<PAGE>   1

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

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

                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999


                         COMMISSION FILE NUMBER 0-26542

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



                        REDHOOK ALE BREWERY, INCORPORATED
             (Exact name of registrant as specified in its charter)


                  WASHINGTON                                     91-1141254
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)



          3400 PHINNEY AVENUE NORTH                              98103-8624
             SEATTLE, WASHINGTON
   (Address of principal executive offices)                      (Zip Code)



       Registrant's telephone number, including area code: (206) 548-8000


    Indicate by check mark whether the registrant (1) has filed all reports
    required to be filed by Section 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 [ ]


     Common stock, par value $.005 per share: 7,687,486 shares outstanding
                             as of March 31, 1999.

                    Page 1 of 14 sequentially numbered pages

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<PAGE>   2

                        REDHOOK ALE BREWERY, INCORPORATED

                                    FORM 10-Q

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999

                                TABLE OF CONTENTS



<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                      ------
<S>                                                                                      <C>
PART I.         FINANCIAL INFORMATION

ITEM 1.         Financial Statements

                    Balance Sheets
                       March 31, 1999 and December 31, 1998 .........................    3

                    Statements of Operations
                       Three Months Ended March 31, 1999 and 1998....................    4

                    Statements of Cash Flows
                       Three Months Ended March 31, 1999 and 1998....................    5

                    Notes to Financial Statements.....................................   6

ITEM 2.         Management's Discussion and Analysis of Financial Condition
                    and Results of Operations ........................................   8


PART II.        OTHER INFORMATION

ITEM 6.         Exhibits and Reports on Form 8-K.....................................   13
</TABLE>

                                       2
<PAGE>   3
PART I.

ITEM 1. FINANCIAL STATEMENTS

                        REDHOOK ALE BREWERY, INCORPORATED

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                             MARCH 31,      DECEMBER 31,
                                                                                1999            1998
                                                                            -----------     -----------
                                                                            (Unaudited)
<S>                                                                         <C>             <C>        
                                     ASSETS
Current Assets:
  Cash and Cash Equivalents ............................................     $ 3,329,964     $ 3,010,448
  Accounts Receivable ..................................................       1,688,358       1,525,708
  Inventories ..........................................................       2,525,934       2,267,410
  Income Taxes Receivable ..............................................         469,882         469,272
  Other ................................................................         364,349         303,623
                                                                             -----------     -----------
    Total Current Assets ...............................................       8,378,487       7,576,461
Fixed Assets, Net ......................................................      79,621,730      80,211,312
Assets Held for Sale ...................................................         721,963       1,105,475
Other Assets ...........................................................         636,217         634,781
                                                                             -----------     -----------
      Total Assets .....................................................     $89,358,397     $89,528,029
                                                                             ===========     ===========


                        LIABILITIES, PREFERRED STOCK
                      AND COMMON STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts Payable .....................................................     $ 2,680,884     $ 2,231,602
  Accrued Salaries, Wages and Payroll Taxes ............................       1,319,775       1,451,936
  Refundable Deposits ..................................................       1,323,036       1,310,366
  Other Accrued Expenses ...............................................         478,905         466,734
  Current Portion of Long-Term Debt ....................................         450,000         450,000
                                                                             -----------     -----------
    Total Current Liabilities ..........................................       6,252,600       5,910,638
                                                                             -----------     -----------
Long-Term Debt, Net of Current Portion .................................       7,762,500       7,875,000
                                                                             -----------     -----------
Deferred Income Taxes ..................................................       2,263,487       2,405,889
                                                                             -----------     -----------
Convertible Redeemable Preferred Stock .................................      16,021,755      16,010,655
                                                                             -----------     -----------
Common Stockholders' Equity:
  Common Stock, Par Value $0.005 per Share, Authorized, 50,000,000
    Shares; Issued and Outstanding, 7,687,486 Shares in 1999 and 1998...          38,438          38,438
  Additional Paid-In Capital ...........................................      56,888,633      56,888,633
  Retained Earnings ....................................................         130,984         398,776
                                                                             -----------     -----------
      Total Common Stockholders' Equity ................................      57,058,055      57,325,847
                                                                             -----------     -----------
        Total Liabilities, Preferred Stock and                          
          Common Stockholders' Equity ..................................     $89,358,397     $89,528,029
                                                                             ===========     ===========
</TABLE>                                                                
                                                                    
                                                                    
                             See Accompanying Notes                 


                                       3
<PAGE>   4

                        REDHOOK ALE BREWERY, INCORPORATED

                            STATEMENTS OF OPERATIONS

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED MARCH 31,
                                                     --------------------------
                                                         1999           1998
                                                     -----------    -----------
<S>                                                  <C>            <C>        
Sales ..........................................     $ 7,674,896    $ 8,504,610
Less Excise Taxes ..............................         702,647        809,623
                                                     -----------    -----------

Net Sales ......................................       6,972,249      7,694,987
Cost of Sales ..................................       5,100,069      6,140,847
                                                     -----------    -----------

Gross Profit ...................................       1,872,180      1,554,140
Selling, General and Administrative Expenses ...       2,172,419      2,329,186
                                                     -----------    -----------

Operating Income (Loss) ........................        (300,239)      (775,046)
Interest Expense ...............................         130,418        181,458
Other Income-- Net .............................          35,745         15,300
                                                     -----------    -----------

Income (Loss) before Income Taxes ..............        (394,912)      (941,204)
Income Tax Expense (Benefit) ...................        (138,220)      (225,888)
                                                     -----------    -----------

Net Income (Loss) ..............................     $  (256,692)   $  (715,316)
                                                     ===========    =========== 

Basic Earnings (Loss) per Share ................     $     (0.03)   $     (0.09)
                                                     ===========    =========== 

Diluted Earnings (Loss) per Share ..............     $     (0.03)   $     (0.09)
                                                     ===========    =========== 
</TABLE>

                             See Accompanying Notes


                                       4
<PAGE>   5

                        REDHOOK ALE BREWERY, INCORPORATED

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED MARCH 31,
                                                       ----------------------------
                                                            1999           1998
                                                       ------------      ----------
<S>                                                     <C>              <C>       
OPERATING ACTIVITIES
Net Loss .............................................  $  (256,692)     $(715,316)
Adjustments to Reconcile Net Loss to Net Cash
  Provided by Operating Activities:
    Depreciation and Amortization ....................      813,189        906,085
    Deferred Income Tax Provision ....................     (142,402)       142,161
    Net Change in Operating Assets and Liabilities ...      (52,772)       (56,884)
                                                        -----------      --------- 

Net Cash Provided by Operating Activities ............      361,323        276,046
                                                        -----------      --------- 

INVESTING ACTIVITIES
Expenditures for Fixed Assets ........................     (284,138)      (266,725)
Proceeds from Sale of Assets and Other ...............      354,831             -- 
                                                        -----------      --------- 

Net Cash Provided by (Used in) Investing Activities ..       70,693       (266,725)
                                                        -----------      --------- 

FINANCING ACTIVITIES
Repayments on Debt ...................................     (112,500)      (146,654)
Officer Note Repayment and Other, Net ................           --         83,000
                                                        -----------      --------- 

Net Cash Used in Financing Activities ................     (112,500)       (63,654)
                                                        -----------      --------- 

Increase (Decrease) in Cash and Cash Equivalents .....      319,516        (54,333)
Cash and Cash Equivalents:
  Beginning of Year ..................................    3,010,448        892,165
                                                        -----------      --------- 
  End of Period ......................................  $ 3,329,964      $ 837,832
                                                        ===========      =========
</TABLE>













                             See Accompanying Notes

                                       5

<PAGE>   6

                        REDHOOK ALE BREWERY, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)


1.  BASIS OF PRESENTATION

        The accompanying financial statements and related notes should be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K. The accompanying financial statements
include the accounts of Redhook Ale Brewery, Incorporated (the "Company") and
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements are unaudited and condensed, and
do not contain all of the information required by generally accepted accounting
principles to be included in a full set of financial statements. In the opinion
of management, all material adjustments necessary to present fairly the
financial position, results of operations and cash flows of the Company, for the
periods presented, have been made. All such adjustments were of a normal,
recurring nature. The results of operations for such interim periods are not
necessarily indicative of the results of operations for the full year.


2.  EARNINGS (LOSS) PER SHARE

        The calculation of adjusted weighted-average shares outstanding for
purposes of computing diluted earnings per share includes the dilutive effect of
all outstanding convertible redeemable preferred stock and outstanding stock
options for the periods in which the Company reports net income. The calculation
uses the treasury stock method in determining the resulting incremental average
equivalent shares outstanding when they are dilutive.

        The following table sets forth the computation of basic and diluted
earnings (loss) per common share:

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED MARCH 31,
                                                     --------------------------
                                                         1999           1998
                                                     -----------    -----------
<S>                                                  <C>            <C>         
Basic earnings (loss) per share computation:
  Numerator:
    Net income (loss) ............................   $  (256,692)   $  (715,316)
                                                     -----------    -----------

  Denominator:
    Weighted-average common shares ...............     7,687,486      7,687,486
                                                     -----------    -----------

        Basic earnings (loss) per share ..........   $     (0.03)   $     (0.09)
                                                     ===========    ===========

Diluted earnings (loss) per share computation:
  Numerator:
    Net income (loss) ............................   $  (256,692)   $  (715,316)
                                                     -----------    -----------

  Denominator:
    Weighted-average common shares ...............     7,687,486      7,687,486
                                                     -----------    -----------

          Diluted earnings (loss) per share ......   $     (0.03)   $     (0.09)
                                                     ===========    ===========
</TABLE>


                                       6
<PAGE>   7
                        REDHOOK ALE BREWERY, INCORPORATED

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   (Unaudited)

3.  INVENTORIES

          Inventories consist of the following:

<TABLE>
<CAPTION>
                                                    MARCH 31,        DECEMBER 31,
                                                      1999               1998
                                                   ----------         ----------
<S>                                                <C>                <C>       
Finished goods ...........................         $1,075,659         $  862,246
Raw materials ............................            911,928            998,133
Promotional merchandise ..................            280,407            222,042
Packaging materials ......................            257,940            184,989
                                                   ----------         ----------

                                                   $2,525,934         $2,267,410
                                                   ==========         ==========
</TABLE>


        Finished goods include beer held in fermentation prior to the filtration
and packaging process.


4.  ASSETS HELD FOR SALE

        In January 1998, production at the Fremont Brewery was significantly
reduced and the brewery served as a backup facility to the Woodinville Brewery.
During the quarter ended June 30, 1998, the Company analyzed its current and
future production capacity requirements and its plans for the Fremont Brewery
production assets. Based upon that analysis, the Company decided to permanently
curtail the Fremont Brewery operations and sell substantially all of those
production assets. In accordance with FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("Statement 121"), the Fremont production assets were written down to an
estimate of their net realizable value in the quarter ended June 30, 1998. The
write-down was recorded through a non-cash valuation provision totaling $5.2
million. The special valuation provision, net of the related income tax benefit,
totaled $3.4 million.

        The assets are presented as Assets Held for Sale on the balance sheet as
of March 31, 1999, at their estimated fair market value of $722,000. The Company
has received deposits on substantially all of the remaining equipment and
currently expects to sell that equipment during 1999 for an amount approximately
equal to its estimated net realizable value.

        The special valuation provision and the related assets held for sale
were recorded in the three-month period ended June 30, 1998, as follows:

<TABLE>
<S>                                                                 <C>        
Brewery equipment .............................................     $ 8,577,598
Building ......................................................       1,068,824
                                                                    -----------

                                                                      9,646,422
Less accumulated depreciation and amortization ................      (3,389,772)
                                                                    -----------

Net book value ................................................       6,256,650
Estimated net realizable value of Assets Held for Sale ........      (1,184,000)
                                                                    -----------

Estimated impairment ..........................................       5,072,650
Reserve for disposal related costs ............................         100,000
                                                                    -----------

Special Valuation Provision ...................................       5,172,650
Income tax benefit ............................................      (1,810,428)
                                                                    -----------

Special Valuation Provision, net of income tax benefit ........     $ 3,362,222
                                                                    ===========
</TABLE>

                                       7

<PAGE>   8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        The following discussion and analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto included herein.


OVERVIEW

        Since its formation, the Company has focused its business activities on
the brewing, marketing and selling of craft beers. For the three months ended
March 31, 1999, the Company had gross sales of $7,675,000, a decrease of 9.8%
from the three months ended March 31, 1998. The Company believes that
period-to-period comparisons of its financial results should not be relied upon
as an accurate indicator of future performance. The Company's sales consist
predominantly of sales of beer to third-party distributors and Anheuser-Busch,
Inc. ("A-B") through the Distribution Alliance. In addition, the Company derives
other revenues from the sale of beer, food, apparel and other retail items in
its brewery pubs. The Company is required to pay Federal and certain state
excise taxes on sales of its beer. The Federal excise tax burden on beer sales
increases from $7 to $18 per barrel on annual production over 60,000 barrels and
thus, if sales volume increases, federal excise taxes would increase as a
percentage of sales.

        The Company's sales volume declined 11.9% to 43,100 barrels for the
three months ended March 31, 1999, compared to 48,900 barrels in the same period
in 1998. In addition to the level of consumer demand in existing markets, the
Company's sales are also affected by other factors such as competitive
considerations, including the increased number of craft brewers and promotional
pricing, the opening of new distribution territories and new product
introductions. 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 relatively stronger sales. The
Company has historically operated with little or no backlog, and its ability to
predict sales for future periods is limited.

        Under normal circumstances, the Company generally operates its brewing
facilities up to five days per week, two shifts per day. The Company has
increased its company-wide annual production capacity from approximately 3,000
barrels at its first brewery in the Ballard neighborhood of Seattle in 1982 to
approximately 350,000 barrels as of March 31, 1999, after the 75,000 barrel
decrease related to the Fremont Brewery (see discussion below). Production
capacity of each facility is added in phases until the facility reaches its
maximum designed production capacity. The timing of each phase is affected by
the availability of capital, construction constraints and anticipated sales in
new and existing markets. The Portsmouth, New Hampshire brewery began commercial
production during October 1996. The Portsmouth Brewery's current production
capacity is approximately 100,000 barrels per year, and its maximum designed
production capacity is approximately 250,000 barrels per year. Additional
capital expenditures and production personnel will be required to bring the
Portsmouth Brewery to its maximum designed capacity.

        The Company's maximum designed production capacity at March 31, 1999,
totaled 500,000 barrels per year. The Company's capacity utilization has a
significant impact on gross profit. When facilities are operating at their
maximum designed production capacities, profitability is favorably affected by
spreading fixed and semivariable operating costs, such as depreciation and
production salaries, over a larger sales base. Most capital costs associated
with building a new brewery, and fixed and semivariable costs related to
operating a new brewery, are incurred prior to, or upon commencement of,
production at a facility. Because the actual production level may be
substantially below the facility's maximum designed production capacity, gross
margins are negatively impacted. This impact is reduced when actual production
levels increase.

        In January 1998, production at the Fremont Brewery was significantly
reduced, and the brewery served as a backup facility to the Woodinville Brewery.
During the quarter ended June 30, 1998, the Company analyzed its current and
future production capacity requirements and its plans for the Fremont Brewery
production assets. Based upon that analysis, the Company decided to permanently
curtail the Fremont Brewery operations and sell substantially all of those
production assets. In compliance with Statement 121, the Fremont production
assets were written down to an estimate of their net realizable value in the
quarter ended June 30, 1998. The 


                                       8
<PAGE>   9

write-down was recorded through a non-cash valuation provision totaling $5.2
million. The special valuation provision, net of the related income tax benefit,
totaled $3.4 million.

        In addition to capacity utilization, the Company expects other factors
to influence profit margins, including higher costs associated with the
development of new distribution territories, such as increased shipping,
marketing and sales personnel costs; fees related to the distribution agreement
with A-B; changes in packaging and other material costs; and changes in product
sales mix. The incremental cost of shipping beer from the Company's breweries
will increase if the volume of beer supplied to more distant markets increases.

        See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Considerations: Issues and Uncertainties."


RESULTS OF OPERATIONS

          The following table sets forth, for the periods indicated, certain
items from the Company's Statements of Operations expressed as a percentage of
net sales.

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                  MARCH 31,
                                                              ------------------
                                                              1999         1998
                                                              -----        -----
<S>                                                           <C>          <C>   
Sales ................................................        110.1%       110.5%
Less Excise Taxes ....................................         10.1         10.5
                                                              -----        -----
Net Sales ............................................        100.0        100.0
Cost of Sales ........................................         73.1         79.8
                                                              -----        -----
Gross Profit .........................................         26.9         20.2
Selling, General and Administrative Expenses .........         31.2         30.3
                                                              -----        -----
Operating Income (Loss) ..............................         (4.3)       (10.1)
Interest Income (Expense)-- Net ......................         (1.4)        (2.1)
                                                              -----        -----
Income (Loss) Before Income Taxes ....................         (5.7)       (12.2)
Provision (Benefit) for Income Taxes .................         (2.0)        (2.9)
                                                              =====        =====
Net Income (Loss) ....................................         (3.7)%       (9.3)%
                                                              =====        =====
</TABLE>


THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

        Sales. Total sales decreased 9.8% to $7,675,000 in the first quarter of
1999, compared to $8,505,000 in first quarter 1998, primarily due to an 11.9%
decrease in total sales volume. Total sales volumes in the 1999 first quarter
decreased to 43,100 barrels from 48,900 barrels in 1998 first quarter. West
Coast sales decreased 13.6% for the same period, including a 13.2% decline in
Washington State, the Company's largest market. The competitive landscape has
been affected by the increase in the number of craft beer companies and the
number of different products they offer, as well as increased competition from
imported beers. Sales other than wholesale beer sales, primarily retail pub
revenues, totaled $701,000 in the three months ended March 31, 1999, compared to
$690,000 in comparable 1998 period. At March 31, 1999 and 1998, the Company's
products were distributed in 48 states.

        Excise Taxes. Excise taxes paid on barrels sold decreased to $703,000,
or 10.1% of net sales in the 1999 first quarter, compared to $810,000, or 10.5%
of net sales in the 1998 first quarter.

        Cost of Sales. Cost of sales decreased to $5,100,000 in the first three
months of 1999, compared to $6,141,000 in comparable 1998 period, primarily due
to the lower sales volume, decreased packaging costs and the positive effect of
curtailing production at the Fremont Brewery. Cost of sales, as a percentage of
net sales, decreased to 73.1% in the first quarter of 1999, compared to 79.8% in
first quarter 1998. The combined utilization rate of maximum designed capacity
for the operating breweries was 34.5% and 34.0% for quarters ended March 31,
1999 and 1998, respectively. The slight increase reflects the Fremont Brewery
shutdown in the first half of 1998, offset partially by lower total volume.


                                       9
<PAGE>   10

        Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $2,172,000 in the 1999 first quarter,
compared to $2,329,000 in the 1998 first quarter due primarily to cost saving
measures that reduced sales and marketing costs. As a percentage of net sales,
these expenses were 31.2% and 30.3% for three months ended March 31, 1999 and
1998, respectively. The Company expects these costs to increase significantly,
beginning in the three-month period ended June 30, 1999, due to the undertaking
of an aggressive advertising and promotional program in certain of its markets.

        Interest Expense. Interest expense totaled $130,000 for the first
quarter of 1999, compared to $181,000 for the comparable 1998 period, reflecting
lower outstanding debt and lower interest rates.

        Other Income -- Net. Other income -- net, increased to $36,000 in the
1999 first quarter, compared to $15,000 in 1998 first quarter. The increase was
due to an increase in the average balance of interest-bearing deposits in 1999.

        Income Taxes. The Company's effective income tax rate increased to a 35%
benefit for the first quarter of 1999 from a 24% benefit for the first quarter
of 1998. The difference between the 1999 and 1998 effective rates is primarily
the result of higher pre-tax losses expected in 1999, relative to other
components of the tax provision calculation, such as the exclusion of a portion
of meals and entertainment expenses from tax return deductions.


LIQUIDITY AND CAPITAL RESOURCES

        The Company had $3,330,000 and $3,010,000 of cash and cash equivalents
at March 31, 1999 and December 31, 1998, respectively. At March 31, 1999, the
Company had working capital of $2,126,000. The Company's long-term debt as a
percentage of total capitalization (long-term debt, preferred stock and common
stockholders' equity) was 10.1% and 10.2% as of March 31, 1999 and December 31,
1998, respectively. Cash provided by operating activities totaled $361,000 and
$276,000 for the three months ended March 31, 1999 and 1998, respectively.

        On June 5, 1997, the Company converted the $9 million outstanding
balance of its secured bank facility (the "Secured Facility") to a five-year
term loan with a 20-year amortization schedule. As of March 31, 1999, there was
$8.2 million outstanding on the Secured Facility, and the Company's one-month
IBOR-based borrowing rate was approximately 6.3%. In addition, the Company has a
$10 million revolving credit facility (the "Revolving Facility") with the same
bank through July 1, 2001, and as of March 31, 1999, there were no borrowings
outstanding on this facility. The Revolving Facility is secured with the same
assets that are collateral for the Secured Facility. Interest accrues at a
variable rate based on the Inter Bank Offered Rate ("IBOR"), plus 1.25% to 2.00%
for the Secured Facility, and plus 1.00% to 1.75% on the Revolving Facility,
depending on the Company's debt-to-tangible net worth ratio. The Company can fix
the rate by selecting IBOR for one- to twelve-month periods as a base. Beginning
June 6, 1999, the interest rate for the Revolving Facility will be the
applicable LIBOR plus 1.00% to 2.00%, depending on the Company's debt-to-cash
flow ratio.

        The Company has required capital principally for the construction and
development of its technologically-advanced production facilities. To date, the
Company has financed its capital requirements through cash flow from operations,
bank borrowings and the sale of common and preferred stock. The Company expects
to meet its future financing needs, including the significant planned increase
in advertising expenditures, and working capital and capital expenditure
requirements, through cash on hand, operating cash flow, proceeds from the sale
of Assets Held for Sale and, to the extent required and available, bank
borrowings and offerings of debt or equity securities.

        Capital expenditures for the first quarter of 1999 totaled $284,000.
Capital expenditures for 1999 are expected to total approximately $850,000.


                                       10
<PAGE>   11

        The Company has certain commitments, contingencies and uncertainties
relating to its normal operations. Management believes that any such
commitments, contingencies or uncertainties, including any environmental
uncertainties, will not have a material adverse effect on the Company's
financial position or results of operations.


CERTAIN CONSIDERATIONS: ISSUES AND UNCERTAINTIES

        The Company does not provide forecasts of future financial performance
or sales volumes, although this Quarterly Report contains certain other types of
forward-looking statements that involve risks and uncertainties. The Company
may, in discussions of its future plans, objectives and expected performance in
periodic reports filed by the Company with the Securities and Exchange
Commission (or documents incorporated by reference therein) and in written and
oral presentations made by the Company, include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, or
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements are based on assumptions that the Company believes
are reasonable, but are by their nature inherently uncertain. In all cases,
there can be no assurance that such assumptions will prove correct or that
projected events will occur. Actual results could differ materially from those
projected depending on a variety of factors, including, but not limited to, the
issues discussed below, the successful execution of market development and other
plans and the availability of financing. While Company management is optimistic
about the Company's long-term prospects, the following issues and uncertainties,
among others, should be considered in evaluating its business prospects and any
forward-looking statements.

        Effect of Competition on Future Sales. The domestic market in which the
Company's craft beers are sold is highly competitive due to the proliferation of
small craft brewers, including contract brewers, the increase in the number of
products offered by such brewers, the introduction of fuller-flavored products
by major national brewers and increased competition from imported beers. The
Company's revenue growth rate began to slow in late 1996, and sales declined in
1997, 1998 and in the first quarter of 1999, due primarily to slower sales in
the highly competitive draft beer market. If negative sales trends were to
continue, the Company's future sales and results of operations would be
adversely affected. The Company has historically operated with little or no
backlog and, therefore, its ability to predict sales for future periods is
limited.

        Sales Prices. Future prices the Company charges for its products may
decrease from historical levels, depending on competitive factors in the
Company's various markets. The Company has participated in price promotions with
its wholesalers and their retail customers in most of its markets. The number of
markets in which the Company participates in price promotions and the frequency
of such promotions are expected to increase in the future.

        Variability of Gross Margin and Cost of Sales. The Company anticipates
that its future gross margins will fluctuate and may decline as a result of many
factors, including disproportionate depreciation and other fixed and
semivariable operating costs, during periods when the Company's breweries are
producing below maximum designed production capacity. The Company's high level
of fixed and semivariable operating costs causes gross margin to be very
sensitive to relatively small increases or decreases in sales volume. In
addition, other factors that could affect cost of sales include changes in:
shipping costs, availability and prices of raw materials and packaging
materials, mix between draft and bottled product sales, and Federal or state
excise taxes. Also, as sales volumes through the Distribution Alliance increase,
the alliance fee, and other staging and administrative costs, would increase.

        Advertising and Promotional Costs. While the Company has previously done
very limited advertising, based upon market and competitive considerations the
Company has determined that a significant increase in such spending is
appropriate. Accordingly, in 1999 the Company is undertaking a brand investment
program that will significantly increase advertising over the next year with the
objective of establishing momentum towards capturing a larger share of the
fragmented craft beer market. This increased spending is expected to
significantly increase the Company's net losses and decrease its stockholders'
equity. In addition, market and competitive considerations could require an
increase in other promotional costs associated with developing existing and new
markets.


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        Relationship with Anheuser-Busch, Incorporated. Most of the Company's
future sales are expected to be through the Distribution Alliance with A-B. If
the Distribution Alliance were to be terminated, or if the relationship between
A-B and the Company were to deteriorate, the Company's sales and results of
operations could be materially adversely affected. While the Company believes
that the benefits of the Distribution Alliance, in particular access to
distributors and distribution efficiencies, offset costs associated with the
Alliance, there can be no assurance that these costs will not have a negative
impact on the Company's profit margins in the future.

        Dependence on Third-Party Distributors. The Company relies heavily on
third-party distributors for the sale of its products to retailers. The
Company's most significant non-Alliance wholesaler, K&L Distributors, Inc., an
A-B affiliated wholesaler in the Seattle area, accounted for approximately 15.5%
of the Company's sales in the first quarter of 1999. Substantially all of the
remaining sales volumes are now through the Distribution Alliance to A-B
affiliated distributors, most of whom are independent wholesalers. A disruption
of wholesalers' or A-B's ability to distribute products efficiently due to any
significant operational problems such as wide-spread labor union strikes, or the
loss of K&L or the termination of the Distribution Alliance, could have a
material adverse impact on the Company's sales and results of operations.

        Customer Acceptance, Consumer Trends and Public Attitudes. If consumers
were unwilling to accept the Company's products or if the recent trends toward
drinking craft beers were to change further, it could adversely impact the
Company's sales and results of operations. The alcoholic beverage industry has
become the subject of considerable societal and political attention in recent
years due to increasing public concern over alcohol-related social problems,
including drunk driving, underage drinking and health consequences from the
misuse of alcohol. If beer consumption in general were to come into disfavor
among domestic consumers, or if the domestic beer industry were subjected to
significant additional governmental regulation, the Company's sales and results
of operations could be adversely affected.

        Impact of Year 2000. Some of the Company's computer programs were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognize a
date using "00" as the year 1900 rather than the year 2000. In addition, some of
the microprocessors and control systems integrated in the Company's operations
are not programmed to recognize dates beyond the year 1999. This could cause a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, operate certain production equipment or engage in similar normal
business activities.

        The Company completed an assessment on a significant portion of its
information systems and completed a software upgrade so that those computer
systems will function properly with respect to dates in the year 2000 and
thereafter. In addition, the Company expects to complete the assessment of the
remaining systems, primarily related to production operations, in early 1999 and
have all critical systems tested and compliant before the end of 1999. The costs
associated with all software upgrades or modifications are currently expected to
be less than $50,000.

        The Company is working directly with key vendors, service providers and
business partners, such as A-B, malt and packaging suppliers, and utilities, in
order to avoid any business interruptions in the year 2000 and thereafter. Steps
are being taken to understand key third parties' ability to continue providing
services and products through the change to 2000. The Company sent out detailed
questionnaires to key third parties to verify Year 2000 readiness and is
conducting on-going risk analysis based upon the responses to those
questionnaires. However, the Company has no means of ensuring that external
agents will be Year 2000 ready. The inability of third parties to complete their
Year 2000 compliance process in a timely fashion could have a material adverse
effect on the Company's results of operations.

        In addition, the Company is in the process of completing its contingency
planning for all risk areas. The contingency plans include, among other things,
manual "work-arounds" for potential software and hardware failures, and an
increase in year-end inventory to allow for production disruptions that could
occur in January 2000.


                                       12
<PAGE>   13

        The project is expected to be completed prior to any potential negative
impact on the Company's operations or information systems. The Company believes
that the new software will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not made,
or are not completed timely, the Year 2000 compliance issue could have a
significant negative adverse impact on the results of operations of the Company.

        The costs and timing of the project are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved, and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.

RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, and Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information. In February 1998, the FASB issued Statement No. 132,
Disclosures about Pensions and Other Postretirement Benefits. All of those
statements are effective for the year ended December 31, 1998. Statement Nos.
130 and 132 are not applicable to the Company's operations. The disclosures
prescribed by Statement No. 131 are not required for the Company because retail
pub revenues, the largest component of sales other than wholesale beer sales, do
not meet the minimum quantitative thresholds.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company does not have any derivative financial instruments as of
March 31, 1999. However, the Company is exposed to interest rate risk. The
Company's long-term debt bears interest at a rate that is tied to a variable
rate. Information pertaining to the Company's debt balance and terms is set
forth in Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in Note 5 of "Notes to Financial Statements"
included in the Company's Annual Report on Form 10-K.


PART II.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS
    The following exhibits are filed as part of this report.

        10.38  Third Amendment to Amended and Restated Credit Agreement between
               U.S. Bank of Washington, National Association and Registrant,
               dated February 22, 1999.
         
        10.39  Amended and Restated Rights Agreement between Registrant and
               ChaseMellon Shareholder Services, LLC, dated as of May 12, 1999.

        10.40  First Amendment to Employment Agreement between Registrant and
               Paul Shipman, dated May 6, 1999.

        27     Financial Data Schedule for the three months ended March 31,
               1999.

(b) REPORTS ON FORM 8-K
    None were filed during the quarter ended March 31, 1999.


ITEMS 1, 2, 3, 4 AND 5 OF PART II ARE NOT APPLICABLE AND HAVE BEEN OMITTED.

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                                    SIGNATURE


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on May 13, 1999.


                                   REDHOOK ALE BREWERY, INCORPORATED



                                   BY:   /s/  Bradley A. Berg
                                         ---------------------------------------
                                                   Bradley A. Berg
                                                   Executive Vice President and
                                                   Chief Financial Officer








                                   BY:   /s/  Anne M. Mueller
                                         ---------------------------------------
                                                   Anne M. Mueller
                                                   Controller and Treasurer,
                                                   Principal Accounting Officer





DATE: May 13, 1999



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