##### Table of Contents



---

---

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



---



FORM 10-Q



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

For The Quarterly Period Ended June 30, 2002

Commission File Number 0-26542

___________________________






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.)



|                                                                                       |  |                      
|-------------------------------------------------------------------------------------- |  | ---------------------
|3400 Phinney Avenue North
Seattle, Washington
(Address of principal executive offices) |  | 98103-8624
(Zip Code)





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



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



Common stock, par value $.005 per share: 6,748,746 shares outstanding as of
June 30, 2002.

Page 1 of 17 sequentially numbered pages



---

---





---

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                           
|PART II.     
|              | ITEM 4. Submission of Matters to a Vote of Security Holders                                  
|              | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES   
|EXHIBIT 10.47
|EXHIBIT 99.1 
|EXHIBIT 99.2 



---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
 FORM 10-Q
 For The Quarterly Period Ended June 30, 2002
 TABLE OF CONTENTS

|         |  |                                                                                       |  |                                                                                                                           |    |      |   | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|         |  |                                                                                       |  |                                                                                                                           |    | Page
|         |  |                                                                                       |  |                                                                                                                           |    |     
|PART I.  |  | Financial Information                                                                 |  |                                                                                                                           |    |     
|        
|ITEM 1.  |  | Financial Statements                                                                  |  |                                                                                                                           |    |     
|        
|         |  |                                                                                       |  | Balance Sheets as of June 30, 2002 and December 31, 2001                                                                  |    |      | 3 | 
|        
|         |  |                                                                                       |  | Statements of Operations for the Three Months Ended June 30, 2002 and 2001
   and Six Months Ended June 30, 2002 and 2001 |    |      | 4 | 
|        
|         |  |                                                                                       |  | Statements of Cash Flows for the Six Months Ended June 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 |     
|        
|PART II. |  | Other Information                                                                     |  |                                                                                                                           |    |     
|        
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                           | 15 |     
|        
|ITEM 6.  |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                           | 16 |     

2



---



##### Table of Contents






PART I.




ITEM 1.Financial Statements




REDHOOK ALE BREWERY, INCORPORATED
 BALANCE SHEETS

|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |              |            |            |            | 
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | --------------------------------- | ------------------------------------------------------------------ | ---------- | ----------- | ---------- | ------------ | ---------- | ---------- | ---------- | 
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | June 30,    |            | December 31,
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | 2002        |            | 2001        
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | (Unaudited) |            |              |            |           
|ASSETS                                                      
|Current Assets:                                              |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             | Cash and Cash Equivalents                                                                                                                              |                           | $                                 | 6,364,411                                                          |            |             | $          | 6,363,786    |           
|                                                             | Accounts Receivable                                                                                                                                    |                           |                                   | 2,825,653                                                          |            |             |            | 1,406,329    |           
|                                                             | Inventories                                                                                                                                            |                           |                                   | 2,736,766                                                          |            |             |            | 3,139,290    |           
|                                                             | Other                                                                                                                                                  |                           |                                   | 359,076                                                            |            |             |            | 168,349      |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        | Total Current Assets      |                                   |                                                                    | 12,285,906 |             |            |              | 11,077,754 |           
|Fixed Assets, Net                                            |                                                                                                                                                        |                           | 69,614,432                        |                                                                    |            |             | 70,968,503 |             
|Other Assets                                                 |                                                                                                                                                        |                           | 53,944                            |                                                                    |            |             | 108,955    |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        |                           | Total Assets                      |                                                                    | $          | 81,954,282  |            |              | $          | 82,155,212 |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                            
|LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS EQUITY
|                                                            
|Current Liabilities:                                         |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             | Accounts Payable                                                                                                                                       |                           | $                                 | 2,822,004                                                          |            |             | $          | 1,939,565    |           
|                                                             | Accrued Salaries, Wages and Payroll Taxes                                                                                                              |                           |                                   | 1,478,500                                                          |            |             |            | 1,657,618    |           
|                                                             | Refundable Deposits                                                                                                                                    |                           |                                   | 2,407,784                                                          |            |             |            | 2,000,280    |           
|                                                             | Other Accrued Expenses                                                                                                                                 |                           |                                   | 549,527                                                            |            |             |            | 389,847      |           
|                                                             | Current Portion of Long-Term Debt                                                                                                                      |                           |                                   | 450,000                                                            |            |             |            | 450,000      |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        | Total Current Liabilities |                                   |                                                                    | 7,707,815  |             |            |              | 6,437,310  |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Long-Term Debt, Net of Current Portion                       |                                                                                                                                                        |                           | 6,300,000                         |                                                                    |            |             | 6,525,000  |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Deferred Income Taxes, Net                                   |                                                                                                                                                        |                           | 502,901                           |                                                                    |            |             | 575,340    |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                            
|Commitments                                                  |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                            
|Convertible Redeemable Preferred Stock                       |                                                                                                                                                        |                           | 16,166,055                        |                                                                    |            |             | 16,143,855 |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Common Stockholders Equity:                                 |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             | Common Stock, Par Value $0.005 per Share, Authorized, 50,000,000
Shares; Issued and Outstanding, 6,748,746 Shares in 2002 and
6,920,046 Shares in 2001 |                           |                                   | 33,744                                                             |            |             |            | 34,600       |           
|                                                             | Additional Paid-In Capital                                                                                                                             |                           |                                   | 55,345,870                                                         |            |             |            | 55,743,429   |           
|                                                             | Accumulated Deficit                                                                                                                                    |                           |                                   | (4,102,103                                                         | )          |             |            | (3,304,322   | )         
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        |                           | Total Common Stockholders Equity |                                                                    |            | 51,277,511  |            |              |            | 52,473,707 |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        |                           |                                   | Total Liabilities, Preferred Stock and
Common Stockholders Equity |            | $           | 81,954,282 |              |            | $          | 82,155,212 | 
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             

See Accompanying Notes to Financial Statements

3



---



##### Table of Contents






REDHOOK ALE BREWERY, INCORPORATED
 STATEMENTS OF OPERATIONS
 
(Unaudited)

|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------- |  | --------------------------- | ---------- | ------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                             |  | Three Months Ended June 30, |            | Six Months Ended June 30,
|                                             |  |                             |            |                          
|                                             |  | 2002                        |            | 2001                      |  | 2002 |            | 2001
|                                             |  |                             |            |                           |  |      |            |     
|Sales                                        |  | $                           | 11,420,437 |                           |  | $    | 10,756,586 |      |  | $ | 20,341,725 |   |  | $ | 19,655,215 |  
|Less Excise Taxes                            |  |                             | 995,104    |                           |  |      | 940,545    |      |  |   | 1,763,936  |   |  |   | 1,696,161  |  
|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Net Sales                                    |  |                             | 10,425,333 |                           |  |      | 9,816,041  |      |  |   | 18,577,789 |   |  |   | 17,959,054 |  
|Cost of Sales                                |  |                             | 7,397,111  |                           |  |      | 7,012,384  |      |  |   | 13,546,930 |   |  |   | 13,231,089 |  
|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Gross Profit                                 |  |                             | 3,028,222  |                           |  |      | 2,803,657  |      |  |   | 5,030,859  |   |  |   | 4,727,965  |  
|Selling, General and Administrative Expenses |  |                             | 2,982,017  |                           |  |      | 3,276,186  |      |  |   | 5,789,677  |   |  |   | 5,952,858  |  
|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Operating Income (Loss)                      |  |                             | 46,205     |                           |  |      | (472,529   | )    |  |   | (758,818   | ) |  |   | (1,224,893 | )
|Interest Expense                             |  |                             | 56,398     |                           |  |      | 106,358    |      |  |   | 110,363    |   |  |   | 236,620    |  
|Other Income (Expense)  Net                 |  |                             | 7,929      |                           |  |      | 67,470     |      |  |   | 32,524     |   |  |   | 158,988    |  
|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Income (Loss) before Income Taxes            |  |                             | (2,264     | )                         |  |      | (511,417   | )    |  |   | (836,657   | ) |  |   | (1,302,525 | )
|Income Tax Provision (Benefit)               |  |                             | (165       | )                         |  |      | (171,327   | )    |  |   | (61,076    | ) |  |   | (436,348   | )
|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Net Income (Loss)                            |  | $                           | (2,099     | )                         |  | $    | (340,090   | )    |  | $ | (775,581   | ) |  | $ | (866,177   | )
|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Basic Earnings (Loss) per Share              |  | $                           | (0.00      | )                         |  | $    | (0.05      | )    |  | $ | (0.12      | ) |  | $ | (0.12      | )
|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Diluted Earnings (Loss) per Share            |  | $                           | (0.00      | )                         |  | $    | (0.05      | )    |  | $ | (0.12      | ) |  | $ | (0.12      | )
|                                             |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  

See Accompanying Notes to Financial Statements

4



---



##### Table of Contents






REDHOOK ALE BREWERY, INCORPORATED

STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                       |                                             |                                                |          |                           |           |      |            |           |            |  
|------------------------------------------------------ | ------------------------------------------- | ---------------------------------------------- | -------- | ------------------------- | --------- | ---- | ---------- | --------- | ---------- | -
|                                                       |                                             |                                                |          | Six Months Ended June 30,
|                                                       |                                             |                                                |          |                          
|                                                       |                                             |                                                |          | 2002                      |           | 2001
|                                                       |                                             |                                                |          |                           |           |     
|Operating Activities                                   |                                             |                                                |          |                           |           |      |            |          
|Net Income (Loss)                                      |                                             | $                                              | (775,581 | )                         |           | $    | (866,177   | )        
|Adjustments to Reconcile Net Income (Loss) to Net Cash |                                             |                                                |          |                           |           |      |            |          
|                                                       | Provided by (Used in) Operating Activities: |                                                |          |                           |           |      |            |           |           
|                                                       |                                             | Depreciation and Amortization                  |          |                           | 1,559,601 |      |            |           | 1,606,311  |  
|                                                       |                                             | Loss on Disposal of Fixed Assets               |          |                           | 22,414    |      |            |           | 2,109      |  
|                                                       |                                             | Deferred Income Taxes, Net                     |          |                           | (72,439   | )    |            |           | (446,463   | )
|                                                       |                                             | Net Change in Operating Assets and Liabilities |          |                           | 105,149   |      |            |           | (1,274,466 | )
|                                                       |                                             |                                                |          |                           |           |      |            |          
|Net Cash Provided by (Used in) Operating Activities    |                                             |                                                | 839,144  |                           |           |      | (978,686   | )        
|                                                       |                                             |                                                |          |                           |           |      |            |          
|Investing Activities                                   |                                             |                                                |          |                           |           |      |            |          
|Expenditures for Fixed Assets                          |                                             |                                                | (210,192 | )                         |           |      | (285,287   | )        
|Other, Net                                             |                                             |                                                | (4,912   | )                         |           |      |           |          
|                                                       |                                             |                                                |          |                           |           |      |            |          
|Net Cash Used in Investing Activities                  |                                             |                                                | (215,104 | )                         |           |      | (285,287   | )        
|                                                       |                                             |                                                |          |                           |           |      |            |          
|Financing Activities                                   |                                             |                                                |          |                           |           |      |            |          
|Principal Payments on Debt                             |                                             |                                                | (225,000 | )                         |           |      | (225,000   | )        
|Repurchase of Common Stock                             |                                             |                                                | (398,415 | )                         |           |      | (402,061   | )        
|                                                       |                                             |                                                |          |                           |           |      |            |          
|Net Cash Used in Financing Activities                  |                                             |                                                | (623,415 | )                         |           |      | (627,061   | )        
|                                                       |                                             |                                                |          |                           |           |      |            |          
|Increase (Decrease) in Cash and Cash Equivalents       |                                             |                                                | 625      |                           |           |      | (1,891,034 | )        
|Cash and Cash Equivalents:                             |                                             |                                                |          |                           |           |      |            |          
|                                                       | Beginning of Period                         |                                                |          | 6,363,786                 |           |      |            | 7,487,190 |           
|                                                       |                                             |                                                |          |                           |           |      |            |          
|                                                       | End of Period                               |                                                | $        | 6,364,411                 |           |      | $          | 5,596,156 |           
|                                                       |                                             |                                                |          |                           |           |      |            |          

See Accompanying Notes to Financial Statements

5



---



##### Table of Contents






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 June 30, |      | Six Months Ended June 30,
|                                                         |              |                                |                                                            |                                             |           |                             |      |                          
|                                                         |              |                                |                                                            |                                             |           | 2002                        |      | 2001                      |           | 2002     |       | 2001
|                                                         |              |                                |                                                            |                                             |           |                             |      |                           |           |          |       |     
|Basic and diluted earnings (loss)
per share computation: |              |                                |                                                            |                                             |           |                             |      |                           |           |          |       |      |           |          |       |  
|                                                         | Numerator:   |                                |                                                            |                                             |           |                             |      |                           |           |          |       |      |           |          |       |   |          
|                                                         |              | Net income (loss)              |                                                            | $                                           | (2,099    | )                           |      | $                         | (340,090  | )        |       | $    | (775,581  | )        |       | $ | (866,177  | )       
|                                                         |              | Preferred stock accretion      |                                                            |                                             | (11,100   | )                           |      |                           | (11,100   | )        |       |      | (22,200   | )        |       |   | (22,200   | )       
|                                                         |              |                                |                                                            |                                             |           |                             |      |                           |           |          |       |      |           |          |       |  
|                                                         |              |                                | Numerator  income (loss) available
to common stockholders |                                             | $         | (13,199                     | )    |                           | $         | (351,190 | )     |      | $         | (797,781 | )     |   | $         | (888,377 | )    
|                                                         |              |                                |                                                            |                                             |           |                             |      |                           |           |          |       |      |           |          |       |  
|                                                         | Denominator: |                                |                                                            |                                             |           |                             |      |                           |           |          |       |      |           |          |       |   |          
|                                                         |              | Weighted-average common shares |                                                            |                                             | 6,792,320 |                             |      |                           | 7,079,888 |          |       |      | 6,830,315 |          |       |   | 7,138,376 |         
|                                                         |              |                                |                                                            |                                             |           |                             |      |                           |           |          |       |      |           |          |       |  
|                                                         |              |                                |                                                            | Basic and diluted
earnings (loss) per share |           | $                           | 0.00 |                           |           | $        | (0.05 | )    |           | $        | (0.12 | ) |           | $        | (0.12 | )
|                                                         |              |                                |                                                            |                                             |           |                             |      |                           |           |          |       |      |           |          |       |  

6



---



##### Table of Contents



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

3. Inventories

Inventories consist of the following:

|                        |  |          |           |              |  |   |           | 
|----------------------- |  | -------- | --------- | ------------ |  | - | --------- | 
|                        |  | June 30, |           | December 31,
|                        |  | 2002     |           | 2001        
|                        |  |          |           |             
|Finished goods          |  | $        | 1,217,211 |              |  | $ | 1,262,737 | 
|Raw materials           |  |          | 880,511   |              |  |   | 960,817   | 
|Promotional merchandise |  |          | 474,146   |              |  |   | 630,554   | 
|Packaging materials     |  |          | 164,898   |              |  |   | 285,182   | 
|                        |  |          |           |              |  |   |           | 
|                        |  | $        | 2,736,766 |              |  | $ | 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 up
to a total 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. Subsequently, three further 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 six-month period ended June 30, 2002, 171,300 shares of common stock
were purchased in the open market for $398,000. As of June 30, 2002, a total of
939,000 shares of common stock had been purchased in the open market for an
aggregate expenditure of $1,648,000.

7



---



##### Table of Contents






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 six months ended
June 30, 2002, the Company had gross sales of $20,342,000, an increase of 3.5%
from the six months ended June 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 3.3% to 113,300 barrels
for the six months ended June 30, 2002, as compared to the same period in 2001.
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 and their promotional pricing
and new product introductions as well as increased competition from imported
beers and flavored alcoholic beverages. 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 five days per week with multiple shifts per day. While the maximum designed
production capacity 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. 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
semivariable operating costs, such as depreciation and production salaries, are
spread over a larger sales base. Because current period production levels have
been substantially below the Companys current production capacity, gross
margins have been negatively impacted. This impact is expected to 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.

8



---



##### Table of Contents



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 six months of 2002, the Company established a valuation allowance of
$219,000, 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 produce 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   |       | Six Months    
|                                             |  | Ended June 30, |       | Ended June 30,
|                                             |  |                |       |               
|                                             |  | 2002           |       | 2001           |  | 2002 |       | 2001
|                                             |  |                |       |                |  |      |       |     
|Sales                                        |  |                | 109.5 | %              |  |      | 109.6 | %    |  |  | 109.5 | %  |  |  | 109.4 | % 
|Less Excise Taxes                            |  |                | 9.5   |                |  |      | 9.6   |      |  |  | 9.5   |    |  |  | 9.4   |   
|                                             |  |                |       |                |  |      |       |      |  |  |       |    |  |  |       |   
|Net Sales                                    |  |                | 100.0 |                |  |      | 100.0 |      |  |  | 100.0 |    |  |  | 100.0 |   
|Cost of Sales                                |  |                | 71.0  |                |  |      | 71.4  |      |  |  | 72.9  |    |  |  | 73.7  |   
|                                             |  |                |       |                |  |      |       |      |  |  |       |    |  |  |       |   
|Gross Profit                                 |  |                | 29.0  |                |  |      | 28.6  |      |  |  | 27.1  |    |  |  | 26.3  |   
|Selling, General and Administrative Expenses |  |                | 28.6  |                |  |      | 33.4  |      |  |  | 31.2  |    |  |  | 33.1  |   
|                                             |  |                |       |                |  |      |       |      |  |  |       |    |  |  |       |   
|Operating Income (Loss)                      |  |                | 0.4   |                |  |      | (4.8  | )    |  |  | (4.1  | )  |  |  | (6.8  | ) 
|Interest Expense                             |  |                | 0.5   |                |  |      | 1.1   |      |  |  | 0.6   |    |  |  | 1.3   |   
|Other Income (Expense)  Net                 |  |                | 0.1   |                |  |      | 0.7   |      |  |  | 0.2   |    |  |  | 0.9   |   
|                                             |  |                |       |                |  |      |       |      |  |  |       |    |  |  |       |   
|Income (Loss) before Income Taxes            |  |                | 0.0   |                |  |      | (5.2  | )    |  |  | (4.5  | )  |  |  | (7.2  | ) 
|Income Tax Provision (Benefit)               |  |                |      |                |  |      | (1.7  | )    |  |  | (0.3  | )  |  |  | (2.4  | ) 
|                                             |  |                |       |                |  |      |       |      |  |  |       |    |  |  |       |   
|Net Income (Loss)                            |  |                | 0.0   | %              |  |      | (3.5  | )%   |  |  | (4.2  | )% |  |  | (4.8  | )%
|                                             |  |                |       |                |  |      |       |      |  |  |       |    |  |  |       |   

9



---



##### Table of Contents



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

Sales. Total sales increased 6.2% to $11,420,000 for the three months
ended June 30, 2002, compared to $10,757,000 for the 2001 second quarter,
resulting from a 5.0% increase in sales volume, slightly higher average pricing
net of promotional discounts and a slight increase in other sales. Total sales
volume for the second quarter of 2002 increased to 63,100 barrels from 60,100
barrels for the same period in 2001. While shipments in Washington State, the
Companys largest market, decreased 5.8% as compared to 2001 second quarter
shipments, west coast shipments increased 3.6% during the same period. Sales
other than wholesale beer sales, primarily retail pub revenues, totaled
$1,195,000 in the three months ended June 30, 2002, compared to $1,134,000 in
the same 2001 period. At June 30, 2002 and 2001, the Companys products were
distributed in 48 states.

Excise Taxes. Excise taxes increased to $995,000, or 9.5% of net sales in
the 2002 second quarter, compared to $941,000, or 9.6% of net sales in the
comparable 2001 period, due to increased sales volume.

Cost of Sales. Cost of sales increased 5.5% to $7,397,000 in the three
months ended June 30, 2002, compared to $7,012,000 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 71.0% for the 2002 period compared
to 71.4% for the 2001 period. The utilization rate, based upon the breweries
combined current production capacity, was 72.2% and 68.7% for quarters ended
June 30, 2002 and 2001, respectively.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $2,982,000 in the 2002 second quarter,
compared to $3,276,000 in the 2001 second quarter 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 28.6% and 33.4% for the quarters ended June 30, 2002 and 2001,
respectively.

Interest Expense.Interest expense was $56,000 for the second quarter of
2002, down from $106,000 for the comparable 2001 period, reflecting the effect
of lower outstanding debt and lower average interest rates.

Other Income
 Net. Other income  net decreased to $8,000 in the 2002
second quarter, compared to $67,000 in the 2001 second quarter. The 2002
quarter decrease includes a $22,000 loss on disposal of fixed assets in
addition to a decrease in interest income, which was negatively affected by
declining interest rates despite an increase in the average balance of interest
-bearing deposits.

Income Taxes. The Companys effective income tax rate was a 7.3% benefit
for the second quarter of 2002 compared to 33.5% for the second 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.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Sales. Total sales increased 3.5% to $20,342,000 for the six months ended
June 30, 2002, compared to $19,655,000 for the 2001 six-month period,
attributable to a 3.3% increase in sales volume and an increase in other sales.
Total sales volumes for the first six months of 2002 increased to 113,300
barrels from 109,700 barrels for the same period in 2001. While shipments in
Washington State, the Companys largest market, decreased 4.5% as compared to
the first six months of 2001, west coast shipments increased 0.9% during the
same period. Sales other than wholesale beer sales, primarily retail pub
revenues, totaled $2,083,000 in the six months ended June 30, 2002, compared to
$1,946,000 in the comparable 2001 period.

10



---



##### Table of Contents



Excise Taxes. Excise taxes increased to $1,764,000, or 9.5% of net sales
in the first six months of 2002, up from $1,696,000, or 9.4% of net sales in
the comparable 2001 period due to increased sales volume.

Cost of Sales. Cost of sales increased 2.4% to $13,547,000 in the first
six months of 2002, versus $13,231,000 in the comparable 2001 period, due to
higher sales volume 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 73.7% for the 2001 period. The
utilization rate, based upon the breweries combined current production
capacity, was 64.8% and 62.7% for the six months ended June 30, 2002 and 2001,
respectively.

Selling, General
and Administrative Expenses. Selling, general and
administrative expenses decreased to $5,790,000 in the first six months of
2002, compared to $5,953,000 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 31.2% and 33.1% for the six months ended June 30, 2002 and 2001,
respectively.

Interest Expense.Interest expense was $110,000 for the six months ended
June 30, 2002, down from $237,000 for the comparable 2001 period, reflecting
the effect of lower outstanding debt and lower average interest rates.

Other Income
 Net. Other income  net decreased to $33,000 in the first
half of 2002, compared to $159,000 in the 2001 period. The decrease is
primarily due to a decrease in interest income, which was negatively affected
by declining interest rates despite an increase in the average balance of
interest-bearing deposits.

Income Taxes. The Companys effective income tax rate was a 7.3% benefit
for the six months ended June 30, 2002, compared to 33.5% for the 2001 period.
During 2002, the Company established a valuation allowance of $219,000, 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 $6,364,000 of cash and cash equivalents at both June 30,
2002 and December 31, 2001. At June 30, 2002, the Company had working capital
of $4,578,000. The Companys long-term debt as a percentage of total
capitalization (long-term debt, convertible redeemable preferred stock and
common stockholders equity) was 9.1% at June 30, 2002, compared to 9.2% at
December 31, 2001. Cash provided by operating activities was $839,000 for the
six months ended June 30, 2002. Cash used in operating activities for the six
months ended June 30, 2001, was $979,000 and was largely due to 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 six months ended June 30, 2001, as net
change in operating assets and liabilities.

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, has a five-year term with a
20-year amortization schedule. On June 19, 2001, the credit agreement was
amended to extend the maturity date on the Term Loan to June 5, 2007. As of
June 30, 2002, there was $6.8 million outstanding on the Term Loan, and the
Companys one-month LIBOR-based borrowing rate was approximately 3.63%. In June
2002, the credit agreement was again amended to extend the commitment period
for the Revolving Facility to July 1, 2004. As of June 30, 2002, there were no
borrowings outstanding on the Revolving Facility. The Term Loan and the
Revolving Facility are secured by substantially all of the Companys assets.
Through June 5, 2002, interest on

11



---



##### Table of Contents



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. 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 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 six months of 2002 totaled $210,000. Capital expenditures for 2002 are
expected to total approximately $650,000.

Since May 2000, the Board of Directors has authorized the repurchase of up
to a total 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. Subsequently, three further 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 six-month period ended June 30, 2002, 171,300 shares of common stock
were purchased in the open market for $398,000. As of June 30, 2002, a total of
939,000 shares of common stock had been purchased in the open market for an
aggregate expenditure of $1,648,000. As of July 30, 2002, a total of 979,000
outstanding shares of common stock had been purchased in the open market for an
aggregate expenditure of $1,732,000.

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.

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 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
12Table of Contents

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
semivariable 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 semivariable operating costs causes gross margin to be
very sensitive to relatively small increases or decreases in sales volume. In
addition, other factors that could affect cost of sales include changes in
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 media
advertising 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 fragmented craft
beer market. This increased spending has significantly increased the Companys
selling, general and administrative expenses in 1999, 2000, 2001, and the first
six 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 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

13



---



##### Table of Contents



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 six 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 alcoholic
beverage industry has become the subject of considerable societal and political
attention in recent years due to increasing public concern over alcohol-related
social problems, including drunk driving, underage drinking and health
consequences from the misuse of alcohol. If beer consumption in general were to
come into disfavor among domestic consumers, or if the domestic beer industry
were subjected to significant additional governmental regulation, the Companys
sales and results of operations could be adversely affected.

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 $219,000, 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 produce adequate taxable income in the
future, the Company may be required to cease recognition of additional tax
benefits.

14



---



##### Table of Contents



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 June
30, 2002.




PART II.




ITEM 4.Submission of Matters to a Vote of Security Holders

The Companys Annual Meeting of Shareholders was held on May 21, 2002. The
following matters were voted upon by the shareholders with the results as
follows:

| |                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) The following persons were nominated by the Board of Directors and
each was elected to serve as a director until the next Annual Meeting of
Shareholders or until his or her earlier retirement, resignation or
removal: Paul S. Shipman, Frank H. Clement, Jerry D. Jones, David A.
Peacock, Anthony J. Short, Walter F. Walker.
|
| | The number of votes cast for or withheld
for each director nominee was as follows:                                                                                                                                                                                                                                                   

|                 |  |     |           |          |  |  |         | 
|---------------- |  | --- | --------- | -------- |  |  | ------- | 
|Nominee          |  | For |           | Withheld
|Paul S. Shipman  |  |     | 7,013,759 |          |  |  | 648,776 | 
|Frank H. Clement |  |     | 7,059,034 |          |  |  | 603,501 | 
|Jerry D. Jones   |  |     | 7,058,259 |          |  |  | 604,276 | 
|David A. Peacock |  |     | 7,052,254 |          |  |  | 610,281 | 
|Anthony J. Short |  |     | 7,055,234 |          |  |  | 607,301 | 
|Walter F. Walker |  |     | 7,055,521 |          |  |  | 607,014 | 

| |                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) The shareholders voted 7,548,005 shares in the affirmative, 92,139
shares in the negative and 22,391 shares abstained to ratify the
appointment of Ernst & Young LLP, as independent auditors for the
Companys fiscal year ending December 31, 2002.
|
| | (3) The shareholders voted 6,557,521 shares in the affirmative, 1,067,959
shares in the negative and 37,055 shares abstained to approve the Redhook
Ale Brewery, Incorporated 2002 Stock Option Plan.                                                    

15



---



##### Table of Contents






ITEM 6.Exhibits and Reports on Form 8-K

|                                                         |  |                                                                                                                                                                                                     
|-------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)     Exhibits                                         |  |                                                                                                                                                                                                     
|The following exhibits are filed as part of this report.
|                                                        
|10.47                                                    |  | Seventh Amendment to
Amended and Restated
Credit Agreement
between U.S. Bank
National Association
and Registrant, dated
June 21, 2002.                                                              
|                                                        
|99.1                                                     |  | Certification Pursuant
to 18 U.S.C. Section
1350 (Section 906 of
the Sarbanes-Oxley Act
of 2002): Paul S.
Shipman, President and
Chief Executive
Officer.                                           
|                                                        
|99.2                                                     |  | Certification Pursuant
to 18 U.S.C. Section
1350 (Section 906 of
the Sarbanes-Oxley Act
of 2002): David J.
Mickelson, Executive
Vice President, Chief
Financial Officer and
Chief Operating
Officer.
|                                                        
|(b)     Reports on Form 8-K                             
|None were filed during the quarter ended June 30, 2002. 

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

16



---



##### 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.

|                |  |                                  
|--------------- |  | ---------------------------------
|August 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                                        

17