At September 30, 2005, we had a historical net tangible book value deficit of $(347,820) or $(.19) per share, based upon 1,820,000 shares of common stock outstanding. Pro forma net tangible book value per share is determined by dividing the number of outstanding shares of common stock into our pro forma net tangible book value, meaning total assets less total liabilities, and then subtracting capitalized offering costs.

       If we sell all 1,000,000 shares that we are offering, of which there is no assurance, the adjusted net tangible book value as of September 30, 2005, would have been $152,180 or $.05 per share of common stock, based upon 2,820,000 shares outstanding. This represents an immediate increase in net tangible book value of $.23 per share to current stockholders and an immediate decrease of $.40 per share to you as an investor in our offering. To the extent fewer shares are sold in the offering, the dilution to investors will be greater.

       If we sell the median of 700,000 shares, of which there is no assurance, the adjusted net tangible book value as of September 30, 2005, would have been $2,180, or $.0 per share of common stock, based upon 2,520,000 shares outstanding. This represents and immediate increase in net tangible book value of $.18 per share to current stockholders and an immediate decrease of $.45 per share to you as an investor in our offering.

       If we sell the minimum of 400,000 shares, of which there is no assurance, the adjusted pro forma net tangible book value deficit as of September 30, 2005, would have been $(147,820) or $(.07) per share of common stock, based upon 2,220,000 shares outstanding. This represents an immediate increase in net tangible book value of $.12 per share to current stockholders and an immediate decrease of $.51 per share to you as an investor in our offering.

       The following table illustrates the per share dilution, assuming (i) 400,000 shares are sold in our offering; (ii) 700,000 are sold and (iii) all 1,000,000 shares are sold:

       These numbers do not include up to 500,000 shares reserved for issuance pursuant to our 2004 Equity Incentive Plan. There are currently no outstanding options or other rights to purchase shares of common stock under the Plan.

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       The following table sets forth, as of December 31, 2005, the number of shares of common stock that have been purchased, or that may be purchased under outstanding options by affiliated shareholders only, assuming for this purpose that all such options have been exercised, the percentage of total consideration paid, and the average price per share paid by (i) our officers, directors, promoters, and affiliated persons (ii) all present shareholders; and (iii) investors purchasing shares in this offering.

Assuming 400,000 shares are sold:

Assuming 700,000 shares are sold:

Assuming 1,000,000 shares are sold:

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       There currently exists no public trading market for our securities. We do not intend to develop a public trading market until our offering has terminated. There can be no assurance that a public trading market will develop at that time or be sustained in the future. Without an active public trading market, you may not be able to liquidate your investment without considerable delay, if at all. If a market does develop, the price for our securities may be highly volatile and may bear no relationship to our actual financial condition or results of operations. Factors we discuss in this prospectus, including the many risks associated with an investment in us, may have a significant impact on the market price of our common stock. Also, because of the relatively low price of our common stock, many brokerage firms may not effect transactions in the common stock.

       In addition, it is likely that our common stock will be subject to rules adopted by the Commission regulating broker dealer practices in connection with transactions in "penny stocks." Those disclosure rules applicable to penny stocks require a broker dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the Commission. That disclosure document advises an investor that investment in penny stocks can be very risky and that the investor's salesperson or broker is not an impartial advisor but rather paid to sell the shares. The disclosure contains further warnings for the investor to exercise caution in connection with an investment in penny stocks, to independently investigate the security, as well as the salesperson with whom the investor is working and to understand the risky nature of an investment in this security. The broker dealer must also provide the customer with certain other information and must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. Further, the rules require that, following the proposed transaction, the broker provide the customer with monthly account statements containing market information about the prices of the securities.

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       This prospectus contains statements that plan for or anticipate the future. In this prospectus, forward-looking statements are generally identified by the words "anticipate," "plan," "believe," "expect," "estimate," and the like. These forward-looking statements include, but are not limited to, statements regarding the following:

       Although we believe that any forward-looking statements we make in this prospectus are reasonable, because forward-looking statements involve future risks and uncertainties, there are factors that could cause actual results to differ materially from those expressed or implied. For example, a few of the uncertainties that could affect the accuracy of forward-looking statements, besides the specific factors identified above in the Risk Factors section of this prospectus, include:

       In light of the significant uncertainties inherent in the forward-looking statements made in this prospectus, particularly in view of our early stage of operations, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved.\

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       The safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to forward looking statements contained in this prospectus are not available and do not apply to us.

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        We have set forth below certain selected financial data. This financial data was prepared as if our acquisition of Butte Creek had occurred as of and at the beginning of the periods shown. The information has been derived from the financial statements, financial information and notes thereto included elsewhere in this prospectus.

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          Golden West Brewing Company, Inc. (the "Company" or "Golden West") was formed in December 2003 to acquire substantially all of the business assets of Butte Creek Brewing Company, LLC ("Butte Creek" or "Butte"). We are currently a holding company for our wholly-owned subsidiary Golden West Brewing Company, a California corporation, which was formed to complete the acquisition. We completed the acquisition of Butte Creek on August 31, 2005. Butte Creek has been operating as a craft brewery in Chico, California since 1996. It specializes in brewing certified organic craft beers. Upon completion of the proposed initial public offering, we hope to increase our production, increase sales and reduce our operating losses, although there is no assurance that we can achieve these goals. We have recently doubled our production capacity from 4,000 barrels per year to 8,000 barrels per year with the acquisition of two 80 barrel fermentation tanks and one 80 barrel conditioning or "brite" tank. We still face operational challenges as our sales and production levels increase. The following are the key issues and challenges facing the Company:

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This offering is critical to our future success to improve our working capital. We believe sales can be increased with increased market penetration of existing brands and the creation of new brands and products, although there can be no assurance that our increased focus on marketing will be successful. Investors should not place any certainty upon our business plan. An increase in net sales and gross profits, if achieved,. Ccan reduce net losses only if other operating expenses can be managed effectively. Specifically, general, administration and marketing levels can be increased only as net sales and gross profits increase. There is no guarantee that we will be able to achieve this plan.

          Both Golden West and Butte Creek have sustained losses from operations, and have net capital and working capital deficits which raise substantial doubts about their ability to continue as a going concern. Both companies' audited financial statements have received going concern qualifications from their Independent Registered Public Accounting Firm.

          The following discussion and analysis has been based on a very short operating history of one month since our acquisition of Butte Creek and should be read in conjunction with the pro forma Financial Statements and Notes thereto of Golden West Brewing Company, Inc. and Butte Creek Brewing Company, LLC included herein. We have also provided discussion and analysis for the pro forma period-to-period comparisons of our financial results. Although period-to-period pro forma comparisons may be helpful in understanding our financial results, we believe that they should not be relied upon as an accurate indicator of future performance.

          In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results. We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate.

          The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. The actual results could differ from those estimates. Our financial statements are based upon a number of significant estimates, the allowance for doubtful accounts, obsolescence of inventories and the estimated useful lives selected for property and equipment. Due to the uncertainties inherent in the estimation process, it is at least reasonably possible that the estimates for these items could be further revised in the near term and such revisions could be material.

          Sales in the craft beer industry generally reflect a degree of seasonality, with the first and fourth quarters historically being the slowest and the rest of the year typically demonstrating stronger sales. We have historically operated with little or no backlog and, therefore, our ability to predict sales for future periods is limited.

          Our sales are affected by several factors, including consumer demand, price discounting and competitive considerations. We compete in the craft brewing market as well as in the much larger specialty beer market, which encompasses producers of import beers, major national brewers that produce fuller-flavored products, and large spirit companies and national brewers that produce flavored alcohol beverages. Beyond the beer market, craft brewers also face competition

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from producers of wines and spirits. The craft beer segment is highly competitive due to the proliferation of small craft brewers, including contract brewers, and the large number of products offered by such brewers. Imported products from foreign brewers have enjoyed resurgence in demand since the mid-1990s. Certain national domestic brewers have also sought to appeal to this growing demand for craft beers by producing their own fuller-flavored products. In 2001 and 2002, the specialty segment saw the introduction of flavored alcohol beverages, the consumers of which, industry sources generally believe, correlate closely with the consumers of the import and craft beer products. While sales of flavored alcohol beverages were initially very strong, these growth rates slowed in 2003 and 2004. The wine and spirits market has experienced a surge in the past several years, attributable to competitive pricing, increased merchandising, and increased consumer interest in spirits. Because the number of participants and number of different products offered in this segment have increased significantly in the past ten years, the competition for bottled product placements and especially for draft beer placements has intensified.

          Our current production rate is approximately 4,500 barrels per year. We estimate that we will need to increase production volume to at least 6,500 barrels per year in order to achieve break-even operating results. To increase production, we will need to successfully integrate our two new 80 barrel fermentation tanks and our new 80 barrel conditioning or "brite" tank and will require additional working capital for raw materials and finished inventory. There is no assurance that we will be able to expand our capacity to a break-even level or that we can generate the sales volume to maintain it.

SALES Net sales for the first nine months of 2005 were $75,536 compared to $0.00 in the comparable period in 2004. The increase was due to our acquisition of Butte Creek which occurred on September 1, 2005.

COST OF GOODS SOLD Cost of goods sold for the first nine months of 2005 was $52,133 or 69% of Net Sales. There was no comparison to the prior year as we were still a development stage company in the corresponding period.

GROSS PROFIT Gross profit for the first nine months of 2005 was $23,403 or 31% of net sales.

OPERATING EXPENSES Total operating expenses rose $33,817or 100% to $67,343 for the first nine months of 2005 compared to $33,526 in the corresponding period of 2004. The increase was primarily due to our acquisition of Butte Creek for one month of the period and lower legal fees compared to the period in 2004. Components of operating expenses were:

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OPERATING LOSS. The operating loss for the first nine months of 2005 increased $10,414 or 31% to $43,940 from $33,526 in the corresponding period of 2004 as a result of the increase in total operating expenses resulting from the Butte Creek acquisition.

OTHER INCOME & EXPENSE Total other expense was $6,845 for the first nine months of 2005 compared to $0.00 for the corresponding period of 2004.

NET LOSS Net loss increased $17,259 or 51% to $50,785 for the first nine months of 2005 compared to $33,526 for the corresponding period of 2004.

SALES. Net sales for the first nine months of 2005 increased $127,613 or 25.9% from $491,906 to $619,519. The increase in net sales was the result of increased market penetration of our line of certified organic beers in bottles and contract brewing revenues. Case Beer sales for the period increased 24.15%. However, Draft Beer sales actually declined 10.3% during the period. The decrease in draft sales is attributed to increased competitive pressures in this sector of the industry. There are fewer opportunities for draft accounts and most of them are dominated by the national and regional brewing powerhouses. Contract brewing revenues were $44,037 for the period compared to zero in the prior year period.

COST OF SALES. Cost of sales for the Nine Months ended September 30, 2005 were $450,287 or 72.7% of net sales as compared to $330,899 or 67.26% of net sales for the first nine months of 2004. The four biggest components in our cost of sales are (a) raw materials (b) packaging materials, (c) direct labor and (d) utilities. Raw material costs and direct labor costs were up 37.8% and 89.6% respectively both of which far exceeded our approximate 26% increase in net sales and resulted in a substantial increase in our Cost of Sales. Also, during 2005 there were increases in direct labor and utilities, due to accounting procedural changes, whereby a larger portion of overhead expenses were applied to cost of sales. We expect continued pressure on our Cost of Sales as raw materials and packaging materials continue to increase in price. We have raised our prices to certain accounts in 2006 but may not be able to raiser prices enough to off-set our increases in costs.

GROSS PROFIT. As a result of the 25.9% increase net sales and 36% increase in cost of sales, gross profit for the first nine months of 2005 increased only $8,225 or 5.1% for the period to $169,232 or 27.3% of net sales from $161,007 or 32.7% of net sales for the first nine months of 2004.

OPERATING EXPENSES. Total operating expenses increased $83,027 or 26.75% to $393,432 for the first nine months of 2005 compared to $310,405 for the same period in 2004. Our operating expenses include our Corporate Overhead at Golden West Brewing and the Operating Expenses at our subsidiary as detailed below.

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The operating expenses at our operations level increased by $84,405 or 30.5% while operating expenses declined slightly at our corporate level as our legal fees decreased related to the Mount Shasta trademark disputes.

The substantial increase on the operating level was the result of increased sales and building our operating infrastructure during the first nine months of 2005 as compared to the same period in 2004. Moreover, on the operating level, an additional self-distribution territory was established during 2005 resulting in a significant increase in selling expenses. Also in 2005, the Company suffered significant insurance cost increases as well as additional support personnel costs necessary to increase plant capacity. It is anticipated that these increases are sufficient to carry the operations through most of 2006. The key components consisted of:

Two bolded categories are both GWB & BUTTE. Others are just BUTTE.

OPERATING LOSS. The operating loss for the nine month period ended September 30, 2005 increased $74,802 or 50% to $224,200 compared to an operating loss of $149,398 for the nine month period ended September 30, 2004. The increase in the operating loss is directly related to the reduced gross profit as a percentage of sales and the increase in operating expenses at a faster rate than our sales.

OTHER INCOME AND EXPENSE. Total other income and expense for the nine months ended September 30, 2005 was $37,678 compared to total other expense of $21,100 for the prior period, an increase of $16,578 or 78.56%. The increase was primarily a result of a $13,000 fine incurred at the brewery in 2005.

NET LOSS. Net loss for the nine months ended September 30, 2005 was $261,878 compared to a net loss of $170,498 for the same period in 2004, an increase in net loss of $91,380, or 53.5%. The increase in net loss is a result of our decreasing gross profit margin, increasing operating expenses at a faster rate than our sales, and a non-recurring charge of $13,000.

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SALES Net sales for the fiscal year 2004 increased $225,789 or 51.46% to $664,542 compared to $438,753 in net sales for the fiscal year 2003. The increase in net sales was result of the launch of a new product (Mount Shasta Extra Pale Ale), direct sales efforts in the region surrounding our brewery facility in Chico, California, and an improved working capital compared to fiscal 2003 when a shortage of working capital forced a temporary production shut-down in fiscal 2003.

COST OF SALES Cost of sales for the fiscal year 2004 were $441,171 or 66.4% of net sales as compared to $338,160 or 77% of net sales in fiscal year 2003 because of lower production volumes in 2003 caused by a shortage of working capital in fiscal 2003.

GROSS PROFIT As a result of the higher net sales and the improved cost of sales, gross profit for fiscal year 2004 increased 122% to $223,371 or 33.6% of net sales from $100,593 or 23% of net sales in fiscal year 2003.

OPERATING EXPENSES Total operating expenses increased $205,013 or 86% to $442,657 in fiscal year 2004 compared to $237,644 in fiscal year 2003. The overall increase was the result of increased operations in fiscal 2004, including payroll, insurance and marketing, as compared to fiscal 2003 when operations were shut down for approximately four months as a result of a working capital shortage. The increase was comprised of increased vehicle expense ($17,706), sales payroll ($36,984), insurance ($19,168), management and manufacturing payrolls ($65,231), payroll tax ($11,701) and organizational and legal expenses ($54,223). The components consisted of:

OPERATING LOSS The operating loss for the year ended December 31, 2004 was $219,286, compared to an operating loss of $137,051 for the year ended December 31, 2003, an increase in net loss of $82,235, or 60%.

OTHER INCOME AND EXPENSE Total other income and expense for the year ended December 31, 2004 was $29,167, compared to total other expense of $30,082 for the prior year, a decrease of $915 or 3.1%. This change was due to less interest expense incurred in 2004 compared to 2003.

NET LOSS Net loss for the year ended December 31, 2004 was $248,453 compared to a net loss of $167,133 in 2003, an increase in net loss of $81,320, or 48.7% higher. This unfavorable increase in net loss was the result of higher operating expenses in 2004 as the Company focused on developing its distribution channels compared to 2003 when a shortage of working capital forced the company to temporarily curtail operations.

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          We have required capital principally for the proposed purchase of Butte Creek and the funding of operating losses and working capital. To date, we have financed our capital requirements through the sale of equity and short and long-term borrowings. We expect to meet our future financing needs and working capital and capital expenditure requirements through cash on hand, borrowings and offerings of debt or equity securities, although there can be no assurance that our future financing efforts will be successful beyond this offering. The terms of future financings could be highly dilutive to investors in this offering.

          The net proceeds of the minimum offering should satisfy our working capital requirements for approximately three months; if the maximum offering is sold, the proceeds should be sufficient to satisfy our working capital needs for nine months. We have no commitments, understandings or arrangements for any additional working capital. If this offering is not successful, or if we are unable to secure additional financing to cover our operating losses until break-even operations can be achieved, we may not be able to continue as a going concern.

          We had $14,523 of cash and cash equivalents and a negative working capital of $(516,329) at September 30, 2005. At December 31, 2005 we had cash of $0, and a negative working capital of $(150,151). Our long-term debt was $118,234 at September 30, 2005. We do not have sufficient cash on hand or available credit facilities to continue operations for more than 30 days and are dependent upon the completion of this offering to provide adequate working capital to continue operations. In the interim, Golden West has raised capital through the sales of unregistered securities and advances and/or loans from its officers and directors to fund its operations to date, meet its obligations to Butte Creek under the Acquisition Agreement and to provide funds necessary for Butte Creek to maintain operations. Butte Creek has no other sources for capital other than Golden West. There are no assurances that we will be able to secure additional capital to maintain the operations of Butte Creek until the proposed initial public offering is completed.

          During the nine months ended September 30, 2005, the Company's capital expenditures totaled $64,076.

          We have available a $25,000 credit on a credit card issued by Wells Fargo Bank, with interest at the rate of 16.25%. The card is uncollateralized and guaranteed by Tom Atmore, Butte Creek's general manager. We had $24,908 and $25,542 outstanding on September 30, 2005 and December 31, 2004, respectively.

          We have available a $15,400 line of credit on a company credit card with MBNA with interest at the rate of 29.98%. The debt on the credit card is uncollateralized but guaranteed by Tom Atmore, Butte Creek's general manager. We had $12,552 and $12,748 outstanding on September 30, 2005 and December 31, 2004, respectively.

           At September 30, 2005, we had notes payable in the aggregate amount of $416,517, of which $298,283 was considered current. Between March and September 2005, the Company borrowed a total of $125,000 from three lenders: $50,000 from Power Curve, Inc. (a company controlled by John Power); $50,000 from Lone Oak Vineyards, Inc. (a company controlled by Brian Power); and, $25,000 from Tiffany Grace, an unaffiliated party. Approximately $86,000 was used to payoff Butte Creek's loans to Tri County Economic Development Corporation and to purchase additional equipment. The remainder was

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used to provide working capital. The Tiffany Grace note, which was executed on September 9, 2005 accrues interest at the rate of 9% per annum, is payable in monthly payments of principal and interest based upon a five year amortization, and is due in full March 2008. The Power Curve and Lone Oak notes were executed in September, 2005, accrue interest at the rate of 9% per annum, and are payable in full in 2008. The loans are secured by a security interest covering all of our tangible and intangible assets.

          Notes to related parties in the approximate amount of $400,692 accrue interest at the rate of 8% per annum and were due December 2004. Of this amount, approximately $1,100 is payable to Roland Allen, a prior brewmaster and managing member of Butte Creek; approximately $8,100 is payable to Bruce Detweiller, a managing member of Butte Creek, and $10,100 is payable to Richard Atmore, Jr., a member of Butte Creek and the brother of Tom Atmore, a managing member. We have pledged substantially all of our assets to secure some of the notes. Should we default in the payment of these secured notes, the collateral could be subject to forfeiture.

          Butte Creek's Operating Agreement provided certain guarantees to the managers for management fees during the first five years of existence. Portions of these guarantees were not paid during the five year period and portions of these guarantees were deferred for the first two years of the five year period. According to the Operating Agreement, interest at 8% per annum was to be accrued on the deferred portion of the management fees. Also, an original employee accepted a reduced salary while employed and agreed to defer the payment of the reduced salary amount until such time as the managers received their management fees. As of September 30, 2005 and December 31, 2004, the total amount of unpaid management fees and salaries was $232,522 and $230,468, respectively, including accrued interest of $32,861 and $30,807 on the deferred portion as of each date, respectively. Interest expense related to the management fees payable for the nine months ended September 30, 2005 was $2,054, and $4,107 each for the years ended December 31, 2004 and 2003.

          Under the terms of the Asset Purchase and Sale Agreement, Butte Creek's liabilities for accrued management fees and salaries were not assumed by us in the transaction, but rather remained in Butte Creek.

          At September 30, 2005 and December 31, 2004 we had outstanding payroll tax liabilities of $47,972 and $20,041, respectively. Of these amounts $41,009 and $10,352 are considered delinquent.

          At September 30, 2005 and December 31, 2004 we had outstanding rent obligations on our operating facility of $17,950 and $17,950, respectively. We have entered into a verbal forbearance agreement with our landlord whereby the landlord will not proceed with collection actions to enforce its rights under the lease as long as we pay current rent and 8% interest on the outstanding rent obligation timely.

          California Redemption Value (CRV) is a tax collected on all package sales to retailers, processed through the California Department of Conservation and refunded through the State's recycling program. The United States Bureau of Alcohol, Tobacco and Firearms ("BATF"), now the TTB, and various state agencies collect excise taxes often referred to as "alcohol taxes" with the amount based on the volume of beer sold. At September 30, 2005 and December 31, 2004, we had taxes payable to federal and state taxing authorities of $112,455 and $53,788, respectively. Of these amounts, $99,458 and $42,862 are considered delinquent. The detail of those taxes payable is as follows:

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          These delinquent payables have been assumed by us in connection with our acquisition of Butte Creek as the continuation of regulatory compliance is material to our ability to continue as a going concern. Continued operations could be severely impaired should the TTB or any other governmental agency seek to collect any of the delinquent payables before we are able to pay them.

          Our products are available for sale directly to consumers in draft and bottles at restaurants, bars and liquor stores, as well as in bottles at supermarkets, warehouse clubs and convenience stores. Like substantially all craft brewers, our products are delivered to these retail outlets through a network of local distributors whose principal business is the distribution of beer and, in some cases, other alcoholic beverages, and who traditionally have local distribution relationships with one or more national beer brand.

          Sales in the craft beer industry generally reflect a degree of seasonality, with the first and fourth quarters historically being the slowest and the rest of the year typically demonstrating stronger sales. We have historically operated with little or no backlog and, therefore, our ability to predict sales for future periods is limited.

          We do not provide forecasts of future financial performance or sales volume, although this prospectus contains certain other types of forward-looking statements that involve risks and uncertainties. Those risks and uncertainties are discussed more fully in the section of this prospectus titled "Risk Factors." While we are optimistic about our long-term prospects, the following issues and uncertainties, among others, should be considered in evaluating its business prospects and any forward-looking statements.

          In light of uncertain contingencies relating to our acquisition of Butte Creek, we anticipate that a material impairment charge is reasonably likely to occur in the future, resulting in a material impact on our financial statements and results of operations. Should the acquisition not be consummated, the value and recoverability of our investment in Butte Creek is uncertain. Should the acquisition be consummated, we will be required to determine if a valuation allowance with respect to our investment in Butte Creek will be required. Based upon the financial history of Butte Creek, it appears to us that a valuation allowance is reasonably likely.

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           There were various accounting standards and interpretations issued during 2004 and 2003, none of which are expected to have a material impact on the Company's consolidated financial position, operations or cash flows.

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       To acquire Butte Creek, we formed and organized a company on November 19, 2003 under the name Golden West Brewing Company, a California corporation. That company became our wholly-owned subsidiary after we were formed and organized.

       Effective October 8, 2004, we executed a definitive Asset Purchase and Sale Agreement to acquire Butte Creek. Under the terms of the Acquisition Agreement, on August 31, 2005, having obtained all necessary regulatory approvals, we completed the purchase of substantially all of the business assets of Butte Creek. In consideration of the Butte Creek assets, we paid:

Craft brewers represented the remaining approximate 3.2% of total U.S. sales, or 6.59 million barrels of craft beer.

       While the beers from the major American brewers are brewed to high quality standards, they are relatively neutral in flavor. They are brewed with less hops and malt than traditional European or craft-brewed beers, creating a less bitter, lighter bodied flavor. In addition, these beers are usually brewed with a high percentage of rice, corn or corn syrup, which further dilutes the flavor and body of the beers. Traditional lager beers use 100% malted barley in the mash (with the exception of specialty wheat beers), which ensures a robust, full-bodied character. The major U.S. brewers have been successful in creating products that appeal to a wide consumer base and have spent heavily to advertise and promote their products. As a result, they have achieved a dominant position in the market for their mass-produced beers. The older regional brewers traditionally produced beers similar in style to the products of major breweries, but several have benefited from the recent boom in specialty, craft-brewed beers as both contract producers and marketers of their own products. Imported beers have long been viewed by the beer-drinking public as being more flavorful and "authentic" than the standard American beers. Although this has not always been the case, the high price and foreign origin of the imported beers created a niche category of "specialty" beers. In recent years, craft-brewed beers have further expanded the "specialty" beer market, and have increased in sales and visibility.

       The vast majority of existing craft/microbrewed products in the U.S. are ales. According to a survey published in THE NEW BREWER published by the Brewers Association at www.beertown.org, the five most popular beer styles produced in brewpubs are all ales, and among the 130 responding craft/microbrewers, only the fourth most popular style (European Pilsner) is a lager. The cost of building and operating a lager brewery is substantially greater than that for an ale brewery.

       The following terms are helpful in understanding our business and industry:

               Craft Brewing : Beers produced by microbreweries, regional specialty breweries, brewpubs and contract brewers. The common appeal of these beers is a more robust flavor than the standard domestic beers, and an image based on traditional, European beer styles.

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               Microbrewery : Originally used to refer to a small brewery producing less than 10,000 barrels a year, which packages and distributes its beers for sale off site. The cut-off volume has since been increased to 15,000 barrels a year. The new breweries that were founded in the late 1970s and early 1980s were the first to be called microbreweries.

               Regional Specialty Brewery : A term used to describe those breweries which were founded as microbreweries, but have since outgrown the category, having a capacity to brew between 15,000 and 2,000,000 barrels per year. A new category was needed to distinguish these breweries from the older, established regional breweries. Examples of regional specialty breweries are: Sierra Nevada (Chico, California), Anchor Brewing (San Francisco, California), Rockies Brewing (Boulder, Colorado) and Abita Brewing (Abita Springs, Louisiana).

               Brewpub : A brewery that sells its beers exclusively or primarily at its own bar or restaurant. Since the market is restricted to one outlet, brewpubs tend to be quite small (typically in the 500 to 2,000 barrel range). Examples of brewpubs are Zip City (New York, New York), Crescent City Brewhouse (New Orleans, Louisiana), Wynkoop (Denver, Colorado) and Commonwealth (Boston, Massachusetts).

               Contract Brewer : A company that does not have its own brewery but rather markets beer produced "under contract" by an existing (usually regional) brewery. Examples of contract brewers are Boston Beer Company (Samuel Adams brand beers), Pete's Brewing Company and Neuweiler.

               Hard Cider : A fermented apple cider with an alcohol content between 7 and 14 percent.

               Draft Cider : A fermented apple cider with an alcohol content of less than 7 percent.

       Fritz Maytag bought and revived the failing Anchor Brewery in San Francisco in 1965 and is considered the grandfather of the microbrewing movement. However, it wasn't until the late 1970s and early 1980s that the first new microbreweries opened in the U.S., such as New Albion, Redhook, Yakima Brewing & Malting and Sierra Nevada on the West Coast and Newman Brewing Co. (Albany, New York) on the East Coast. By 1983, there were 11 operating microbreweries in the U.S., which were defined as breweries producing less than 10,000 barrels per year (although all were much smaller in 1983). At least one of these (Buffalo Bill's Brewery, Hayward, California) was a brewpub. In the early to mid 1980s, the first contract brewers appeared.

       What all of the craft-brewed beers have in common is an appeal based on traditional, highly flavored European beer styles. They have benefited from their contrast with the products of the major brewers, which are much lighter in body and flavor. We believe they also were helped by an increasing concern by consumers about how alcoholic beverages fit into a healthy, active, contemporary lifestyle. Like fine wines, we believe that consumers view craft-brewed beers as beverages of moderation.

       The craft beer category consists of:

See Beertown, www.beertown.org

       According to Beertown , a trade publication, as of December 2005, there were a total of 1,334 total craft breweries operating in the United States, consisting of:

       We currently produce the following principal brands, each with its own distinctive combination of flavor, color and clarity:

For the year ended December 31, 2004 and the nine months ended September 30, 2005, sales of Organic Ale, Porter, India Pale Ale and Pilsner represented 56.9% and 72.5% of our total sales, respectively, including contract brewed organic beer. During 2004, 78.7.4% of sales were cases, 17% were kegs and 4.3% contract brewed, compared to sales during the first nine months of 2005 being comprised of 80.1% cases, 12.8% kegs and 7.1% contract brewed.

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       In addition to our current craft brews, we are constantly developing new products in order to be responsive to changing customer tastes. We believe that our continued success will be affected by our ability to be innovative and attentive to consumer desires while maintaining consistently high product quality.

        Beer is produced from four main ingredients: malt, hops, yeast and water. Malt, the main ingredient of beer, is produced when barley is moistened, allowed to germinate and then dried. The malted barley is then crushed and mixed with hot water and strained, producing a clear amber liquid called "wort". Wort is boiled in the brew kettle and hops are added which add bitterness and variety to the brew. The mixture is then strained and placed in a fermentation vessel where yeast is added and the beer is allowed to ferment. During fermentation, yeast metabolizes the sugars in the wort and produces alcohol and carbon dioxide.

       Upon completion of fermentation, the beer is then transferred to aging tanks where the flavor is developed and matured. The brewing process, from the conversion of raw materials to the serving of beer, is typically completed in 14 to 28 days, depending on the type of beer being brewed. The production schedule for all of our ale products requires a fourteen (14) day cycle. Our lager products requires a twenty-eight (28) day cycle, from brewing through filtration and packaging. The production cycle includes the following steps:

       *       Day 1. Mashing. Weighed amounts of milled, malted barley, a cereal grain that provides the body and color to the beer, are mixed and steeped with hot water in a Mash Tun. This serves to extract fermentable and non-fermentable sugars, thus creating a mash. At the end of the mashing process, the sweet, fermentable liquid from the mash, called wort, is run off through screened plates and then transferred into the brew kettle. While the wort is running off, the grain is sprayed with hot water again, a process called "sparing". (This is a process similar to making coffee.)

                Once the wort run off is completed, the spent grains are given to local farmers for cattle feed or to local mushroom growers.

       *       Day 1. Brewing. When the sweet liquid wort transfer is completed, we start the boil, then add fresh hops that provide bitterness and aroma, thus creating the balance and flavor of our beer.

       *       Day 1. Clarification. After approximately an hour and one half of boiling, the wort and the spent hops are transferred into a whirlpool. A centrifugal force is created inside the vessel during whirlpooling. This force separates the malt proteins and the spent hops from the wort.

       *       Day 1. Cooling. The wort is pumped from the whirlpool through a heat exchanger which rapidly cools the wort. The cool wort is transferred into a fermenter.

       *       Day 1. Inoculation. Pure culture lager yeast or ale yeast is added to the wort in the fermenter and the tank is closed up.

       *       Days 2-7. Fermentation. Within three to five days, the yeast has metabolized and utilized the sugars from the wort, creating alcohol and carbon dioxide. Our ales are made with a top fermenting ale strain that actually floats to the top of the fermenter. Our lagers are made with a bottom fermenting lager strain that settles during fermentation.

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               When the yeast completely settles it is collected from the tank and used in the next lager or ale brew cycle.

       *       Days 5-27. Cooling and Conditioning. At the end of the fermentation cycle, our beer is cooled from its fermentation temperature (between 65-70-F for ales and 58-55-F for lagers) to 32- Fahrenheit. Beer flavors mature during this stage. Our beer is then stored for seven to fourteen days. Isinglass finings are added to aid in the clarification process.

       *       Day 14. Filtration for Ales. While under pressure, the beer is transferred through cellulose sheets in a Filter Press in order to remove protein haze and yeast while stabilizing and clarifying the beer. The beer is transferred from the Filter Press into a Serving Tank which is counter pressured, for service directly to draft taps at each bar.

       *       Day 28. Filtration for Pilsners. Our pilsner beer remains in the Cellar Tank for an additional fourteen days of fermentation. It is then processed in the same manner as our ale.

       We package our craft beers in bottles and kegs which are clearly marked with freshness dates. This is to ensure that our products are consumed at the height of their flavor. Bottled products utilize the latest technology in bottle crowns that prevent oxygen from causing deterioration of the beer's fresh taste. Our beer is naturally carbonated and pasteurized to ensure the customers enjoy the full fresh flavour. The shelf life of our bottled beer is 120 days and the shelf life of our keg beer is 90 days.

       There are many different varieties of hops which are used in the production of beers. The selection of particular varieties of hops influences the bitterness and aroma of the finished product. The selection of hops in any particular recipe contributes to the final signature of the microbrew.

        Not all hops are available organically-grown. In fact, in the United States, only one type of hops is organically grown; and all other organically-grown hops must be purchased from international sources, primarily New Zealand.

        For microbrews whose recipes call for hops that are not available organically, those products can still be manufactured and marketed as "organic," since hops comprise less than 5% of the finished product. Nevertheless, there is intense competition for organically-grown hops, and quantities are limited.

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        Our Organic Ale is the only product that is 100% organic, including organic hops. Our Organic India Pale Ale and Organic Porter use non-organic hops but are nevertheless marketed as organic microbrews. Our principal competitors in the organic microbrew market: Wolavers and Eel River Brewing Company, also use non-organic hops. Our principal hops suppliers are Hopunion, Fresh Hops and Certified Foods. We have recently secured a stable long-term supply of organic hops with a New Zealand Farmer's cooperative. However, we do not have any other contracts or agreements with any of our hops suppliers for ongoing or future deliveries.

       We currently obtain our malted barley (grain) from two sources: Breiss supplies our organic barley and Great Western Malting our non-organic barley. We do not have any supply contracts with any of our vendors to meet our grain or hop requirements. As a result, any interruption in our supply of grain or hops could result in a curtailment of our production and loss sales.

       We have multiple competitive sources for packing materials, such as bottles, labels, six-pack carriers, crowns and shipping cases, as well as kegs. However, California Glass Company of Oakland, CA is currently the only company offering reasonable bottle pricing for Butte Creek's current production level. Purchases of bottles, six-pack carriers and case boxes from California Glass Company amount to over 40% of the total purchases from all unaffiliated vendors. We have no affiliated vendors.

       In each state where our beer is distributed, we must satisfy the state's regulatory requirements for beer sales. Those requirements generally consist of completing an application and paying a distribution fee. Some states also impose product quality standards which must be met as a condition to distribution. We have not experienced any difficulties in obtaining approvals to distribute in states where we have sought that approval.

       Wholesale distributors sell our products to supermarkets, warehouse stores, liquor stores, taverns and bars, restaurants and convenience stores. Most of our brands are also available on draft' and these are delivered directly to retail outlets. Our independent distributors also distribute a variety of other alcoholic beverages, including other craft beers, import beers and national beer brands. We rely on our distributors not only to provide product sales and deliveries but also to maintain retail shelf space and to oversee timely rotation of inventory. Favorable consumer demand for microbrewed products and higher profit margins are the two primary factors that contribute to strong interest from distributors in handling our regional microbrewed products. Our success is dependent upon our ability to maintain and develop our third party distributor, bar and restaurant accounts.

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       We have written distribution agreements with all of our wholesale distributors; however, the agreements are all terminable upon 30 days' written notice and provide no reliable assurance of future performance.

       Sales are distributed widely over our customer base with only two large customers comprising a significant portion of sales. For the year ending December 31, 2004 and nine months ended September 30, 2005, Mountain People's Warehouse (MPW) was responsible for 21.6% and 21.1% of Butte Creek's sales, respectively. For the same periods, Ray's is the Place, Inc. was responsible for 11% and 6.2% of sales, respectively.

       We have designed slogans, logos and trade names for use in radio, television and printing advertising. To create additional name recognition and customer identification, we plan to sell T-shirts, sweatshirts and other merchandise featuring our name and logo. Distributors and package store locations are provided with point-of-purchase cards, banners, static stickers and shelf channels.

       Sales of beer in general are seasonal in nature and are at their highest level in the second and third calendar quarters and at their lowest in the first and fourth calendar quarters. This seasonality has historically had a significant impact on our operations on a quarter to quarter basis.

       During 2004 and for the first nine months of 2005, wholesale distributors were responsible for 52.5% and 66.7% of our sales, respectively. Three distributors (Mountain People's Warehouse, Morris Distributing and Bay Area Distributing) accounted for 28.6% of our sales in 2004 and two distributors accounted for 24.2% of our sales for the nine months ending September 30, 2005. We have no long-term commitments or agreements from any of our distributors or customers. Our distributors can terminate their agreements with us on 30 days' notice. The loss of a major distributor or customer could severely impair our sales for a significant period of time.

       On September 29, 2002, Four Rivers Broadcasting, Inc. filed a trademark application with the United States Patent and Trademark Office ("USPTO") for Mount Shasta Ale based on its intent to use the proposed mark. Four Rivers Broadcasting, Inc. is a subsidiary of Alta California Broadcasting, Inc., an affiliate of John C. Power, our Director. Alta California Broadcasting, Inc. also registered the domain name www.ales.com. In 2004, Four Rivers Broadcasting and Alta

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California Broadcasting assigned their interests in the trademark, and domain name, respectively, to an investor group in consideration of the redemption of an equity interest in Alta California Broadcasting. The investors in turn assigned those intellectual property rights to the Company in exchange for shares of Company common stock. Documents governing the assignments have been executed but the formal assignments have not been formally registered in the respective registration offices controlling these intellectual property rights.

       Notwithstanding our efforts to develop and protect our intellectual property rights, trademark protection and the uncertainty surrounding the legal protections of domain names, may be unenforceable or limited. As a result, we may not be able to maintain our current trademarks or domain name if they are subject to challenge. We believe that any successful challenge to our use of a trademark or our domain name could have a material adverse impact upon our business, financial condition and future operations.

       We compete with other craft brewers on the basis of product quality and freshness, packaging design, distribution, marketing support and regional identification. The beer industry in general and the craft brewing segment in particular is highly competitive and we experience stiff competition and expect that competition to increase in the future. Our products compete with products from large and small domestic and foreign breweries and from and increasing number of regional specialty breweries, microbreweries, brew pubs and contract brewers. Many of these competing breweries, including some existing microbreweries, have significantly greater financial, production, distribution and marketing resources than ours.

       In the organic microbrew market, our principal competitors are Wolavers and Eel River Brewing Company. As both are privately held, there is little information available concerning their relative financial strength and resources. Both Wolavers and Eel River produce a variety of organic beers, all of which also use non-organic hops, as previously discussed. However, we believe that Wolavers has broader distribution and greater market penetration than either we or Eel River enjoy.

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       In addition, we contract microbrew for Bison Brewing Company, of Berkeley, California. One of the beers that we make for Bison is marketed as organic, although it too uses non-organic hops. Bison Brewing has a California Department of Alcohol Beverage Control license at our facility as part of this contract brewing arrangement. Bison represented 4.3% of gross revenues in 2004, and approximately 7.1% of revenues in the first nine months of 2005. We cannot predict the extent to which Bison production will contribute to our overall revenues in the future.

       The Company's United States operations are subject to licensing by both state and federal governments, as well as to regulation by a variety of state and local governments and agencies. The Company is licensed to manufacture and sell beer by the Department of Alcoholic Beverage Control in California. Our license issued by California does not permit us to engage in retail sales to consumers on the premises. A federal permit from the United States Bureau of Alcohol, Tobacco Tax and Trade ("TTB") allows the Company to manufacture fermented malt beverages. To keep these licenses and permits in force, the Company must pay annual fees and submit timely production reports and excise tax returns. Prompt notice of any changes in the operations, ownership, management or company structure must also be made to these regulatory agencies. BATF must also approve all product labels, which must include and alcohol use warning. These agencies require that individuals owning equity securities in the aggregate of 10% or more in the Company be investigated as to their suitability. The Company's production operations must also comply with the Occupational Safety and Health Administrations' workplace safety and worker health regulations and comparable state laws. Management believes that the Company is presently in compliance with the aforementioned laws and regulations.

       In the United States, taxation of alcohol has increased significantly in recent years. Currently, the federal tax rate is $7.00 per bbl. Ffor up to 60,000 bbl. per year and $18.00 per bbl. For over 60,000 bbl. The California tax rate is $6.20 per bbl. Federal and state excise taxes on alcoholic beverages are subject to change. It is possible that excise taxes will be increased in the future by both the federal government and State of California. In addition, increased excise taxes on alcoholic beverages have in the past been considered in connection with various governmental budget balancing or funding proposals. Any such increased in excise taxes, if enacted, could adversely affect our business. We believe that we currently have all licenses, permits and approvals necessary for our current operations. However, existing permits or licenses could be revoked if we were to fail to comply with the terms of such permits or licenses, and additional permits or licenses could in the future be required for our existing or expanded operations. If licenses, permits or approvals necessary for our brewery were unavailable or unduly delayed, or if any such permits or licenses were revoked, our ability to conduct our business could be substantially and adversely affected.

       Various federal and state labor laws govern our relationship with our employees, including minimum wage requirements, overtime, working conditions and immigration requirements. Significant additional government-imposed increased in minimum wages, paid leaves of absence and mandated health benefits, or increased tax reporting and tax payment requirements for employees could have an adverse effect on our results of operations.

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       During the last two fiscal years, except for $928 expended in the year ended December 31, 2004 for hops rhizomes, and since then we have not expended any working capital on product research and development.

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

       Our waste products consist of water, spent grains, hops, glass and cardboard. We have instituted a recycling program for our/ office paper, newspapers, magazines, glass and cardboard at minimal cost to us. We sell or give away our spent grain to local cattle ranchers. We have not purchased any special equipment and do not incur any identifiable fees in connection with our environmental compliance.

       The Chico facility is subject to various federal, state and local environmental laws which regulate use, storage and disposal of various materials. The Company pays approximately $190 per month towards sewer fees for liquid waste. The sewer discharge from the brewery is monitored and is within the standards set by the Butte County Sewer Department.

       Various states in which the Company sells its products in the U.S., including California, have adopted certain restrictive packaging laws and regulations for beverages that require deposits on packages. The Company continues to do business in these states, and such laws have not had a significant effect on the Company's sales. The adoption of similar legislation by Congress or a substantial number of states or additional local jurisdictions might require the Company to incur significant capital expenditures to comply.

       As of January 1, 2006, we had a total of eleven employees, nine of whom were full time and two of whom were part time. The full time employees include Tom Atmore, general manager, Larry Berlin, master brewer, and three sales persons and four brewing support. Our part time employees are involved in office management and sales.

       In addition, we utilize the services of two independent contractors, one in marketing and sales and the other who performs accounting services.

       Given adequate capital, we would like to hire additional marketing and sales personnel.

       Our executive offices and main brewery are located at 945 West 2 ^nd Street, Chico, California. The entire building consists of approximately 8,280 square feet, of which 1,000 square feet is used for executive offices, 4,600 square feet for our brewery and 3,000 square feet for bottling and shipping. The property is an industrial building which we lease from a former Butte Creek member with less than a one percent membership interest. The lease has a term of five years, expiring in 2010, and provides for monthly rental for the first year of $3,312 per month.. Beginning in July 2006, the rent will be $3,726 plus thereafter an annual adjustment based upon the increase in the Consumer Price Index. We believe that our ability to occupy the present facility under the existing lease is secure and that the facilities are adequate for the foreseeable future.

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       There are no material legal proceedings in which either we or any of our affiliates are involved which could have a material adverse effect on our business, financial condition or future operations.

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       Our executive officers, key employees and directors and their respective ages and positions are set forth below:

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