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



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FORM 10-Q

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

For The Quarterly Period Ended September 30, 2002

Commission File Number 0-26542



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REDHOOK ALE BREWERY, INCORPORATED

(Exact name of registrant as specified in its charter)


|                                                                                                  |  |                                                
|------------------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Washington
(State or other jurisdiction of
incorporation or organization)                         |  | 91-1141254
(I.R.S. Employer
Identification No.)
|14300 NE 145th Street, Suite 210
Woodinville, Washington
(Address of principal executive offices) |  | 98072-9045
(Zip Code)                          

Registrants telephone number, including area code: (425) 483-3232

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: 6,574,546 shares outstanding as of
September 30, 2002.

Page 1 of 20 sequentially numbered pages



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TABLE OF CONTENTS



|               |                                                                                               |                               |  |  |  |  |  | 
|-------------- | --------------------------------------------------------------------------------------------- | ----------------------------- |  |  |  |  |  | 
|PART I.       
|               | ITEM 1. Financial Statements                                                                 
|               |                                                                                               | BALANCE SHEETS               
|               |                                                                                               | STATEMENTS OF OPERATIONS     
|               |                                                                                               | STATEMENTS OF CASH FLOWS     
|               |                                                                                               | NOTES TO FINANCIAL STATEMENTS
|               | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|               | ITEM 3. Quantitative and Qualitative Disclosures about Market Risk                           
|               | ITEM 4. Controls and Procedures                                                              
|PART II.      
|               | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES    
|CERTIFICATIONS



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##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED

FORM 10-Q

For The Quarterly Period Ended September 30, 2002

TABLE OF CONTENTS

|         |  |                                                                                       |  |  |                                                                                                                                   |  |      |   | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|         |  |                                                                                       |  |  |                                                                                                                                   |  | Page
|         |  |                                                                                       |  |  |                                                                                                                                   |  |     
|PART I.  |  | Financial Information                                                                 |  |  |                                                                                                                                   | 
|        
|ITEM 1.  |  | Financial Statements                                                                  |  |  |                                                                                                                                   | 
|        
|         |  |                                                                                       |  |  | Balance Sheets as of September 30, 2002 and December 31, 2001                                                                     |  |      | 3 | 
|        
|         |  |                                                                                       |  |  | Statements of Operations for the Three Months Ended September 30, 2002 and 2001
and Nine Months Ended September 30, 2002 and 2001 |  |      | 4 | 
|        
|         |  |                                                                                       |  |  | Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001                                                    |  |      | 5 | 
|        
|         |  |                                                                                       |  |  | Notes to Financial Statements                                                                                                     |  |      | 6 | 
|        
|ITEM 2.  |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  |  | 8                                                                                                                                 | 
|        
|ITEM 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                            |  |  | 15                                                                                                                                | 
|        
|ITEM 4.  |  | Controls and Procedures                                                               |  |  | 15                                                                                                                                | 
|        
|PART II. |  | Other Information                                                                     |  |  |                                                                                                                                   | 
|        
|ITEM 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |  | 15                                                                                                                                | 

2



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PART I.




ITEM 1.Financial Statements




REDHOOK ALE BREWERY, INCORPORATED
BALANCE SHEETS

|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |              |            |            |            | 
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | --------------------------------- | ------------------------------------------------------------------ | ---------- | ------------- | ---------- | ------------ | ---------- | ---------- | ---------- | 
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | September 30, |            | December 31,
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | 2002          |            | 2001        
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | (Unaudited)   |            |              |            |           
|ASSETS                                                      
|Current Assets:                                              |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             | Cash and Cash Equivalents                                                                                                                              |                           | $                                 | 7,077,586                                                          |            |               | $          | 6,363,786    |           
|                                                             | Accounts Receivable                                                                                                                                    |                           |                                   | 2,082,426                                                          |            |               |            | 1,406,329    |           
|                                                             | Inventories                                                                                                                                            |                           |                                   | 3,105,660                                                          |            |               |            | 3,139,290    |           
|                                                             | Income Taxes Receivable                                                                                                                                |                           |                                   | 49,412                                                             |            |               |            |             |           
|                                                             | Other                                                                                                                                                  |                           |                                   | 141,642                                                            |            |               |            | 168,349      |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             |                                                                                                                                                        | Total Current Assets      |                                   |                                                                    | 12,456,726 |               |            |              | 11,077,754 |           
|Fixed Assets, Net                                            |                                                                                                                                                        |                           | 68,984,882                        |                                                                    |            |               | 70,968,503 |             
|Other Assets                                                 |                                                                                                                                                        |                           | 61,976                            |                                                                    |            |               | 108,955    |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             |                                                                                                                                                        |                           | Total Assets                      |                                                                    | $          | 81,503,584    |            |              | $          | 82,155,212 |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|LIABILITIES, PREFERRED STOCK
AND COMMON STOCKHOLDERS EQUITY
|Current Liabilities:                                         |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             | Accounts Payable                                                                                                                                       |                           | $                                 | 2,959,442                                                          |            |               | $          | 1,939,565    |           
|                                                             | Accrued Salaries, Wages and Payroll Taxes                                                                                                              |                           |                                   | 1,529,600                                                          |            |               |            | 1,657,618    |           
|                                                             | Refundable Deposits                                                                                                                                    |                           |                                   | 2,540,609                                                          |            |               |            | 2,000,280    |           
|                                                             | Other Accrued Expenses                                                                                                                                 |                           |                                   | 638,042                                                            |            |               |            | 389,847      |           
|                                                             | Current Portion of Long-Term Debt                                                                                                                      |                           |                                   | 450,000                                                            |            |               |            | 450,000      |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             |                                                                                                                                                        | Total Current Liabilities |                                   |                                                                    | 8,117,693  |               |            |              | 6,437,310  |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|Long-Term Debt, Net of Current Portion                       |                                                                                                                                                        |                           | 6,187,500                         |                                                                    |            |               | 6,525,000  |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|Deferred Income Taxes, Net                                   |                                                                                                                                                        |                           | 457,358                           |                                                                    |            |               | 575,340    |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|Commitments                                                  |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                            
|Convertible Redeemable Preferred Stock                       |                                                                                                                                                        |                           | 16,177,155                        |                                                                    |            |               | 16,143,855 |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|Common Stockholders Equity:                                 |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             | Common Stock, Par Value $0.005 per Share, Authorized, 50,000,000
Shares; Issued and Outstanding, 6,574,546 Shares in 2002 and
6,920,046 Shares in 2001 |                           |                                   | 32,873                                                             |            |               |            | 34,600       |           
|                                                             | Additional Paid-In Capital                                                                                                                             |                           |                                   | 54,999,120                                                         |            |               |            | 55,743,429   |           
|                                                             | Accumulated Deficit                                                                                                                                    |                           |                                   | (4,468,115                                                         | )          |               |            | (3,304,322   | )         
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             |                                                                                                                                                        |                           | Total Common Stockholders Equity |                                                                    |            | 50,563,878    |            |              |            | 52,473,707 |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             
|                                                             |                                                                                                                                                        |                           |                                   | Total Liabilities, Preferred Stock and Common Stockholders Equity |            | $             | 81,503,584 |              |            | $          | 82,155,212 | 
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |               |            |             

See Accompanying Notes to Financial Statements

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REDHOOK ALE BREWERY, INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)

|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                             |  | Three Months Ended September 30, |            | Nine Months Ended September 30,
|                                             |  |                                  |            |                                
|                                             |  | 2002                             |            | 2001                            |  | 2002 |            | 2001
|                                             |  |                                  |            |                                 |  |      |            |     
|Sales                                        |  | $                                | 10,690,846 |                                 |  | $    | 10,517,717 |      |  | $ | 31,032,571 |   |  | $ | 30,172,932 |  
|Less Excise Taxes                            |  |                                  | 896,854    |                                 |  |      | 885,360    |      |  |   | 2,660,790  |   |  |   | 2,581,521  |  
|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  
|Net Sales                                    |  |                                  | 9,793,992  |                                 |  |      | 9,632,357  |      |  |   | 28,371,781 |   |  |   | 27,591,411 |  
|Cost of Sales                                |  |                                  | 7,140,714  |                                 |  |      | 6,952,158  |      |  |   | 20,687,644 |   |  |   | 20,183,247 |  
|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  
|Gross Profit                                 |  |                                  | 2,653,278  |                                 |  |      | 2,680,199  |      |  |   | 7,684,137  |   |  |   | 7,408,164  |  
|Selling, General and Administrative Expenses |  |                                  | 2,986,710  |                                 |  |      | 3,286,341  |      |  |   | 8,776,387  |   |  |   | 9,239,199  |  
|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  
|Operating Income (Loss)                      |  |                                  | (333,432   | )                               |  |      | (606,142   | )    |  |   | (1,092,250 | ) |  |   | (1,831,035 | )
|Interest Expense                             |  |                                  | 61,840     |                                 |  |      | 91,427     |      |  |   | 172,203    |   |  |   | 328,047    |  
|Other Income (Expense) Net                  |  |                                  | (24,174    | )                               |  |      | 60,603     |      |  |   | 8,350      |   |  |   | 219,591    |  
|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  
|Income (Loss) before Income Taxes            |  |                                  | (419,446   | )                               |  |      | (636,966   | )    |  |   | (1,256,103 | ) |  |   | (1,939,491 | )
|Income Tax Provision (Benefit)               |  |                                  | (64,534    | )                               |  |      | (223,080   | )    |  |   | (125,610   | ) |  |   | (659,428   | )
|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  
|Net Income (Loss)                            |  | $                                | (354,912   | )                               |  | $    | (413,886   | )    |  | $ | (1,130,493 | ) |  | $ | (1,280,063 | )
|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  
|Basic Earnings (Loss) per Share              |  | $                                | (0.05      | )                               |  | $    | (0.06      | )    |  | $ | (0.17      | ) |  | $ | (0.18      | )
|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  
|Diluted Earnings (Loss) per Share            |  | $                                | (0.05      | )                               |  | $    | (0.06      | )    |  | $ | (0.17      | ) |  | $ | (0.18      | )
|                                             |  |                                  |            |                                 |  |      |            |      |  |   |            |   |  |   |            |  

See Accompanying Notes to Financial Statements

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REDHOOK ALE BREWERY, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                                         |                     |                                                |            |                                 |           |      |            |           |           |  
|---------------------------------------------------------------------------------------- | ------------------- | ---------------------------------------------- | ---------- | ------------------------------- | --------- | ---- | ---------- | --------- | --------- | -
|                                                                                         |                     |                                                |            | Nine Months Ended September 30,
|                                                                                         |                     |                                                |            |                                
|                                                                                         |                     |                                                |            | 2002                            |           | 2001
|                                                                                         |                     |                                                |            |                                 |           |     
|Operating Activities                                                                     |                     |                                                |            |                                 |           |      |            |          
|Net Income (Loss)                                                                        |                     | $                                              | (1,130,493 | )                               |           | $    | (1,280,063 | )        
|Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: |                     |                                                |            |                                 |           |      |            |          
|                                                                                         |                     | Depreciation and Amortization                  |            |                                 | 2,334,519 |      |            |           | 2,394,594 |  
|                                                                                         |                     | Loss on Disposal of Fixed Assets               |            |                                 | 94,998    |      |            |           | 2,109     |  
|                                                                                         |                     | Deferred Income Taxes, Net                     |            |                                 | (117,982  | )    |            |           | (675,641  | )
|                                                                                         |                     | Net Change in Operating Assets and Liabilities |            |                                 | 1,066,608 |      |            |           | (37,632   | )
|                                                                                         |                     |                                                |            |                                 |           |      |            |          
|Net Cash Provided by Operating Activities                                                |                     |                                                | 2,247,650  |                                 |           |      | 403,367    |          
|                                                                                         |                     |                                                |            |                                 |           |      |            |          
|Investing Activities                                                                     |                     |                                                |            |                                 |           |      |            |          
|Expenditures for Fixed Assets                                                            |                     |                                                | (420,401   | )                               |           |      | (401,580   | )        
|Other, Net                                                                               |                     |                                                | (29,913    | )                               |           |      | (41,875    | )        
|                                                                                         |                     |                                                |            |                                 |           |      |            |          
|Net Cash Used in Investing Activities                                                    |                     |                                                | (450,314   | )                               |           |      | (443,455   | )        
|                                                                                         |                     |                                                |            |                                 |           |      |            |          
|Financing Activities                                                                     |                     |                                                |            |                                 |           |      |            |          
|Principal Payments on Debt                                                               |                     |                                                | (337,500   | )                               |           |      | (337,500   | )        
|Repurchase of Common Stock                                                               |                     |                                                | (746,036   | )                               |           |      | (551,819   | )        
|                                                                                         |                     |                                                |            |                                 |           |      |            |          
|Net Cash Used in Financing Activities                                                    |                     |                                                | (1,083,536 | )                               |           |      | (889,319   | )        
|                                                                                         |                     |                                                |            |                                 |           |      |            |          
|Increase (Decrease) in Cash and Cash Equivalents                                         |                     |                                                | 713,800    |                                 |           |      | (929,407   | )        
|Cash and Cash Equivalents:                                                               |                     |                                                |            |                                 |           |      |            |          
|                                                                                         | Beginning of Period |                                                |            | 6,363,786                       |           |      |            | 7,487,190 |          
|                                                                                         |                     |                                                |            |                                 |           |      |            |          
|                                                                                         | End of Period       |                                                | $          | 7,077,586                       |           |      | $          | 6,557,783 |          
|                                                                                         |                     |                                                |            |                                 |           |      |            |          

See Accompanying Notes to Financial Statements

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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 for the year ended December 31, 2001. The
accompanying financial statements of Redhook Ale Brewery, Incorporated (the
Company) have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to such rules and regulations. These
financial statements are unaudited but, in the opinion of management, reflect
all material adjustments necessary to present fairly the financial position,
results of operations and cash flows of the Company for the periods presented.
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 when the Company reports net income. The calculation
uses the treasury stock method and the as if converted method in determining
the resulting incremental average equivalent shares outstanding when the
outstanding convertible redeemable preferred stock and outstanding stock options
have a dilutive effect.

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

|                                                         |              |                                |                                                           |   |           |                    |   |                   |           |          |   |      |            |            |   |   |            |            |   | 
|-------------------------------------------------------- | ------------ | ------------------------------ | --------------------------------------------------------- | - | --------- | ------------------ | - | ----------------- | --------- | -------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | - | 
|                                                         |              |                                |                                                           |   |           | Three Months Ended |   | Nine Months Ended
|                                                         |              |                                |                                                           |   |           | September 30,      |   | September 30,    
|                                                         |              |                                |                                                           |   |           |                    |   |                  
|                                                         |              |                                |                                                           |   |           | 2002               |   | 2001              |           | 2002     |   | 2001
|                                                         |              |                                |                                                           |   |           |                    |   |                   |           |          |   |     
|Basic and diluted earnings (loss) per share computation: |              |                                |                                                           |   |           |                    |   |                   |           |          |   |      |            |            |   |  
|                                                         | Numerator:   |                                |                                                           |   |           |                    |   |                   |           |          |   |      |            |            |   |   |           
|                                                         |              | Net income (loss)              |                                                           | $ | (354,912  | )                  |   | $                 | (413,886  | )        |   | $    | (1,130,493 | )          |   | $ | (1,280,063 | )         
|                                                         |              | Preferred stock accretion      |                                                           |   | (11,100   | )                  |   |                   | (11,100   | )        |   |      | (33,300    | )          |   |   | (33,300    | )         
|                                                         |              |                                |                                                           |   |           |                    |   |                   |           |          |   |      |            |            |   |  
|                                                         |              |                                | Numerator income (loss) available
to common stockholders |   | $         | (366,012           | ) |                   | $         | (424,986 | ) |      | $          | (1,163,793 | ) |   | $          | (1,313,363 | )
|                                                         |              |                                |                                                           |   |           |                    |   |                   |           |          |   |      |            |            |   |  
|                                                         | Denominator: |                                |                                                           |   |           |                    |   |                   |           |          |   |      |            |            |   |   |           
|                                                         |              | Weighted-average common shares |                                                           |   | 6,687,772 |                    |   |                   | 7,052,053 |          |   |      | 6,782,279  |            |   |   | 7,109,285  |           
|                                                         |              |                                |                                                           |   |           |                    |   |                   |           |          |   |      |            |            |   |  
|                                                         |              |                                | Basic and diluted earnings (loss) per share               |   | $         | (0.05              | ) |                   | $         | (0.06    | ) |      | $          | (0.17      | ) |   | $          | (0.18      | )
|                                                         |              |                                |                                                           |   |           |                    |   |                   |           |          |   |      |            |            |   |  

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REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)

3. Inventories

Inventories consist of the following:

|                        |  |               |           |              |  |   |           | 
|----------------------- |  | ------------- | --------- | ------------ |  | - | --------- | 
|                        |  | September 30, |           | December 31,
|                        |  | 2002          |           | 2001        
|                        |  |               |           |             
|Finished goods          |  | $             | 1,205,750 |              |  | $ | 1,262,737 | 
|Raw materials           |  |               | 1,186,587 |              |  |   | 960,817   | 
|Promotional merchandise |  |               | 443,047   |              |  |   | 630,554   | 
|Packaging materials     |  |               | 270,276   |              |  |   | 285,182   | 
|                        |  |               |           |              |  |   |           | 
|                        |  | $             | 3,105,660 |              |  | $ | 3,139,290 | 
|                        |  |               |           |              |  |   |           | 

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

4. Stock Repurchase Program

Since May 2000, the Board of Directors has authorized the repurchase of
1.5 million shares of the Companys outstanding shares of common stock. In May
2000, the Board of Directors initially authorized the repurchase of up to
500,000 shares. Three subsequent resolutions were passed by the Board of
Directors authorizing the repurchase of additional shares: in January 2001 for
an additional 250,000 shares, in November 2001 for an additional 250,000 shares
and in August 2002 for an additional 500,000 shares. During the nine-month
period ended September 30, 2002, 345,500 shares of common stock were purchased
in the open market for $746,000. As of September 30, 2002, a total of 1,113,000
shares of common stock had been purchased in the open market for an aggregate
expenditure of $1,996,000.

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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. The
discussion and analysis includes period-to-period comparisons of the Companys
financial results. Although period-to-period comparisons may be helpful in
understanding the Companys financial results, the Company believes that they
should not be relied upon as an accurate indicator of future performance.

Overview

Since its formation, the Company has focused its business activities on
the brewing, marketing and selling of craft beers. For the nine months ended
September 30, 2002, the Company had gross sales of $31,033,000, an increase of
2.8% from the nine months ended September 30, 2001. The Companys sales consist
predominantly of sales of beer to third-party distributors and Anheuser-Busch,
Inc. (A-B) through the Companys long-term distribution alliance with A-B (the
Distribution Alliance). In addition, the Company derives other revenues from
sources including the sale of beer, food, apparel and other retail items in its
brewery pubs. The Company is required to pay federal excise taxes on sales of
its beer. The excise tax burden on beer sales increases from $7 to $18 per
barrel on annual sales over 60,000 barrels and thus, if sales volume fluctuates,
federal excise taxes would change as a percentage of sales.

The Companys sales volume (shipments) increased 2.4% to 171,600 barrels
for the nine months ended September 30, 2002, as compared to 167,600 barrels in
the same 2001 period. 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 significant number of craft brewers,
their promotional pricing and new product introductions as well as increased
competition from imported beers, flavored alcohol beverages, wine
and spirits. 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. 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 operates its brewing facilities up
to six days per week with multiple shifts per day. While the maximum designed
production capacity, under ideal brewing conditions, for each of the Woodinville
and Portsmouth breweries is approximately 250,000 barrels per year, the current
production capacity is approximately 250,000 barrels per year at the Woodinville
facility and 100,000 barrels per year at the Portsmouth facility depending on
product mix. Production capacity at the Portsmouth facility can be added in
phases until the facility reaches its maximum designed production capacity of
250,000 barrels per year. Such an increase would require additional capital
expenditures, primarily for fermentation equipment, and production personnel.
The decision to add capacity is affected by the availability of capital,
construction constraints and anticipated sales in new and existing markets.

The Companys capacity utilization has a significant impact on gross
profit. Generally, when facilities are operating at their maximum designed
production capacities, profitability is favorably affected because fixed and
semi-variable operating costs, such as depreciation and production salaries, are
spread over a larger sales base. Because current period production levels have
been below the Companys current production capacity, gross margins have been
negatively impacted. This negative impact could be reduced as actual production
increases.

In addition to capacity utilization, the Company expects other factors to
influence profit margins, including: higher costs associated with the
enhancement of existing and the development of newer 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.

See Managements Discussion and Analysis of Financial Condition and
Results of Operations  Certain Considerations: Issues and Uncertainties.

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Critical Accounting Policies and Estimates

The Companys financial statements are based upon the selection and
application of significant accounting policies that require management to make
significant estimates and assumptions. Management believes that the following
are some of the more critical judgment areas in the application of the Companys
accounting policies that currently affect its financial condition and results of
operations.

Income Taxes. As of December 31, 2001, the Company had approximately $10.4
million of deferred tax assets, comprised principally of net operating loss
carryforwards that expire from 2012 through 2021. The realization of these
assets is dependent upon estimates of future taxable income resulting from
future reversals of existing taxable temporary differences, which have been
recorded as deferred tax liabilities and exceed the deferred tax assets. During
the first nine months of 2002, the Company established a valuation allowance of
$283,000, thereby reducing the income tax benefit recorded in its statements of
operations. The valuation allowance covers a portion of the Companys deferred
tax assets, specifically net operating tax loss carryforwards, that may expire
before the Company is able to utilize the tax benefit. The Company reviews its
deferred tax assets on a quarterly basis. To the extent that the Company is
unable to generate adequate taxable income in the future, the Company may be
required to cease recognition of additional tax benefits.

Long-Lived Assets. When facts and circumstances indicate that the carrying
values of long-lived assets may be impaired, an evaluation of recoverability is
performed in accordance with FASB Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, by comparing the carrying value of
the assets to projected future undiscounted cash flows in addition to other
quantitative and qualitative analyses. Upon indication that the carrying value
of such assets may not be recoverable, the Company recognizes an impairment loss
by a charge against current operations. During 2001, the Company performed an
analysis of its brewery assets to determine if an impairment might exist. The
Companys estimate of future undiscounted cash flows indicated that such
carrying values were expected to be recovered. Nonetheless, it is possible that
the estimate of future undiscounted cash flows may change in the future,
resulting in the need to write down those assets to their fair value.

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.

|                                             |  |                                  |       |                                 |  |      |       |      |  |  |       |    |  |  |       |   
|-------------------------------------------- |  | -------------------------------- | ----- | ------------------------------- |  | ---- | ----- | ---- |  |  | ----- | -- |  |  | ----- | --
|                                             |  | Three Months Ended September 30, |       | Nine Months Ended September 30,
|                                             |  |                                  |       |                                
|                                             |  | 2002                             |       | 2001                            |  | 2002 |       | 2001
|                                             |  |                                  |       |                                 |  |      |       |     
|Sales                                        |  |                                  | 109.2 | %                               |  |      | 109.2 | %    |  |  | 109.4 | %  |  |  | 109.4 | % 
|Less Excise Taxes                            |  |                                  | 9.2   |                                 |  |      | 9.2   |      |  |  | 9.4   |    |  |  | 9.4   |   
|                                             |  |                                  |       |                                 |  |      |       |      |  |  |       |    |  |  |       |   
|Net Sales                                    |  |                                  | 100.0 |                                 |  |      | 100.0 |      |  |  | 100.0 |    |  |  | 100.0 |   
|Cost of Sales                                |  |                                  | 72.9  |                                 |  |      | 72.2  |      |  |  | 72.9  |    |  |  | 73.2  |   
|                                             |  |                                  |       |                                 |  |      |       |      |  |  |       |    |  |  |       |   
|Gross Profit                                 |  |                                  | 27.1  |                                 |  |      | 27.8  |      |  |  | 27.1  |    |  |  | 26.8  |   
|Selling, General and Administrative Expenses |  |                                  | 30.5  |                                 |  |      | 34.1  |      |  |  | 30.9  |    |  |  | 33.5  |   
|                                             |  |                                  |       |                                 |  |      |       |      |  |  |       |    |  |  |       |   
|Operating Income (Loss)                      |  |                                  | (3.4  | )                               |  |      | (6.3  | )    |  |  | (3.8  | )  |  |  | (6.7  | ) 
|Interest Expense                             |  |                                  | 0.6   |                                 |  |      | 0.9   |      |  |  | 0.6   |    |  |  | 1.2   |   
|Other Income (Expense) Net                  |  |                                  | (0.3  | )                               |  |      | 0.6   |      |  |  |      |    |  |  | 0.9   |   
|                                             |  |                                  |       |                                 |  |      |       |      |  |  |       |    |  |  |       |   
|Income (Loss) before Income Taxes            |  |                                  | (4.3  | )                               |  |      | (6.6  | )    |  |  | (4.4  | )  |  |  | (7.0  | ) 
|Income Tax Provision (Benefit)               |  |                                  | (0.7  | )                               |  |      | (2.3  | )    |  |  | (0.4  | )  |  |  | (2.4  | ) 
|                                             |  |                                  |       |                                 |  |      |       |      |  |  |       |    |  |  |       |   
|Net Income (Loss)                            |  |                                  | (3.6  | )%                              |  |      | (4.3  | )%   |  |  | (4.0  | )% |  |  | (4.6  | )%
|                                             |  |                                  |       |                                 |  |      |       |      |  |  |       |    |  |  |       |   

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Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

Sales.Total sales increased 1.6% to $10,691,000 for the three months
ended September 30, 2002, compared to $10,518,000 for the 2001 third quarter,
resulting from a 0.9% increase in sales volume and slightly higher average pricing
net of promotional discounts. Total sales volume for the third quarter of 2002
increased to 58,400 barrels from 57,900 barrels for the same period in 2001.
While West Coast shipments decreased 3.8% as compared to 2001 third quarter West
Coast shipments, shipments to all other markets in the United States increased
6.9% during the same period. The decline in West Coast sales is primarily
attributable to a 7.0% decline in sales in Washington State, the Companys
largest market. Sales other than wholesale beer sales, primarily retail pub
revenues, totaled $1,374,000 in the three months ended September 30, 2002,
compared to $1,388,000 in the same 2001 period. At September 30, 2002 and 2001,
the Companys products were distributed in 48 states.

Excise Taxes.Excise taxes increased to $897,000, or 9.2% of net sales in
the 2002 third quarter, compared to $885,000, or 9.2% of net sales in the
comparable 2001 period, primarily due to increased sales volume.

Cost of Sales.Cost of sales increased 2.7% to $7,141,000 in the three
months ended September 30, 2002, compared to $6,952,000 in the same 2001 period,
due to higher sales volume, increased raw material costs, and a shift in product
mix towards an increasing proportion of package sales, including 12-packs. Cost
of sales, as a percentage of net sales, was 72.9% for the 2002 period compared
to 72.2% for the 2001 period. The utilization rate, based upon the breweries
combined current production capacity, was 66.7% and 66.2% for quarters ended
September 30, 2002 and 2001, respectively.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses decreased to $2,987,000 in the 2002 third quarter,
compared to $3,286,000 in the 2001 third quarter due primarily to lower
advertising and promotion expenses, mainly for radio, billboard and print. As
a percentage of net sales, these expenses were 30.5% and 34.1% for the quarters
ended September 30, 2002 and 2001, respectively.

Interest Expense.Interest expense was $62,000 for the third quarter of
2002, down from $91,000 for the comparable 2001 period, reflecting the effect of
lower outstanding debt and lower average interest rates.

Other Income (Expense)  Net.Other income (expense)  net decreased to
an expense of $24,000 in the 2002 third quarter, compared to income of $61,000
in the 2001 third quarter. The 2002 third quarter reflects a $13,000 decline in
interest income as compared to the 2001 third quarter, resulting from lower
average interest rates, and a $73,000 loss related to assets that were disposed
of in conjunction with the September relocation of the Companys corporate
offices to vacant office space in the Woodinville Brewery in anticipation of
the November 2002 expiration of the Companys lease of the Fremont Brewery
building in Seattle.

Income Taxes.The Companys effective income tax rate was a 15.4% benefit
for the third quarter of 2002 compared to 35.0% for the third quarter of 2001.
During 2002, the Company established a valuation allowance, thereby reducing the
income tax benefit recorded in the statements of operations. The valuation
allowance covers a portion of the Companys deferred tax assets, specifically
net operating tax loss carryforwards, that may expire before the Company is able
to utilize the tax benefit. Both periods estimated effective tax rates were
based upon an estimate of the full-year pretax result, 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.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

Sales.Total sales increased 2.8% to $31,033,000 for the nine months ended
September 30, 2002, compared to $30,173,000 in the comparable 2001 period,
resulting from a 2.4% increase in sales volume and a slight increase in other
sales. Total shipments for the first nine months of 2002 increased to 171,600
barrels from 167,600 barrels for the same period in 2001. West Coast sales
decreased 0.8% as compared to the 2001

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third quarter West Coast shipments, primarily attributable to a 5.5% decrease in
Washington State shipments, the Companys largest market. Sales other than
wholesale beer sales, primarily retail pub revenues, totaled $3,457,000 in the
nine months ended September 30, 2002, compared to $3,334,000 in the comparable
2001 period.

Excise Taxes.Excise taxes increased to $2,661,000, or 9.4% of net sales
in the first nine months of 2002, compared to $2,582,000, or 9.4% of net sales
in the comparable 2001 period, primarily due to increased sales volume.

Cost of Sales.Cost of sales increased 2.5% to $20,688,000 in the first
nine months of 2002, compared to $20,183,000 in the comparable 2001 period, due
to higher sales volume, increased raw material, freight and insurance costs, and
a shift in product mix towards an increasing proportion of package sales,
including 12-packs. Cost of sales, as a percentage of net sales, decreased to
72.9% for the 2002 period compared to 73.2% for the 2001 period. The utilization
rate, based upon the breweries combined current production capacity, was 65.4%
and 63.9% for the nine months ended September 30, 2002 and 2001, respectively.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses decreased to $8,776,000 in the first nine months of
2002, compared to $9,239,000 in the 2001 period due to lower advertising and
promotion expenses, primarily for radio, billboard and print as well as lower
sales salaries and incentives. As a percentage of net sales, these expenses were
30.9% and 33.5% for the nine months ended September 30, 2002 and 2001,
respectively.

Interest Expense.Interest expense decreased to $172,000 for the nine
months ended September 30, 2002, compared to $328,000 for the comparable 2001
period, reflecting the effect of lower outstanding debt and lower average
interest rates.

Other Income
(Expense)  Net.Other income (expense)  net decreased to
income of $8,000 for the nine months ended September 30, 2002, as compared to
income of $220,000 for the corresponding 2001 period, attributable to a $121,000
decline in interest income resulting from lower average interest rates, and
$95,000 in losses recorded on the disposal of fixed assets during the second and
third quarters of 2002.

Income Taxes.The Companys effective income tax rate was a 10.0% benefit
for the nine months ended September 30, 2002, compared to 34.0% for the 2001
period. During 2002, the Company established a valuation allowance of $283,000,
thereby reducing the income tax benefit recorded in the statements of
operations. The valuation allowance covers a portion of the Companys deferred
tax assets, specifically net operating tax loss carryforwards, that may expire
before the Company is able to utilize the tax benefit. Both periods estimated
effective tax rates were based upon an estimate of the full-year pretax result,
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 $7,078,000 and $6,364,000 of cash and cash equivalents at
September 30, 2002 and December 31, 2001, respectively. At September 30, 2002,
the Company had working capital of $4,339,000. The Companys long-term debt as a
percentage of total capitalization (long-term debt, convertible redeemable
preferred stock and common stockholders equity) was 9.0% at September 30, 2002,
compared to 9.2% at December 31, 2001. Cash provided by operating activities
totaling $2,248,000 for the nine months ended September 30, 2002 reflects a $1.3
million source of cash resulting from an increase in accounts payable and other
accrued expenses due to the delay in payment of certain accounts payable
following the September relocation of the Companys corporate offices. Cash
provided by operating activities totaling $403,000 for the nine months ended
September 30, 2001 reflects the timing of the collections of accounts receivable
in December 2000 as well as the payment of certain current liabilities in
January 2001. Both factors resulted in significant uses of cash during the first
quarter of 2001 and are reflected in the statement of cash flows for the nine
months ended September 30, 2001 as net change in operating assets and
liabilities.

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The Company has a credit agreement with a bank under which a term loan
(the Term Loan) and a $10 million revolving credit facility (the Revolving
Facility) are provided. The Term Loan, which originated in June 1997 upon the
conversion of a $9 million secured credit facility, had a five-year term with a
20-year amortization schedule. In June 2001, the credit agreement was amended to
extend the maturity date on the Term Loan to June 5, 2007. In June 2002, the
credit agreement was amended to extend the commitment period for the Revolving
Facility to July 1, 2004. The Term Loan and the Revolving Facility are secured
by substantially all of the Companys assets. Through June 4, 2002, interest on
the Term Loan accrued at a variable rate based on the London Inter Bank Offered
Rate (LIBOR) plus 1.25%. Effective June 5, 2002, interest on the Term Loan
accrued at LIBOR plus 1.75%. The interest rate for the Revolving Facility is the
applicable LIBOR plus 1.00% to 2.00%, depending on the Companys funded debt
ratio. The Company has the option to fix the applicable interest rate for up to
twelve months by selecting LIBOR for one- to twelve- month periods as a base. As
of September 30, 2002, there was $6.6 million outstanding on the Term Loan, and
the Companys one-month LIBOR-based borrowing rate was approximately 3.63%. As
of September 30, 2002, there were no borrowings outstanding on the Revolving
Facility. The termination of the A-B Distribution Agreement for any reason or
the failure by the Company to perform any of its material obligations under the
A-B Investment Agreement would constitute an event of default under the credit
agreement and the bank may declare the entire outstanding loan balance
immediately due and payable.

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 advertising expenditures
associated with the brand investment and co-operative advertising and promotion
programs and working capital and capital expenditure requirements, through cash
on hand, operating cash flow and, to the extent required and available, bank
borrowings and offerings of debt or equity securities. However, there cannot be
any guarantee that any additional financing will be available when needed or at
commercially reasonable terms. Capital expenditures for the first nine months of
2002 totaled $420,000. Capital expenditures for 2002 are expected to total
approximately $650,000.

Since May 2000, the Board of Directors has authorized the repurchase of
1.5 million shares of the Companys outstanding shares of common stock. In May
2000, the Board of Directors initially authorized the repurchase of up to
500,000 shares. Three subsequent resolutions were passed by the Board of
Directors authorizing the repurchase of additional shares: in January 2001 for
an additional 250,000 shares, in November 2001 for an additional 250,000 shares
and in August 2002 for an additional 500,000 shares. During the nine-month
period ended September 30, 2002, 345,500 shares of common stock were purchased
in the open market for $746,000. As of September 30, 2002, a total of 1,113,000
shares of common stock had been purchased in the open market for an aggregate
expenditure of $1,996,000. As of October 31, 2002, a total of 1,233,000 shares
of common stock had been purchased in the open market for an aggregate
expenditure of $2,234,000.

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
successful execution of market development and other plans and the availability
of financing and the issues discussed below. 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.

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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, increased competition from wine,
spirits and imported beers, the
introduction of fuller-flavored products by major national brewers, and recent
introductions of flavored alcohol beverages. While the Companys sales volumes
for 2000 and 2001 increased 7.6% and 4.9%, respectively, as compared to the
corresponding prior years volumes, the Company did experience declining sales
volumes ranging from 2.3% to 5.7% for the years 1997 through 1999. If the
Company were to again experience negative sales trends, 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 may 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
semi-variable operating costs, depending on the level of production at the
Companys breweries in relation to current production capacity. The Companys
high level of fixed and semi-variable 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
freight charges, the availability and prices of raw materials and packaging
materials, the mix between draft and bottled product sales, the sales mix of
various bottled product packages and Federal or state excise taxes. Also, as
sales volumes through the Distribution Alliance increase, certain fees the
Company must pay to A-B in connection with sales to A-B and other staging and
administrative costs would increase.

Advertising and Promotional Costs.Prior to June 1999 the Company had done
very limited advertising. Based upon market and competitive considerations, the
Company determined that a significant increase in advertising and promotion was
appropriate. Accordingly, in June 1999 the Company began a brand investment
program that significantly increased advertising and related costs. During 1999
and 2000, the Company primarily utilized radio, billboard and print advertising
in select markets, while also participating, to a small degree, in co-operative
advertising where the Companys spending is matched dollar for dollar by the
local distributor. In 2001 and 2002, the Company allocated a larger share of its
advertising spending to its co-operative advertising and promotion program. The
advertising investment is expected to continue for the foreseeable future with
the objective of establishing or maintaining momentum towards capturing a larger
share of the competitive craft beer market. This increased spending, as compared
with spending levels prior to 1999, has significantly increased the Companys
selling, general and administrative expenses in 1999, 2000, 2001, and to a
lesser extent, the first nine months of 2002, leading to increased losses and a
reduction in stockholders equity. In addition, market and competitive
considerations could require an increase in other promotional costs associated
with developing existing and new markets.

Relationship with Anheuser-Busch, Incorporated.Most of the Companys
future sales are expected to be through the Distribution Alliance with A-B. See
the Companys Annual Report on Form 10-K for the year ended December 31, 2001,
Part 1, Item 1  Business  Product Distribution, and Relationship With
Anheuser-Busch, Incorporated for a further description of the relationship with
A-B. If the Distribution Alliance were to be terminated, or if the relationship
between A-B and the Company were to deteriorate, distribution of the Companys
products would suffer significant disruption and would have a long-term material
adverse effect on the Companys sales and results of operations. In the event
that the A-B Distribution Agreement is terminated on or before December 31,
2004, under circumstances described in Item 1 of the Companys Annual Report on
Form 10-K for the year ended December 31, 2001 (see Business  Relationship
with Anheuser-Busch, Incorporated  A-B Distribution Agreement), the terms of
the Series B Preferred Stock purchased by A-B pursuant to the A-B Investment
Agreement require the mandatory redemption of the Series B Preferred Stock on
December 31, 2004, at a redemption price equal to $12.61 per share
(approximately $16.3 million in the aggregate), plus an amount equal to
accumulated and unpaid

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dividends thereon. The terms of the Series B Preferred Stock further provide
that if at the time of the mandatory redemption the Company has insufficient
legally available funds to redeem the shares of Series B Preferred Stock as a
whole, those funds that are legally available shall be used to redeem the
maximum number of shares of Series B Preferred Stock. At any time thereafter
when additional funds of the Company become legally available for the redemption
of Series B Preferred Stock, such funds shall be immediately used to redeem
shares of Series B Preferred Stock that have not been previously redeemed. The
Company would not be legally able to redeem shares of Series B Preferred Stock
if, after giving effect to such redemption, the Company would not be able to pay
its debts when due in the usual course of business or the Companys total assets
would be less than the sum of its total liabilities. Such a mandatory redemption
could have a material adverse effect on the financial position and cash flows of
the Company. While the Company believes that the benefits of the Distribution
Alliance, in particular distribution and material cost 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 also relies heavily on
non-Alliance third-party distributors for the sale of its products to retailers.
The Companys most significant non-Alliance wholesaler, K&L Distributors, Inc.,
that although not part of the Alliance is a distributor in the A-B distribution
network, accounted for approximately 13% of the Companys sales in the first
nine months of 2002. Substantially all of the remaining sales volume is through
the Distribution Alliance to wholesalers that are part of the A-B distribution
network, most of which 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, the loss of K&L
Distributors as a customer, 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 general consumer trends
caused a decrease in the demand for beer, including craft beer, it could
adversely impact the Companys sales and results of operations. The alcohol
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.

Effect of Sales Trends on Brewery Efficiency and Operations.While the
Companys sales volumes for 2000 and 2001 increased 7.6% and 4.9%, respectively,
as compared to the corresponding prior years volumes, the Company did
experience declining sales volumes ranging from 2.3% to 5.7% for the years 1997
through 1999. Those declines coincided with significantly slower sales growth of
the highly competitive craft beer segment. The Companys breweries have been
operating at production levels substantially below their actual and maximum
designed capacities. Operating breweries at low capacity utilization rates
negatively impacts gross margins and operating cash flows generated by the
production facilities. In 1998, after performing an analysis of the Companys
current and future production capacity requirements, production at the Fremont
Brewery was permanently curtailed and the assets were written down to an
estimate of their net realizable value. The Company will continue to evaluate
whether it expects to recover the costs of its two remaining production
facilities over the course of their useful lives. If facts and circumstances
indicate that the carrying value of these long-lived assets may be impaired, an
evaluation of recoverability will be performed in accordance with FASB Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, by
comparing the carrying value of the assets to projected future undiscounted cash
flows in addition to other quantitative and qualitative analyses. If management
believes that the carrying value of such assets may not be recoverable, the
Company will recognize an impairment loss by a charge against current
operations.

Income Tax Benefits.As of December 31, 2001, the Company had federal
income tax net operating loss carryforwards (NOLs) of $26.5 million,
substantially all of which expire from 2012 through 2021. These NOLs can
generally be carried forward no more than 20 years to offset regular tax
liabilities in future years. During 2002, the Company established a valuation
allowance of $283,000, thereby reducing the income tax benefit recorded in its
statements of operations. The valuation allowance covers a portion of the
Companys deferred tax assets, specifically net operating tax loss
carryforwards, that may expire before the Company is

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able to utilize the tax benefit. The Company reviews its deferred tax assets on
a quarterly basis. To the extent that the Company is unable to produce adequate
taxable income in the future, the Company may be required to cease recognition
of additional tax benefits.

Recent Accounting Pronouncements

In August 2001, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supercedes SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144
retains the fundamental provisions of SFAS No. 121 but sets forth new criteria
for asset classification and broadens the scope of qualifying discontinued
operations. SFAS 144 is applicable to financial statements issued for fiscal
years beginning after December 15, 2001. Adoption of SFAS 144 did not have an
impact on the Companys financial condition or results of operations.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This
statement provides guidance on the recognition, measurement and reporting of
certain costs related to exit or disposal activities and is effective for exit
or disposal activities initiated after December 31, 2002. Adoption of SFAS 146
did not have an impact on the Companys financial condition or results of
operations.




ITEM 3.Quantitative and Qualitative Disclosures about Market Risk

The Company has assessed its vulnerability to certain market risks,
including interest rate risk associated with financial instruments included in
cash and cash equivalents and long-term debt. Due to the nature of these
investments and the Companys investment policies, the Company believes that the
risk associated with interest rate fluctuations related to these financial
instruments does not pose a material risk.

The Company did not have any derivative financial instruments as of
September 30, 2002.




ITEM 4.Controls and Procedures

Within 90 days prior to the filing date of this report, the Company
carried out an evaluation of the effectiveness of the design and operation of
the Companys disclosure controls and procedures (as defined in Exchange Act
Rule 13a-14c). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures are effective.

There were no significant changes in the Companys internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.




PART II.




ITEM 6.Exhibits and Reports on Form 8-K



|(a) |  | Exhibits
|--- |  | --------



| |  |  | The following exhibits are filed as part of this report.
| |  |  | --------------------------------------------------------
|
| |  |  | None.                                                   



|(b) |  | Reports on Form 8-K
|--- |  | -------------------



| |  |  | None.
| |  |  | -----

ITEMS 1, 2, 3, 4 and 5 of PART II are not applicable and have been omitted.

15



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##### Table of Contents






SIGNATURES

Pursuant to the requirements 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.

|                  |  |                                   |  |                                                                                                
|----------------- |  | --------------------------------- |  | -----------------------------------------------------------------------------------------------
|November 14, 2002 |  | REDHOOK ALE BREWERY, INCORPORATED
|                  |  | BY:                               |  | /s/ David J. Mickelson                                                                         
|                  |  |                                   |  |                                                                                                
|                  |  |                                   |  | David J. MickelsonExecutive Vice President,
Chief Financial Officer and Chief
Operating Officer
|                  |  | BY:                               |  | /s/ Anne M. Mueller                                                                            
|                  |  |                                   |  |                                                                                                
|                  |  |                                   |  | Anne M. MuellerController and Treasurer,
Principal Accounting Officer                          

16



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##### Table of Contents






CERTIFICATIONS

I, Paul S. Shipman, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Redhook Ale Brewery, Incorporated;                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:                                                                                                     



| | a) |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrants ability to record, process, summarize and
report financial data and have identified for the
registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 14, 2002

| |  |     |  |                                                     
| |  | --- |  | ----------------------------------------------------
| |  | BY: |  | /s/ Paul S. Shipman                                 
| |  |     |  |                                                     
| |  |     |  | Paul S. ShipmanPresident and Chief Executive Officer

17



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##### Table of Contents



CERTIFICATIONS

I, David J. Mickelson, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Redhook Ale Brewery, Incorporated;                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:                                                                                                     



| | a) |  | Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrants ability to record, process, summarize and
report financial data and have identified for the
registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 14, 2002

| |  |     |  |                                                                                                
| |  | --- |  | -----------------------------------------------------------------------------------------------
| |  | By: |  | /s/ David J. Mickelson                                                                         
| |  |     |  |                                                                                                
| |  |     |  | David J. MickelsonExecutive Vice President,
Chief Financial Officer and Chief
Operating Officer

18



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##### Table of Contents



CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the Quarterly Report of Redhook Ale Brewery,
Incorporated (the Company) on Form 10-Q for the period ending September 30,
2002 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, Paul S. Shipman, President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, that:

1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

Date: November 14, 2002

| |  |     |  |                                                     
| |  | --- |  | ----------------------------------------------------
| |  | BY: |  | /s/ Paul S. Shipman                                 
| |  |     |  |                                                     
| |  |     |  | Paul S. ShipmanPresident and Chief Executive Officer

19



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##### Table of Contents



CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the Quarterly Report of Redhook Ale Brewery,
Incorporated (the Company) on Form 10-Q for the period ending September 30,
2002 as filed with the Securities and Exchange Commission on the date hereof
(the Report), I, David J. Mickelson, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, that:

1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

Date: November 14, 2002

| |  |     |  |                                                                                                
| |  | --- |  | -----------------------------------------------------------------------------------------------
| |  | BY: |  | /s/ David J. Mickelson                                                                         
| |  |     |  |                                                                                                
| |  |     |  | David J. MickelsonExecutive Vice President,
Chief Financial Officer and Chief
Operating Officer

20