge Note"), bearing interest at 18%
per annum (such note was funded in May 1996). Interest is payable monthly. On
December 19, 1996, such Bridge Note was extended to mature the earlier of the
closing of the proposed IPO (see discussion below) or April 15, 1997 (see Note
10). The Bridge Note is secured by the assets of BWI. As of September 30, 1996,
$500,000 was outstanding under the terms of this financing.

The accompanying unaudited pro forma condensed consolidated balance sheet
as of September 30, 1996 reflects the repayment of the Bridge Note from the
proceeds of the IPO.

Notes payable, as adjusted, in the accompanying unaudited pro forma
condensed consolidated balance sheet consist of the following as of September
30, 1996:

BWI note payable to bank, bearing interest at prime, plus 2.75% per annum
(11.50% at September 30, 1996), payable in monthly principal and
interest installments of $6,286, due May 4, 2004, secured by
substantially all assets of Heritage and personal guarantees of certain
officers and former stockholders of Heritage. ......................... $ 385,800
BWI note payable to bank, bearing interest at prime, plus 2.529% per
annum (11.279% at September 30, 1996), payable in monthly principal and
interest installments of $1,148, due August 1, 1998, secured by
substantially all assets of Heritage, and personal guarantees of
certain officers and former stockholders of Heritage. ................. 23,526
OEBC note payable to bank, expected to bear interest at prime plus 1.75%
per annum (10.50% at September 30, 1996), expected to be payable in
monthly installments of principal and interest of approximately
$14,311, expected to be due December 1, 1998, secured by substantially
all of the assets of OEBC. ............................................ 312,552
BWISS note payable to a lending institution, expected to bear interest at
11% per annum, expected to be payable in monthly installments of
principal and interest of $5,683, expected to be due December 31, 2001
(assuming a closing date of the IPO of December 31, 1996), secured by
substantially all of the assets of the Partnership. ................... 500,000
Unsecured demand notes with vendors, generally bearing interest at 11%
per annum, payable in monthly payments of principal and interest
through May 1997. ..................................................... 32,786
----------
1,254,664
Less current portion..................................................... (235,692)
----------
$1,018,972
==========

F-20
88

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 4 -- NOTES PAYABLE -- (CONTINUED)

Future annual principal installments of notes payable, as adjusted, as of
September 30, 1996 are expected to be as follows:

YEARS ENDING
SEPTEMBER 30,
-----------------------------------------------------------------

1997........................................................ $ 235,692
1998........................................................ 201,552
1999........................................................ 199,235
2000........................................................ 184,298
2001........................................................ 25,202
Thereafter.................................................. 408,685
----------
$1,254,664
==========

See Note 10 for discussion related to additional financings.

NOTE 5 -- NOTES PAYABLE TO RELATED PARTIES

OEBC Note Payable to Stockholder

In connection with the OEBC Exchange Agreement, BWI entered into an
agreement whereby BWI is obligated to repay $644,000 of indebtedness due to
certain related parties, consisting of $574,192 of principal and $69,808 of
accrued interest as of September 30, 1996. Upon the consummation of the proposed
IPO (see Note 1), such indebtedness is to be satisfied as follows: (1) $301,000
is to be paid in cash, and (2) $343,000 is to be refinanced with a new
non-interest bearing promissory note which matures in 90 days, payable in 24,125
shares of the Company's common stock and 50,000 warrants to purchase shares of
the Company's common stock at an exercise price of $5.00 per share, subject to
adjustment, as defined.

Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is a decrease of $301,000 to cash, a decrease of $231,192 to notes
payable to related parties and a decrease of $69,808 to accounts payable and
accrued expenses, which have been made to reflect the cash paydown of the notes
payable to the OEBC stockholders. Also included in the accompanying unaudited
pro forma condensed consolidated balance sheet is a decrease of $343,000 to
notes payable to related parties and a corresponding increase in stockholders'
equity, (of which $219,962 is reflected as an extraordinary gain) which have
been made to reflect the repayment of the remainder of the notes payable to the
OEBC stockholders. Although such repayment is scheduled to occur 90 days after
the close of the proposed IPO, it has been reflected herein as it is
management's intent to promptly effect such repayment. No adjustment has been
made to the accompanying unaudited pro forma condensed consolidated statements
of operations as such extraordinary gain is deemed nonrecurring in nature.

In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations has been reduced by
$54,790 and $59,786 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, to reflect the principal reductions
described above. In addition, interest expense in the accompanying unaudited pro
forma condensed consolidated statement of operations has been increased $3,750
and $5,000 for the nine months ended September 30, 1996 and for the year ended
December 31, 1995, respectively, to reflect the difference between the exercise
price of the warrants at $5.00 and the value of the underlying common stock of
$5.10 which represents the estimated proposed IPO price per share of $6.00, less
a 15% discount due to certain transferability restrictions under Rule 144 of the
Securities Act of 1933.

F-21
89

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 5 -- NOTES PAYABLE TO RELATED PARTIES -- (CONTINUED)

BWISS Notes Payable to Related Party

As part of BWISS's capital contribution, as more thoroughly discussed at
Note 1, BWISS is obligated to assume and repay notes payable to a related party.
The balances of such notes payable total $459,120 as of September 30, 1996.
Accordingly, the unaudited pro forma condensed consolidated balance sheet
reflects a reduction to cash and a corresponding reduction to notes payable to
related party.

In connection therewith, interest expense on the accompanying pro forma
condensed consolidated statements of operations was reduced $24,800 and $26,658
for the nine months ended September 30, 1996 and the year ended December 31,
1995, respectively.

Related Party Financing

On June 24, 1996, the Company entered into an agreement with a significant
stockholder of OEBC, whereby the Company can borrow up to $175,000. Borrowings
bear interest at a maximum rate of 11%, as defined, payable monthly. The
principal balance, together with any unpaid interest, is due the earlier of the
closing of an IPO with aggregate proceeds of no less than $10,000,000 or June
30, 1997. At September 30, 1996, BWI had $14,941 of borrowings outstanding under
this agreement.

The accompanying unaudited pro forma condensed consolidated balance sheet
reflects the establishment of the unused portion of the credit facility totaling
$160,059 and the related use of such funds for working capital purposes (a
reduction to stockholders' equity), and the repayment of such amount from the
proceeds of the IPO.

Notes payable to related parties, as adjusted, in the accompanying
unaudited pro forma condensed consolidated balance sheet consist of the
following as of September 30, 1996:

OEBC unsecured demand notes payable to certain officers and stockholders,
interest at 7.75% per annum............................................. $ 45,981
BWI unsecured note payable to an officer, noninterest bearing, payable
monthly at 3% of monthly sales, as defined.............................. 78,955
Other..................................................................... 48,124
--------
$173,060
========

NOTE 6 -- DISTRIBUTION PAYABLE

Pursuant to the BWI-Prost Partners Partnership Agreement, the Partnership
is required to record a distribution payable to Prost Partners limited
Partnership in an amount equal to the remaining amount of the BWISS capital
contribution due the Partnership. It is estimated that $1,128,047 of the
$2,295,000 capital contribution (see note 1) will be satisfied through BWISS's
assumption and repayment of $459,120 of notes payable to related parties (see
Note 5) and full assumption and partial repayment of $668,927 of a note payable
to lender (see Note 4). Accordingly, the remaining required capital contribution
of BWISS, which is estimated to be $1,166,953 at September 30, 1996, has been
reflected as a decrease to minority interest and a corresponding increase to
distribution payable. Please refer to the notes to the financial statements of
the St. Stan's Brewery and Brewpub Operations included elsewhere in this
registration statement for the payment terms related thereto.

BWISS is required to pay interest to the Partnership on its unpaid capital
contribution at a rate of 10% per annum, and the Partnership is required to pay
Prost Partners Limited Partnership interest on the distribution payable under
similar terms. In connection therewith, interest expense in the accompanying

F-22
90

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 6 -- DISTRIBUTION PAYABLE -- (CONTINUED)

unaudited pro forma condensed consolidated statements of operations has been
increased by $87,521 and $116,695 for the nine months ended September 30, 1996
and the year ended December 31, 1995, respectively.

NOTE 7 -- MINORITY INTEREST

The accompanying unaudited pro forma condensed consolidated balance sheet
has been adjusted to reflect the establishment of the minority interest
liability totaling $1,471,069 which corresponds with the historical book value
of the net assets of the St. Stan's Brewery and Brewpub Operations, and the
recordation of the $1,166,953 distribution payable (see Note 6 above).

The accompanying unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 30, 1996 and the year ended
December 31, 1995 have been adjusted to reflect the minority interest's 49%
share of the historical net loss of the St. Stan's Brewery and Brewpub
Operations and the pro forma adjustments related thereto.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

Capital Lease Agreement Amendment

In connection with the OEBC Exchange Agreement (see Note 1) and concurrent
with the Closing Date, a capital lease with a related party of OEBC is required
to be modified for the benefit of the Company. The modifications to the capital
lease obligation include a reduction in the effective interest rate to 10%, a
provision that all such leased equipment may be purchased by the Company for $1
upon expiration of the lease, the inclusion in the lease obligation of all
delinquent lease payments due through December 31, 1995, and a reduction of the
lease obligation in the amount of $500,000 in exchange for 50,000 shares of BWI
common stock. The lease payments are to be unaffected by the aforementioned
modifications through December 31, 1997, at which time the reduced balance will
be due over a period of five (5) years.

Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is a reclassification from accounts payable to the long-term
portion of the capital lease due to related party totaling $61,950, to reflect
the inclusion of delinquent lease payments through December 31, 1995. Also,
included in the accompanying unaudited pro forma condensed consolidated balance
sheet is a reclassification of $76,587 to the current portion from the longterm
portion of the capital lease due to related party. Also included in the
accompanying unaudited pro forma condensed consolidated balance sheet is a
reduction to the capital lease obligation of $500,000 and an increase to equity
of $255,000 which represents the issuance of 50,000 shares of BWI common stock
valued at $5.10 (the estimated IPO price per share of $6.00 less a 15% discount
due to certain transferability restrictions under Rule 144 of the Securities Act
of 1933). The remaining $245,000 has also been reflected as an increase to
equity on the accompanying unaudited pro forma condensed balance sheet as of
September 30, 1996 representing an extraordinary gain. No entry has been made to
the accompanying unaudited pro forma condensed statement of operations for the
nine months ended September 30, 1996 or for the year ended December 31, 1995 as
such extraordinary gain is nonrecurring in nature.

F-23
91

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 8 -- ]COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

Future annual aggregate minimum lease payments under the capital lease due
to related party, as modified in the accompanying unaudited pro forma condensed
consolidated balance sheet are as follows:

YEARS ENDING
SEPTEMBER 30,
-------------

1997.................................................. $ 267,372
1998.................................................. 117,112
1999.................................................. 75,401
2000.................................................. 75,401
2001.................................................. 75,401
Thereafter............................................ 100,535
----------
711,222
Less amounts representing interest.................... (139,313)
----------
Present value of minimum lease payments............... 571,909
Less current portion.................................. (220,085)
----------
$ 351,824
==========

In connection therewith, interest expense in the accompanying unaudited pro
forma condensed consolidated statements of operations has been reduced by
$90,746 and $34,207 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively.

Management Agreements

In connection with the OEBC Exchange Agreement, the Company entered into a
management agreement (the "Management Agreement") with certain stockholders of
OEBC whereby they are to manage and operate the brewpub operations of OEBC from
the Closing Date through December 31, 1998. As compensation for such services,
they are to receive 10,000 shares of the Company's common stock. Such shares are
to be issued on a pro rata basis over the term of the Management Agreement,
estimated at two years. In addition, the brewpub managers are obligated to the
Company for quarterly cash flow deficits, if any, as defined, during the term of
the Management Agreement. The Management Agreement can be terminated by mutual
written consent or in the event of a breach, as defined.

Selling, general and administrative expenses in the accompanying unaudited
pro forma condensed consolidated statements of operations have been increased by
$19,125 and $25,500 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, to reflect the estimated expense for such
Management Agreement. Such expense represents 5,000 shares to be issued for a
one year period valued at $5.10 per share (estimated IPO price per share of
$6.00 less a 15% discount due to certain transferability restrictions under Rule
144 of the Securities Act of 1933).

Consulting Agreements

On December 28, 1996, BWI entered into a one year consulting agreement with
an individual to provide financial advisory services. In connection therewith,
BWI is obligated to pay $10,000 in cash and issue 60,000 shares of its common
stock. Under a registration rights agreement, the Company is obligated to
register 35,000 shares with in 180 days; the remaining 25,000 shares have "piggy
back" registration rights under the Securities Act of 1933. Since the shares
have registration rights under the Securities Act of 1933, the Board of
Directors

F-24
92

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 8 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

reflected a discount of 5% from the estimated IPO price of $6.00 per share.
Accordingly, such shares have been valued at $5.70 per share.

In addition, in connection with the OEBC Exchange Agreement, BWI will enter
into a two-year consulting agreement with a related party for brewery advisory
services and assistance with the acquisition and disposition of equipment. In
connection therewith, BWI is obligated to issue 5,000 shares of its common stock
at the end of each twelve-month period commencing on the Closing Date.
Accordingly, such shares have been valued at $5.10 (estimated IPO price per
share of $6.00 less a 15% discount due to certain transferability restrictions
under Rule 144 of the Securities Act of 1933).

The accompanying unaudited pro forma condensed consolidated balance sheet
has been adjusted at September 30, 1996 to reflect the payment of $10,000 in
cash and reduce stockholders' equity for consulting expenses.

Selling, general and administrative expenses in the accompanying unaudited
pro forma condensed consolidated statements of operations have been increased by
$283,125 and $377,500 for the nine months ended September 30, 1996 and the year
ended December 31, 1995, respectively, to reflect the estimated expense for such
consulting agreements.

Litigation

A lawsuit was brought against BWI, certain of its officers and its former
investment banker in Los Angeles Superior Court, alleging, among other things,
that the Plaintiff is entitled to compensation for the proposed partnership and
the proposed OEBC Exchange Agreement. Management has reached a tentative
settlement with the Plaintiff whereby the Company will pay $400,000 in cash and
will issue 30,000 shares of its common stock. BWI is expected to pay $200,000
upon the execution of a settlement agreement, $50,000 upon the close of the
Company's proposed IPO and $150,000 13 months from January 1, 1997. The 30,000
shares of common stock will be subject to demand registration rights under the
Securities Act of 1933, 180 days after the effective date of the proposed IPO.
Accordingly, such shares have been valued at $5.70 per share (a discount of 5%
due to transferability restrictions under the 1933 Act). At September 30, 1996,
management recorded a provision for loss totaling $571,000.

The accompanying unaudited pro forma condensed consolidated balance sheet
as of September 30, 1996 has been adjusted to reflect the cash payment of
$400,000 related to the aforementioned litigation out of estimated IPO proceeds
(Note 1), an increase in stockholders' equity totaling $171,000 for the issuance
of the 30,000 shares of common stock and a reduction to accounts payable
totaling $571,000.

NOTE 9 -- RELATED PARTY TRANSACTIONS

During 1996, OEBC utilized its facilities to brew and bottle beer for BWI.
OEBC billed Heritage $42,500 for such services which is included in sales of
OEBC. In addition, OEBC transferred certain raw materials, at cost, totaling
$12,975 to Heritage. At September 30, 1996, the intercompany receivable and
payable in the accompanying unaudited pro forma condensed consolidated balance
sheet of $55,475 is eliminated, and the related sales and cost of sales of OEBC
totaling $42,500 is eliminated in the accompanying unaudited pro forma condensed
statement of operations for the nine months ended September 30, 1996.

In June 1996, in anticipation of consummating the OEBC Exchange Agreement,
BWI and OEBC entered into a management agreement, whereby BWI manages and
operates OEBC. As compensation for such services, BWI is to receive $6,500 per
month, plus reimbursement of expenses as defined. The agreement terminates upon
consummation of the proposed IPO. At September 30, 1996, and for the nine months
then

F-25
93

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 9 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)

ended, a total of $24,050 was recorded as revenues by BWI under the terms of the
agreement and, accordingly, is eliminated in consolidation.

BWI has advanced approximately $10,749 to OEBC and BWISS during the through
September 30, 1996, which is included in investments in and advances to
affiliates.

Included in the accompanying unaudited pro forma condensed consolidated
balance sheet is an adjustment to eliminate intercompany obligations against
receivables, aggregating $90,274 which primarily represents the results of the
aforementioned.

In addition, in the accompanying unaudited pro forma condensed consolidated
statement of operations for the nine months ended September 30, 1996, is an
adjustment to remove the effects of the aforementioned agreements.

NOTE 10 -- SUBSEQUENT EVENTS

Related Party Advances

During the period October 1, 1996 and through the proposed Closing Date of
the OEBC Exchange Agreement, OEBC is expected to receive advances from a
stockholder of OEBC totaling up to $150,000 to be used for working capital
purposes. Such advances, up to $150,000, are expected to be paid from proceeds
to be received upon the consummation of the IPO.

The accompanying unaudited pro forma condensed consolidated balance sheet
reflects the establishment of the Note and the related use of such proceeds for
working capital purposes (a reduction to stockholders' equity), and the
repayment of such amount from the proceeds of the proposed IPO.

Bridge Notes Payable

On December 19, 1996, the Company and Bridge Note holder (see Note 4)
agreed to extend the due date of the $500,000 note until April 15, 1997. In
consideration to extend the Bridge Note, the Company issued warrants to purchase
35,000 shares of the Company's common stock. Each bridge warrant entitles the
holder to purchase one share of common stock; such warrants have "piggy-back"
registration rights, subject to a "lock-up" agreement at an exercise price of
$4.75 for a period of three years from the date of issuance. In addition, BWI
will issue 20,000 shares of its common stock with "piggy-back" registration
rights, subject to a "lock-up" agreement.

Included in the accompanying unaudited pro forma condensed consolidated
statements of operations is an increase to interest expense of $24,938 and
$33,250 for the nine months ended September 30, 1996 and December 31, 1995,
respectively to reflect the difference between the exercise price of the Bridge
Warrants at $4.75 and the value of the underlying common stock at $5.70 per
share (estimated IPO price of $6.00 less a 5% discount due to registration
rights associated with such bridge warrants).

In addition, there is an increase to interest expense of $85,500 and
$114,000 for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively to reflect the issuance of the 20,000 shares of
BWI common stock valued at $5.70 per share (estimated IPO price of $6.00 less a
5% discount due to registration rights associated with such shares).

Additional Bridge Notes

On December 10, 1996, BWI received $250,000 pursuant to a 12% promissory
note, principal and interest due the earlier of the IPO, with aggregate proceeds
of $6,000,000 or more, or on September 1, 1997. In

F-26
94

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 10 -- SUBSEQUENT EVENTS -- (CONTINUED)

addition, BWI anticipates receiving additional Bridge financing prior to the
consummation of the IPO totaling $500,000. Management expects such financings
will bear similar terms to the aforementioned promissory note.

The accompanying unaudited pro forma condensed consolidated balance sheet
has been adjusted to reflect the establishment of such financings aggregating
$750,000 and the related use of proceeds for working capital purposes (a
reduction to stockholders' equity), and the repayment of such amounts from the
proceeds of the IPO (see Note 1).

F-27
95

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Beverage Works, Inc.

We have audited the accompanying consolidated balance sheet of Beverage Works,
Inc. and subsidiary (the "Company") as of December 31, 1995, and the related
consolidated statements of operations, stockholders' equity (capital deficiency)
and cash flows for the period from incorporation (August 2, 1995) to December
31, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Beverage Works, Inc. and subsidiary as of December 31, 1995, and the
consolidated results of their operations and their cash flows for the period
from incorporation (August 2, 1995) to December 31, 1995, in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company was formed on August 2, 1995, and
since such date, has incurred substantial losses from operations, has current
liabilities in excess of current assets and a capital deficiency. The Company
will require additional financing to fund operations, consummate its proposed
acquisitions and to ultimately enable it to achieve revenues to support its cost
structure. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management is currently
funding operations from a private placement of its common stock and a bridge
loan, and management is seeking additional capital through the issuance of its
common stock in a proposed initial public offering as more fully described in
Notes 2 and 11. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

CORBIN & WERTZ

Irvine, California
August 1, 1996, except

for Note 8 as to which

the date is December 10, 1996

and Note 11 as to which

the date is January 7, 1997

F-28
96

BEVERAGE WORKS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

ASSETS
(Note 2)

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Current assets:
Cash and cash equivalents........................................ $ 159,716 $1,041,723
Accounts receivable, net of allowance for doubtful accounts of
$33,000 (1996) (unaudited) and $0 (1995) (Note 5)............. 40,992 1,311
Inventories (Notes 3 and 5)...................................... 171,451 45,135
Prepaid expenses and other (Note 5).............................. 52,567 33,208
---------- ----------
Total current assets..................................... 424,726 1,121,377
Property and equipment, net (Notes 4 and 5)........................ 1,335,939 1,296,434
Deferred licensing fees (Note 7)................................... 14,600 --
Deferred offering costs (Note 11).................................. 300,034 37,320
Investments in and advances to affiliates (Note 9)................. 206,511 --
Goodwill, net of accumulated amortization of $18,841 (1996) and $0
(1995) (Note 1).................................................. 191,619 210,460
---------- ----------
$ 2,473,429 $2,665,591
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses............................ $ 686,530 $ 95,774
Legal settlement payable (Note 7)................................ 571,000 --
Notes payable (Note 5)........................................... 546,237 41,286
Notes payable to related parties (Note 6)........................ 93,896 109,072
Deferred income taxes (Note 10).................................. 58,007 60,704
Due to affiliate (Note 9)........................................ 42,500 --
---------- ----------
Total current liabilities................................ 1,998,170 306,836
Notes payable, net of current portion (Note 5)..................... 363,089 398,240
Deferred income taxes, net of current portion (Note 10)............ 337,752 381,774
---------- ----------
Total liabilities........................................ 2,699,011 1,086,850
---------- ----------
Commitments and contingencies (Notes 7 and 9)
Stockholders' equity (capital deficiency)
(Notes 8 and 11):
Preferred stock, no par value; 5,000,000 shares authorized, no
shares issued and outstanding; liquidation value of $.001 per
share......................................................... -- --
Common stock, no par value; 20,000,000 shares authorized;
2,457,863 (1996) (unaudited) and 2,341,363 (1995) shares
issued and outstanding........................................ 2,596,833 2,127,502
Accumulated deficit.............................................. (2,822,415) (548,761)
---------- ----------
Total stockholders' equity (capital deficiency).......... (225,582) 1,578,741
---------- ----------
$ 2,473,429 $2,665,591
========== ==========

See independent auditors' report and accompanying notes
to consolidated financial statements

F-29
97

BEVERAGE WORKS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

THE PERIOD FROM THE PERIOD
INCORPORATION FROM INCORPORATION
(AUGUST 2, 1995) TO (AUGUST 2, 1995) TO
SEPTEMBER 30, DECEMBER 31, 1995
1995 -------------------
THE NINE -------------------
MONTHS ENDED
SEPTEMBER 30, (UNAUDITED)
1996
-------------
(UNAUDITED)

Sales (Note 7)............................. $ 208,034 $ -- $ 48,395
Less excise taxes (12,482) -- (3,585)
----------- -------- ----------
Net sales................................ 195,552 -- 44,810
Cost of sales.............................. 421,158 -- 81,627
----------- -------- ----------
Gross profit (loss)...................... (225,606) -- (36,817)
----------- -------- ----------
Operating expenses:
Salaries and wages (Note 8).............. 379,017 -- 295,336
Professional fees (Note 8)............... 513,909 -- 78,516
Other general and administrative (Notes
7, 8 and 9)........................... 502,819 4,793 108,445
Marketing and selling.................... 47,862 -- 9,033
Provision for legal settlement (Note
7).................................... 571,000 -- --
----------- -------- ----------
Total operating expenses......... 2,014,607 4,793 491,330
----------- -------- ----------
Loss from operations....................... (2,240,213) (4,793) (528,147)
Interest expense (Notes 5, 6 and 8)........ 76,960 -- 28,320
----------- -------- ----------
Loss before benefit for income taxes....... (2,317,173) (4,793) (556,467)
Benefit for income taxes (Note 10)......... 43,519 -- 7,706
----------- -------- ----------
Net loss................................... $ (2,273,654) $(4,793) $ (548,761)
=========== ======== ==========
Net loss per common share.................. $ (0.85) $ -- $ (0.23)
=========== ======== ==========
Common shares and equivalents outstanding
(Notes 2 and 11)......................... 2,687,359 245,310 2,362,806
=========== ======== ==========

See independent auditors' report and accompanying notes
to consolidated financial statements

F-30
98

BEVERAGE WORKS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995)
TO DECEMBER 31, 1995

COMMON STOCK
------------------------ ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ---------- ----------- -----------

Issuance of common stock for cash at
$0.01 per share in connection with
incorporation (August 2, 1995) (Note
8)..................................... 245,310 $ 2,453 $ -- $ 2,453
Issuance of common stock for cash at
$0.05 per share in October 1995 (Note
8)..................................... 1,549,100 77,455 -- 77,455
Issuance of warrants to purchase common
stock, at an exercise price of $8.25
per share, for cash in October 1995
(Note 8)............................... -- 28,100 -- 28,100
Issuance of common stock valued at $4.00
per share in connection with the
stock-for-stock exchange on November 8,
1995 (Notes 1 and 8)................... 142,276 569,104 -- 569,104
Issuance of common stock valued at $4.00
per share for services rendered (Note
8)..................................... 49,015 196,060 -- 196,060
Issuance of common stock valued at $4.00
per share for interest (Note 8)........ 5,333 21,332 -- 21,332
Issuance of common stock valued at $4.00
per share for services rendered (Note
8)..................................... 16,583 66,332 -- 66,332
Issuance of common stock purchase units
for cash at $4.00 per share, net of
offering costs of $168,318 (Note 8).... 333,746 1,166,666 -- 1,166,666
Net loss................................. -- -- (548,761) (548,761)
--------- ---------- --------- ----------
Balances, December 31, 1995.............. 2,341,363 2,127,502 (548,761) 1,578,741
Issuance of common stock for cash at
$4.00 per share, net of offering costs
of $42,720 (Note 8).................... 80,000 277,280 -- 277,280
Issuance of common stock valued at $5.20
per share pursuant to a license
agreement (Notes 7 and 8).............. 6,500 33,800 -- 33,800
Issuance of Bridge Warrants to purchase
35,000 shares of common stock, at an
exercise price of $4.75 per share,
valued at $.95 per share, representing
interest (Notes 5 and 8)............... -- 33,250 -- 33,250
Issuance of common stock purchase units
for cash at $5.00 per equivalent share,
net of offering costs of $24,999 (Note
8)..................................... 30,000 125,001 -- 125,001
Net loss................................. -- -- (2,273,654) (2,273,654)
--------- ---------- --------- ----------
Balances, September 30, 1996
(unaudited)............................ 2,457,863 $2,596,833 $(2,822,415) $ (225,582)
========= ========== ========= ==========

See independent auditors' report and accompanying notes

to consolidated financial statements.

F-31
99

BEVERAGE WORKS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE PERIOD FROM
THE NINE INCORPORATION THE PERIOD FROM
MONTHS ENDED (AUGUST 2, 1995) TO INCORPORATION
SEPTEMBER 30, SEPTEMBER 30, (AUGUST 2, 1995) TO
1996 1995 DECEMBER 31, 1995
------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED)

Cash flows from operating activities:
Net loss................................................ $(2,273,654) $(4,793) $ (548,761)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 302,260 -- 30,282
Provision for loss on accounts receivable............ 33,000 -- --
Common stock issued for services rendered (Note 8)... -- -- 262,392
Common stock issued to related parties for interest
(Notes 5 and 8).................................... -- -- 21,332
Changes in operating assets and liabilities, net of
acquired company:
Accounts receivable.................................. (72,681) -- --
Inventories.......................................... (126,316) -- --
Prepaid expenses and other........................... 352 (2,630) (18,715)
Accounts payable and accrued expenses................ 590,756 2,100 37,216
Accrued legal settlement (Note 7).................... 571,000 -- --
Deferred income taxes................................ (46,719) -- (7,706)
----------- ------- ----------
Net cash used in operating activities................... (1,022,002) (5,323) (223,960)
----------- ------- ----------
Cash flows from investing activities:
Cash of acquired company received in connection with
stock-for-stock exchange (Note 1).................... -- -- 5,952
License acquisition fee (Note 7)........................ (30,000) -- --
Investments in and advances to affiliates (Note 9)...... (206,511) -- --
Purchases of property and equipment..................... (200,185) -- (86,117)
----------- ------- ----------
Net cash used by investing activities................... (436,696) -- (80,165)
----------- ------- ----------
Cash flows from financing activities:
Due to affiliate (Note 9)............................... 42,500 -- --
Proceeds from issuance of common stock (Note 8)......... 402,281 -- 1,245,996
Proceeds from issuance of common stock purchase warrants
(Note 8)............................................. -- -- 28,100
Deferred offering costs (Note 8)........................ (262,714) -- (37,320)
Deferred financing costs (Note 5)....................... (60,000) -- --
Proceeds from issuance of notes payable
(Note 5)............................................. 500,000 -- --
Proceeds from issuance of notes payable to related
parties (Note 6)..................................... 14,941 5,323 109,072
Payments on notes payable (Note 5)...................... (30,200) -- --
Payments on notes payable to related parties (Note 6)... (30,117) -- --
----------- ------- ----------
Net cash provided by financing activities............... 576,691 5,323 1,345,848
----------- ------- ----------
Net change in cash and cash equivalents................... (882,007) -- 1,041,723
Cash and cash equivalents, beginning of period............ 1,041,723 -- --
----------- ------- ----------
Cash and cash equivalents, end of period.................. $ 159,716 $ -- $ 1,041,723
=========== ======= ==========
Supplemental disclosure of cash flow information --
Cash paid during the period for:
Interest............................................. $ 47,523 $ -- $ 2,771
=========== ======= ==========
Income taxes......................................... $ 1,600 $ -- $ 800
=========== ======= ==========

See independent auditors' report and accompanying notes
to consolidated financial statements

F-32
100

BEVERAGE WORKS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

Supplemental disclosure of noncash investing and financing activities:

September 30, 1996 (unaudited)

The Company issued 6,500 shares of common stock valued at $33,800 pursuant
to license agreement (see Notes 7 and 8).

The Company issued Bridge Warrants to acquire 35,000 shares of the
Company's common stock valued at $33,250 for deferred financing costs (see Notes
5 and 8).

December 31, 1995

The Company issued 5,333 shares of common stock valued at $21,332 for
interest to related parties (see Note 8).

The Company issued 65,598 shares of common stock valued at $262,392 for
services rendered (see Note 8).

As discussed in Note 1, on November 8, 1995, the Company entered into a
stock-for-stock exchange. Pursuant to the terms of the stock-for-stock exchange,
liabilities were assumed as follows:

Fair value of assets acquired............................................ $1,433,766
Value of stock given as consideration.................................... (569,104)
----------
Liabilities assumed.................................................... $ 864,662
==========

See independent auditors' report and accompanying notes
to consolidated financial statements

F-33
101

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31, 1995

NOTE 1 -- ORGANIZATION

Beverage Works, Inc. ("BWI"), a California corporation incorporated on
August 2, 1995, was formed to acquire interests in various craft brewing and
beverage operations.

On November 8, 1995, BWI entered into a stock-for-stock exchange with
Heritage Brewing Company, Inc. ("Heritage") intended to qualify as a statutory
tax-free exchange under the Internal Revenue Code. Heritage is a microbrewery in
the business of manufacturing and distributing various distinctive beers
throughout the Western United States. Pursuant to the acquisition, BWI issued
142,276 shares of its common stock in exchange for approximately 95% of the
outstanding shares of Heritage. BWI has offered 7,724 shares to the minority
interest stockholders of Heritage. To date, such minority stockholders have not
tendered their shares. The arrangement allows for the former stockholders of
Heritage to effect a "Call" provision. The Call provision allows the
stockholders to rescind the acquisition should BWI not consummate its proposed
initial public offering (the "IPO") by March 31, 1997 with gross proceeds of at
least $5,000,000 or if the Company has not funded at least $500,000 of interim
financing during the period November 4, 1996 through January 10, 1997. In the
event the proposed IPO is not consummated by June 30, 1997, and the Call holders
effect to exchange their BWI shares for their shares of Heritage, amounts
advanced to Heritage for working capital and capital improvements will be
payable to BWI in 36 equal monthly noninterest bearing installments. The
acquisition has been accounted for under the purchase method of accounting as
management believes the proposed IPO is probable of being consummated. The
purchase price was $569,104, plus acquisition costs of $18,480. The price was
based on the number of shares issued at $4.00 per share. The price per share was
based on the price received by the Company in its first private placement which
occurred shortly after the acquisition (see Note 8). The minority interest
relating to the remaining stockholders of Heritage was not recorded as the
amount was not considered significant. The excess of purchase price over the
fair value of the net assets acquired (goodwill) as a result of this transaction
was $210,460 (see Note 2). Unaudited proforma revenues, net loss and net loss
per share of BWI, assuming the acquisition was consummated January 1, 1995, for
the year ended December 31, 1995, are as follows:

Revenues............................................... $ 392,561
==========
Net loss............................................... $(623,926)
==========
Net loss per share..................................... $ (0.20)
==========

The unaudited proforma information above is not necessarily indicative of
the actual results which may have occurred had the acquisition been consummated
on January 1, 1995.

The historical audited condensed results of operations of Heritage for the
ten month and eight day period ended November 8, 1995 are as follows:

Revenues............................................... $ 347,751
Costs.................................................. (484,097)
----------
Net loss............................................... $(136,346)
==========

As discussed in Note 11, on September 11, 1996, BWI entered into a
stock-for-stock exchange, as amended on January 7, 1997, (the "Exchange
Agreement") with Orange Empire Brewing Company ("OEBC"), a California
corporation. Additional agreements were entered into along with the execution of
the Exchange Agreement. In anticipation of the proposed IPO, an agreement with
BWI to actively manage OEBC's operations was consummated (see Note 7). See Note
11 for further discussion of the Exchange Agreement and related agreements which
may have a significant effect on the consolidated financial position and results
of operations of the Company.

F-34
102

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 1 -- ORGANIZATION -- (CONTINUED)

On June 25, 1996, BWI formed a wholly-owned subsidiary, BWI - St. Stan's,
Inc. ("BWISS"). On December 17, 1996, Prost Partners Limited Partnership (a
California limited partnership) ("St. Stan's"), a craft brewing company located
in Modesto, California, formed a California general partnership with BWISS,
BWI-Prost Partners (the "Partnership"). Pursuant to the terms of the BWI-Prost
Partners partnership agreement (the "Partnership Agreement"), St. Stan's has
agreed to contribute substantially all of its assets, net of certain
liabilities, to the Partnership for a 49% minority interest in the Partnership.
BWISS has agreed to contribute $2,295,000 to the Partnership for a 51%
controlling interest in the Partnership. The BWISS consideration is to be
tendered in cash commencing 18 months from the proposed IPO, and the assumption
of certain debt on the contribution date, the "Contribution Date", the date of
the successful consummation of the proposed IPO of BWI's common stock, occurring
on or before March 31, 1997, realizing minimum proceeds of at least $8,000,000
(before any deductions, including, but not limited to, underwriters'
compensation and expenses). See Note 11 for further discussion of the terms of
the Partnership Agreement which may have a significant effect on the
consolidated financial position and results of operations of the Company.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates, among other things, the realization of
assets and the satisfaction of liabilities in the normal course of business. As
reflected in the accompanying consolidated financial statements, BWI incurred
net losses of $2,273,654 (unaudited) and $548,761, for the nine months ended
September 30, 1996 and for the period from incorporation (August 2, 1995) to
December 31, 1995, respectively. In addition, at September 30, 1996, BWI has
current liabilities in excess of current assets of $1,573,444 (unaudited) and a
capital deficiency of $225,582 (unaudited). BWI will require significant capital
to fund operations, to consummate its proposed acquisition and joint venture
(Note 11) and to enable it to achieve revenues to support its cost structure.
These factors, among others, raise substantial doubt about BWI's ability to
continue as a going concern.

BWI has funded operations from two private placements of equity securities
(see Note 8) and two private bridge financings (see Notes 5 and 11). BWI plans
to effect the proposed IPO to raise additional capital, certain of which, if the
proposed IPO is successful and the proposed acquisitions are consummated, the
proceeds will be used to close the proposed acquisition and Partnership (Note
11), to reduce BWI's indebtedness and to fund working capital requirements.
Management also plans to reduce BWI's costs on a per unit basis through
increased plant utilization and through combined purchases with the brewing
facilities acquired, or to be acquired, by BWI. Management also plans to
implement a marketing plan which is expected to substantially increase BWI's
revenues sufficient to meet BWI's proposed cost structure. There are no
assurances that management's plans can be effected, which includes the
consummation of the proposed IPO in a timely manner. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
BWI and its substantially-owned subsidiary, Heritage Brewing Company
(collectively the "Company"). The accounts of Heritage have been included in the
accompanying consolidated financial statements beginning November 8, 1995. All
significant intercompany transactions and balances have been eliminated in
consolidation.

F-35
103

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Parent Only Financial Information

Beverage Works, Inc., parent only condensed financial information consists
of the following:

FINANCIAL POSITION

ASSETS

SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ ------------
(UNAUDITED)

Current assets:
Cash............................................................ $ 140,000 $ 1,035,771
Other current assets............................................ 22,829 2,715
------------ -----------
Total current assets......................................... 162,829 1,038,486
Property and equipment, net....................................... 16,196 5,312
Investments....................................................... 189,327 478,480
Advances to affiliates............................................ 766,415 193,573
Deferred offering costs........................................... 300,034 37,320
Other............................................................. 39,645 --
------------ -----------
$ 1,474,446 $ 1,753,171
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Liabilities:
Accounts payable and accrued expenses........................... $ 535,132 $ 65,358
Accrued legal settlement........................................ 571,000 --
Bridge note payable............................................. 500,000 --
Notes payable to related party.................................. 93,896 109,072
------------ -----------
1,700,028 174,430
Stockholders' equity (capital deficiency)......................... (225,582) 1,578,741
------------ -----------
$ 1,474,446 $ 1,753,171
============ ===========

F-36
104

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Parent Only Financial Information -- (Continued):

RESULTS OF OPERATIONS

NINE AUGUST 2,
MONTHS ENDED 1995 TO
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)

Net revenues (Note 7)............................................. $ 24,050 $ --
Cost of revenues.................................................. -- --
------------ -----------
Gross profit................................................. 24,050 --
Selling, general and administrative expenses...................... 1,246,210 417,600
Provision for legal settlement (Note 7)........................... 571,000 --
------------ -----------
Loss from operations......................................... (1,793,160) (417,600)
Equity in loss of subsidiary...................................... 438,808 131,161
Interest expense, net............................................. 41,686 --
------------ -----------
Net loss.......................................................... $(2,273,654) $ (548,761)
============ ===========

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, as well
as disclosure of contingent assets and liabilities at the date of the financial
statements. Certain estimates made by management also effect the reported
amounts of revenues and expenses during the reported periods. Actual results
could materially differ from those estimates. Significant estimates made by
management include the provision for loss on accounts receivable, the net
realizability of inventory, and the evaluation of the potential impairment of
property and equipment and goodwill.

Fair Value of Financial Instruments

The consolidated financial statements contain financial instruments whereby
the fair market value of the financial instruments could be different than those
recorded on a historical basis in the accompanying consolidated financial
statements. The Company's financial instruments consist of cash, accounts
receivable, investments in and advances to affiliates, accounts payable, notes
payable and notes payable to related parties. The carrying amounts of the
Company's financial instruments generally approximate their fair values at
September 30, 1996 (unaudited) and December 31, 1995. In the case of the
investments in and advances to affiliates (Note 9) and the notes payable to
related parties (see Note 6), it was not practical to determine fair values due
to the lack of a market for such financial instruments.

Concentration of Credit Risk

The Company, at times, maintains cash balances at certain financial
institutions in excess of the federally insured deposits.

The Company sells its products to independent distributors for distribution
to retailers. The Company extends credit to its distributors and performs
periodic credit evaluations of such customers. The Company

F-37
105

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

does not obtain collateral to secure its accounts receivable. The Company
periodically evaluates its accounts receivable for collectibility and provides a
reserve for losses resulting therefrom.

Four customers accounted for sales ranging from 11% to 27% of total sales
(unaudited) for the nine-month period ended September 30, 1996. Such
concentrations were similar during the period from November 8, 1995 (date of
acquisition of Heritage) to December 31, 1995.

Two vendors of the raw material used in its brewing process supplied
materials representing 17% and 43% of total purchases for the nine-month period
ended September 30, 1996 (unaudited). Such concentrations were similar for the
period from incorporation (August 2, 1995) to December 31, 1995.

Risks and Uncertainties

Licenses and Permits

The brewery and wholesale operations require various Federal, state and
local licenses and permits. Brewers are required to file with the Federal Bureau
of Alcohol, Tobacco and Firearms (the "BATF"). The California Department of
Alcoholic Beverage Control (the "ABC") requires that companies file and maintain
licenses, permits or approvals for the production and sale of alcoholic
beverages. Other state and local laws and regulations governing the sale of
alcoholic beverages within a particular state by an out-of-state brewer or
wholesaler vary by state and locality. The Company's brewery operations are
subject to audit and inspection by the BATF and ABC at any time.

Because of the various state and Federal licensing and permitting
requirements, there is a risk that one or more regulatory authorities could
determine that the Company has not complied with applicable licensing or
permitting regulations or does not maintain the approvals necessary for it to
conduct business within their jurisdictions. Regulatory actions could have a
material adverse effect on the Company's financial position and its operating
results.

Dependence on Distributors

The Company sells its products to independent distributors for distribution
to retailers and ultimately consumers. Sustained growth will require it to
maintain such relationships and possibly enter into agreements with additional
distributors. No assurance can be given that the Company will be able to
maintain or secure additional distributors on terms favorable to the Company.
The Company has certain significant distribution relationships. The loss of one
or more of these distributors would have a material adverse effect on the
Company's ability to bring its products to market and, therefore, adversely
effect its sales and results of operations. The Company's distribution
agreements are generally terminable by the distributor on short notice. While
these distribution agreements contain provisions regarding the Company's
enforcement and termination rights, some state laws prohibit the Company from
exercising these contractual rights. The Company's ability to maintain existing
distribution agreements or enter new distribution agreements may be adversely
affected by the fact that many distributors are reliant on one of the major beer
producers for a large percentage of their revenue and, therefore, they may be
influenced by such producers.

Potential "Dram Shop" Liability

F-38
106

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

immunity to servers of alcoholic beverages from civil liability, except for the
sale of alcoholic beverages to minors. While the Company maintains liquor
liability insurance as part of its comprehensive general liability insurance
which management believes is adequate to protect against such liability, there
can be no assurance that the Company will not be subject to a judgment or fine
in excess of such insurance coverage or that it will be able to continue to
maintain such insurance coverage at reasonable costs or at all. The imposition
of a judgment or fine substantially in excess of the Company's insurance
coverage would have a material adverse effect on the Company. Similarly, the
failure of the Company to obtain and maintain insurance coverage could also
materially and adversely affect the Company.

Regulation

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

Trademarks

Seasonality

The beverage business traditionally has historically been seasonal.
Typically, net sales are highest during the third and fourth calendar quarters
and decline sequentially in the first and second calendar quarters. The seasonal
pattern is due primarily to the increased demand for consumer beverages during
the summer through the year-end holiday buying season. The Company expects its
net sales and operating results to continue to reflect seasonality.

Environmental Regulations and Operating Considerations

The Company's brewing operations are subject to a variety of extensive and
changing Federal, state and local environmental laws, regulations and ordinances
that govern activities or operations that may have adverse effects on human
health or the environment. Such laws, regulations and ordinances may impose
liability for the cost of remediating, and for certain damages resulting from,
sites of past releases of hazardous materials. The Company believes that it
currently conducts, and in the past has conducted, its activities and operations
in substantial compliance with applicable environmental laws, and believes that
costs arising from existing

F-39
107

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

environmental laws will not have a material adverse effect on the Company's
financial condition or results of operations. There can be no assurance,
however, that environmental laws will not become more stringent in the future or
that the Company will not incur costs in the future in order to comply with such
laws.

The Company's operations are subject to certain hazards and liability risks
faced by all brewers, such as potential contamination of ingredients or products
by bacteria or other external agents that may be wrongfully or accidentally
introduced into products or packaging. The occurrence of such a problem could
result in a costly product recall and serious damage to the Company's reputation
for product quality, as well as claims for product liability which may
negatively impact the Company. The Company maintains insurance which the Company
believes is sufficient to cover any liability claims which might result from a
contamination problem in its products, but which may not cover any damage to the
Company's reputation.

Cash Equivalents

The Company considers highly liquid investments with a remaining maturity
of 90 days or less when purchased to be cash equivalents.

Inventories

Inventories, consisting primarily of raw materials and purchased products,
and work in process and finished goods, are stated at the lower of cost or
market. Cost is determined by the first-in, first-out method.

Deferred Financing Costs

Deferred financing costs, included in prepaid expenses and other current
assets, arose from loan fees paid of $60,000 and the issuance of 35,000 common
stock purchase warrants valued at $33,250 which were deemed by management to
represent interest costs associated with the issuance of a bridge note payable
(the "Bridge Note") (Note 5). Such interest costs are currently being amortized
over the nine-month period ending December 31, 1996. Amortization of such costs
during the nine months ended September 30, 1996 was $73,539 (unaudited). Also
see Note 5 for additional common stock and common stock purchase warrants issued
in connection with this note.

Deferred Offering Costs

Deferred offering costs represent costs associated with the Company's
private placement of common stock (Note 8) and proposed IPO (Note 11). Deferred
offering costs are recorded as a reduction of proceeds received upon the close
of escrow of each transaction. In May 1996, the private placement of the
Company's common stock closed and, accordingly, $37,320 of such costs deferred
at December 31, 1995 were recorded net of the proceeds received. In the event
the proposed IPO is unsuccessful, the $300,034 of costs incurred through
September 30, 1996 (unaudited), and costs to be incurred, will be charged to
operations.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation,
and are being depreciated on a straight-line basis over their estimated useful
lives, which range from five (5) to seven (7) years. Leasehold improvements are
being amortized using the straight-line method over the life of the asset or the
term of the lease (which expires on February 1998), whichever is shorter.

F-40
108

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Major betterments and renewals are capitalized, while routine repairs and
maintenance are charged to expense when incurred.

Management of the Company assesses the recoverability of property and
equipment by determining whether the depreciation of such assets over their
remaining lives can be recovered through projected undiscounted cash flows. The
amount of impairment, if any, is measured based on projected undiscounted cash
flows and is charged to operations in the period in which such impairment is
determined by management. To date, management has not identified an impairment
of property and equipment. Management has based this assessment on the
anticipated benefits to be derived from the successful completion of the
Company's proposed IPO and the consummation of the Exchange Agreement and the
Partnership Agreement (see Note 11). If the Company's proposed IPO is not
successfully completed, the Company could be forced to liquidate its assets if
it ceases to continue as a going concern. The amounts the Company would receive
from a sale of its property and equipment under such circumstances could be
substantially less than the carrying values reflected in the accompanying
consolidated financial statements.

Goodwill

The excess of cost of the investment over net assets acquired (goodwill) is
amortized on a straight-line basis over the expected periods to be benefitted.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through projected undiscounted cash flows. The amount of goodwill
impairment, if any, is measured based on projected undiscounted cash flows and
is charged to operations in the period in which goodwill impairment is
determined by management. Goodwill is amortized on the straight-line method over
an expected ten (10) year life. The methodology that management uses to project
results of operations is based on a five-year trend line of expected cash flows.
To date, management has not identified an impairment of goodwill. Management has
based this assessment on the anticipated benefits to be derived from the
successful completion of its proposed IPO and the consummation of the Exchange
Agreement and the Partnership Agreement (see Note 11). If the proposed IPO is
not successfully completed, management may be required to charge operations for
the impairment of goodwill.

Deferred Licensing Fees

Deferred licensing fees (see Note 7) represent amounts paid by the Company
to acquire rights to use specified trademarks and tradenames for use in its
craft brewing operations. Such amounts are amortized on a straight-line basis
over one year. Amortization during the nine-month period ended September 30,
1996 totaled $49,200 (unaudited).

Income Taxes

The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, an asset and liability method is used
whereby deferred tax assets and liabilities are determined based on temporary
differences between bases used for financial and income tax reporting purposes.
Income taxes are provided based on the enacted tax rates in effect at the time
such temporary differences are expected to reverse. A valuation allowance is
provided for certain deferred tax assets if it is more likely than not that the
Company will not realize the tax assets through future operations (see Note 10).

F-41
109

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Revenue Recognition

Revenues from product sales are recognized upon shipment. The Company
records a provision for the effect of returned products at the time the units
are shipped. Historically, the Company has experienced minimal product returns.

Advertising and Marketing Expense

Advertising and marketing costs are expensed as incurred.

Per Share Information

Net loss per common share is computed by dividing the net loss by the
number of shares of common stock and common stock equivalents outstanding during
the respective periods. Common stock equivalents include common shares issuable
upon the exercise of the Company's stock options and warrants. Pursuant to the
Securities and Exchange Commission (the "Commission"), Staff Accounting Bulletin
No. 83, common shares issued for consideration below an assumed proposed IPO
price (estimated at $6.00 per share as discussed in Note 11) have been
considered outstanding for all periods presented, and common stock purchase
options and warrants granted (see Note 8) with exercise prices below the
proposed IPO price during the twelve-month period preceding the date of the
initial filing of the registration statement (September 12, 1996) have been
included in the calculation of the common shares outstanding, using the treasury
stock method, as if they were outstanding for all periods presented, including
loss years where the impact is anti-dilutive. The aforementioned calculations
have not been adjusted to reflect the retirement of 1,342,700 shares of common
stock occurring subsequent to September 30, 1996 (see Note 8).

Interim Financial Statements

In the opinion of management, the accompanying unaudited consolidated
financial statements of the Company include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position of the Company as of September 30, 1996, and
results of operations and cash flows for the nine-month period then ended.
Although management believes that the disclosures of interim financial
information in these financial statements are adequate to make the information
presented not misleading, certain information and disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles during the interim periods have been condensed or omitted
pursuant to the rules and regulations of the Commission. The unaudited results
of operations for the nine-month period ended September 30, 1996 are not
necessarily indicative of results of operations to be expected for the year
ending December 31, 1996.

F-42
110

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 3 -- INVENTORIES

Inventories consist of the following:

SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ -----------
(UNAUDITED)

Raw materials and purchased packaging.............. $ 101,695 $ 32,900
Work in process and finished goods................. 69,756 12,235
---------- ----------
$ 171,451 $ 45,135
========== ==========

NOTE 4 -- PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ -----------
(UNAUDITED)

Machinery and equipment............................ $1,450,335 $ 1,250,150
Furniture and fixtures............................. 8,446 8,446
Leasehold improvements............................. 68,120 68,120
---------- ----------
1,526,901 1,326,716
Less accumulated depreciation and amortization..... (190,962) (30,282)
---------- ----------
$1,335,939 $ 1,296,434
========== ==========

F-43
111

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 5 -- NOTES PAYABLE

Notes payable consist of the following:

SEPTEMBER DECEMBER
30, 31,
1996 1995
------------ -----------
(UNAUDITED)

Note payable to bank, bearing interest at prime,
plus 2.75% per annum (11.50% at December 31,
1995), payable in monthly principal and interest
installments of $6,286, due May 4, 2004, secured
by substantially all assets of Heritage and
personal guarantees of certain officers and
former stockholders of Heritage.................. $ 385,800 $ 408,007
Note payable to bank, bearing interest at prime,
plus 2.529% per annum (11.279% at December 31,
1995), payable in monthly principal and interest
installments of $1,148, due August 1, 1998,
secured by substantially all assets of Heritage,
and personal guarantees of certain officers and
former stockholders of Heritage.................. 23,526 31,519
Bridge Note payable to a less than 5% stockholder
of the Company, bearing interest at 18% per
annum, interest payable monthly, maturing the
earlier of the closing of the proposed IPO or
April 15, 1997, secured by all assets of BWI (see
below)........................................... 500,000 --
---------- ----------
909,326 439,526
Less current portion............................... (546,237) (41,286)
---------- ----------
$ 363,089 $ 398,240
========== ==========

In April 1996, in connection with the Bridge Note, the Company paid $60,000
in loan fees and issued warrants (the "Bridge Warrants") to purchase 35,000
shares of the Company's common stock. Each Bridge Warrant has registration
rights and entitles the holder to purchase one share of common stock at an
exercise price of $4.75 for a period of three years from the date of issuance.
The registration rights provide for the underlying shares to be registered in
the Company's proposed IPO, with such shares being subject to a six-month
"lock-up" agreement, as defined. The Bridge Warrants are fully exercisable and
expire April 20, 1999. The Bridge Warrants were valued at $0.95 per warrant (see
Note 8). Such costs have been capitalized as deferred financing costs and are
included in prepaid expenses and other in the accompanying consolidated balance
sheet at September 30, 1996 (see Note 1). In December 1996, the Company agreed
to issue an additional 35,000 Bridge Warrants with the same terms described
above and 20,000 shares of its common stock. Such additional warrants and shares
of common stock (which have demand registration rights effective 180 days after
the close of the Company's proposed IPO) with an estimated combined value of
$147,250, and will be charged to operations as interest expense from December 1,
1996 to April 15, 1997.

Interest expense on the notes payable discussed herein amounted to $76,519
(unaudited) for the nine-month period ended September 30, 1996 and $6,988 for
the period November 8, 1995 (date of acquisition of Heritage) to December 31,
1995.

Future annual principal installments of notes payable as of December 31,
1995, which excludes the $500,000 Bridge Notes, due 1996, are as follows:

F-44
112

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 5 -- NOTES PAYABLE -- (CONTINUED)

YEARS ENDING
DECEMBER 31,
--------------------------------------------------

1996.............................................. $ 41,286
1997.............................................. 46,237
1998.............................................. 47,152
1999.............................................. 43,042
2000.............................................. 48,261
Thereafter........................................ 213,548
--------
$439,526
========

See Note 11 for issuance of an additional bridge note totaling $250,000
subsequent to September 30, 1996.

NOTE 6 -- NOTES PAYABLE TO RELATED PARTIES

Notes payable to related parties consist of the following:

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Two noninterest bearing unsecured demand notes payable to
stockholders, paid July 1, 1996............................ $ -- $ 26,327
Noninterest bearing unsecured note payable to an officer and
stockholder, payable at a rate of 3% of sales.............. 78,955 82,745
Unsecured line of credit up to a maximum of $175,000 to an
affiliate of OEBC, interest at 11% per annum payable
monthly, with all principal and unpaid interest due the
earlier of the consummation of an IPO with gross proceeds
exceeding $10,000,000 or June 30, 1997..................... 14,941 --
------- --------
$93,896 $109,072
======= ========

NOTE 7 -- COMMITMENTS AND CONTINGENCIES

Employment Contracts

The Company has entered into employment contracts with five of its
employees, including three officers, which expire on various dates through May
10, 1998. Such management agreements will be canceled and replaced with new
agreements upon the consummation of the proposed IPO (Note 11). The employment
contracts also provide for certain expense allowances.

F-45
113

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

Future annual minimum base salaries plus allowances, and in the aggregate,
consist of the following at December 31, 1995 (without taking into consideration
the employment agreements effective on the consummation of the Company's
proposed IPO):

YEARS ENDING
DECEMBER 31,
-------------

1996.......................................... $ 451,200
1997.......................................... 451,200
1998.......................................... 203,025
----------
$1,105,425
==========

Also see Note 11 regarding the cancellation and replacement of employment
contracts upon consummation of the proposed IPO.

Incentive Compensation Plan

In August 1996, the Company adopted a cash incentive bonus compensation
plan, the 1996 Incentive Compensation Plan (the "Incentive Plan"). The Incentive
Plan is intended to qualify as performance based compensation plan under Section
162(m) of the Internal Revenue Code. The Incentive Plan provides that qualifying
employees may receive as a cash bonus an amount equal to the Company's modified
earnings, calculated before interest, taxes, depreciation and amortization
("Modified EBITDA"), for a particular fiscal year. The maximum cash bonus that
the Incentive Plan provides is 8.45% of Modified EBITDA up to $4,000,000 for
such fiscal year and 12.45% of Modified EBITDA if Modified EBITDA exceeds
$4,000,000 for such fiscal year.

See Note 8 for options and warrants granted by the Board of Directors.

Operating Leases

The Company leases its Lake Elsinore, California facility under a
noncancelable operating lease which expires February 1998. The Company
previously leased its Newport Beach, California office on a month-to-month
arrangement for $2,105. In November 1996, the Company entered into a new office
lease arrangement for office space located in Newport Beach, California. The
lease payment is $941 per month and expires November 1999.

Future annual minimum lease payments at December 31, 1995 are as follows
(without taking into consideration the new lease executed in November, 1996):

YEARS ENDING
DECEMBER 31,
-------------

1996............................................ $26,050
1997............................................ 27,560
1998............................................ 4,630
-------
$58,240
=======

Rent expense under all operating lease agreements totaled $34,886
(unaudited) for the nine-month period ended September 30, 1996, and $10,525 for
the period ended December 31, 1995.

F-46
114

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

See Note 11 for discussion regarding a month-to-month lease agreement
entered into with a related party subsequent to September 30, 1996.

Distributor Agreements

The Company is party to certain agreements with certain distributors which
grants the Company's distributors the right to sell certain products in
specified territories for a period of one year. The agreements may be terminated
by mutual agreement, or by written notice, subject to certain terms and fees, as
defined.

License Agreement

In February 1996, the Company entered into a license agreement to obtain an
exclusive right to manufacture, distribute and market beer products, as defined,
in specified territories, as well as use trademarks and tradenames of the
licensor. The term of the agreement is one year, renewable annually for a term
of five years pursuant to certain minimum sales quotas set forth in the
agreement. If a minimum sales volume has been met at the end of year five of the
agreement, the agreement can be extended for an additional term, as defined,
upon payment of a $100,000 extension fee. Pursuant to the terms of the
agreement, the Company paid $25,000 in cash, issued 6,500 shares of its common
stock valued at $33,800 (see Note 8) to acquire the rights under the agreement,
paid certain fees and expenses totaling $5,000, and paid advance royalties of
$10,000. The agreement provides for the payment of a $25,000 licensing fee upon
the commencement of year two of the agreement. Such amounts, excluding the
advanced royalties and the second year licensing fee, have been capitalized as
deferred licensing fees in the accompanying consolidated balance sheet at
September 30, 1996 (unaudited) (see Note 2); advance royalties of $10,000 are
included in prepaid expenses and other current assets in such consolidated
balance sheet at September 30, 1996 (unaudited). In addition, the Company is
obligated to pay royalties ranging from $0.20 to $0.242 per gallon over the life
of the agreement, as defined, and royalties of 10% of the gross profit from the
sale of any merchandise with the licensor's tradename, as defined.

Contract Brewing Agreements

The Company has entered into four contract brewing agreements whereby the
Company, through its subsidiaries and affiliated companies, will produce
specific beer products and the counterparty will purchase such specified
products, as defined. The agreements specify the prices at which such products
are to be purchased, but do not specify the quantities to be produced by the
Company and purchased by the counterparty. The terms of the agreements are one
year, generally cancelable with 30 days notice. Management believes such
contracts will be entered into from time to time with other parties in the
normal course of business until such time the Company utilizes all available
facilities.

Management Agreement

In anticipation of consummating the Exchange Agreement, effective June 10,
1996, the Company entered into a management agreement with OEBC, whereby BWI
manages and operates the brewery operations of OEBC. As compensation for the
management services provided, the Company is to receive $6,500 per month, plus
reimbursement of expenses, as defined. The agreement terminates upon
consummation of the proposed IPO. Included in investments in and advances to
affiliates in the accompanying consolidated balance sheet is $24,050 (unaudited)
of past due management fees at September 30, 1996.

F-47
115

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

Management fee income under this agreement totaled $24,050 (unaudited) for the
nine-month period ended September 30, 1996 and is reflected in the consolidated
statement of operations.

Also see Note 11, for discussion regarding a management agreement effective
upon consummation of the proposed IPO.

Consulting Agreement

On January 5, 1996, the Company entered into a design, advertising and
marketing agreement. In November 1996, the Company agreed to issue qualified
incentive stock options pursuant to its plan (see Note 8) to purchase 110,000
shares of common stock at an exercise price of $5.20 per share in lieu of
$67,500 in fees. The value of the services which will be satisfied through the
issuance of such options will be charged to operations with a corresponding
credit to common stock as such services are provided.

Litigation

The Company and its subsidiaries are currently not involved in any material
pending legal proceedings. Other than as described below, the management of the
Company is not aware of any material legal proceedings threatened against it.

A lawsuit was brought against the Company, certain of its officers and its
former investment banker in Los Angeles Superior Court, alleging, among other
things, that the Plaintiff is entitled to compensation for the proposed
Partnership with St. Stan's and the proposed acquisition with OEBC. Management
has reached a tentative verbal settlement with the Plaintiff whereby the Company
will pay $400,000 and issue 30,000 shares of its common stock valued at $5.70
per share. The Company is expected to pay $200,000 upon the execution of the
settlement agreement, $150,000 upon the close of the Company's proposed IPO and
$50,000 13 months from January 1, 1997. The shares will be subject to demand
registration rights 180 days after the effective date of the proposed IPO.
Accordingly, management recorded a provision for loss totaling $571,000
(unaudited) in the accompanying consolidated statement of operations for the
nine-month period ended September 30, 1996.

Certain other claims were brought by or against the Company. In the opinion
of management, the ultimate outcome of these matters will not have a material
adverse effect on the Company's consolidated operations or financial position.

NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

The Company is authorized to issue up to 20,000,000 shares of common stock,
no par value and up to 5,000,000 shares of preferred stock, no par value. Since
the Company's incorporation, no preferred shares have been issued.

The Company has issued its common stock, and common stock purchase options
and warrants for cash, services rendered and interest since its inception. There
is currently no significant market for trading of the Company's common stock.
The Company's Board of Directors, through consensus, is responsible for
assessing the estimated fair value of the shares based on relevant information
available. In 1995, the Board of Directors have generally used the value of the
consideration received (e.g. the private placement proceeds), or services
rendered to the Company, to determine the estimated fair value of its common
stock. Subsequent to the closing of the private placement, the Board of
Directors determined the estimated fair value of common stock transactions using
the estimated proposed IPO price per share of $6.00. In the event the securities
are issued

F-48
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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)
AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) -- (CONTINUED)

under Commission Rule 144 of the 1933 Act, the Board of Directors reflected a
discount of 15% from the estimated proposed IPO price (approximately $5.10 per
share) due to the transferability restrictions. Should the shares have
registration rights (demand or best efforts) under the Commission Act of 1933,
the Board of Directors reflected a discount of 5% from the estimated proposed
IPO price (approximately $5.70 per share).

Common stock transactions since incorporation (August 2, 1995) through
December 31, 1995, and during the nine-month period ended September 30, 1996
(unaudited) are as follows:

On August 2, 1995 (incorporation), the Company issued 245,310 shares
of common stock to its founders for cash at $0.01 per share. No
compensation expense was charged to operations as the value of the shares
was deemed nominal.

On October 6, 1995, the Company issued 1,549,100 shares of common
stock to certain investors for cash at $0.05 per share. No compensation
expense was charged to operations as the value of the shares was nominal in
light of the fact the Company had no material assets or operations. On
November 22, 1996, the Company entered into an agreement with a holder of
1,342,700 shares of common stock of the Company (such shares were
originally issued by the Company in October 1995) (the "Stock Retirement
Agreement"). The Stock Retirement Agreement requires the stockholder to
surrender 1,160,216 shares of common stock to the Company. In consideration
for such surrender, the Company is to provide the stockholder with
registration rights for the 182,484 shares not surrendered. The
registration rights provide for such shares to be registered in the
Company's anticipated IPO, with such shares being subject to a 12-month
staggered "lock-up" agreement, as defined.

On October 6, 1995, the Company sold warrants to purchase 2,810,000
shares of the Company's common stock at $8.25 per share to an investor for
cash at $0.01 per share ($28,100) under the warrant agreement (also see
warrants issued to purchase 192,000 shares discussed below). On December
10, 1996, the Company and the holder entered into a mutual general release
agreement whereby warrants to purchase 2,110,000 were retired. The
remaining warrants were modified to reduce the exercise price to the lesser
of 105% of the proposed IPO price or $8.25 per share. The warrants are
fully vested, expire five (5) years from the proposed IPO date and are
callable by the Company at $0.01 each provided that the closing bid price
of the Company's stock equals 200% of the warrant exercise price for a
specified period, as defined. The shares underlying such warrants are
expected to be registered in the Company's proposed IPO, subject to a
6-month "lock-up" agreement, as defined, which restricts the sale of such
securities. Although the exercise price of the warrant was higher than the
estimated fair value of the underlying common stock, the purchase price was
deemed appropriate due to the right to purchase a significant block of
common stock under the terms of the agreement. The purchase price of
$28,100 was reflected in the accompanying consolidated statements of
stockholders' equity (capital deficiency).

On November 8, 1995, the Company issued 142,276 shares of common stock
valued at an effective price of approximately $4.00 per share in connection
with the Heritage acquisition (see Note 1). Such shares issued include
16,000 shares which have registration rights.

On November 12, 1995, the Company issued 49,015 shares of common stock
valued at $4.00 per share to two former stockholders of Heritage, one of
which is an officer and director of the Company. Such individuals are
considered experts in craft brewing operations and have performed certain
consultations to the Company related thereto. Accordingly, the Company
charged $196,060 to operations during the period ended December 31, 1995
for services rendered.

F-49
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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) -- (CONTINUED)

On November 12, 1995, the Company issued 5,333 shares of common stock
valued at $4.00 per share for interest to two former stockholders of
Heritage and current debt holders of the Company (Note 6). Accordingly, the
Company charged $21,332 to operations during the period ended December 31,
1995 for interest expense.

On November 15, 1995, the Company issued 16,583 shares of common
stock, valued at $4.00 per share to certain parties for consulting services
provided to the Company. Accordingly, the Company charged $66,332 to
operations during the period ended December 31, 1995 for services rendered.

On November 20, 1995, the Company engaged a placement agent to sell up
to 400,000 shares of its common stock at $4.00 per share. This private
placement was intended to comply with exemptions promulgated under Rule 506
of Regulation D. Such shares are expected to be registered in the Company's
proposed IPO, subject to a 13-month lock-up agreement, as defined. Through
December 31, 1995, the Company issued 333,746 shares of its common stock
for aggregate proceeds of $1,166,666, net of offering costs of $168,318.

In April 1996, the Company issued an additional 80,000 shares of
common stock for aggregate proceeds of $277,280, net of offering costs of
$42,720 under its private placement discussed in the preceding paragraph.

On February 3, 1996, the Company issued 6,500 shares of common stock
valued at $5.20 per share pursuant to the terms of a license agreement.
Such shares are expected to be registered in the Company's proposed IPO,
subject to a 13-month "lock-up" agreement, as defined. The shares issued
were deemed consideration for acquiring its rights under the agreement and,
accordingly, the Company capitalized $33,800 for such value as deferred
licensing fees in the accompanying consolidated balance sheet at April 30,
1996 (see Notes 2 and 7).

In April 1996, the Company issued warrants to purchase 35,000 shares
of its common stock at $4.75, each full exercisable and expiring April 20,
1999. The underlying common stock has registration rights in the proposed
IPO, subject to a 6-month "lock-up" agreement, as defined. The Board of
Directors determined the estimated fair value to be $5.70 per share and,
accordingly, $33,250 was capitalized as deferred financing cost to be
amortized to interest expense over the term of the loan (Notes 2 and 5).

On September 9, 1996, the Company closed a second private placement of
15,000 common stock purchase units for $150,000, net of offering costs of
$24,999. Each unit consists of two shares of common stock and one common
stock purchase warrant exercisable at $7.00 per share. Such shares and
shares underlying the warrants are expected to be registered in the
Company's proposed IPO, subject to a staggered four-month "lock-up"
agreement. The warrants are immediately exercisable and expire in five
years.

Since incorporation, the Board of Directors approved the issuance of
certain common stock purchase options and warrants at various exercise prices as
deemed appropriate by the Board of Directors.

In October 1995, the Board of Directors approved the grant of warrants to
purchase 192,000 shares to certain investors and directors of the Company, the
underlying shares of which are expected to be registered in the Company's
proposed IPO, subject to a 6-month "lock-up" agreement, as defined. In December
1996, the terms of the warrants were amended. Each warrant entitles the holder
to purchase one share of common stock at an exercise price of the lesser of 105%
of the proposed IPO price or $8.25 per share, as amended, and is fully

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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) -- (CONTINUED)

vested as of the date of grant. The warrants are callable by the Company at $.01
each provided that the closing bid price of the Company's stock equals 200% of
the warrant exercise price for a specified period, as defined. The exercise
price substantially exceeds the estimated fair value of underlying common stock
at the date of grant. Such options expire five (5) years from the proposed IPO
date. In addition, the Board of Directors granted the Company's securities
counsel options to purchase 15,583 shares of common stock at $4.50 per share
under similar terms as described above.

In August 1996, the Board of Directors adopted, subject to stockholder
approval, an incentive stock option plan meeting the requirements of Section 422
of the Internal Revenue Code. The plan reserves 1,500,000 shares for issuance
over a term of 10 years. The Board of Directors approved the grant of options to
purchase 1,091,000 shares, exercisable at $5.20 per share (unless such options
are granted to a 10% stockholder, in which case the exercise price would be no
less than 110% of fair value). The options vest ratably over a period of four
(4) years. No compensation expense was attributed to the options granted as the
exercise price exceeded the estimated $5.10 fair value of the underlying shares.

In August 1996, the Board of Directors adopted, subject to stockholder
approval, a nonqualified stock option plan. The Board of Directors granted
options to purchase 933,500 shares at $5.10 per share. The options vest
immediately and are exercisable at the end of four (4) years, subject to an
acceleration clause if certain profitability levels are achieved, as defined.
The options expire in 2006. No compensation expense was attributed to the
options granted as the exercise price equaled the $5.10 estimated fair value of
the underlying shares.

The following table summarizes activity of the common shares available for
purchase, and their range of per share prices, during the period ended December
31, 1995 and the nine-month period ended September 30, 1996:

NUMBER OF PRICE
SHARES PER SHARE
--------- -----------

Balances at August 2, 1995.......................... -- --
Granted........................................... 3,015,583 $4.50-$8.25
Exercised......................................... -- --
Canceled.......................................... -- --
--------- -----------
Balances at December 31, 1995....................... 3,015,583 $4.50-$8.25
Granted........................................... 1,938,500 4.75- 5.20
Exercised......................................... -- --
Canceled.......................................... -- --
--------- -----------
September 30, 1996 (unaudited)...................... 4,954,083(1) $4.50-$8.25
========= ===========
Shares exercisable at September 30, 1996
(unaudited)....................................... 3,085,478(1)
=========

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

(1) Warrants to purchase 2,110,000 shares at $8.25 were retired in December 1996
as discussed above. The tables above have not been adjusted for such
retirement.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("Statement No. 123"). Statement No. 123 is primarily a disclosure standard for
the Company because the Company will continue to account for employee

F-51
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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 8 -- STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) -- (CONTINUED)

stock options under Accounting Principles Board Opinion No. 25. The disclosure
requirements for the Company required by Statement No. 123 will be effective for
the Company's 1996 financial statements. Because of a lack of a market in the
Company common stock, the proforma effects on operations of the employee stock
options were not determinable.

NOTE 9 -- RELATED PARTY TRANSACTIONS

Investments In and Advances To Affiliates

Investments in and advances to affiliates consist of the following at
September 30, 1996 (unaudited):

Formation costs relating to the Partnership....................... $ 98,735
Acquisition costs relating to OEBC................................ 72,977
OEBC management fees receivable (see below)....................... 24,050
Advances.......................................................... 10,749
--------
$206,511
========

The Company intends to treat the Partnership formation costs as
organizational costs, to be capitalized and amortized to expense over a period
of five years. The Company intends to treat the OEBC acquisition costs incurred
to date as part of the overall purchase price to be paid in such acquisition.
Such costs will have the effect of increasing goodwill, which will be
capitalized and amortized to expense over a period of ten years. In the event
that the proposed IPO is unsuccessful, such amounts will be charged to
operations to the extent they are unrecoverable.

Due To Affiliate

During 1996, the Company utilized the brewing facilities of OEBC to brew
and bottle beer for Heritage. In connection therewith, certain raw materials
were purchased, at cost, from OEBC by Heritage. At September 30, 1996
(unaudited), due to affiliate in the accompanying consolidated balance sheet
represents the cost to the Company for such brewing and bottling services, and
inventory purchased.

License Agreement

In August 1995, the Company entered into a license agreement to obtain an
exclusive right to sell non-alcoholic beverages in a specified territory. The
president of the Company was also the former president of the non-alcoholic
beverages company. The agreement is in effect until terminated by either party,
as defined. The Company is obligated to pay $0.50 for every case of licensed
product sold. In addition, the Board of Directors approved the acquisition of
this company; however, in 1996, the Board of Directors resolved that the
acquisition be postponed indefinitely. During the nine months ended September
30, 1996, the Company paid $30,000 (unaudited) to this entity which was charged
to operations as the ultimate realizability of such fees, through future sales
of the licensed products, was not assured.

Notes Payable and Capital Leases

The Company has entered into certain notes payable with related parties
which are further discussed in Note 6. As discussed in Note 11, the Company will
be required to assume and/or repay certain debt on behalf of or payable to
persons or entities, which after the proposed IPO, will be stockholders of the
Company. In

F-52
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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 9 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)

addition, the Company will assume a capital lease obligation from a company
controlled by a significant stockholder of OEBC upon the close of the proposed
IPO (Note 11).

Management Agreements

The Board of Directors approved a series of management agreements with
certain officers and key employees for terms of generally three years (Note 7).
Upon the consummation of the proposed IPO, new management agreements will be
executed. See Note 11 for further discussion of these management agreements to
be in effect upon the close of the proposed IPO.

The Board of Directors approved certain fees for their services to the
Company. In November 1995, the Board of Directors approved the payment of
$25,000, per director, for future services to be rendered from January 1, 1996
to December 31, 1996. In order to reduce the Company's cash commitments, certain
directors (three) agreed to waive their fees permanently. The Board of Directors
has approved $50,000 (unaudited) for payments to be made to two Directors, which
have been accrued in the accompanying consolidated balance sheet at September
30, 1996 and $25,000 (unaudited) has been paid by the Company to one Director at
September 30, 1996.

NOTE 10 -- INCOME TAXES

The benefit for income taxes in the accompanying consolidated statement of
operations consists of the reduction of the deferred tax liability associated
with the nondeductible depreciation expense for tax reporting purposes charged
to operations, using an effective tax rate of approximately 40%.

A reconciliation of the benefit for income taxes to expected income tax
benefit computed by applying the Federal statutory income tax rate of 34% to the
loss before provision for income taxes for the period ended December 31, 1995 is
as follows:

AMOUNT %
--------- -----

Income tax benefit computed at Federal statutory tax
rate................................................... $(189,199) (34.0)%
State income taxes, net of 50% limitation on loss
carryforwards.......................................... (15,757) (2.8)
Expenses not deductible for income tax purposes and
other.................................................. 2,920 0.1
Increase in the valuation allowance for deferred tax
assets................................................. 194,330 35.3
--------- -----
Benefit for income taxes................................. $ (7,706) (1.4)%
========= =====

The components of deferred tax assets and liabilities recorded in the
accompanying balance sheet at December 31, 1995 are as follows:

Deferred tax asset:
Net operating loss carryforwards............................... $ 214,086
Less valuation allowance....................................... (214,086)
---------
$ --
=========
Deferred tax liability -- nondeductible basis of assets acquired
from Heritage in tax-free exchange............................. $ 442,478
=========

The valuation allowance increased $214,086 during the period ended December
31, 1995. The deferred tax liability was established from the expected tax-free,
stock-for-stock exchange with Heritage. Such amount

F-53
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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND

THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO SEPTEMBER 30, 1995 (UNAUDITED)

AND FOR THE PERIOD FROM INCORPORATION (AUGUST 2, 1995) TO DECEMBER 31,
1995 -- (CONTINUED)

NOTE 10 -- INCOME TAXES -- (CONTINUED)

represents the difference in the nondeductible tax bases of property and
equipment acquired upon the acquisition. At December 31, 1995, the Company had
Federal and state net operating loss carryforwards of approximately $571,188 and
$331,371, respectively, available to offset future taxable Federal and state
income. The federal and state carryforward amounts expire in varying amounts
through 2010 and 2000, respectively.

Due to the change in ownership provisions of the Tax Reform Act of 1986,
net operating loss carryforwards for federal income tax reporting purposes may
be subject to annual limitations upon future stock issuances. Upon the
acquisition of Heritage (Note 1), a change in ownership occurred, and
accordingly, such net operating loss carryforwards will be limited as to use,
annually.

NOTE 11 -- SUBSEQUENT EVENTS

Purchase Commitment

Subsequent to September 30, 1996, the Company entered into an arrangement
whereby it has committed to purchase beer kegs totaling $167,000.

Keg Management Agreement

Effective December 2, 1996, Heritage entered into a keg sale-lease back
arrangement with a vendor. The agreement provides for the vendor to purchase
kegs identified by Heritage, in increments of 100 units, at specified prices, as
defined. Heritage is required to lease back such kegs from the vendor for a
$5.00 to $15.00 usage fee per filling, as defined. During the term of the
agreement, Heritage is required to satisfy all of its keg usage needs through
the lease of such kegs from the vendor, except for usage obtained through keg
inventory retained by Heritage at the inception of the agreement. The term of
the agreement is for five years, terminable for cause, as specified, with 30
days written notice. Upon termination of the agreement, Heritage will be
required to repurchase all kegs sold to the vendor at prices (which decline as
the kegs age) which are predetermined at the original date of sale. The
agreement provides that Heritage may not enter into a similar agreement with a
competitor of the vendor for a period of three years from the date of
termination.

The Company will account for this transaction as a financing, whereby the
proceeds received from the vendor for the sale of the kegs will be recorded as a
liability. The usage fees will be recorded as interest expense as incurred. The
repurchase obligation will be assessed quarterly; any difference between the
repurchase obligation and the carrying value of the liability will be recorded
through an adjustment to interest expense.

Lease Agreement

Effective January 1, 1997, the Company has entered into an agreement to
sublease, on a month-to-month basis, office space from an officer, director and
stockholder of the Company. The agreement provides for the monthly payment of
$1,280.

Employment Contracts

As discussed in Note 7, the Company has entered into employment contracts
with five of its employees, including three officers, which expire on various
dates through May 10, 1998. Such management agreements will be canceled and
replaced with new agreements upon the consummation of the proposed IPO. Certain
of

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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)

the new employment contracts provide for substantial incentive compensation if
certain revenue levels are achieved, as defined. No incentive compensation has
been paid through September 30, 1996. The employment contracts also provide for
certain expense allowances and participation in the Company's incentive stock
option plan and nonqualified stock option plan (Note 8).

Future annual minimum base salaries plus allowances under new management
agreements, subject to the consummation of the proposed IPO in the aggregate,
consist of the following assuming the consummation of the proposed IPO is on
January 1, 1997:

YEARS ENDING
DECEMBER 31,
-------------

1997.................................................. $ 711,200
1998.................................................. 712,400
1999.................................................. 497,148
2000.................................................. 330,800
----------
$2,251,548
==========

Bridge Financing

On December 10, 1996, the Company issued a $250,000 promissory note to a 7%
stockholder of the Company, interest at 12% per annum, principal, together with
interest, is due upon the earlier of the proposed IPO raising gross proceeds of
at least $6,000,000 or September 1, 1997.

Consulting Agreement

On December 28, 1996, the Company entered into a consulting agreement with
an individual to provide financial advisory services relating to the Company's
proposed IPO for a period of one year. In connection therewith, the Company is
obligated to pay $10,000 and issue 60,000 shares of its common stock. Certain of
the shares (totalling 30,000) have demand registration rights effective 180 days
after the close of the Company's proposed IPO. The remaining 25,000 shares are
to be registered in the Company's proposed IPO, with such shares subject to a
three-month "lock-up" agreement, as defined. Accordingly, such shares will be
valued at $5.70 (see share valuation discussion at Note 8) and will be charged
to operations during 1997.

Proposed Public Offering

The Company has negotiated a letter of intent on a "firm commitment" basis
with an underwriter to place 1,500,000 shares of the Company's common stock at
an estimated offering price of $6.00 per share and 1,500,000 Redeemable common
stock purchase warrants with an exercise price of $6.00 per share for five (5)
years at an estimated offering price of $0.15 per warrant. The letter of intent
provides for options to be issued to the Underwriter to purchase units, payment
by the Company of certain fees and expenses aggregating 13% of the gross
proceeds raised in an offering, restrictions on sales by the Company and its
affiliates and certain other warranties and covenants. Also, the Underwriter
would be granted an option to purchase an additional 15% of the total units
issued in the offering solely to cover over-allotments.

In connection with the proposed IPO, the Company granted the underwriter an
option to purchase (the "Purchase Option") consisting of 150,000 shares of
common stock and 150,000 common stock purchase warrants (the "Representative
Warrants") for 120% of the proposed IPO price (based on an assumed price

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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)

per share of $6.00, the Purchase Option price would be $7.20 each). The
Representative Warrants are exercisable one year after the closing date of the
Company's proposed IPO. The Representative Warrants will expire five (5) years
from the closing date of the proposed IPO.

The Company has also agreed that if the Company participates in any merger,
consolidation or other such transactions which the Underwriter has brought to
the Company during a period of five years after the closing of the Offering, and
which is consummated after the closing of the Offering (including an acquisition
of assets or stock for which it pays, in whole or in part, with shares or other
securities), then the Company will pay for the Underwriter's services in an
amount equal to 5% of up to one million dollars of value paid or received in the
transaction, 4% of the next million dollars of such value, 3% of the next
million dollars of such value, 2% of the next million dollars of such value and
1% of the next million dollars and all of such value above $4,000,000.

Transactions Proposed With Orange Empire Brewing Company

Exchange Agreement With OEBC

As discussed in Note 1, on September 11, 1996, as amended on January
7, 1997, the Company entered into the Exchange Agreement with OEBC.
Pursuant to the Exchange Agreement, the Company is to issue 141,063 shares
of its common stock, subject to adjustment (based on the change in net
assets of the OEBC, as defined), in exchange for all of the outstanding
shares of the OEBC. In addition, up to 155,000 additional shares of the
Company's common stock may be issued, if OEBC reaches certain production
levels, as defined. Pursuant to the Exchange Agreement, the exchange is to
occur concurrently with the consummation (the "Closing Date") of the
Company's proposed IPO. If for any reason the proposed IPO does not occur
on or before March 31, 1997 or the proposed IPO does not raise in the
aggregate $6,000,000, either party may unilaterally terminate the Exchange
Agreement.

Should such additional shares of the Company's common stock be issued,
the value of such shares will be deemed additional purchase consideration.

Management Agreements

In connection with the Exchange Agreement, the Company entered into a
management agreement (the "Management Agreement") with certain stockholders
of OEBC whereby they are to manage and operate the brewpub operations of
OEBC from the Closing Date through December 31, 1998. As compensation for
such services, they are to receive 10,000 shares of the Company's common
stock. Such shares are to be issued on a pro rata basis over the term of
the Management Agreement. In addition, the brewpub managers are obligated
to the Company for quarterly cash flow deficits, if any, as defined, during
the term of the Management Agreement (up to a maximum deficit of $7,500 per
quarter). The Management Agreement can be terminated by mutual written
consent or in the event of a breach, as defined.

The Company anticipates that it will value such shares at $5.10 per
share (see share valuation discussion at Note 8). The value of such shares
will be ratably charged by the Company to expense as the related services
are performed.

Also see Note 7 for discussion regarding a management agreement in effect
at September 30, 1996.

Consulting Agreement

In connection with the Exchange Agreement, the Company will enter into
a two-year consulting agreement with a significant stockholder of OEBC. The
agreement requires the stockholder to provide brewery advisory services and
assistance with the acquisition and disposition of equipment. For such

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BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)

services, the Company will issue 5,000 shares of its common stock at the
end of each twelve-month period commencing on the Closing Date.

Capital Lease Agreement Amendment

In connection with the Exchange Agreement and concurrent with the
Closing Date, a related party is required to enter into an agreement with
the Company to modify the existing terms of a capital lease obligation. In
consideration for such modifications, the Company will issue the related
party 50,000 shares of common stock. The modifications to the capital lease
obligation are to include a reduction in the effective interest rate to
10%, a provision that all such leased equipment may be purchased by the
Company for $1 upon expiration of the lease, the inclusion in the lease
obligation of all delinquent lease payments due through December 31, 1995
(see Note 7), and a reduction of the lease obligation in the amount of
$500,000. The dollar amount of the lease payments are to be unaffected by
the aforementioned changes in terms through December 31, 1997 (monthly
lease payments currently total $22,281). Effective January 1, 1998, all
amounts unpaid under the current lease obligation will be consolidated into
one five-year lease and the monthly payments will be revised accordingly
(the anticipated lease payment effective January 1, 1998 totals $12,151).
Lease payments that the lessor was to receive for the period January 1,
1996 through September 30, 1996 (which payments total $140,488) (unaudited)
have been repaid through the issuance of OEBC common stock.

The Company anticipates that it will value such shares at $5.10 per
share (see share valuation discussion at Note 8). The total value of such
shares is estimated at $255,000. The Company will recognize the estimated
$245,000 difference between the carrying value of the capital lease
obligation and the fair value of the common stock as an extraordinary gain
in the consolidated statement of operations in the period such transaction
occurs.

Note Payable to Bank

In connection with the Exchange Agreement and concurrent with the
Closing Date, a note aggregating approximately $533,493 (unaudited) at
September 30, 1996 due to a bank by OEBC are required to be divided into
two notes. The stockholders will assume a note totaling $220,941 without
further obligation of the Company, and the remaining principal balance of
the notes (which approximates $312,552 (unaudited) at September 30, 1996),
will be paid to the bank by the Company. In consideration for assuming a
portion of the OEBC's debt obligations, the stockholders will be issued
27,618 shares of BWI common stock. If on January 1, 1999, the per share
market value of BWI common stock is less than $6.00, the Company will issue
to such stockholders an additional 9,227 shares of its common stock.

The Company anticipates that it will value such shares at $5.10 per
share (see share valuation discussion at Note 8). The total value of such
shares is estimated at $140,850. The Company will recognize the estimated
$80,091 difference between the carrying value of the debt and the fair
value of the common stock as an extraordinary gain in the consolidated
statement of operations in the period such transaction occurs.

F-57
125

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)
Notes Payable To Stockholders

At September 30, 1996, OEBC has $644,000 (unaudited) of indebtedness
due to certain related parties (consisting of $574,192 (unaudited) in
principal and $69,808 (unaudited) in accrued interest). Upon the
consummation of the proposed IPO, such indebtedness is to be satisfied as
follows: (1) $301,000 is to be paid in cash, and (2) $343,000 is to be
refinanced with a new non-interest bearing promissory note which will
mature in 90 days, payable in cash and/or up to 24,125 shares of the
Company's common stock and/or up to 50,000 warrants to purchase shares of
the Company's common stock at an exercise price of $5.00 per share, based
on a formula, as defined.

The Company anticipates that it will value the shares and warrants at
$5.10 per share (see share valuation discussion at Note 8). The Company
will amortize to expense the $.10 difference (totaling $5,000) between the
exercise price of the warrants and the fair value of the underlying common
stock over the 90-day period. The Company will recognize the estimated
$219,962 difference between the carrying value of the debt and the fair
value of the common stock as an extraordinary gain in the consolidated
statement of operations in the period such transaction occurs.

Stockholder Advances

In connection with the Exchange Agreement, the Company has agreed to
use up to $150,000 of the proceeds from the proposed IPO to repay advances
made by one stockholder of OEBC during the period May 1, 1996 through the
Closing Date, including deferred lease payments as discussed above. At
September 30, 1996, OEBC has borrowed $85,000 (unaudited) under such
agreement.

Agreements Not to Compete

In connection with the Exchange Agreement and concurrent with the
Closing Date, the Company has agreed to enter into
agreements-not-to-compete with certain stockholders of OEBC for a period of
three years in specified territories. Management will ascribe no value to
the agreements as management believes that such agreements are not a
material component to the Exchange Agreement.

Transactions Proposed Prost Partners Limited Partnership

BWI -- Prost Partnership Agreement

On December 17, 1996, the Company formed a California general
partnership with St. Stan's, BWI-Prost Partners. Pursuant to the terms of
the BWI-Prost Partners partnership agreement, St. Stan's has agreed to
contribute substantially all of its assets, net of certain liabilities, to
the Partnership for a 49% minority interest in the Partnership. BWISS has
agreed to contribute $2,295,000 to the Partnership for a 51% controlling
interest in the Partnership. The BWISS consideration is to be tendered in
cash commencing 18 months from the proposed IPO and the assumption of
certain debt (as discussed below) on the contribution date, the
"Contribution Date", the date of the successful consummation of an initial
public offering (the "IPO") of BWI's common stock, occurring on or before
March 31, 1997, realizing minimum proceeds of at least $8,000,000 (before
any deductions, including, but not limited to, underwriters' compensation
and expenses).

The profits and losses of the Partnership are to be allocated based on
each partner's respective ownership interest, subject to special
allocations as defined. The Partnership is to be managed by a five member
joint management committee (the "Committee") until dissolution of the
Partnership. BWISS will maintain three of the five positions on the
Committee. Substantially all management decisions of the committee are to
be approved by a majority vote of the members.

F-58
126

BEVERAGE WORKS, INC. AND SUBSIDIARY

NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)

The Partnership Agreement contains a buy-out provision whereby BWISS,
during a three year period commencing with the Contribution Date, can
purchase St. Stan's 49% interest in the Partnership for $2,205,000. If
BWISS does not elect to purchase such interest at the end of the third
year, St. Stan's has the right to purchase BWISS's 51% interest at
appraised value less all accrued Partnership liabilities, as adjusted. If
St. Stan's does not elect to purchase BWISS's 51% interest, BWISS has the
right to purchase St. Stan's 49% interest at appraised value less all
accrued Partnership liabilities, of tangible assets plus a predetermined
formula of modified earnings, as adjusted. If neither partner elects to
purchase the other partner's interest, such non-purchase is deemed a
liquidating event, as defined.

The Partnership Agreement contains provisions (the "Breach
Provisions") should either partner breach its responsibilities pursuant to
the Partnership Agreement, as defined. The Breach Provisions provide that
the breaching partner ceases to be a partner of the Partnership if such
breach is not cured within 120 days. The breaching partner is to receive
breach payments, as defined, in compensation for withdrawal from the
Partnership.

The BWISS Contribution

In accordance with the Partnership Agreement, BWISS is required to
make its $2,295,000 capital contribution through debt assumption and
periodic payments as follows: (1) the full assumption and partial repayment
of the note payable from the Partnership (which totals $668,927 at
September 30, 1996, unaudited), (2) the full assumption and repayment of
notes payable to related party from the Partnership (which total $459,120
at September 30, 1996, unaudited), (3) six cash payments of $100,000 to the
Partnership, each payable 18, 21, 24, 27, 30 and 33 months from the
Contribution Date, and (4) a cash payment of the remaining unpaid capital
contribution, subject to adjustment as defined, 36 months from the
Contribution Date, and (5) the net current asset decrease, as defined, 60
months from the Contribution Date. If the gross proceeds of the BWI
proposed IPO exceed $10,000,000, BWISS is required to make a payment on its
capital contribution 30 days from the Contribution Date; such payment will
be equal to 10% of the gross proceeds in excess of $10,000,000, up to
$300,000.

In the event BWISS fails to make such payments, Prost may acquire
BWISS' interest in the Partnership based on (i) the fair market value of
the Partnership's tangible assets plus (ii) the Partnership's modified net
income for the preceding twelve months multiplied by three less (iii)
accrued and contingent liabilities. This amount would likely be for less
than the amount contributed by BWISS.

The unpaid portion of the BWISS capital contribution bears interest at
10% per annum, subject to adjustment as defined, payable quarterly
beginning April 30, 1998.

The Note Payable

BWISS has obtained a commitment letter from the lender to refinance
the note payable that BWISS is to assume from the Partnership on the
Contribution Date (see discussion above). The lender requires a principal
reduction payment be made such that the outstanding balance of the note
will be $500,000. The revised note payable will bear interest at a variable
rate ranging from 11% to 16% per annum, with principal and interest payable
monthly based on a 15 year amortization period, with all unpaid principal
and interest due in five years.

Employment Agreements

On the Contribution Date, the Company is to execute employment
agreements with two of the officers of the general partner of Prost
Partners Limited Partnership (see discussion above).

F-59
127

INDEPENDENT AUDITORS' REPORT

To the General Partner
Prost Partners Limited Partnership

To the Board of Directors
Beverage Works, Inc.

We have audited the accompanying historical statement of assets and
liabilities (the "St. Stan's Brewery and Brewpub Operations") to be contributed
to BWI-Prost Partners, a California general partnership in the process of
formation, by Prost Partners Limited Partnership, a California limited
partnership, as of December 31, 1995, and the related historical statements of
operations of assets and liabilities to be contributed, changes in equity of
assets and liabilities to be contributed, and cash flows of asset and
liabilities to be contributed for each of the years in the two-year period ended
December 31, 1995. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form SB-2 of Beverage
Works, Inc. as described in Note 1), and are not intended to be a complete
presentation of the financial position, results of operations or cash flows of
Beverage Works, Inc. or Prost Partners Limited Partnership.

In our opinion, the historical financial statements referred to above
present fairly, in all material respects, the financial position of the St.
Stan's Brewery and Brewpub Operations to be contributed to BWI-Prost Partners by
Prost Partners Limited Partnership as of December 31, 1995, and the results of
their historical operations and cash flows for each of the years in the two-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.

As discussed in Note 2 to the financial statements, the St. Stan's Brewery
and Brewpub Operations have had recurring net losses and working capital
deficits. The St. Stan's Brewery and Brewpub Operations have received financial
support in the form of advances from the general partner of Prost Partners
Limited Partnership during the past two years to cover these recurring working
capital demands. Should the St. Stan's Brewery and Brewpub Operations continue
to incur losses, the general partner of Prost Partners Limited Partnership, and
the general partners of BWI-Prost Partners upon the close of the Beverage Works,
Inc. proposed initial public offering (Note 1), will be required to provide
additional financial support. The lack of such financial support could have a
material adverse effect on the financial condition and/or results of operations
of the St. Stan's Brewery and Brewpub Operations.

CORBIN & WERTZ
Irvine, California
May 31, 1996, except for
Notes 1 and 9, as to which the

date is December 17, 1996

F-60
128

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

HISTORICAL STATEMENTS OF ASSETS AND LIABILITIES TO BE CONTRIBUTED
TO BWI-PROST PARTNERS GENERAL PARTNERSHIP (NOTES 1 AND 9)

ASSETS
(Note 5)

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Current assets:
Cash............................................................... $ 26,223 $ 68,105
Accounts receivable, less allowance for doubtful accounts of
$10,000 (unaudited) (1996) and $10,000 (1995) (Note 2).......... 110,456 84,846
Inventories (Notes 2 and 3)........................................ 194,262 197,070
Prepaid expenses and other current assets.......................... 22,359 46,404
---------- ----------
Total current assets....................................... 353,300 396,425
Property and equipment, net (Notes 2 and 4).......................... 2,373,283 2,492,400
Other assets......................................................... 25,547 14,759
---------- ----------
$ 2,752,130 $2,903,584
========== ==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable................................................... $ 92,898 $ 126,455
Accrued expenses and other current liabilities..................... 60,116 103,280
Note payable (Note 5).............................................. 25,534 21,658
Notes payable to related party (Note 6)............................ 459,120 459,120
---------- ----------
Total current liabilities.................................. 637,668 710,513
Note payable, net of current portion (Note 5)........................ 643,393 662,803
---------- ----------
Total liabilities.......................................... 1,281,061 1,373,316
Commitments and contingencies (Notes 7 and 9)
Equity in assets and liabilities to be contributed................... 1,471,069 1,530,268
---------- ----------
$ 2,752,130 $2,903,584
========== ==========

See independent auditors' report and accompanying notes to financial statements

F-61
129

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

HISTORICAL STATEMENTS OF HISTORICAL OPERATIONS OF ASSETS AND LIABILITIES

TO BE CONTRIBUTED TO BWI-PROST PARTNERS GENERAL PARTNERSHIP (NOTES 1 AND 9)

FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
------------------------------ -----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)

Sales....................................... $ 1,473,148 $ 1,603,566 $2,128,877 $1,977,805
Less excise taxes........................... (71,695) (74,313) (99,453) (86,251)
-------- -------- ---------- ----------
Net sales (Notes 2 and 8)......... 1,401,453 1,529,253 2,029,424 1,891,554
Cost of goods sold (Note 2)................. 1,022,349 1,021,013 1,396,217 1,374,318
-------- -------- ---------- ----------
Gross profit...................... 379,104 508,240 633,207 517,236
Selling, general and administrative expenses
(Note 7).................................. 418,706 415,163 583,568 518,763
-------- -------- ---------- ----------
Income (loss) from operations (Note 8)...... (39,602) 93,077 49,639 (1,527)
Interest (Notes 5 and 6).................... 82,597 76,028 98,398 104,351
-------- -------- ---------- ----------
Net income (loss)........................... $ (122,199) $ 17,049 $ (48,759) $ (105,878)
======== ======== ========== ==========

See independent auditors' report and accompanying notes to financial statements

F-62
130

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

HISTORICAL STATEMENTS OF CHANGES IN EQUITY OF ASSETS AND
LIABILITIES TO BE CONTRIBUTED TO BWI-PROST PARTNERS
GENERAL PARTNERSHIP (NOTES 1 AND 9)

FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

Equity in assets and liabilities to be contributed, January 1, 1994.............. $1,571,269
Non-cash contributions of general partner of Prost Partners Limited Partnership
(Note 7)....................................................................... 44,032
Net loss......................................................................... (105,878)
----------
Equity in assets and liabilities to be contributed, December 31, 1994............ 1,509,423
Non-cash contributions of general partner of Prost Partners Limited Partnership
(Note 7)....................................................................... 69,604
Net loss......................................................................... (48,759)
----------
Equity in assets and liabilities to be contributed, December 31, 1995............ 1,530,268
Non-cash contributions of general partner of Prost Partners Limited Partnership
(unaudited) (Note 7)........................................................... 63,000
Net loss (unaudited)............................................................. (122,199)
----------
Equity in assets and liabilities to be contributed, September 30, 1996
(unaudited).................................................................... $1,471,069
=========

See independent auditors' report and accompanying notes to financial statements

F-63
131

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

HISTORICAL STATEMENTS OF CASH FLOWS OF ASSETS AND LIABILITIES
TO BE CONTRIBUTED TO BWI -- PROST PARTNERS GENERAL PARTNERSHIP (NOTES 1 AND 9)

Cash flows from operating activities:
Net income (loss)...................................... $(122,199) $ 17,049 $ (48,759) $ (105,878)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization (Note 8).............. 148,627 137,250 179,926 174,502
Gain on disposition of assets....................... -- -- (1,701) --
Management fees (Note 7)............................ 63,000 61,864 69,604 19,372
Changes in operating assets and liabilities:
Accounts receivable, net.......................... (25,610) (1,786) 15,397 (25,532)
Inventories....................................... 2,808 (124,686) (73,643) (29,708)
Prepaid expenses and other current assets......... 24,045 6,279 (12,133) (1,066)
Accounts payable.................................. (33,557) 49,547 (1,773) (63,746)
Accrued expenses and other current liabilities.... (43,164) (631) 8,807 21,831
-------- -------- --------- ---------
Net cash provided by (used in) operating
activities................................... 13,950 144,886 135,725 (10,225)
-------- -------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment........................ -- -- 50,000 --
Purchases of property and equipment (Note 8)........... (22,462) (209,841) (307,560) (75,112)
Other assets........................................... (17,836) (21,372) (21,765) (4,059)
-------- -------- --------- ---------
Net cash used in investing activities.......... (40,298) (231,213) (279,325) (79,171)
-------- -------- --------- ---------
Cash flows from financing activities:
Payments on note payable............................... (15,534) -- (5,539) --
Net borrowings on notes payable to related party (Note
6).................................................. -- 53,595 182,212 118,692
-------- -------- --------- ---------
Net cash provided by (used in) financing
activities................................... (15,534) 53,595 176,673 118,692
-------- -------- --------- ---------
Net increase (decrease) in cash.......................... (41,882) (32,732) 33,073 29,296
Cash, beginning of period................................ 68,105 35,032 35,032 5,736
-------- -------- --------- ---------
Cash, end of period...................................... $ 26,223 $ 2,300 $ 68,105 $ 35,032
======== ======== ========= =========
Supplemental disclosures of cash flow information --
Cash paid during the period for interest............... $ 76,500 $ 76,400 $ 105,130 $ 105,612
======== ======== ========= =========

See Note 7 for supplemental disclosures of noncash financing activities

See independent auditors' report and accompanying notes to financial statements

F-64
132

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS AND LIABILITIES
TO BE CONTRIBUTED TO BWI -- PROST PARTNERS GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

NOTE 1 -- NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

Prost Partners Limited Partnership, a California limited partnership, dba
St. Stan's Brewing Company ("St. Stan's") was formed on July 26, 1988 to
construct and operate a brewery facility (the "Brewery") and an adjoining
restaurant, pub, and beer garden (the "Brewpub") in Modesto, California. St.
Stan's offered limited partnership interests to California residents who met
certain suitability standards. The general partner of St. Stan's is Stanislaus
Brewing Company, a California corporation. St. Stan's commenced operations on or
about October 12, 1990.

Beverage Works, Inc. ("BWI"), a California corporation, incorporated on
August 2, 1995, was formed to acquire interests in various craft brewing
operations. On June 25, 1996, BWI formed a wholly-owned subsidiary, BWI -- St.
Stan's, Inc. ("BWISS"). On December 17, 1996, St. Stan's entered into a
partnership agreement with BWISS named BWI-Prost Partners (the "Partnership").
Pursuant to the terms of the BWI-Prost Partners partnership agreement (the
"Partnership Agreement"), St. Stan's has agreed to contribute substantially all
of its assets, net of certain liabilities, to the Partnership for a 49% minority
interest in the Partnership. BWISS has agreed to contribute $2,295,000 to the
Partnership for a 51% controlling interest in the Partnership. The BWISS
consideration is to be tendered in cash commencing 18 months from the proposed
IPO and the assumption of certain debt (see Note 9) at the date of contribution,
the "Contribution Date", the date of the successful consummation of a proposed
initial public offering (the "IPO") of BWI's common stock, occurring on or
before March 31, 1997, realizing minimum gross proceeds of at least $8,000,000
(before any deductions, including, but not limited to, underwriters'
compensation and expenses). See Note 9 for further discussion of the terms of
the Partnership Agreement which have a significant effect on the accompanying
historical financial statements.

Basis of Presentation

The accompanying historical financial statements include the assets and
liabilities to be contributed to the Partnership by St. Stan's, and the related
historical operations and cash flows thereof (the "St. Stan's Brewery and
Brewpub Operations"). In management's opinion, these historical financial
statements include the assets and liabilities, the revenues and expenses, and
the cash flows directly identifiable with the assets and liabilities to be
contributed by St. Stan's to the Partnership. The financial statements are not
intended to represent the historical assets and liabilities and historical
operations and cash flows of St. Stan's, the Partnership or BWI.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

Fair Value of Financial Instruments

These historical financial statements contain financial instruments whereby
the fair market value of the financial instruments could be different than that
recorded on a historical basis on the accompanying historical financial
statements. The financial instruments consist of cash, accounts receivable,
accounts payable, notes

F-65
133

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

payable and notes payable to related party. The carrying amounts of the St.
Stan's Brewery and Brewpub Operations' financial instruments generally
approximate their fair values at September 30, 1996 (unaudited) and December 31,
1995. In the case of the notes payable to related party (see Note 6), it was not
practical to determine fair values due to the lack of a market for such
financial instruments.

Concentrations of Credit Risk

The customers of the Brewery operations generally consist of distributors
who resell St. Stan's Brewery and Brewpub Operations products domestically. The
St. Stan's Brewery and Brewpub Operations extends credit to its Brewery
customers and performs periodic credit evaluations of such customers. Management
of the St. Stan's Brewery and Brewpub Operations do not obtain collateral to
secure its accounts receivable. The Company maintains an allowance for doubtful
accounts. Management determines the adequacy of the allowance based on a period
review and evaluation of aged accounts receivable.

Sales generated from one customer during the nine-month period ended
September 30, 1996 (unaudited) and the year ended December 31, 1995 totaled
approximately $140,400 and $205,700, respectively, or 10% and 10.1% of net sales
for such periods. At September 30, 1996 (unaudited) and December 31, 1995,
amounts due from this customer included in accounts receivable totaled
approximately $24,700 and $31,300, respectively. At September 30, 1996
(unaudited) and December 31, 1995, accounts receivable related to another
customer totaled approximately $33,200 and $15,500, respectively. No customer
accounted for more than 10% of net sales during the nine-month period ended
September 30, 1995 (unaudited) and the year ended December 31, 1994.

St. Stan's purchases a substantial portion of its inventory (see Note 3)
from two suppliers. Purchases from these suppliers during the years ended
December 31, 1995 and 1994 totaled approximately $389,400 and $332,100,
respectively, or 39.3% and 37.2% of total purchases for such periods. Purchases
from these suppliers during the nine-month periods ended September 30, 1996 and
1995 (unaudited) totaled approximately $289,300 and $298,500, respectively, or
47.4% and 38.8% of total purchases for such periods. At September 30, 1996
(unaudited) and December 31, 1995, amounts due to these suppliers included in
accounts payable totaled approximately $50,200 and $68,800, respectively. If the
relationships between St. Stan's and these suppliers were altered, the future
results of St. Stan's Brewery and Brewpub Operations could be impacted.

Risks and Uncertainties

Financial Support

The St. Stan's Brewery and Brewpub Operations have had recurring net losses
and working capital deficits. The St. Stan's Brewery and Brewpub Operations have
received financial support in the form of advances (see Note 6) from the general
partner of Prost Partners Limited partnership during the past two years to cover
these recurring working capital demands. Should the St. Stan's Brewery and
Brewpub Operations continue to incur losses, the general partner of Prost
Partners Limited Partnership, and the general partners of BWI-Prost Partners
upon the close of the BWI proposed IPO (see Note 9), will be required to provide
additional financial support. The lack of such financial support could have a
material adverse effect on the financial condition and/or results of operations
of the St. Stan's Brewery and Brewpub Operations.

F-66
134

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Licenses and Permits

Brewery (wholesale) and Brewpub (retail) operations require various
Federal, state and local licenses and permits. Brewers are required to file with
the Federal Bureau of Alcohol, Tobacco and Firearms (the "BATF"). The California
Department of Alcoholic Beverage Control (the "ABC") requires that companies
file and maintain licenses, permits or approvals for the production and sale of
alcoholic beverages. Other state and local laws and regulations governing the
sale of alcoholic beverages within a particular state by an out-of-state brewer
or wholesaler vary by state and locality. The St. Stan's Brewery and Brewpub
Operations are subject to audit and inspection by the BATF and ABC at any time.

Should the proposed IPO and proposed joint venture be consummated,
management of the Partnership must apply for a change in the Brewery's and
Brewpub's management, and for a change in the Brewery's ownership with Federal
and state agencies. Because of the many and various Federal and state licensing
and permitting requirements, there is a risk that one or more regulatory
authorities may not approve such changes in management and/or ownership, or
determine the predecessor partnership and/or management had not complied with
applicable licensing or permitting regulations. Should St. Stan's, or
subsequently the Partnership, not maintain the approvals necessary for it to
conduct business, there could be a material adverse effect on the financial
condition and/or operations of the St. Stan's Brewery and Brewpub Operations.

Dependence on Distributors

The St. Stan's Brewery & Brewpub Operations sells its products to
independent distributors for distribution to retailers and ultimately consumers.
Sustained growth will require it to maintain such relationships and possibly
enter into agreements with additional distributors. No assurance can be given
that the St. Stan's Brewery & Brewpub Operations will be able to maintain or
secure additional distributors on terms favorable to the St. Stan's Brewery &
Brewpub Operations. The St. Stan's Brewery & Brewpub Operations has certain
significant distribution relationships. The loss of one or more of these
distributors would have a material adverse effect on the St. Stan's Brewery &
Brewpub Operations ability to bring its products to market and therefore
adversely effect its sales and results of operations. The St. Stan's Brewery &
Brewpub Operations distribution agreements are generally terminable by the
distributor on short notice. While these distribution agreements contain
provisions regarding the St. Stan's Brewery & Brewpub Operations enforcement and
termination rights, some state laws prohibit the St. Stan's Brewery & Brewpub
Operations from exercising these contractual rights. The St. Stan's Brewery &
Brewpub Operations ability to maintain existing distribution agreements or enter
new distribution agreements may be adversely affected by the fact that many
distributors are reliant on one of the major beer producers for a large
percentage of their revenue and, therefore, they may be influenced by such
producers.

Potential "Dram Shop" Liability

Some states have enacted "dram shop" laws and legislation which impose
criminal and civil liability on licensed alcoholic beverage servers for injuries
or damages caused by their negligent service of alcoholic beverages to a visibly
intoxicated person or to a minor, if such service is the proximate cause of the
injury or damage and such injury or damage is reasonably foreseeable. California
has enacted legislation granting broad immunity to servers of alcoholic
beverages from civil liability, except for the sale of alcoholic beverages to
minors. While the St. Stan's Brewery & Brewpub Operations maintains liquor
liability insurance as part of its comprehensive general liability insurance
which management believes is adequate to protect against such liability, there
can be no assurance that the St. Stan's Brewery & Brewpub Operations will not be
subject to a judgment or fine in excess of such insurance coverage or that it
will be able to continue to maintain such

F-67
135

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

insurance coverage at reasonable costs or at all. The imposition of a judgment
or fine substantially in excess of the St. Stan's Brewery & Brewpub Operations
insurance coverage would have a material adverse effect on the St. Stan's
Brewery & Brewpub Operations. Similarly, the failure of the St. Stan's Brewery &
Brewpub Operations to obtain and maintain insurance coverage could also
materially and adversely affect the St. Stan's Brewery & Brewpub Operations.

Regulation

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

Trademarks

The St. Stan's Brewery & Brewpub Operations and the Breweries has obtained
or applied for U.S. Trademark Registrations for the names of several of its
products, and in some cases for most of its logo designs. The St. Stan's Brewery
& Brewpub Operations regards its trademarks as having substantial value and as
being an important factor in the marketing of its products. The St. Stan's
Brewery & Brewpub Operations is not aware of any infringing uses that could
materially affect its current business of any prior claim to the trademarks that
would prevent the St. Stan's Brewery & Brewpub Operations from using such
trademarks in its business. The St. Stan's Brewery & Brewpub Operations policy
is to pursue registration of its marks whenever possible and to oppose
vigorously any infringements of its marks.

Seasonality

The beverage business traditionally has been seasonal. Typically, net sales
are highest during the third and fourth calendar quarters and decline in the
first and second calendar quarters. The seasonal pattern is due primarily to the
increased demand for consumer beverages during the summer months through the
holiday buying season. The management of St. Stan's Brewing and Brewpub
Operations expects its net sales and operating results to continue to reflect
this seasonality.

Environmental Regulations and Operating Considerations

The Brewery operations are subject to a variety of extensive and changing
Federal, state and local environmental laws, regulations and ordinances that
govern activities or operations that may have adverse effects on human health or
the environment. Such laws, regulations and ordinances may impose liability for
the cost of remediating, and for certain damages resulting from, sites of past
releases of hazardous materials. Management of the St. Stan's Brewery and
Brewpub Operations believes that it currently conducts, and in the past has
conducted, its activities and operations in substantial compliance with
applicable environmental laws, and believes that costs arising from existing
environmental laws will not have a material adverse effect on the financial
condition or results of operations. There can be no assurance, however, that
environmental laws will

F-68
136

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

not become more stringent in the future or that the St. Stan's Brewery and
Brewpub Operations will not incur costs in the future in order to comply with
such laws.

The St. Stan's Brewery and Brewpub Operations are subject to certain
hazards and liability risks faced by all brewers, such as potential
contamination of ingredients or products by bacteria or other external agents
that may be wrongfully or accidentally introduced into products or packaging.
The occurrence of such a problem could result in a costly product recall and
serious damage to the St. Stan's Brewery & Brewpub Operations reputation for
product quality, as well as claims for product liability which may negatively
impact the St. Stan's Brewery & Brewpub Operations. The management of the St.
Stan's Brewery & Brewpub Operations maintains insurance which the Company
believes is sufficient to cover any liability claims which might result from a
contamination problem in its products, but which may not cover any damage to its
reputation.

Inventories

Inventories, consisting of raw materials and purchased products, work in
process, and finished goods, are stated at the lower of cost or market (see Note
3). Cost is determined by the first-in, first-out method of accounting.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation,
and are being depreciated using the straightline method over their estimated
useful lives, which generally range from 5 to 40 years. Major betterments and
renewals are capitalized, while routine repairs and maintenance costs are
charged to expense when incurred.

Useful lives for property and equipment are as follows:

Equipment, furniture, and fixtures..................................... 5 to 10 years
Building and improvements (Note 6)..................................... 40 years

Management of the St. Stan's Brewery and Brewpub Operations assesses the
recoverability of property and equipment by determining whether the depreciation
of such assets over their remaining lives can be recovered through projected
undiscounted cash flows. The amount of impairment, if any, is measured based on
projected undiscounted cash flows and is charged to operations in the period in
which such impairment is determined by management. To date, management has not
identified an impairment of property and equipment.

Income Taxes

The Partnership should not be, and St. Stan's currently is not subject to,
income taxes. However, income or losses of the partnership will be included in
the tax returns of the partners. Accordingly, no provision for income taxes is
made in the accompanying financial statements.

Revenue Recognition

Brewery revenues are recognized at the time of shipment. St. Stan's Brewery
and Brewpub Operations records a provision for the effect of returned products
at the time the units are shipped. Revenues in connection with Brewpub
operations are recognized at the time the food and beverage sales are made.

F-69
137

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred.

Interim Accounting Policy

In the opinion of the management of St. Stan's and BWISS, the accompanying
unaudited financial statements of the St. Stan's Brewery and Brewpub Operations
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the historical financial position and
results of operations and cash flows as of September 30, 1996, and for the
nine-month period ended September 30, 1996 and 1995. Although the management of
St. Stan's and BWISS believes that the disclosures regarding interim financial
information in these historical financial statements are adequate to make the
information presented not misleading, certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. Unaudited
historical results of operations for the nine-month period ended September 30,
1996 are not necessarily indicative of results of operations to be expected for
the year ending December 31, 1996.

NOTE 3 -- INVENTORIES

The following is a summary of inventories:

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Raw materials and purchased
products................................................. $ 102,530 $124,772
Work in process............................................ 13,935 18,480
Finished goods............................................. 77,797 53,818
-------- --------
$ 194,262 $197,070
======== ========

NOTE 4 -- PROPERTY AND EQUIPMENT, NET

The following is a summary of property and equipment, at cost, less
accumulated depreciation:

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Buildings and improvements................................. $ 1,867,917 $1,867,917
Equipment, furniture, and fixtures......................... 1,458,946 1,436,484
----------- -----------
3,326,863 3,304,401
Less accumulated depreciation.............................. (953,580) (812,001)
----------- -----------
$ 2,373,283 $2,492,400
=========== ===========

F-70
138

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 5 -- NOTE PAYABLE

The following is a summary of the note payable:

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Note payable to a lending institution, principal and
interest payable in equal monthly installments of $8,155,
with the remaining principal and interest due November
30, 1997, interest at 11% per annum, collateralized by
St. Stan's assets and personally guaranteed by officers
of the general partner of St. Stan's (Note 1)............ $ 668,927 $ 684,461
Less current portion....................................... (25,534) (21,658)
--------- ---------
$ 643,393 $ 662,803
========= =========

Interest expense approximated $56,000 (unaudited) and $57,100 (unaudited)
for the nine-month preiod ended September 30, 1996 and 1995, respectively, and
$71,740 and $87,347 for the years ended December 31, 1995 and 1994,
respectively.

Future annual principal installments of this note payable as of December
31, 1995 are as follows:

YEARS ENDING
DECEMBER 31,
- ------------

1996............................................... $ 21,658
1997............................................... 662,803
--------
Total.............................................. $684,461
========

See Note 9 for discussion regarding the planned assumption and partial
repayment of the note payable by BWISS on the Contribution Date.

NOTE 6 -- NOTES PAYABLE TO RELATED PARTY

The following is a summary of notes payable to related party:

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Unsecured note payable to the general partner of St.
Stan's, payable in monthly installments of interest only
at 8% per annum, due on the earlier of demand or December
31, 1996................................................. $ 282,751 $281,956
Unsecured note payable to the general partner of St.
Stan's, payable in monthly installments of principal and
interest of $1,213, interest at a certain bank's
reference rate plus 2.35% (8.3% at September 30, 1996,
unaudited, and 8.6% at December 31, 1995), due on the
earlier of demand or December 31, 1996................... 176,369 177,164
-------- --------
$ 459,120 $459,120
======== ========

F-71
139

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 6 -- NOTES PAYABLE TO RELATED PARTY -- (CONTINUED)

Interest incurred totaled $26,658 and $17,004 for the years ended December
31, 1995 and 1994, respectively, and $24,800 (unaudited) and $16,600 (unaudited)
for the nine-month period ended September 30, 1996 and 1995, respectively.

See Note 9 for discussion regarding the planned assumption and repayment of
the notes payable to related party by BWISS on the Contribution Date.

NOTE 7 -- COMMITMENTS AND CONTINGENCIES

Operating Lease

St. Stan's Brewery and Brewpub Operations sublease its land under a 50 year
operating lease expiring on June 5, 2038. The sublease includes base rent
increases over the term of the lease at the lesser of (a) the percentage change
that occurs in the Consumer Price Index or (b) five percent (5%). In addition to
base rent increases, appraisals are required at scheduled dates. The minimum
annual rental payments, after a land appraisal, shall be based on no less than
twelve percent (12%) of the appraisal amount (assuming an undeveloped land
value). The total amount of the base rental payments is being charged to expense
as incurred over the term of the lease. In addition to the base rental payments,
the sublease agreement requires the payment of the real property taxes and
insurance costs. The Partnership is expected to assume this land sublease. The
Partnership is not expected to assume other significant operating leases or
rental commitments from St. Stan's.

Future annual minimum rental payments, excluding annual increases in base
rents, under this operating lease as of December 31, 1995 are as follows:

YEARS ENDING
DECEMBER 31,
- ------------

1996............................................. $ 51,000
1997............................................. 51,000
1998............................................. 51,000
1999............................................. 51,000
2000............................................. 51,000
Thereafter....................................... 1,908,930
----------
$2,163,930
=========

Rent expense under the ground lease totaled $38,430 (unaudited) and $38,250
(unaudited) for the nine-month periods ended September 30, 1996 and 1995,
respectively, and $51,000 and $53,738 for the years ended December 31, 1995 and
1994, respectively (see Notes 2 and 5).

Management Agreements

Under the St. Stan's partnership agreement, the general partner is to be
paid $84,000, annually, for management of the partnership. At September 30,
1996, all such amounts have not been paid (except for $83,000) and the
obligation related thereto is not to be assumed by the Partnership. The
accompanying historical statements of operations reflect the management fee
expense pursuant to said management contract.

F-72
140

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

The unpaid management fees payable have been reflected as non-cash contributions
in the accompanying statements of changes in equity.

See Note 9 for discussion regarding the employment agreements to be entered
into on the Contribution Date.

Distributor Agreements

St. Stan's is party to certain agreements with its various distributors. In
general, such agreements grant St. Stan's distributors the right to sell certain
products in specified territories. The agreements may be terminated by either
party if concerns or deficiencies, as defined, are not satisfied within 30 days.

NOTE 8 -- SEGMENT INFORMATION

Business segment information as of and for the periods presented are as
follows:

FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
------------------------------ ----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)

Net sales:
Brewery.......................... $ 843,143 $ 924,572 $1,229,988 $1,024,018
Brewpub.......................... 558,310 604,681 799,436 867,536
-------- -------- ---------- ----------
Total.................... $ 1,401,453 $ 1,529,253 $2,029,424 $1,891,554
======== ======== ========== ==========
Operating profit (loss):
Brewery.......................... $ 1,983 $ 94,114 $ 92,925 $ (21,606)
Brewpub.......................... (41,585) (1,037) (43,286) 20,079
-------- -------- ---------- ----------
Total.................... $ (39,602) $ 93,077 $ 49,639 $ (1,527)
======== ======== ========== ==========
Depreciation and amortization:
Brewery.......................... $ 87,836 $ 76,216 $ 92,586 $ 96,583
Brewpub.......................... 60,791 61,034 87,340 77,919
-------- -------- ---------- ----------
Total.................... $ 148,627 $ 137,250 $ 179,926 $ 174,502
======== ======== ========== ==========
Capital expenditures:
Brewery.......................... $ 22,462 $ 209,841 $ 307,560 $ 73,060
Brewpub.......................... -- -- -- 2,052
-------- -------- ---------- ----------
Total.................... $ 22,462 $ 209,841 $ 307,560 $ 75,112
======== ======== ========== ==========

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Identifiable property and equipment:
Brewery.................................................... $ 1,487,078 $1,464,616
Brewpub.................................................... 1,839,785 1,839,785
---------- ----------
Total.............................................. $ 3,326,863 $3,304,401
========== ==========

F-73
141

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 8 -- SEGMENT INFORMATION -- (CONTINUED)

In the determination of identifiable property and equipment, management
specifically identified all Brewpub and Brewery property and equipment except
for the buildings and improvements (see Note 4). Management allocated 70% and
30% of the buildings and improvements to the Brewpub and Brewery, respectively.

NOTE 9 -- SUBSEQUENT EVENTS

The Partnership Agreement

On December 17, 1996, St. Stan's formed a California general partnership
with BWISS named BWI-Prost Partners. Pursuant to the terms of the BWI-Prost
Partners partnership agreement, St. Stan's has agreed to contribute
substantially all of its assets, net of certain liabilities, to the Partnership
for a 49% minority interest in the Partnership. BWISS has agreed to contribute
$2,295,000 to the Partnership for a 51% controlling interest in the Partnership.
The BWISS consideration is to be tendered in cash commencing 18 months from the
proposed IPO and the assumption of certain debt (as discussed below) at the date
of contribution, the "Contribution Date", the date of the successful
consummation of a proposed initial public offering of BWI's common stock,
occurring on or before March 31, 1997, realizing minimum proceeds of at least
$8,000,000 (before any deductions, including, but not limited to, underwriters'
compensation and expenses).

The profits and losses of the Partnership are to be allocated based on each
partner's respective ownership interest, subject to special allocations as
defined. The Partnership is to be managed by a five member joint management
committee (the "Committee") until dissolution of the Partnership. BWISS will
maintain three of the five positions on the Committee. Substantially all
management decisions of the committee are to be approved by a majority vote of
the members.

The Partnership Agreement contains a buy-out provision whereby BWISS,
during a three year period commencing with the Contribution Date, can purchase
St. Stan's 49% interest in the Partnership for $2,205,000. If BWISS does not
elect to purchase such interest at the end of the third year, St. Stan's has the
right to purchase BWISS's 51% interest at appraised value less all accrued
Partnership liabilities, as defined. If St. Stan's does not elect to purchase
BWISS's 51% interest, BWISS has the right to purchase St. Stan's 49% interest at
appraised value less all accrued Partnership liabilities, as defined. If neither
partner elects to purchase the other partner's interest, such non-purchase is
deemed a liquidating event, as defined.

The Partnership Agreement contains provisions (the "Breach Provisions")
should either partner breach its responsibilities pursuant to the Partnership
Agreement, as defined. The Breach Provisions provide that the breaching partner
ceases to be a partner of the Partnership if such breach is not cured within 120
days. The breaching partner is to receive breach payments, as defined, in
consideration for withdrawal from the Partnership.

The BWISS Contribution

F-74
142

ST. STAN'S BREWERY AND BREWPUB OPERATIONS

NOTES TO HISTORICAL FINANCIAL STATEMENTS OF ASSETS
AND LIABILITIES TO BE CONTRIBUTED TO BWI -- PROST PARTNERS
GENERAL PARTNERSHIP

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 9 -- SUBSEQUENT EVENTS -- (CONTINUED)

(3) six cash payments of $100,000 to the Partnership, each payable 18, 21, 24,
27, 30 and 33 months from the Contribution Date, and (4) a cash payment of the
remaining unpaid capital contribution, subject to adjustment as defined, 36
months from the Contribution Date, and (5) the net current asset decrease, as
defined, 60 months from the Contribution Date. If the gross proceeds of the BWI
proposed IPO exceed $10,000,000, BWISS is required to make a payment on its
capital contribution 30 days from the Contribution Date; such payment will be
equal to 10% of the gross proceeds in excess of $10,000,000, up to $300,000.

In the event BWISS fails to make such payments, Prost may acquire BWISS'
interest in the Partnership based on (i) the fair market value of the
Partnership's tangible assets plus (ii) the Partnership's modified net income
for the preceding twelve months multiplied by three less (iii) accrued and
contingent liabilities. This amount would likely be for a sum substantially less
than the amount contributed by BWISS.

The unpaid portion of the BWISS capital contribution bears interest at 10%
per annum, subject to adjustment as defined, payable quarterly beginning April
30, 1998.

The Note Payable

BWISS has obtained a commitment letter from the lender to refinance the
note payable that BWISS is to assume from the Partnership on the Contribution
Date (see discussion above). The lender requires a principal reduction payment
be made such that the outstanding balance of the note will be $500,000. The
revised note payable will bear interest at a variable rate, ranging from 11% to
16% per annum, with principal and interest payable monthly based on a 15 year
amortization period, with all unpaid principal and interest due in five years.

Employment Agreements

On the Contribution Date, BWI is to execute employment agreements with two
of the officers of the general partner of Prost Partners Limited Partnership.
The agreements are for a term of three years, provide for base annual
compensation aggregating $157,000, including allowances, and allow for
participation in the BWI qualified incentive stock option plan. The employment
agreements can be terminated by mutual consent or for cause, as defined.

F-75
143

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Orange Empire Brewing Company

To the Board of Directors
Beverage Works, Inc.

We have audited the accompanying consolidated balance sheet of Orange
Empire Brewing Company and subsidiary (the "Company") as of December 31, 1995,
and the related statements of operations, stockholders' equity (capital
deficiency) and cash flows for each of the years in the two-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orange
Empire Brewing Company and subsidiary as of December 31, 1995, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.

The consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has had recurring losses from
operations, has current liabilities in excess of current assets and a
significant capital deficiency. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. The Company
has, and will continue to require, significant working capital to fund
operations. Management is currently funding operations through loans from
certain stockholders. Management's plans with regard to these matters are also
described in Note 2. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

CORBIN & WERTZ

Irvine, California
July 20, 1996, except for
Notes 1 and 11 as to which the date

is January 7, 1997

F-76
144

ORANGE EMPIRE BREWING COMPANY

CONSOLIDATED BALANCE SHEETS

ASSETS

(Notes 2, 5, 6, 7 and 10)

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Current assets:
Cash............................................................ $ 33,419 $ 56,302
Accounts receivable, less allowance for doubtful accounts of
$13,600 (unaudited) and $5,000, at September 30, 1996 and
December 31, 1995, respectively.............................. 45,326 92,273
Inventories (Note 3)............................................ 233,868 231,766
Prepaid expenses and other current assets....................... 17,629 44,441
----------- -----------
Total current assets.................................... 330,242 424,782
Property and equipment, net (Note 4).............................. 1,328,422 1,510,551
Deposits and other assets......................................... 21,710 20,679
Due from affiliate (Note 6)....................................... 55,475 --
----------- -----------
$ 1,735,849 $ 1,956,012
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(Notes 1 and 2)
Current liabilities:
Accounts payable (Note 7)....................................... $ 330,029 $ 334,780
Accrued expenses and other current liabilities (Notes 6 and
7)........................................................... 282,138 196,886
Notes payable (Note 5).......................................... 171,698 58,980
Notes payable to related parties (Notes 6 and 11)............... 668,297 767,559
Capital lease obligations to related party (Notes 7 and 11)..... 143,498 109,408
----------- -----------
Total current liabilities............................... 1,595,660 1,467,613
Notes payable, net of current portion (Note 5).................... 394,581 211,416
Capital lease obligation (Note 7)................................. 29,955 --
Capital lease obligations to related party, net of current portion
(Notes 7 and 11)................................................ 866,461 971,985
----------- -----------
Total liabilities....................................... 2,886,657 2,651,014
----------- -----------
Commitments and contingencies (Notes 7 and 11)
Stockholders' equity (capital deficiency) (Notes 9 and 11):
Common stock, Series A, no par value; 1,000,000 shares
authorized, 110,000 shares issued and outstanding............ 412,500 412,500
Common stock, Series B, no par value; 1,000,000 shares
authorized, 331,401 (unaudited)(1996) and 247,401 (1995)
shares issued and outstanding................................ 1,399,254 1,067,766
Accumulated deficit............................................. (2,962,562) (2,175,268)
----------- -----------
Total capital deficiency................................ (1,150,808) (695,002)
----------- -----------
$ 1,735,849 $ 1,956,012
=========== ===========

See independent auditors' report and accompanying notes to these consolidated
financial statements

F-77
145

ORANGE EMPIRE BREWING COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
------------------------------ ---------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)

Sales........................................ $2,444,881 $1,862,113 $2,606,573 $1,399,515
Less excise taxes............................ (72,252) (45,837) (52,596) (21,045)
---------- --------- ---------- ----------
Net sales (Notes 2 and 10)......... 2,372,629 1,816,276 2,553,977 1,378,470
Cost of sales (Notes 2 and 7)................ 1,667,326 1,148,386 1,824,065 1,025,191
---------- --------- ---------- ----------
Gross profit....................... 705,303 667,890 729,912 353,279
Selling, general and administrative expenses
(Notes 7 and 9)............................ 1,265,063 769,884 990,701 624,209
---------- --------- ---------- ----------
Loss from operations (Note 10)............... (559,760) (101,994) (260,789) (270,930)
Interest expense (Notes 5, 6 and 7).......... 211,671 127,784 172,924 94,516
Other (income) expense....................... 14,663 (6,146) (9,755) 4,149
---------- --------- ---------- ----------
Loss before provision for income taxes....... (786,094) (223,632) (423,958) (369,595)
Provision for income taxes (Notes 2 and 8)... 1,200 1,200 1,600 1,600
---------- --------- ---------- ----------
Net loss..................................... $ (787,294) $ (224,832) $ (425,558) $ (371,195)
========== ========= ========== ==========
Net loss per common share (Note 2)........... $ (2.19) $ (0.66) $ (1.24) $ (1.09)
========== ========= ========== ==========
Weighted average number of common shares
outstanding................................ 359,391 341,401 342,760 341,401
========== ========= ========== ==========

See independent auditors' report and accompanying notes to these consolidated
financial statements

F-78
146

ORANGE EMPIRE BREWING COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

COMMON STOCK COMMON STOCK
SERIES A SERIES B
------------------ -------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
------- -------- ------- ---------- ----------- -----------

Balances -- January 1, 1994
(Note 9).................... 110,000 $412,500 231,401 $ 867,766 $(1,378,515) $ (98,249)
Net loss...................... -- -- -- -- (371,195) (371,195)
------- -------- ------- ---------- ----------- -----------
Balances -- December 31,
1994........................ 110,000 412,500 231,401 867,766 (1,749,710) (469,444)
Common stock issued for cash
at $12.50 per share (Note
9).......................... -- -- 16,000 200,000 -- 200,000
Net loss...................... -- -- -- -- (425,558) (425,558)
------- -------- ------- ---------- ----------- -----------
Balances, December 31, 1995... 110,000 412,500 247,401 1,067,766 (2,175,268) (695,002)
Common stock issued for
partial repayment of amounts
due to a related party at an
effective price of $3.91 per
share (Note 9).............. -- -- 50,000 195,488 -- 195,488
Common stock issued for
stockholder settlement
valued at $4.00 per share
(Note 9).................... -- -- 34,000 136,000 -- 136,000
Net loss...................... -- -- -- -- (787,294) (787,294)
------- -------- ------- ---------- ----------- -----------
Balances, September 30, 1996
(Notes 9 and
11)(unaudited).............. 110,000 $412,500 331,401 $1,399,254 $(2,962,562) $(1,150,808)
======= ======== ======= ========= ========== ==========

See independent auditors' report and accompanying notes to these consolidated
financial statements

F-79
147

ORANGE EMPIRE BREWING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
------------------------------ ----------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)

Cash flows from operating activities:
Net loss....................................... $(787,294) $(224,832) $ (425,558) $ (371,195)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 198,190 106,299 161,325 93,959
Provisions for losses on accounts receivable
and inventory............................. 8,600 25,000 25,000 --
Loss on asset disposal...................... 16,207 -- -- --
Common stock issued for stockholder
settlement (Note 9)....................... 136,000 -- -- --
Changes in operating assets and liabilities:
Accounts receivable....................... 38,347 (56,390) (70,945) (25,578)
Inventories............................... (2,102) (184,906) (196,985) (15,794)
Prepaid expenses and other current
assets................................. 26,812 43 (24,997) (8,267)
Accounts payable.......................... 85,061 228,014 242,692 16,024
Accrued expenses and other current
liabilities............................ 76,652 66,265 134,172 15,826
--------- --------- --------- ---------
Net cash used in operating
activities........................... (203,527) (40,507) (155,296) (295,025)
--------- --------- --------- ---------
Cash flows from investing activities:
Due from affiliate............................. (55,475) -- -- --
Deposits and other assets...................... (1,031) (5,114) (11,088) (9,400)
Capital expenditures........................... (11,430) (174,615) (199,216) (59,323)
--------- --------- --------- ---------
Net cash used in investing
activities........................... (67,936) (179,729) (210,304) (68,723)
--------- --------- --------- ---------
Cash flows from financing activities:
Issuance of common stock for cash (Note 9)..... -- -- 200,000 --
Borrowings under bank note payable (Note 5).... -- -- -- 37,500
Borrowings under notes payable from vendors,
net (Note 5)................................ 32,786 -- -- --
Borrowings under notes payable to related
parties (Note 6)............................ 250,076 285,806 307,714 375,099
Repayments under bank note payable (Note 5).... (31,241) (27,363) (42,081) (35,000)
Payments under capital lease obligation........ (3,041) -- -- --
Payments under capital lease obligation to
related party (Note 7)...................... -- (45,344) (50,868) (28,234)
--------- --------- --------- ---------
Net cash provided by financing
activities........................... 248,580 213,099 414,765 349,365
--------- --------- --------- ---------
Net increase (decrease) in cash.................. (22,883) (7,137) 49,165 (14,383)
Cash at beginning of period...................... 56,302 7,137 7,137 21,520
--------- --------- --------- ---------
Cash at end of period............................ $ 33,419 $ -- $ 56,302 $ 7,137
========= ========= ========= =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest.................................. $ 70,148 $ 127,860 $ 100,223 $ 82,144
========= ========= ========= =========
Income taxes.............................. $ 1,200 $ 1,200 $ 1,600 $ 3,200
========= ========= ========= =========

Supplemental schedule of noncash financing and investing activities:

During the nine months ended September 30, 1996 (unaudited), the Company:

Purchased $41,596 (unaudited) of equipment under capital lease
agreement (see Note 7).

F-80
148

ORANGE EMPIRE BREWING COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

Accounts payable $42,014 (unaudited) of accrued and past due capital
lease payments due to a related party (see Note 7).

Refinanced certain notes payable due related parties with a note
payable to a bank totaling $294,388 (unaudited) (see Note 6).

Issued shares of common stock as partial repayment on amounts due to a
related party totaling $195,488 (unaudited) (see Notes 6, 7 and 9).

Issued shares of common stock for a stockholder settlement valued at
$136,000 (unaudited) (see Note 9).

During the nine months ended September 30, 1996 and 1995, the Company
(returned) purchased $(20,758) (unaudited) and $629,848 (unaudited),
respectively, of equipment under a capital lease agreement with a related party
(see Note 7).

During the years ended December 31, 1995 and 1994, the Company purchased
$777,633 and $56,937, respectively, of equipment under a capital lease agreement
with a related party (see Note 7).

See independent auditors' report and accompanying notes to these consolidated
financial statements

F-81
149

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

NOTE 1 -- NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Operations

Orange Empire Brewing Company and its wholly owned subsidiary, Riverside
Brewing Company (collectively the "Company"), were incorporated in the state of
California on June 1, 1993 to operate a brewpub and brewery. The Company
currently brews and markets six distinctive beers in 27 states. During October
1995, the Company expanded its brewing operations by leasing an additional
brewery facility and its brewing equipment in Riverside, California (see Note
7).

As discussed in Note 11, on September 11, 1996, the Company entered into a
stock-for-stock exchange (the "Exchange Agreement") with Beverage Works, Inc.
("BWI"), a California corporation. Additional agreements were entered into
concurrently with the execution of the Exchange Agreement, including an
agreement with BWI to actively manage the Company's operations (see Notes 7 and
11).

Basis of Presentation

The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern, which contemplates, among
other things, the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the accompanying consolidated
financial statements, at September 30, 1996, the Company had excess current
liabilities in excess of current assets of $1,265,418 (unaudited) and a capital
deficiency of $1,150,808 (unaudited). In addition, the Company has incurred net
losses of 425,558 and 371,195, for the years ended December 31, 1995 and 1994,
respectively, and $787,294 (unaudited) for the nine-month period ended September
30, 1996. Successful completion of its marketing program, and the transition,
ultimately, to the attainment of profitable operations is dependent upon the
Company obtaining adequate financing and generating sales sufficient to fund
profitable operations. These factors, among other things, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans include, but are not limited to, entering into a stock-for-stock exchange
whereby the Company will become a wholly-owned subsidiary of BWI (see Note 11).
BWI plans to effect a proposed initial public offering ("IPO") to raise capital,
certain of which, if the proposed IPO is successful and the Exchange Agreement
is consummated, will be used to partially reduce the Company's indebtedness and
to fund working capital requirements. Management also plans to reduce the
Company's costs on a per unit basis through increased plant utilization and
through combined purchases with other brewing facilities acquired, or to be
acquired, by BWI. There are no assurances that management's plans will be
effected, which includes the proposed IPO being consummated in a timely manner.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Principles of Consolidation

The consolidated financial statements include the accounts of Orange Empire
Brewing Company and its wholly-owned subsidiary Riverside Brewing Company. All
significant intercompany transactions and balances have been eliminated.

NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES

Use of Estimates

F-82
150

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)

Certain estimates made by management also effect the reported amounts of
revenues and expenses during the reported periods. Actual results could
materially differ from those estimates.

Fair Value of Financial Instruments

These consolidated financial statements contain financial instruments
whereby the fair market value of the financial instruments could be different
than those recorded on a historical basis in the accompanying consolidated
financial statements. The Company's financial instruments consist of cash,
accounts receivable, accounts payable, notes payable to related parties, and
notes payable and capital lease obligations. The carrying amounts of the
Company's financial instruments generally approximate their fair values at
September 30, 1996 (unaudited) and December 31, 1995. In the case of the notes
payable to related parties (see Note 6), it was not practical to determine fair
values due to the lack of a market for such financial instruments.

Concentrations of Credit Risk

The customers of the brewery operations consist of distributors which
resell the Company's products domestically. The Company performs periodic credit
evaluations of its customers and does not require collateral to secure its
accounts receivable. The Company maintains an allowance for potential credit
losses; such losses have historically been within management's expectations.

One brewery customer accounted for approximately 25% (unaudited) of
consolidated net sales for the nine months ended September 30, 1996. No one
customer made up 10% or more of consolidated net sales for the nine months ended
September 30, 1995 (unaudited). One brewery customer accounted for approximately
12% of consolidated net sales for the year ended December 31, 1995 and one
brewery customer accounted for approximately 18% of consolidated net sales for
the year ended December 31, 1994. Accounts receivable from four brewery
customers totaled 38%, 22%, 14% and 14%, respectively, of accounts receivable at
September 30, 1996. Accounts receivable from four brewery customers totaled 23%,
18%, 18% and 16%, respectively, of accounts receivable at December 31, 1995.

The Company purchased certain products from two companies which accounted
for approximately 19% (unaudited) and 12% (unaudited), and 47% (unaudited) and
10% (unaudited) of consolidated purchases for the nine months ended September
30, 1996 and 1995, respectively. One Company accounted for approximately 40% and
38% of consolidated purchases for the years ended December 31, 1995 and 1994,
respectively. No one vendor made up 10% or more of accounts payable at September
30, 1996 (unaudited). Accounts payable to one company accounted for 26% of total
accounts payable as of December 31, 1995.

Risks and Uncertainties

Licenses and Permits

The brewery operations (wholesale) and the brewpub operations (retail),
require various Federal, state and local licenses and permits. Brewers are
required to file with the Federal Bureau of Alcohol, Tobacco and Firearms (the
"BATF"). The California Department of Alcoholic Beverage Control (the "ABC")
requires that companies file and maintain licenses, permits or approvals for the
production and sale of alcoholic beverages. Other state and local laws and
regulations governing the sale of alcoholic beverages within a particular state
by an out-of-state brewer or wholesaler vary by state and locality. The
Company's brewery and brewpub operations are subject to audit and inspection by
the BATF and ABC at any time.

F-83
151

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)

Should the Exchange Agreement be consummated (see Notes 1 and 11),
management of the Company will be required to apply for a change in the
brewery's and/or the brewpub's management, and for a change in ownership with
Federal and state agencies. Due to the various Federal and state licensing and
permitting requirements, there is a risk that one or more regulatory authorities
may not approve such changes in management and/or ownership, or may determine
the predecessor managers/owners had not complied with applicable licensing or
permitting regulations. Should the brewery or brewpub operations not maintain
the licenses and permits necessary for it to conduct business, there could be a
material adverse effect on the consolidated financial condition and/or the
consolidated results of operations of the Company.

Dependence on Distributors. The Company sells its products to independent
distributors for distribution to retailers and ultimately consumers. Sustained
growth will require it to maintain such relationships and possibly enter into
agreements with additional distributors. No assurance can be given that the
Company will be able to maintain or secure additional distributors on terms
favorable to the Company. The Company has certain significant distribution
relationships. The loss of one or more of these distributors would have a
material adverse effect on the Company's ability to bring its products to market
and therefore adversely effect its sales and results of operations. The
Company's distribution agreements are generally terminable by the distributor on
short notice. While these distribution agreements contain provisions regarding
the Company's enforcement and termination rights, some state laws prohibit the
Company from exercising these contractual rights. The Company's ability to
maintain existing distribution agreements or enter new distribution agreements
may be adversely affected by the fact that many distributors are reliant on one
of the major beer producers for a large percentage of their revenue and,
therefore, they may be influenced by such producers.

Potential "Dram Shop" Liability. Some states have enacted "dram shop" laws
and legislation which impose criminal and civil liability on licensed alcoholic
beverage servers for injuries or damages caused by their negligent service of
alcoholic beverages to a visibly intoxicated person or to a minor, if such
service is the proximate cause of the injury or damage and such injury or damage
is reasonably foreseeable. California has enacted legislation granting broad
immunity to servers of alcoholic beverages from civil liability, except for the
sale of alcoholic beverages to minors. While the Company maintains liquor
liability insurance as part of its comprehensive general liability insurance
which management believes is adequate to protect against such liability, there
can be no assurance that the Company will not be subject to a judgment or fine
in excess of such insurance coverage or that it will be able to continue to
maintain such insurance coverage at reasonable costs or at all. The imposition
of a judgment or fine substantially in excess of the Company's insurance
coverage would have a material adverse effect on the Company. Similarly, the
failure of the Company to obtain and maintain insurance coverage could also
materially and adversely affect the Company.

Regulation

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

F-84
152

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)

Trademarks

Seasonality

The beverage business traditionally has been seasonal. Typically, net sales
are highest during the third and fourth calendar quarters and decline in the
first and second calendar quarters. This pattern is due primarily to the
increased amount of consumer demand for beverages during the summer months
through the holiday buying season. Management of the Company expects its
consolidated net sales and operating results to continue to reflect this
seasonality.

Environmental Regulations and Operating Considerations

The Company's brewing operations are subject to a variety of extensive and
changing Federal, state, and local environmental laws, regulations and
ordinances that govern activities or operations that may have adverse effects on
human health or the environment. Such laws, regulations and ordinances may
impose liability for the cost of remediating, and for certain damages resulting
from, sites of past releases of hazardous materials. The Company believes that
it currently conducts, and in the past has conducted, its activities and
operations in substantial compliance with applicable environmental laws, and
believes that costs arising from existing environmental laws will not have a
material adverse effect on the Company's financial condition or results of
operations. There can be no assurance, however, that environmental laws will not
become more stringent in the future or that the Company will not incur costs in
the future in order to comply with such laws.

Inventories

Inventories, consisting of raw materials and purchased packaging, as well
as certain in process and finished goods, are valued at the lower of cost
(average cost method) or market (see Note 3).

Property and Equipment

Property and equipment, including equipment under capital leases, as
amended, with a related party (see Note 7), are stated at cost and are
depreciated using the straight-line method over the estimated useful lives of
the related assets, generally ranging from three to seven years. Betterments are
capitalized, while repairs and maintenance costs are charged to expense as
incurred.

F-85
153

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)

Leasehold improvements are being amortized over the shorter of the lease
term or the estimated useful lives of the improvements, generally ranging from
three to ten years.

Management of the Company assesses the recoverability of property and
equipment by determining whether the depreciation of such assets over their
remaining lives can be recovered through projected undiscounted cash flows. The
amount of impairment, if any, is measured based on projected undiscounted cash
flows and is charged to operations in the period in which such impairment is
determined by management. To date, management has not identified an impairment
of property and equipment. Management has based this assessment on the
anticipated benefits to be derived from the successful completion of the BWI
proposed IPO and the consummation of the Exchange Agreement (see Note 11). If
the BWI proposed IPO is not successfully completed and/or the Exchange Agreement
is not consummated, the Company could be forced to liquidate its assets if it
ceases to continue as a going concern. The amounts the Company would receive
from a sale of its property and equipment under such circumstances could be
substantially less than the historical carrying values reflected in the
accompanying consolidated financial statements.

Income Taxes

The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). Under Statement 109, a liability method is used whereby
deferred tax assets and liabilities are determined based on temporary
differences between bases used for financial reporting and income tax reporting
purposes. Income taxes are provided based on tax rates in effect at the time
such temporary differences are expected to reverse. A valuation allowance is
provided for certain deferred tax assets if it is more likely than not that the
Company will not realize the tax assets through future operations (see Note 8).

Revenue Recognition

Revenues from brewery product sales are recognized upon shipment. The
Company records a provision for the effect of returned products at the time the
units are shipped. Historically, the Company has experienced minimal product
returns. Revenues in connection with brewpub operations are recognized at the
time the food and beverage sales are made.

Advertising and Marketing Expense

Advertising and marketing costs are expensed as incurred.

Per Share Information

Net loss per common share is computed by dividing net loss by the weighted
average number of shares of Series A and Series B common stock outstanding
during each respective period presented. During the periods presented, the
Company did not have common stock equivalents outstanding (see Note 9).

Interim Accounting Policy

F-86
154

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT POLICIES -- (CONTINUED)

are adequate to make the information presented not misleading, certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles during the interim
periods have been condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. The unaudited results of operations for
the nine months ended September 30, 1996 are not necessarily indicative of
results of operations to be expected for the year ending December 31, 1996.

NOTE 3 -- INVENTORIES

Inventories consist of the following:

DECEMBER
SEPTEMBER 30, 31,
1996 1995
------------- ----------
(UNAUDITED)

Finished goods and work in process......................... $ 84,165 $ 30,616
Raw materials and purchased products....................... 149,703 201,150
------------- ----------
$ 233,868 $ 231,766
========== =========

NOTE 4 -- PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

DECEMBER
SEPTEMBER 30, 31,
1996 1995
------------- ----------
(UNAUDITED)

Equipment under capital lease with a related party (Note
7)....................................................... $ 1,139,737 $1,160,495
Equipment under capital lease (Note 7)..................... 41,596 --
Equipment.................................................. 82,227 76,888
Furniture and fixtures..................................... 13,956 50,875
Leasehold improvements (Note 7)............................ 499,980 495,147
------------- ----------
1,777,496 1,783,405
Less accumulated depreciation and amortization............. (449,074) (272,854)
------------- ----------
$ 1,328,422 $1,510,551
========== =========

F-87
155

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 5 -- NOTES PAYABLE

Notes payable consist of the following:

DECEMBER
SEPTEMBER 30, 31,
1996 1995
------------- ----------
(UNAUDITED)

Note payable to bank, bearing interest at prime plus 1.75%
per annum (10% at September 30, 1996), payable monthly in
principal payments of $11,576 plus accrued interest,
matures August 1, 2000, secured by substantially all
assets of the Company and guaranteed by a former officer
and certain stockholders of the Company.................. $ 533,493 $ --
Note payable to bank, bearing interest at prime plus 3% per
annum (11.75% at December 31, 1995), payable monthly in
principal payments of $4,916 plus accrued interest,
matures May 1, 1998, secured by substantially all assets
of the Company and guaranteed by a former officer and
certain stockholders of the Company...................... -- 270,396
Unsecured demand notes with vendors generally bearing
interest at 11% per annum, payable in aggregate monthly
installments of $4,091 through February, 1997............ 32,786 --
------------- ----------
566,279 270,396
Less current portion....................................... (171,698) (58,980)
------------- ----------
$ 394,581 $ 211,416
========== =========

Interest expense amounted to $28,708 (unaudited) and $18,147 (unaudited)
for the nine-month period ended September 30, 1996 and 1995, respectively, and
amounted to $33,515 and $29,057 for the years ended December 31, 1995 and 1994,
respectively.

Future annual principal installments of notes payable as of December 31,
1995 are as follows:

YEARS ENDING
DECEMBER 31,
- ------------

1996............................................... $ 58,980
1997............................................... 58,960
1998............................................... 152,456
--------
$270,396
========

See Note 6 for discussion regarding the refinance of the note payable to
bank.

F-88
156

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 6 -- NOTES PAYABLE TO RELATED PARTIES

During 1996, the Company utilized its brewing facilities to brew and bottle
beer for BWI. In connection therewith, certain raw materials were purchased, at
cost, from the Company by BWI. At September 30, 1996 (unaudited), due from
affiliate in the accompanying consolidated balance sheet represents fees for
such brewing and bottling services and inventory purchased.

Due to related parties consist of the following:

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -----------
(UNAUDITED)

Unsecured demand note payable to a former officer and current
stockholder, interest at prime plus 2% per annum (10.75% at
December 31, 1995).......................................... $ 80,110 $ 96,132
Unsecured demand notes payable to certain stockholders,
interest at prime plus 2% per annum (10.75% at December 31,
1995), refinanced with bank note discussed below............ -- 254,364
Unsecured demand notes payable to certain officers and
stockholders, interest at 7.75% per annum, partially repaid
through the issuance of common stock (see Note 9)........... 458,229 335,229
Unsecured demand notes payable in default to stockholders,
interest rates ranging from 8% per annum to prime plus 2%
per annum (10.75% at December 31, 1995)..................... 81,834 81,834
Other......................................................... 48,124 --
-------- --------
$ 668,297 $767,559
======== ========

On May 10, 1996, the Company entered into an agreement with a bank to
refinance a note payable with the bank totaling $250,731 at the date of
refinance ($270,396 at December 31, 1995 -- see Note 5) and unsecured demand
notes payable to certain stockholders totaling $294,338. The new note payable
totaled $545,069, payable with interest at prime plus 1.75% per annum (initial
rate of 11.0%). Interest is payable monthly beginning June 1, 1996 and principal
is payable in 48 installments of $11,576, beginning September 1, 1996. The new
note matures August 1, 2000. The new note is secured by substantially all assets
of the Company and is guaranteed by certain stockholders. See Note 11 for
further discussion regarding this new note payable to bank.

Interest expense on amounts payable to related parties amounted to $54,681
(unaudited) and $57,549 (unaudited) for the nine-month period ended September
30, 1996 and 1995, respectively, and amounted to $63,464 and $20,447 for the
years ended December 31, 1995 and 1994, respectively. Accrued interest due on
the notes payable to related parties totaled $76,387 (unaudited) and $27,995 at
September 30, 1996 and December 31, 1995, respectively. Accrued interest is
included in accrued expenses and other current liabilities in the accompanying
consolidated balance sheets.

See Note 7 for discussion of capital lease obligations with a related party
and management agreement with BWI.

See Note 11 for discussion of a debt exchange agreement to be entered into
upon consummation of the Exchange Agreement (see Note 1).

F-89
157

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 7 -- COMMITMENTS AND CONTINGENCIES

Leases

The Company leases its facilities and certain equipment under noncancelable
operating leases which expire at various dates through August 2003.

In June 1996, the Company acquired certain equipment totaling $41,596
(unaudited) under a noncancelable capital lease obligation. Such lease bears
interest at 17% per annum and is due in monthly payments of $1,186 through May
2000.

The Company leases certain brewing, kitchen and equipment, as well as
leasehold improvements under a noncancelable capital lease obligation, as
amended, with an entity controlled by a significant stockholder of the Company.
Such lease has components with effective interest rates ranging from 14% to 17%
per annum, payable monthly at varying amounts ranging from $193 to $10,663,
scheduled to mature through 2003.

Future annual aggregate minimum lease payments under noncancelable
operating lease arrangements and under the capital lease obligation with a
related party, as amended, as of December 31, 1995 are as follows:

YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASE LEASES
------------------------------------------------------------- ---------- --------

1996...................................................... $ 256,114 $183,012
1997...................................................... 272,028 189,829
1998...................................................... 270,415 106,285
1999...................................................... 270,348 74,501
2000...................................................... 261,742 74,160
Thereafter................................................ 286,185 197,760
---------- --------
1,616,832 $825,547
========
Less amounts representing interest........................ (535,439)
----------
Present value of minimum lease payments................... 1,081,393
Less current portion...................................... (109,408)
----------
$ 971,985
==========

Rent expense under operating lease agreements totalled $145,374 (unaudited)
and $98,163 (unaudited) for the nine-month period ended September 30, 1996 and
1995, respectively, and $130,884 and $77,457 for the years ended December 31,
1995 and 1994, respectively, and is included in selling, general and
administrative expense in the accompanying consolidated statements of
operations.

Interest expense under the capital lease obligation, as amended, amounted
to $128,282 (unaudited) and $52,088 (unaudited) for the nine-month period ended
September 30, 1996 and 1995, respectively, and $75,945 and $45,012 for the years
ended December 31, 1995 and 1994, respectively.

As of September 30, 1996, the Company was in default on the capital lease
obligation to the related party. In September 1996, $140,488 of such past due
capital lease payments were repaid through the issuance of common stock (see
Note 9). Past due capital lease payments totaling $61,950 (unaudited) and
$42,053 as of September 30, 1996 and December 31, 1995, respectively, are
included in accounts payable in the accompanying consolidated balance sheets.
See Note 11 for discussion of the amendment to the capital lease to be made in
conjunction with the consummation of the Exchange Agreement.

F-90
158

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 7 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

Distributor Agreements

The Company is party to certain agreements with its various distributors.
In general, such agreements grant the Company's distributors the right to sell
certain products in specified territories. The agreements may be terminated by
either party by written 30 day notice or immediately if certain conditions
exist, as defined.

Purchase Commitment

During 1995, the Company entered into a purchase agreement with a vendor to
buy specified quantities of grain to be delivered through June 1999, as defined,
at fixed contract prices. The Company has terminated such agreement. The
financial effect of such termination was immaterial.

Management Agreements

In anticipation of consummating the Exchange Agreement (see Notes 1 and
11), effective June 10, 1996, the Company entered into a management agreement
with BWI, whereby BWI will manage and operate the Company. As compensation for
the management services provided, BWI is to receive $6,500 per month, plus
reimbursement of expenses, as defined. The agreement terminates upon
consummation of the proposed BWI IPO. Included in notes payable due to related
parties in the accompanying consolidated balance sheet is $24,050 of past due
management fees at September 30, 1996 (unaudited). Management fee expense under
this agreement totaled $24,050 for the nine-month period ended September 30,
1996 (unaudited).

See Note 11 for discussion of a Brewpub management agreement to be entered
into in connection with the Exchange Agreement (see Notes 1 and 11).

Contingencies

In January 1996, the Company entered into a settlement agreement with a
stockholder whereby for past services the stockholder would retain 10,000 shares
of the Company's common stock and receive $43,000 in cash. Such amounts were
paid in November 1995. In May 1996, the Company received a letter from such
stockholder's legal counsel demanding 13,792 additional shares be issued to the
stockholder as the settlement agreement was signed without knowledge of certain
material information. The Company's management believes these allegations are
without merit and believes that no additional amounts are due the stockholder in
cash or common stock. No provision for any additional loss has been reflected in
the accompanying consolidated financial statements.

A breach of contract action was filed on July 25, 1996 by a retail chain
against the Company alleging damages in the amount of $64,000. In November 1996,
the Company and such retail chain entered into an agreement of compromise,
settlement and general release. The agreement specifies the Company will pay
$30,000, payable in periodic installments of $5,000 through October 1997, as
defined. Such has been included in accrued expenses and other current
liabilities in the accompanying consolidated balance sheet as of September 30,
1996 (unaudited).

In the ordinary course of business, there are various claims and lawsuits
brought by or against the Company. In the opinion of management, the ultimate
outcome of these matters will not have a material adverse effect on the
Company's operations or financial position.

F-91
159

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 8 -- INCOME TAXES

The provision for income taxes for the years ended December 31, 1995 and
1994 is comprised of minimum state taxes due to the historical losses incurred
by the Company.

A reconciliation of the provision for income taxes from operations with
expected income tax benefit computed by applying the Federal statutory income
tax rate to loss before provision for income taxes for the years ended December
31, 1995 and 1994 is as follows:

1995 1994
------------------ ------------------
$ % $ %
--------- ----- --------- -----

Income tax benefit computed at federal
statutory tax rate......................... $(144,146) (34.0%) $(125,662) (34.0%)
State and local tax benefit, net of reduction
of loss carryforward....................... (12,930) (3.0) (11,273) (3.1)
Change in valuation allowance for deferred
tax
assets..................................... 160,886 37.9 138,875 37.6
Other........................................ (2,210) (0.5) (340) (0.1)
--------- ----- --------- -----
$ 1,600 0.4% $ 1,600 0.4%
========= ===== ========= =====

At December 31, 1995, significant components of the Company's net deferred
taxes are as follows:

Deferred tax assets:
Net operating loss carryforwards....................................... $ 688,229
Reserves and allowances................................................ 10,035
Depreciation........................................................... 89,898
Other.................................................................. 34,674
Less valuation allowance............................................... (812,778)
---------
Total deferred tax assets...................................... 10,058
Deferred tax liability --
Property, equipment and other.......................................... (10,058)
---------
Deferred income taxes.......................................... $ --
=========

The net change in the total valuation allowance was an increase of $160,886
and $138,875 for the years ended December 31, 1995 and 1994, respectively.

At December 31, 1995, the Company has approximately $1,857,000 and $930,000
of net operating loss carryforwards for Federal and state income tax reporting
purposes, respectively, which expire through 2010. Because of the "change in
ownership" provisions of the Tax Reform Act of 1986, net operating loss
carryforwards will be subject to annual limitations should the Company complete
its Exchange Agreement (see Notes 1 and 11).

NOTE 9 -- COMMON STOCK

The Company is authorized to issue up to 5,000,000 shares of common stock.
Such common shares may be divided into various series. The Company is currently
authorized to issued 1,000,000 shares of Series A common stock and 1,000,000
shares of Series B common stock. The rights, preferences, privileges and
restrictions of the Series A common shares and the Series B common shares shall
be equal and identical in all

F-92
160

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),

AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 9 -- COMMON STOCK -- (CONTINUED)

respects except that, unless otherwise provided by law, the Company may declare
dividends to holders of Series B common shares without declaring dividends to
holders of Series A common shares. No dividends shall be declared on Series A
common shares without also declaring like dividends on Series B common shares.
Through September 30, 1996, no dividends have been declared or paid by the
Company and pursuant to the California Corporations Code, dividends may not be
paid with an accumulated deficit.

Through January 1, 1994, the Company issued 110,000 shares of Series A
common stock for compensation to officers of the Company for services provided
valued at $412,500 or $3.75 per share. Such shares were valued by the Board of
Directors based on cash paid for shares near the date of issuance (see below).

Through January 1, 1994, the Company sold for cash at $3.75 per share,
112,824 shares of Series B common stock for an aggregate $423,102. In addition,
the Company issued 118,577 shares of Series B common stock for debt and services
provided valued at $444,664.

In November 1995, the Company issued 16,000 shares of Series B common stock
at $12.50 per share totalling $200,000. In September 1996, the Company issued an
additional 34,000 shares of Series B common stock to such stockholders to
effectively reduce their price per share to $4.00. The additional shares were
ascribed a value of $136,000 (unaudited), or $4.00 per share. The value of such
shares is included in selling, general and administrative expenses in the
accompanying consolidated statement of operations for the nine-month period
ended September 30, 1996.

In September 1996, the Company issued 50,000 shares of Series B common
stock valued at $195,488 (unaudited), or $3.91 per share, to an officer and
stockholder as partial satisfaction of past due capital lease payments totaling
$140,488 and partial satisfaction of a demand note totaling $55,000 (see Notes 6
and 7).

F-93
161

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 10 -- SEGMENT INFORMATION

Business segment information as of and for the periods presented is as
follows:

Sales:
Brewery............................. $ 1,042,775 $ 732,528 $ 865,433 $ 252,154
Brewpub............................. 1,402,106 1,129,585 1,741,140 1,147,361
---------- --------- ---------- ----------
Total....................... $ 2,444,881 $ 1,862,113 $2,606,573 $1,399,515
========== ========= ========== ==========
Operating loss:
Brewery............................. $ (549,069) $ (8,022) $ (162,850) $ (92,469)
Brewpub............................. (10,691) (93,972) (97,939) (178,461)
---------- --------- ---------- ----------
Total....................... $ (559,760) $ (101,994) $ (260,789) $ (270,930)
========== ========= ========== ==========
Depreciation and amortization:
Brewery............................. $ 112,706 $ 4,391 $ 49,054 $ 2,663
Brewpub............................. 85,484 101,908 112,271 91,296
---------- --------- ---------- ----------
Total....................... $ 198,190 $ 106,299 $ 161,325 $ 93,959
========== ========= ========== ==========
Capital expenditures(1):
Brewery............................. $ 10,172 $ 665,593 $ 833,785 $ 31,076
Brewpub............................. 1,258 149,276 143,064 85,184
---------- --------- ---------- ----------
Total....................... $ 11,430 $ 814,869 $ 976,849 $ 116,260
========== ========= ========== ==========

Identifiable property and equipment, net:

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)

Brewery.................................................... $ 697,325 $ 815,351
Brewpub.................................................... 631,097 695,200
---------- ----------
Total............................................ $ 1,328,422 $1,510,551
========== ==========

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

(1) Includes equipment acquired under capital lease obligation with a related
party (see Note 7). For the nine months ended September 30, 1996, the
brewery returned certain capital lease equipment totaling $20,758.
Accordingly, such returns are excluded from brewery capital expenditures.

NOTE 11 -- SUBSEQUENT EVENTS

Exchange Agreement With BWI

On September 11, 1996, the Company entered into a stock-for-stock exchange,
as amended on January 7, 1997, with Beverage Works, Inc., a California
corporation. Pursuant to the Exchange Agreement, BWI is to issue 141,063 shares
of its common stock, subject to adjustment (based on the change in net assets of
the Company, as defined), in exchange for all of the outstanding shares of the
Company. In addition, up to 155,000 additional shares of BWI common stock may be
issued, if the Company reaches certain production

F-94
162

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)

levels, as defined. Pursuant to the Exchange Agreement , the exchange is to
occur concurrently with the consummation (the "Closing Date") of the BWI
proposed IPO. If for any reason the proposed IPO does not occur on or before
March 31, 1997 or the proposed IPO does not raise in the aggregate $6,000,000,
either party may unilaterally terminate the Exchange Agreement.

Should such additional shares of BWI common stock be issued, the value of
such shares will be deemed additional purchase consideration.

Management Agreements

In connection with the Exchange Agreement, the Company will enter into a
management agreement (The "Management Agreement") with certain stockholders
whereby the stockholders are to manage and operate the brewpub operations of the
Company from the Closing Date through December 31, 1998. As compensation for
such services, the stockholders are to receive 10,000 shares of BWI common
stock. Such shares are to be issued on a pro rata basis over the term of the
Management Agreement. In addition, the stockholders are obligated to the Company
for quarterly cash flow deficits, if any, as defined, during the term of the
Management Agreement (up to a maximum deficit of $7,500 per quarter). The
Management Agreement can be terminated by mutual written consent or in the event
of a breach, as defined.

See Note 7 for discussion of a management agreement, currently in effect,
entered into in anticipation of the consummation of the Exchange Agreement.

Consulting Agreement

In connection with the Exchange Agreement, BWI will enter into a two-year
consulting agreement with a significant stockholder of the Company. The
agreement requires the stockholder to provide brewery advisory services and
assistance with the acquisition and disposition of equipment. For such services,
BWI will issue 5,000 shares of its common stock at the end of each twelve-month
period commencing on the Closing Date.

Capital Lease Agreement Amendment

In connection with the Exchange Agreement and concurrent with the Closing
Date, a related party is required to enter into an agreement with the Company to
modify the existing terms of the capital lease obligation (see Note 7). In
consideration for such modifications, the Company will issue the related party
50,000 shares of common stock. The modifications to the capital lease obligation
are to include a reduction in the effective interest rate to 10%, a provision
that all such leased equipment may be purchased by the Company for $1 upon
expiration of the lease, the inclusion in the lease obligation of all delinquent
lease payments due through December 31, 1995 (see Note 7), and a reduction of
the lease obligation in the amount of $500,000. The dollar amount of the lease
payments are to be unaffected by the aforementioned changes in terms through
December 31, 1997 (monthly lease payments currently total $22,281). Effective
January 1, 1998, all amounts unpaid under the current lease obligation will be
consolidated into one five-year lease and the monthly payments will be revised
accordingly (the anticipated lease payment effective January 1, 1998 totals
$12,151). Lease payments that the lessor was to receive for the period January
1, 1996 through September 30, 1996 (which total $140,488) have been repaid
through the issuance of common stock (see Note 9).

F-95
163

ORANGE EMPIRE BREWING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED),
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 -- (CONTINUED)

NOTE 11 -- SUBSEQUENT EVENTS -- (CONTINUED)

Note Payable to Bank

As discussed in Note 6, the Company refinanced certain notes payable to a
bank and to certain stockholders aggregating approximately $545,000 (unaudited)
(the "Note"). In connection with the Exchange Agreement and concurrent with the
Closing Date, the Company is required to obtain the agreement of such
stockholders and the bank to amend and modify the Note to have two notes. The
stockholders will assume a note totaling $220,941 without further obligation of
the Company, and the remaining principal balance of the Note (which approximates
$312,552 (unaudited) at September 30, 1996) will be paid to the bank by the
Company. In consideration for assuming a portion of the Company's debt
obligations, the stockholders will be issued 27,618 shares of BWI common stock.
If on January 1, 1999, the per share market value of BWI common stock is less
than $6.00, BWI will issue to such stockholders an additional 9,227 shares of
BWI common stock.

Notes Payable To Stockholders

At September 30, 1996, certain of the Company's related party debt totals
$644,000 (unaudited) (consisting of $574,192 (unaudited) in principal and
$69,808 (unaudited) in accrued interest -- Note 6). Upon the consummation of the
proposed IPO, such indebtedness is to be satisfied as follows: (1) $301,000 is
to be paid in cash, and (2) $343,000 is to be refinanced with a new non-interest
bearing promissory note which will mature in 90 days, payable in cash and/or up
to 24,125 shares of BWI stock and/or up to 50,000 warrants to purchase shares of
BWI stock at an exercise price of $5.00 per share, based on a formula, as
defined.

Stockholder Advances

In connection with the Exchange Agreement, BWI agreed to use up to $150,000
of the proceeds from the proposed IPO to repay advances made by one stockholder
of the Company during the period May 1, 1996 through the Closing Date, including
deferred lease payments as discussed above. At September 30, 1996 (unaudited),
the Company has borrowed $85,000 under such agreement.

Agreements Not to Compete

In connection with the Exchange Agreement and concurrent with the Closing
Date, BWI has agreed to enter into agreements-not-to-compete with certain
stockholders of the Company for a period of three years in specified
territories. Management will ascribe no value to the agreements as management
believes that such agreements are not a material component to the Exchange
Agreement.

F-96
164

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

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY
ANY SECURITY OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN
OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OF SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE
HEREOF.

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

TABLE OF CONTENTS

Prospectus Summary..................... 3
Risk Factors........................... 7
Capitalization......................... 13
Dilution............................... 15
Use of Proceeds........................ 17
Selected Financial Data................ 19
Management's Discussion and Analysis... 22
Business............................... 32
Management............................. 50
Principal Stockholders................. 56
Description of Securities.............. 58
Underwriting........................... 62
Legal Matters.......................... 64
Experts................................ 64
Additional Information................. 64
Index to Financial Statements.......... F-1

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

UNTIL , 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

1,500,000 SHARES OF COMMON STOCK

1,500,000 CLASS A WARRANTS
BEVERAGE WORKS, INC.

------------------------------
PROSPECTUS
------------------------------

FIRST LONDON SECURITIES CORPORATION

, 1997

- ------------------------------------------------------
- ------------------------------------------------------
165

ALTERNATE PAGE

SUBJECTION TO COMPLETION DATED , 1997

PROSPECTUS

BEVERAGE WORKS, INC.

728,229 SHARES OF COMMON STOCK

892,000 SHARES OF COMMON STOCK ISSUABLE

UPON EXERCISE OF CLASS E WARRANTS

70,000 SHARES OF COMMON STOCK ISSUABLE

UPON EXERCISE OF CLASS B WARRANTS

This Prospectus relates to the offering by certain selling securityholders
(the "Selling Shareholders") of 728,229 shares of Common Stock, no par value,
(the "Shares") of Beverage Works, Inc., a California corporation (the
"Company"). This Prospectus also relates to the offering by certain selling
securityholders (the "Selling Class E Warrantholders") of 892,000 shares of
Common Stock issuable upon exercise of 892,000 Class E Warrants ("Class E
Warrant Shares"). This Prospectus also relates to the offering by certain
selling securityholders (the "Selling Class B Warrantholders") of 70,000 shares
of Common Stock issuable upon exercise of 70,000 Class B Warrants ("Class B
Warrant Shares"). (The Selling Shareholders, the Selling Class E Warrantholders
and, the Selling Class B Warrantholders are collectively referred to as Selling
Securityholders.) The Shares, Class E Warrant Shares and Class B Warrant Shares
offered hereby may be sold from time to time by the Selling Securityholders, or
by transferees, on or after the date of this Prospectus, subject to contractual
restrictions discussed below. The Selling Shareholders may not sell or otherwise
dispose of their Shares for a period ranging from sixty days to thirteen months
after the effective date of the registration statement to which this Prospectus
is a part without the prior written consent of First London Securities
Corporation as representative of the several underwriters of the Company
Offering (the "Representative"). The Selling Class E Warrantholders and Selling
Class B Warrantholders may not sell or otherwise dispose of their Shares for a
period of 180 days after the effective date of the registration statement to
which this Prospectus is a part without the prior written consent of the
Representative. See "Risk Factors -- Shares Available for Future Sale" and
"Description of Securities,"

No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the Shares, Class E Warrant Shares and
Class B Warrant Shares (collectively the "Selling Securities") by the Selling
Securityholders may be effected from time to time in transactions on the Nasdaq
Small Cap Market System, in negotiated transactions, through the writing of
options on the Selling Securities, or a combination of such methods of sale, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, or at negotiated
prices. The Selling Securityholders may effect such transactions by the sale of
the Selling Securities to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders and/or the purchasers of the Selling Securities for
whom such broker-dealers may act as agent or to whom they may sell as principal,
or both. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Securityholders in connection with sales
of the Selling Securities.

The Selling Securityholders and intermediaries through whom the Selling
Securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered and any profits realized or commissions received may be
deemed underwriting compensation. Other than the exercise price payable upon
exercise of the Class E Warrants and Class B Warrants, the Company will not
receive any proceeds from sales of the Selling Securities.

A registration statement under the Securities Act has been filed with the
Securities and Exchange Commission with respect to an underwritten public
offering on behalf of the Company of 1,500,000 shares of Common Stock and
1,500,000 Class A Warrants plus up to 225,000 shares of Common Stock and 225,000
Class A Warrants which may be offered by the Company pursuant to the exercise of
the Underwriters' over-allotment option (the "Company Offering"). See
"Concurrent Sales By Company."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

166

ALTERNATE PAGE

THE OFFERING

Securities Offered......... 728,229 shares of Common Stock, no par value;
892,000 shares of Common Stock issuable upon
exercise of the Class E Warrants; 70,000 shares of
Common Stock issuable upon exercise of the Class B
Warrants. See "Risk Factors -- Shares Available for
Future Sale" and "Description of Securities." No
underwriting arrangements have been entered into by
the Selling Securityholders.

Common Stock Outstanding
after the Company
Offering (1)(2)............ 4,132,453 shares

Shares of Common Stock to
be
Outstanding After this
Offering(1)(2)............. 4,132,453 shares

Use of Proceeds............ Other than the exercise price payable upon exercise
of the Class E Warrants and Class B Warrants, the
Company will not receive any proceeds from the sale
of the Selling Securities. See "Use of Proceeds."

Nasdaq Common Stock Trading
Symbol................... .

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

(1) Does not include (i) 1,500,000 shares of Common Stock issuable at $6.00 per
share upon exercise of the 1,500,000 Class A Warrants offered by the Company
in its initial public offering, plus 225,000 Class A Warrants which may be
offered pursuant to the underwriter's over-allotment option, (ii) 2,433,500
shares of Common Stock issuable upon exercise of outstanding options granted
under the Company's stock option plans, (iii) the 300,000 shares of Common
Stock upon exercise of the Representative's Purchase Option (iv) 80,583
shares of Common Stock issuable upon exercise of other outstanding options
and warrants and (v) 100,000 shares of Common Stock issuable upon exercise
of the Directors' warrants. See "Description of Securities". Includes
141,063 shares of Common Stock which are to be issued to the former OEBC
shareholders in accordance with the Share Purchase Agreement, 27,618 shares
of Common Stock to be issued to certain former OEBC shareholders for
assuming a portion of OEBC bank debt. 24,125 shares of Common Stock to be
issued to the OEBC debtholders in accordance with the Debt Exchange
Agreement, 10,000 shares of Common Stock to be issued pursuant to the
Brewpub Management Agreement, 60,000 shares of Common Stock to be issued to
Brewery Leasing Company pursuant to the amendment to the equipment lease
agreement and the brewery equipment consulting agreement. Excludes 155,000
shares of Common Stock which may be issued to the former OEBC shareholders
pursuant to the earnout provisions of the Share Purchase Agreement. See
"Business -- Breweries -- Riverside Brewing Company". Includes 30,000 shares
of Common Stock to be issued to Tankin Capital Partners pursuant to the
tentative settlement agreement. See "Business -- Legal Proceedings".

(2) Assumes exercise of the 892,000 Class E Warrants and exercise of the 70,000
Class B Warrants.

167

ALTERNATE PAGE

CONCURRENT SALES BY COMPANY

A registration statement under the Securities Act of 1933, as amended (the
"Act"), has been filed by the Company with the Securities and Exchange
Commission with respect to an underwritten public offering by the Company of
1,500,000 shares of Common Stock and 1,500,000 Class A Warrants, plus 225,000
shares of Common Stock and 225,000 Class A Warrants which may be offered
pursuant to exercise of the Underwriters' over-allotment option. Concurrent
sales of securities by the Company would likely have an adverse effect on the
market price of the Common Stock. The Selling Securities are subject to
contractual restrictions upon resale with the representative of the
Underwriters. See "Risk Factors -- Shares Available for Future Sale" and
"Description of Securities."

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SELLING SECURITYHOLDERS

The following table sets forth the name of each person who is a Selling
Securityholder, the number of Shares and other shares of Common Stock
beneficially owned by each Selling Shareholder's account and the number of
shares of Common Stock such Shareholder will own after the completion of this
Offering assuming all Shares are sold. Certain of the listed persons currently
have or have had a position, office or other material relationship with the
Company or any predecessor in the past three years. See "Management." For each
Selling Securityholder, the figure in each column represents number and
percentage ownership of the total number of shares of Common Stock owned
assuming all Class B Warrants and Class E Warrants are exercised.

BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
--------------------------- ------------------------------
NAME SHARES(1) PERCENTAGE(2) SHARES(3) PERCENTAGE(2)(4)
- --------------------------------------- --------- ------------- --------- ----------------

Kathleen Burke(5)...................... 62,758 2.38% 58,758 1.52%
c/o Beverage Works, Inc.
9800 S. Sepulveda Blvd. Ste 720
Los Angeles, CA 90045
Stefdan, Ltd.(6)....................... 83,000 3.15% 0 0
c/o Steven M. Scarano Scarano & Lipton
333 Earle Ovington Blvd. Ste 102
Mitchell Field, NY 11553

Bob Molinaro........................... 666 <1% 0 0
1854 Pt. Taggart
Newport Beach, CA 92660

Kevin McCarthy(7)...................... 6,000 <1% 0 0
209 John Street
Manhattan Beach, CA 90266

Jack Stoner(8)......................... 13,598 <1% 0 0
8716 Frontera Avenue
Yucca Valley, CA 92284

John & Terri Langhans.................. 14,691 <1% 10,289 <1%
5712 Horsham Ave
Westminster, CA 92683

Hecht & Steckman, P.C.(9).............. 14,000 <1% 0 0
Attn: Charles J. Hecht, Esq.
60 East 42nd Street, Suite 5101
New York, NY 10165

Patrick H. Miller and.................. 600,000 22.79% 0 0
Lee M. Miller(10)
1300 W. Garmon Road, NW
Atlanta, GA 30327

Gerald T. Cochran...................... 100,000 3.80% 0 0
400 Horton Road, SW
Rainsville, AL 35986

Robert H. Mudd, Jr..................... 10,000 <1% 0 0
6108 Sturbridge Drive
Mobile, AL 36609

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BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING

NAME SHARES(1) PERCENTAGE(2) SHARES(3) PERCENTAGE(2)(4)
- --------------------------------------- --------- ------------ --------- ----------------

M Co., a partnership................... 10,000 <1% 0 0
c/o Robert H. Mudd, Jr.
P.O. Box 1248
Mobile, AL 36633

Larry Murk............................. 20,000 <1% 0 0
607 Palmer Avenue
Maywood, NJ 07607

Johann Vets(11)........................ 99,996 3.8% 6,250 <1%
39 Graaf de Granvellelaan
2650 Edegem Belgium

Douglas Barat.......................... 10,000 <1% 0 0
317 Richmond Avenue
Massapequa, NY 11758-3232

William Hess, Jr....................... 10,000 <1% 0 0
P.O. Box 15856
Asheville, NC 28813

Marcel Aronheim........................ 20,000 <1% 0 0
48 Spring Hollow
Roslyn, NY 11576

Gary S. and M. Cristina Leske.......... 5,000 <1% 0 0
165 Old Field Road
Setauket, NY 11733

Robert Deutsch......................... 10,000 <1% 0 0
8820 Millbrook Road
Newark, IL 60541

A.C. Brown............................. 10,000 <1% 0 0
406 N. Lee Street
Alexandria, VA 22314-2302

Kimberly A. Stoner(12)................. 3,333 <1% 0 0
6549 E. Camino Vista, #3
Anaheim, CA 92807

Michael Pizitz......................... 7,500 <1% 0 0
2140 11th Avenue South,
Suite 318
Birmingham, AL 35205

Richard Pizitz......................... 7,500 <1% 0 0
Hidden Dunes, #1901
9815 Highway 98 West
Destin, FL 32541

W.E. Stephens, Jr.(13)................. 10,000 <1% 0 0
13214 Allysum Ct.
Cypress, TX 77429

Guy Schebovitz(14)..................... 178,684 6.79% 0 0
931 East 77th, 2nd Flr
Brooklyn, NY 11236

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BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING

NAME SHARES(1) PERCENTAGE(2) SHARES(3) PERCENTAGE(2)(4)
- --------------------------------------- --------- ------------- --------- ----------------

Imafina, S.A.(15)...................... 200,000 7.60% 0 0
c/o Mr. Hubert Hendrickx
Administrateur Delegue
4, Route de Beaumont
1700 Fribourg CH Switzerland

Robert E. Reale(16).................... 152,720 5.80% 78,200 1.89%
6501 5th Avenue
Brooklyn, NY 11220

Robert F. Reale(17).................... 63,765 2.42% 34,515 <1%
7312 Ridge Blvd.
Brooklyn, NY 11209

Bradley W. Kabbash(18)................. 70,850 2.69% 38,350 <1%
52 Thunder Mountain Road
Greenwich, CT 06831

Lord Charles Spencer-Churchill(19)..... 15,000 <1% 5,000 <1%
91 Eaton Terrace
London SW1Y4W, England

Alan Miller(20)........................ 11,345 <1% 3,335 <1%
7007 College Blvd. Suite 260
Overland Park, KS 66209

Donald Scott(21)....................... 60,000 <1% 35,000 <1%
58 Peacock Lane
Locust Valley, NY 11560

John DiNobile(22)...................... 9,520 <1% 0 0
420 Sixth Street, Apt. 7-D
Brooklyn, NY 11220

Frederick Friedman(23)................. 90,000 3.42% 20,000 <1%
207 West Old Mill Road
Greenwich, CT 06831

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

(1) The figures in the "Shares" column are the total number of Shares, Class E
Warrant Shares and Class B Warrant Shares held by such Selling
Securityholder (assuming all Class E Warrants and Class B Warrants are
exercised by such Selling Securityholder). Unless otherwise indicated by
footnote, each figure in the "Shares" column are Shares. Unless otherwise
indicated by footnote, the Shares are subject to a 13 month lock-up. Unless
otherwise indicated by footnote, the Class E Warrant Shares and Class B
warrant Shares are subject to a 180 day lock-up. See "Selling
Securityholders -- Lock-Up Arrangements."

(2) Assumes exercise of the 892,000 Class E Warrants and 70,000 Class B
Warrants. Includes 141,063 shares of Common Stock which are to be issued to
the former OEBC shareholders in accordance with the Share Purchase
Agreement, 24,125 shares of Common Stock to be issued to the OEBC
debtholders in accordance with the Debt Exchange Agreement, 10,000 shares
of Common Stock to be issued pursuant to the Brewpub Management Agreement,
27,618 shares of Common Stock to be issued to certain former OEBC
shareholders for assuming a portion of OEBC's bank debt, and 60,000 shares
of Common Stock to be issued to Brewery Leasing Company pursuant to the
amendment to the equipment lease agreement and the brewery equipment
consulting agreement. Excludes 155,000 shares of Common Stock which may be
issued to the former OEBC shareholders pursuant to the earnout provisions
of the Share Purchase Agreement. Includes 30,000 shares of Common Stock to
be issued to Tankin Capital

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ALTERNATE PAGE

Partners pursuant to the settlement agreement. Does not include (i)
2,433,500 shares of Common Stock issuable upon exercise of authorized
options granted under the Company's stock option plans, or (ii) 180,583
shares of Common Stock issuable upon exercise of other outstanding options
and warrants.

(3) The figures in the "Shares" column are the total number of Shares, Class E
Warrant Shares and Class B Warrant Shares held by such Selling
Securityholder (assuming all Class E Warrants and Class B Warrants are
exercised by such Selling Securityholder) after the offering by the Selling
Securityholders assuming all Shares, Class E Warrant Shares and Class B
Warrant Shares which were registered in this offering were sold by such
Selling Securityholder.

(4) Includes 1,500,000 shares of Common Stock offered by the Company in its
initial public offering. Does not include (i) 1,500,000 shares of Common
Stock issuable upon exercise of the 1,500,000 Class A Warrants offered by
the Company in its initial public offering, (ii) 225,000 shares of Common
Stock pursuant to the Underwriter's over-allotment option, (iii) 225,000
shares of Common Stock issuable upon exercise of the 225,000 Class A
Warrants offered by the Company pursuant to the Underwriter's
over-allotment option, and (iv) 300,000 shares of Common Stock upon
exercise of the Representative's Warrant and underlying Warrants.

(5) Ms. Burke is Vice President of Sales of the Company. In addition to 4,000
Shares offered hereby, beneficial ownership includes 58,758 shares of
Common Stock.

(6) Stefdan, Ltd., a company wholly-owned by Steven Scarano, is the beneficial
owner of 33,000 Shares and 50,000 Class E Warrant Shares offered hereby.
Mr. Scarano was a director of the Company at the time he received the
Shares and Class E Warrants.

(7) Mr. McCarthy is the beneficial owner of 4,000 Shares and 2,000 Class E
Warrant Shares offered hereby.

(8) Mr. Stoner is the father of John Stoner, a director and the Vice President
of New Breweries of the Company.

(9) Hecht & Steckman, P.C. is Company counsel. In addition to 14,000 Shares
offered hereby, beneficial ownership includes 15,583 Class C Warrants.

(10) The Millers are beneficial owners of 100,000 Shares and 500,000 Class E
Warrant Shares offered hereby.

(11) In addition to 93,746 Shares offered hereby, beneficial ownership includes
6,250 shares in the name of Group Nollett Vets, of which Mr. Vets is a
principal.

(12) Ms. Stoner is the wife of John Stoner, a director of the Company and Vice
President of New Breweries of the Company.

(13) The 10,000 Shares offered hereby are subject to a lock-up of 120 days after
the effective date of the registration statement, however, 3,333 Shares are
released from the lock-up in 60 days, and another 3,333 shares are released
from the lock-up in 90 days. Mr. Stephens is also the beneficial owner of
5,000 Class H Warrants.

(14) The 178,684 Shares offered hereby are subject to a lock-up of one year
after the effective date of the registration statement, however, 26,666
Shares are released from the lock-up in 60 days, 26,666 Shares are released
from the lock-up in 90 days, 6,667 Shares are released from the lock-up in
120 days, and 26,200 Shares are released from the lockup in 150 days. Mr.
Schebovitz is also the beneficial owner of 10,000 Class H Warrants.

(15) Imafina, S.A. is the beneficial owner of 200,000 Class E Warrant Shares
offered hereby.

(16) Mr. Reale is the beneficial owner 9,520 Shares and 65,000 Class E Warrants
offered hereby in addition to 76,200 shares of Common Stock. The 9,520
Shares offered hereby are subject to a lock-up of 150 days after the
effective date of the registration statement, however, 4,000 Shares are
released from the lock-up in 60 days and 4,000 Shares are released from the
lock-up in 90 days.

(17) Mr. Reale is the beneficial owner 29,250 Class E Warrants offered hereby in
addition to 34,515 shares of Common Stock.

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ALTERNATE PAGE

(18) Mr. Kabbash is the beneficial owner of 32,500 Class E Warrants offered
hereby in addition to 38,350 shares of Common Stock. Mr. Kabbash was a
director of the Company at the time he received the Class E Warrants and
these additional shares.

(19) Lord Spencer-Churchill is the beneficial owner of 10,000 Class E Warrant
Shares offered hereby in addition to 5,000 shares of Common Stock. Lord
Spencer-Churchill was a director of the Company at the time he received the
Class E Warrants and these additional shares.

(20) Mr. Miller is the beneficial owner 4,760 Shares and 3,250 Class E Warrant
Shares offered hereby in addition to 3,335 shares of Common Stock. The
4,760 Shares offered hereby are subject to a lock-up of 150 days after the
effective date of the registration statement, however, 2,000 Shares are
released from the lock-up in 60 days and 2,000 Shares are released from the
lock-up in 90 days.

(21) Mr. Scott is the beneficial owner of 25,000 Shares offered hereby in
addition to 35,000 shares of Common Stock.

(22) The 9,520 Shares offered hereby are subject to a lock-up of 150 days after
the effective date of the registration statement, however, 4,000 Shares are
released from the lock-up in 60 days and 4,000 Shares are released from the
lock-up in 90 days.

(23) Mr. Friedman is the beneficial owner of 70,000 Class B Warrant Shares
offered hereby in addition to 20,000 shares of Common Stock.

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ALTERNATE PAGE

LOCK-UP ARRANGEMENTS

The Selling Shareholders have agreed, prior to the closing of the Company
Offering, that they will not publicly sell, offer to sell, contract to offer to
sell, transfer, assign or pledge any of the Shares which are being registered on
their behalf by the registration statement of which this Prospectus forms a
part, for a period ranging from ninety days to thirteen months after the
effective date of the registration statement without the prior written consent
of First London Securities Corporation, as representative of the several
Underwriters ("Representative"). The Selling Class E Warrantholders and Selling
Class E Warrantholders have agreed, prior to the closing of the Company
Offering, that they will not publicly sell, offer to sell, contract to offer to
sell, transfer, assign or pledge any of the Class E Warrant Shares and Class B
Warrant Shares which are being registered on their behalf by the registration
statement of which this Prospectus forms a part, for a period of 180 days after
the effective date of the registration statement without the prior written
consent of the Representative. See "Risk Factors -- Shares Available for Future
Sale" and "Description of Securities."

PLAN OF DISTRIBUTION

The distribution of the Selling Securities by the Selling Securityholders
may be effected from time to time in transactions on Nasdaq, in negotiated
transactions, through the writing of options on the Selling Securities, or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of the sale, at prices related to such
prevailing market prices, or at negotiated prices. The Selling Securityholders
may effect such transactions by the sale of the Selling Securities to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Selling Securities for whom such broker-dealers may act as
agent or to whom they may sell as principal, or both. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with sales of the Selling Securities. No
underwriting arrangements have been entered into by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom the Selling
Securities are sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered and any profits realized
or commissions received may be deemed underwriting compensation.

174

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

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

TABLE OF CONTENTS

Prospectus Summary.....................
Risk Factors...........................
Capitalization.........................
Dilution...............................
Use of Proceeds........................
Selected Financial Data................
Management's Discussion and Analysis...
Business...............................
Management.............................
Principal Stockholders and Selling
Securityholders......................
Description of Securities..............
Concurrent Sales by Company............
Legal Matters..........................
Experts................................
Additional Information.................
Index to Financial Statements..........

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

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

728,229 SHARES OF COMMON STOCK

892,000 SHARES OF COMMON STOCK

ISSUABLE UPON EXERCISE OF

CLASS E WARRANTS

70,000 SHARES OF COMMON STOCK

ISSUABLE UPON EXERCISE OF

CLASS B WARRANTS
BEVERAGE WORKS, INC.

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

PROSPECTUS

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

, 1997

- ------------------------------------------------------
- ------------------------------------------------------
175

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

CALIFORNIA STATUTES

Section 317 of the California General Corporation Law, as amended, provides
for the indemnification of the Company's officers, directors, employees and
agents under certain circumstances as follows:

(a) For the purposes of this section, "agent" means any person who is
or was a director, officer, employee or other agent of corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another foreign or domestic corporation, partnership,
joint venture, trust or other enterprise, or was a director, officer,
employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of the predecessor corporation; "proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative; and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to indemnification
under subdivision (d) or paragraph (4) of subdivision (e).

(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding (other
than an action by or in the right of the corporation to procure a judgment
in its favor) by reason of the fact that the person is or was an agent of
the corporation, against expenses, judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with the proceeding
if that person acted in good faith and in a manner the person reasonably
believed to be in the best interests of the corporation and, in the case of
a criminal proceeding, had no reasonable cause to believe the conduct of
the person was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction, or upon a please of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in the best interests of the corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.

(c) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending,
or completed action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was an
agent of the corporation, against expenses actually and reasonably incurred
by that person in connection with the defense or settlement of the action
if the person acted in good faith, in a manner the person believed to be in
the best interests of the corporation and its shareholders.

No indemnification shall be made under this subdivision for any of the
following:

(1) In respect of any claim, issue or matter as to which the person
shall have been adjudged to be liable to the corporation in the
performance of that person's duty to the corporation and its
shareholders, unless and only to the extent that the court in which the
proceeding is or was pending shall determine upon application that, in
view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine.

(2) Of amounts paid in settling or otherwise disposing of a pending
action without court approval.

(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.

(d) To the extent that an agent of a corporation has been successful
on the merits in defense of any proceeding referred to in subdivision (b)
or (c) or in defense of any claim, issue, or matter therein, the

II-1
176

agent shall be indemnified against expenses actually and reasonably
incurred by the agent in connection therewith.

(e) Except as provided in subdivision (d), any indemnification under
this section shall be made by the corporation only if authorized in the
specific case, upon a determination that indemnification of the agent is
proper in the circumstances because the agent has met the applicable
standard of conduct set forth in subdivision (b) or (c), by any of the
following:

(1) A majority vote of a quorum consisting of directors who are not
parties to such proceeding.

(2) If such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion.

(3) Approval of the shareholders (Section 153), with the shares
owned by the person to be indemnified not being entitled to vote
thereon.

(4) The court in which the proceeding is or was pending upon
application made by the corporation or the agent or the attorney or
other person rendering services in connection with the defense, whether
or not the application by the agent, attorney or other person is opposed
by the corporation.

(f) Expenses incurred in defending any proceeding may be advanced by
the corporation prior to the final disposition of the proceeding upon
receipt of an undertaking by or on behalf of the agent to repay that amount
if it shall be determined ultimately that the agent is not entitled to be
indemnified as authorized in this section. The provisions of subdivision
(a) of Section 315 do not apply to advances made pursuant to this
subdivision.

(g) The indemnification authorized by this section shall not be deemed
exclusive of any additional rights to indemnification for breach of duty to
the corporation and its shareholders while acting in the capacity of a
director or officer of the corporation to the extent the additional rights
to indemnification are authorized in an article provision adopted pursuant
to paragraph (11) of subdivision (1) of Section 204. The indemnification
provided by this section for acts, omissions, or transactions while acting
in the capacity of, or while serving as, a director or officer of the
corporation but not involving breach of duty to the corporation and its
shareholders shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any by-law, agreement,
vote of shareholders or disinterested directors, or otherwise, to the
extent the additional rights to indemnification are authorized in the
articles of the corporation. An article provision authorizing
indemnification "in excess of that otherwise permitted by Section 317" or
"to the fullest extent permissible under California law" or the substantial
equivalent thereof shall be construed to be both a provision for additional
indemnification for breach of duty to the corporation and its shareholders
as referred to in, and with the limitations required by, paragraph (11) of
subdivision (a) of Section 204 and a provision for additional
indemnification as referred to in the second sentence of this subdivision.
The rights to indemnity hereunder shall continue as to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of the person. Nothing
contained in this section shall affect any right to indemnification to
which persons other than the directors and officers may be entitled by
contract or otherwise.

(h) No indemnification or advance shall be made under this section,
except as provided in subdivision (d) or paragraph (4) of subdivision (e),
in any circumstance where it appears:

(1) That it would be inconsistent with a provision of the articles,
by-laws, a resolution of the shareholders, or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification.

(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.

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177

(i) A corporation shall have power to purchase and maintain
insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in that capacity
or arising out of the agent's status as such whether or not the
corporation would have the power to indemnify the agent against that
liability under this section. The fact that a corporation owns all or
a portion of the shares of the company issuing a policy of insurance
shall not render this subdivision inapplicable if either of the
following conditions are satisfied: (1) if the articles authorize
indemnification in excess of that authorized in this section and the
insurance provided by this subdivision is limited as indemnification
is required to be limited by paragraph (11) of subdivision (1) of
Section 204; or (2)(A) the company issuing the insurance policy is
organized, licensed, and operated in a manner that complies with the
insurance laws and regulations applicable to its jurisdiction of
organization, (B) the company issuing the policy provides procedures
for processing claims that do not permit that company to be subject
to the direct control of the corporation that purchased that policy,
and (C) the policy issued provides for some manner of risk sharing
between the issuer and purchaser of the policy, on one hand, and some
unaffiliated person or persons, on the other, such as by providing
for more than one unaffiliated owner of the company issuing the
policy or by providing that a portion of the coverage furnished will
be obtained from some unaffiliated insurer or reinsurer.

(j) This section does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit plan in that
person's capacity as such, even though the person may also be an agent as
defined in subdivision (a) of the employer corporation. A corporation shall
have power to indemnify such a trustee, investment manager, or other
fiduciary to the extent permitted by subdivision (f) of Section 207.

ARTICLES OF INCORPORATION

The Company's Articles of Incorporation provides for the indemnification of
the Company's directors under certain circumstances as follows:

PART IV
LIMITATION OF LIABILITY

The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.

PART V
INDEMNIFICATION OF AGENTS

This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the Corporations Code) for breach of duty to
the corporation and its stockholders through bylaw provisions or through
agreements with the agents, or both, in excess of the indemnification
otherwise permitted by Section 317 of the Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 the
Corporations Code.

BY-LAWS

The Company's By-Laws provide for the indemnification of the Company's
directors, officers, employees, or agents under certain circumstances as
follows:

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178

ARTICLE VI
INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS

SECTION 1. AGENTS, PROCEEDINGS, AND EXPENSES.

For the purposes of this Article, "agent" means any person who is or
was a director, officer, employee, or other agent of this corporation, or
who is or was serving at the request of this corporation as a director,
officer, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or who was a
director, officer, employee, or agent of a foreign or domestic corporation
that was a predecessor corporation of this corporation or of another
enterprise at the request of such predecessor corporation; "proceeding"
means any threatened, pending, or completed action or proceeding, whether
civil, criminal, administrative, or investigative; and "expenses" includes,
without limitation, attorney fees and any expenses of establishing a right
to indemnification under Section 4 or Section 5(d) of this Article VI.

SECTION 2. ACTIONS OTHER THAN BY THE CORPORATION.

This corporation shall have the power to indemnify any person who was
or is a party, or is threatened to be made a party, to any proceeding
(other than an action by or in the right of this corporation to procure a
judgment in its favor) by reason of the fact that such person is or was an
agent of this corporation, against expenses, judgments, fines, settlements,
and other amounts actually and reasonably incurred in connection with such
proceeding if that person acted in good faith and in a manner that the
person reasonably believed to be in the best interests of this corporation
and, in the case of a criminal proceeding, had no reasonable cause to
believe the conduct of that person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner that
the person reasonably believed to be in the best interests of this
corporation or that the person had reasonable cause to believe that the
person's conduct was not unlawful.

SECTION 3. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION.

This corporation shall have the power to indemnify any person who was or is
a party, or is threatened to be made a party, to any threatened, pending, or
completed action by or in the right of this corporation to procure a judgment in
its favor by reason of the fact that such person is or was an agent of this
corporation, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of that action, if such person acted
in good faith, in a manner such person believed to be in the best interests of
this corporation and its shareholders. No indemnification shall be made under
this Section 3 for the following:

(a) With respect to any claim, issue, or matter on which such
person has been adjudged to be liable to this corporation in the
performance of such person's duty to the corporation and its
shareholders, unless and only to the extent that the court in which such
proceeding is or was pending shall determine on application that, in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine;

(b) Amounts paid in settling or otherwise disposing of a pending
action without court approval; or

SECTION 4. SUCCESSFUL DEFENSE BY AGENT.

To the extent that an agent of this corporation has been successful on
the merits in defense of any proceeding referred to in Section 2 or 3 of
this Article VI, or in defense of any claim, issue, or matter

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therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith.

SECTION 5. REQUIRED APPROVAL.

Except as provided in Section 4 of this Article VI, any indemnification
under this Section shall be made by the corporation only if authorized in the
specific case, after a determination that indemnification of the agent is proper
in the circumstances because the agent has met the applicable standard of
conduct set forth in Section 2 or 3 by one of the following:

(a) A majority vote of a quorum consisting of directors who are not
parties to such proceeding;

(b) Independent legal counsel in a written opinion if a quorum of
directors who are not parties to such a proceeding is not available;

(c) (i) The affirmative vote of a majority of shares of this
corporation entitled to vote represented at a duly held meeting at which
a quorum is present; or

(ii) the written consent of holders of a majority of the
outstanding shares entitled to vote (for purposes of this subsection
5(c), the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote thereon); or

(d) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or
other person rendering services in connection with the defense, whether
or not such application by the agent, attorney, or other person is
opposed by this corporation.

SECTION 6. ADVANCE OF EXPENSES.

Expenses incurred in defending any proceeding may be advanced by the
corporation before the final disposition of such proceeding on receipt of
an undertaking by or on behalf of the agent to repay such amounts if it
shall be determined ultimately that the agent is not entitled to be
indemnified as authorized in this Article VI.

SECTION 7. OTHER CONTRACTUAL RIGHTS.

The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in an official capacity and as
to action in another capacity while holding such office, to the extent such
additional rights to indemnification are authorized in the articles of the
corporation. Nothing in this section shall affect any right to
indemnification to which persons other than such directors and officers may
be entitled by contract or otherwise.

SECTION 8. LIMITATIONS.

No indemnification or advance shall be made under this Article VI,
except as provided in Section 4 or Section 5(d), in any circumstance if it
appears:

(a) That it would be inconsistent with a provision of the articles,
bylaws, a resolution of the shareholders, or an agreement in effect at
the time of the accrual of the alleged cause of action asserted in the
proceeding in which expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or

(b) That it would be inconsistent with any condition expressly
imposed by a court in approving settlement.

SECTION 9. INSURANCE.

This corporation may purchase and maintain insurance on behalf of any
agent of the corporation insuring against any liability asserted against or
incurred by the agent in that capacity or arising out of the

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agent's status as such, whether or not this corporation would have the
power to indemnify the agent against that liability under the provisions of
this Article VI. Notwithstanding the foregoing, if this corporation owns
all or a portion of the shares of the company issuing the policy of
insurance, the insuring company and/or the policy shall meet the conditions
set forth in section 317(i) of the Corporations Code.

SECTION 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN.

This Article VI does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit plan in that
person's capacity as such, even though that person may also be an agent of
the corporation. The corporation shall have the power to indemnify, and to
purchase and maintain insurance on behalf of any such trustee, investment
manager, or other fiduciary of any benefit plan for any or all of the
directors, officers, and employees of the corporation or any of its
subsidiary or affiliated corporations.

SECTION 11. SURVIVAL OF RIGHTS.

The rights provided by this Article VI shall continue for a person who
has ceased to be an agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.

SECTION 12. EFFECT OF AMENDMENT.

Any amendment, repeal, or modification of this Article VI shall not
adversely affect an agent's right or protection existing at the time of
such amendment, repeal, or modification.

SECTION 13. SETTLEMENT OF CLAIMS.

The corporation shall not be liable to indemnify any agent under this
Article VI for (a) any amounts paid in settlement of any action or claim
effected without the corporation's written consent, which consent shall not
be unreasonably withheld, or (b) any judicial award, if the corporation was
not given a reasonable and timely opportunity to participate, at its
expense, in the defense of such action.

SECTION 14. SUBROGATION.

In the event of payment under this Article VI, the corporation shall
be subrogated to the extent of such payment to all of the rights of
recovery of the agent, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the
execution of such documents as may be necessary to enable the corporation
effectively to bring suit to enforce such rights.

SECTION 15. NO DUPLICATION OF PAYMENTS.

The corporation shall not be liable under this Article VI to make any
payment in connection with any claim made against the agent to the extent
the agent has otherwise actually received payment, whether under a policy
of insurance, agreement, vote, or otherwise, of the amounts otherwise
indemnifiable under this Article.

WRITTEN AGREEMENTS

The Company has entered into written agreements with each of its officers
and directors, including Frederik G.M. Rodenhuis and Lyle R. Maul, pursuant to
which the Company is required to indemnify each person under circumstances and
to the extent generally equivalent to those which are permissible under the
Company's By-Laws.

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181

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses in connection with the offering are as follows:

ITEM AMOUNT*
------------------------------------------------------------------ --------

Securities and Exchange Commission Registration Fee............... $ 17,252
National Association of Securities Dealers, Inc. and Blue Sky
Registration Fees............................................... 25,000
Accounting Fees and Expenses...................................... 167,000
Legal Fees and Expenses........................................... 120,000
Printing, Design and Advertising.................................. 100,000
Underwriters' Non-Accountable Expense Allowance................... 276,750
Miscellaneous..................................................... 50,000
--------
Total........................................................... 756,002
========

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

* Estimated

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

Within the last three (3) years, the Company has issued the following
securities which were not registered under the Securities Act of 1933.

On August 2, 1995, the date of incorporation, the Company authorized the
issuance of 245,310 shares of Common Stock to its founders for $0.01 per share.
The shares were issued in reliance on the exemption from registration under
Section 4(2) of the 1933 Act.

On October 6, 1995, the Company authorized the issuance of 192,400 shares
of its common stock and 190,000 warrants to purchase shares of the Company's
Common Stock, exercisable at $8.25 per share. The gross proceeds realized from
the issuance was $76,756. 2,810,000 warrants to were issued to Imafina, S.A., a
Swiss money management firm. The gross proceeds realized from the sale was
$28,000. Imafina, S.A. sold 100,000 warrants to one of the Company's existing
shareholders. The Company authorized the issuance of 1,342,700 shares of its
common stock to Adam Wachtel. The gross proceeds realized from the sale was
$67,135. On November 22, 1996, Mr. Wachtel sold 182,484 shares to a third party
in reliance on Sections 4(1) and 4(2) of the 1933 Act. Mr. Wachtel returned
1,160,216 shares to the Company and such shares were retired. These issuances
were made in reliance on the exemption from registration under Section 4(2) of
the 1933 Act.

On October 31, 1995, the Company issued 14,000 shares of its Common Stock
and 15,583 warrants to purchase shares of the Company's Common Stock exercisable
at $4.50 per share to Hecht & Steckman, P.C., counsel to the Company. The gross
proceeds realized from the sale was $140.00. This issuance was made in reliance
on the exemption from registration under Section 4(2) of the 1933 Act.

On November 8, 1995, the Company acquired Heritage Brewing Company in a
stock-for-stock exchange. The Company acquired 94.85% of all of the outstanding
voting capital stock of Heritage in exchange for 142,276 shares of the Company's
Common Stock. The Heritage shareholders have an option to call the Heritage
stock if the Company does not close a public offering of the Company's common
stock realizing gross proceeds of at least $5,000,000 by March 31, 1997. The
issuance was made in reliance on the exemption from registration under Section
3(a)(9) of the 1933 Act.

On November 12, 1995, the Company authorized the issuance of 49,015 shares
of its Common Stock to John Stoner and Mark Mericle as consideration for
consulting services provided to the Company. The Company also issued 5,333
shares to Jack Stoner and Edward Hansen to reduce notes owed by Heritage. The
shares were issued in reliance on the exemption from registration under Section
4(2) of the 1933 Act.

On November 15, 1995, the Company authorized the issuance of 16,583 shares
to certain parties for consulting services previously rendered to the Company
and advances made to the Company at its pre-

II-7
182

formation stages in the total amount of $57,034. On January , 1997, the
Company authorized the issuance of 2,000 $8.25 warrants to Kevin McCarthy which
was to have been issued November 15, 1995. The issuance was made in reliance on
the exemption from registration under Section 4(2) of the 1933 Act.

On November 20, 1995, the Company made a nonpublic offer of 400,000 shares
of Common Stock at the price of $4.00 per share. These offers and sales were
conducted by an NASD member firm in consideration for payment of commission of
9%, plus 3% nonaccountable expense allowance, of the gross proceeds. On August
28, 1996, the Company authorized the acceptance of additional subscriptions of
15,000 causing the total number of shares issued in the private placement to be
413,746. The 413,746 shares in the private placement were sold to fourteen (14)
investors realizing gross proceeds, before deducting for commissions and
expenses of $1,654,984. The private placement was made in reliance on the
exemption from registration afforded by Rule 506 of Regulation D promulgated
under the 1933 Act.

On January 22, 1996, the Company authorized the issuance of 6,500 shares of
its Common Stock to C.A. Wittwer & Associates and its designees as part of the
consideration for the license agreements between Heritage Brewing Company, a
subsidiary of the Company, and C.A. Wittwer & Associates. Heritage and the
Company have executed an agreement whereby the Company has the right to assume
the contract upon the close of a public offering by the Company realizing gross
proceeds of at least $5,000,000 on or before December 31, 1995. The sale was
made in reliance on the exemption from registration afforded by Section 4(2) of
the 1933 Act.

On May 20, 1996, the Company issued a $500,000 promissory note, secured by
all equipment, inventory and accounts receivable of the Company, and warrants to
Frederick Friedman. The note, which pays simple interest at 18% per annum,
mature on the earlier of (i) closing of a public offering by the Company with
aggregate gross proceeds of no less than $6,000,000, or (ii) December 31, 1996.
Interest is payable monthly until the principal is paid in full. The purchaser
of the note was also granted 35,000 Class B Warrants, which are registered in
this Offering, to purchase shares of the Company's Common Stock. If the Company
does not close a public offering by December 31, 1996, the purchaser is entitled
to an additional 35,000 warrants on the same terms and conditions. The sale was
made in reliance on the exemption from registration afforded by Section 4(2) of
the 1933 Act. On December , 1996, the Company issued 20,000 shares of Common
Stock to Mr. Friedman as consideration for extending the maturity date of the
note to April 15, 1997. The Company also issued the additional 35,000 Class B
Warrants as provided under the note. The Company received no cash or other
property for the issuance of the shares or additional Class B Warrants. The
Common Stock issuable upon exercise of the Class B Warrants are being registered
in this offering subject to a 180 day lock-up. The issuance was made in reliance
on the exemption from registration afforded by Section 4(2) of the 1933 Act.

On August 5, 1996, the Company made a nonpublic offer of 32,500 units, each
unit consisting of two shares of the Corporation's common stock and one Class H
Warrant at the price of $10.00 per unit. These offers and sales were conducted
by an NASD member firm in consideration for payment of commission of 10% of the
gross proceeds. The offer closed after 15,000 units were subscribed by two (2)
investors realizing gross proceeds, before deducting for commissions and
expenses of $150,000. The private placement was made in reliance on the
exemption from registration afforded by Rule 506 of Regulation D promulgated
under the 1933 Act.

On September 11, 1996, the Company entered into a Share Purchase Agreement
with the shareholders of Orange Empire Brewing Company ("OEBC"), the parent of
Riverside Brewing Company. Under the terms of the Share Purchase Agreement, as
amended by the Amendment Agreement dated January 7, 1997, the Company will issue
up to 141,063 shares of its Common Stock for all of the voting capital stock of
OEBC. The Company will also issue 27,618 shares to shareholders of Orange Empire
for assuming certain Orange Empire debts and up to 155,000 shares based on
Orange Empire meeting certain production levels. On September 10, 1996, the
Company entered into a Debt Exchange Agreement, which provides that the Company
will issue 24,125 shares of its Common Stock to certain holders of OEBC's debts
in return for extinguishing such debt. On September 10, 1996, the Company and
two individuals, Mike Hagerman and Norman Kretschmar, two principals of OEBC,
entered into the Brewpub Management Agreement, whereby the two individuals will
operate the brewpub. Under the Brewpub Management Agreement, the Company will
also issue 10,000 shares

II-8
183

to these individuals. The Share Purchase Agreement, Debt Exchange Agreement, and
Brewpub Management Agreement each provide that these respective transactions
will close on the closing of a public offering by the Company of the Company's
Common Stock realizing gross proceeds of at least $6,000,000. The issuance of
shares of Common Stock under the Share Purchase Agreement, Debt Exchange
Agreement and Brewpub Management Agreement was made in reliance on the exemption
from registration afforded by Rule 506 of Regulation D promulgated under the
1933 Act.

On December 10, 1996, the Company sold a $250,000 unsecured promissory note
to Patrick Miller, a shareholder of the Company. The note, which pays simple
interest at 12% per annum, matures on the earlier of (i) closing of a public
offering by the Company with aggregate gross proceeds of no less than
$6,000,000, or (ii) September 1, 1997. Interest is payable at maturity. The sale
was made in reliance on the exemption from registration afforded by Section 4(2)
of the 1933 Act.

On December 28, 1996, the Company issued 60,000 shares of its Common Stock
to Donald Scott under the terms of a consulting agreement with Mr. Scott. The
Company received no cash or property for the shares. The shares were issued in
reliance on the exemption from registration under Section 4(2) of the 1933 Act.
25,000 of the shares are being registered in this offering subject to a 90 day
lock-up. Mr. Scott has been granted demand registration rights for the remaining
35,000 which allow Mr. Scott to demand the Company file a registration statement
within 180 days from the effective date of this Registration Statement and use
reasonable good faith efforts to cause such registration statement become
effective.

The Company had reasonable grounds to believe, prior to accepting the
subscription of each purchaser under all offers and sales under this Item 26
based in part on subscription agreements or investment letters executed by the
purchasers, that the purchasers were purchasing for investment and not with a
view to distribution. Other than in connection with the private placements of
common stock on November 20, 1995 and August 8, 1996, there were no
broker-dealers involved in any of the transactions listed above.

ITEM 27. EXHIBITS.

EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------

II-9
184

EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------

4.9 $500,000 Note Agreement and Promissory Note dated May 7, 1996 between the
Company and Frederick Friedman(1)
4.10 Owens Financial Note(1)
4.11 Class E Warrant Agreement(3)
4.12 Registration Rights Agreement -- Class E Warrants(3)
4.13 Registration Rights Agreement -- Class B Warrants(3)
4.14 $500,000 Note Exchange Agreement and Revised Promissory Note dated
December 19, 1996(3)
4.15 Representative's Warrant Agreement(3)
5.1 Opinion of Hecht & Steckman, P.C. re: legality of shares*
10.1 $445,000 Small Business Administration Loan dated November 10, 1993
between Heritage and Liberty National Bank(3)
10.2 Equipment Lease Agreement dated December 20, 1993, as amended, between
Riverside Brewing Company and Brewery Leasing Company(3)
10.3 Ground Lease Agreement dated June 6, 1988 between Randall and Susan Steele
and Stanislaus Brewing Company, Inc., as amended(3)
10.4 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated April
1, 1995(1)
10.5 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated
December 6, 1995(1)
10.6 Riverside Brewing Company Brewpub Lease with Kowashoji USA, Inc. dated
March 31, 1993(1)
10.7 Lease between Heritage Brewing Company and Central Business Park
Investors -- 89 dated November 3, 1993(1)(4)
10.8 Employment Agreement between the Company and Frederik G.M. Rodenhuis dated
December 31, 1996(1)(4)
10.9 Employment Agreement between the Company and Lyle R. Maul dated December
31, 1996(1)(4)
10.10 Employment Agreement between the Company and John Stoner(1)
10.11 Employment Agreement between the Company and Kathy Burke(1)
10.12 Employment Agreement between the Company and Garith Helm(1)
10.13 Distributorship Agreement dated August 20, 1996 between the Company and
Southern Wine and Spirits(1)
10.14 Distributorship Agreement dated June 6, 1995 between Riverside Brewing
Company and Wine Warehouse*
10.15 Distributorship Agreement dated August 1, 1996 between the Company and
Cabo Distributing Company, Inc.(1)
10.16 1996 Nonqualified Stock Option Plan(1)
10.17 1996 Incentive Stock Option Plan(1)
10.18 Incentive Compensation Plan(3)
10.19 Hussong's License Agreement dated February 3, 1996 between Heritage
Brewing Company and C.A. Wittwer & Associates(1)
10.20 Reciprocal Production and Marketing Agreement dated August 1, 1996 between
the Company and Chicago Brewing Company*
10.21 Management Agreement between Riverside Brewing Company and the Company
dated July 19, 1996(1)
10.22 [No Exhibit]

II-10
185

EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------

10.23 Keg Management Agreement dated December 2, 1996 between Heritage Brewing
Company and MicroStar Keg Management, L.L.C.(3)
10.24 Office Lease dated November 22, 1996 between Edwards Theatres Circuit,
Inc. and Beverage Works, Inc.(3)
10.25 Sublease Agreement dated January 1, 1997 between The Deretin Group and
Beverage Works, Inc.(3)
10.26 Non-Employee Director Compensation Plan and Directors' Warrant
Agreement(3)
11. Computation of Earnings (Loss) Per Share(3)
21.1 List of Subsidiaries(1)
23.1 Consent of Hecht & Steckman, P.C.*
23.2 Consent of Corbin & Wertz(3)
23.3 Consent of Corbin & Wertz(3)
23.4 Consent of Corbin & Wertz(3)
27.1 Financial Data Schedule(3)

- ---------------
* To be filed by amendment.

(1) Filed as part of the original filing of the registration statement on
September 11, 1996.

(2) Filed as part of this Amendment No. 1 to the registration statement on
September 12, 1996.

(3) Filed as part of this Amendment No. 2 to the registration statement on
January 13, 1997.

(4) Exhibit previously filed amended in Amendment No. 2 to the registration
statement filed January 13, 1997.

ITEM 28. UNDERTAKINGS.

A. The undersigned registrant hereby undertakes (a) to file during any
period in which offers or sales of the securities are being made, a
post-effective amendment to this registration statement including any prospectus
required by Section 10(a)(3) of the Securities Act of 1933, reflecting any facts
or events arising after the effective date of the registration statement (or
most recent post-effective amendment) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement, and including any material information with respect to the plan of
distribution not previously disclosed or any material change to such information
set forth in the registration statement. The undersigned registrant further
undertakes that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof. The undersigned registrant further undertakes to remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.

B. The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.

C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-11
186

D. For determining any liability under the Securities Act of 1933, the
registrant shall treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the small business issuer under Rule 424(b)(1),
or (4) or 497(h) under the Securities Act as part of this registration statement
as of the time the Commission declared it effective. For determining any
liability under the Securities Act of 1933, the registrant shall treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.

II-12
187

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this Amendment No.
2 to this registration statement to be signed on its behalf by the undersigned,
in the City of Los Angeles, State of California, on January 10, 1997.

BEVERAGE WORKS, INC.,

a California corporation

By: /s/ LYLE R. MAUL

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

Lyle R. Maul

Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to this registration statement was signed by the following
persons in the capacities and on the dates stated.

SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- -----------------

/s/ LYLE R. MAUL Chief Executive Officer, President January 10, 1997
- ------------------------------------- and Director
Lyle R. Maul

/s/ FREDERIK G.M. RODENHUIS Executive Vice President, Acting January 10, 1997
- ------------------------------------- Chief Financial Officer and Director
Frederik G.M. Rodenhuis

II-13
188

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------

1.1 [Form of] Underwriting Agreement(3)
1.2 [Form of] Agreement Among Underwriters(3)
1.3 [Form of] Selected Dealers Agreement(3)
2.1 Agreement and Plan of Reorganization dated November 8, 1995 between the
Company and Heritage Brewing Company, a California corporation, and
exhibits thereto(1)(4)
2.2 Agreement of Partnership and Contribution Agreement dated December 17,
1996 between Prost Partners, L.P., a California limited partnership, and
BWI-St. Stan's, Inc., a California corporation, a wholly-owned subsidiary
of the Company(1)(4)
2.3 Share Purchase Agreement dated September 10, 1996 between Orange Empire
Brewing Company, Inc., a California corporation and the Company, the
Amendment Agreement dated January 7, 1997, and exhibits thereto(1)(4)
2.4 Debt Exchange Agreement Orange Empire Brewing Company, et al, and the
Company dated September 11, 1996.(1)
3.1 Amended and Restated Articles of Incorporation of the Company(1)
3.2 By-Laws of the Company(1)
4.1 Specimen of Common Stock Certificate*
4.2 Warrant Agreement(3)
4.3 Class B Warrant Agreement(1)
4.4 [No Exhibit]
4.5 [No Exhibit]
4.6 [No Exhibit]
4.7 [No Exhibit]
4.8 [No Exhibit]
4.9 $500,000 Note Agreement and Promissory Note dated May 7, 1996 between the
Company and Frederick Friedman(1)
4.10 Owens Financial Note(1)
4.11 Class E Warrant Agreement(3)
4.12 Registration Rights Agreement -- Class E Warrants(3)
4.13 Registration Rights Agreement -- Class B Warrants(3)
4.14 $500,000 Note Exchange Agreement and Revised Promissory Note dated
December 19, 1996(3)
4.15 Representative's Warrant Agreement(3)
5.1 Opinion of Hecht & Steckman, P.C. re: legality of shares*
10.1 $445,000 Small Business Administration Loan dated November 10, 1993
between Heritage and Liberty National Bank(3)
10.2 Equipment Lease Agreement dated December 20, 1993, as amended, between
Riverside Brewing Company and Brewery Leasing Company(3)
10.3 Ground Lease Agreement dated June 6, 1988 between Randall and Susan Steele
and Stanislaus Brewing Company, Inc., as amended(3)
10.4 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated April
1, 1995(1)

189

EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------

10.5 Riverside Brewing Company Brewery Lease with Hunsaker-Hunter dated
December 6, 1995(1)
10.6 Riverside Brewing Company Brewpub Lease with Kowashoji USA, Inc. dated
March 31, 1993(1)
10.7 Lease between Heritage Brewing Company and Central Business Park
Investors -- 89 dated November 3, 1993(1)(4)
10.8 Employment Agreement between the Company and Frederik G.M. Rodenhuis dated
December 31, 1996(1)(4)
10.9 Employment Agreement between the Company and Lyle R. Maul dated December
31, 1996(1)(4)
10.10 Employment Agreement between the Company and John Stoner(1)
10.11 Employment Agreement between the Company and Kathy Burke(1)
10.12 Employment Agreement between the Company and Garith Helm(1)
10.13 Distributorship Agreement dated August 20, 1996 between the Company and
Southern Wine and Spirits(1)
10.14 Distributorship Agreement dated June 6, 1995 between Riverside Brewing
Company and Wine Warehouse*
10.15 Distributorship Agreement dated August 1, 1996 between the Company and
Cabo Distributing Company, Inc.(1)
10.16 1996 Nonqualified Stock Option Plan(1)
10.17 1996 Incentive Stock Option Plan(1)
10.18 Incentive Compensation Plan(3)
10.19 Hussong's License Agreement dated February 3, 1996 between Heritage
Brewing Company and C.A. Wittwer & Associates(1)
10.20 Reciprocal Production and Marketing Agreement dated August 1, 1996 between
the Company and Chicago Brewing Company*
10.21 Management Agreement between Riverside Brewing Company and the Company
dated July 19, 1996(1)
10.22 [No Exhibit]
10.23 Keg Management Agreement dated December 2, 1996 between Heritage Brewing
Company and MicroStar Keg Management, L.L.C.(3)
10.24 Office Lease dated November 22, 1996 between Edwards Theatres Circuit,
Inc. and Beverage Works, Inc.(3)
10.25 Sublease Agreement dated January 1, 1997 between The Deretin Group and
Beverage Works, Inc.(3)
10.26 Non-Employee Director Compensation Plan and Directors' Warrant
Agreement(3)
11. Computation of Earnings (Loss) Per Share(3)
21.1 List of Subsidiaries(1)

190

EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------

23.1 Consent of Hecht & Steckman, P.C.*
23.2 Consent of Corbin & Wertz(3)
23.3 Consent of Corbin & Wertz(3)
23.4 Consent of Corbin & Wertz(3)
27.1 Financial Data Schedule(3)

- ---------------
* To be filed by amendment.

(1) Filed as part of the original filing of the registration statement on
September 11, 1996.

(2) Filed as part of Amendment No. 1 to the registration statement on September
12, 1996.

(3) Filed as part of this Amendment No. 2 to the registration statement on
January 13, 1997.

(4) Exhibit previously filed amended in Amendment No. 2 to the registration
statement filed January 13, 1997.