<PAGE>   1


================================================================================

                                  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 SEPTEMBER 30, 1997


                         COMMISSION FILE NUMBER 0-26542
                           ---------------------------



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


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



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


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


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


      Common stock, par value $.005 per share: 7,686,686 shares outstanding
                            as of September 30, 1997.


                    Page 1 of 13 sequentially numbered pages

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<PAGE>   2


                        REDHOOK ALE BREWERY, INCORPORATED

                                    FORM 10-Q

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                TABLE OF CONTENTS



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

ITEM 1.   Financial
          Statements

              Balance Sheets
                      September 30, 1997 and December 31, 1996......................   3

              Statements of Operations
                      Three Months Ended September 30, 1997 and 1996
                      and Nine Months Ended September 30, 1997 and 1996.............   4

              Condensed Statements of Cash Flows
                      Nine Months Ended September 30, 1997 and 1996.................   5

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

ITEM 2.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations ............................................   7


PART II.  OTHER INFORMATION

ITEM 6.   Exhibits and Reports on Form 8-K..........................................  12
</TABLE>

 
                                      2

<PAGE>   3


PART I.  Financial Information

ITEM 1.  Financial Statements

                        REDHOOK ALE BREWERY, INCORPORATED

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                       September 30,    December 31,
                                                                            1997           1996
                                                                       -------------    ------------
                                                                        (Unaudited)
                                     ASSETS
<S>                                                                     <C>              <C>        
Current Assets:
  Cash and Cash Equivalents ......................................      $ 1,756,843      $ 1,162,352
  Accounts Receivable ............................................        1,290,084        2,051,591
  Inventories ....................................................        2,774,428        2,229,376
  Income Taxes Receivable ........................................          729,071          427,075
  Other ..........................................................          546,040        1,725,942
                                                                        -----------      -----------
    Total Current Assets .........................................        7,096,466        7,596,336
Fixed Assets, Net ................................................       89,220,722       86,357,559
Other Assets .....................................................        1,151,402        1,170,144
                                                                        -----------      -----------
      Total Assets ...............................................      $97,468,590      $95,124,039
                                                                        ===========      ===========


                     LIABILITIES, REDEEMABLE PREFERRED STOCK
                         AND COMMON STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts Payable ...............................................      $ 2,355,115      $ 4,075,699
  Accrued Salaries, Wages, and Payroll Taxes .....................        1,277,761        1,220,212
  Refundable Deposits ............................................        1,141,725          950,926
  Other Accrued Expenses .........................................          356,902          367,025
  Current Portion of Long-Term Debt ..............................          589,420          132,554
                                                                        -----------      -----------
    Total Current Liabilities ....................................        5,720,923        6,746,416
                                                                        -----------      -----------
Long-Term Debt, Net of Current Portion ...........................       10,022,868        6,190,764
                                                                        -----------      -----------
Deferred Income Taxes ............................................        3,853,731        3,582,692
                                                                        -----------      -----------
Other Liabilities ................................................           42,874           52,461
                                                                        -----------      -----------

Convertible Redeemable Preferred Stock ...........................       15,955,155       15,921,855
                                                                        -----------      -----------
Common Stockholders' Equity:
  Common Stock, Par Value $0.005 per Share, Authorized, 50,000,000
    Shares; Issued and Outstanding, 7,686,686 Shares in 1997 and
    7,685,486 Shares in 1996 .....................................           38,434           38,428
  Additional Paid-In Capital .....................................       56,652,973       56,652,764
  Retained Earnings ..............................................        5,181,632        5,938,659
                                                                        -----------      -----------
      Total Common Stockholders' Equity ..........................       61,873,039       62,629,851
                                                                        -----------      -----------
        Total Liabilities, Preferred Stock and
          Common Stockholders' Equity ............................      $97,468,590      $95,124,039
                                                                        ===========      ===========
</TABLE>

                             See Accompanying Notes

                                       3
<PAGE>   4


                        REDHOOK ALE BREWERY, INCORPORATED

                            STATEMENTS OF OPERATIONS

                                   (Unaudited)




<TABLE>
<CAPTION>
                                                        Three Months Ended           Nine Months Ended 
                                                           September 30,                 September 30,
                                                   -------------------------    --------------------------
                                                      1997          1996           1997           1996
                                                   ----------    -----------    -----------    -----------
<S>                                                <C>           <C>            <C>            <C>        
Sales .........................................    $9,718,785    $10,393,830    $28,563,068    $29,251,056
Less Excise Taxes .............................       879,858        963,032      2,728,798      2,788,848
                                                   ----------    -----------    -----------    -----------
Net Sales .....................................     8,838,927      9,430,798     25,834,270     26,462,208
Cost of Sales .................................     6,546,247      6,045,247     19,272,627     16,898,029
                                                   ----------    -----------    -----------    -----------
Gross Profit ..................................     2,292,680      3,385,551      6,561,643      9,564,179
Selling, General and Administrative Expenses ..     2,450,924      2,117,104      7,390,086      5,511,378
                                                   ----------    -----------    -----------    -----------
Operating Income (Loss)  ......................      (158,244)     1,268,447       (828,443)     4,052,801
Interest Expense ..............................       187,058              -        192,840              -
Other Income -- Net ...........................        35,142        128,672         72,687        574,668
                                                   ----------    -----------    -----------    -----------
Income (Loss) before Income Taxes .............      (310,160)     1,397,119       (948,596)     4,627,469
Provision (Benefit) for Income Taxes ..........       (44,392)       509,948       (265,806)     1,689,026
                                                   ----------    -----------    -----------    -----------
Net Income (Loss) .............................    $ (265,768)   $   887,171    $  (682,790)   $ 2,938,443
                                                   ==========    ===========    ===========    ===========
Net Income (Loss) per Share ...................    $    (0.03)   $      0.10    $     (0.09)   $      0.32
                                                   ==========    ===========    ===========    ===========
Weighted Average Common and Common
  Equivalent Shares Outstanding ...............     7,686,686      9,141,758      7,686,244      9,146,227
                                                   ==========    ===========    ===========    ===========
</TABLE>

                             See Accompanying Notes


                                       4
<PAGE>   5

                        REDHOOK ALE BREWERY, INCORPORATED

                       CONDENSED STATEMENTS OF CASH FLOWS

                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                   Nine Months Ended September 30,
                                                                                   -------------------------------
                                                                                         1997          1996
                                                                                     ----------     ----------
<S>                                                                                   <C>           <C>       
OPERATING ACTIVITIES
Net Income (Loss) .............................................................       $(682,790)    $2,938,443
Adjustments to Reconcile Net Income (Loss) to Net Cash
  Provided by Operating Activities:
    Depreciation and Amortization .............................................       2,502,187      1,347,780
    Deferred Income Tax Provision .............................................         271,039        767,038
    Net Change in Operating Assets and Liabilities ............................         204,046       (463,135)
                                                                                     ----------     ----------
Net Cash Provided by Operating Activities .....................................       2,294,482      4,590,126
                                                                                     ----------     ----------
INVESTING ACTIVITIES
Expenditures for Fixed Assets .................................................      (5,906,439)   (27,437,847)
Other .........................................................................         (41,800)       (66,914)
                                                                                     ----------     ----------
Net Cash Used in Investing Activities .........................................      (5,948,239)   (27,504,761)
                                                                                     ----------     ----------
FINANCING ACTIVITIES
Proceeds from Debt ............................................................       5,350,000     17,000,000
Repayments on Debt ............................................................      (1,061,030)   (17,091,811)
Other .........................................................................         (40,722)        16,397
                                                                                     ----------     ----------
Net Cash Provided by (Used in) Financing Activities ...........................       4,248,248        (75,414)
                                                                                     ----------     ----------
Increase (Decrease) in Cash and Cash Equivalents ..............................         594,491    (22,990,049)
Cash and Cash Equivalents:
  Beginning of Year ...........................................................       1,162,352     24,676,600
                                                                                     ----------     ----------
  End of Period ...............................................................      $1,756,843     $1,686,551
                                                                                     ==========     ==========
</TABLE>

                             See Accompanying Notes


                                       5
<PAGE>   6



                        REDHOOK ALE BREWERY, INCORPORATED

                          NOTES TO FINANCIAL STATEMENTS

                                   (Unaudited)


1.  BASIS OF PRESENTATION

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


2.  EARNINGS PER SHARE

    Earnings per share is based on the weighted average common and common
equivalent shares outstanding during the respective periods. The calculation of
average common equivalent shares outstanding includes the effect of all
outstanding convertible redeemable preferred stock and outstanding stock options
for the three- and nine-month periods ended September 30, 1996. The convertible
preferred stock and outstanding stock options have been excluded from the
calculation for the quarter and nine-month period ended September 30, 1997
because their effect is antidilutive. The calculation uses the treasury stock
method in determining the resulting incremental common equivalent shares
outstanding.


3.  INVENTORIES

    Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30,    DECEMBER 31,
                                                                      1997             1996
                                                                  -------------    ------------
        <S>                                                        <C>              <C>       
        Finished goods...........................................  $1,776,688       $1,264,480
        Raw materials............................................     419,139          282,603
        Promotional merchandise..................................     370,182          511,089
        Packaging materials......................................     208,419          171,204
                                                                   -----------      -----------
                                                                   $2,774,428       $2,229,376
                                                                   ===========      ===========
</TABLE>


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




                                       6
<PAGE>   7


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

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

OVERVIEW

   Since its formation, the Company has focused its business activities on the
brewing, marketing and selling of craft beers. For the nine months ended
September 30, 1997, the Company had gross sales of $28,563,000 compared to
$29,251,000 in the comparable period of 1996. The Company believes that
period-to-period comparisons of its financial results should not be relied upon
as an accurate indicator of future performance. The Company's sales consist
predominantly of sales of beer to third-party distributors and Anheuser-Busch,
Inc. ("A-B") through the Distribution Alliance. In addition, the Company derives
other revenues from the sale of beer, food, apparel and other retail items in
its brewery pubs. The Company is required to pay federal excise taxes on sales
of its beer. The excise tax burden on beer sales increases from $7 to $18 per
barrel on annual production over 60,000 barrels and thus, if sales volumes
increase, federal excise taxes would increase as a percentage of sales.

   The Company's sales growth slowed significantly in late 1996 and sales
volumes have declined 2.9% in the nine-month period ended September 30, 1997,
compared to the comparable 1996 period. In addition to the level of consumer
demand in existing markets, the Company's sales are also affected by other
factors such as the opening of new distribution territories, new product
introductions and competitive considerations, including the increasing number of
craft brewers and promotional pricing. Sales in the craft beer industry
generally reflect a degree of seasonality, with the first quarter historically
being the slowest and the second half of the year typically demonstrating
stronger sales in connection with summer activities and fall and early winter
holidays. The Company has historically operated with little or no backlog, and
its ability to predict sales for future periods is limited.

   Under normal circumstances, the Company generally operates its brewing
facilities up to five days per week, two shifts per day. The Company has
increased its companywide annual production capacity from approximately 3,000
barrels at its first brewery in the Ballard neighborhood of Seattle in 1982 to
approximately 425,000 barrels as of September 30, 1997. Production capacity of
each facility is added in phases until the facility reaches its maximum designed
production capacity. The timing of each phase is affected by the availability of
capital, construction constraints and sales growth in new and existing markets.
The Portsmouth, New Hampshire brewery began commercial production during October
1996. The Portsmouth Brewery's current production capacity is approximately
100,000 barrels per year and its maximum designed production capacity is
approximately 250,000 barrels per year. Additional capital expenditures and
production personnel will be required to bring the Portsmouth Brewery to its
maximum designed capacity.

   Upon the opening of the Portsmouth Brewery, the Company's maximum designed
production capacity increased from 325,000 barrels per year to 575,000 barrels
per year, resulting in a significant decline in the company-wide capacity
utilization rate. The Company's capacity utilization has a significant impact on
its gross profit. When facilities are operating at their maximum designed
production capacities, profitability is favorably affected by spreading fixed
and semivariable operating costs, such as depreciation and production salaries,
over a larger sales base. Most capital costs associated with building a new
brewery and fixed and semivariable costs related to operating a new brewery are
incurred prior to, or upon commencement of, production at a facility. Because
the initial production level is substantially below the facility's maximum
designed production capacity, gross margins are negatively impacted. This impact
is reduced when actual production increases.

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




                                       7
<PAGE>   8

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


RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                      THREE MONTHS           NINE MONTHS
                                                         ENDED                  ENDED
                                                     SEPTEMBER 30,          SEPTEMBER 30,
                                                    -----------------      -----------------
                                                     1997      1996         1997      1996
                                                    --------   ------      -------   -------
<S>                                                  <C>       <C>          <C>       <C>   
Sales                                                110.0 %   110.2%       110.6%    110.5%
Less Excise Taxes                                     10.0      10.2         10.6      10.5
                                                    --------   ------      -------   -------
Net Sales                                            100.0     100.0        100.0     100.0
Cost of Sales                                         74.1      64.1         74.6      63.9
                                                    --------   ------      -------   -------
Gross Profit                                          25.9      35.9         25.4      36.1
Selling, General and Administrative Expenses          27.7      22.4         28.6      20.8
                                                    --------   ------      -------   -------
Operating Income (Loss)                               (1.8)     13.5         (3.2)     15.3
Interest Income (Expense)-- Net                       (1.7)      1.3         (0.4)      2.2
                                                    --------   ------      -------   -------
Income (Loss) Before Income Taxes                     (3.5)     14.8         (3.6)     17.5
Provision (Benefit) for Income Taxes                  (0.5)      5.4         (1.0)      6.4
                                                    --------   ------      ------    -------
Net Income (Loss)                                     (3.0)%     9.4%        (2.6)%    11.1%
                                                    ========   ======      =======   =======
</TABLE>


THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996

   Sales. Total sales decreased by 6.5% to $9,719,000 in the third quarter of
1997 from $10,394,000 in the comparable 1996 period, primarily due to a 6.3%
decline in total sales volumes to 54,000 barrels from 57,600 barrels. At
September 30, 1997 and 1996, the Company was selling beer in 47 states. The
total third quarter sales volume decline included a decrease in West Coast
sales. Sales in Washington state, the Company's largest market, declined 3.7% in
the third quarter of 1997 compared to the third quarter of 1996. The competitive
landscape has been affected by the increase in the number of craft beer
companies and the number of different products they offer. The Company's other
sales totaled $1,120,000 for the third quarter of 1997, compared to $1,166,000
for the same period in 1996.

   Excise Taxes. Excise taxes decreased to $880,000, or 10.0% of net sales in
the third quarter of 1997, from $963,000, or 10.2% of net sales in the
comparable quarter of 1996, reflecting decreased sales volumes.

   Cost of Sales. Cost of sales increased to $6,546,000 in the third quarter of
1997 from $6,045,000 in the comparable quarter of 1996, primarily due to the
impact of the depreciation and other operating costs related to the new brewery
in Portsmouth, New Hampshire, partially offset by the effects of decreases in
sales volume, freight expense and packaging costs. Cost of sales, as a
percentage of net sales, increased to 74.1% in the third quarter of 1997
compared to 64.1% in the comparable period of 1996, primarily due to an increase
in the fixed and semivariable costs associated with operating the new brewery,
partially offset by freight savings on shipments to eastern markets and a
decrease in packaging costs. The companywide utilization rate of maximum
designed capacity was 38% and 71% in the three months ended September 30, 1997
and 1996, respectively. The companywide utilization rate decreased in the 1997
period due primarily to the increase in capacity associated with the
commissioning of the Portsmouth Brewery during the fourth quarter of 1996.




                                       8
<PAGE>   9



   Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2,451,000 in the third quarter of 1997
from $2,117,000 in the comparable quarter of 1996. The increase is primarily
related to the Company's expansion of distribution. These expenses increased as
a percentage of net sales to 27.7% in 1997 from 22.4% in 1996, primarily
attributable to additional sales personnel and related expenses in new markets,
and increased promotional and marketing expenses in the Company's existing
markets that are increasingly competitive.

   Interest Expense. Interest expense totaled $187,000 in the third quarter of
1997. In the comparable quarter of 1996, all interest incurred was capitalized
as part of brewery construction costs. Substantially all
construction-in-progress was placed in service as of July 1, 1997.

   Other Income -- Net. Other income -- net decreased to $35,000 in the third
quarter of 1997 compared to $129,000 in the comparable quarter of 1996. The
decrease is due primarily to a decline in income from short-term investments as
available funds were invested in the Portsmouth and Woodinville breweries.

   Income Taxes. The Company's effective income tax rate decreased to a 14.3%
benefit in the third quarter of 1997 from a 36.5% expense in the third quarter
of 1996. The decrease is primarily the result of lower pre-tax results relative
to other components of the tax provision calculation, such as the exclusion of a
portion of meals and entertainment expenses from tax return deductions.


NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996

   Sales. Total sales decreased 2.4% to $28,563,000 for the first nine months of
1997 compared to $29,251,000 for the comparable 1996 period, as a 2.9% decrease
in total sales volumes was partially offset by an increase in other sales.
Although total sales volumes for the nine months ended September 30, 1997
decreased to 161,800 barrels from 166,600 barrels in the comparable 1996 period,
West Coast sales decreased for the same period, including a 4.7% decline in
Washington state, the Company's largest market. The competitive landscape has
been affected by the increase in the number of craft beer companies and the
number of different products they offer. The Company's other sales totaled
$2,631,000 in the first nine months of 1997, compared to $2,559,000 for the same
period in 1996.

   Excise Taxes. Excise taxes were substantially unchanged at $2,729,000, or
10.6% of net sales in the first nine months of 1997, compared to $2,789,000, or
10.5% of net sales in the comparable period of 1996.

   Cost of Sales. Cost of sales increased to $19,273,000 in the first nine
months of 1997 from $16,898,000 in the comparable period of 1996, primarily due
to the impact of the depreciation and other operating costs related to the new
brewery in Portsmouth, New Hampshire, partially offset by the effects of
decreases in sales volume, freight expense and packaging costs. Cost of sales,
as a percentage of net sales, increased to 74.6% in the first nine months of
1997 compared to 63.9% in the comparable 1996 period, primarily due to an
increase in fixed and semivariable costs associated with operating the new
brewery, partially offset by freight savings on shipments to eastern markets and
a decrease in packaging costs. The companywide utilization rate of maximum
designed capacity was 38% and 68% in the nine months ended September 30, 1997
and 1996, respectively. The companywide utilization rate decreased in the 1997
period due primarily to the increase in capacity associated with the
commissioning of the Portsmouth Brewery.

   Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $7,390,000 in the first nine months of 1997
from $5,511,000 in the comparable 1996 period. The increase is primarily related
to the Company's expansion of distribution. These expenses increased as a
percentage of net sales to 28.6% in 1997 from 20.8% in 1996, primarily
attributable to additional sales personnel and related expenses in new markets,
and increased promotional and marketing expenses in the Company's existing
markets that are increasingly competitive.




                                       9
<PAGE>   10

   Interest Expense. Interest expense totaled $193,000 in the first nine months
of 1997. There was no interest expense in the comparable period of 1996 as all
interest incurred was capitalized as part of brewery construction costs.
Substantially all construction-in-progress was placed in service as of July 1,
1997.

   Other Income -- Net. Other income -- net decreased to $73,000 in first nine
months of 1997 compared to $575,000 in the comparable 1996 period. The decrease
is due primarily to a decline in income from short-term investments as available
funds were invested in the Portsmouth and Woodinville breweries.

   Income Taxes. The Company's effective income tax rate decreased to a 28.0%
benefit in first nine months of 1997 from a 36.5% expense in the comparable 1996
period. The decrease is primarily the result of lower pre-tax results 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 $1,757,000 and $1,162,000 of cash and cash equivalents at
September 30, 1997 and December 31, 1996, respectively. At September 30, 1997,
the Company had working capital of $1,376,000 and its long-term debt as a
percentage of total capitalization (long-term debt, preferred stock and common
stockholders' equity) was 12.0% and 7.5% as of September 30, 1997, and December
31, 1996, respectively. Cash provided by operating activities totaled $2,294,000
and $4,590,000 for the nine months ended September 30, 1997 and 1996,
respectively.

   On June 5, 1997, the Company elected to convert the $9 million outstanding
balance of its secured bank facility (the "Secured Facility") to a five-year
term loan with a 20-year amortization schedule. As of September 30, 1997, there
was $8.9 million outstanding on the Secured Facility and the Company's one-month
IBOR-based borrowing rate was approximately 6.9%. In addition, the Company has a
$10 million unsecured revolving credit facility with the same bank through June
5, 1999, and as of September 30, 1997, there were no borrowings outstanding on
this facility. Interest accrues at a variable rate based on the Inter Bank
Offered Rate ("IBOR"), plus 1.25% to 2.75% for the Secured Facility, and plus
1.00% to 2.50% on the unsecured facility, depending on the Company's
debt-to-tangible net worth ratio. The Company can fix the rate by selecting IBOR
for one- to twelve-month periods as a base.

   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.

   Capital expenditures for the nine months ended September 30, 1997 totaled
$5.9 million, including $1.8 million that was accrued at December 31, 1996. The
capital expenditures related primarily to the kegging and cold storage facility
at the Woodinville Brewery that was placed in service July 1, 1997. Capital
expenditures for 1997 are expected to total approximately $6 million, including
the amount accrued at December 31, 1996.

   The Company expects to meet its future financing needs, including 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.

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



                                       10
<PAGE>   11



CERTAIN CONSIDERATIONS:  ISSUES AND UNCERTAINTIES

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

   Effect of Competition on Future Growth. 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 and the introduction of fuller-flavored
products by major national brewers. The Company's revenue growth rate began to
slow in late 1996 and sales have declined in 1997, due primarily to slower than
expected sales in its highly competitive West Coast markets. If negative sales
trends were to continue, the Company's future sales could be materially
adversely affected. The Company has historically operated with little or no
backlog and, therefore, its ability to predict sales for future periods is
limited.

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

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

   Advertising and Promotional Costs. While the Company has historically done
very limited advertising, market and competitive considerations could make a
significant increase in such spending appropriate. In addition, market and
competitive considerations could require a significant increase in other
promotional costs associated with developing existing and new markets.

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



                                       11
<PAGE>   12



   Dependence on Third-Party Distributors. The Company relies heavily on
third-party distributors for the sale of its products to retailers. The
Company's most significant non-Alliance wholesaler, K&L Distributors, Inc., an
A-B affiliated wholesaler in the Seattle area, accounts for approximately 17% of
the Company's 1997 sales. Substantially all of the remaining sales volumes are
through the Distribution Alliance to A-B affiliated distributors, most of whom
are independent wholesalers. The loss of K&L or the termination of the
Distribution Alliance could have a material adverse impact on the Company's
sales and profitability.

   Customer Acceptance, Consumer Trends and Public Attitudes. If consumers were
unwilling to accept the Company's products or if the recent trends toward
drinking craft beers were to change, it could adversely impact the Company's
sales and profitability. 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 profitability could
be adversely affected.


NEW ACCOUNTING STANDARD

   In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share ("SFAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
interim and annual periods. Under the new requirements for calculating "basic"
(primary) earnings per share, the dilutive effect of common stock equivalents
such as outstanding convertible preferred stock and stock options will be
excluded from the calculation. The impact of SFAS 128 on previously reported
earnings per share for the three and nine months ended September 30, 1996 will
be to increase earnings per share approximately $0.02 and $0.06 per share for
the respective periods. There will be no effect on the net loss per share for
the three and nine months ended September 30, 1997, because the effect of common
stock equivalents is antidilutive and, therefore, is excluded from the current
calculation. The impact of Statement 128 on the calculation of "diluted" (fully
diluted) earnings per share for these quarters is not expected to be material.


PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

     10.35     Second Amendment to Amended and Restated Credit Agreement between
               U.S. Bank of Washington, National Association and Registrant, 
               dated September 15, 1997.

     10.36     Consent, Waiver and Amendment, dated September 19, 1997, to 
               Master Distributor Agreement between Registrant and
               Anheuser-Busch, Incorporated, dated October 18, 1994.

     11.1      Computation of Earnings (Loss) Per Share
         
     27        Financial Data Schedule
       

(b) REPORTS ON FORM 8-K
   None were filed during the quarter ended September 30, 1997.


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



                                       12
<PAGE>   13


                                    SIGNATURE


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on November 7, 1997.


                                      REDHOOK ALE BREWERY, INCORPORATED




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









                                      BY:   /s/  David H. Kirske
                                         ---------------------------------------
                                                    David H. Kirske
                                                    Controller and Treasurer,
                                                    Principal Accounting Officer





DATE:  November 7, 1997





                                       13
<PAGE>   14
                                 EXHIBIT INDEX

(a)  EXHIBITS

     The following exhibits are filed as part of this report.

          10.35     Second Amendment to Amended and Restated Credit Agreement
                    between U.S. Bank of Washington, National Association and
                    Registrant, dated September 15, 1997.

          10.36     Consent, Waiver and Amendment, dated September 19, 1997, 
                    to Master Distributor Agreement between Registrant and
                    Anheuser-Busch, Incorporated, dated October 18, 1994.

          11.1      Computation of Earnings (Loss) Per Share

          27        Financial Data Schedule