BEV TYME INC, 10KSB, 1997-04-15

BEV TYME INC
10KSB, 1997-04-15
GROCERIES & RELATED PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

REPORT ON FORM 10-KSB

|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the fiscal year ended December 31, 1996.

| | Transition Report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934

For the transition period from ___________________ to ___________________.

Commission File No. 0-21166

BEV-TYME, INC.
(Exact name of registrant as specified in its charter)

Delaware 36-3769323
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

134 Morgan Avenue
Brooklyn, New York 11237
(Address of Principal (Zip Code)
Executive Officers)

Registrant's telephone number, including area code: (718) 894-4300

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.0001 per share
(Title of Class)

Redeemable Common Stock Purchase Warrants
(Title of Class)

<PAGE>

Units consisting of one (1) share of Series C Convertible Preferred Stock,
par value $.0001 per share and two (2) Series C
Redeemable Preferred Stock Purchase Warrants
(Title of Class)

Series C Convertible Preferred Stock, par value $.0001 per share
(Title of Class)

Series C Redeemable Preferred Stock Purchase Warrants
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

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

Issuer's revenues for its most recent fiscal year were $15,987,787.
----------

The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the closing price of such stock as
of March 28, 1997, was approximately $181,245.
-------

Number of shares outstanding of the issuers Common Stock and Series C Preferred
Stock, as of March 28, 1997, was 3,889,408 and 2,102,225 respectively.

DOCUMENTS INCORPORATED BY REFERENCE:

<PAGE>

PART I

Item 1. BUSINESS.

New Day Beverage, Inc. (the "Company") was incorporated in the State of
Delaware on August 6, 1992 and changed its name to Bev-Tyme, Inc. on January 11,
1996. The Company and its wholly owned subsidiaries are engaged in the business
of selling and distributing spring and carbonated water, and other beverages. In
1995, the Company also commenced distributing beer and other malt beverages.
Initially, the Company commenced its operations by creating and marketing a line
of "New Age" beverage products under the trademark "Sunsprings." Because of
increased competition in the "New Age" beverage market and continuing operating
losses in the sale of its SunSprings(TM) beverage products, the Company has
increased its focus on the distribution business by acquiring Mootch & Muck,
Inc. ("M&M"), a beverage distributor. The Company then added "Taste of Jamaica",
a Jamaican style soda. The Company has since discontinued its production of
"Taste of Jamaica". Currently, the Company's principal activity is the
distribution of beverage products through M&M, its wholly owned subsidiary. See
"Certain Transactions."

As of November 18, 1994, M&M entered into an Asset Purchase Agreement
with Sclafani Beer and Soda Distributors, Inc., a distributor of non-alcoholic
drinks, as well as beer and other malt beverages in the New York City boroughs
of Brooklyn and Queens ("SB&S"), pursuant to which M&M purchased in June, 1995,
substantially all of the assets of the SB&S business. M&M paid $500,000 in cash,
200,000 shares of Common Stock and issued options to purchase 75,000 shares of
the Company's Common Stock (collectively the "Purchase Price"). In June, 1995,
M&M entered into an employment agreement with John Sclafani, pursuant to which
Mr. Sclafani served as Vice President of Beer Sales for M&M. Mr. Sclafani
received an annual salary of $90,000. In August, 1995, the Company accepted Mr.
Sclafani's resignation.

On May 15, 1995, the Company completed a secondary public offering
pursuant to which the Company sold 460,000 Units ("Preferred Stock Units") to
the public at $5.00 per Unit. Each Preferred Stock Unit consisted of one (1)
share of Series C Convertible Preferred Stock ("Preferred Stock") and two (2)
Series C Preferred Stock Purchase Warrants ("Preferred Stock Purchase
Warrants"). Each share of Series C Preferred Stock is convertible at the option
of the holder, at any time after May 15, 1996, into 18 shares of the Company's
Common Stock, $.0001 par value per share. The Series C Warrants entitle the
registered holder thereof to purchase one (1) share of Series C Preferred Stock
at an exercise price of $6.00 per share through May 15, 2000 and may be redeemed
by the Company under certain conditions. To date, none of the Preferred Stock
Warrants have been exercised or redeemed. The Company used a significant portion
of the proceeds of the secondary public offering to expand the current business
of M&M into the beer and malt beverage distribution business.

The Company's executive offices are currently located at 134 Morgan
Avenue, Brooklyn, New York 11237 and its telephone number is (718) 894-4300. The
Company's fiscal year end is December 31.

Recent Developments

On October 26, 1995, the Company entered into a letter of intent to
acquire Riverosa

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Company, Inc. ("Riverosa"), a corporation engaged in the sale and marketing of
Perry's Majestic Beer, for the sum of $250,000. As part of that understanding,
the Company agreed that Riverosa or its successors would enter into a three (3)
year employment agreement with Mark Butler, Riverosa's President, at an annual
salary of $25,000 year, subject to appropriate increase in the event Riverosa
(or it successors) successfully completes an initial public offering of its
securities resulting in net proceeds in excess of $2,000,000. The Employment
Agreement would also provide for an annual bonus as well as stock options based
upon performance. In January 1996, the Company assigned its rights under the
letter of intent to Perry's Majestic Beer, Inc., a subsidiary of the Company
("Perry's Majestic"), which entered into a definitive agreement with Riverosa on
March 29, 1996, pursuant to which the Company paid the sum of $250,000 to
acquire Riverosa. Mark Butler, one of the principal shareholders of Riverosa was
appointed to the board of directors of Perry's Majestic on April 1, 1996.

In March 1996, Perry's Majestic issued to the Company 500,000 shares of
its convertible Series A Preferred Stock and 7,000,000 shares of its Series B
Preferred Stock for $150,000 and 400,000 shares of the Company's Series C
Preferred Stock. On July 30, 1996, Perry's Majestic completed a public offering
of 583,335 shares of Common Stock at a price of $6.00 per share, and the
concurrent offering of securities by certain selling securityholders. The net
proceeds realized from the offering were approximately $2,500,000. In October
1996, the Company sold all of its shares of Series A Preferred Stock in Perry's
for an aggregate purchase price of $250.000. As a result of these transactions,
the Company holds approximately 66% of the voting stock of Perry's Majestic.

On April 29, 1996, the Company entered into an agreement to be an
exclusive distributor of Citiclub soda. The Company issued 30,000 shares of the
Company's common stock at an estimated fair value of $18,300 and paid cash of
$200,000 for this agreement. The Company also entered into two employment
agreements and one consulting agreement whereby the three individuals were
issued a total of 50,000 shares of the Company's common stock and options for
300,000 Series C Preferred Stock, subject to an increasing number of shares
under certain circumstances, exercisable at $1.50 per share. In October 1996,
the Company discontinued distributing CitiClub sodas due to a dispute regarding
a breach of the distribution agreement.

In November 1996, the Company began a reduction of its administrative
operations in an effort to reduce overhead. In that regard, the Company has made
the determination to focus its distribution business in the New York City
boroughs of Manhattan and Brooklyn.

The Beverage Distribution Business

Since 1977, M&M has been engaged in the business of distributing
non-alcoholic beverages items to retail accounts in New York City, primarily in
Manhattan. Of the approximately 25 different brands sold by M&M to a variety of
retail and wholesale establishments, sparkling and spring water currently
account for approximately 60% of sales. M&M has approximately 61 full time
employees 22 of which are engaged in sales. See "Management's Discussion and
Analysis".

M&M distributes a number of products, including the sparkling and
spring waters of Poland Spring and Spa Spring. Sales of waters accounted for
approximately 60% of M&M's sales. M&M also distributes Cloister Spring Water,
Glacier Ridge, Appollinaris Mineral Waster, Squeez'r Juices and Drinks,
Santafiora Mineral Water, Glaceau, Mountain Valley Spring Water, Celestial

4
<PAGE>

Seasonings, Breez'r Teas and Sodas, After The Fall Fruit Juices and Spritzers,
Go Go Energy Drink, Martinelli Apple Juice & Ciders, D&G Soda, Canfiends's Soda,
Guarana Antartica Soda, Tropical Fantasy Soda, San Pellegrino, Vittel Spring
Water. In addition, M&M distributes one snack product, including Dirty Potato
Chips. In June 1995, M&M commenced distributing a number of beers and malt
beverage products.

M & M distributes products in Manhattan, Brooklyn and Queens through a
resale sales force consisting of 22 salespeople, including a sales manager and
four supervisors. Each salesperson visits his/her accounts once per week.
Additionally, M & M sells products in Manhattan, Brooklyn and Queens to other
beverage distributors and beer and soda stores. Sales are primarily divided into
four divisions: retail, chain stores, food service and distributor sales.

Retail sales consist of sales to deli's, bodega's, mom & pop retail
stores, gourmet stores, tobacco shops, health food stores, and convenience
stores. Most beverages that are sold in these stores are kept in refrigerators
for sale to retail customers. Approximately 68% of M&M's annual sales are sold
to retail sales accounts. Chain store sales consist of sales to food
supermarkets, drug store chains and department stores. Approximately 6% of M&M's
annual sales are sold to chain store accounts. Food service sales consist of
sales to corporate catering, corporate cafeterias, hotels, restaurants, gyms,
health clubs and dance studios. Approximately 8% of M&M's annual sales are sold
to food service accounts. Distributor sales consist of sales to other
distributors. Approximately 18% of M&M's annual sales are sold to other
distributors.

A sales manager oversees all four divisions. The sales manager and four
sales supervisors meet every morning with the sales force and check to ensure
they are prepared to properly service M&M customers.

Orders are taken by the salespeople on a daily basis. Upon receiving
the order it is input into a hand held computer. The orders are transmitted
telephonically twice a day, directly into a computer at the M & M office, where
the invoice is printed. The printed invoices are then sent to the routing
department where they are routed for shipping. Each salesperson makes
approximately 40 sales calls per day.

After the orders are routed and manifested for the warehouse, the
warehouse manager assigns warehouse employees to pull the products as set forth
on the manifests. After the products are pulled it is loaded onto the trucks.
All truck drivers are assigned a minimum of one helper on a daily basis.

The Beer Distribution Business

M&M is currently the exclusive distributor in New York City of a number
of beers including Holsten, Perry's Majestic, Wild Goose, La Brasserie
Binchoise, La Brasserie Jeanne D'Arc, Brasal, Maccabee, Zambezi, Ruffian, Big
City, Neptune, La Chouffe, Shepherd Neame, and De Dolle Brewers. M&M competes in
the beer distribution business with such distributors as Phoenix Beverages,
Budweiser, Coors of New York, Manhattan Beer and Prospect Beer. M&M is a niche
brand distributor which also distributes microbrewed beers which is the fastest
growing category in the beer industry.

Products

<PAGE>

The Company has developed two distinct product lines, one under its
SunSprings(TM) trademark and one under its Taste of Jamaica(R) trademark. The
Company has ceased developing and marketing these beverage lines at present.

In order to expand its product line and respond to consumer
preferences, the Company acquired, as of April 1, 1994, the Taste of Jamaica
name and product concept from A. Alexander Watson. No other assets or
liabilities were acquired from Mr. Watson. As consideration for these assets
purchased from Mr. Watson, the Company hired Mr. Watson as its Manager of
Marketing and Product Development and entered into a five year employment
agreement with him. Under the terms of the Employment Agreement, Mr. Watson is
entitled to an annual salary of $20,800 and a commission based upon all sales of
Taste of Jamaica(R) products. The Company's employment agreement with Mr. Watson
was terminated when the Company discontinued production of its "Taste of
Jamaica" beverage line.

Competition

The Company's beverages compete with other beverages which have
achieved significant national, regional and local brand name recognition and
consumer loyalty. These products are marketed by companies with significantly
greater financial, marketing, distribution, personnel and other resources than
the Company, thereby permitting such companies to implement extensive
advertising and promotional programs, both generally and in response to efforts
by new competitors or products. Further, the beverage industry is also
characterized by the frequent introduction of new products, accompanied by
substantial promotional campaigns.

M&M faces significant competition from other distributors such as Coca
Cola of New York, Pepsi Cola Bottling of New York, Canada Dry Bottling Company
of New York, 7 UP and Mr. Natural, Inc. M&M depends upon its distribution

techniques and extensive product line to compete against other distributors. M&M
has the ability to provide most types of non-alcoholic and snack products to
retail establishments. M&M competes in the beer distribution business with such
distributors as Phoenix Beverages, Budweiser, Coors of New York, Manhattan Beer
and Prospect Beer. M&M is a niche brand distributor which also distributes
microbrewed beers which is the fastest growing category in the beer industry.

Marketing

The Company is currently focusing its consumer marketing efforts on the
single serve cold bottle market. Since specialty food/beverage outlets account
for a significant portion of beverage sales, the Company distributes its
products through M&M to that category of outlets in New York City, including
delicatessens, gourmet shops, grocery stores, discount clubs, vegetable markets,
restaurants, convenience outlets, corporate and institutional feeders and "mom
and pop" stores.

As a multibrand distributor, M&M depends upon beverage manufacturers to
market their beverages. When possible, M&M participates in promotional programs
initiated by beverage producers.

Government Regulation

The distribution and sale of the Company's products are subject to the
U.S. Food, Drug and

<PAGE>

and Cosmetic Act, and various other federal, state and local laws governing the
production, sale, safety, advertising, labeling and ingredients of such products
and the regulations promulgated thereunder by the United States Food and Drug
Administration and other regulatory agencies. Although the Company believes it
and its distributors and sub-distributors are in compliance with all material
federal, state, and local governmental laws and regulations concerning the
production, distribution and sale of the Company's products, there can be no
assurance that the Company and its distributors and sub-distributors will be
able to comply with such regulations in the future or that new governmental
regulations will be introduced which would prevent or temporarily inhibit the
sale of the Company's products to consumers. The Company is not aware of any
pending legislation or regulation with which, if implemented, the Company would
be unable to comply. M&M is required to be licensed as wholesale beer
distributor by the United States Bureau of Alcohol, Tobacco and Firearms and the
New York State Liquor Authority. The Company obtained such licenses in March
1995. In addition, each salesperson is required to obtain a solicitors permit
from the New York State Liquor Authority. There can be no assurance that M&M
will be successful in maintaining such licenses and permits, that M&M will be
able to comply with applicable regulations in the future, or that individual
employees will be successful in maintaining necessary licenses and permits.

Product Liability Insurance

The Company has purchased product liability insurance in the amount of

$1,000,000 per occurrence and $2,000,000 in the aggregate. In addition, the
Company has a $3,000,000 umbrella liability policy. The Company believes that
its present insurance coverage is sufficient for its current level of business
operations.

Trademark

The trademark SunSprings(TM) is the property of the Company. Although
such trademark is not registered with the United States Patent and Trademark
Office, the Company has the common law right to the use of such trademark on its
labels and in the marketing of its products and the Company believes that such
trademark does not infringe upon existing trademarks in the United States. On
February 8, 1994, The Taste of Jamaica(R) trademark was registered with the
United States Patent and Trademark office.

Seasonality

Historically, the beverage industry in the New York metropolitan area
experiences significantly higher demand for its products during the second and
third quarters of the year. As a result, the Company receives in excess of 60%
of its revenue during this period. Large variances in cash flow may make it more
difficult for the Company to meet its fixed expenses in a timely manner. The
inability to pay such expenses or a delay in paying such expenses could have a
material adverse effect on the Company and its relationships with its suppliers.

Employees

<PAGE>

As of March 31, 1997 the Company employs 61 employees, 2 of whom are
executive officers and are also officers of M&M. One of the executive officers
is engaged in marketing, sales and operations and the other is the chief
financial officer of the Company. None of the Company's employees are
represented by a labor organization. The Company believes its relations with its
employees are excellent.

Item 2. PROPERTIES.

The Company leases its executive offices and warehouse space from an
unaffiliated third party at 134 Morgan Avenue, Brooklyn, New York at an annual
base rent of $258,600 per year. The term of such lease expired in February,
1996. The Company is currently leasing the space on a month to month basis with
monthly rent of $20,500. The Company also leases on a month to month basis
office space at 141 West 41st Street in Manhattan for a monthly rent of $600.

Item 3. LEGAL PROCEEDINGS.

In November 1996 Premium Beverage Packers Inc., brought suit against
Mootch & Muck, Inc., a subsidiary of the Company, in Supreme Court of the State
of New York. The Complaint alleged that defendant Mootch & Muck breached a
distribution agreement and defaulted on a promissory note. Plaintiff also

alleges damages in the amount of $403,564.73, plus costs and expenses. Defendant
filed an Answer denying all these claims and a Counterclaim in December 1996.
The Counterclaim alleges that plaintiff breached both the distribution agreement
and promissory note. Defendant also alleges damages in the amount of $86,664.64,
plus costs and expenses.

In October 1996 Mel Feldman brought suit against Mootch & Muck, Inc.,
the Company, and Alfred Sipper, a Director of the Company, in the Supreme Court
of the State of New York. The Complaint alleges that defendants breached an
employment agreement with plaintiff. Plaintiff also alleges damages in the
amount of $1,500,000, plus costs and expenses. Defendant filed an Answer denying
all these claims in November 1996.

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

No matters were submitted to a vote of the holders of the Company's
Common Stock during the last quarter of its fiscal year ended December 31, 1996.

<PAGE>

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's Common Stock Units, Common Stock and Common Stock Purchase
Warrants commenced trading on the Nasdaq SmallCap Market system on the
effectiveness of the Company's initial public offering on January 29, 1993 in
the form of Units, under the symbol "SUNSU," each consisting of two (2) shares
of Common Stock (the "Common Stock") and one (1) redeemable Common Stock
Purchase Warrant (the "Common Stock Warrants"). Effective January 29, 1993, the
Common Stock and Warrant component parts of the Common Stock Units were
separated and began trading under the symbols "SUNS" and "SUNSW", respectively.
The Units, the Common Stock and the Common Stock Warrants are regularly quoted
and traded on the NASDAQ SmallCap Market system. As of March, 1996, these
securities traded under the symbols "BEVTU", "BEVT" and "BEVTW", respectively.

The Company's Preferred Stock Units, Series C Convertible Preferred
Stock (the "Preferred Stock") and Preferred Stock Purchase Warrants commenced
trading on the NASDAQ SmallCap Market on the effectiveness of the Company's
secondary public offering on May 15, 1995 in the form of Units, under the symbol
"SUNSL", each Unit consisting of one (1) share of Series C Convertible Preferred
Stock and two (2) Series C Redeemable Preferred Stock Purchase Warrants.
Effective June 15, 1995, the Preferred Stock and Preferred Stock Warrant
components of the Preferred Stock Units were separated and began trading under
the symbols "SUNSP" and "SUNSZ", respectively. These Units, Series C Preferred
Stock and Preferred Stock Warrants are regularly quoted and traded in the Nasdaq
SmallCap Market System. As of March, 1996, these securities traded under the
symbols "BEVTL", "BEVTP" and "BEVTZ", respectively.

The following table indicates the high and low bid prices for the
Company's Common Stock Units, Common Stock and Warrants for the period from
January 29, 1994 to December 31, 1995 and the Company Preferred Stock Units,
Preferred Stock and Warrants for the period from May 12, 1995 to December 31,
1996 based upon information supplied by the NASDAQ system. Prices represent
quotations between dealers without adjustments for retail markups, markdowns or
commissions, and may not represent actual transactions. As of March 29, 1997,
the Company had 27 holders of record of its shares of Preferred Stock and
approximately 421 holders of record of its shares of Common Stock.

<TABLE>
<CAPTION>
Common Stock Common Stock Purchase Common Stock Units
------------ Warrants ------------------
---------------------
Year Ended
December 31, 1994 High Low High Low High Low
- ----------------- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter* $4.625 $3.75 $2.375 $1.50 $12.50 $9.25
Second Quarter $4.156 $1.875 $1.75 $0.49 $9.50 $4.75
</TABLE>

<PAGE>

Common Stock Common Stock Purchase Common Stock Units
------------ Warrants ------------------
---------------------
<S> <C> <C> <C> <C> <C> <C>
Third Quarter $1.875 $5.63 $1.25 $0.125 $5.00 $1.20
Fourth Quarter $0.9375 $0.281 $0.25 $0.0625 $1.25 $1.50
</TABLE>

Common Stock Common Stock Series C
---------------- Purchase Preferred
Warrants1 Stock2
---------------- ---------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter, 1995 $0.3125 $0.25 $0.0938 $0.0625
SecondQuarter, 1995 $0.3438 $0.125 $0.0938 $0.0625 $7.8125 $5.00
Third Quarter, 1995 $0.3125 $0.0938 $0.0625 $0.0625 $8.125 $5.75
Fourth Quarter, 1995 $0.25 $0.125 $7.50 $5.75
First Quarter, 1996 $0.22 $0.063 $9.50 $6.25
Second Quarter, 1996 $0.25 $0.063 $6.25 $5.00
Third Quarter, 1996 $1.125 $1.000 $4.00 $1.875
Fourth Quarter,1996 $1.125 $0.375 $3.75 $1.13
</TABLE>

Series C Preferred Common Stock Preferred Stock
Stock Purchase Units3 Units2
Warrants2 --------------- ---------------
------------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter, 1995 $0.875 $0.50
SecondQuarter, 1995 $2.50 $1.375 $0.75 $0.625 $11.50 $5.50
Third Quarter, 1995 $2.375 $1.875 $10.375 $9.625
Fourth Quarter, 1995 $1.875 $1.00
First Quarter, 1996 $2.6250 $1.13
Second Quarter, 1996 $2.0000 $1.00 $10.375 $8.50
Third Quarter, 1996 $1.5000 $0.50

Fourth Quarter,1996 $1.00 $0.50
</TABLE>

- --------------------
1 Common Stock Purchase Warrants ceased trading on August 2, 1995 and expired on
January 29, 1996.
2 Commenced trading on May 12, 1995.
3 Common Stock Units ceased trading on June 20, 1995.

On January 2, 1996, the Company issued to the holders of record of the
Series C Preferred Stock as of December 24, 1995 a dividend of two (2) shares of
the Company's Common Stock.

On March 28, 1997, the closing price of the Common Stock, Preferred
Stock and Preferred Stock Warrants as reported on the NASDAQ SmallCap Market
System were $.0625, $3.50 and $.25, respectively. The Company's Common Stock
Units, Common Stock Warrants and Preferred Stock Units were delisted from the
NASDAQ on June 20, 1995, August 2, 1995 and March 11, 1996 respectively.

<PAGE>

Item 6:

BEV-TYME, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

For the year ended December 31, 1996 compared with the year ended December 31,
1995

The following discussion of the Company's financial condition as of December 31,
1996 and results of operations for the years ended December 31, 1996 and 1995,
includes Bev-Tyme, Inc. and its subsidiaries [collectively, the "Company"] and
should be read in conjunction with the Consolidated Financial Statements and
Notes appearing elsewhere in this 10-QSB.

Business Structure

Bev-Tyme, Inc. ["Bev-Tyme"], is engaged in the business of distributing and
selling beverage and snack products to grocery stores, supermarket chains,
restaurants and corporate cafeterias. In 1995, the Company also commenced
distributing beer and other malt beverages. Because of increased competition in
the "New Age" beverage market and continuing operating losses related to the
sale of its SunSprings(TM) beverage products, the Company increased its focus on
its beverage and snack food distribution.

In June 1995, the Company purchased the net assets of SB&S, another beverage
distributor, which will increase its current customer distribution base,
territory and enable the Company to commence distribution of beer and other malt
beverages. The Company acquired the net assets of SB&S for $500,000 in cash,
20,000 shares of the Company's common stock valued at $31,250 and options to
purchase 7,500 shares of the Company's common stock.

On March 29, 1996, the Company acquired 500,000 shares of convertible Class A
Preferred Stock and 7,000,000 shares of non-convertible Class B Preferred Stock
of Perry's Majestic Beer, Inc. ["Perry's"] [valued at $2,000,000] in exchange
for 400,000 shares of the Company's Series C Preferred Stock and $150,000.
However, in October of 1996, the Company sold the Class A Preferred Stock for
$250,000. Each share of Class A Preferred Stock and Class B Preferred Stock has
attached to it the right to vote on all matters submitted to the Company.
Perry's filed a registration statement for 583,335 shares of common stock at
$6.00 per share. The proceeds from this offering were approximately $2,500,000.

Also on March 29, 1996, Perry's entered into an agreement to acquire all of the
stock of Riverosa Company, Inc. for $250,000 of which $150,000 in cash was put
into escrow as of March 31, 1996 and a note payable was issued for $100,000. The
note was payable with interest of 8% was paid in August of 1996 with proceeds
from the Company's initial public offering.

In August of 1996, Perry's entered into a letter of intent to acquire a Mico
Beer. In September 1996, the Company finalized its acquisition of the Old
Marlborough Brewing Co., Inc. The total purchase price was $160,513 of which
$35,513 was for inventory and equipment and $75,000 was to repurchase
distribution rights to Post Road Beer in Massachusetts.

As a result of the Company's recurring losses and utilization of cash for
operations, the Company's auditors believed there was substantial doubt about
the Company's ability to continue as a going concern at December 31, 1996 and
issued a going concern qualification to their report dated March 26, 1997.

Results of Operations

For the years ended December 31, 1996, the Company had a loss from operations of
$8,347,562 and a net loss of $8,382,555 as compared to a loss from operations of
$3,775,882 and a net loss of $3,826,230 for the year ended December 31, 1995.

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------

For the year ended December 31, 1996 compared with the year ended December 31,
1995

Results of Operations [Continued]

For the year ended December 31, 1996, the Company's gross profit was $1,677,929
or 10.5% as compared to $1,756,430 or 13.8% in 1995. The change in the gross
profit percentage for the year ended December 1996 of 3.3% was attributable to a
change in the Company's product mix, primarily resulting from the sale of low
margin soda products. The Company has discontinued the low margin product and
started a cost cutting program late in 1996. The Company intends to focus on the
sale of imported and microbrewed beers as well as its higher margin non-alcholic
beverages.

For the year ended December 31, 1996 and 1995, the Company's net sales were
$15,987,787 and $12,730,722, respectively. This represents an improvement of
approximately $3,257,000 or 26%. This improvement is primarily the result of
increased volume resulting from an increase in the Company's customer base and
to a smaller degree new products available for sale. In the September 1996
quarter, the Company scaled back its area of distribution to Manhattan and
sections of Brooklyn and Queens.

Selling, advertising and promotion expense for the years ended December 31, 1996
and 1995 amounted to $1,365,297 and $1,128,782, respectively, and primarily

consisted of salesmen's salaries, commissions and related expenses of the
companies' distribution sales force.

General and administrative expenses for the years ended December 31, 1996 were
$3,121,686 or 20% of net sales as compared to $2,405,738 or 19% of net sales in
1995. The Company incurred amortization of consulting costs for the year ended
December 31, 1996 of $1,828,833. This is the result of the Company compensating
consultants with stock and options instead of cash payments. As of December 31,
1996, the unamortized balance resulting from all options and shares granted for
services is approximately $2,645,000. This will be amortized in future periods
and will reduce the future earnings of the Company. A write down of
approximately $567,000 was also incurred in 1996 due to the termination of two
employment and one consulting agreements during 1996.

Because of the Company's severe cash shortages and numerous unsuccessful
attempts at finding traditional debt financing, the Company entered into bridge
financing which resulted in a total non-cash financing cost $386,650 in 1995.
This represented the fair value assigned to the Bridge Units issued upon
conversion of the Convertible Bridge Notes. The effective annual interest rate
on these Bridge Loans was approximately 300%. In addition, the Company entered
into a new loan agreement during 1996 for $250,000. The assets of the Company
are pledged as a result of this transaction. The loan balance at December 31,
1996 is $98,000.

Interest expense relates primarily to commercial loans on the transportation
equipment.

Liquidity and Capital Resources

For the year ended December 31, 1996, the Company utilized $2,793,198 in
operating activities. This utilization was primarily attributable to the net
loss of approximately $8,400,000 adjusted by non-cash items of approximately
$5,400,000.

12
<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

For the year ended December 31, 1996 compared with the year ended December 31,
1995

Liquidity and Capital Resources [Continued]

The Company utilized$564,866 for investing activities for the year ended
December 31, 1996. This was primarily attributable to the acquisition of the net
assets of Riverosa for approximately $250,000, and of Old Marlborough Brewing
Co., Inc. of $160,000 as well as the purchase of capital equipment of

approximately $159,000.

The Company generated approximately $5,107,576 from financing activities for the
year ended December 31, 1996. This was primarily attributable to the net
proceeds from the initial public offering of Perry's common stock for $2,485,086
and the exercise of stock options for $2,550,000.

At December 31, 1996, the Company had a working capital of $679,095 reflecting
primarily the excess cash, accounts receivable and inventory over accounts
payable and accrued expenses. The Company's cash balance at December 31, 1996
was $1,903,226.

For the year ended December 31, 1995, the Company utilized $714,783 in operating
activities, utilized $781,099 in investing activities and generated $1,581,219
in financing activities.

In May 1995, the Company granted 525,000 Series C Preferred Stock Options to
directors, officers and employees of the Company at an exercise price of $2.00
per share and, accordingly, recorded an expense of $1,076,250. In October 1995,
525,000 Series C Preferred Stock Options were exercised and the Company recorded
a stock subscription receivable of $1,050,000, which was paid in January and
February of 1996.

In November 1995, the Company issued to the directors of the Company options to
purchase an aggregate of 525,000 additional shares of Series C Preferred Stock
at an exercise price of $2.00 per share. 450,000 of these options were exercised
in 1996 for $900,000.

In February 1996, the Company engaged a consultant to assist the Company in
connection with acquisitions, divestitures, joint ventures and other strategic
business initiatives. In exchange for services to be performed by the
consultant, the Company issued options to purchase an aggregate of 300,000
shares of Series C Preferred Stock at an exercise price of $2.00 per share.
These options were exercised in 1996, which resulted in net proceeds to the
Company of $600,000.

On March 29, 1996, the Company acquired 500,000 shares of convertible Class A
Preferred Stock and 7,000,000 shares of non-convertible Class B Preferred Stock
of Perry's Majestic Beer, Inc. ["Perry's"] [valued at $2,000,000] in exchange
for 400,000 shares of the Company's Series C Preferred Stock and $150,000.
However, in October of 1996, the Company sold the 500,000 shares of convertible
Class A Preferred Stock for $250,000 and reduced its investment accordingly.
Each share of Class B Preferred Stock has attached to it the right to vote on
all matters submitted to the Company. In August of 1996, Perry's filed a
registration statement on Form SB-2 which was declared effective by the
Securities and Exchange Commission. Perry's realized net proceeds of
approximately $2,500,000 in August of 1996.

Also on March 29, 1996, Perry's entered into an agreement to acquire all of the
stock of Riverosa Company, Inc. for $250,000 of which $150,000 in cash was put
into escrow as of March 31, 1996 and a note payable was issued for $100,000. The
note was payable with interest of 8% and was paid at the closing of the Perry's
initial public offering.

On April 23, 1996, the Company received a $150,000 loan from an individual
whereby the Company issued 40,000 shares of the Company's common stock. The loan
was repaid in May of 1996. A deferred financing cost of $25,000 was recorded and
expensed for the estimated fair value of these shares.

13
<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

For the year ended December 31, 1996 compared with the year ended December 31,
1995

Liquidity and Capital Resources [Continued]

In August 1996, the Company issued to certain officers, directors and employees
options to purchase an aggregate of 630,000 shares of Series C Preferred Stock
at an exercise price of $1.00 per share and 700,000 shares of common stock at an
exercise price of $.25 per share for services to be rendered in 1997. None of
such options have been exercised. A deferred compensation cost for the excess of
the fair value of the shares over the exercise price of $2,187,500 was recorded
for the year ended December 31, 1996.

In October of 1996, the Company received a $250,000 loan with 8% interest from
an unaffiliated party. This loan is due in one year. The lender received
warrants for 100,000 shares of the Company's common stock and warrants for
100,000 shares of Series C Preferred Stock.

The Company intends to pursue outside financing as a vehicle to meet its
short-term working capital requirements. This pursuit may include loan
negotiations with lending institutions and negotiations with receivable factors
for the financing of the Company's accounts receivable. The Company has not
established any sources of financings and has no lines of credit available. The
Company's cash requirements have been and will continue to be significant. The
Company anticipates, based on its current plans to expand its distribution
business. In the event that these plans change or costs of operations prove
greater than anticipated, the Company could be required to modify its operations
or seek additional financing sooner than anticipated. However, there can be no
assurance that additional financing will be available to the Company. The
absence of such additional financing or the lack of availability of funds on
terms favorable to the Company could have a material adverse effect on the
business and operations of the Company. Due to the low current fair market value
of the shares of common stock, it most likely will be difficult for the Company
to attract purchasers of such shares.

required to modify its operations, liquidate inventory or seek additional
financing. The Company has no current arrangements with respect to such
additional financing, and there can be no assurance that such additional
financing, if available, will be on terms acceptable to the Company.

New Authoritative Accounting Pronouncements

The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
is effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. Earlier application is not
allowed. The provisions of SFAS No. 125 must be applied prospectively;
retroactive application is prohibited. Adoption on January 1, 1997 is not
expected to have a material impact on the Company. The FASB deferred some
provisions of SFAS No. 125, which are not expected to be relevant to the
Company.

14
<PAGE>

For the year ended December 31, 1996 compared with the year ended December 31,
1995

New Authoritative Accounting Pronouncements [Continued]

The FASB issued SFAS No. 128, "Earnings Per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS No.
128 simplifies the earnings per share ["EPS"] calculations required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is computed
by dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity,
similar to the fully diluted EPS of APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. When
adopted, SFAS No. 128 will require restatement of all prior-period EPS data
presented; however, the Company has not sufficiently analyzed SFAS No. 128 to
determine what effect SFAS No. 128 will have on its historically reported EPS
amounts.

SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.

Impact of Inflation

The Company does not believe that inflation has had a material adverse effect on
sales or income during the past periods. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.

<PAGE>

BEV-TYME, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

Year ended December 31, 1995 compared with the year ended December 31, 1994

Results of Operations

For the year ended December 31, 1995, the Company had a loss from operations of
$3,775,882 and a net loss of $3,826,230 [$.90 per share], as compared to a loss
from operations of $1,157,297 and a net loss of $1,192,542 [$.34 per share] for
the year ended December 31, 1994. The primary reason for the increase of
approximately $1,600,000 in net loss is the compensation expense in 1995 of
approximately $1,200,000 resulting from the issuance of the Company's common and
preferred stock and the Company's reduced gross profit of approximately
$300,000.

The change in the elements of revenues and expenses reflect the Company's shift
to primarily focusing on the distribution of beverage products rather than the
manufacturing and marketing of its SunSprings(TM) products.

For the year ended December 31, 1995, the Company's gross profit was $1,756,430
or 14% as compared to $2,043,291 or 21% in 1994. The change in the gross profit
percentage was attributable to a change in the Company's product mix, primarily
resulting from the beers and malt beverages. The Company intends to de-emphasize
the sale of common beer and increase the focus on the sale of imported and
microbrewed beers. Additionally, the Company liquidated a large amount of its
"closeout" products in 1995 and does not anticipate a large amount of closeouts
in 1996.

Selling, advertising and promotion expense for 1995 and 1994 amounted to
$1,128,782 and $913,762, respectively, and primarily consisted of salesmen's
salaries, commissions and related expenses of the companies' distribution sales
force.

insurance expense of approximately $260,000. General and administrative expenses
in 1994 included compensation and related payroll taxes of approximately
$492,600 [which included $269,000 of compensation related to stock options
recorded in the first quarter of 1994 offset by an adjustment of 340,000 due to
the relinquishment of these options], rent and related office expenses of
approximately $824,800 and insurance expense of approximately $303,300.

Because of the Company's severe cash shortages and numerous unsuccessful
attempts at finding traditional debt financing, the Company entered into bridge
financing which resulted in a total non-cash financing cost of $580,000
[$193,350 in 1994 and $386,650 in 1995]. This represented the fair value
assigned to the Bridge Units issued upon conversion of the Convertible Bridge
Notes. The effective annual interest rate on these Bridge Loans was
approximately 300%.

Interest expense relates primarily to commercial loans on the transportation
equipment.

<PAGE>

BEV-TYME, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

Year ended December 31, 1995 compared with the year ended December 31, 1994

Liquidity and Capital Resources

For the year ended December 31, 1995, the Company utilized approximately
$715,000 in operating activities. This utilization was primarily attributable to
the net loss of approximately $3,800,000 as adjusted for non-cash transactions
of approximately $2,100,000.

The Company utilized approximately $800,000 from net investing activities during
1995. This was primarily attributable to the acquisition of the net assets of
SB&S for approximately $526,000 and acquisition of equipment for approximately
$250,000.

The Company generated $1,581,219 from net financing activities during 1995. This
was primarily attributable to the net proceeds of $1,688,787 from the Series C
Preferred Stock Offering.

At December 31, 1995, the Company had a working capital deficit of approximately
$260,000 reflecting primarily the excess of accounts payable, accrued expenses
over cash, accounts receivable and inventory. The Company's cash balance at
December 31, 1995 was $153,714.

For the year ended December 31, 1994, the Company utilized $1,176,523 in

operating activities, utilized $149,062 in investing activities and generated
$664,480 in net financing activities. The Company generated $416,503 from
financing activities during the first quarter 1994. This was attributable
primarily to the net proceeds of approximately $375,000 from the Company's
issuance of warrants. The Company also raised an additional $12,890 through the
exercise of bridge units and $118,171 from the proceeds from sale of its common
stock. This represented a decrease of $661,105 in cash and cash equivalents
since December 31, 1993. The funds utilized in operating activities were
attributable primarily to the $1,192,542 net loss for the period.

In November and December 1994, the Company borrowed an aggregate of $200,000
from certain lenders [the "Bridge Lenders"]. In exchange for making loans to the
Company, each Bridge Lender received two [2] promissory notes [the "Bridge
Notes"]. Certain Bridge Notes are in the aggregate principal amount of $180,000
[the "Principal Bridge Notes"] and the other Bridge Notes are in the aggregate
principal amount equal to $20,000 [the "Convertible Bridge Notes"]. Each of the
Bridge Notes bears interest at the rate of eight percent [8%] per annum. The
Principal Bridge Notes were due and payable upon the earlier of (i) June 15,
1995, or (ii) the closing of the Offering. The Convertible Bridge Notes are due
and payable on December 1, 1995. In addition, each Bridge Lender had the right
to convert a Convertible Bridge Note into a number of units ["Bridge Units"]
equal to the total dollar amount loaned to the Company by such Bridge Lender;
provided, however, that one Bridge Lender may convert its Convertible Bridge
Note into the total dollar amount loaned to the Company plus an additional
50,000 Bridge Units because such Bridge Lender surrendered 100,000 warrants
exercisable for 100,000 shares of Common Stock. In February 1995, the Bridge
Lenders converted the Convertible Bridge Notes into an aggregate of 250,000
Bridge Units at a conversion price of $.10 per Bridge Unit. The Company entered
into the bridge financing transactions because it required additional financing
and no other sources of financing were available to the Company at that time.
The conversion price to the Bridge Lenders was significantly less than the
offering price of the Units offered hereby because should the proposed public
offering have not been successful, the Bridge Lenders would have been at risk
for repayment of the Bridge Loans. Further, the Company agreed to register such
Bridge Units in the first registration statement filed by the Company following
the date of the loan. The bridge notes were repaid on May 23, 1995, the close of
the Public Offering.

<PAGE>

BEV-TYME, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

Year ended December 31, 1995 compared with the year ended December 31, 1994

Liquidity and Capital Resources [Continued]

On May 15, 1995, the Company completed a secondary public offering for sale
460,000 units, each consisting of one share of Series C Convertible Preferred
Stock, par value $.0001 per share and two Series C Redeemable Preferred Stock
purchase warrants. Each share of Series C Preferred Stock is convertible at the
option of the holder, at any time after May 15, 1996, into 1.8 shares of the
Company's common stock. The Series C Warrants entitle the holder to purchase one
share of Series C Preferred Stock at an exercise price of $6.00 per share
through May 15, 2000 and may be redeemed by the Company under certain
conditions. To date, none of the Preferred Stock Warrants have been exercised or
redeemed. The Company realized net proceeds of $1,688,787 after deducting, the
underwriters discount and other costs of the offering.

In November 1995, the Company issued to the directors of the Company options to
purchase an aggregate of 300,000 shares of Series C Preferred Stock at an
exercise price of $2.00 per share. None of such options have been exercised.

The Company's long-term liquidity requirements may be significant in order to
continue to implement its business plan, expand its product base and establish a
distribution network. In the event that those plans change, or the costs or
development of operations prove greater than anticipated, the Company could be
required to modify its operations, liquidate inventory or seek additional
financing. The Company has no current arrangements with respect to such

additional financing, and there can be no assurance that such additional
financing, if available, will be on terms acceptable to the Company.

18
<PAGE>

BEV-TYME, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

Year ended December 31, 1995 compared with the year ended December 31, 1994

New Authoritative Accounting Pronouncements

The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 107, "Disclosure about Fair Value of
Financial Instruments," which is effective for fiscal years beginning after
December 15, 1995. The Company will adopt SFAS No. 107, as amended by FAS No.
119, "Disclosure About Derivative Financial Instruments in Debt and Equity
Securities," on January 1, 1996. Adoption of SFAS No. 107 and SFAS No. 119 is
not expected to have a material impact on the Company's financial position or
results of operations.

The FASB has also issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which the Company adopted on January 1, 1995. SFAS
No. 115 requires management to classify its investments in debt and equity
securities as trading, held-to-maturity, and/or available-for-sale at the time
of purchase and to reevaluate such determination at each balance sheet date. The
Company does not anticipate that it will have many investments that will qualify
as trading or held-to-maturity investments. Debt securities for which the
Company does not have the intent or ability to hold to maturity will be
classified as available-for-sale, along with most investments in equity
securities. Securities available-for-sale are to be carried at fair vale, with
any unrealized holding gains and losses, net of tax, reported in a separate
component of shareholders' equity until realized.

The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March of 1995.
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December 15, 1995. Adoption
of SFAS No. 121 is not expected to have a material impact on the Company's
financial statements.

value based method of accounting prescribed by Accounting Principles Board
["APB"] Opinion No. 25, Accounting for Stock Issued to Employees. The Company
has not decided if it will adopt SFAS No. 123 or continue to apply APB Opinion
No. 25 for financial reporting purposes. SFAS No. 123 will have to be adopted
for financial statement note disclosure purposes in any event. The accounting
requirements of SFAS No. 123, are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.

Impact of Inflation

<PAGE>

Item 7. FINANCIAL STATEMENTS.

See financial statements following Item 13 of this Annual Report on
Form 10-KSB.

Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

<PAGE>

PART III

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

Directors and Executive Officers

The names and ages of the directors and executive officers of the Company are
set forth below:

Name Age Position
- ---- --- --------

Robert Sipper........................ 43 Chief Executive Officer,
President and Director

Robert Forst(1)...................... 47 Chief Financial Officer

Alfred Sipper........................ 63 Director

Hartley T. Bernstein(2).............. 45 Director

Bruce Logan.......................... 65 Director

Joseph Vigliarolo(3)................. 35 Chief Financial Officer

- ----------
(1) Mr. Forst commenced working for the Company in March 1996.
(2) Mr. Bernstein resigned as a Director in November 1996.
(3) Mr. Vigliarolo resigned in February 1996.

Robert Sipper has been a director of the Company since November 1993
and Chief Executive Officer and President of the Company since January, 1994. He
graduated with a J.D. degree from Vermont Law School in 1978 and entered private
practice, He was associated with Dubbs, Leopold, Davis & DePodwin, Attorneys at
Law from 1979-1981. He became a partner in the law firm of Leopold & Sipper.
Attorneys at Law, from 1981 to March 1989. In March, 1989, Mr. Sipper left the
private practice of law and became Chief Operating Officer/Executive Vice
President of Mootch & Muck, a position he holds today, which was the master
Evian distributor for the Metropolitan New York - New Jersey territory as well
as the distributor of many other beverages and selected specialty foods. Mr.
Sipper established a subdistributor network for Evian and other products in this
territory. In 1990, Mr. Sipper negotiated the sale of Mootch & Muck's Evian
Master Distributor Agreement to Canada Dry Bottling Company of New York.

<PAGE>

Robert Forst, has been the Chief Financial Officer of the Company since
March 1996. Mr. Forst was Controller of Empire Taxi and Limo Co. from August,
1985 through August, 1995. Mr. Forst was the Assistant Controller of Value Line,

Inc. from July, 1979 through July, 1985. He also worked for Americana Hotels,
Inc. from June 1972 through July 1979. Mr. Forst received his undergraduate
degree from St. John's University.

Alfred Sipper, has been a director of the Company since March 1994. Mr.
Sipper has been President of Mootch & Muck, Inc. since 1977 and was President of
PIK Groceries, Inc. from 1952 until 1983.

Hartley T. Bernstein was a Director from June, 1992 to November, 1996
and is a member of the law firm of Bernstein & Wasserman specializing in
corporate and securities law. Mr. Bernstein graduated from Columbia University
with a B.A. in 1973 and received his J.D. from New York University School of Law
in 1976. He was associated with the firm of Parker Chapin Flattau & Klimpl from
1976-1977, served as an Assistant District Attorney for New York County from
1977-1979 and was associated with the law firm of Guggenheimer & Untermyer from
1979-1982. In 1982, Mr. Bernstein formed his own law practice which subsequently
merged with his present firm. Mr. Bernstein also serves as a director of PDK
Labs Inc., and Futurebiotics, Inc., each a public company. Mr. Bernstein has
served as a director of Celebrity Resorts, Inc. from November 20, 1989 to
February 27, 1992. Mr. Bernstein also served as a director of DreamCar Holdings,
Inc., commencing July 13, 1989 and ending as of August 1992. Mr. Bernstein is a
member of the adjunct faculty of Yale Law School where he teaches a course in
securities law and has served previously on the adjunct faculties of New York
Law School and Mercy College. He is also an instructor at the National Institute
of Trial Advocacy and a member of the Boards of Arbitration of the National
Association of Securities Dealers, Inc. and the New York Stock Exchange. Mr.
Bernstein serves as a commentator on securities law matters on the nationally
syndicated Money Radio. The law firm of Bernstein & Wasserman, of which Mr.
Bernstein is a partner, has acted as legal counsel to the Company.

Bruce Logan, has been a director of the Company since August 1994.
Since 1991, Mr. Logan has been the chairman of New York Media, Inc., a New York
City based producer of custom publications, and newsletters for the restaurant
industry. Mr. Logan co-founded Magazine Networks and it was subsequently sold to
3M Corporation. Mr. Logan is currently Chairman of New York Hospital's Community
Advisory Board.

Joseph Vigliarolo, a certified public accountant, was the Chief
Financial Officer, Senior Vice President and Secretary of the Company from May
1994 to February 1996 when he resigned. He also held the position, since
February of 1993, of Chief Financial Officer of the Company's wholly owned
subsidiary, Mootch and Muck, Inc.. He was associated with the accounting firm of
Ganer & Ganer from November 1983 to August 1985 and November 1990 to August
1991, was with the accounting firm of Chassin, Levine and Rosen from August 1985
to November 1986 and was

<PAGE>

a Manager at the accounting firm of Ernst & Young from November 1986 to May
1989. Mr. Vigliarolo also worked at the New York Chiropractic College as
Controller and Assistant Treasurer from May 1989 to May 1990. Mr. Vigliarolo
worked for the investment banking firm of Whyte Lyon & Co. from August 1991 to

February 1993. In 1991, Mr. Vigliarolo was declared personally bankrupt by the
United States Bankruptcy Court, Mr. Vigliarolo received his undergraduate degree
from Boston College.

There are no family relationships among any of the directors or
executive officers of the Company, except that Alfred Sipper, a director of the
Company and Chief Executive Officer of Mootch & Muck, Inc., is the father of
Robert Sipper, President and Chairman of the Board of the Company and Chief
Operating Officer of Mootch & Muck. The Company pays its directors who are not
also employees of the Company $500 for each meeting attended and reimburses such
directors for travel and other expenses incurred by them in connection with
attending Board of Directors meetings. In November 1993, the board suspended the
payment of director's fees indefinitely. Directors are elected annually at the
Company's regular annual meeting of stockholders.

In May, 1995, the Company issued to certain of the Company's officers,
directors and employees options to purchase an aggregate of 525,000 shares of
Series C Preferred Stock at an exercise price of $2.00 per share, all of which
shares were registered with the Securities and Exchange Commission on Form S-8
for sale to the public. In October, 1995, all of such options were exercised.

In November 1995, the Company issued to certain employees and the
directors of the Company options to purchase an aggregate of 525,000 shares of
Series C Preferred Stock at an exercise price of $2.00 per share for services to
be rendered in 1996. 450,000 of such options have been exercised.

In August 1996, the Company issued to certain employees and the
directors of the Company options to purchase an aggregate of 630,000 shares of
Series C Preferred Stock at an exercise price of $1.00 per share (the "Preferred
Options"), and options to purchase an aggregate of 700,000 shares of Common
Stock at an exercise price of $.25 per share (the "Common Options"). None of
such options have been exercised.

Compliance with Section 16(a) of
The Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC

<PAGE>

regulation to furnish the Company with copies of all Section 16(a) forms they
file.

Except as provided below, to the Company's knowledge, based solely on
its review of the copies of such reports furnished to the Company during the
years ended December 31, 1994 and December 31, 1995, all Section 16(a) filing

requirements applicable to its officers, directors and greater than ten percent
beneficial owners were satisfied.

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth the compensation paid to the Named
Executive Officers for the calendar years ending December 31, 1996, December 31,
1995 and December 31, 1994.

<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Awards Long-Term Compensation
-------------------------- ----------------------
(a) (b) (c) (d) (e) (f)

Other Annual Restricted Stock Option
Name and Principal Position Year Salary Compensation Award Grants
- --------------------------- ---- ------ ------------ ----- ------
<S> <C> <C> <C> <C> <C>
Robert Sipper, President and 1996 $144,275 190,000
Chief Executive Officer 1995 $ 95,457 ** ** 150,000
1994 $ 87,333 ** ** 75,000

Alfred Sipper 1996 $169,867 190,000
President and Chief 1995 $155,235 ** ** 150,000
Executive Officer of 1994 $142,024 ** ** 75,000
Mootch & Muck, Inc. (1)

Robert Forst 1996 $ 62,907 ** ** 190,000
Chief Financial Officer 1995 ***** ** **
1994 ***** ** **

William Swedelson 1996 $ 88,064 ** ** 190,000
1995 $ 87,524 ** ** 150,000
</TABLE>
- -------------
(1) Mootch & Muck, Inc. became a subsidiary when the Company acquired a
51% interest in May 1993. Prior to that Mootch & Muck, Inc. was
an unaffiliated company.

<PAGE>

The following table sets forth certain information with respect to options
granted during the last fiscal year to the Company's Chief Executive Officer and
the other executive officers named in the above Summary Compensation Table.

Option/SAR Grants In Last Fiscal Year

<TABLE>
<CAPTION>
Number of Securities
Underlying Percent of Total Exercise or
Options/SARS Options/SARS Granted to Base Price
Name Granted (#) Employees in Fiscal Year ($/Sh) Expiration Date
- ---- ----------- ------------------------ -------- ---------------
<S> <C> <C> <C> <C>
Robert Sipper 90,000(1) 14.29 1.00 August 9, 2001
100,000 14.29 .25 August 9, 2001

Alfred Sipper 90,000(1) 14.29 1.00 August 9, 2001
100,000 14.29 .25 August 9, 2001

Robert Forst 90,000(1) 14.29 1.00 August 9, 2001
100,000 14.29 .25 August 9, 2001

William Swedelson 90,000(1) 14.29 1.00 August 9, 2001
100,000 14.29 .25 August 9, 2001
</TABLE>

- -----------------------------
(1) Options are exercisable for shares of Series C Preferred
Stock.

The following table sets forth certain information with respect to
options exercised during the last fiscal year by the Company's Chief Executive
Officer and the executive officers named in the Summary Compensation Table, and
with respect to unexercised options held by such persons at the end of the last
fiscal year:

Aggregate Option/SAR Exercises In Last Fiscal Year And Fiscal Year-End
Option/SAR Values

<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised in the
Acquired on Value Realized Underlying Unexercised Money Options/SARs at
Name Exercise (#)(1) $ Options/SARS at FY-End (#) FY-End ($) (2)
---- --------------- -------------- -------------------------- ---------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Sipper 50,000 112,500 ***** 25,000 ***** 123,750
----- ------ ----- -------

Alfred Sipper 50,000 112,500 ***** 25,000 ***** 123,750
----- ------ ----- -------
</TABLE>

<PAGE>

The Company pays its directors who are not also employees of the
Company $500 for each meeting attended and reimburses such directors for travel
and other expenses incurred by them in connection with attending Board of
Directors meetings. In November 1993, the board suspended the payment of
director's fees in order to conserve its working capital. Juan Metzger, formerly
a director of the Company, was paid $1,000 per month under a consulting
arrangement with the Company, pursuant to which Mr. Metzger advised the Company
in the area of product distribution. Mr. Metzger resigned from the Board of
Directors in April, 1994.

On August 5, 1994, the Company issued options to purchase 75,000 shares
of Common Stock at $.69 per share (the fair market value of the Company's Common
Stock on the date of grant) to certain members of senior management and to each
of the members of the Company's Board of Directors.

In May 1995, the Company issued to certain officers and directors
options to purchase an aggregate of 525,000 shares of the Company's Series C
Preferred Stock at an exercise price of $2.00 per share, all of which shares
were registered with the Securities and Exchange Commission on Form S-8. In
October, 1995, the holders thereof exercised such options.

In November 1995, the Company issued to certain employees and the
directors of the Company options to purchase an aggregate of 525,000 shares of
Series C Preferred Stock at an exercise price of $2.00 per share for services
rendered in 1996. 450,000 of such options have been exercised.

Employment Agreements

On May 12, 1993, Mootch & Muck, Inc., the Company's wholly owned
subsidiary, entered into a twelve (12) year full-time employment agreement with
Alfred Sipper, which may be extended for two years at Mr. Sipper's option.
Pursuant to the agreement, he will serve as President and Chief Executive
Officer of M&M at an annual compensation of $140,000 per year, subject to
cost-of-living adjustments, bonuses and salary increases based upon performance.
As of May 12, 1995, Alfred Sipper's employment agreement with Mootch & Muck,
Inc. was amended and restated. Pursuant to the terms of the amended and restated
employment, (i) Mr. Sipper has agreed to serve as President and Chief Executive
Officer of Mootch & Muck, Inc. until May 12, 2009, (ii) Mr. Sipper will receive
an annual salary of $165,200 per year, plus an annual salary increase of 5% or
such greater amount as determined by the Board of Directors of the Company based
upon reasonable criteria. The Company also agreed to provide (i) an annual bonus
of options to purchase (x) 75,000 shares of Series C Preferred Stock at an
exercise price equal to 80% of the fair market value of the Company's Series C
Preferred Stock at the time of grant and (y) 150,000 shares of Common Stock at
an exercise price equal to 80% of the fair market value of the Company's Common
Stock of the time of grant and (ii) to reimburse Mr. Sipper for all
out-of-pocket business expenses, including

<PAGE>

automobile expenses up to $800 per month.

On May 12, 1993, the Company entered into Employment Agreements with
Robert J. Sipper, the Company's Chief Executive Officer and President, Khosrow
Foroughi, the Company's Executive Vice President, and William Swedelson, the
Company's Vice President of Sales. Each of the Agreements was for a period of
four years and contained customary provisions regarding termination,
confidentiality and reimbursement of bona fide business expenses. Mr. Sipper,
Mr. Foroughi and Mr. Swedelson each received an annual salary of $85,750,
$64,090 and $70,720, respectively, subject to increase by the Board of Directors
based upon the Company's performance and other reasonable criteria. The
Employment Agreement with Khosrow Foroughi has been terminated.

As of May 12, 1995, Robert Sipper's employment agreement with Mootch &
Muck, Inc. was amended and restated. Pursuant to the terms of the amended and
restated employment, (i) Mr. Sipper has agreed to serve as Senior Vice President
and Chief Operating Officer of Mootch & Muck, Inc. until May 12, 2001, (ii) Mr.
Sipper will receive an annual salary of $101,600 per year, plus an annual salary
increase of 5% or such greater amount as determined by the Board of Directors of
the Company based upon reasonable criteria. The Company also agreed to provide
(i) an annual bonus of options to purchase (x) 75,000 shares of Series C
Preferred Stock at an exercise price equal to 80% of the fair market value of
the Company's Series C Preferred Stock at the time of grant and (y) 150,000
shares of Common Stock at an exercise price equal to 80% of the fair market
value of the Company's Common Stock of the time of grant and (ii) to reimburse
Mr. Sipper for all out-of-pocket business expenses, including automobile
expenses up to $800 per month.

As of May 12, 1995, William Swedelson's employment agreement with
Mootch & Muck, Inc. was amended and restated. Pursuant to the terms of the
amended and restated employment, (i) Mr. Swedelson has agreed to serve as Vice
President - Sales of Mootch & Muck, Inc. until May 12, 2001, (ii) Mr. Swedelson
will receive an annual salary of $83,800 per year, plus an annual salary
increase of 5% or such greater amount as determined by the Board of Directors of
the Company based upon reasonable criteria. The Company also agreed to provide
(i) an annual bonus of options to purchase (x) 75,000 shares of Series C
Preferred Stock at an exercise price equal to 80% of the fair market value of
the Company's Series C Preferred Stock at the time of grant and (y) 150,000
shares of Common Stock at an exercise price equal to 80% of the fair market
value of the Company's Common Stock of the time of grant and (ii) to reimburse
Mr. Swedelson for all out-of-pocket business expenses, including automobile
expenses up to $800 per month.

On April 25, 1996, the Company entered into an Employment Agreement
with Mel Feldman, pursuant to which the Company issued to Mr. Feldman 25,000
shares of Common Stock in exchange for Mr. Feldman becoming Director of Sales
for Bronx, Brooklyn and Queens counties, for the Company. Mr. Feldman's
employment with the Company is for a term of three years. Mr. Feldman is
receiving a base salary of eighty thousand dollars ($80,000) and the 250,000
shares of Common Stock of the Company. This agreement has been terminated by
the Company.

<PAGE>

On April 25, 1996, the Company entered into an Employment Agreement
with Aaron German, pursuant to which the Company issued to Mr.German 25,000
shares of Common Stock in exchange for Mr. German becoming Assistant Director
of Sales for Bronx, Brooklyn and Queens counties, for the Company. Mr. German's
employment with the Company was for a term of three years. Mr. German was
receiving a base salary of eighty thousand dollars ($80,000) and the 250,000
shares of Common Stock of the Company. This agreement has been terminated by the
Company.

Stock Option Plans and Agreements

Incentive Option and Stock Appreciation Rights Plan--In November 1992,
the Directors of the Company adopted and the stockholders of the Company
approved the adoption of the Company's 1992 Incentive Stock Option and Stock
Appreciation Rights Plan ("Incentive Option Plan"). The purpose of the Incentive
Option Plan is to enable the Company to encourage key employees and Directors to
contribute to the success of the Company by granting such employees and
Directors incentive stock options ("ISOs"), as well as non-qualified options and
stock appreciation rights ("SARs").

The Incentive Option Plan will be administered by the Board of
Directors or a committee appointed by the Board of Directors (the "Committee")
which will determine, in its discretion, among other things, the recipients of
grants, whether a grant will consist of ISOs, non-qualified options or SARs (in
tandem with an option or freestanding) or a combination thereof, and the number
of shares to be subject to such options and SARs.

The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board of Directors or
the Committee not less than the fair market value of the Common Stock on the
date the option is granted. Non-qualified options and freestanding SARs may be
granted with any exercise price. SARs granted in tandem with an option have the
same exercise price as the related option.

The total number of shares with respect to which options and SARs may
be granted under the Incentive Option Plan is 7,500. ISOs may not be granted to
an individual to the extent that in the calendar year in which such ISOs first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option or SAR may be granted under
the Incentive Option Plan after November 24, 2002 and no option or SAR may be
outstanding for more than ten years after its grant. Additionally, no option or
SAR can be granted for more than five (5) years to a shareholder owning 10% or
more of the Company's outstanding Common Stock.

Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash or in shares of Common

Stock, or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. SARs may be settled, in the Board of Directors' discretion, in
cash, Common

<PAGE>

Stock, or in a combination of cash and Common Stock. The exercise of SARs
cancels the corresponding number of shares subject to the related option, if
any, and the exercise of an option cancels any associated SARs. Subject to
certain exceptions, options and SARs may be exercised any time up to three
months after termination of the holder's employment.

The Incentive Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
or SARs under the Incentive Option Plan or materially increase the benefits of
participants.

The Company issued incentive options to purchase an aggregate of 6,000
shares of Common Stock to four sales management personnel. The options are
exercisable at $1.00 per share for a period of four years commencing in August
1994.

Non-Qualified Option Plan--In November 1992, the Directors and
stockholders of the Company adopted the 1992 Non-Qualified Stock Option Plan
(the "Non-Qualified Option Plan"). The purpose of the Non-Qualified Option Plan
is to enable the Company to encourage key employees, Directors, consultants,
distributors, professionals and independent contractors to contribute to the
success of the Company by granting such employees, Directors, consultants,
distributors, professionals and independent contractors non-qualified options.
The Non-Qualified Option Plan will be administered by the Board of Directors or
the Committee in the same manner as the Incentive Option Plan.

The Non-Qualified Option Plan provides for the granting of
non-qualified options at such exercise price as may be determined by the Board
of Directors, in its discretion. The total number of shares with respect to
which options may be granted under the Non-Qualified Option Plan is 125,000.

Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash or in shares of Common
Stock (based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be exercised any time up
to three months after termination of the holder's employment.

The Non-Qualified Option Plan may be terminated or amended at any time
by the Board of Directors, except that, without stockholder approval, the

Non-Qualified Option Plan may not be amended to increase the number of shares
subject to the Non-Qualified Option Plan, change the class of persons eligible
to receive options under the Non-Qualified Option Plan or materially increase
the benefits of participants.

<PAGE>

In August 1994, the Company issued to certain sales representatives an
aggregate of 2,500 non-qualified options under the Non Qualified Option Plan.
The options are exercisable at $1.00 per share for a period of four years
commencing in August 1994.

Other Options

In May, 1995, the Company issued to certain officers and directors
options to purchase an aggregate of 525,000 shares of the Company's Series C
Preferred Stock at an exercise price of $2.00 per share, all of which shares
were registered with the Securities and Exchange Commission on Form S-8. In
October, 1995, the holders thereof exercised such options.

In November 1995, the Company issued to consultants to the Company
options to purchase an aggregate of 300,000 shares of Series C Preferred Stock
at an exercise price of $2.00 per share. All of such options have been
exercised.

In August 1996, the Company issued to certain directors, officers, and
employees of the Company options to purchase an aggregate of 630,000 shares of
Series C Preferred Stock (the "Preferred Options") at an exercise price of $1.00
per share, and options to purchase an aggregate of 700,000 shares of Common
Stock (the "Common Options") at an exercise price of $.25 per share. None of
such options have been exercised.

<PAGE>

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

The following table sets forth as of March 31, 1997, certain
information with respect to the beneficial ownership of Common Stock and Series
C Preferred Stock by each person or entity known by the Company to be the
beneficial owner of 5% or more of such shares, each officer and director of the
Company, and all officers and directors of the Company as a group:

<TABLE>
<CAPTION>
Shares of Common Stock Shares of Preferred Stock
---------------------- -------------------------
Amount Approximate Amount Approximate
Name and Address Beneficially Percentage (%) Beneficially Percentage (%)
of Beneficial Owner Owned of Class Owned of Class
- ------------------- ----------- -------------- ----- --------
<S> <C> <C> <C> <C>
Robert Sipper.................. 115,000(1)(2) 1.0 165,000(2) 4.8
President and Chairman of
the Board
c/o New Day Beverage
134 Morgan Avenue
Brooklyn, NY 11237

Alfred Sipper .................. 130,136(1)(2) 2.0 165,000(2) 4.8
Director
c/o Mootch & Muck, Inc.
134 Morgan Avenue
Brooklyn, NY 11237

Bruce Logan................... 115,000(1)(2) 1.0 165,000(2) 4.8
Director
25 Central Park West
New York, NY 10023

Michael Lulkin 40,000 5.3
750 Lexington Avenue
27th Floor
New York, NY 10022

All Officers & Directors 430,136 11% 495,000 19.8%
as a Group (4 Persons)
</TABLE>
- --------------
(1) Includes 7,500 shares of Common Stock issuable upon the
exercise of 7,500 stock options at an exercise price of $0.69
per share. Also includes 100,000 shares of Common Stock
issuable upon the exercise of 100,000 stock options at an
exercise price of $.25 per share.
(2) Includes 75,000 shares of Series C Preferred Stock
issuable upon the exercise of 75,000 stock options at an
exercise price of $2.00 per share. Also includes 90,000 shares
of Common Stock issuable upon the exercise of 90,000 stock
options at an exercise price of $1.00 per share. Each share of
Series C Preferred Stock is convertible into 1.8 shares of
Common Stock.

<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Because of increased competition in the "New Age" beverage market and
continuing operating losses in the sale of its SunSprings beverage products, the
Company has intensified its focus on the beverage and snack food distribution.
As a result, in March 1994, the Company acquired the remaining 49% interest in
its subsidiaries, in exchange for 600,000 newly issued shares of the Company's
Common Stock and $250,000 payable at the Company's option in cash or Common
Stock over a period of sixteen (16) months (the "M&M Debt"). In addition, the
seller, Alfred Sipper, the President and founder of M&M, was entitled to receive
an additional 200,000 shares of Common Stock if the Subsidiaries reported
positive earnings before the payment of taxes for the year ended December 31,
1994 and an additional 200,000 shares of Common Stock if the Company reported
not less than $100,000 in earnings before the payment of taxes for the year
ended December 31, 1995. On October 28, 1994, the Company issued 50,676 shares
of Common Stock as payment of $150,000 due and owing under the M&M Debt to Mr
Alfred Sipper, a director of the Company and President of M&M. Under the terms
of the original agreement, in the event that Mr. Sipper sold such shares and
received less than $150,000 from the proceeds therefrom, the Company was
obligated to issue Mr. Sipper sufficient number of additional shares of Common
Stock so that the aggregate proceeds from both sales was not less than $150,000.
The Company was obligated to register such shares for public sale. On February
13, 1995, the Company and Mr. Sipper amended their agreement so that Mr. Sipper
would receive shares of Series C Preferred Stock and the Company would be
relieved from all of its obligations to make future payments to Mr. Sipper and
to register the shares of Common Stock previously issued to Mr. Sipper. Under
the amended agreement, the Company issued to Mr. Sipper 83,333 shares of Series
C Preferred Stock (the "Shares") (based upon an attributed value of $3.00 per
share) and Mr. Sipper has released the Company from all of its obligations,
include making payments in the future to Mr. Sipper. Further, in the event that
Mr. Sipper receives within two years following the Effective Date aggregate, net
proceeds in excess of $250,000, Mr. Sipper shall deliver such amount in excess
of $250,000 to the Company and surrender for cancellation all of the remaining
Shares held thereby, if any. The Company did not receive any valuation from any
third party with respect to this transaction. Mr. Sipper sold such shares in
1995 and did not receive proceeds from the sale thereof in excess of $250,000 in
the aggregate.

On February 15, 1994, the Company entered into a consulting agreement
with Marshall Becker, the Company's former Chief Executive Officer and director,
pursuant to which (i) Mr. Becker would serve as an outside consultant to the
Company in connection with the sale of the Company's SunSprings (TM) products
for six months commencing on January 10, 1994, at the rate of $1,000 per week,
(ii) Mr. Becker would be entitled to 50% of the net proceeds derived from
international licensing of the SunSprings(TM) products, and (iii) Mr. Becker
received an option exercisable before April 15, 1994 to purchase certain assets
of the Company used in connection with the manufacturing, marketing and sale of
the Registrant's SunSprings(TM) products for $1,150,000. The Company entered
into the Consulting Agreement with Mr. Becker in order to have Mr. Becker
continue his efforts to obtain international licensing agreements for the sale
and distribution of the SunSprings products. The Company has not received any
international licensing fees of any value,

<PAGE>

either as a result of Mr. Becker's efforts, or otherwise. Mr. Becker did not
exercise his option to acquire certain assets of the Company, which option has
expired. In addition, Mr. Becker's Consulting Agreement with the Company expired
in July 1994.

On February 2, 1994 the Company issued 1,500,000 warrants, at a price
of $.25 per warrant to Morgan Steel Ltd and Davstar II. The warrants possess the
same terms and conditions as those offered to the public in connection with the
Company's initial public offering. Of the 1,500,000 warrants issued, 1,000,000
warrants have been surrendered by Morgan Steel, Ltd. for cancellation by the
Company.

The Company issued in February 1994, 75,000 shares of Common Stock to
the law firm of Bernstein & Wasserman in consideration for legal services
rendered. Hartley T. Bernstein, a director of the Company, is a partner of the
law firm.

On August 5, 1994, the Company issued an aggregate of 52,500 options
to purchase shares of Common Stock at $.07 per share (the fair market value of
the Company's Common Stock on the date of grant) to certain members of senior
management and to each of the members of the Company's Board of Directors in
order to compensate such persons for their contribution to the Company. None of
such options have been exercised.

In November and December 1994, the Company borrowed an aggregate of
$200,000 from certain lenders (the "Bridge Lenders"), some of whom were
previously lenders to, or investors in, the Company, or customers of the
underwriter of the Company's initial public offering. In exchange for making
loans to the Company, each Bridge Lender received two (2) promissory notes (the
"Bridge Notes"). Certain Bridge Notes were in the aggregate principal amount of
$180,000 (the "Principal Bridge Notes") and the other Bridge Notes were in the
aggregate principal amount equal to $20,000 (the "Convertible Bridge Notes").
Each of the Bridge Notes bore interest at the rate of eight percent (8%) per
annum. The Principal Bridge Notes were due and payable upon the earlier of (i)
May 1, 1995 and (ii) the closing of the next underwritten public offering of the
Company's securities, or the closing of this offering. The Company used a
portion of the proceeds from its secondary offering to repay the Bridge Lenders.
Each Bridge Lender had a Convertible Bridge Note convertible into a number of
units ("Bridge Units") equal to the total dollar amount loaned to the Company by
such Bridge Lender; provided however, that one Bridge Lender converted its
Convertible Bridge Note into the total dollar amount loaned to the Company plus
an additional 50,000 Bridge Units because such Bridge Lender surrendered
1,000,000 warrants exercisable for 1,000,000 shares of Common Stock. Such
transaction was as a result of an arms length negotiation between the Company
and such Bridge Lender. In February 1995, the Bridge Lenders converted the
Convertible Bridge Notes into an aggregate of 250,000 Bridge Units. The
registration statement filed in connection with the Company's secondary offering
also related to the 250,000 Bridge Units held by the Bridge Lenders.

In February 1995, holders of a majority of the shares of the Company's
outstanding Common Stock and Series C Preferred Stock voting together as a
class, delivered to the Company written

<PAGE>

consents in lieu of a meeting of the Securityholders of the Company adopting an
amendment to the Company's certificate of incorporation (the "Amendment"). The
Amendment authorized the increase of the number of authorized shares of Series C
Preferred Stock from 1,000,000 shares to 3,000,000 shares.

In February 1995, the Company agreed to issue 33, 892 shares of Series
C Preferred Stock to Alfred Sipper in exchange for the cancellation by Mr.
Sipper of certain indebtedness of M&M in the aggregate principal amount of
$101,675. In February 1995, the Company also borrowed $45,000 from Alfred Sipper
which the Company repaid in June 1995.

In March 1995, the Company entered into three one-year consulting
agreements with three unaffiliated individuals and issued a total of 70,000
shares of the Company's common stock.

On May 15, 1995, the Company completed a secondary public offering
pursuant to which the Company sold 460,000 Units ("Preferred Stock Units") to
the public at $5.00 per Unit. Each Preferred Stock Unit consisted of one (1)
share of Series C Convertible Preferred Stock ("Preferred Stock") and two (2)
Series C Preferred Stock Purchase Warrants ("Preferred Stock Purchase
Warrants"). Each share of Series C Preferred Stock is convertible at the option
of the holder, at any time after May 15, 1996, into a number of shares of the
Company's Common Stock, $.0001 par value per share, equal to the price of the
Units offered in the Secondary Public Offering divided by the fair market value
of Common Stock as of May 15, 1995. The Series C Warrants entitle the registered
holder thereof to purchase one (1) share of Series C Preferred Stock at an
exercise price of $6.00 per share through May 15, 2000 and may be redeemed by
the Company under certain conditions. To date, none of the Preferred Stock
Warrants have been exercised or redeemed.

In May, 1995, the Company issued to the Company's officers, directors
and employees options to purchase an aggregate of 525,000 shares of Series C
Preferred Stock at an exercise price of $2.00 per share, all of which shares
were registered with the Securities and Exchange Commission on Form S-8 for sale
to the public. In October 1995, all of such options were exercised, and the
Company received the proceeds from such exercise in January and February of
1996.

In November 1995, holders of a majority of the shares of the Company's
outstanding Common Stock and Series C Preferred Stock voting together as a
class, delivered to the Company written consents in lieu of a meeting of the
Securityholders of the Company adopting an amendment to the Company's
certificate of incorporation (the "Amendment"). The Amendment authorized the

increase of the number of authorized shares of Series C Preferred Stock from
3,000,000 shares to 6,000,000 shares, of which 5,800,000 are Series C Preferred
Stock. In November 1995, the stockholders of the Company also approved and
consented to amend the Company's certificate of incorporation to increase the
number of authorized shares of Common Stock from 15,000,000 shares to 75,000,000
shares.

<PAGE>

In December 1995, the Company borrowed $309,000 form Alfred Sipper,
$50,000 of which was repaid in December 1995, and $259,000 plus 5.75% interest
was repaid in January 1996.

In February 1996, the Company engaged K.A.M. Group, Inc. as a
consultant to assist the Company in connection with acquisitions, divestitures,
joint ventures and other strategic business initiatives. In exchange for
services to be performed by the consultant, the Company issued options to
purchase an aggregate of 300,000 shares of Series C Preferred Stock at an
exercise price of $2.00 per share. These options were exercised in February and
May of 1996, with aggregate proceeds to the Company of $600,000.

On October 26, 1995, the Company entered into a letter of intent to
acquire Riverosa Company, Inc. ("Riverosa"), a corporation engaged in the sale
and marketing of Perry's Majestic Beer, for the sum of $250,000. As part of that
understanding, the Company agreed that Riverosa or its successors would enter
into a three (3) year employment agreement with Mark Butler, Riverosa's
President, at an annual salary of $25,000 year, subject to appropriate increase
in the event Riverosa (or it successors) successfully completes an initial
public offering of its securities resulting in net proceeds in excess of
$2,000,000. The Employment Agreement would also provide for an annual bonus as
well as stock options based upon performance. In January 1996, the Company
assigned its rights under the letter of intent to Perry's Majestic Beer, Inc., a
subsidiary of the Company ("Perry's Majestic"), which entered into a definitive
agreement with Riverosa on March 29, 1996, pursuant to which Perry's majestic
paid the sum of $250,000 to acquire Riverosa.

In January 1996, the Perry's Majestic issued an aggregate of 2,500,000
shares of its common stock to seven (7) parties for total consideration of
$50,000. In March 1996, Perry's Majestic issued to the Company 500,000 shares of
convertible Series A Preferred Stock and 7,000,000 shares of Series B Preferred
Stock and 400,000 shares of the Company's Series C Preferred Stock for
$150,000. In October 1996, the Company sold all of its shares of Class A
Convertible Preferred Stock in Perry's to The Skyes Corp. for a total
consideration of $250,000. As a result of these transactions, the Company holds
66% of the voting stock of Perry's Majestic.

On January 2, 1996, the Company issued to the holders of record of the
Series C Preferred Stock as of December 24, 1995 a dividend of two shares of the
Company's Common Stock.

On April 1, 1996 the Company entered into a Consulting Agreement with
Walter Miller, pursuant to which the Company issued to Mr. Miller an option to
purchase an aggregate of 100,000 shares of the Company's Common Stock at an
exercise price of $1.50 per share.

On April 11, 1996, Perry's Majestic completed a public offering of
583,335 shares of Common Stock at $6.00 per share, and the concurrent offering
of securities by certain selling securityholders. The net proceeds of the
offering were approximately $2,500,000.

On April 5, 1996, the Company entered into a Consulting Agreement with
Matthew L. Harriton, pursuant to which the Company issued to Mr. Harriton 40,000
shares of Common Stock in exchange for consulting services in connection with
business development. Mr. Harriton has agreed that for a period of two years he
will advise the Company on its food service and restaurant distribution
divisions and new product lines. The Company believes that the number of shares
of Common Stock issued to Mr. Harriton is fair consideration for the services to
be

<PAGE>

performed under the Consulting Agreement with the Company.

On April 11, 1996, the Company entered into a Consulting Agreement with
Mark Butler, pursuant to which the Company issued to Mr. Butler 35,000 shares of
Common Stock in exchange for consulting services in connection with beer and ale
sales. Mr. Harriton has agreed that for a period of two years he will advise the
Company relating to the distribution of the Company's beer and ale product
lines: the acquisition and development of new beer and ale products, and the
expansion of the Company's existing beer and ale product lines. The Company
believes that the number of shares of Common Stock issued to Mr. Butler is fair
consideration for the services to be performed under the Consulting Agreement
with the Company.

of Sales for Bronx, Brooklyn and Queens counties, for the Company. Mr. German's
employment with the Company is for a term of three years. Mr. Feldman is
receiving a base salary of eighty thousand dollars ($80,000) and the 25,000
shares of Common Stock of the Company.

On April 22, 1996, Mootch & Muck, Inc. ("Distributor") entered into a
Distribution Agreement with Premium Beverage Packers Co. ("Premium") pursuant to
which Distributor purchased distribution rights to "City Club" soda, for one
hundred eighty thousand dollars ($180,000) and three hundred thousand (300,000)
shares of the Company's common stock.

On April 29, 1996 the Company entered into a Loan Agreement with
Michael Lulkin whereby Mr. Lulkin loaned the Company one hundred fifty thousand
dollars ($150,000) . As additional consideration solely for making the loan, the
Company issued to Mr. Lulkin 40,000 shares of Common Stock.

On July 17, 1996 the Company effected a 1-for-10 reverse stock split
with respect to its shares of Common Stock.

<PAGE>

In October 1996 the Company entered into a Loan Agreement with Ulster
Investments, Inc. ("Ulster") whereby Ulster loaned the Company two hundred fifty
thousand dollars ($250,000). As of December 31, 1996 the Company had repaid one
hundred fifty two thousand dollars ($152,000) of the total loan to the Company
by Ulster.

In October 1996, the Company sold all of its shares of Class A
Convertible Preferred Stock in Perry's to The Skyes Corp. for a total
consideration of $250,000.

In January of 1997, the Board of Directors declared a dividend of 1.31
shares of common stock for each share of Series C Preferred Stock outstanding as
of December 27, 1996.

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

Item a. EXHIBITS AND REPORTS ON FORM 8-K

(a)(1) Financial Statements.

The following financial statements are included in Part II, Item 7:

Index to Financial Statements

Report of Independent Certified Public Accountants

Consolidated Balance Sheet as of December 31, 1996

Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995

Consolidated Statements of Stockholders' [Deficit] for the years
ended December 31, 1996 and 1995,

Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995,

Consolidated Notes to financial statements

(a) (2) Exhibits

A list and description of exhibits filed as part of this Form 10-KSB is
provided in the attached Exhibit Index.

*1.01 Revised Form of Underwriting Agreement.

*1.02 Revised Form of Agreement Among Underwriters.

*1.03 Revised Form of Selected Dealers Agreement.

++1.04 Form of Series C Preferred Unit Underwriting Agreement.

++1.05 Areement Among Underwriters

++1.06 Selected Dealers Agreement

*3.01 Certificate of Incorporation of the Company filed on August
6, 1992.

<PAGE>

*3.02 Certificate of Amendment of Certificate of Incorporation of

the Company filed August 31, 1992.

*3.03 By-Laws of the Company.

++3.04 Form of Certificate of Designation of Series C Preferred
Stock.

*3.05 Form of Certificate of Designation of Series B Preferred
Stock.

*4.01 Specimen Certificate for Shares of Common Stock.

*4.02 Specimen Certificate for Shares of Series A Preferred Stock.

*4.03 Specimen Certificate for Shares of Series B Preferred Stock.

+4.04 Specimen Certificate for Shares of Series C Preferred Stock.

*4.05 Revised Form of Warrant Agreement by and among the Company,
J. Gregory & Company, Inc. and American Stock Transfer & Trust
Company.

*4.06 Specimen Certificate for Warrants.

*4.07 Revised Form of Underwriters' Unit Purchase Option.

*4.08 Form of Lockup Letter with Selling Securityholders.

*4.09 Form of Lockup Letter with Officers, Directors and other
Shareholders.

++4.10 Form of Series C Preferred Stock Warrant Agreement.

++4.11 Series C Preferred Unit Purchase Option

+4.12 Specimen Certificate for Series C Preferred Warrants.

*5.01 Opinion of Brandeis, Bernstein & Wasserman.

****5.02 Opinion of Bernstein & Wasserman

*10.01 Form of Distribution Agreement of Mootch & Muck, Inc. dated
October 30, 1991, as amended by letter dated February 26,
1992.

*10.02 Stock Sale Agreement by and between Company and the Company
Investors dated June 8, 1992.

<PAGE>

*10.03 Form of Employment Agreement of Marshall Becker.

*10.04 Form of Employment Agreement of Gary Kaufman.

*10.05 Form of Employment Agreement of Wilford Adkins, Jr.

*10.06 Form of Brokerage Agreement with H & H Day Brokerage.

*10.07 Form of Option Agreement by and between the Company and
Marshall Becker.

*10.08 Form Option Agreement by and between the Company and Wilford
Adkins, Jr.

*10.09 Form of Option Agreement by and between the Company and Gary
Kaufman.

*10.10 Loan Documents with respect to $135,000 Loan from Morris
Friedell.

*10.11 Loan Documents with respect to $65,956.01 Loan from Morris
Friedell.

*10.12 Revised Form of Financial Consulting Agreement by and between
the Company and J. Gregory & Company, Inc.

*10.14 Lease for office space at 625 Michigan Avenue, Chicago,
Illinois.

*10.15 Form of Incentive Stock Option Plan.

*10.16 Form of Non-Qualified Stock Option Plan.

*10.17 Form of Voting Trust Agreement with respect to the Company's
Common Stock owned by Kial, Ltd.

*10.18 Form of Voting Trust Agreement with respect to the Company's
Common Stock owned by K.A.M. Group, Inc.

*10.19 Stock Purchase Agreement by and between the
Company and Mootch & Muck dated June 5, 1992.

*10.20 Form of Bridge Loan Documents.

*10.21 Form of Amendment to Option Agreement by and between the
Company and Marshall Becker.

*10.22 Form of Amendment to Option Agreement by and between the
Company and Wilford Adkins, Jr.

<PAGE>

*10.23 Form of Amendment to Stock Sale Agreement by and between
Company and the Company Investors dated June 8, 1992

**10.24 Form of Employment Agreement of Howard Shapiro.

**10.25 Form of Option Agreement by and between the Company and
Howard Shapiro.

**10.26 Agreement of Subordination and Security Agreement dated
March 12, 1993 by Alfred Sipper.

**10.27 Shareholder's Agreement and Irrevocable Proxy dated as of
May 12, 1993 by and between Alfred Sipper, M&M and the
Registrant.

**10.29 Letter Agreement and Irrevocable Proxy dated as of May 12,
1993 by and between the Registrant and M&M.

*10.30 Form of Employment Agreement with Alfred Sipper.

o10.31 Consulting Agreement by and between the Company and Marshall
E. Becker, dated February 15, 1994.

o10.32 License Agreement by and between the Company and Ahmadi
Industries, W.C.C. dated November 30, 1993.

o10.33 Agreement and Plan of Merger by and between the Company M&M
Acquisition Corp., Alfred Sipper, Bev-Tyme, Inc. and Mootch &
Muck, Inc., dated March 1994.

**10.34 Secured Convertible Loan Agreement dated March 12, 1993 by and
between New Day Beverage, Inc. and Mootch & Muck, Inc.

**10.35 Guarantee of Payment dated March 12, 1993 by Alfred Sipper.

**10.36 Non-Negotiable Note in the principal amount of $300,000 dated
March 12, 1993 from New Day Beverage, Inc. to Mootch & Muck,
Inc.

**10.37 Security Agreement dated March 12, 1993 by and among New Day
Beverage, Inc., Mootch & Muck, Inc. and Bev-Tyme, Inc.

**10.38 Agreement of Subordination and Security Agreement dated
March 12, 1993 by Alfred Sipper.

oo10.39 Purchase Agreement among M&M, Sclafani Beer and Soda
Distributors, Inc. and John Sclafani.

<PAGE>

+10.40 Amendment No. 1 to Agreement and Plan of Merger by and among
the Company, Mootch & Muck, Inc. and Alfred Sipper.

+10.41 Consulting Agreement between the Company and Harold Yordy.

+10.42 Consulting Agreement between the Company and James Solakian.

+10.43 Consulting Agreement between the Company and Jack Maguire.

+++10.44 Form of Consulting Agreement between the Company and Walter
Miller

+++10.45 Form of Stock Option Agreement between the Company and Walter
Miller

+++10.46 Form of Employment Agreement between the Company and Mel
Feldman

+++10.47 Form of Stock Option Agreement between the Company and Mel
Feldman

+++10.48 Form of Employment Agreement between the Company and Aaron
German

+++10.49 Form of Stock Option Agreement between the Company and Aaron
German

*21.01 List of Subsidiaries of the Registrant as of December 31,
1993.

23.02 Consent of Moore Stephens, P.C.

* Incorporated by reference to Registrant's Registration Statement on
Form SB-2, and amendments thereto, Registration No. 33-53748C declared
effective on January 29, 1993.

** Incorporated by reference to Registrant's Form 8-K, dated March 17,
1993.

*** Incorporated by reference to Registrant's Form 8-K, dated May 1993.

o Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 declared effective in February 1994.

oo Incorporated by reference to the Registrant's Form 8-K filed
with Securities and Exchange Commission on December 2, 1994.

+ Incorporated by reference Form SB-2 filed with the Securities and
Exchange Commission on December 15, 1994

+ Incorporated by reference to Form SB-2 filed with the Securities and
Exchange Commission on December 15, 1994.

++ Incorporated by reference to Form SB-2 filed with the Securities and
Exchange Commission on May 1, 1995.

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Page to Page
<S> <C>
Item 7: Financial Statements

Independent Auditor's Report............................................................. F-1........

Consolidated Balance Sheet as of December 31, 1996....................................... F-2........ F-3

Consolidated Statements of Operations for the years ended

December 31, 1996 and 1995............................................................... F-4........

Consolidated Statements of Stockholders' Equity for the years ended

December 31, 1996 and 1995............................................................... F-5........ F-6

Consolidated Statements of Cash Flows for the years ended

December 31, 1996 and 1995 .............................................................. F-7........ F-9

Notes to Consolidated Financial Statements............................................... F-10....... F-21

</TABLE>

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

<PAGE>

INDEPENDENT AUDITOR'S REPORT

The Board of Directors and Stockholders of
Bev-Tyme, Inc.
New York, New York

We have audited the accompanying consolidated balance sheet of
Bev-Tyme, Inc. and its subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated 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 consolidated financial
position of Bev-Tyme, Inc. and its subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been
prepared assuming that Bev-Tyme, Inc. and its subsidiaries will continue as a
going concern. As discussed in Note 13 to the consolidated financial statements,
the Company has suffered recurring losses from operations and as a result has
not been successful in generating cash from operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 13. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey
March 26, 1997

F-1

<PAGE>

Item 7: Financial Statements

BEV-TYME, INC. AND SUBSIDIARIES

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

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.

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

Assets:

Current Assets:

Cash $1,903,226
Accounts Receivable [Net of an Allowance of $109,473] 558,688
Inventory 473,619
Prepaid Expenses 192,159
Other Current Assets 4,481
----------

Total Current Assets 3,132,173

Property and Equipment - Net 815,496
----------

Other Assets:

Security Deposits 17,833
Intangibles 90,451
Goodwill - Net 251,767
----------

Total Other Assets 360,051

Total Assets $4,307,720
==========

See Notes to Consolidated Financial Statements.

F-2

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996.

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

Liabilities and Stockholders' Equity:

Current Liabilities:

Accounts Payable $ 1,958,075
Accrued Expenses 242,536
Payroll Taxes Payable 54,235
Notes Payable [Net of Discount of $121,317] 198,232
------------

Total Current Liabilities 2,453,078
------------

Long-Term Debt:
Notes Payable 225,111
------------

Commitments and Contingencies [12] --
------------

Minority Interest 1,212,991
------------

Stockholders' Equity:

Series C Convertible Preferred Stock - Authorized 5,800,000
Shares, Par Value of $.0001, 2,502,225 Shares Issued and
2,102,225 Outstanding 250

Common Stock - Authorized 75,000,000 Shares, Par Value of
$.0001, 924,221 Shares, Issued and Outstanding 92

Additional Paid-in Capital 22,652,924

Accumulated [Deficit] (17,591,726)
------------

Total 5,061,540
Less: Preferred Stock of Parent Held by Subsidiary (2,000,000)
Deferred Compensation (2,645,000)
------------

Total Stockholders' Equity 416,540
------------

Total Liabilities and Stockholders' Equity $ 4,307,720
============

See Notes to Consolidated Financial Statements.

F-3

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

CONSOLIDATED STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
Years ended
December 31,
1 9 9 6 1 9 9 5
------------ ------------
<S> <C> <C>
Sales - Net $ 15,987,787 $ 12,730,722

Total Cost of Goods Sold 14,309,858 10,974,292
------------ ------------

Gross Profit 1,677,929 1,756,430
------------ ------------

Selling, General and Administrative Expenses:

Selling, Advertising and Promotion 1,365,297 1,128,782
General and Administrative Expenses 3,121,686 2,405,738
Amortization of Goodwill 335,260 387,892
Compensation Expense - Issuance of Stock -- 1,223,250
Amortization of Financing Costs 49,263 386,650
Amortization of Deferred Compensation 1,828,833 --
Write Down of Goodwill 2,578,485 --
Write Down of Deferred Compensation 566,667 --
Write Down of Distribution Rights 180,000 --
------------ ------------

Total Selling, General and Administrative Expenses 10,025,491 5,532,312
------------ ------------

[Loss] from Operations (8,347,562) (3,775,882)
------------ ------------

Minority Interest in Net Loss of Subsidiary 56,530 --
------------ ------------

Other [Income] Expense:

Interest Expense 91,523 50,422
Interest Income -- (74)
------------ ------------

Other Expense - Net 91,523 50,348
------------ ------------

[Loss] Before Provision for Income Taxes (8,382,555) (3,826,230)

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

Net [Loss] $ (8,382,555) $ (3,826,230)
============ ============

Weighted Average Number of Shares 870,054 475,933
============ ============

Net [Loss] Per Share $ (9.63) $ (8.04)
============ ============
</TABLE>

See Notes to Consolidated Financial Statements.

F-4

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

Series C Convertible Additional
Common Stock Preferred Stock Paid-in
Shares Amount Shares Amount Capital
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1994 368,776 $ 37 -- $ -- $ 7,943,439

Issuance of Stock Upon Conversion
of Bridge Notes in February 1995 [9B] -- -- 250,000 25 19,975

Issuance of Stock Upon Cancellation
of Indebtness to a Shareholder in
February 1995 [9B] -- -- 117,225 12 201,663

Issuance of Stock in Exchange for
Services in March 1995 [9D] 70,000 7 -- -- 195,993

Issuance of Stock to Purchase Net
Assets of SB&S 20,000 2 -- -- 31,248

Public Offering - Net of Offering
Expenses of $611,213 - May 1995 [9A] -- -- 460,000 46 1,688,741

Issuance of 525,000 Series C Preferred
Stock Options - May 1995 [9E] -- -- -- -- 1,076,250

Exercise of Series C Preferred
Stock Options in October 1995 [9E] -- -- 525,000 52 1,049,948

Issuance of 525,000 Series C Preferred
Stock Options - November 1995 [7D] [9E] -- -- -- -- 1,155,000

Net [Loss] for the year ended
December 31, 1995 -- -- -- -- --
----------- ----------- ----------- ----------- -----------

Balance - December 31, 1995
Forward 458,776 $ 46 1,352,225 $ 135 $13,362,257

<CAPTION>
Preferred
Stock of Parent Total
Accumulated Held by Deferred Stockholders'
[Deficit] Subsidiary Compensation Equity
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance - December 31, 1994 $(5,112,491) $ -- $ -- $ 2,830,985

Issuance of Stock Upon Conversion
of Bridge Notes in February 1995 [9B] -- -- -- 20,000

Issuance of Stock Upon Cancellation
of Indebtness to a Shareholder in
February 1995 [9B] -- -- -- 201,675

Issuance of Stock in Exchange for
Services in March 1995 [9D] -- -- -- 196,000

Issuance of Stock to Purchase Net
Assets of SB&S -- -- -- 31,250

Public Offering - Net of Offering
Expenses of $611,213 - May 1995 [9A] -- -- -- 1,688,787

Issuance of 525,000 Series C Preferred
Stock Options - May 1995 [9E] -- -- -- 1,076,250

Exercise of Series C Preferred
Stock Options in October 1995 [9E] -- -- -- 1,050,000

Issuance of 525,000 Series C Preferred
Stock Options - November 1995 [7D] [9E] -- -- (1,155,000) --

Net [Loss] for the year ended
December 31, 1995 (3,826,230) -- -- (3,826,230)
----------- ----------- ----------- -----------
Balance - December 31, 1995
Forward $(8,938,721) $ -- $(1,155,000) $ 3,268,717
</TABLE>

See Notes to Consolidated Financial Statements.

F-5

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

<TABLE>
<CAPTION>
Series C Convertible Additional
Common Stock Preferred Stock Paid-in
Shares Amount Shares Amount Capital
------------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1995 458,776 $ 46 1,352,225 $ 135 $ 13,362,257

Common Stock Dividend to Holders
of Series C Preferred Stock -
January 1996 [9H] 270,445 27 -- -- 270,423

Stock Issuance for Acquisition of
Perry's Majestic Beer [2C] -- -- 400,000 40 1,999,960

Stock Issued for Distributor Rights and
Services in April 1996 [2D] 80,000 8 -- -- 868,292

Issuance of 300,000 Series C Preferred Stock Options
Consulting Costs - February 1996 [9F] -- -- -- -- 765,000

Exercise of Stock Options for Series C
Preferred Stock [7D][9E] -- -- 450,000 45 899,955

Issuance of 630,000 Series C Preferred Stock and
700,000 Common Stock Options Issued for 1997
Services in August 1996 [7A] -- -- -- -- 2,187,500

Consulting Agreement - April 1996 [9I] 40,000 4 -- -- 24,996

Consulting Agreement - April 1996 [9H] 35,000 3 -- -- 32,997

Financing Costs - April 1996 [9K] 40,000 4 -- -- 24,996

Increase in Equity from Initial Public Offering
of Subsidiary [2C] -- -- -- -- 2,485,086

Amortization of Deferred Compensation
Costs -- -- -- -- --

Warrants for 100,000 shares of Common Stock and
100,000 shares Series C Preferred Stock Issued

in Connection with Debt Financing October 1996 [5] -- -- -- -- 147,580

Write-Down of Deferred Compensation [2D] -- -- -- -- --

Adjustment for the Sale of a portion of
Investment in Subsidiary [2C] -- -- -- -- (1,016,088)

Exercise of Stock Options for Series C
Preferred Stock [9F] -- -- 300,000 30 599,970

Net [Loss] for the year ended
December 31, 1996 -- -- -- -- --
------------ ------------ ------------ ------ ------------

Balance - December 31, 1996 924,221 $ 92 2,502,225 $ 250 $ 22,652,924
============ ============ ============ ====== ============

<CAPTION>
Preferred
Stock of Parent Total
Accumulated Held by Deferred Stockholders'
[Deficit] Subsidiary Compensation Equity
--------- ---------- ------------ ------
<S> <C> <C> <C> <C>
Balance - December 31, 1995 $ (8,938,721) -- $(1,155,000) $ 3,268,717

Common Stock Dividend to Holders
of Series C Preferred Stock -
January 1996 [9H] (270,450) -- -- --

Stock Issuance for Acquisition of
Perry's Majestic Beer [2C] -- (2,000,000) -- --

Stock Issued for Distributor Rights and
Services in April 1996 [2D] -- -- (850,000) 18,300

Issuance of 300,000 Series C Preferred Stock Options
Consulting Costs - February 1996 [9F] -- -- (765,000) --

Exercise of Stock Options for Series C
Preferred Stock [7D][9E] -- -- -- 900,000

Issuance of 630,000 Series C Preferred Stock and
700,000 Common Stock Options Issued for 1997
Services in August 1996 [7A] -- -- (2,187,500) --

Consulting Agreement - April 1996 [9I] -- -- (25,000) --

Consulting Agreement - April 1996 [9H] -- -- (33,000) --

Financing Costs - April 1996 [9K] -- -- (25,000) --

Increase in Equity from Initial Public Offering

of Subsidiary [2C] -- -- -- 2,485,086

Amortization of Deferred Compensation
Costs -- -- 1,828,833 1,828,833

Warrants for 100,000 shares of Common Stock and
100,000 shares Series C Preferred Stock Issued
in Connection with Debt Financing October 1996 [5] -- -- -- 147,580

Write-Down of Deferred Compensation [2D] -- -- 566,667 566,667

Adjustment for the Sale of a portion of
Investment in Subsidiary [2C] -- -- -- (1,016,088)

Exercise of Stock Options for Series C

Preferred Stock [9F] -- -- -- 600,000

Net [Loss] for the year ended

December 31, 1996 (8,382,555) -- -- (8,382,555)
----------- --------- ---------- ----------

Balance - December 31, 1996 $(17,591,726) $(2,000,000) $(2,645,000) $ 416,540
============ =========== =========== ==========
</TABLE>

See Notes to Consolidated Financial Statements.

F-6

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

<TABLE>
<CAPTION>
Years ended
December 31,
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
Operating Activities:

Net [Loss] $(8,382,555) $(3,826,230)
----------- -----------
Adjustments to Reconcile Net [Loss] to Net Cash [Used for]
Operating Activities:

Depreciation 141,331 120,500
Amortization of Intangibles 24,263 386,650
Amortization of Goodwill 335,260 387,892
Amortization of Deferred Compensation 1,828,833 --
Write Down of Goodwill 2,578,485 --
Write Down of Deferred Compensation 566,667 --
Write Down of Distribution Rights 180,000 --
Warrants Issued - Debt Financing (121,317) --
Bad Debt Expense 142,977 93,249
Compensation Expense on Issuance of Common
and Preferred Stock -- 1,272,250

Changes in Assets and Liabilities:
[Increase] Decrease in Assets:

Accounts Receivable 146,182 33,406
Inventory 307,319 23,743
Prepaid Expenses (38,204) 63,446
Prepaid Offering Cost -- 71,182
Other Assets 29,533 --

Increase [Decrease] in Liabilities:

Accounts Payable and Accrued Expenses (367,803) 404,430
Payroll and Corporate Income Taxes Payable (164,169) 254,699
----------- -----------

Total Adjustments 5,589,357 3,111,447
----------- -----------

Net Cash - Operating Activities - Forward (2,793,198) (714,783)
----------- -----------

Investing Activities:

Equipment Acquisitions (159,426) (249,464)
Purchase of Subsidiaries - Net of Cash Acquired (410,513) (526,562)
Restricted Cash 5,073 (5,073)
----------- -----------

Net Cash - Investing Activities - Forward (564,866) (781,099)
----------- -----------

Financing Activities:

Proceeds from Public Offering 2,485,086 1,688,787
Proceeds from Loan Payable 150,000 --
Payments of Capital Lease Obligations (92,281) (5,891)
Payments of Note Payable - Related Parties -- (45,000)
Proceeds of Note Payable - Related Parties -- 45,000
Repayment of Loan Payable (150,000) (180,000)
Proceeds of Notes Payable 603,478 --
Payments of Notes Payable (429,707) (180,677)
Proceeds from Shareholder - Loan Payable -- 309,000
Repayment of Shareholder - Loan Payable (259,000) (50,000)
Proceeds from Exercise of Options 1,500,000 --
Proceeds from Sale of Subsidiary's Stock 250,000 --
Proceeds from Subscriptions for Stock Options 1,050,000 --
----------- -----------

Net Cash - Financing Activities - Forward $ 5,107,576 $ 1,581,219
</TABLE>

See Notes to Consolidated Financial Statements.

F-7

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

<TABLE>
<CAPTION>
Years ended
December 31,
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
Net Cash - Operating Activities - Forwarded $(2,793,198) $ (714,783)
----------- -----------

Net Cash - Investing Activities - Forwarded (564,866) (781,099)
----------- -----------

Net Cash - Financing Activities - Forwarded 5,107,576 1,581,219
----------- -----------

Net Increase in Cash 1,749,512 85,337

Cash - Beginning of Years 153,714 68,377
----------- -----------

Cash - End of Years $ 1,903,226 $ 153,714
=========== ===========

Supplemental Disclosures of Cash Flow Information:
Cash paid for the years for:

Interest $ 37,611 $ 39,665
Income Taxes $ -- $ --
</TABLE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:

In February 1995, the bridge lenders converted the convertible bridge notes
into an aggregate of 250,000 preferred bridge units.

In February 1995, the Company issued 117,225 shares of Series C Preferred
Stock to a stockholder in exchange for the cancellation by a stockholder who is
also an officer and director of certain Indebtness of the Company in the
aggregate principal amount of $201,675.

In March 1995, the Company entered into three one-year consulting agreements
with three unaffiliated individuals and issued a total of 70,000 shares of the
Company's common stock with a fair value of $196,000, which was expensed in
1995.

In May 1995, the Company granted 525,000 Series C Preferred Stock Options to
directors, officers and employees of the Company at an exercise price of $2.00
per share and, accordingly, has recorded an expense of $1,076,250. In October
1995, the directors, officers and employees of the Company exercised the 525,000
Series C Preferred Stock Options and as a result, the Company recorded a stock
subscription receivable for $1,050,000, which was collected in January and
February 1996.

In June 1995, the Company issued 20,000 shares of common stock and utilized
$21,495 of other assets in connection with the acquisition of the net assets of
Sclafani Beer & Soda, Inc.

In November of 1995, the Company issued an additional 525,000 options for
the Company's Series C Preferred Stock to seven directors and officers
exercisable at $2.00 per share for services to be rendered in 1996. The Company
recorded a deferred cost of $1,155,000 in 1995 which represents the fair market
value of the options and amortized this amount in 1996 as compensation to the
directors. 450,000 of these options were exercised in 1996 for proceeds of
$900,000.

On January 2, 1996, the Company issued to the holders of record of the
Series C Preferred Stock as of December 24, 1995 a dividend of two shares of the
Company's common stock.

See Notes to Consolidated Financial Statements.

F-8

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

Supplemental Schedule of Non-Cash Investing and Financing Activities
[Continued]:

In February of 1996, the Company issued options to purchase 300,000 shares
of the Company's Series C Preferred Stock at an exercise price of $2.00 per
share to a consultant to assist the Company in connection with acquisitions,
divestitures, joint ventures, and other strategic business initiatives. The
Company recorded a deferred consulting cost of $765,000. These options were
exercised for $600,000 in 1996.

On March 29, 1996, the Company acquired 500,000 shares of convertible Class
A Preferred Stock and 7,000,000 shares of non-convertible Class B Preferred
Stock of Perry's Majestic Beer, Inc. ["Perry's"] [valued at $2,000,000] in
exchange for 400,000 shares of the Company's Series C Preferred Stock and
$150,000. However, in October of 1996, the Company sold the 500,000 shares of
Perry's convertible Class A Preferred Stock for $250,000 and reduced its
investment accordingly. Each share of Class B Preferred Stock has attached to it
the right to vote on all matters submitted to the Company. Perry's filed a
registration statement for 583,335 shares of common stock at $6.00 per share.
The proceeds from this offering were approximately $2,500,000.

Also on March 29, 1996, Perry's entered into an agreement to acquire all of
the stock of Riverosa Company, Inc. for $250,000 of which $150,000 in cash was
put into escrow as of March 31, 1996 and a note payable was issued for $100,000.
The note was payable with interest of 8% was paid in August of 1996 with
proceeds from the Company's initial public offering

On March 29, 1996, in conjunction with the acquisition agreement with
Perry's, the Company entered into a two year consulting agreement with the
former principal of Perry's to assist in developing and enhancing the
distribution of other beers and ales. As a part of the consulting agreement he
was issued 35,000 shares of the Company's common stock on April 11, 1996. A
deferred compensation cost of $33,000 was recorded in April of 1996 for the
estimated fair value of these shares and compensation expense of $12,375 was
recorded for the year ended December 31, 1996.

On April 5, 1996, the Company entered into a two year agreement with a
consultant to assist the expansion of the distribution of its products to
restaurants and the food service industry by issuing 40,000 shares of Company's
common stock. A deferred compensation cost of $25,000 was recorded in April of
1996 for the estimated fair value of these shares and compensation expense of
$9,375 was recorded for the year ended December 31, 1996.

In August 1996, the Company issued to certain officers and directors options
to purchase an aggregate of 630,000 shares of Series C Preferred Stock at an
exercise price of $1.00 per share and 700,000 shares of common stock at an
exercise price of $.25 per share for services to be rendered in 1997. The
Company recorded deferred compensation cost of $2,187,500 in August of 1996 for
the excess of the estimated fair value of these options over the exercise price
and will record the expense over one year. None of such options have been
exercised.

F-9

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

[1] General Information and Summary of Significant Accounting Policies

General and Organization - New Day Beverage Co. was an Illinois corporation
originally established in April 1991 and maintained its principal place of
business in Chicago, Illinois. In August of 1992, New Day Beverage Co. changed
its name to New Day Beverage, Inc. and changed its state of incorporation to
Delaware and in February 1994, relocated its principal place of business to
Brooklyn, New York. On January 11, 1996, the Company changed its name to
Bev-Tyme, Inc.

Bev-Tyme, Inc. ["Bev-Tyme"], is engaged in the business of distributing and
selling beverage and snack products to grocery stores, supermarket chains,
restaurants and corporate cafeterias. In 1995, the Company also commenced
distributing beer and other malt beverages. The Company markets beverages and
snack products to retail grocery stores, supermarket chains, restaurants,
corporate cafeterias and wholesale distributors, a substantial portion of which
is concentrated in the New York City metropolitan area.

Principles of Consolidation - The consolidated financial statements include the
accounts of Bev-Tyme and each of its wholly-owned and majority-owned
subsidiaries [the "Company"]. Material intercompany transactions and balances
have been eliminated in consolidation. See Note 2 entitled "Acquisitions" for
further information. The minority interest represents the separate pubic
ownership of Perry's Majestic Beer, Inc.

Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid debt investments with a maturity of three months or less when purchased.
At December 31, 1996, there were no cash equivalents.

Inventories - Inventories are stated at the lower of cost or market. Cost, which
includes purchases, freight, raw materials, direct labor and factory overhead,
is determined on the first-in, first-out basis.

Property and Equipment - Property and equipment are stated at cost and are
depreciated over its estimated useful life of 5 to 10 years. Depreciation is
calculated using the straight-line method.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Financing Costs - For the years ended December 31, 1996 and 1995, the Company
charged to operations $49,263 and $386,650 for amortization of financing costs.

The financing costs are being amortized over the life of the loans, or twelve
months under the straight-line method [See Notes 5 and 8].

Advertising and Promotion Expense - Advertising and promotion costs are expensed
as incurred. For the year ended December 31, 1996 and 1995. Advertising and
promotion costs were approximately $20,000 and $5,000, respectively.

Goodwill - Amounts paid for securities of newly-acquired subsidiaries in excess
of the fair value of the net assets of such subsidiaries have been charged to
goodwill. Goodwill is related to revenues the Company anticipates realizing in
future years. The Company amortizes its goodwill over a period of up to five
years under the straight-line method. Accumulated amortization at December 31,
1996 and 1995 was $21,883 and $837,292, respectively.

F-10

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2

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

[1] General Information and Summary of Significant Accounting Policies
[Continued]

Goodwill [Continued] - During the last quarter of 1996, the Company recorded an
impairment loss of $2,578,485 from writing down goodwill. Facts and
circumstances leading to the impairment loss are current year and cumulative
operating and cash flow losses that do not justify the carrying value of the
goodwill. The impairment loss recorded is the goodwill allocated to the Mooch &
Muck, Inc. and Sclafani Beer & Soda Distributors, Inc. purchase. Fair value of
goodwill was based on the present value of estimated expected future cash flows
from the related assets. The Company believes there are other suppliers
available to meet the Company's needs.

Intangibles - The Company acquired various distribution rights totaling
approximately $100,000. The Company amortizes these rights over 5 years on the
straight-line method.

Risk Concentrations - Financial instruments that potentially subject the Company
to concentrations of credit risk include cash and cash equivalents and accounts
receivable arising from its normal business activities. The Company places its
cash and cash equivalents with high credit quality financial institutions
located in the New York metropolitan area.

The Company maintains cash balances at a financial institution in New York.
Accounts at this institution are insured by the Federal Deposit Insurance

Corporation up to $100,000. At December 31, 1996, the Company's uninsured cash
balance totaled $1,824,256.

The Company performs certain credit evaluation procedures and does not require
collateral. The Company believes that credit risk is limited due to the large
number of entities comprising the Company's customer base. In addition, the
Company routinely assesses the financial strength of its customers, and based
upon factors surrounding the credit risk of its customers, establishes an
allowance for uncollectible accounts and, as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowances is limited. The
Company established an allowance for doubtful accounts at December 31, 1996 of
$109,473. The Company believes any credit risk beyond this amount would be
negligible.

With respect to purchases of inventory for each of the years ended December 31,
1996 and 1995, the Company purchased inventory from two suppliers in 1996 and
1995 which comprised approximately 38% and 24%, respectively, of the Company's
total cost of sales. The Company believes there are other suppliers available to
meet the Company's needs.

The Company has minimum volume commitments on several of their distribution
contracts with vendors, whereby the vendor has the option to terminate an
agreement if certain volume targets are not met.

Stock Options Issued to Employees - The Company adopted Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based Compensation"
on January 1, 1996 for financial note disclosure purposes and will continue to
apply the intrinsic value method of Accounting Principles Board ["APB"] Opinion
No. 25, "Accounting for Stock Issued to Employees" for financial reporting
purposes.

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

Net [Loss] Per Share - The net loss per share is computed by dividing the net
loss by the weighted average number of shares outstanding during the period.
Shares issuable upon the exercise of stock options granted and the effect of
convertible securities are excluded from the computation because the effect on
the net loss per common share would be anti-dilutive. All share data have been
adjusted to reflect the one-for-ten-reverse stock split in July 1996.

F-11

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3

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

[1] General Information and Summary of Significant Accounting Policies
[Continued]

Stock Transaction of Subsidiary - Changes in the proportionate share of
subsidiary equity are accounted for as equity transactions and either increase
or decrease the Company's investment in the subsidiary.

Impairment - Certain long-term assets of the Company are reviewed at least
annually as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Standards ["SFAS"] No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." Management considers assets to be impaired if the carrying
value exceeds the future projected cash flows from related operations
[undiscounted and without interest charges]. If impairment is deemed to exist,
the assets will be written down to fair value or projected discounted cash flows
from related operations. Management also re-evaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. During 1996, the Company determined an
impairment of goodwill existed [See Notes 2A and 2B].

[2] Acquisitions

[A] Mootch & Muck, Inc. - In March 1994, the Company acquired the remaining 49%
interest in Mootch & Muck, Inc., subject to obtaining certain governmental
approvals, in exchange for 60,000 newly issued shares of common stock and
$250,000 payable at the Company's option in cash or common stock over a period
of sixteen [16] months.

In addition, the seller was entitled to receive an additional 20,000 shares of
common stock if the subsidiaries reported positive earnings before the payment
of taxes for the year ended December 31, 1994, and an additional 20,000 shares
of common stock if the Company reported not less than $100,000 in earnings
before the payment of taxes for the year ended December 31, 1995. On October 28,
1994, the Company issued 5,068 shares of common stock as payment of $150,000 due
and owing under the debt to the seller, a director of the Company. Under the
terms of the original agreement, in the event that the seller sold such shares
and received less than $150,000 from the proceeds therefrom, the Company was
obligated to issue the seller a sufficient number of additional shares of common
stock so that the aggregate proceeds from both sales was not less than $150,000.
On February 13, 1995, the Company and the seller amended their agreement so that
the seller would receive shares of Series C Preferred Stock and the Company
would be relieved from all of its obligations to make future payments to the
seller. Under the amended agreement, the Company issued to the seller 83,333
shares of Series C Preferred Stock and the seller released the Company from all
of its obligations to make payments in the future. Further, in the event that
the seller received within two years following the effective date aggregate, net
proceeds in excess of $250,000, the seller would deliver such amount in excess
of $250,000 to the Company and surrender for cancellation all of the remaining
shares held thereby, if any. In connection with the Company acquiring the
remaining 49% interest in the subsidiaries, the Company was obligated to pay the
seller $250,000 at the Company's option in cash or common stock over a period of
16 months. There was approximately $1,870,000 of goodwill recorded as a result

of this transaction. As of December 31, 1996, the unamortized balance of
goodwill was written-off [See Note 1].

[B] Sclafani Beer & Soda Distributors, Inc. ["SB&S"] - On June 2, 1995, the
Company purchased the assets and assumed certain liabilities of Sclafani Beer &
Soda Distributors, Inc. ["SBS"] for $500,000 in cash, 20,000 shares of the
Company's common stock valued at market value or $31,250, and options to
purchase 7,500 shares of the Company's common stock valued at $11,720. Goodwill
of approximately $450,000 was recognized for this acquisition. As of December
31, 1996, the unamortized balance of goodwill was written-off [See Note 1].

F-12

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4

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

[2] Acquisitions [Continued]

[C] Perry's Majestic Beer, Inc. - On March 29, 1996, the Company acquired
500,000 shares of convertible Class A Preferred Stock and 7,000,000 shares of
non-convertible Class B Preferred Stock of Perry's Majestic Beer, Inc.
["Perry's"] [valued at $2,000,000] in exchange for 400,000 shares of the
Company's Series C Preferred Stock and $150,000. However, in October of 1996,
the Company sold the 500,000 shares of convertible Class A Preferred Stock for
$250,000 and reduced its investment accordingly. Each share of Class A Preferred
Stock was convertible by the Company into one [1] share of Common Stock. Each
share of Class B Preferred Stock has attached to it the right to vote on all
matters submitted to the Company. Perry's filed a registration statement for
583,335 shares of common stock at $6.00 per share. The proceeds from this
offering were approximately $2,500,000. The bridge lenders waived their rights
to warrants for 3,000,000 shares of common stock as recorded in their original
agreement with Perry's.

On March 31, 1996, Perry's borrowed an aggregate of $150,000 from seven [7]
unaffiliated lenders [the "Bridge Lenders"]. In exchange for making loans to the
Company, each Bridge Lender received a promissory note [the "Bridge Note"]. Each
of the Bridge Notes bears interest at the rate of eight percent [8%] per annum.
The Bridge Notes were paid at the closing of the initial public offering of the

Company's securities in August of 1996. As of March 31, 1996, $90,000 was
received in cash from the bridge loan and $60,000 was received April 4, 1996.
The principal balance of $150,000 and interest for $4,208 was paid August 5,
1996.

In August of 1996, Perry's entered into a letter of intent to acquire a brewery.
In September 1996, the Company finalized its acquisition of the Old Marlborough
Brewing Co., Inc. The total purchase price was $160,513 of which $35,513 was for
inventory and equipment and $75,000 was to repurchase distribution rights in
Massachusetts.

[D] Asset Acquisition - On April 29, 1996, the Company entered into an agreement
to acquire certain assets, incluidng twenty-two trucks, and assume five related
truck leases. Simultaneously with this transaction, the Company entered into an
agreement with a company to be an exclusive distributor of Citiclub soda. The
Company issued 30,000 shares of the Company's common stock at an estimated fair
value of $18,300 and paid cash of $200,000 for this agreement. The Company also
entered into two employment agreements and one consulting agreement whereby the
three individuals were issued a total of 50,000 shares of the Company's common
stock and options for 300,000 Series C Preferred Stock, subject to an increasing
number of shares under certain circumstances, exercisable at $1.50 per share. A
total of $850,000 was recorded as a deferred compensation cost in April of 1996
for the fair value of the 80,000 shares of common stock and the 300,000 Series C
Preferred Stock Options. In October, the Company discontinued distributing
CitiClub sodas due to a dispute regarding a breach of the distribution agreement
and sold the acquired trucks. As a result, the Company has written-off the
entire balance of distribution rights of $180,000 and the related balance of
deferred compensation of $566,667 for the year ended December 31, 1996 [See Note
14].

[3] Inventories

The Company's inventory consists primarily of finished goods of $473,619.

F-13

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5

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

[4] Plant and Equipment and Depreciation and Amortization

Plant and equipment and accumulated depreciation and amortization are as
follows:

December 31,
1 9 9 6
-----------
Warehouse Equipment $ 210,887
Office Equipment 275,437
Leasehold Improvements 41,046
Transportation Equipment 653,258
-----------

Total - At Cost 1,180,628
Less: Accumulated Depreciation 365,132
----------
Net $ 815,496
==========

Depreciation expense for the years ended December 31, 1996 and 1995 was $141,331
and $120,500, respectively.

[5] Debt

<TABLE>
<CAPTION>
Debt as of December 31, 1996 consisted of the following:
<S> <C>
Note Payable - due in October of 1997 with interest at
10% per annum [a] [c] $ 98,000

Bank notes payable in monthly installments of principal
and interest at rates ranging from 8.5% to 13.9% per annum,
maturing August 1998 through September 2000 [b] 446,660
-------------

Total 544,660
Less: Current Portion 319,549
--------------
Non-Current Portion $ 225,111
------------------- ==============
</TABLE>

[a] Collateralized by the assets of the company.
[b] Collateralized by transportation equipment.

Maturities of the notes payable as of December 31, 1996 are as follows:

December 31,
- ------------
1997 $319,549
1998 104,871
1999 84,659
2000 35,581
--------

Total $544,660
========

F-14

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6

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

[5] Debt [Continued]

[c] In October of 1996, the Company received a $250,000 loan with 10% interest
from an unaffiliated party. This loan is due in one year. The lender
received warrants for 100,000 shares of the Company's common stock and
warrants for 100,000 shares of Series C Preferred stock. A deferred
financing cost of $145,580 was recorded for the estimated fair value of
these warrants. As of December 31, 1996 the outstanding balance is $98,000.
The assets of the Company are pledged as collateral.

[6] Income Taxes

Income taxes are provided based on the asset and liability method of accounting
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Since its inception, the Company has net
operating loss carryforwards of approximately $12,350,000 which expire in 2007
through 2011. SFAS No. 109 requires the establishment of a deferred tax asset
for all deductible temporary differences and operating loss carryforwards. The
deferred tax asset attributable to operating loss carryforwards amounted to
approximately $4,322,000 at December 31, 1996. Because of the Company's
cumulative losses since inception, however, any deferred tax asset established
for utilization of the Company's tax loss carryforwards world correspondingly
require a valuation allowance of the same amount pursuant to SFAS No. 109.
Accordingly, no deferred tax asset is reflected in these financial statements.

[7] Stock Option Plans, Stock Options and Warrants

[A] In August 1996, the Company issued to certain officers and directors options
to purchase an aggregate of 630,000 shares of Series C Preferred Stock at an
exercise price of $1.00 per share and 700,000 shares of common stock at an
exercise price of $.25 per share for services to be rendered in 1997. The
Company recorded deferred compensation cost of $2,187,500 in August of 1996 for
the excess of the estimated fair value of these options over the exercise price
pursuant to APB Opinion No. 25 and will record the resulting expense over one
year. None of these options have been exercised.

[B] As of December 31, 1995, 52,500 common stock options that were issued in
August of 1994 are outstanding and have vested to directors, officers and
employees of the Company at an exercise price of $0.07 per share. The Company
also issued in 1995, 3,000 common stock options that vested in May of 1996 to
directors and officers of the Company at an exercise price of $0.20 per share.

[C] As of December 31, 1996, 1,420,000 Series C Warrants were outstanding which
entitled the holders to acquire shares of Series C Preferred Stock at a price of
$6.00 per share for a period of four years commencing May 15, 1996 and 100,000
Series C Warrants were outstanding at a price of $6.00 per share for a period of
five years.

[D] In November 1995, the Company issued an additional 525,000 options for the
Company's Series C Preferred Stock to seven directors exercisable at $2.00 per
share for services to be rendered in 1996. The Company recorded a deferred cost
of $1,155,000 which represents the fair market value of the options and
amortized the full balance as of December 31, 1996 as compensation to the
directors. 450,000 of these options were exercised in 1996 for $900,000.

[E] Options to Underwriter - In June 1993, for a purchase price of $500, the
underwriters of the public offering acquired an option to purchase up to an
aggregate of 5,000 units for a five-year period expiring in February 1998. The
Company has agreed to register, at its expense, under the Securities Act, on one
occasion, the option and/or the underlying securities covered by the option upon
certain conditions.

F-15

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7

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

[7] Stock Option Plans, Stock Options and Warrants [Continued]

[F] Stock Option Plan - In November of 1992, the Company adopted the "Incentive
Stock Option Plan". The total number of shares that may be granted under this
plan is 7,500 shares. The Company issued incentive options to purchase an
aggregate of 6,000 shares of common stock exercisable at $1.00 per share for a
period of four years commencing in August 1994. The options are fully
exercisable when granted.

Also in November of 1992, the Company adopted the "Non-Qualified Stock Option
Plan". The total number of shares that may be granted under this plan is 12,500
shares. In August of 1994, the Company issued an aggregate of 2,500

non-qualified options that are exercisable at $1.00 per share for a period of
four years commencing in August 1994. No additional non-qualified options were
issued through December 31, 1996. The options are fully exercisable when
granted.

The Plan is administered by the Board of Directors or a committee which has the
power to determine eligibility to receive options and the terms of any options
granted, including the exercise or purchase price, the number of shares subject
to the options, the vesting schedule, and the exercise period.

The Plan will terminate in August 1998, four years after the date it was first
approved though awards made prior to termination may expire after that date,
depending on when granted.

A summary of stock option activity under all plans is as follows:

<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
----------------------------------------------- ----------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
--------------------- --------------------- ------------------- ----------------------
Preferred Common Preferred Common Preferred Common Preferred Common
Stock Stock Stock Stock Stock Stock Stock Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding on
January 1, 525,000 55,500 $ 2.00 $ 0.07 -- 52,500 $ -- $ 0.07

Granted 1,230,000 700,000 1.36 0.25 525,000 3,000 2.00 .20
Exercised 750,000 -- 2.00 --
Forfeited/Expired -- -- -- -- -- -- --
--------- --------- -------- -------- -------- ------- ----- -------

Outstanding and
Exercisable on
December 31 1,005,000 755,500 $ 1.22 $ 0.24 525,000 55,000 $ 2.00 $ 0.07
--------- --------- -------- -------- -------- ------- ----- -------
========= ========= ======== ======== ======== ======= ===== =======
</TABLE>

The following table summarizes information about stock options outstanding and
exercisable at December 31, 1996. The common stock options and preferred stock
options do not expire and may be exercised at anytime.

Common Stock Preferred Stock
Exercise Prices Shares Exercise Prices Shares
--------------- ------ --------------- ------
$ 0.25 700,000 $ 1.50 300,000
$ 0.07 52,500 $ 1.00 630,000
$ 0.20 3,000 $ 2.00 75,000
------------ -------------

Totals 755,500 1,005,000

------ ============ =============

Total compensation cost recognized in income for stock-based employee
compensation awards was $1,735,083.

F-16

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8

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

[7] Stock Option Plans, Stock Options and Warrants [Continued]

[F] Stock Option Plan [Continued] - Had compensation cost for the stock option
plans been determined based on the fair value at the grant dates for awards
under the plans, consistent with the alternative method set forth under SFAS No.
123, the Company's net loss and net loss per share would have been increased.

The pro forma amounts are indicated below:

Year Ended December 31,: 1 9 9 6 1 9 9 5
----------------- ----------------
Net Loss:
As Reported $ (8,382,555) $ (3,826,230)
Pro Forma $ (14,324,909) $ (1,627,374)

Net Loss Per Share:

As Reported $ (9.63) $ (8.04)
Pro Forma $ (16.46) $ (14.68)

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively, dividend yields of
$-0- for each year, expected volatility of 107.3 and 75.5 percent, risk-free
interest rates of 6.75 and 6.63 percent; and expected lives of one and three
years. The weighted-average fair value of options granted was $3.06 and $0.84
for the years ended December 31, 1996 and 1995, respectively.

[8] Bridge Financing

On November 30, 1994, the Company borrowed an aggregate of $200,000. In exchange
for making a loan to the Company, the bridge lenders received two promissory
notes: one note in the aggregate principal amount of $180,000 and the other note
in the aggregate principal amount of $20,000. Each of the bridge notes bore

interest at the rate of eight percent [8%] per annum. The $180,000 bridge loans
were due and payable upon the earlier of (i) May 1, 1995, or (ii) the closing of
the proposed public offering of the Company's securities. The $20,000 bridge
loans were due on December 1, 1995. In addition, each bridge lender had the
right to convert a convertible bridge note into a number of units ["preferred
bridge units"] equal to the total dollar amount loaned to the Company by such
bridge lender; provided, however, that one bridge lender may convert his
convertible bridge note into the total dollar amount loaned to the Company plus
an additional 50,000 preferred bridge units because such bridge lender
surrendered 100,000 warrants exercisable for 100,000 shares of common stock. In
February 1995, the bridge lenders converted the convertible bridge notes into an
aggregate of 250,000 preferred bridge units. Each unit was identical to the
units being offered in the public offering. One bridge lender who loaned $65,000
to the Company rescinded 100,000 warrants that were received in a private
placement on February 2, 1994. Further, the Company agreed to register such
units in the first registration statement filed by the Company following the
date of the loan. The cost of obtaining this bridge financing was $580,000,
which represents the fair value for the bridge units issued. As a result, the
Company expensed $386,650 in 1995 as bridge financing costs. In May of 1995, the
Company was granted an extension for the maturity of the principal bridge notes
until the earlier of (i) June 15, 1995 or (ii) the closing of the public
offering. These bridge notes were repaid on May 23, 1995, the date of the
closing of the public offering [See Note 9A].

F-17

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9

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

[9] Stockholders' Equity

[A] Registration Statement for Units - Series C Redeemable Preferred Stock - On
May 15, 1995, the Company completed a secondary public offering for sale 460,000
units, each consisting of one share of Series C Convertible Preferred Stock, par
value $.0001 per share and two Series C Redeemable Preferred Stock purchase
warrants. Each share of Series A Preferred Stock is convertible at the option of
the holder, at any time after May 15, 1996, into 18 shares of the Company's
common stock. The Series C Warrants entitle the holder to purchase one share of
Series C Preferred Stock at an exercise price of $6.00 per share through May 15,
2000 and may be redeemed by the Company under certain conditions. To date, none
of the Preferred Stock Warrants have been exercised or redeemed. The Company
realized net proceeds of $1,688,787 after deducting, the underwriters discount
and other costs of the offering.

[B] Debt to Equity Conversions - In February 1995, the bridge lenders converted
the convertible bridge notes into an aggregate of 250,000 preferred bridge
units.

In February 1995, the Company issued 117,225 shares of Series C Preferred Stock
to a stockholder in exchange for his cancellation of certain indebtedness of the
Company in the aggregate principal amount of $201,675. This stockholder is also
an officer and director of the Company.

[C] Authorized Shares - In November of 1995, stockholders of the Company adopted
an amendment to the Company's certificate of incorporation authorizing the
increase of the number of authorized shares of Preferred Stock from 3,000,000
shares to 6,000,000 shares, of which 5,800,000 shares are the Series C Preferred
Stock. In November 1995, the stockholders also approved and consented to amend
the Company's certificate of incorporation by increasing the number of
authorized shares of common stock from 15,000,000 shares to 75,000,000 shares.

[D] Consulting Agreements - In March 1995, the Company entered into three
one-year consulting agreements with three unaffiliated individuals and issued a
total of 70,000 shares of the Company's common stock. In 1995, the Company
recorded an expense of $196,000 for these consulting agreements, which
approximates the fair value of the stock issued.

[E] Series C Preferred Stock - In May 1995, the Company granted 525,000 Series C
Preferred Stock options to directors, officers and employees of the Company at
an exercise price of $2.00 per share and, accordingly, recorded an expense of
$1,076,250. In October 1995, 525,000 Series C Preferred Stock options were
exercised and the Company recorded a stock subscription receivable of
$1,050,000, which was paid in January and February of 1996.

In November 1995, the Company issued an additional 525,000 options for the
Company's Series C Preferred Stock to seven directors exercisable at $2.00 per
share for services to be rendered in 1996. The Company recorded a deferred cost
of $1,155,000 which represents the fair market value of the options and
amortized the full balance as of December 31, 1996 as compensation to the
directors. 450,000 of these options were exercised in 1996 for proceeds of
$900,000.

[F] Consulting Agreement - In February of 1996, the Company issued options to
purchase 300,000 shares of the Company's Series C Preferred Stock at an exercise
price of $2.00 per share to a consultant to assist the Company in connection
with acquisitions, divestitures, joint ventures, and other strategic business
initiatives. The Company recorded a deferred consulting cost of $765,000, which
represents the estimated fair value of the preferred stock at the time of grant
to account for these future services. As of December 31 1996, these options were
exercised with the Company receiving proceeds of $600,000. The Company recorded
compensation expense of $293,000 for the year ended December 31, 1996 related
this transaction.

F-18

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10

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

[9] Stockholders' Equity [Continued]

[G] Stock Dividend - On January 2, 1996, the Company issued to the holders of
record of the Series C Preferred Stock as of December 24, 1995 a dividend of two
shares of the Company's common stock.

[H] Consulting Fees - Stock Issuance - On March 29, 1996, in conjunction with
the acquisition agreement with Perry's, the Company entered into a two year
consulting agreement with the former principal of Perry's to assist in
developing and enhancing the distribution of other beers and ales. As a part of
the consulting agreement he was issued 35,000 shares of the Company's common
stock on April 11, 1996. A deferred compensation cost of $33,000 was recorded in
April of 1996 for the estimated fair value of these shares. Compensation expense
of $12,375 was recorded for the year ended December 31, 1996 related to this
transaction.

[I] Consulting Agreement - On April 5, 1996, the Company entered into a two year
agreement with a consultant to assist the expansion of the distribution of its
products to restaurants and the food service industry by issuing 40,000 shares
of Company's common stock. A deferred compensation cost of $25,000 was recorded
in April of 1996 for the estimated fair value of these shares and compensation
expense of $9,375 was recorded for the year ended December 31, 1996 related to
this transaction.

[J] Reverse Stock Split - On July 16, 1996, the Company's common stockholders
approved a one-for-ten reverse stock split. The financial statements have been
adjusted retroactively for the reverse stock split.

[K] Loan - On April 23, 1996, the Company received a $150,000 loan from an
individual whereby the Company issued 40,000 shares of the Company's common
stock. The loan was repaid in May of 1996. A deferred financing cost of $25,000
was recorded and expensed for the estimated fair value of these shares.

[10] Related Party Transactions

Loan Payable- Stockholder - In February 1995, the Company received $45,000 from
a related party. This loan was repaid in June 1995. In December of 1995, the
Company received an additional $309,000 from the related party, of which $50,000
was repaid in 1995 and the balance of $259,000 was repaid in January 1996 with
interest at 5.75%.

[11] Employment Agreements

As of December 31, 1996, the Company has four employment agreements with senior

executives of the Company that expire between the years 1999 through 2009. The
annual commitments for compensation aggregate between $200,000 to $400,000
annually for these years and are subject to certain adjustments. In addition,
bonuses of qualified options for Series C Preferred Stock and common stock may
be granted.

[12] Commitments and Contingencies

[A] The Company has entered into various operating lease agreements to lease
office space and warehouse space with initial terms ranging up to five years.
The warehouse lease expired in February of 1996. Commencing March of 1996, the
Company revised the nature of this agreement to a month-to-month arrangement for
$20,500 a month. In addition, the Company forfeited its security deposit and has
included this cost as additional rent expense. The Company also leases on a
month-to-month basis office space in Manhattan for $600 per month. Rent expense
for the office and warehouse space for the years ended December 31, 1996 and
1995 was $335,457 and $246,925, respectively.

F-19

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11

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

[12] Commitments and Contingencies

[A] [Continued] - In addition, the Company has non-cancelable operating leases
for office and warehouse equipment. Obligations under these leases for the
periods through 2001 are as follows:

1997 $ 85,771
1998 44,982
1999 24,053
2000 16,545
2001 5,630
--------------

Total $ 176,981
----- ==============

Rent expense for the office and warehouse equipment for the years ended December
31, 1996 and 1995 was $20,852 and $26,751, respectively.

[B] Brewing Agreement - In November 1996, Perry's stockholders entered into an
agreement, on behalf of Perry's, with a brewery to brew and bottle beer under
the private label of "Perry's Majestic." As part of the agreement, Perry's

agrees to provide the brewery, at Perry's own expense, all the necessary
packaging materials to allow the brewer to manufacture the product in accordance
with federal and state regulations.

The agreement automatically renews annually. Either party may terminate the
agreement by giving four month prior written notice to the other party.

[13] Going Concern

The accompany financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.

As shown in the accompanying financial statements, the Company incurred net
losses and utilized cash for operations for the years ended December 31, 1996
and 1995. These factors create an uncertainty about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern. The Company intends to pursue additional equity financing as a
vehicle for financing future operations and to secure debt financing from
related and unrelated entities. In addition at the end of 1996, the Company
implemented a cost cutting program to help improve operations. The continuation
of the Company as a going concern is dependent upon the success of these plans.

There can be no assurances that management's plans to reduce operating losses
and to obtain additional financing to fund operations will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.

[14] Litigation

The Company is currently a defendant in a lawsuit filed by Premium Beverage
Packers, Inc. for alleged breach of a distribution agreement and a default on a
promissory note. The suit asks for damages in the amount of approximately
$403,000 plus costs and expenses. The Company filed an Answer denying all these
claims and a Counterclaim in December 1996. The Counterclaim alleges the
plaintiff breached both the distribution agreement and the promissory note. The
Company also alleges damages in the amount of $86,664.64, plus cost and
expenses.

F-20

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12

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

[14] Litigation [Continued]

In October 1996, a former employee brought suit against Mootch & Muck, Inc. The
Complaint alleges that the Company breached an employment agreement with
plaintiff. Plaintiff also alleges damages in the amount of $1,500,000, plus
costs and expenses. The Company filed an answer denying all these claims in
November 1996.

The Company believes that there are substantial defenses to these claims and
intends to vigorously defend its position. No settlement discussions have
occurred regarding either of these actions. The Company's counsel is not able to
render an opinion as to the resolution of either matter. A material adverse
decision on either of these lawsuits could have a material adverse effect on the
Company.

[15] New Authoritative Pronouncement

SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.

[16] Fair Value of Financial Instruments

In assessing the fair value of financial instruments, the Company used a variety
of methods and assumptions, which were based on estimates of market conditions
and risks existing at that time. For certain instruments, including cash and
cash equivalents, trade receivables, related party payables, and trade payables,
it was assumed that the carrying amount approximated fair value for the majority
of these instruments because of their short maturities. The fair value of
long-term debt is estimated based on rates at which the Company could borrow
funds with similar remaining maturities. The fair value of the Company's debt
approximates its carrying value.

[17] Subsequent Event

In January of 1997, the Board of Directors declared a dividend of 1.31 common
shares of Stock for each share of Series C Preferred Stock outstanding as of
December 27, 1996.

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

F-21

<PAGE>
Item 6:

BEV-TYME, INC. AND SUBSIDIARIES

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

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

For the year ended December 31, 1996 compared with the year ended December 31,
1995

Business Structure

20,000 shares of the Company's common stock valued at $31,250 and options to
purchase 7,500 shares of the Company's common stock.

Results of Operations

F-22

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

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

For the year ended December 31, 1996 compared with the year ended December 31,
1995

Results of Operations [Continued]

Selling, advertising and promotion expense for the years ended December 31, 1996
and 1995 amounted to $1,365,297 and $1,128,782, respectively, and primarily
consisted of salesmen's salaries, commissions and related expenses of the
companies' distribution sales force.

Interest expense relates primarily to commercial loans on the transportation
equipment.

Liquidity and Capital Resources

$5,400,000.

F-23

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

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

For the year ended December 31, 1996 compared with the year ended December 31,
1995

Liquidity and Capital Resources [Continued]

For the year ended December 31, 1995, the Company utilized $714,783 in operating
activities, utilized $781,099 in investing activities and generated $1,581,219
in financing activities.

in 1996 for $900,000.

On March 29, 1996, the Company acquired 500,000 shares of convertible Class A
Preferred Stock and 7,000,000 shares of non-convertible Class B Preferred Stock
of Perry's Majestic Beer, Inc. ["Perry's"] [valued at $2,000,000] in exchange
for 400,000 shares of the Company's Series C Preferred Stock and $150,000.
However, in October of 1996, the Company sold the 500,000 shares of convertible
Class A Preferred Stock for $250,000 and reduced its investment accordingly.
Each share of Class B Preferred Stock has attached to it the right to vote on
all matters submitted to the Company. In August of 1996, Perry's filed a
registration statement on Form SB-2 which was declared effective by the
Securities and Exchange Commission. Perry's realized net proceeds of
approximately $2,500,000 in August of 1996.

Also on March 29, 1996, Perry's entered into an agreement to acquire all of the
stock of Riverosa Company, Inc. for $250,000 of which $150,000 in cash was put
into escrow as of March 31, 1996 and a note payable was issued for $100,000. The
note was payable with interest of 8% and was paid at the closing of the Perry's
initial public offering.

F-24

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

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

For the year ended December 31, 1996 compared with the year ended December 31,
1995

Liquidity and Capital Resources [Continued]

New Authoritative Accounting Pronouncements

F-25

<PAGE>

BEV-TYME, INC. AND SUBSIDIARIES

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

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

For the year ended December 31, 1996 compared with the year ended December 31,
1995

New Authoritative Accounting Pronouncements [Continued]

SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.

Impact of Inflation

F-26

<PAGE>

BEV-TYME, INC.

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

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

Year ended December 31, 1995 compared with the year ended December 31, 1994

Results of Operations

General and administrative expenses in 1995 were $2,405,738 or 19% of net sales
as compared to $1,773,076 or 18% of net sales in 1994. General and
administrative expenses in 1995 included compensation and related payroll taxes
of approximately $900,000, rent and related office expenses of $250,000 and
insurance expense of approximately $260,000. General and administrative expenses
in 1994 included compensation and related payroll taxes of approximately
$492,600 [which included $269,000 of compensation related to stock options
recorded in the first quarter of 1994 offset by an adjustment of 340,000 due to
the relinquishment of these options], rent and related office expenses of
approximately $824,800 and insurance expense of approximately $303,300.

Notes. The effective annual interest rate on these Bridge Loans was
approximately 300%.

Interest expense relates primarily to commercial loans on the transportation
equipment.

F-27

<PAGE>

BEV-TYME, INC.

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

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

Year ended December 31, 1995 compared with the year ended December 31, 1994

Liquidity and Capital Resources

The Company generated $1,581,219 from net financing activities during 1995. This
was primarily attributable to the net proceeds of $1,688,787 from the Series C
Preferred Stock Offering.

For the year ended December 31, 1994, the Company utilized $1,176,523 in
operating activities, utilized $149,062 in investing activities and generated
$664,480 in net financing activities. The Company generated $416,503 from
financing activities during the first quarter 1994. This was attributable
primarily to the net proceeds of approximately $375,000 from the Company's
issuance of warrants. The Company also raised an additional $12,890 through the
exercise of bridge units and $118,171 from the proceeds from sale of its common
stock. This represented a decrease of $661,105 in cash and cash equivalents
since December 31, 1993. The funds utilized in operating activities were
attributable primarily to the $1,192,542 net loss for the period.

In November and December 1994, the Company borrowed an aggregate of $200,000
from certain lenders [the "Bridge Lenders"]. In exchange for making loans to the

Company, each Bridge Lender received two [2] promissory notes [the "Bridge
Notes"]. Certain Bridge Notes are in the aggregate principal amount of $180,000
[the "Principal Bridge Notes"] and the other Bridge Notes are in the aggregate
principal amount equal to $20,000 [the "Convertible Bridge Notes"]. Each of the
Bridge Notes bears interest at the rate of eight percent [8%] per annum. The
Principal Bridge Notes were due and payable upon the earlier of (i) June 15,
1995, or (ii) the closing of the Offering. The Convertible Bridge Notes are due
and payable on December 1, 1995. In addition, each Bridge Lender had the right
to convert a Convertible Bridge Note into a number of units ["Bridge Units"]
equal to the total dollar amount loaned to the Company by such Bridge Lender;
provided, however, that one Bridge Lender may convert its Convertible Bridge
Note into the total dollar amount loaned to the Company plus an additional
50,000 Bridge Units because such Bridge Lender surrendered 100,000 warrants
exercisable for 100,000 shares of Common Stock. In February 1995, the Bridge
Lenders converted the Convertible Bridge Notes into an aggregate of 250,000
Bridge Units at a conversion price of $.10 per Bridge Unit. The Company entered
into the bridge financing transactions because it required additional financing
and no other sources of financing were available to the Company at that time.
The conversion price to the Bridge Lenders was significantly less than the
offering price of the Units offered hereby because should the proposed public
offering have not been successful, the Bridge Lenders would have been at risk
for repayment of the Bridge Loans. Further, the Company agreed to register such
Bridge Units in the first registration statement filed by the Company following
the date of the loan. The bridge notes were repaid on May 23, 1995, the close of
the Public Offering.

F-28

<PAGE>

BEV-TYME, INC.

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

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

Year ended December 31, 1995 compared with the year ended December 31, 1994

Liquidity and Capital Resources [Continued]

In May 1995, the Company granted 525,000 Series C Preferred Stock Options to

directors, officers and employees of the Company at an exercise price of $2.00
per share and, accordingly, recorded an expense of $1,076,250. In October 1995,
525,000 Series C Preferred Stock Options were exercised and the Company recorded
a stock subscription receivable of $1,050,000, which was paid in January and
February of 1996.

F-29

<PAGE>

BEV-TYME, INC.

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

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

Year ended December 31, 1995 compared with the year ended December 31, 1994

New Authoritative Accounting Pronouncements

The FASB has also issued SFAS No. 123, Accounting for Stock-Based Compensation,
in October 1995. SFAS No. 123 uses a fair value based method of accounting for
stock options and similar equity instruments as contrasted to the intrinsic
value based method of accounting prescribed by Accounting Principles Board
["APB"] Opinion No. 25, Accounting for Stock Issued to Employees. The Company
has not decided if it will adopt SFAS No. 123 or continue to apply APB Opinion
No. 25 for financial reporting purposes. SFAS No. 123 will have to be adopted
for financial statement note disclosure purposes in any event. The accounting
requirements of SFAS No. 123, are effective for transactions entered into in
fiscal years that begin after December 15, 1995; the disclosure requirements of
SFAS No. 123 are effective for financial statements for fiscal years beginning
after December 15, 1995.

Impact of Inflation

The Company does not believe that inflation has had a material adverse effect on

sales or income during the past periods. Increases in supplies or other
operating costs could adversely affect the Company's operations; however, the
Company believes it could increase prices to offset increases in costs of goods
sold or other operating costs.

F-30

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this 14th day of April, 1997.

BEV-TYME, INC.

By:/s/Robert J. Sipper
-------------------
Robert J. Sipper
Chairman of the Board, and
Chief Executive Officer

In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates
indicated

Signature Title Date
- --------- ----- ----

/s/Robert J. Sipper Chairman of the April 14, 1997
Robert J. Sipper Board and President

/s/Robert Forst Vice President, April 14, 1997
Robert Forst Chief Financial Officer,
Principal Accounting
Officer and Secretary

/s/Bruce Logan Director April 14, 1997
Bruce Logan

/s/Alfred Sipper Director April 14, 1997
Alfred Sipper