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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(MARK ONE)

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[X]   |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934       
|      |  |                                                                                         
|      |  | FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003                                           
|      |  |                                                                                         
|      |  | OR                                                                                      
|      |  |                                                                                         
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|      |  |                                                                                         
|      |  | for the transition period from      to                                                  

COMMISSION FILE NUMBER 0-26542



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REDHOOK ALE BREWERY, INCORPORATED

(Exact name of registrant as specified in its charter)


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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [X]

The number of shares of the registrants Common Stock outstanding as of
April 30, 2003 was 6,240,706.

Page 1 of 20 sequentially numbered pages



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TABLE OF CONTENTS



|             |                                                                                               |                               |  |  |  |  |  | 
|------------ | --------------------------------------------------------------------------------------------- | ----------------------------- |  |  |  |  |  | 
|PART I.     
|             | ITEM 1. Financial Statements                                                                 
|             |                                                                                               | BALANCE SHEETS               
|             |                                                                                               | STATEMENTS OF OPERATIONS     
|             |                                                                                               | STATEMENTS OF CASH FLOWS     
|             |                                                                                               | NOTES TO FINANCIAL STATEMENTS
|             | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|             | ITEM 3. Quantitative and Qualitative Disclosures about Market Risk                           
|             | ITEM 4. Controls and Procedures                                                              
|PART II.    
|             | ITEM 6. Exhibits and Reports on Form 8-K                                                     
|EXHIBIT 10.1
|EXHIBIT 99.1
|EXHIBIT 99.2



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REDHOOK ALE BREWERY, INCORPORATED

FORM 10-Q

For The Quarterly Period Ended March 31, 2003

TABLE OF CONTENTS

|        |  |                                                                                       |  |     
|------- |  | ------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                       |  | Page
|        |  |                                                                                       |  |     
|PART I  |  | Financial Information                                                                 |  |     
|ITEM 1. |  | Financial Statements                                                                  |  |     
|        |  | Balance Sheets as of March 31, 2003 and December 31, 2002                             |  | 3   
|        |  | Statements of Operations for the Three Months Ended March 31, 2003 and 2002           |  | 4   
|        |  | Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002           |  | 5   
|        |  | Notes to Financial Statements                                                         |  | 6   
|ITEM 2. |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 9   
|ITEM 3. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 17  
|ITEM 4. |  | Controls and Procedures                                                               |  | 17  
|PART II |  | Other Information                                                                     |  |     
|ITEM 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 17  

2



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PART I.




ITEM 1.Financial Statements

REDHOOK ALE BREWERY, INCORPORATED




BALANCE SHEETS

|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |              |            |            |            | 
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | --------------------------------- | ------------------------------------------------------------------ | ---------- | ----------- | ---------- | ------------ | ---------- | ---------- | ---------- | 
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | March 31,   |            | December 31,
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | 2003        |            | 2002        
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            | (Unaudited) |            |              |            |           
|ASSETS                                                       |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Current Assets:                                              |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             | Cash and Cash Equivalents                                                                                                                              |                           | $                                 | 4,920,529                                                          |            |             | $          | 7,007,351    |           
|                                                             | Accounts Receivable                                                                                                                                    |                           |                                   | 1,850,275                                                          |            |             |            | 1,490,517    |           
|                                                             | Inventories                                                                                                                                            |                           |                                   | 3,021,366                                                          |            |             |            | 2,832,427    |           
|                                                             | Other                                                                                                                                                  |                           |                                   | 260,230                                                            |            |             |            | 238,268      |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        | Total Current Assets      |                                   |                                                                    | 10,052,400 |             |            |              | 11,568,563 |           
|Fixed Assets, Net                                            |                                                                                                                                                        |                           | 68,010,434                        |                                                                    |            |             | 68,360,716 |             
|Other Assets                                                 |                                                                                                                                                        |                           | 61,356                            |                                                                    |            |             | 52,592     |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        |                           | Total Assets                      |                                                                    | $          | 78,124,190  |            |              | $          | 79,981,871 |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|LIABILITIES, PREFERRED STOCK
AND COMMON STOCKHOLDERS EQUITY |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Current Liabilities:                                         |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             | Accounts Payable                                                                                                                                       |                           | $                                 | 2,080,981                                                          |            |             | $          | 2,270,450    |           
|                                                             | Accrued Salaries, Wages and Payroll Taxes                                                                                                              |                           |                                   | 1,417,822                                                          |            |             |            | 1,635,463    |           
|                                                             | Refundable Deposits                                                                                                                                    |                           |                                   | 2,588,918                                                          |            |             |            | 2,546,628    |           
|                                                             | Other Accrued Expenses                                                                                                                                 |                           |                                   | 318,143                                                            |            |             |            | 320,470      |           
|                                                             | Current Portion of Long-Term Debt                                                                                                                      |                           |                                   | 450,000                                                            |            |             |            | 450,000      |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        | Total Current Liabilities |                                   |                                                                    | 6,855,864  |             |            |              | 7,223,011  |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Long-Term Debt, Net of Current Portion                       |                                                                                                                                                        |                           | 5,962,500                         |                                                                    |            |             | 6,075,000  |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Deferred Income Taxes, Net                                   |                                                                                                                                                        |                           | 468,798                           |                                                                    |            |             | 468,798    |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Commitments                                                  |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Convertible Redeemable Preferred Stock                       |                                                                                                                                                        |                           | 16,199,355                        |                                                                    |            |             | 16,188,255 |             
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|Common Stockholders Equity:                                 |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             | Common Stock, Par Value $0.005 per Share, Authorized, 50,000,000
Shares; Issued and Outstanding, 6,245,546 Shares in 2003 and
6,326,146 Shares in 2002 |                           |                                   | 31,228                                                             |            |             |            | 31,631       |           
|                                                             | Additional Paid-In Capital                                                                                                                             |                           |                                   | 54,293,770                                                         |            |             |            | 54,477,181   |           
|                                                             | Accumulated Deficit                                                                                                                                    |                           |                                   | (5,687,325                                                         | )          |             |            | (4,482,005   | )         
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        |                           | Total Common Stockholders Equity |                                                                    |            | 48,637,673  |            |              |            | 50,026,807 |           
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             
|                                                             |                                                                                                                                                        |                           |                                   | Total Liabilities, Preferred Stock and
Common Stockholders Equity |            | $           | 78,124,190 |              |            | $          | 79,981,871 | 
|                                                             |                                                                                                                                                        |                           |                                   |                                                                    |            |             |            |             

See Accompanying Notes to Financial Statements

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REDHOOK ALE BREWERY, INCORPORATED

STATEMENTS OF OPERATIONS
(Unaudited)

|                                             |  |                              |            |      |  |   |           |  
|-------------------------------------------- |  | ---------------------------- | ---------- | ---- |  | - | --------- | -
|                                             |  | Three Months Ended March 31,
|                                             |  |                             
|                                             |  | 2003                         |            | 2002
|                                             |  |                              |            |     
|Sales                                        |  | $                            | 8,671,200  |      |  | $ | 8,921,288 |  
|Less Excise Taxes                            |  |                              | 733,014    |      |  |   | 768,832   |  
|                                             |  |                              |            |      |  |   |           |  
|Net Sales                                    |  |                              | 7,938,186  |      |  |   | 8,152,456 |  
|Cost of Sales                                |  |                              | 6,266,742  |      |  |   | 6,149,819 |  
|                                             |  |                              |            |      |  |   |           |  
|Gross Profit                                 |  |                              | 1,671,444  |      |  |   | 2,002,637 |  
|Selling, General and Administrative Expenses |  |                              | 2,833,274  |      |  |   | 2,807,660 |  
|                                             |  |                              |            |      |  |   |           |  
|Operating Income (Loss)                      |  |                              | (1,161,830 | )    |  |   | (805,023  | )
|Interest Expense                             |  |                              | 51,012     |      |  |   | 53,965    |  
|Other Income (Expense)  Net                 |  |                              | 18,622     |      |  |   | 24,595    |  
|                                             |  |                              |            |      |  |   |           |  
|Income (Loss) before Income Taxes            |  |                              | (1,194,220 | )    |  |   | (834,393  | )
|Income Tax Provision (Benefit)               |  |                              |           |      |  |   | (60,911   | )
|                                             |  |                              |            |      |  |   |           |  
|Net Income (Loss)                            |  | $                            | (1,194,220 | )    |  | $ | (773,482  | )
|                                             |  |                              |            |      |  |   |           |  
|Basic Earnings (Loss) per Share              |  | $                            | (0.19      | )    |  | $ | (0.11     | )
|                                             |  |                              |            |      |  |   |           |  
|Diluted Earnings (Loss) per Share            |  | $                            | (0.19      | )    |  | $ | (0.11     | )
|                                             |  |                              |            |      |  |   |           |  

See Accompanying Notes to Financial Statements

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REDHOOK ALE BREWERY, INCORPORATED

STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                                                  |                     |                                                |            |                              |          |      |          |           |          |  
|------------------------------------------------------------------------------------------------- | ------------------- | ---------------------------------------------- | ---------- | ---------------------------- | -------- | ---- | -------- | --------- | -------- | -
|                                                                                                  |                     |                                                |            | Three Months Ended March 31,
|                                                                                                  |                     |                                                |            |                             
|                                                                                                  |                     |                                                |            | 2003                         |          | 2002
|                                                                                                  |                     |                                                |            |                              |          |     
|Operating Activities                                                                              |                     |                                                |            |                              |          |      |          |          
|Net Income (Loss)                                                                                 |                     | $                                              | (1,194,220 | )                            |          | $    | (773,482 | )        
|Adjustments
to Reconcile Net Income (Loss) to Net CashProvided by (Used in) Operating Activities: |                     |                                                |            |                              |          |      |          |          
|                                                                                                  |                     | Depreciation and Amortization                  |            |                              | 766,846  |      |          |           | 783,076  |  
|                                                                                                  |                     | Deferred Income Taxes, Net                     |            |                              |         |      |          |           | (67,373  | )
|                                                                                                  |                     | Net Change in Operating Assets and Liabilities |            |                              | (954,539 | )    |          |           | (273,471 | )
|                                                                                                  |                     |                                                |            |                              |          |      |          |          
|Net Cash Used in Operating Activities                                                             |                     |                                                | (1,381,913 | )                            |          |      | (331,250 | )        
|                                                                                                  |                     |                                                |            |                              |          |      |          |          
|Investing Activities                                                                              |                     |                                                |            |                              |          |      |          |          
|Expenditures for Fixed Assets                                                                     |                     |                                                | (408,595   | )                            |          |      | (195,930 | )        
|Other, Net                                                                                        |                     |                                                |           |                              |          |      | (3,113   | )        
|                                                                                                  |                     |                                                |            |                              |          |      |          |          
|Net Cash Used in Investing Activities                                                             |                     |                                                | (408,595   | )                            |          |      | (199,043 | )        
|                                                                                                  |                     |                                                |            |                              |          |      |          |          
|Financing Activities                                                                              |                     |                                                |            |                              |          |      |          |          
|Principal Payments on Debt                                                                        |                     |                                                | (112,500   | )                            |          |      | (112,500 | )        
|Repurchase of Common Stock                                                                        |                     |                                                | (183,814   | )                            |          |      | (229,933 | )        
|                                                                                                  |                     |                                                |            |                              |          |      |          |          
|Net Cash Used in Financing Activities                                                             |                     |                                                | (296,314   | )                            |          |      | (342,433 | )        
|                                                                                                  |                     |                                                |            |                              |          |      |          |          
|Increase (Decrease) in Cash and Cash Equivalents                                                  |                     |                                                | (2,086,822 | )                            |          |      | (872,726 | )        
|Cash and Cash Equivalents:                                                                        |                     |                                                |            |                              |          |      |          |          
|                                                                                                  | Beginning of Period |                                                |            | 7,007,351                    |          |      |          | 6,363,786 |         
|                                                                                                  |                     |                                                |            |                              |          |      |          |          
|                                                                                                  | End of Period       |                                                | $          | 4,920,529                    |          |      | $        | 5,491,060 |         
|                                                                                                  |                     |                                                |            |                              |          |      |          |          

See Accompanying Notes to Financial Statements

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REDHOOK ALE BREWERY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Basis of Presentation

The accompanying financial statements and related notes of Redhook Ale
Brewery, Incorporated (the Company) 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, 2002. These financial statements
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 Company follows Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standard (SFAS) No. 128, Earnings per
Share. Basic loss per share is calculated using the weighted average number of
shares of Common Stock outstanding. 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 convertible preferred stock and outstanding stock
options have been excluded from the calculation of diluted loss per share for
the quarters ended March 31, 2003 and 2002 because their effect is
antidilutive. The calculation uses the treasury stock method and the as if
converted method in determining the resulting incremental average equivalent
shares outstanding as applicable.

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

|                                                         |              |                                |                                                            |   |                    |            |      |   |           |          |  
|-------------------------------------------------------- | ------------ | ------------------------------ | ---------------------------------------------------------- | - | ------------------ | ---------- | ---- | - | --------- | -------- | -
|                                                         |              |                                |                                                            |   | Three Months Ended
|                                                         |              |                                |                                                            |   | March 31,         
|                                                         |              |                                |                                                            |   |                   
|                                                         |              |                                |                                                            |   | 2003               |            | 2002
|                                                         |              |                                |                                                            |   |                    |            |     
|Basic and diluted earnings (loss) per share computation: |              |                                |                                                            |   |                    |            |      |  
|                                                         | Numerator:   |                                |                                                            |   |                    |            |      |   |          
|                                                         |              | Net income (loss)              |                                                            | $ | (1,194,220         | )          |      | $ | (773,482  | )       
|                                                         |              | Preferred stock accretion      |                                                            |   | (11,100            | )          |      |   | (11,100   | )       
|                                                         |              |                                |                                                            |   |                    |            |      |  
|                                                         |              |                                | Numerator  income (loss) available
to common stockholders |   | $                  | (1,205,320 | )    |   | $         | (784,582 | )
|                                                         |              |                                |                                                            |   |                    |            |      |  
|                                                         | Denominator: |                                |                                                            |   |                    |            |      |   |          
|                                                         |              | Weighted average common shares |                                                            |   | 6,291,916          |            |      |   | 6,868,733 |         
|                                                         |              |                                |                                                            |   |                    |            |      |  
|                                                         |              |                                | Basic and diluted
earnings (loss) per share                |   | $                  | (0.19      | )    |   | $         | (0.11    | )
|                                                         |              |                                |                                                            |   |                    |            |      |  

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REDHOOK ALE BREWERY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)

3. Inventories

Inventories consist of the following:

|                        |  |           |           |              |  |   |           | 
|----------------------- |  | --------- | --------- | ------------ |  | - | --------- | 
|                        |  | March 31, |           | December 31,
|                        |  | 2003      |           | 2002        
|                        |  |           |           |             
|Raw materials           |  | $         | 1,035,559 |              |  | $ | 1,060,760 | 
|Work in process         |  |           | 971,778   |              |  |   | 797,712   | 
|Finished goods          |  |           | 503,578   |              |  |   | 341,963   | 
|Promotional merchandise |  |           | 376,586   |              |  |   | 413,676   | 
|Packaging materials     |  |           | 133,865   |              |  |   | 218,316   | 
|                        |  |           |           |              |  |   |           | 
|                        |  | $         | 3,021,366 |              |  | $ | 2,832,427 | 
|                        |  |           |           |              |  |   |           | 

Work in process is beer held in fermentation tanks prior to the filtration
and packaging process.

4. Stock Repurchase Program

Since May 2000, the Board of Directors has authorized the repurchase of
1.5 million shares of the Companys outstanding shares of Common Stock. In May
2000, the Board of Directors initially authorized the repurchase of up to
500,000 shares. Three subsequent resolutions were passed by the Board of
Directors authorizing the repurchase of additional shares: in January 2001 for
an additional 250,000 shares, in November 2001 for an additional 250,000 shares
and in August 2002 for an additional 500,000 shares. During the three-month
period ended March 31, 2003, 80,600 shares of Common Stock were purchased in
the open market for $184,000. As of March 31, 2003, a total of 1,442,200 shares
of Common Stock had been purchased in the open market for an aggregate
expenditure of $2,703,000.

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REDHOOK ALE BREWERY, INCORPORATED

NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)

5. Stock-Based Compensation

The Company accounts for its employee stock-based compensation plans using
the intrinsic value method, as prescribed by Accounting Principle Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees. Under APB 25, because
the Companys employee stock options are granted at an exercise price equal to
the fair market value of the underlying Common Stock on the date of the grant,
no compensation expense is recognized. As permitted, the Company has elected to
adopt the disclosure only provisions of SFAS No. 148, Accounting for
Stock-Based Compensation.

The following table illustrates the effect on net income (loss) and
earnings (loss) per share for the quarters ended March 31, 2003 and 2002 had
compensation cost for the Companys stock options been recognized based upon
the estimated fair value on the grant date under the fair value methodology.

|                                                                                                                                     |  |                              |            |      |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | ---- |  | - | -------- | -
|                                                                                                                                     |  | Three Months Ended March 31,
|                                                                                                                                     |  |                             
|                                                                                                                                     |  | 2003                         |            | 2002
|                                                                                                                                     |  |                              |            |     
|Reported net income
(loss)                                                                                                           |  | $                            | (1,194,220 | )    |  | $ | (773,482 | )
|Add: Stock-based employee
compensation expense as
reported under APB
25                                                              |  |                              |           |      |  |   |         |  
|Less: Stock-based employee
compensation expense
determined under fair
value based method for all
options, net of related
tax
effects |  |                              | (67,616    | )    |  |   | (51,398  | )
|                                                                                                                                     |  |                              |            |      |  |   |          |  
|Pro forma net income
(loss)                                                                                                          |  | $                            | (1,261,836 | )    |  | $ | (824,880 | )
|                                                                                                                                     |  |                              |            |      |  |   |          |  
|Reported basic and diluted
earnings (loss) per
share                                                                                 |  | $                            | (0.19      | )    |  | $ | (0.11    | )
|Pro forma basic and diluted
earnings (loss) per
share                                                                                |  | $                            | (0.20      | )    |  | $ | (0.12    | )

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

The following discussion and analysis should be read in conjunction with
the Companys Financial Statements and Notes thereto included herein. The
discussion and analysis includes period-to-period comparisons of the Companys
financial results. Although period-to-period comparisons may be helpful in
understanding the Companys financial results, the Company believes that they
should not be relied upon as an accurate indicator of future performance.

Overview

Since its formation, the Company has focused its business activities on the
brewing, marketing and selling of craft beers in the United States. For the
three months ended March 31, 2003, the Company had gross sales of $8,671,000,
a decrease of 2.8% from the three months ended March 31, 2002. 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 two brewery pubs.

The Companys sales volume (shipments) decreased 4.8% to 47,700 barrels for
the three months ended March 31, 2003, as compared to 50,100 barrels in the
same 2002 period. 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, therefore,
its ability to predict sales for future periods is limited.

The Companys sales are affected by several factors, including consumer
demand, price discounting and competitive considerations. The Company
competes in the highly competitive craft beer market as well as in the much
larger specialty beer market. The craft beer segment is highly competitive
due to the proliferation of small craft brewers, including contract brewers,
and the increase in the number of products offered by such brewers. The
specialty beer market encompasses producers of import beers, major national
brewers that have introduced fuller-flavored products, and large spirit
companies and national brewers that have recently introduced flavored alcohol
beverages. Imported products from foreign brewers have enjoyed a resurgence
in demand since the mid-1990s. Certain national domestic brewers have also
sought to appeal to the growing demand for craft beers by producing their own
fuller-flavored products. Introductions of flavored alcohol beverages in 2001
and 2002 have delivered initial success. Industry sources generally believe
that the consumers of flavored alcohol beverages correlate closely with
consumers of import and craft beer products. Because the number of
participants and number of different products offered in this segment have
increased significantly in recent years, the competition for bottled product
placements and especially for draft beer placements has intensified.

In January 2003, the Company entered into a licensing agreement with
Widmer Brothers Brewing Company to produce and sell the Widmer Hefeweizen brand
in states east of the Mississippi River. Brewing of this product, which began
in February 2003, is conducted at the Portsmouth Brewery under the supervision
and assistance of Widmers brewing staff to insure their brands quality and
matching taste profile. The term of this agreement is for five years, with an
additional one-year automatic renewal unless either party elects to terminate
the arrangement. The agreement may be terminated by either party at any time
without cause pursuant to 150 days notice. The agreement may be terminated for
cause by either party under certain conditions. During the term of this
agreement, Redhook will not brew, advertise, market, or distribute any product
that is labeled or advertised as a Hefeweizen or any similar product in the
agreed upon eastern territory, once the existing Redhook Hefe-weizen business
is transitioned to Widmers Hefeweizen. This transition may take up to one
year. This agreement, for the Eastern United States only, is expected to
increase capacity utilization and strengthen the Companys product portfolio.
The brewing and sales of Widmer Hefeweizen in the first quarter of 2003 did not
have a material impact on the Companys sales or results of operations. The
Company does not expect that it will have a material impact on the Companys
sales or results of operations in 2003. In the Western United States, Redhook
and Widmer Brothers Brewing Company remain competitors in the highly
competitive craft beer market.

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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 increases, federal
excise taxes would increase as a percentage of sales. Most states also collect
an excise tax on the sale of beer.

Under normal circumstances, the Company operates its brewing facilities
up to six days per week with multiple shifts per day. The current production
capacity, under ideal brewing conditions, is approximately 250,000 barrels
per year at the Woodinville Brewery and 110,000 barrels per year at the
Portsmouth Brewery. During the peak sales volume periods of 2002, production
capacity at the Portsmouth Brewery was nearly fully utilized. In order to
accommodate anticipated growth in the markets served by the Portsmouth
Brewery, including growth resulting from sales of Widmer Hefeweizen, the
Company is expanding fermentation capacity during the first half of 2003.
This expansion will bring the current production capacity to approximately
125,000 barrels per year. Production capacity at the Portsmouth facility can
be added in phases until the facility reaches its maximum designed production
capacity of approximately 250,000 barrels per year, under ideal brewing
conditions. Such an increase would require additional capital expenditures,
primarily for fermentation equipment, and production personnel. The decision
to add capacity is affected by the availability of capital, construction
constraints and anticipated sales in new and existing markets.

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

In addition to capacity utilization, other factors that could affect cost
of sales and gross margin 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
fees related to the Distribution Alliance with A-B.

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

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. Judgments and uncertainties affecting the application of
these policies may result in materially different amounts being reported under
different conditions or using different assumptions.

The Company records federal and state income taxes in accordance with
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standard (SFAS) No. 109, Accounting for Income Taxes. Deferred income taxes
or tax benefits reflect the tax effect of temporary differences between the
amounts of assets and liabilities for financial reporting purposes and amounts
as measured for tax purposes. The Company will establish a valuation allowance
if it is more likely than not that these items will either expire before the
Company is able to realize their benefits, or that future deductibility is
uncertain. The valuation allowance is reviewed and adjusted on a quarterly
basis based on managements assessment of the realizability of the deferred tax
assets. As of December 31, 2002, the Company had approximately $11.2 million of
deferred tax assets, comprised principally of federal net operating loss
carryforwards (NOLs) that expire from 2012 through 2023 and state NOLs that
expire through 2018. The recognition 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 2003, the Company
increased its valuation allowance by $382,000 to $653,000, thereby recording a

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zero income tax benefit in its statement of operations. The accumulated
valuation allowance included as a reduction of the Companys deferred tax
assets in the balance sheet represents an allowance against certain state and
federal net operating tax loss carryforwards that may expire before the Company
is able to utilize the tax benefit. To the extent that the Company continues to
be unable to generate adequate taxable income in future periods, the Company
will not be able to recognize additional tax benefits and may be required to
record a greater valuation allowance covering potentially expiring NOLs.

Long-Lived Assets.The Company evaluates potential impairment of
long-lived assets in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 establishes
procedures for review of recoverability and measurement of impairment, if
necessary, of long-lived assets, goodwill and certain identifiable intangibles.
When facts and circumstances indicate that the carrying values of long-lived
assets may be impaired, an evaluation of recoverability is performed 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.
Fixed assets are grouped at the lowest level for which there are identifiable
cash flows when assessing impairment. During 2002, the Company performed an
analysis of its brewery assets to determine if an impairment might exist. The
Companys estimate of future undiscounted cash flows indicated that such
carrying values were expected to be recovered. Nonetheless, it is possible that
the estimate of future undiscounted cash flows may change in the future,
resulting in the need to write down those assets to their fair value.

Results of Operations

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

|                                             |  |                              |       |      |  |  |       |   
|-------------------------------------------- |  | ---------------------------- | ----- | ---- |  |  | ----- | --
|                                             |  | Three Months Ended March 31,
|                                             |  |                             
|                                             |  | 2003                         |       | 2002
|                                             |  |                              |       |     
|Sales                                        |  |                              | 109.2 | %    |  |  | 109.4 | % 
|Less Excise Taxes                            |  |                              | 9.2   |      |  |  | 9.4   |   
|                                             |  |                              |       |      |  |  |       |   
|Net Sales                                    |  |                              | 100.0 |      |  |  | 100.0 |   
|Cost of Sales                                |  |                              | 78.9  |      |  |  | 75.4  |   
|                                             |  |                              |       |      |  |  |       |   
|Gross Profit                                 |  |                              | 21.1  |      |  |  | 24.6  |   
|Selling, General and Administrative Expenses |  |                              | 35.7  |      |  |  | 34.4  |   
|                                             |  |                              |       |      |  |  |       |   
|Operating Income (Loss)                      |  |                              | (14.6 | )    |  |  | (9.8  | ) 
|Interest Expense                             |  |                              | 0.6   |      |  |  | 0.7   |   
|Other Income (Expense)  Net                 |  |                              | 0.2   |      |  |  | 0.3   |   
|                                             |  |                              |       |      |  |  |       |   
|Income (Loss) before Income Taxes            |  |                              | (15.0 | )    |  |  | (10.2 | ) 
|Income Tax Provision (Benefit)               |  |                              |      |      |  |  | (0.7  | ) 
|                                             |  |                              |       |      |  |  |       |   
|Net Income (Loss)                            |  |                              | (15.0 | )%   |  |  | (9.5  | )%
|                                             |  |                              |       |      |  |  |       |   

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Sales.Total sales decreased 2.8% to $8,671,000 for the three months
ended March 31, 2003, compared to $8,921,000 for the 2002 first quarter,
attributable to a 4.8% decrease in barrels sold and a 5.0% decline in other
sales. Total sales volume for the first quarter of 2003 decreased to 47,700
barrels from 50,100 barrels for the same period in 2002, a result of a 9.5%
decline in shipments of the Companys draft products and a 2.1% decline in
shipments of its bottled products. The mix of package sales to draft sales
generally affects overall revenue per barrel, with package product generating a
higher revenue per barrel but also an increased cost of sales per barrel. The
sales mix continued to migrate towards an increasing proportion of package
sales in the first quarter of 2003, with 65.1% of first quarter 2003 total
volume being package shipments versus 63.3% in

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the same 2002 quarter. Within
package sales, the 12-pack package decreased in the first quarter of 2003 to
34.0% of package sales from 34.4% in the first quarter of 2002. A 3.0% decline
in shipments in Washington State, the Companys largest market, was a major
factor leading to a 5.1% decline in sales volume for the West Coast. Sales
other than wholesale beer sales, primarily retail pub revenues, declined to
$843,000 in the first quarter of 2003, from $888,000 in the first quarter of
2002 as a result of the September 2002 closure of the Companys Trolleyman Pub,
located in the former Fremont Brewery. At March 31, 2003 and 2002, the
Companys products were distributed in 48 states.

Excise Taxes. Excise taxes were $733,000, or 9.2% of net sales, in the
2003 first quarter compared to $769,000, or 9.4% of net sales, in the
comparable 2002 period due to decreased sales volume.

Cost of Sales. Cost of sales increased 1.9% to $6,267,000 in the three
months ended March 31, 2003, compared to $6,150,000 in the same 2002 period,
due to increases in the costs of raw materials, packaging and
brewing supplies, as well as higher freight costs driven by fuel
surcharges. Cost of sales, as a percentage of net sales, was 78.9% for the 2003
period compared to 75.4% for the 2002 period. Based upon the breweries
combined current production capacity of 90,000 barrels and 87,500 barrels for
the quarters ended March 31, 2003 and 2002, the utilization rates were 53.0%
and 57.3%, respectively.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2,833,000 in the 2003 first quarter,
compared to $2,808,000 in the 2002 first quarter due primarily to an increase
in salaries, partially offset by a decrease in rent and related expenses
incurred in conjunction with the 2002 lease of the Companys former Fremont
Brewery in Seattle and its former corporate offices. As a percentage of net
sales, these expenses were 35.7% and 34.4% for the quarters ended March 31,
2003 and 2002, respectively.

Interest Expense.Interest expense was $51,000 for the first quarter of
2003, down from $54,000 for the comparable 2002 period, reflecting the effect
of lower outstanding debt.

Other Income (Expense)- Net. Other income (expense)  net decreased to
income of $19,000 in the 2003 first quarter, compared to income of $25,000 in
the 2002 first quarter, primarily attributable to a decline in interest income
resulting from a decrease in the average balance of interest-bearing deposits
and lower average interest rates.

Income Taxes. The Companys effective income tax rate was a 0.0% for the
first quarter of 2003 compared to 7.3% for the first quarter of 2002. During
2003, the Company increased its valuation allowance by $382,000, effectively
reducing the income tax benefit recorded in its statement of operations to $0.
The valuation allowance covers a portion of the Companys deferred tax assets,
specifically certain federal and state net operating tax loss carryforwards,
that may expire before the Company is able to utilize the tax benefit. To the
extent that the Company continues to be unable to generate adequate taxable
income in future periods, the Company will not be able to recognize additional
tax benefits and may be required to record a greater valuation allowance
covering potentially expiring NOLs. 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.

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Liquidity and Capital Resources

The Company had $4,921,000 and $7,007,000 of cash and cash equivalents at
March 31, 2003 and December 31, 2002, respectively. At March 31, 2003, the
Company had working capital of $3,197,000. The Companys long-term debt as a
percentage of total capitalization (long-term debt, convertible redeemable
preferred stock and common stockholders equity) was 9.0% at March 31, 2003
and 2002. Cash used in operating activities totaled $1,382,000 and $331,000
for the three months ended March 31, 2003 and 2002, respectively. Cash used
in operating activities increased over the first quarter of 2002 as a result
of an increase in the loss from operations, the timing of collections of
accounts receivable as well as the timing of payment of trade accounts
payable.

The Company has a credit agreement with a bank under which a term loan (the
Term Loan) and a $10 million revolving credit facility (the Revolving
Facility) are provided. The Term Loan, which originated in June 1997 upon
the conversion of a $9 million secured credit facility, had a five-year term
with a 20-year amortization schedule. In June 2001, the credit agreement was
amended to extend the maturity date on the Term Loan to June 5, 2007. In June
2002, the credit agreement was amended to extend the commitment period for
the Revolving Facility to July 1, 2004. The Term Loan and the Revolving
Facility are secured by substantially all of the Companys assets. Through
June 4, 2002, interest on the Term Loan accrued at a variable rate based on
the London Inter Bank Offered Rate (LIBOR) plus 1.25%. Effective June 5,
2002, interest on the Term Loan accrued at LIBOR plus 1.75%. The interest
rate for the Revolving Facility is the applicable LIBOR plus 1.00% to 2.00%,
depending on the Companys funded debt ratio. The Company has the option to
fix the applicable interest rate for up to twelve months by selecting LIBOR
for one- to twelve- month periods as a base. As of March 31, 2003, there was
$6.4 million outstanding on the Term Loan, and the Companys one-month
LIBOR-based borrowing rate was approximately 3.07%. As of March 31, 2003,
there were no borrowings outstanding on the Revolving Facility. The
termination of the A-B Distribution Agreement for any reason or the failure
by the Company to perform any of its material obligations under the A-B
Investment Agreement would constitute an event of default under the credit
agreement and the bank may declare the entire outstanding loan balance
immediately due and payable. If this were to occur, it would be unlikely that
the Company could satisfy its obligations under the Term Loan. In all events,
unless additional capital were raised, the Company would not have sufficient
liquidity to satisfy both its obligation under the Term Loan and its
obligation to redeem the Series B Preferred Stock under the A-B Investment
Agreement. The Company could seek to refinance its Term Loan with one or more
banks or obtain additional equity capital; however, there can be no assurance
the Company would be able to access additional capital to meet its needs or
that such additional capital would be at commercially reasonable terms.

In December 2001, the credit agreement was amended to address a financial
covenant with which the Company was not in compliance as of September 30, 2001.
The amendment accomplished the following: to waive the September 30, 2001
covenant violation; to temporarily modify the time periods used to calculate
the financial covenant with which the Company had not been in compliance; to
modify the minimum required by the covenant; and to redefine the covenant to
comply with the banks revised internal guidelines. In March 2003, the credit
agreement was again amended to modify several financial covenants. The December
2001 and the March 2003 revisions to the credit agreement have reduced the
likelihood that a violation of the covenant will occur again. However, if the
Company were to report a significant net loss for one or more quarters within a
time period covered by the financial covenants, one or more of the covenants
would be negatively impacted and could cause a violation. Failure to meet the
covenants required by the credit agreement is an event of default and, at its
option, the Bank could deny a request for a waiver and declare the entire
outstanding loan balance immediately due and payable. In such a case, the
Company would seek to refinance the loan with one or more banks, potentially at
less desirable terms. However, there can be no guarantee that additional
financing would be available at commercially reasonable terms, if at all. The
Company was in compliance with all covenants for the quarter ended March 31,
2003.

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The Company has required capital principally for the construction and
development of its 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 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 three months of 2003 totaled $409,000. Capital expenditures for 2003 are
expected to total approximately $1,175,000.

Since May 2000, the Board of Directors has authorized the repurchase of 1.5
million shares of the Companys outstanding shares of Common Stock. In May
2000, the Board of Directors initially authorized the repurchase of up to
500,000 shares. Three subsequent resolutions were passed by the Board of
Directors authorizing the repurchase of additional shares: in January 2001
for an additional 250,000 shares, in November 2001 for an additional
250,000 shares, and in August 2002 for an additional 500,000 shares. During the
three-month period ended March 31, 2003, 80,600 shares of Common Stock were
purchased in the open market for $184,000. As of March 31, 2003, a total of
1,442,200 shares of Common Stock had been purchased in the open market for an
aggregate expenditure of $2,703,000. As of April 30, 2003, a total of
1,447,000 shares of Common Stock had been purchased in the open market for an
aggregate expenditure of $2,714,000.

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.

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, 2002,
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 severe
negative impact on the Companys sales and results of operations as it would be
extremely difficult for the Company to rebuild its own distribution network.
Further, 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, 2002 (see
Business  Relationship with Anheuser-Busch, Incorporated  A-B Distribution
Agreement), the terms of the Series B Preferred Stock held 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, if any. 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 all
shares of Series B Preferred Stock, then all funds that are legally available
must be used to redeem Series B Preferred Stock. At any time thereafter when
additional funds of the Company become legally available, such funds must be
immediately used to redeem additional shares of Series B Preferred Stock. The
Company would not be legally able to redeem shares of

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Series B Preferred Stock
if, after giving effect to such redemption, the Company would not be able to
pay its debts when due in the usual course of business or the Companys total
assets would be less than the sum of its total liabilities. Such a mandatory
redemption could have a material adverse effect on the financial position and
cash flows of the Company. While the Company believes that the benefits of the
Distribution Alliance, in particular distribution and material cost
efficiencies, offset costs associated with the Alliance, there can be no
assurance that these costs will not have a negative impact on the Companys
profit margins in the future. Notice of intention to terminate the Distribution
Agreement must be made by the party electing to do so no less than six months
prior to the termination date.

Effect of Competition on Future Sales.The domestic market in which the
Companys craft beers are sold is highly competitive due to the proliferation
of small craft brewers, including contract brewers, the increase in the
number of products offered by such brewers, increased competition from
wine, spirits and imported beers, the introduction of fuller-flavored products
by major national brewers and recent introductions of flavored alcohol
beverages by large spirit companies and national brewers. While the Companys
sales volumes for 2000, 2001 and 2002 increased when compared to the
corresponding prior years volumes, the Company did experience declining sales
volumes ranging from 2.3% to 5.7% for the years 1997 through 1999. If the
Company were to again experience negative sales trends, the Companys future
sales and results of operations would be adversely affected. The Company has
historically operated with little or no backlog and, therefore, its ability to
predict sales for future periods is limited.

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

Variability of Gross Margin and Cost of Sales.The Company anticipates
that its future gross margins will fluctuate and may decline as a result of
many factors, including disproportionate depreciation and other fixed and
semi-variable operating costs, depending on the level of production at the
Companys breweries in relation to current production capacity. The Companys
high level of fixed and semi-variable operating costs causes gross margin to be
very sensitive to relatively small increases or decreases in sales volume. In
addition, other factors that could affect cost of sales include changes in
freight charges, the availability and prices of raw materials and packaging
materials, the mix between draft and bottled product sales, the sales mix of
various bottled product packages and Federal or state excise taxes. Also, as
sales volume through the Distribution Alliance increases, the related fees
would increase.

Advertising and Promotional Costs.The Company has participated in
advertising programs to varying degrees over the past five years. Prior to
1999, the Company engaged in very limited advertising to market its products.
In order to increase brand awareness and capture a larger share of the
fragmented craft beer market, the Company determined that a significant
increase in spending on advertising and promotion was necessary. In 1999 and
2000, the Company primarily utilized radio, billboard and print advertising in
key markets, while also participating to a smaller degree in a co-operative
program with its distributors. In 2001, 2002 and 2003, the Company allocated a
larger share of its advertising spending to this co-operative program whereby
the Companys spending is matched dollar for dollar by the distributor.
Expenditures for the co-op program and media advertising program totaled $2.6
million and $1.9 million for the years ended December 31, 2001 and 2002,
respectively, and $366,000 for the quarter ended March 31, 2003. This increased
advertising spending has significantly increased the Companys selling, general
and administrative expense since 1998, leading to increased losses and a
reduction in stockholders equity. Market and competitive considerations could
require an increase in other promotional costs associated with developing
existing and new markets.

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 three months of 2003. 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

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

Effect of Sales Trends on Brewery Efficiency and Operations. The
Companys breweries have been operating at production levels substantially
below their current 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, 2002, the Company had
approximately $11.2 million of deferred tax assets, comprised principally of
federal net operating loss carryforwards that expire from 2012 through 2023 and
state NOLs that expire from 2002 through 2018. Federal NOLs, generally
permitted to be carried forward no more than 20 years, and state NOLs,
generally permitted to be carried forward five to 15 years, can be used to
offset regular tax liabilities in future years. The recognition 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 2003,
the Company increased its valuation allowance by $382,000 to $653,000,
effectively reducing the income tax benefit recorded in its statement of
operations to $0. The accumulated valuation allowance included as a reduction
in the Companys deferred tax assets in the balance sheet represents an
allowance against certain state and federal net operating tax loss
carryforwards that may expire before the Company is able to utilize the tax
benefit. To the extent that the Company continues to be unable to generate
adequate taxable income in future periods, the Company will not be able to
recognize additional tax benefits and may be required to record a greater
valuation allowance covering potentially expiring NOLs.

Recent Accounting Pronouncements

In January 2003, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends FASB
Statement No. 123, Accounting for Stock-Based Compensation, to require
prominent disclosures in both interim and annual financial statements about
the method of accounting for stock-based employee compensation and the effect
of the method used on reported results. SFAS No. 148 also amends SFAS No. 123
to provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for
stock-based employee compensation.
SFAS No. 148 is effective for fiscal years ended after December 15, 2002 and
for interim periods beginning after December 15, 2002. As the Company has not
voluntarily adopted the SFAS No. 123 fair value method of accounting for

16



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##### Table of Contents



stock-based employee compensation, the new transition alternatives of SFAS
No. 148 did not have a material 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 March
31, 2003.




ITEM 4.Controls and Procedures

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

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




PART II.




ITEM 6.Exhibits and Reports on Form 8-K

(a) Exhibits

The following exhibits are filed as part of this report.

|     |  |                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Eighth Amendment to
Amended and Restated
Credit Agreement
between U.S. Bank
National Association
and Registrant,
dated March 18,
2003.                         
|     |  |                                                                                                                                                                
|99.1 |  | Certification of
Chief Executive
Officer of Redhook
Ale Brewery,
Incorporated
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002, 18 U.S.C.
Section 1350
|     |  |                                                                                                                                                                
|99.2 |  | Certification of
Chief Financial
Officer of Redhook
Ale Brewery,
Incorporated
pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002, 18 U.S.C.
Section 1350

(b) Reports on Form 8-K



| |  | During the quarter ended March 31, 2003, and between such date and the
filing of this Form 10-Q, the Company furnished the following
report on Form 8-K:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Current report dated April 29, 2003 furnishing a press release announcing
certain financial results for the quarter ended March 31, 2003.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|             |  |                                   |  |                        |  |                                                                                                
|------------ |  | --------------------------------- |  | ---------------------- |  | -----------------------------------------------------------------------------------------------
|May 14, 2003 |  | 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                          

18



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##### Table of Contents



CERTIFICATIONS

I, Paul S. Shipman, certify that:



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

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



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

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



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

Date: May 14, 2003

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

19



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##### Table of Contents



CERTIFICATIONS

I, David J. Mickelson, certify that:



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

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



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

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



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

Date: May 14, 2003

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

20