##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended March 31, 2007
 OR
 o
    
    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
 REDHOOK ALE BREWERY, INCORPORATED
  Washington
    
    91-1141254(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 14300 NE 145 th Street, Suite 210
Woodinville, Washington 98072-9045
 (425) 483-3232
  þ o
  o o þ
  o þ




---



##### 



REDHOOK ALE BREWERY, INCORPORATED
FORM 10-Q
For The Quarterly Period Ended March 31, 2007
 TABLE OF CONTENTS
 PagePART I.
    
    Financial InformationITEM 1.
    
    Financial StatementsBalance Sheets as of March 31, 2007 and December 31, 2006
    
    
    3Statements of Operations for the Three Months Ended March 31, 2007 and 2006
    
    
    4Statements of Cash Flows for the
Three Months Ended March 31, 2007 and 2006
    
    
    5Notes to Financial Statements
    
    
    6ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    13ITEM 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    25ITEM 4.
    
    Controls and Procedures
    
    
    25PART II.
    
    Other InformationITEM 1.
    
    Legal Proceedings
    
    
    25ITEM 1A.
    
    Risk Factors
    
    
    25ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25ITEM 3.
    
    Defaults Upon Senior Securities
    
    
    25ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25ITEM 5.
    
    Other Information
    
    
    26ITEM 6.
    
    Exhibits
    
    
    26EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 31.3EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 32.3
  2




---



##### Table of Contents



PART I.
 
 ITEM 1. Financial Statements
 REDHOOK ALE BREWERY, INCORPORATED
 
 BALANCE SHEETS
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,072,216
    
    
    $
    9,435,073Accounts receivable, net of allowance for doubtful accounts of
$75,583 and $68,808 in 2007 and 2006, respectively
    
    
    2,799,045
    
    
    
    1,842,388Trade receivable from Craft Brands
    
    
    1,031,509
    
    
    
    854,507Inventories
    
    
    2,758,919
    
    
    
    2,571,732Deferred income tax asset, net
    
    
    580,576
    
    
    
    506,886Other
    
    
    234,565
    
    
    
    203,594Total current assets
    
    
    15,476,830
    
    
    
    15,414,180Fixed assets, net
    
    
    57,699,881
    
    
    
    58,076,434Investment in Craft Brands
    
    
    489,835
    
    
    
    127,555Other assets
    
    
    240,640
    
    
    
    222,573Total assets
    
    $
    73,907,186
    
    
    $
    73,840,742LIABILITIES AND COMMON STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,604,930
    
    
    $
    2,233,689Trade payable to Craft Brands
    
    
    480,104
    
    
    
    324,900Accrued salaries, wages and payroll taxes
    
    
    1,123,433
    
    
    
    1,547,482Refundable deposits
    
    
    2,465,730
    
    
    
    2,153,127Other accrued expenses
    
    
    580,422
    
    
    
    380,394Current portion of long-term debt and capital lease obligations
    
    
    464,856
    
    
    
    464,648Total current liabilities
    
    
    7,719,475
    
    
    
    7,104,240Long-term debt and capital lease obligations, net of current portion
    
    
    4,205,323
    
    
    
    4,321,616Deferred income tax liability, net
    
    
    1,350,267
    
    
    
    1,548,699Other liabilities
    
    
    186,857
    
    
    
    173,768Common stockholders equity:Common stock, par value $0.005 per share, authorized, 50,000,000
shares; issued and outstanding, 8,308,389 shares in 2007 and
8,281,489 shares in 2006
    
    
    41,542
    
    
    
    41,407Additional paid-in capital
    
    
    69,054,312
    
    
    
    68,977,402Retained
earnings (deficit)
    
    
    (8,650,590
    )
    
    
    (8,326,390
    )Total common stockholders equity
    
    
    60,445,264
    
    
    
    60,692,419Total liabilities and common stockholders equity
    
    $
    73,907,186
    
    
    $
    73,840,742
 The accompanying notes are an integral part of these financial statements.
 3




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
 
 STATEMENTS OF OPERATIONS
 Three Months EndedMarch 31,2007
    
    
    2006Sales
    
    $
    9,556,932
    
    
    $
    8,669,250Less excise taxes
    
    
    1,013,970
    
    
    
    889,903Net sales
    
    
    8,542,962
    
    
    
    7,779,347Cost of sales
    
    
    7,806,082
    
    
    
    7,242,530Gross profit
    
    
    736,880
    
    
    
    536,817Selling, general and administrative expenses
    
    
    2,036,462
    
    
    
    1,713,806Income from equity investment in Craft Brands
    
    
    678,238
    
    
    
    514,149Operating income (loss)
    
    
    (621,344
    )
    
    
    (662,840
    )Interest expense
    
    
    83,187
    
    
    
    83,083Other income, net
    
    
    115,075
    
    
    
    53,928Income (loss) before income taxes
    
    
    (589,456
    )
    
    
    (691,995
    )Income tax
provision (benefit)
    
    
    (265,256
    )
    
    
    8,434Net income (loss)
    
    $
    (324,200
    )
    
    $
    (700,429
    )Basic earnings (loss) per share
    
    $
    (0.04
    )
    
    $
    (0.09
    )Diluted earnings (loss) per share
    
    $
    (0.04
    )
    
    $
    (0.09
    )
 The accompanying notes are an integral part of these financial statements.
 4




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
 
 STATEMENTS OF CASH FLOWS
 Three Months Ended March 31,2007
    
    
    2006Operating ActivitiesNet income (loss)
    
    $
    (324,200
    )
    
    $
    (700,429
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    729,769
    
    
    
    763,642Deferred income taxes
    
    
    (272,122
    )
    
    
    Income from equity investment in Craft Brands
less than (in excess of) cash distributions
    
    
    (362,280
    )
    
    
    (114,258
    )Changes in operating assets and liabilities
    
    
    (742,533
    )
    
    
    (224,841
    )Net cash used in operating activities
    
    
    (971,366
    )
    
    
    (275,886
    )Investing ActivitiesExpenditures for fixed assets
    
    
    (352,451
    )
    
    
    (345,268
    )Net cash used in investing activities
    
    
    (352,451
    )
    
    
    (345,268
    )Financing ActivitiesPrincipal payments on debt and capital lease obligations
    
    
    (116,085
    )
    
    
    (114,391
    )Issuance of common stock
    
    
    77,045
    
    
    
    11,141Net cash used in financing activities
    
    
    (39,040
    )
    
    
    (103,250
    )Increase (decrease) in cash and cash equivalents
    
    
    (1,362,857
    )
    
    
    (724,404
    )Cash and cash equivalents:Beginning of period
    
    
    9,435,073
    
    
    
    6,435,609End of period
    
    $
    8,072,216
    
    
    $
    5,711,205
 The accompanying notes are an integral part of these financial statements.
 5




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
 
 NOTES TO FINANCIAL STATEMENTS
 1. Basis of Presentation
  2. Merger Discussions
   3. Inventories
  March 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    506,947
    
    
    $
    666,938Work in process
    
    
    868,262
    
    
    
    622,352Finished goods
    
    
    353,257
    
    
    
    247,333Promotional merchandise
    
    
    516,477
    
    
    
    538,339Packaging materials
    
    
    513,976
    
    
    
    496,770$
    2,758,919
    
    
    $
    2,571,732
  4. Craft Brands Alliance LLC
  6




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (continued)
     Consolidation of Variable
Interest Entities  an Interpretation of ARB No. 51
 7




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (continued)
 The Equity Method of Accounting for Investments in Common Stock
     5. Common Stockholders Equity
  6. Earnings (Loss) per Share
 Earnings per
Share
 8




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (continued)
  Three Months Ended March 31,2007
    
    
    2006Numerator for basic and diluted net income (loss)
per share  net income (loss)
    
    $
    (324,200
    )
    
    $
    (700,429
    )Denominator for basic net income (loss) per share -
weighted average common shares outstanding
    
    
    8,295,276
    
    
    
    8,225,737Dilutive effect of stock options on weighted average
common shares
    
    
    
    
    
    
    Denominator for diluted net income (loss) per share
    
    
    8,295,276
    
    
    
    8,225,737Basic net income (loss) per share
    
    $
    (0.04
    )
    
    $
    (0.09
    )Diluted net income (loss) per share
    
    $
    (0.04
    )
    
    $
    (0.09
    )
 7. Stock-Based Compensation
  Share-Based Payment Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
  Share-Based Payment
 9




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (continued)
    Weighted
    
    
    WeightedShares
    
    
    Average
    
    
    AverageSubject to
    
    
    Exercise Price
    
    
    Remaining
    
    
    AggregateOptions
    
    
    per Share
    
    
    Contractual Life
    
    
    Intrinsic ValueOutstanding
at January 1, 2007
    
    
    783,440
    
    
    $
    2.89
    
    
    
    4.10
    
    
    $
    1,950,534Granted
    
    
    Exercised
    
    
    (26,900
    )
    
    $
    2.86Canceled
    
    
    (13,550
    )
    
    $
    9.30Outstanding at March 31, 2007
    
    
    742,990
    
    
    $
    2.77
    
    
    
    3.92
    
    
    $
    3,330,010Exercisable at March 31, 2007
    
    
    742,990
    
    
    $
    2.77
    
    
    
    3.92
    
    
    $
    3,330,010
  10




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (continued)
  Average
    
    WeightedNumber
    
    Remaining
    
    AverageRange
of Exercise
    
    Outstanding
    
    Contractual
    
    ExercisePrices
    
    & Exercisable
    
    Life (Yrs)
    
    Price$
    1.485
    
    
    to
    
    $
    1.865
    
    
    
    337,440
    
    
    
    4.32
    
    
    $
    1.86$
    1.866
    
    
    to
    
    $
    2.019
    
    
    
    142,434
    
    
    
    5.41
    
    
    $
    2.02$
    2.020
    
    
    to
    
    $
    2.180
    
    
    
    8,000
    
    
    
    6.14
    
    
    $
    2.18$
    2.181
    
    
    to
    
    $
    2.425
    
    
    
    6,666
    
    
    
    5.14
    
    
    $
    2.43$
    2.426
    
    
    to
    
    $
    2.450
    
    
    
    12,000
    
    
    
    7.13
    
    
    $
    2.45$
    2.451
    
    
    to
    
    $
    3.150
    
    
    
    16,000
    
    
    
    8.15
    
    
    $
    3.15$
    3.151
    
    
    to
    
    $
    3.969
    
    
    
    158,300
    
    
    
    2.14
    
    
    $
    3.97$
    3.970
    
    
    to
    
    $
    5.730
    
    
    
    38,150
    
    
    
    1.13
    
    
    $
    5.73$
    5.731
    
    
    to
    
    $
    7.625
    
    
    
    24,000
    
    
    
    0.14
    
    
    $
    7.63$
    1.485
    
    
    to
    
    $
    7.625
    
    
    
    742,990
    
    
    
    3.92
    
    
    $
    2.77
  8. Income Taxes
 Accounting for
Income Taxes
 Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109 Accounting for Contingencies
 11




---



##### Table of Contents



REDHOOK ALE BREWERY, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (continued)
     12




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 This quarterly report on Form 10-Q includes forward-looking statements. Generally, the words
believe, expect, intend, estimate, anticipate, project, will and similar expressions
or their negatives identify forward-looking statements, which generally are not historical in
nature. These statements are based upon assumptions and projections that the Company believes are
reasonable, but are by their nature inherently uncertain. Many possible events or factors could
affect the Companys future financial results and performance, and could cause actual results or
performance to differ materially from those expressed, including those risks and uncertainties
described in Part I, Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the
year ended December 31, 2006, and those described from time to time in the Companys future reports
filed with the Securities and Exchange Commission. Caution should be taken not to place undue
reliance on these forward-looking statements, which speak only as of the date of this quarterly
report.
 The following discussion and analysis should be read in conjunction with the Financial Statements
and Notes thereto of Redhook Ale Brewery, Incorporated (the Company or Redhook) included
herein, as well as the audited Financial Statements and Notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in the Companys Annual Report
on Form 10-K for the fiscal year ended December 31, 2006. 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
    13




---



##### Table of Contents



14




---



##### Table of Contents



Results of Operations
  Three Months Ended March 31,2007
    
    2006Sales
    
    
    111.9
    %
    
    
    111.4
    %Less excise taxes
    
    
    11.9
    
    
    
    11.4Net sales
    
    
    100.0
    
    
    
    100.0Cost of sales
    
    
    91.4
    
    
    
    93.1Gross profit
    
    
    8.6
    
    
    
    6.9Selling, general and administrative expenses
    
    
    23.8
    
    
    
    22.0Income from equity investment in Craft Brands
    
    
    7.9
    
    
    
    6.6Operating income (loss)
    
    
    (7.3
    )
    
    
    (8.5
    )Interest expense
    
    
    0.9
    
    
    
    1.1Other income, net
    
    
    1.3
    
    
    
    0.7Income (loss) before income taxes
    
    
    (6.9
    )
    
    
    (8.9
    )Income tax
provision (benefit)
    
    
    (3.1
    )
    
    
    0.1Net income (loss)
    
    
    (3.8
    )%
    
    
    (9.0
    )%
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
  Three Months EndedMarch 31,
    
    
    Increase /2007
    
    
    2006
    
    
   (Decrease)

    
    
   % ChangeSales
    
    $
    9,556,932
    
    
    $
    8,669,250
    
    
    $
    887,682
    
    
    
    10.2
    %Less excise taxes
    
    
    1,013,970
    
    
    
    889,903
    
    
    
    124,067
    
    
    
    13.9Net sales
    
    
    8,542,962
    
    
    
    7,779,347
    
    
    
    763,615
    
    
    
    9.8Cost of sales
    
    
    7,806,082
    
    
    
    7,242,530
    
    
    
    563,552
    
    
    
    7.8Gross profit
    
    
    736,880
    
    
    
    536,817
    
    
    
    200,063
    
    
    
    37.3Selling, general and administrative expenses
    
    
    2,036,462
    
    
    
    1,713,806
    
    
    
    322,656
    
    
    
    18.8Income from equity investment in Craft Brands
    
    
    678,238
    
    
    
    514,149
    
    
    
    164,089
    
    
    
    31.9Operating income (loss)
    
    
    (621,344
    )
    
    
    (662,840
    )
    
    
    41,496
    
    
    
    6.3Interest expense
    
    
    83,187
    
    
    
    83,083
    
    
    
    104
    
    
    
    0.1Other income, net
    
    
    115,075
    
    
    
    53,928
    
    
    
    61,147
    
    
    
    113.4Income (loss) before income taxes
    
    
    (589,456
    )
    
    
    (691,995
    )
    
    
    102,539
    
    
    
    14.8Income tax
provision (benefit)
    
    
    (265,256
    )
    
    
    8,434
    
    
    
    (273,690
    )
    
    
    3,245.1Net income (loss)
    
    $
    (324,200
    )
    
    $
    (700,429
    )
    
    $
    376,229
    
    
    
    53.7
    %Beer shipped (in barrels)
    
    
    65,300
    
    
    
    58,000
    
    
    
    7,300
    
    
    
    12.6
    %
 15




---



##### Table of Contents



Sales.
 
    
    An increase in overall pricing and shipments in the midwest and eastern United
States resulted in a $392,000 increase in 2007 first quarter sales;
    
    A decrease in overall pricing and shipments in the western United States (not
including beer brewed on a contract basis) resulted in an $84,000 decrease in 2007
first quarter sales;
    
    An increase in shipments of beer brewed on a contract basis, partially offset by a
decrease in pricing of these shipments, contributed a $607,000 increase in 2007 first
quarter sales; and
    
    Pub and other sales increased $48,000 in the first quarter of 2007.
 Shipments
 Three Months Ended March 31,2007
    
    
    2006Draft
    
    
    Bottle
    
    
    Total
    
    
    Draft
    
    
    Bottle
    
    
    Total
    
    
    Increase /Shipments
    
    
    Shipments
    
    
    Shipments
    
    
    Shipments
    
    
    Shipments
    
    
    Shipments
    
    
    (Decrease)
    
    
    % ChangeA-B
    
    
    10,800
    
    
    
    13,700
    
    
    
    24,500
    
    
    
    10,500
    
    
    
    12,800
    
    
    
    23,300
    
    
    
    1,200
    
    
    
    5.2
    %Craft Brands
    
    
    8,600
    
    
    
    20,100
    
    
    
    28,700
    
    
    
    9,300
    
    
    
    20,300
    
    
    
    29,600
    
    
    
    (900
    )
    
    
    (3.0
    )Contract brewing
    
    
    8,600
    
    
    
    2,600
    
    
    
    11,200
    
    
    
    4,200
    
    
    
    
    
    
    
    4,200
    
    
    
    7,000
    
    
    
    166.7Pubs and other
    
    
    700
    
    
    
    200
    
    
    
    900
    
    
    
    700
    
    
    
    200
    
    
    
    900
    
    
    
    
    
    
    
    Total shipped
    
    
    28,700
    
    
    
    36,600
    
    
    
    65,300
    
    
    
    24,700
    
    
    
    33,300
    
    
    
    58,000
    
    
    
    7,300
    
    
    
    12.6
    %
   16




---



##### Table of Contents



Widmer Hefeweizen Widmer Hefeweizen Widmer
Hefeweizen Widmer Hefeweizen Widmer Hefeweizen Widmer Hefeweizen
 Widmer Hefeweizen
    17




---



##### Table of Contents



Pricing and Fees.
  st
   Retail Operations and Other Sales
 Excise Taxes
 18




---



##### Table of Contents



Cost of Sales.
 Widmer Hefeweizen
  Selling, General and Administrative Expenses
 Income from Equity Investment in Craft Brands.
 Interest Expense.
 Other Income, net
 Income Taxes.
 19




---



##### Table of Contents



Craft Brands Alliance LLC
 The Equity Method of Accounting for
Investments in Common Stock Exhibits and Financial Statement Schedules
  Sales.
 Cost of Sales.
 Selling, General and Administrative Expenses
 Net Income
 20




---



##### Table of Contents



Outlook
 Widmer Hefeweizen Widmer Hefeweizen Widmer Hefeweizen
 Liquidity and Capital Resources
      21




---



##### Table of Contents



Quarter EndedRequired by Term Loan
    
    March 31, 2007Capital ratio
    
    Less than:  1.25:1
    
    
    0.22:1Working capital
    
    Greater than:  $1,900,000
    
    $
    7,757,355Fixed charge coverage ratio
    
    Greater than: 1.15:1
    
    
    3.390:1
 Critical Accounting Policies and Estimates
  Income Taxes. Accounting for Income Taxes
 Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109 Accounting for Contingencies
   22




---



##### Table of Contents



Long-Lived Assets. Accounting for the Impairment or Disposal of Long-Lived Assets
 Investment in Craft Brands Alliance LLC. Consolidation of Variable
Interest Entities  an Interpretation of ARB No. 51 The Equity Method of Accounting for Investments in Common Stock.
 Revenue Recognition.
 23




---



##### Table of Contents



Recent Accounting Pronouncements
 How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross versus Net Presentation)
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
 24




---



##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
   
 ITEM 4. Controls and Procedures
   
 PART II. Other Information
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
 Risk Factors
 We may experience a shortage in kegs necessary to distribute our draft beer
 
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  25




---



##### Table of Contents



ITEM 5. Other Information
  
 ITEM 6. Exhibits
  31.1
    
    Certification of Chief Executive Officer of Redhook Ale Brewery,
Incorporated pursuant to Exchange Act Rule 13a-14(a)31.2
    
    Certification of President and Chief Operating Officer of Redhook Ale
Brewery, Incorporated pursuant to Exchange Act Rule 13a-14(a)31.3
    
    Certification of Chief Financial Officer of Redhook Ale Brewery,
Incorporated pursuant to Exchange Act Rule 13a-14(a)32.1
    
    Certification of Chief Executive Officer of Redhook Ale Brewery,
Incorporated pursuant to Exchange Act 13a-14(b) and 18 U.S.C. Section
135032.2
    
    Certification of President and Chief Operating Officer of Redhook Ale
Brewery, Incorporated pursuant to Exchange Act 13a-14(b) and 18
U.S.C. Section 135032.3
    
    Certification of Chief Financial Officer of Redhook Ale Brewery,
Incorporated pursuant to Exchange Act 13a-14(b) and 18 U.S.C. Section
1350
 26




---



##### Table of Contents



SIGNATURES
  REDHOOK ALE BREWERY,
INCORPORATEDMay 11, 2007
    BY:  /s/ Jay T. CaldwellJay T. CaldwellChief Financial Officer
and Treasurer 27