##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|                                               |  |                                                                                             
|---------------------------------------------- |  | --------------------------------------------------------------------------------------------
|þ                                              |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
     OF THE SECURITIES EXCHANGE ACT OF 1934   
|                                              
|For the fiscal year ended December 31, 2005   
|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




(Exact name of registrant as specified in its charter)


|                                                                                                            |  |                                        
|----------------------------------------------------------------------------------------------------------- |  | ---------------------------------------
|Washington                                                                                                  |  | 91-1141254                             
|(State of incorporation)                                                                                    |  | (I.R.S. Employer Identification Number)
|14300 NE
    145thStreet,
    Suite 210
    Woodinville, Washington(Address of principal executive offices) |  | 98072-6950(Zip Code)                   

(425) 483-3232


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, Par Value $0.005 Per Share


(Title of Class)


o þ


o þ


þ o


S-K 10-K 10-K. o




o o þ


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE









|    |                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes shares held of record on that date by directors and
    executive officers and greater than 10% shareholders of the
    registrant. Exclusion of such shares should not be construed to
    indicate that any such person directly or indirectly possesses
    the power to direct or cause the direction of the management of
    the policies of the registrant.









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Explanatory Note


8-K 10-K, 10-K




---



##### 










REDHOOK ALE BREWERY, INCORPORATED


FORM 10-K


TABLE OF CONTENTS


|              |  |                                                                                                                      |    |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                      |    | Page |   
|              |  |                                                                                                                      |    |      |   
|PART I.      
|             
|ITEM 1.       |  | Business                                                                                                             |    |      | 1  | 
|ITEM 1A.      |  | Risk Factors                                                                                                         |    |      | 19 | 
|             
|ITEM 1B.      |  | Unresolved Staff Comments                                                                                            |    |      | 23 | 
|             
|ITEM 2.       |  | Properties                                                                                                           |    |      | 24 | 
|ITEM 3.       |  | Legal Proceedings                                                                                                    |    |      | 24 | 
|ITEM 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 24 | 
|ITEM 4A.      |  | Executive Officers of the Company                                                                                    |    |      | 25 | 
|             
|PART II.     
|             
|ITEM 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters
    and Issuer Purchases of Equity Securities |    |      | 26 | 
|ITEM 6.       |  | Selected Financial Data                                                                                              |    |      | 27 | 
|ITEM 7.       |  | Managements Discussion and Analysis
    of Financial Condition
    and Results of Operations                        |    |      | 29 | 
|ITEM 7A.      |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |    |      | 47 | 
|             
|ITEM 8.       |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 48 | 
|ITEM 9.       |  | Changes In and Disagreements With
    Accountants on Accounting
    and Financial Disclosure                         |    |      | 74 | 
|ITEM 9A.      |  | Controls and Procedures                                                                                              |    |      | 74 | 
|             
|ITEM 9B.      |  | Other Information                                                                                                    |    |      | 75 | 
|             
|PART III.    
|             
|ITEM 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 75 | 
|             
|ITEM 11.      |  | Executive Compensation                                                                                               |    |      | 75 | 
|             
|ITEM 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management
    and Related Stockholders Matters              |    |      | 76 | 
|             
|ITEM 13.      |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 76 | 
|             
|ITEM 14.      |  | Principal Accounting Fees and Services                                                                               |    |      | 76 | 
|             
|PART IV.     
|             
|ITEM 15.      |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 76 | 
|SIGNATURES    |  |                                                                                                                      | 82 |     
|EXHIBIT 10.22
|EXHIBIT 23.1 
|EXHIBIT 23.2 
|EXHIBIT 23.3 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



i



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PART I.







|        |         
|------- | --------
|Item 1. | Business



Redhook ESB Redhook India Pale Ale (IPA) Redhook Blonde Ale,
Blackhook Porter, Chinook Copper Ale Redhook Nut Brown Ale, Redhook Sunrye, Autumn Ale Winterhook. Widmer Hefeweizen




Industry Background






1



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Business Strategy






Production of High-Quality Craft Beers.


Control of Production in Company-Owned Breweries.


2



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Strategic Distribution Relationship with Industry Leader.


Sales and Marketing Relationship with Craft Brands Alliance
LLC.


Operation of Regional Brewing Facilities.


Promotion of Products.




3



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Products






Redhook ESB. Redhook ESB,


Redhook India Pale Ale (IPA). Redhook IPA, Redhook IPA


Redhook Blonde Ale.


Blackhook Porter. Blackhook


Chinook Copper Ale. Chinook
Copper


Nut Brown Ale. Nut Brown Ale


Redhook Sunrye Ale. Sunrye Sunrye


Autumn Ale. Autumn Ale Autumn Ale


Winterhook. Winterhook Winterhook


4



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Widmer Hefeweizen Widmer Hefeweizen Widmer
Hefeweizen Widmer Hefeweizen Widmer Hefeweizen


Pacific Ridge Pacific Ridge Pacific
Ridge


Redhook
IPA, Redhook Blonde Ale


Brewing Operations


The Brewing Process. Saccharomyces cerevisiae,




5



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Brewing Equipment. 100-barrel 100-barrel, 200-barrel, 600-barrel 300-barrel 400-barrel 100-barrel 100-barrel, 400-barrel 200-barrel 400-barrel


Packaging.


Quality Control.


6



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on-site on-site


Ingredients and Raw Materials. Saccharomyces cerevisiae


Product Distribution
















7



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Relationship with Anheuser-Busch, Incorporated






8



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| |    |                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) | a material default by the other party in the performance of any
    of the provisions of the A-B Distribution Agreement or any other
    agreement between the parties, which default is either:



| |    |                                                                                                    
| | -- | ---------------------------------------------------------------------------------------------------
| | i) | curable within 30 days, but is not cured within
    30 days following written notice of default; or



| |     |                                       
| | --- | --------------------------------------
| | ii) | not curable within 30 days and either:



| |     |                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | the defaulting party fails to take reasonable steps to cure as
    soon as reasonably possible following written notice of such
    default; or
|
| | (2) | such default is not cured within 90 days following written
    notice of such default;                                                         



| |    |                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2) | default by the other party in the performance of any of the
    provisions of the A-B Distribution Agreement or any other
    agreement between the parties, which default is not described in
    (1) above and which is not cured within 180 days
    following written notice of such default;                                                                                           
|
| | 3) | the making by the other party of an assignment for the benefit
    of creditors; or the commencement by the other party of a
    voluntary case or proceeding or the other partys consent
    to or acquiescence in the entry of an order for relief against
    such other party in an involuntary case or proceeding under any
    bankruptcy, reorganization, insolvency or similar law;
|
| | 4) | the appointment of a trustee or receiver or similar officer of
    any court for the other party or for a substantial part of the
    property of the other party, whether with or without the consent
    of the other party, which is not terminated within 60 days
    from the date of appointment thereof;                                                                             
|
| | 5) | the institution of bankruptcy, reorganization, insolvency or
    liquidation proceedings by or against the other party without
    such proceedings being dismissed within 90 days from the
    date of the institution thereof;                                                                                                                                                            
|
| | 6) | any representation or warranty made by the other party under or
    in the course of performance of the A-B Distribution Agreement
    that is false in material respects; or                                                                                                                                                                                                               
|
| | 7) | the distribution agreement between Craft Brands and A-B is
    terminated or the distribution thereunder of the products of
    Redhook is terminated pursuant to its terms.                                                                                                                                                                                                                

9



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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) | the Company engages in certain Incompatible Conduct which is not
    curable or is not cured to
    A-Bs satisfaction
    (in A-Bs sole opinion) within 30 days. Incompatible
    Conduct is defined as any act or omission of the Company that,
    in A-Bs determination, damages the reputation or image of
    A-B or the brewing industry;                                                                                                                                                                             
|
| | 2) | any A-B competitor or affiliate thereof acquires 10% or more of
    the outstanding equity securities of the Company, and one or
    more designees of such person becomes a member of the board of
    directors of the Company;                                                                                                                                                                                                                                                                                              
|
| | 3) | the current chief executive officer of the Company ceases to
    function as chief executive officer and within six months of
    such cessation a successor satisfactory in the sole, good faith
    discretion of A-B is not appointed;                                                                                                                                                                                                                                                                                      
|
| | 4) | the Company is merged or consolidated into or with any other
    person or any other person merges or consolidates into or with
    the Company; or                                                                                                                                                                                                                                                                                                                                                                            
|
| | 5) | A-B or its corporate affiliates incur any liability or expense
    as a result of any claim asserted against them by or in the name
    of the Company or any shareholder of the Company as a result of
    the equity ownership of A-B or its affiliates in the Company, or
    any equity transaction or exchange between A-B or its affiliates
    and the Company, and the Company does not reimburse and
    indemnify A-B and its corporate affiliates on demand for the
    entire amount of such liability and expense.



| |     
| | ----
| | Fees



Margin.




Invoicing Cost.


10



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Staging Cost and Cooperage Handling Charge.


Inventory Manager Fee.










Relationship with Craft Brands Alliance LLC




11



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12



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| |    |                                                                                                                                                                                                                                                                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) | the other party fails to timely make any payment required under
    the Supply and Distribution Agreement for a period of
    60 days following written notice thereof;                                                                                                                                                                
|
| | 2) | the other party fails to perform any other material obligation
    under the Supply and Distribution Agreement and such failure
    remains uncured for a period of 60 days following written
    notice thereof;                                                                                                                      
|
| | 3) | the other party becomes the subject of insolvency or bankruptcy
    proceedings, ceases doing business, makes an assignment of
    assets for the benefit of creditors, dissolves, or has a trustee
    appointed for all or a substantial portion of such partys
    assets;                                                         
|
| | 4) | any government authority makes a final decision invalidating a
    substantial portion of the Supply and Distribution Agreement;                                                                                                                                                                                                       
|
| | 5) | either party finds that complying with any law or regulation
    relating to fulfilling its obligations under the Supply and
    Distribution Agreement would be commercially unreasonable and
    failure to comply with the law or regulation would subject such
    party or any of its personnel to a monetary or criminal penalty;
|
| | 6) | the Craft Brands Distribution Agreement with A-B terminates for
    any reason; or                                                                                                                                                                                                                                                     
|
| | 7) | the Operating Agreement terminates for any reason.                                                                                                                                                                                                                                                                                     





Consolidation of Variable Interest Entities  an
Interpretation of ARB No. 51


13



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The Equity Method of Accounting for Investments
in Common Stock. 10-K Exhibits and Financial Statement
Schedules S-X.


Sales and Marketing






on-site point-of


word-of point-of


on-site


14



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Properties.






Seasonality




Competition








15



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16



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Regulation








| |                                           
| | ------------------------------------------
| | Alcoholic Beverage Regulation and Taxation









| |                                           
| | ------------------------------------------
| | State and Federal Environmental Regulation



17



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| |               
| | --------------
| | Dram Shop Laws



Trademarks




Employees




18



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|         |             
|-------- | ------------
|Item 1A. | Risk Factors



We are dependent upon our continuing relationship with
Anheuser-Busch, Incorporated.




Our agreement with A-B contains limitations on our ability to
engage in or reject certain transactions, including acquisitions
and changes of control.




| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | issue equity securities;                                                                                                                   
|
| |  | acquire or sell assets or stock;                                                                                                           
|
| |  | amend our Articles of Incorporation or bylaws;                                                                                             
|
| |  | grant board representation rights;                                                                                                         
|
| |  | enter into certain transactions with affiliates;                                                                                           
|
| |  | distribute our products in the United States other than through
    A-B, Craft Brands or as provided in the A-B Distribution
    Agreement;
|
| |  | voluntarily delist or terminate our listing on the Nasdaq Stock
    Market; or                                                             
|
| |  | dispose of any of our interest in Craft Brands.                                                                                            





Our investment in Craft Brands Alliance LLC may not provide
anticipated benefits.


19



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We are dependent on our distributors for the sale of our
products.


Changes in state laws regarding distribution arrangements may
adversely impact our operations. out-of


Increased competition could adversely affect sales and
results of operations.


Future price promotions to generate demand for our products
may be unsuccessful.


20



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Due to our concentration of sales in the Pacific Northwest,
our results of operations and financial condition are subject to
fluctuations in regional economic conditions.


Our business is seasonal in nature, and we are likely to
experience fluctuations in our results of operations and
financial condition.


Our gross margins may fluctuate while our expenses remain
constant.


Changes in consumer preferences or public attitudes about our
products could reduce demand.


We are subject to governmental regulations affecting our
breweries and pubs; the costs of complying with governmental
regulations, or our failure to comply with such regulations,
could affect our financial condition


21



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and results of operations.






We may experience material losses in excess of insurance
coverage.


Declining sales trends could adversely effect brewery
efficiency and our financial results. Accounting for the
Impairment or Disposal of Long-Lived Assets


An increase in excise taxes could adversely affect our
financial condition.


22



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Loss of income tax benefits could negatively impact results
of operations.


We are dependent upon the services of our key personnel.


We are subject to the risks of litigation.







|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments



23



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|        |           
|------- | ----------
|Item 2. | Properties



The Washington Brewery. 100-barrel


The New Hampshire Brewery.







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



24



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|         |                                  
|-------- | ---------------------------------
|Item 4A. | Executive Officers of the Company

Paul S. Shipman (53)  Chief Executive Officer and
Chairman of the Board




David J. Mickelson (46)  President and Chief
Financial Officer




Gerard C. Prial (51)  Vice President, Sales and
Eastern Operations




Allen L. Triplett (47)  Vice President, Brewing






25



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PART II.







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|     |                |      |   |       |     |  |   |       | 
|---- | -------------- | ---- | - | ----- | --- |  | - | ----- | 
|     |                | High |   |       | Low | 
|     |                |      |   |       |     | 
|2005 |                |      |   |       |     |  |   |      
|     | First quarter  |      | $ | 4.200 |     |  | $ | 3.050 | 
|     | Second quarter |      | $ | 3.750 |     |  | $ | 2.860 | 
|     | Third quarter  |      | $ | 3.340 |     |  | $ | 2.750 | 
|     | Fourth quarter |      | $ | 3.420 |     |  | $ | 2.900 | 
|2004 |                |      |   |       |     |  |   |      
|     | First quarter  |      | $ | 3.000 |     |  | $ | 2.260 | 
|     | Second quarter |      | $ | 2.740 |     |  | $ | 2.010 | 
|     | Third quarter  |      | $ | 4.300 |     |  | $ | 2.200 | 
|     | Fourth quarter |      | $ | 3.750 |     |  | $ | 3.010 | 





26



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Managements Discussion and Analysis
of Financial Condition and Results of Operations 10-K.


Restatement


10-K


|                                                                                   |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|---------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---------- | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                   |  | Year Ended December 31, |        
|                                                                                   |  |                         |        
|                                                                                   |  | 2005                    |         |            | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |        
|                                                                                   |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |        
|                                                                                   |  |                         |         | (Restated) |      |   |         |      |  |   |        
|Statement of Operations Data (in thousands, except earnings
    (loss) per share): |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                                  
|Sales                                                                              |  | $                       | 34,520  |            |      | $ | 36,640  |      |  | $ | 42,213  |   |  | $    | 40,913  |   |  | $ | 40,117  |  
|Less Excise Taxes                                                                  |  |                         | 3,421   |            |      |   | 3,268   |      |  |   | 3,498   |   |  |      | 3,465   |   |  |   | 3,412   |  
|                                                                                   |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |        
|Net Sales                                                                          |  |                         | 31,099  |            |      |   | 33,372  |      |  |   | 38,715  |   |  |      | 37,448  |   |  |   | 36,705  |  
|Cost of Sales                                                                      |  |                         | 27,544  |            |      |   | 27,171  |      |  |   | 28,702  |   |  |      | 27,597  |   |  |   | 26,740  |  
|                                                                                   |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |        
|Gross Profit                                                                       |  |                         | 3,555   |            |      |   | 6,201   |      |  |   | 10,013  |   |  |      | 9,851   |   |  |   | 9,965   |  
|Selling, General and Administrative Expenses                                       |  |                         | 6,784   |            |      |   | 7,639   |      |  |   | 11,689  |   |  |      | 10,910  |   |  |   | 11,817  |  
|Income from Equity Investment in Craft Brands                                      |  |                         | 2,392   |            |      |   | 1,123   |      |  |   |        |   |  |      |        |   |  |   |        |  
|Craft Brands Shared Formation Expenses                                             |  |                         |        |            |      |   | 535     |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                                   |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |        
|Operating Income (Loss)                                                            |  |                         | (837    | )          |      |   | (850    | )    |  |   | (1,676  | ) |  |      | (1,059  | ) |  |   | (1,852  | )
|Interest Expense                                                                   |  |                         | 271     |            |      |   | 189     |      |  |   | 192     |   |  |      | 230     |   |  |   | 394     |  
|Other Income (Expense)  Net                                                       |  |                         | 125     |            |      |   | 116     |      |  |   | 59      |   |  |      | 30      |   |  |   | 249     |  
|                                                                                   |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |        
|Income (Loss) before Income Taxes                                                  |  |                         | (983    | )          |      |   | (923    | )    |  |   | (1,809  | ) |  |      | (1,259  | ) |  |   | (1,997  | )
|Income Tax Provision (Benefit)                                                     |  |                         | 217     |            |      |   | 331     |      |  |   | 30      |   |  |      | (126    | ) |  |   | (679    | )
|                                                                                   |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |        
|Net Income (Loss)                                                                  |  | $                       | (1,200  | )          |      | $ | (1,254  | )    |  | $ | (1,839  | ) |  | $    | (1,133  | ) |  | $ | (1,318  | )
|                                                                                   |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |        
|                                                                                  
|Basic Earnings (Loss) per Share                                                    |  | $                       | (0.15   | )          |      | $ | (0.18   | )    |  | $ | (0.30   | ) |  | $    | (0.18   | ) |  | $ | (0.19   | )
|Diluted Earnings (Loss) per Share                                                  |  | $                       | (0.15   | )          |      | $ | (0.18   | )    |  | $ | (0.30   | ) |  | $    | (0.18   | ) |  | $ | (0.19   | )
|                                                                                  
|Operating Data (in barrels):                                                       |  |                         |         |            |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                                  
|Beer Shipped                                                                       |  |                         | 225,300 |            |      |   | 216,400 |      |  |   | 228,800 |   |  |      | 225,900 |   |  |   | 223,100 |  
|Production Capacity, End of Period(1)                                              |  |                         | 375,000 |            |      |   | 375,000 |      |  |   | 375,000 |   |  |      | 360,000 |   |  |   | 350,000 |  

27



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|                                          |  |              |        |            |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|----------------------------------------- |  | ------------ | ------ | ---------- | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                          |  | December 31, |       
|                                          |  |              |       
|                                          |  | 2005         |        |            | 2004 |   |        | 2003 |  |   | 2002   |  |  | 2001 |       
|                                          |  |              |        |            |      |   |        |      |  |   |        |  |  |      |       
|                                          |  |              |        | (Restated) |      |   |        |      |  |   |       
|Balance Sheet Data (in thousands):        |  |              |        |            |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Cash and Cash Equivalents                 |  | $            | 6,436  |            |      | $ | 5,590  |      |  | $ | 6,123  |  |  | $    | 7,007  |  |  | $ | 6,364  | 
|Working Capital                           |  |              | 5,232  |            |      |   | 3,661  |      |  |   | 4,511  |  |  |      | 4,346  |  |  |   | 4,640  | 
|Total Assets                              |  |              | 72,578 |            |      |   | 74,128 |      |  |   | 77,131 |  |  |      | 79,982 |  |  |   | 82,155 | 
|Long-term Debt, Net of Current Portion(2) |  |              | 4,752  |            |      |   | 5,175  |      |  |   | 5,625  |  |  |      | 6,075  |  |  |   | 6,525  | 
|Convertible Redeemable Preferred Stock    |  |              |       |            |      |   |       |      |  |   | 16,233 |  |  |      | 16,188 |  |  |   | 16,144 | 
|Common Stockholders Equity               |  |              | 60,027 |            |      |   | 61,161 |      |  |   | 47,916 |  |  |      | 50,027 |  |  |   | 52,474 | 






|    |                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on the Companys estimate of current production
    capacity of equipment, assuming ideal brewing conditions,
    installed as of the end of such period. Amounts do not reflect
    maximum designed production capacity. See Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.
|   
|(2) | Includes Term Loan and capital lease obligations. See
    Note 7 to the Financial Statements included elsewhere
    herein.                                                                                                                                                                                                        

28



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

period-to period-to


Restatement


10-K Managements Discussion and
Analysis of Financial Condition and Results of Operation


10-K 8-K


Overview


Craft Brands Alliance LLC




29



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Risk Factors


Results of Operations




|                                              |  |                         |       |            |      |  |       |      |  |  |       |   
|--------------------------------------------- |  | ----------------------- | ----- | ---------- | ---- |  | ----- | ---- |  |  | ----- | --
|                                              |  | Year Ended December 31, |      
|                                              |  |                         |      
|                                              |  | 2005                    |       |            | 2004 |  |       | 2003 | 
|                                              |  |                         |       |            |      |  |       |      | 
|                                              |  |                         |       | (Restated) |      |  |      
|Sales                                         |  |                         | 111.0 | %          |      |  | 109.8 | %    |  |  | 109.0 | % 
|Less Excise Taxes                             |  |                         | 11.0  |            |      |  | 9.8   |      |  |  | 9.0   |   
|                                              |  |                         |       |            |      |  |       |      | 
|Net Sales                                     |  |                         | 100.0 |            |      |  | 100.0 |      |  |  | 100.0 |   
|Cost of Sales                                 |  |                         | 88.6  |            |      |  | 81.4  |      |  |  | 74.1  |   
|                                              |  |                         |       |            |      |  |       |      | 
|Gross Profit                                  |  |                         | 11.4  |            |      |  | 18.6  |      |  |  | 25.9  |   
|Selling, General and Administrative Expenses  |  |                         | 21.8  |            |      |  | 22.9  |      |  |  | 30.2  |   
|Income from Equity Investment in Craft Brands |  |                         | 7.7   |            |      |  | 3.4   |      |  |  |      |   
|Craft Brands Shared Formation Expenses        |  |                         |      |            |      |  | 1.6   |      |  |  |      |   
|                                              |  |                         |       |            |      |  |       |      | 
|Operating Income (Loss)                       |  |                         | (2.7  | )          |      |  | (2.5  | )    |  |  | (4.3  | ) 
|Interest Expense                              |  |                         | 0.9   |            |      |  | 0.6   |      |  |  | 0.5   |   
|Other Income (Expense)  Net                  |  |                         | 0.4   |            |      |  | 0.3   |      |  |  | 0.2   |   
|                                              |  |                         |       |            |      |  |       |      | 
|Income (Loss) before Income Taxes             |  |                         | (3.2  | )          |      |  | (2.8  | )    |  |  | (4.6  | ) 
|Income Tax Provision (Benefit)                |  |                         | 0.7   |            |      |  | 1.0   |      |  |  | 0.1   |   
|                                              |  |                         |       |            |      |  |       |      | 
|Net Income (Loss)                             |  |                         | (3.9  | )%         |      |  | (3.8  | )%   |  |  | (4.7  | )%
|                                              |  |                         |       |            |      |  |       |      | 

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| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2005 Compared to Year Ended
    December 31, 2004



|                                              |  |                                |         |            |           |   |         |            |  |   |        |   |  |  |        |   
|--------------------------------------------- |  | ------------------------------ | ------- | ---------- | --------- | - | ------- | ---------- |  | - | ------ | - |  |  | ------ | --
|                                              |  | Year Ended December 31,        |         |            |           |   |        
|                                              |  |                                |         |            | Increase/ |   |         | %          | 
|                                              |  | 2005                           |         |            | 2004      |   |         | (Decrease) |  |   | Change |  
|                                              |  |                                |         |            |           |   |         |            |  |   |        |  
|                                              |  | (In thousands, except barrels) |         |            |          
|                                              |  |                                |         | (Restated) |           |   |         |            | 
|Sales                                         |  | $                              | 34,520  |            |           | $ | 36,640  |            |  | $ | (2,120 | ) |  |  | (5.8   | )%
|Less Excise Taxes                             |  |                                | 3,421   |            |           |   | 3,268   |            |  |   | 153    |   |  |  | 4.7    |   
|                                              |  |                                |         |            |           |   |         |            |  |   |        |  
|Net Sales                                     |  |                                | 31,099  |            |           |   | 33,372  |            |  |   | (2,273 | ) |  |  | (6.8   | ) 
|Cost of Sales                                 |  |                                | 27,544  |            |           |   | 27,171  |            |  |   | 373    |   |  |  | 1.4    |   
|                                              |  |                                |         |            |           |   |         |            |  |   |        |  
|Gross Profit                                  |  |                                | 3,555   |            |           |   | 6,201   |            |  |   | (2,646 | ) |  |  | (42.7  | ) 
|Selling, General and Administrative Expenses  |  |                                | 6,784   |            |           |   | 7,639   |            |  |   | (855   | ) |  |  | (11.2  | ) 
|Income from Equity Investment in Craft Brands |  |                                | 2,392   |            |           |   | 1,123   |            |  |   | 1,269  |   |  |  | 113.0  |   
|Craft Brands Shared Formation Expenses        |  |                                |        |            |           |   | 535     |            |  |   | (535   | ) |  |  | (100.0 | ) 
|                                              |  |                                |         |            |           |   |         |            |  |   |        |  
|Operating Income (Loss)                       |  |                                | (837    | )          |           |   | (850    | )          |  |   | 13     |   |  |  | 1.5    |   
|Interest Expense                              |  |                                | 271     |            |           |   | 189     |            |  |   | 82     |   |  |  | 43.4   |   
|Other Income (Expense)  Net                  |  |                                | 125     |            |           |   | 116     |            |  |   | 9      |   |  |  | 7.8    |   
|                                              |  |                                |         |            |           |   |         |            |  |   |        |  
|Income (Loss) before Income Taxes             |  |                                | (983    | )          |           |   | (923    | )          |  |   | (60    | ) |  |  | (6.5   | ) 
|Income Tax Provision (Benefit)                |  |                                | 217     |            |           |   | 331     |            |  |   | (114   | ) |  |  | (34.4  | ) 
|                                              |  |                                |         |            |           |   |         |            |  |   |        |  
|                                             
|Net Income (Loss)                             |  | $                              | (1,200  | )          |           | $ | (1,254  | )          |  | $ | 54     |   |  |  | 4.3    | % 
|                                              |  |                                |         |            |           |   |         |            |  |   |        |  
|                                             
|Beer Shipped (in barrels)                     |  |                                | 225,300 |            |           |   | 216,400 |            |  |   | 8,900  |   |  |  | 4.1    | % 
|                                              |  |                                |         |            |           |   |         |            |  |   |        |  

Sales.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | While all sales in the western United States in 2005 were made
    to Craft Brands at discounted rates, sales in the western United
    States in 2004 were at two distinct pricing levels 
    at historical wholesale prices for the first six months of 2004,
    and at discounted rates for the last six months of 2004. This
    difference in the pricing structure for 2005 relative to 2004
    resulted in a $3,830,000 decline in total sales in 2005;
|
| |  | Improvements in overall pricing to Craft Brands resulted in a
    $245,000 increase in sales in 2005;                                                                                                                                                                                                                                                                                                                                                             
|
| |  | A decline in shipments in the western United States resulted in
    an $855,000 decline in sales in 2005 over 2004;                                                                                                                                                                                                                                                                                                                                               
|
| |  | An increase in shipments of beer brewed on a contract basis as
    well as an improvement in pricing of these shipments contributed
    a $480,000 increase in sales in 2005;                                                                                                                                                                                                                                                                                     
|
| |  | Improvements in overall pricing in the midwest and eastern
    United States resulted in a $280,000 increase in sales in 2005
    over 2004;                                                                                                                                                                                                                                                                                                                      
|
| |  | An increase in shipments in the midwest and eastern United
    States resulted in a $995,000 increase in sales in 2005; and                                                                                                                                                                                                                                                                                                                                       
|
| |  | An increase of $465,000 in pub and other sales in 2005.                                                                                                                                                                                                                                                                                                                                                                                                           

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Shipments. Total sales volume in 2005 increased 4.1% to
    225,300 barrels from 216,400 barrels in 2004, the
    result of a 14.2% increase in shipments of draft products and
    partially offset by a 1.9% decrease in shipments of bottled
    products. Since the mid 1990s, the Companys sales of
    bottled beer have steadily increased as a percentage of total
    beer sales. This migration toward increasing bottled beer sales
    has reversed slightly over the past two years, with 59.2% of
    total shipments as bottle shipments versus 62.8% in 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Included in the Companys total shipments is beer brewed
    under a contract brewing arrangement with Widmer. In connection
    with the Supply and Distribution Agreement with Craft Brands, if
    shipments of the Companys products in the Craft Brands
    territory decrease as compared to the previous years
    shipments, the Company has the right to brew Widmer products in
    an amount equal to the lower of (i) the Companys
    product shipment decrease or (ii) the Widmer product
    shipment increase. In addition, the Company may, at
    Widmers request, agree to brew beer for Widmer in excess
    of the amount obligated by the contract. Under this contract
    brewing arrangement, the Company brewed and shipped
    8,900 barrels and 2,300 barrels of Widmer draft beer
    in 2005 and 2004, respectively. Of these shipments,
    approximately 20% of 2005 barrels were in excess of the
    contractual obligation and all of the 2004 barrels were in
    excess of the obligation. Excluding shipments under this
    arrangement, shipments of the Companys draft products
    increased 6.2% in the 2005 and total Company shipments increased
    1.1%. Driven by the contractual obligation as well as
    Widmers production needs, the Company anticipates that
    beer brewed and shipped in 2006 under the contract brewing
    arrangement with Widmer will increase significantly over 2005
    levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | At December 31, 2005 and 2004, the Companys products
    were distributed in 48 states. Shipments in the midwest and
    eastern United States increased by 9.4% in 2005 as compared to
    the same 2004 period but were partially offset by a 3.9% decline
    in shipments in the western United States. Contributing most
    significantly to the decline in shipments in the western United
    States were a 5.2% decrease in shipments to California and an
    18.6% decrease in shipments to Colorado, primarily attributable
    to a decrease in price discounting. A significant portion of the
    Companys sales continue to be in the Pacific Northwest
    region, which the Company believes is one of the most
    competitive craft beer markets in the United States, both
    in terms of number of market participants and consumer
    awareness. The Company faces extreme competitive pressure in
    Washington state, which is not only the Companys largest
    market but is also its oldest market. Since 2000, the Company
    has experienced a decline in sales volume in Washington state of
    approximately 20%. Shipments to Washington state decreased by
    1.8% in 2005 compared to 2004. Management believes that the
    decline can be partially attributable to the relative maturity
    of the brand in this region and, more recently, the formation of
    Craft Brands. The Company believes that the beer industry is
    influenced by individual relationships. The transition to Craft
    Brands impacted its established wholesaler and retailer
    relationships which, prior to Craft Brands, had existed for many
    years. Because the transition to Craft Brands took longer than
    anticipated, and because nearly all the Companys sales
    staff responsible for Washington state left the Company, the
    Company and Craft Brands have had to re-establish many of these
    relationships with wholesalers and retailers. During the second
    quarter of 2005, Craft Brands introduced in the western United
    States several major marketing initiatives aimed at updating the
    Redhook brand image, including a proprietary Redhook bottle and
    new packaging design, combined with a new marketing campaign.
    Sales have also been impacted by a reduction in the pricing
    promotions historically offered in these regions.
|
| | Sales to Craft Brands represented approximately 56.2% of total
    shipments, or 126,000 barrels in 2005, compared to 29.4% of
    total shipments, or 63,600 barrels in 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Pricing and Fees. The Company sells its product at
    wholesale pricing levels in the midwest and eastern United
    States, at lower than historical wholesale pricing levels to
    Craft Brands in the western United States, and at agreed-upon
    pricing levels for beer brewed on a contract basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The Company continues to sell its product at wholesale pricing
    levels in the midwest and eastern United States through sales to
    A-B. Average wholesale revenue per barrel for draft products,
    net of discounts, increased approximately 5.5% in 2005 as
    compared to 2004. Average wholesale revenue per                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | barrel for bottled products, net of discounts, decreased
    approximately 0.6% in 2005 as compared to 2004. Seldom, if ever,
    are pricing changes driven by an inflationary period. Instead,
    pricing changes implemented by the Company generally follow
    pricing changes initiated by large domestic or import brewing
    companies. While the Company has implemented modest pricing
    increases during the past few years, some of the benefit has
    been offset by competitive promotions and discounting.
    Additionally, the Company may experience a decline in sales in
    certain regions following a price increase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The Company sells its product to Craft Brands at a price
    substantially below historical wholesale pricing levels pursuant
    to a Supply and Distribution Agreement with Craft Brands; Craft
    Brands, in turn, advertises, markets, sells and distributes the
    product to wholesale outlets in the western United States
    through a distribution agreement between Craft Brands and A-B.
    Average revenue per barrel for draft products sold to Craft
    Brands increased approximately 1.2% in 2005 as compared to 2004.
    Average revenue per barrel for bottled products sold to Craft
    Brands increased approximately 4.3% in 2005 as compared to 2004.
    The price charged Craft Brands is generally adjusted annually.
    Because Craft Brands formation did not occur until July
    2004, approximately 68,000 barrels sold in the western
    United States in the first half of 2004 were at historical
    wholesale pricing levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Average revenue per barrel on beer brewed on a contract basis is
    at agreed upon pricing levels between the Company and its
    customers and is generally at a price substantially lower than
    historical wholesale pricing levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | In connection with all sales through the Distribution Alliance
    prior to July 1, 2004, the Company paid a Margin fee to
    A-B. The Margin did not apply to sales to wholesalers and others
    that were part of the A-B distribution network but that were not
    part of the Distribution Alliance, including most sales to
    Washington state wholesalers, sales to non-A-B wholesalers,
    sales by the Companys retail operations, and dock sales.
    The July 1, 2004 A-B Distribution Agreement modified the
    Margin fee structure such that the Margin per barrel shipped
    increased and is paid on all sales through the new A-B
    Distribution Agreement. The Margin does not apply to sales to
    the Companys retail operations or to dock sales. The
    Margin also does not apply to the Companys sales to Craft
    Brands because Craft Brands pays a comparable fee to A-B on its
    resale of the product. The A-B Distribution Agreement also
    provides that the Company shall pay an additional fee on
    shipments that exceed shipments for the same territory during
    fiscal 2003 (the Additional Margin). In addition,
    the Exchange and Recapitalization Agreement provided that the
    Margin be retroactively increased to the rate provided in the
    A-B Distribution Agreement for all shipments in June 2004. In
    2005, the Margin was paid to A-B on shipments totaling
    85,000 barrels to 472 distribution points. Because 2005
    shipments in the midwest and eastern United States exceeded
    2003 shipments in the same territory, the Company paid A-B the
    Additional Margin on 7,000 barrels. For the six month
    period ended December 31, 2004, the Margin was paid to
    A-B on shipments
    totaling 38,000 barrels to 371 distribution points and the
    retroactive increase on June 2004 shipments was paid on
    approximately 20,000 barrels. For the six months ended
    June 30, 2004, the Margin was paid to A-B on shipments
    totaling 84,000 barrels to 495 Alliance distribution
    points. The Margin paid is reflected as a reduction of sales in
    the Companys statements of operations.
|
| | Retail Operations and Other Sales. Sales in the
    Companys retail operations and other sales increased
    $465,000 to $5,317,000 in 2005 from $4,851,000 for same 2004
    period, primarily the result of an increase in special event and
    food sales.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Excise Taxes.


Cost of Sales.


34



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Widmer Hefeweizen Widmer Hefeweizen


Selling, General and Administrative Expenses.


Income from Equity Investment in Craft Brands.


Craft Brands Shared Formation Expenses. start-up


Interest Expense.


Other Income (Expense)  Net.


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Income Taxes.




| |                          
| | -------------------------
| | Craft Brands Alliance LLC

The Equity Method of Accounting for Investments in Common
Stock 10-K Exhibits and Financial Statement
Schedules S-X.


Sales.


Cost of Sales.


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Selling, General and Administrative Expenses.


Net Income.




| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003



|                                              |  |                                |         |   |           |   |         |            |  |   |         |   |  |  |         |   
|--------------------------------------------- |  | ------------------------------ | ------- | - | --------- | - | ------- | ---------- |  | - | ------- | - |  |  | ------- | --
|                                              |  | Year Ended December 31,        |         |   |           |   |        
|                                              |  |                                |         |   | Increase/ |   |         | %          | 
|                                              |  | 2004                           |         |   | 2003      |   |         | (Decrease) |  |   | Change  |  
|                                              |  |                                |         |   |           |   |         |            |  |   |         |  
|                                              |  | (In thousands, except barrels) |         |   |          
|                                              |  | (Restated)                     |         |   |           |   |        
|Sales                                         |  | $                              | 36,640  |   |           | $ | 42,213  |            |  | $ | (5,573  | ) |  |  | (13.2   | )%
|Less Excise Taxes                             |  |                                | 3,268   |   |           |   | 3,498   |            |  |   | (230    | ) |  |  | (6.6    | ) 
|                                              |  |                                |         |   |           |   |         |            |  |   |         |  
|Net Sales                                     |  |                                | 33,372  |   |           |   | 38,715  |            |  |   | (5,343  | ) |  |  | (13.8   | ) 
|Cost of Sales                                 |  |                                | 27,171  |   |           |   | 28,702  |            |  |   | (1,531  | ) |  |  | (5.3    | ) 
|                                              |  |                                |         |   |           |   |         |            |  |   |         |  
|Gross Profit                                  |  |                                | 6,201   |   |           |   | 10,013  |            |  |   | (3,812  | ) |  |  | (38.1   | ) 
|Selling, General and Administrative Expenses  |  |                                | 7,639   |   |           |   | 11,689  |            |  |   | (4,050  | ) |  |  | (34.6   | ) 
|Income from Equity Investment in Craft Brands |  |                                | 1,123   |   |           |   |        |            |  |   | 1,123   |   |  |  | 100.0   |   
|Craft Brands Shared Formation Expenses        |  |                                | 535     |   |           |   |        |            |  |   | 535     |   |  |  | 100.0   |   
|                                              |  |                                |         |   |           |   |         |            |  |   |         |  
|Operating Income (Loss)                       |  |                                | (850    | ) |           |   | (1,676  | )          |  |   | 826     |   |  |  | 49.3    |   
|Interest Expense                              |  |                                | 189     |   |           |   | 192     |            |  |   | (3      | ) |  |  | (1.6    | ) 
|Other Income (Expense)  Net                  |  |                                | 116     |   |           |   | 59      |            |  |   | 57      |   |  |  | 96.6    |   
|                                              |  |                                |         |   |           |   |         |            |  |   |         |  
|Income (Loss) before Income Taxes             |  |                                | (923    | ) |           |   | (1,809  | )          |  |   | 886     |   |  |  | 49.0    |   
|Income Tax Provision (Benefit)                |  |                                | 331     |   |           |   | 30      |            |  |   | 301     |   |  |  | 1,003.3 |   
|                                              |  |                                |         |   |           |   |         |            |  |   |         |  
|Net Income (Loss)                             |  | $                              | (1,254  | ) |           | $ | (1,839  | )          |  | $ | 585     |   |  |  | 31.8    | % 
|                                              |  |                                |         |   |           |   |         |            |  |   |         |  
|                                             
|Beer Shipped (in barrels)                     |  |                                | 216,400 |   |           |   | 228,800 |            |  |   | (12,400 | ) |  |  | (5.4    | )%
|                                              |  |                                |         |   |           |   |         |            |  |   |         |  

37



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Sales.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | While sales in the western United States in 2004 were at two
    distinct pricing levels (at historical wholesale prices for the
    first six months of 2004 and at discounted rates for the last
    six months of 2004), all sales in the western United States in
    2003 were made at historical wholesale prices. This difference
    in the pricing structure for 2004 relative to 2003 resulted in a
    $4,500,000 decline in total sales in 2004;
|
| |  | A decline in shipments resulted in a $2,470,000 decline in sales
    in 2004;                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Improvements in overall pricing in the midwest and eastern
    United States resulted in a $710,000 increase in sales in
    2004; and                                                                                                                                                                                                                                                                                                                      
|
| |  | An increase of $269,000 in pub and other sales in 2004.                                                                                                                                                                                                                                                                                                                                                                                                     



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Shipments.  Total Company shipments declined 5.4%.
    Total sales volume for 2004 decreased to 216,400 barrels
    from 228,800 barrels for the same period in 2003, the
    result of an 8.5% decrease in shipments of its bottled products
    and a 0.2% increase in shipments of the Companys draft
    products. Since the mid 1990s, bottled beer sales have steadily
    increased as a percentage of total beer sales. However, this
    migration toward increasing bottle beer sales reversed slightly
    in 2004, with 62.8% of total shipments in 2004 being bottled
    beer shipments versus 64.9% in 2003. Excluding shipments of beer
    brewed under contract, shipments of the Companys draft
    products decreased 2.5% and total Company shipments decreased
    6.4% in 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | At December 31, 2004 and 2003, the Companys products
    were distributed in 48 states. Although shipments in the
    midwest and eastern United States decreased slightly, a 7.8%
    decline in west coast volume, including a 12.0% decrease in
    shipments in Washington state, contributed to the majority of
    the overall sales volume decrease. A significant portion of the
    Companys sales continue to be in the Pacific Northwest
    region, which the Company believes is one of the most
    competitive craft beer markets in the United States, both in
    terms of number of market participants and consumer awareness.
    The Company faces extreme competitive pressure in Washington
    state, which is not only the Companys largest market but
    is also its oldest market. From 1997 through 2004, the Company
    experienced a decline in sales volume in Washington state of
    approximately 17%. Management believes that the decline can be
    partially attributable to the relative maturity of the brand in
    this region and, more recently, the formation of Craft Brands.
    The Company believes that the beer industry is influenced by
    individual relationships. The transition to Craft Brands
    impacted its established wholesaler and retailer relationships
    which, prior to Craft Brands, had existed for many years.
    Because the transition to Craft Brands took longer than
    anticipated, and because nearly all the Companys sales
    staff responsible for Washington state left the Company, the
    Company and Craft Brands have had to re-establish many of these
    relationships with wholesalers and retailers. Sales have also
    been impacted by a reduction in the pricing promotions
    historically offered in this region.
|
| | Approximately 29.4%, or 63,600 barrels, of the 2004 total
    shipments were sold to Craft Brands at a price substantially
    below wholesale pricing levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Pricing and Fees. Significantly impacting the
    comparability of 2004 to 2003 are those sales of Redhook product
    to Craft Brands in the second half of 2004. The Company sells
    its product at wholesale pricing levels in the midwest and
    eastern United States, at lower than historical wholesale
    pricing levels to Craft Brands in the western United States, and
    at agreed-upon pricing levels for beer brewed on a contract
    basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | The Company continues to sell its product at wholesale pricing
    levels in the midwest and eastern United States through sales to
    A-B. Average wholesale revenue per barrel on sales in the
    midwest and eastern United States showed modest improvement
    while fees that the Company paid to A-B on sales in these same
    regions increased pursuant to the July 1, 2004 Distribution
    Agreement with A-B. Improvement in average wholesale revenue per
    barrel was driven by strength in pricing in many of the
    Companys markets, although the 2004 average revenue per
    barrel did experience some downward pressure as a result                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | of the contract brewing arrangement with Widmer, sold at a
    significantly lower revenue per barrel during the second quarter
    of 2004. Average wholesale revenue per barrel for draft
    products, excluding contract sales and net of discounts,
    increased approximately 1.3% in 2004 as compared to 2003. This
    increase in pricing accounted for approximately $130,000 of the
    change in total sales. Average wholesale revenue per barrel for
    bottled products, net of discounts, increased approximately 1.9%
    in 2004 as compared to 2003. This increase in pricing accounted
    for approximately $580,000 of the change in total sales. Seldom,
    if ever, are pricing changes driven by an inflationary period.
    Instead, pricing changes implemented by the Company generally
    follow pricing changes initiated by large domestic or import
    brewing companies. While the Company has implemented modest
    pricing increases during the past few years, some of the benefit
    has been offset by competitive promotions and discounting.
    Additionally, the Company may experience a decline in sales in
    certain regions following a price increase.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | The Company sells its product to Craft Brands at a price
    substantially below historical wholesale pricing levels; Craft
    Brands, in turn, advertises, markets, sells and distributes the
    product to wholesale outlets in the western United States
    through a distribution agreement between Craft Brands and A-B.
    For the year ended December 31, 2004, sales to Craft Brands
    represented 29.4% of total shipments, or 63,600 barrels.
    Because Craft Brands formation did not occur until July
    2004, approximately 68,000 barrels sold in the western
    United States in the first half of 2004 were at historical
    wholesale pricing levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | In connection with all sales through the Distribution Alliance
    prior to July 1, 2004, the Company paid a Margin fee to
    A-B. The Margin did not apply to sales to wholesalers and others
    that were part of the A-B distribution network but that were not
    part of the Distribution Alliance, including most sales to
    Washington state wholesalers, sales to non-A-B wholesalers,
    sales by the Companys retail operations, and dock sales.
    The July 1, 2004 A-B Distribution Agreement modified the
    Margin fee structure such that the Margin per barrel shipped
    increased and is paid on all sales through the new A-B
    Distribution Agreement. The Margin does not apply to sales to
    the Companys retail operations or to dock sales. The
    Margin also does not apply to the Companys sales to Craft
    Brands because Craft Brands pays a comparable fee to A-B on its
    resale of the product. The A-B Distribution Agreement also
    provides that the Company shall pay an additional fee on
    shipments that exceed shipments for the same territory during
    fiscal 2003. In addition, the Exchange and Recapitalization
    Agreement provided that the Margin be retroactively increased to
    the rate provided in the A-B Distribution Agreement for all
    shipments in June 2004. For the six month period ended
    December 31, 2004, the Margin was paid to A-B on shipments
    totaling 38,000 barrels to 371 distribution points and the
    retroactive increase on June 2004 shipments was paid on
    approximately 20,000 barrels. For the six months ended
    June 30, 2004, the Margin was paid to A-B on shipments
    totaling 84,000 barrels to 495 Alliance distribution
    points. For the year ended December 31, 2003, the Margin
    was paid to A-B on shipments totaling 166,000 barrels to
    527 Alliance distribution points. The Margin paid is reflected
    as a reduction of sales in the Companys statement of
    operations.
|
| | Retail Operations and Other. Sales other than wholesale
    beer sales, primarily retail pub revenues, totaled $4,851,000 in
    2004 compared to $4,581,000 in 2003. This increase was primarily
    a result of an improvement in overall pub activity, driven by
    favorable weather, increased attendance at events held at the
    breweries to promote the Companys products, and modest
    pricing increases in some pub fare.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Excise Taxes.


Cost of Sales.


39



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Widmer Hefeweizen Widmer Hefeweizen


Selling, General and Administrative Expenses.


Income from Equity Investment in Craft Brands.


Craft Brands Shared Formation Expenses. start-up


Interest Expense.


Other Income (Expense)  Net.


Income Taxes.


40



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| |                          
| | -------------------------
| | Craft Brands Alliance LLC

The Equity Method of Accounting for Investments in Common
Stock. 10-K Exhibits and Financial Statement Schedules S-X.


Sales.


Cost of Sales.


Selling, General and Administrative Expenses.


Net Income.


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Liquidity and Capital Resources






A-B A-B


20-year


Risk
Factors




42



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|                            |  |                         |  |                  
|--------------------------- |  | ----------------------- |  | -----------------
|                            |  |                         |  | Quarter Ended    
|                            |  | Required by Term Loan   |  | December 31, 2005
|                            |  |                         |  |                  
|Capital Ratio               |  | Less than: 1.25:1       |  | 0.21:1           
|Working Capital             |  | Greater than $1,900,000 |  | $5,232,389       
|Fixed Charge Coverage Ratio |  | Greater than 1.15:1     |  | 1.997:1          

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Contractual Commitments.


|                                        |  |                         |       |  |      |   |       |      |  |   |       |  |  |      |     |  |            |   |     |       |  |   |        |  |  |   |        | 
|--------------------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- |  |  | ---- | --- |  | ---------- | - | --- | ----- |  | - | ------ |  |  | - | ------ | 
|                                        |  | Year Ended December 31, |       |  |      |   |      
|                                        |  |                         |       |  |      |   |      
|                                        |  | 2006                    |       |  | 2007 |   |       | 2008 |  |   | 2009  |  |  | 2010 |     |  | Thereafter |   |     | Total | 
|                                        |  |                         |       |  |      |   |       |      |  |   |       |  |  |      |     |  |            |   |     |       | 
|                                        |  | (In thousands)          |       |  |      |   |      
|Long-term Debt(1)                       |  | $                       | 459   |  |      | $ | 4,734 |      |  | $ | 9     |  |  | $    | 9   |  |            | $ | 3   |       |  | $ |       |  |  | $ | 5,214  | 
|Operating Leases(2)                     |  |                         | 265   |  |      |   | 263   |      |  |   | 263   |  |  |      | 263 |  |            |   | 272 |       |  |   | 11,828 |  |  |   | 13,154 | 
|Malt and Hop Commitments(3)             |  |                         | 1,894 |  |      |   | 1,795 |      |  |   | 667   |  |  |      |    |  |            |   |    |       |  |   |       |  |  |   | 4,356  | 
|Other Operating Purchase Obligations(4) |  |                         | 235   |  |      |   | 81    |      |  |   | 74    |  |  |      | 10  |  |            |   | 4   |       |  |   | 3      |  |  |   | 407    | 
|                                        |  |                         |       |  |      |   |       |      |  |   |       |  |  |      |     |  |            |   |     |       | 
|                                        |  | $                       | 2,853 |  |      | $ | 6,873 |      |  | $ | 1,013 |  |  | $    | 282 |  |            | $ | 279 |       |  | $ | 11,831 |  |  | $ | 23,131 | 
|                                        |  |                         |       |  |      |   |       |      |  |   |       |  |  |      |     |  |            |   |     |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents annual principal payments required on the
    Companys Term Loan and annual lease payments (including
    portion of payments imputed as interest) on capital lease
    obligations. Interest on the Term Loan accrues at LIBOR plus
    1.75% and interest on capital leases are calculated at the
    Companys incremental borrowing rate at the inception of
    each lease. Monthly interest payments on the Term Loan are not
    reflected above. The termination of the A-B Distribution
    Agreement for any reason would constitute an event of default
    under the credit agreement and the bank may declare the entire
    outstanding loan balance immediately due and payable.                                                                                                                                                                                                 
|   
|(2) | Represents minimum aggregate future lease payments under
    noncancelable operating leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(3) | Represents purchase commitments to ensure that the Company has
    the necessary supply of malted barley and specialty hops to meet
    future production requirements. Payments for malted barley are
    made as deliveries are received. Hop contracts generally provide
    for payment upon delivery of the product with the balance due on
    any unshipped product during the year following the harvest
    year. The Company believes that, based upon its relationships
    with its hop suppliers, the risk of non-delivery is low and that
    if non-delivery of its required supply of hops were to occur,
    the Company would be able to purchase hops to support its
    operations from other competitive sources. Malt and hop
    commitments in excess of future requirements, if any, will not
    materially affect the Companys financial condition or
    results of operations.
|   
|(4) | Represents legally-binding production and operating purchase
    commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Certain Considerations: Issues and Uncertainties


Risk
Factors


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Critical Accounting Policies and Estimates




Income Taxes. Accounting for Income Taxes.


Long-Lived Assets. Accounting for the Impairment or
Disposal of Long-Lived Assets.


Investment in Craft Brands. Consolidation of Variable Interest
Entities  an Interpretation of ARB No. 51.


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The Equity Method of Accounting
for Investments in Common Stock. 10-K Exhibits and Financial Statement
Schedules S-X.


Revenue Recognition.


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Recent Accounting Pronouncements


Inventory Costs  an Amendment of ARB No. 43,
Chapter 4.


Share-Based Payment


Accounting Changes and Error Corrections, Accounting
Changes Reporting Accounting
Changes in Interim Financial Statements. 10-K,







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk





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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

REDHOOK ALE BREWERY, INCORPORATED


INDEX TO FINANCIAL STATEMENTS


|                                                                                                       |  |      |    | 
|------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                       |  | Page |   
|                                                                                                       |  |      |   
|Audited Financial Statements:                                                                          |  |      |    | 
|                                                                                                      
|Report of Moss Adams LLP, Independent
    Registered Public Accountants                                |  |      | 49 | 
|                                                                                                      
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm                         |  |      | 50 | 
|                                                                                                      
|Balance Sheets as of December 31, 2005
    and 2004                                                    |  |      | 51 | 
|                                                                                                      
|Statements of Operations for the Years
    Ended December 31, 2005, 2004 and 2003                      |  |      | 52 | 
|                                                                                                      
|Statements of Common Stockholders
    Equity
    for the Years Ended December 31, 2005, 2004 and 2003 |  |      | 53 | 
|                                                                                                      
|Statements of Cash Flows for the Years
    Ended December 31, 2005, 2004 and 2003                      |  |      | 54 | 
|                                                                                                      
|Notes to Financial Statements                                                                          |  |      | 55 | 

48



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS























49



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REPORT OF ERNST & YOUNG LLP, INDEPENDENT
REGISTERED


PUBLIC ACCOUNTING FIRM
















| |              
| | -------------
| | ERNST & YOUNG









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REDHOOK ALE BREWERY, INCORPORATED





BALANCE SHEETS


|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |            |            |            |            |            |            | 
|------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | --------------------------------- | ------------------------------------------------- | ------------ | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | 
|                                                                         |                                                                                                                                                                | December 31,              |                                   |                                                   | December 31, |           
|                                                                         |                                                                                                                                                                | 2005                      |                                   |                                                   | 2004         |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|                                                                         |                                                                                                                                                                |                           |                                   | (Restated)                                        |             
|ASSETS                                                                  
|                                                                        
|Current Assets:                                                          |                                                                                                                                                                |                           |                                   |                                                   |              |            |            |           
|                                                                         | Cash and Cash Equivalents                                                                                                                                      |                           | $                                 | 6,435,609                                         |              |            | $          | 5,589,621  |           
|                                                                         | Accounts Receivable                                                                                                                                            |                           |                                   | 1,297,404                                         |              |            |            | 1,123,475  |           
|                                                                         | Trade Receivable from Craft Brands                                                                                                                             |                           |                                   | 698,272                                           |              |            |            | 398,707    |           
|                                                                         | Inventories                                                                                                                                                    |                           |                                   | 3,027,720                                         |              |            |            | 3,000,309  |           
|                                                                         | Other                                                                                                                                                          |                           |                                   | 502,667                                           |              |            |            | 506,328    |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|                                                                         |                                                                                                                                                                | Total Current Assets      |                                   |                                                   | 11,961,672   |            |            |            | 10,618,440 |           
|Fixed Assets, Net                                                        |                                                                                                                                                                |                           | 60,379,901                        |                                                   |              |            | 63,018,806 |           
|Receivable from Craft Brands                                             |                                                                                                                                                                |                           |                                  |                                                   |              |            | 277,144    |           
|Investment in Craft Brands                                               |                                                                                                                                                                |                           | 92,806                            |                                                   |              |            | 192,857    |           
|Other Assets                                                             |                                                                                                                                                                |                           | 143,326                           |                                                   |              |            | 20,977     |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|                                                                         |                                                                                                                                                                |                           |                                   | Total Assets                                      |              | $          | 72,577,705 |            |            | $          | 74,128,224 | 
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|                                                                        
|LIABILITIES AND COMMON STOCKHOLDERS EQUITY                             
|                                                                        
|Current Liabilities:                                                     |                                                                                                                                                                |                           |                                   |                                                   |              |            |            |           
|                                                                         | Accounts Payable                                                                                                                                               |                           | $                                 | 1,990,627                                         |              |            | $          | 1,815,380  |           
|                                                                         | Trade Payable to Craft Brands                                                                                                                                  |                           |                                   | 367,590                                           |              |            |            | 431,089    |           
|                                                                         | Accrued Salaries, Wages and Payroll Taxes                                                                                                                      |                           |                                   | 1,259,823                                         |              |            |            | 1,220,248  |           
|                                                                         | Refundable Deposits                                                                                                                                            |                           |                                   | 2,440,796                                         |              |            |            | 2,526,088  |           
|                                                                         | Other Accrued Expenses                                                                                                                                         |                           |                                   | 211,200                                           |              |            |            | 515,123    |           
|                                                                         | Current Portion of Long-Term Debt and Capital Lease Obligations                                                                                                |                           |                                   | 459,245                                           |              |            |            | 450,000    |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|                                                                         |                                                                                                                                                                | Total Current Liabilities |                                   |                                                   | 6,729,281    |            |            |            | 6,957,928  |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|Long-Term Debt and Capital Lease Obligations, Net of Current
    Portion |                                                                                                                                                                |                           | 4,751,920                         |                                                   |              |            | 5,175,000  |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|Deferred Income Taxes, Net                                               |                                                                                                                                                                |                           | 946,395                           |                                                   |              |            | 769,798    |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|Other Liabilities                                                        |                                                                                                                                                                |                           | 123,542                           |                                                   |              |            | 64,903     |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|Commitments                                                              |                                                                                                                                                                |                           |                                   |                                                   |              |            |            |           
|Common Stockholders Equity:                                             |                                                                                                                                                                |                           |                                   |                                                   |              |            |            |           
|                                                                         | Common Stock, Par Value $0.005 per Share, Authorized,
    50,000,000 Shares; Issued and Outstanding,
    8,222,609 Shares in 2005 and 8,188,199 Shares in 2004 |                           |                                   | 41,113                                            |              |            |            | 40,941     |           
|                                                                         | Additional Paid-In Capital                                                                                                                                     |                           |                                   | 68,828,009                                        |              |            |            | 68,761,766 |           
|                                                                         | Retained Earnings (Deficit)                                                                                                                                    |                           |                                   | (8,842,555                                        | )            |            |            | (7,642,112 | )         
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|                                                                         |                                                                                                                                                                |                           | Total Common Stockholders Equity |                                                   |              | 60,026,567 |            |            |            | 61,160,595 |           
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           
|                                                                         |                                                                                                                                                                |                           |                                   | Total Liabilities and Common Stockholders Equity |              | $          | 72,577,705 |            |            | $          | 74,128,224 | 
|                                                                         |                                                                                                                                                                |                           |                                   |                                                   |              |           



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REDHOOK ALE BREWERY, INCORPORATED





STATEMENTS OF OPERATIONS


|                                              |  |                         |            |            |      |   |            |      |  |   |            |  
|--------------------------------------------- |  | ----------------------- | ---------- | ---------- | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                              |  | Year Ended December 31, |           
|                                              |  |                         |           
|                                              |  | 2005                    |            |            | 2004 |   |            | 2003 | 
|                                              |  |                         |            |            |      |   |            |      | 
|                                              |  |                         |            | (Restated) |      |   |           
|Sales                                         |  | $                       | 34,520,401 |            |      | $ | 36,639,552 |      |  | $ | 42,212,771 |  
|Less Excise Taxes                             |  |                         | 3,421,494  |            |      |   | 3,267,513  |      |  |   | 3,497,714  |  
|                                              |  |                         |            |            |      |   |            |      | 
|Net Sales                                     |  |                         | 31,098,907 |            |      |   | 33,372,039 |      |  |   | 38,715,057 |  
|Cost of Sales                                 |  |                         | 27,543,639 |            |      |   | 27,171,255 |      |  |   | 28,701,946 |  
|                                              |  |                         |            |            |      |   |            |      | 
|Gross Profit                                  |  |                         | 3,555,268  |            |      |   | 6,200,784  |      |  |   | 10,013,111 |  
|Selling, General and Administrative Expenses  |  |                         | 6,783,821  |            |      |   | 7,639,290  |      |  |   | 11,689,410 |  
|Income from Equity Investment in Craft Brands |  |                         | 2,391,936  |            |      |   | 1,123,283  |      |  |   |           |  
|Craft Brands Shared Formation Expenses        |  |                         |           |            |      |   | 534,628    |      |  |   |           |  
|                                              |  |                         |            |            |      |   |            |      | 
|Operating Income (Loss)                       |  |                         | (836,617   | )          |      |   | (849,851   | )    |  |   | (1,676,299 | )
|Interest Expense                              |  |                         | 271,460    |            |      |   | 189,662    |      |  |   | 191,404    |  
|Other Income (Expense)  Net                  |  |                         | 125,308    |            |      |   | 115,619    |      |  |   | 58,891     |  
|                                              |  |                         |            |            |      |   |            |      | 
|Income (Loss) before Income Taxes             |  |                         | (982,769   | )          |      |   | (923,894   | )    |  |   | (1,808,812 | )
|Income Tax Provision (Benefit)                |  |                         | 217,674    |            |      |   | 331,000    |      |  |   | 29,801     |  
|                                              |  |                         |            |            |      |   |            |      | 
|Net Income (Loss)                             |  | $                       | (1,200,443 | )          |      | $ | (1,254,894 | )    |  | $ | (1,838,613 | )
|                                              |  |                         |            |            |      |   |            |      | 
|                                             
|Basic Earnings (Loss) per Share               |  | $                       | (0.15      | )          |      | $ | (0.18      | )    |  | $ | (0.30      | )
|                                              |  |                         |            |            |      |   |            |      | 
|                                             
|Diluted Earnings (Loss) per Share             |  | $                       | (0.15      | )          |      | $ | (0.18      | )    |  | $ | (0.30      | )
|                                              |  |                         |            |            |      |   |            |      | 



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REDHOOK ALE BREWERY, INCORPORATED





STATEMENTS OF COMMON STOCKHOLDERS EQUITY


|                                            |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |            |            |   |   |            |            |  
|------------------------------------------- | ---------------------------------------------------------------------------- | ------------ | --------- | --------- | ---------- | - | ------- | -------- | ----- | -------- | ---------- | ---------- | ------------- | ------ | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                            |                                                                              | Common Stock |           |           |            |   |         |          | Total |         
|                                            |                                                                              |              |           |           | Additional |   |         | Retained |       |          | Common     |           
|                                            |                                                                              |              |           | Par       |            |   | Paid-In |          |       | Earnings |            |            | Stockholders |       
|                                            |                                                                              | Shares       |           |           | Value      |   |         | Capital  |       |          | (Deficit)  |            |               | Equity |           
|                                            |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |           
|Balance, January 1, 2003                    |                                                                              |              | 6,326,146 |           |            | $ | 31,631  |          |       | $        | 54,477,181 |            |               | $      | (4,482,005 | )          |   | $ | 50,026,807 |           
|                                           
|                                            | Repurchase of Common Stock                                                   |              |           | (101,440  | )          |   |         | (507     | )     |          |            | (230,160   | )             |        |            |           |   |   |            | (230,667   | )
|                                            | Other, Net                                                                   |              |           | 1,600     |            |   |         | 8        |       |          |            | 3,038      |               |        |            | (44,400    | ) |   |            | (41,354    | )
|                                            | Net Loss                                                                     |              |           |          |            |   |         |         |       |          |            |           |               |        |            | (1,838,613 | ) |   |            | (1,838,613 | )
|                                            |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |           
|Balance, December 31, 2003                  |                                                                              |              | 6,226,306 |           |            |   | 31,132  |          |       |          | 54,250,059 |            |               |        | (6,365,018 | )          |   |   | 47,916,173 |           
|                                           
|                                            | Issuance of Common Stock to A-B in Exchange for Series B
    Preferred Stock |              |           | 1,808,243 |            |   |         | 9,041    |       |          |            | 14,245,814 |               |        |            |           |   |   |            | 14,254,855 |  
|                                            | Issuance of Common Stock                                                     |              |           | 153,650   |            |   |         | 768      |       |          |            | 265,893    |               |        |            |           |   |   |            | 266,661    |  
|                                            | Other                                                                        |              |           |          |            |   |         |         |       |          |            |           |               |        |            | (22,200    | ) |   |            | (22,200    | )
|                                            | Net Loss, as Restated                                                        |              |           |          |            |   |         |         |       |          |            |           |               |        |            | (1,254,894 | ) |   |            | (1,254,894 | )
|                                            |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |           
|Balance, December 31, 2004,
    as Restated |                                                                              |              | 8,188,199 |           |            |   | 40,941  |          |       |          | 68,761,766 |            |               |        | (7,642,112 | )          |   |   | 61,160,595 |           
|                                           
|                                            | Issuance of Common Stock                                                     |              |           | 34,410    |            |   |         | 172      |       |          |            | 66,243     |               |        |            |           |   |   |            | 66,415     |  
|                                            | Net Loss                                                                     |              |           |          |            |   |         |         |       |          |            |           |               |        |            | (1,200,443 | ) |   |            | (1,200,443 | )
|                                            |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |           
|Balance, December 31, 2005                  |                                                                              |              | 8,222,609 |           |            | $ | 41,113  |          |       | $        | 68,828,009 |            |               | $      | (8,842,555 | )          |   | $ | 60,026,567 |           
|                                            |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |           



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REDHOOK ALE BREWERY, INCORPORATED





STATEMENTS OF CASH FLOWS


|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |          |   |            |           |          |  
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ---------- | ---------- | -------- | - | ---------- | ---------- | -------- | - | ---------- | --------- | -------- | -
|                                                                                             |                                                                                                                                                                           | Year Ended December 31,                     |           
|                                                                                             |                                                                                                                                                                           |                                             |           
|                                                                                             |                                                                                                                                                                           | 2005                                        |            |            | 2004     |   |            | 2003       |         
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|                                                                                             |                                                                                                                                                                           |                                             |            | (Restated) |          |   |           
|Operating Activities                                                                         |                                                                                                                                                                           |                                             |            |            |          |   |            |            |          |   |            |          
|Net Income (Loss)                                                                            |                                                                                                                                                                           | $                                           | (1,200,443 | )          |          | $ | (1,254,894 | )          |          | $ | (1,838,613 | )        
|Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
    by Operating Activities: |                                                                                                                                                                           |                                             |            |            |          |   |            |            |          |   |            |          
|                                                                                             | Depreciation and Amortization                                                                                                                                             |                                             |            | 2,938,088  |          |   |            | 2,944,412  |          |   |            | 3,024,536 |         
|                                                                                             | Deferred Income Taxes                                                                                                                                                     |                                             |            | 176,597    |          |   |            | 301,000    |          |   |            |          |         
|                                                                                             | Loss on Disposal of Fixed Assets                                                                                                                                          |                                             |            | 25,631     |          |   |            |           |          |   |            |          |         
|                                                                                             | Income from Equity Investment in Craft Brands                                                                                                                             |                                             |            |            |          |   |            |            |          |   |            |           |         
|                                                                                             |                                                                                                                                                                           | Less than (In Excess of) Cash Distributions |            |            | 377,195  |   |            |            | (219,901 | ) |            |           |         |  
|                                                                                             | Changes in Operating Assets and Liabilities:                                                                                                                              |                                             |            |            |          |   |            |            |          |   |            |           |         
|                                                                                             |                                                                                                                                                                           | Accounts Receivable                         |            |            | (173,929 | ) |            |            | 563,260  |   |            |           | (196,218 | )
|                                                                                             |                                                                                                                                                                           | Trade Receivable from Craft Brands          |            |            | (299,565 | ) |            |            | (398,707 | ) |            |           |         |  
|                                                                                             |                                                                                                                                                                           | Inventories                                 |            |            | (27,411  | ) |            |            | 341,697  |   |            |           | (509,579 | )
|                                                                                             |                                                                                                                                                                           | Other Current Assets                        |            |            | 3,661    |   |            |            | (259,290 | ) |            |           | (8,770   | )
|                                                                                             |                                                                                                                                                                           | Other Assets                                |            |            | (131,140 | ) |            |            | 4,400    |   |            |           | (4,400   | )
|                                                                                             |                                                                                                                                                                           | Accounts Payable and Other Accrued Expenses |            |            | (128,676 | ) |            |            | (274,059 | ) |            |           | 63,477   |  
|                                                                                             |                                                                                                                                                                           | Trade Payable to Craft Brands               |            |            | (63,499  | ) |            |            | 431,089  |   |            |           |         |  
|                                                                                             |                                                                                                                                                                           | Accrued Salaries, Wages and Payroll Taxes   |            |            | 39,575   |   |            |            | (341,278 | ) |            |           | (73,937  | )
|                                                                                             |                                                                                                                                                                           | Refundable Deposits                         |            |            | (85,292  | ) |            |            | 253,760  |   |            |           | 329,525  |  
|                                                                                             |                                                                                                                                                                           | Other Liabilities                           |            |            | 58,639   |   |            |            | 64,903   |   |            |           |         |  
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|Net Cash Provided by Operating Activities                                                    |                                                                                                                                                                           |                                             | 1,509,431  |            |          |   | 2,156,392  |            |          |   | 786,021    |          
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|Investing Activities                                                                         |                                                                                                                                                                           |                                             |            |            |          |   |            |            |          |   |            |          
|Expenditures for Fixed Assets                                                                |                                                                                                                                                                           |                                             | (585,392   | )          |          |   | (252,098   | )          |          |   | (991,985   | )        
|Investment in Craft Brands                                                                   |                                                                                                                                                                           |                                             |           |            |          |   | (250,100   | )          |          |   |           |          
|Proceeds from Disposition of Brewery Equipment                                               |                                                                                                                                                                           |                                             | 305,260    |            |          |   |           |            |          |   |           |          
|Other, Net                                                                                   |                                                                                                                                                                           |                                             | 4,961      |            |          |   | (4,583     | )          |          |   | (417       | )        
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|Net Cash Used in Investing Activities                                                        |                                                                                                                                                                           |                                             | (275,171   | )          |          |   | (506,781   | )          |          |   | (992,402   | )        
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|Financing Activities                                                                         |                                                                                                                                                                           |                                             |            |            |          |   |            |            |          |   |            |          
|Payment to A-B pursuant to Exchange and Recapitalization
    Agreement                       |                                                                                                                                                                           |                                             |           |            |          |   | (2,000,000 | )          |          |   |           |          
|Principal Payments on Debt and Capital Lease Obligations                                     |                                                                                                                                                                           |                                             | (454,687   | )          |          |   | (450,000   | )          |          |   | (450,000   | )        
|Repurchase of Common Stock                                                                   |                                                                                                                                                                           |                                             |           |            |          |   |           |            |          |   | (230,667   | )        
|Issuance of Common Stock                                                                     |                                                                                                                                                                           |                                             | 66,415     |            |          |   | 266,661    |            |          |   | 3,046      |          
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|Net Cash Used in Financing Activities                                                        |                                                                                                                                                                           |                                             | (388,272   | )          |          |   | (2,183,339 | )          |          |   | (677,621   | )        
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|Increase (Decrease) in Cash and Cash Equivalents                                             |                                                                                                                                                                           |                                             | 845,988    |            |          |   | (533,728   | )          |          |   | (884,002   | )        
|Cash and Cash Equivalents:                                                                   |                                                                                                                                                                           |                                             |            |            |          |   |            |            |          |   |            |          
|                                                                                             | Beginning of Year                                                                                                                                                         |                                             |            | 5,589,621  |          |   |            | 6,123,349  |          |   |            | 7,007,351 |         
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|                                                                                             | End of Year                                                                                                                                                               |                                             | $          | 6,435,609  |          |   | $          | 5,589,621  |          |   | $          | 6,123,349 |         
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|Supplemental Disclosures of Cash Flow Information:                                           |                                                                                                                                                                           |                                             |            |            |          |   |            |            |          |   |            |          
|                                                                                             | Acquisition of Fixed Assets under Capital Lease                                                                                                                           |                                             | $          | 40,852     |          |   | $          |           |          |   | $          |          |         
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|                                                                                             | Issuance of 1,808,243 Shares of Common Stock to A-B and
    Payment of $2,000,000 to A-B in Exchange for
    1,289,872 Shares of Series B Preferred Stock Held by
    A-B |                                             | $          |           |          |   | $          | 14,232,655 |          |   | $          |          |         
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         
|                                                                                             | Disposal of Fixed Assets in Exchange
    for Related Deposit Liability                                                                                                    |                                             | $          |           |          |   | $          |           |          |   | $          | 603,825   |         
|                                                                                             |                                                                                                                                                                           |                                             |            |            |          |   |            |            |         



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REDHOOK ALE BREWERY, INCORPORATED





NOTES TO FINANCIAL STATEMENTS




|   |                     
|-- | --------------------
|1. | Nature of Operations











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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)






|   |                                    
|-- | -----------------------------------
|2. | Restatement of Financial Statements



|                                          |                                                   |               |   |            |            |  |   |             |   |  |   |            |  
|----------------------------------------- | ------------------------------------------------- | ------------- | - | ---------- | ---------- |  | - | ----------- | - |  | - | ---------- | -
|                                          |                                                   | As Previously |   |            |            |  |  
|                                          |                                                   | Reported      |   |            | Adjustment |  |   | As Restated |  
|                                          |                                                   |               |   |            |            |  |   |             |  
|Balance Sheet:                            |                                                   |               |   |            |            |  |   |             |   |  |   |           
|                                          | Deferred Income Taxes, Net                        |               | $ | 468,798    |            |  | $ | 301,000     |   |  | $ | 769,798    |  
|                                          | Total Liabilities and Common Stockholders Equity |               |   | 74,128,224 |            |  |   |            |   |  |   | 74,128,224 |  
|                                         
|Statement of Operations:                  |                                                   |               |   |            |            |  |   |             |   |  |   |           
|                                          | Income Tax Provision (Benefit)                    |               | $ | 30,000     |            |  | $ | 301,000     |   |  | $ | 331,000    |  
|                                          | Net Income (Loss)                                 |               |   | (953,894   | )          |  |   | (301,000    | ) |  |   | (1,254,894 | )
|                                          | Basic and Diluted Earnings (Loss) Per Share       |               |   | (0.14      | )          |  |   | (0.04       | ) |  |   | (0.18      | )
|                                         
|Statement of Common Stockholders Equity: |                                                   |               |   |            |            |  |   |             |   |  |   |           
|                                          | Retained Earnings (Deficit)                       |               | $ | (7,341,112 | )          |  | $ | (301,000    | ) |  | $ | (7,642,112 | )
|                                          | Total Common Stockholders Equity                 |               |   | 61,461,595 |            |  |   | (301,000    | ) |  |   | 61,160,595 |  
|                                         
|Statement of Cash Flows:                  |                                                   |               |   |            |            |  |   |             |   |  |   |           
|                                          | Net Cash Provided by Operating Activities         |               | $ | 2,156,392  |            |  | $ |            |   |  | $ | 2,156,392  |  



|   |                                
|-- | -------------------------------
|3. | Significant Accounting Policies



| |                          
| | -------------------------
| | Cash and Cash Equivalents





| |                    
| | -------------------
| | Accounts Receivable



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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |            
| | -----------
| | Inventories

first-in,




| |             
| | ------------
| | Fixed Assets



|                                        |  |              
|--------------------------------------- |  | -------------
|Buildings                               |  | 31 - 40 years
|Brewery equipment                       |  | 10 - 25 years
|Furniture, fixtures and other equipment |  | 2 - 10 years 
|Vehicles                                |  | 5 years      



| |                                        
| | ---------------------------------------
| | 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


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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                  
| | -----------------
| | Long-Lived Assets

Accounting for the
Impairment or Disposal of Long-Lived Assets




| |                    
| | -------------------
| | Revenue Recognition





| |                            
| | ---------------------------
| | Shipping and Handling Costs





| |             
| | ------------
| | Income Taxes





| |                     
| | --------------------
| | Advertising Expenses





| |                    
| | -------------------
| | Segment Information

Disclosures about Segments of an Enterprise and Related
Information


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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)






| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock Issued to Employees Accounting for Stock-Based
Compensation




|                                                                                                                                             |                       |                         |            |       |      |   |            |       |   |   |            |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | ---------- | ----- | ---- | - | ---------- | ----- | - | - | ---------- | ----- | -
|                                                                                                                                             |                       | Year Ended December 31, |           
|                                                                                                                                             |                       |                         |           
|                                                                                                                                             |                       | 2005                    |            |       | 2004 |   |            | 2003  |  
|                                                                                                                                             |                       |                         |            |       |      |   |            |       |  
|                                                                                                                                             |                       | (Restated)              |           
|Net income (loss), as reported                                                                                                               |                       | $                       | (1,200,443 | )     |      | $ | (1,254,894 | )     |   | $ | (1,838,613 | )    
|Add: Stock-based employee compensation expense as reported under
    APB No. 25                                                              |                       |                         |           |       |      |   |           |       |   |   |           |      
|Less: Stock-based employee compensation expense determined under
    fair value based method for all options, net of related tax
    effects |                       |                         | (244,585   | )     |      |   | (256,161   | )     |   |   | (260,220   | )    
|                                                                                                                                             |                       |                         |            |       |      |   |            |       |  
|Pro forma net income (loss)                                                                                                                  |                       | $                       | (1,445,028 | )     |      | $ | (1,511,055 | )     |   | $ | (2,098,833 | )    
|                                                                                                                                             |                       |                         |            |       |      |   |            |       |  
|Earnings (loss) per share:                                                                                                                   |                       |                         |            |       |      |   |            |       |   |   |            |      
|                                                                                                                                             | Basic  as reported   |                         | $          | (0.15 | )    |   | $          | (0.18 | ) |   | $          | (0.30 | )
|                                                                                                                                             | Basic  pro forma     |                         | $          | (0.18 | )    |   | $          | (0.21 | ) |   | $          | (0.34 | )
|                                                                                                                                             | Diluted  as reported |                         | $          | (0.15 | )    |   | $          | (0.18 | ) |   | $          | (0.30 | )
|                                                                                                                                             | Diluted  pro forma   |                         | $          | (0.18 | )    |   | $          | (0.21 | ) |   | $          | (0.34 | )



|                                      |  |      |        |  |      |  |        |      |  |  |        | 
|------------------------------------- |  | ---- | ------ |  | ---- |  | ------ | ---- |  |  | ------ | 
|                                      |  | 2005 |        |  | 2004 |  |        | 2003 | 
|                                      |  |      |        |  |      |  |        |      | 
|Expected life of option               |  |      | 5 yrs. |  |      |  | 5 yrs. |      |  |  | 5 yrs. | 
|Risk-free interest rate               |  |      | 3.88%  |  |      |  | 3.88%  |      |  |  | 2.63%  | 
|Volatility of the Companys stock     |  |      | 46.0%  |  |      |  | 52.0%  |      |  |  | 52.5%  | 
|Dividend yield on the Companys stock |  |      | 0.0%   |  |      |  | 0.0%   |      |  |  | 0.0%   | 



|                                                  |  |      |        |  |      |   |        |      |  |   |        | 
|------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                  |  | 2005 |        |  | 2004 |   |        | 2003 | 
|                                                  |  |      |        |  |      |   |        |      | 
|Total number of options granted                   |  |      | 16,000 |  |      |   | 16,000 |      |  |   | 12,000 | 
|Estimated fair value of each option granted       |  | $    | 1.24   |  |      | $ | 1.08   |      |  | $ | 0.97   | 
|Total estimated fair value of all options granted |  | $    | 20,000 |  |      | $ | 17,000 |      |  | $ | 12,000 | 

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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)






Share-Based Payment




| |                          
| | -------------------------
| | Earnings (Loss) per Share

Earnings per
Share




| |                 
| | ----------------
| | Use of Estimates





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments



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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                                     
| | ------------------------------------
| | Recently Issued Accounting Standards

Inventory Costs  an Amendment of ARB
No. 43


Share-Based Payment


Accounting Changes and Error Corrections Accounting
Changes Reporting Accounting
Changes in Interim Financial Statements 10-K,


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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |            
|-- | -----------
|4. | Inventories



|                        |  |              |           |  |      |   |           | 
|----------------------- |  | ------------ | --------- |  | ---- | - | --------- | 
|                        |  | December 31, |          
|                        |  |              |          
|                        |  | 2005         |           |  | 2004 |  
|                        |  |              |           |  |      |  
|Raw materials           |  | $            | 1,180,831 |  |      | $ | 1,122,290 | 
|Work in process         |  |              | 950,827   |  |      |   | 833,846   | 
|Finished goods          |  |              | 262,618   |  |      |   | 350,543   | 
|Promotional merchandise |  |              | 372,073   |  |      |   | 480,338   | 
|Packaging materials     |  |              | 261,371   |  |      |   | 213,292   | 
|                        |  |              |           |  |      |  
|                        |  | $            | 3,027,720 |  |      | $ | 3,000,309 | 
|                        |  |              |           |  |      |  





|   |             
|-- | ------------
|5. | Fixed Assets



|                                               |  |              |            |  |      |   |            | 
|---------------------------------------------- |  | ------------ | ---------- |  | ---- | - | ---------- | 
|                                               |  | December 31, |           
|                                               |  |              |           
|                                               |  | 2005         |            |  | 2004 |  
|                                               |  |              |            |  |      |  
|Brewery equipment                              |  | $            | 46,119,789 |  |      | $ | 46,191,232 | 
|Buildings                                      |  |              | 35,831,040 |  |      |   | 35,753,363 | 
|Land and improvements                          |  |              | 4,601,427  |  |      |   | 4,601,427  | 
|Furniture, fixtures and other equipment        |  |              | 2,277,994  |  |      |   | 2,094,100  | 
|Vehicles                                       |  |              | 81,730     |  |      |   | 81,730     | 
|Construction in progress                       |  |              | 51,544     |  |      |   | 2,096      | 
|                                               |  |              |            |  |      |  
|                                               |  |              | 88,963,524 |  |      |   | 88,723,948 | 
|Less accumulated depreciation and amortization |  |              | 28,583,623 |  |      |   | 25,705,142 | 
|                                               |  |              |            |  |      |  
|                                               |  | $            | 60,379,901 |  |      | $ | 63,018,806 | 
|                                               |  |              |            |  |      |  





|   |                          
|-- | -------------------------
|6. | Craft Brands Alliance LLC







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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)














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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




10-K Exhibits and Financial Statement Schedules S-X.


start-up




|   |                                   
|-- | ----------------------------------
|7. | Debt and Capital Lease Obligations



|                                                                                                                                     |  |              |           |   |      |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                                     |  | December 31, |          
|                                                                                                                                     |  |              |          
|                                                                                                                                     |  | 2005         |           |   | 2004 |  
|                                                                                                                                     |  |              |           |   |      |  
|Term Loan, payable to bank monthly at $37,500 plus accrued
    interest; interest at 6.1% at December 31, 2005; due
    June 5, 2007 |  | $            | 5,175,000 |   |      | $ | 5,625,000 |  
|Various capital lease obligations                                                                                                    |  |              | 36,165    |   |      |   |          |  
|                                                                                                                                     |  |              |           |   |      |  
|                                                                                                                                     |  |              | 5,211,165 |   |      |   | 5,625,000 |  
|                                                                                                                                     |  |              |           |   |      |  
|Current portion, Term Loan                                                                                                           |  |              | (450,000  | ) |      |   | (450,000  | )
|Current portion, Capital lease obligations                                                                                           |  |              | (9,245    | ) |      |   |          |  
|                                                                                                                                     |  |              |           |   |      |  
|                                                                                                                                     |  |              | (459,245  | ) |      |   | (450,000  | )
|                                                                                                                                     |  |              |           |   |      |  
|Long-term portion of Term Loan and Capital lease obligations                                                                         |  | $            | 4,751,920 |   |      | $ | 5,175,000 |  
|                                                                                                                                     |  |              |           |   |      |  



| |          
| | ---------
| | Term Loan







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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)








|     |  |   |           | 
|---- |  | - | --------- | 
|2006 |  | $ | 450,000   | 
|2007 |  |   | 4,725,000 | 
|     |  |   |          
|     |  | $ | 5,175,000 | 
|     |  |   |          



| |                           
| | --------------------------
| | Capital Leases Obligations



|                                        |  |   |        | 
|--------------------------------------- |  | - | ------ | 
|2006                                    |  | $ | 9,245  | 
|2007                                    |  |   | 9,245  | 
|2008                                    |  |   | 9,245  | 
|2009                                    |  |   | 9,245  | 
|2010                                    |  |   | 3,100  | 
|                                        |  |   |       
|Total minimum lease payments            |  |   | 40,080 | 
|Less amount representing interest       |  |   | 3,915  | 
|                                        |  |   |       
|Present value of minimum lease payments |  | $ | 36,165 | 
|                                        |  |   |       





|   |                            
|-- | ---------------------------
|8. | Common Stockholders Equity



| |                         
| | ------------------------
| | Issuance of Common Stock



A-B A-B.


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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)








| |                           
| | --------------------------
| | Repurchase of Common Stock





| |                   
| | ------------------
| | Stock Option Plans







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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                             |           |           |           |          |          |   |      |             |  |  |          |  |  |   |      |  | 
|---------------------------- | --------- | --------- | --------- | -------- | -------- | - | ---- | ----------- |  |  | -------- |  |  | - | ---- |  | 
|                             |           | Shares of |           |          |          |   |      |             | 
|                             |           | Common    |           |          | Weighted |   |      | Options     |  |  | Weighted | 
|                             |           | Stock     |           |          | Average  |   |      | Exercisable |  |  | Average  | 
|                             |           | Under the |           |          | Exercise |   |      | at End of   |  |  | Exercise | 
|                             |           | Plans     |           |          | Price    |   |      | Year        |  |  | Price    | 
|                             |           |           |           |          |          |   |      |             |  |  |          | 
|Balance at January 1, 2003   |           |           | 1,407,602 |          |          | $ | 3.73 |             |  |  | 555,631  |  |  | $ | 6.17 | 
|                             | Granted   |           |           | 12,000   |          |   |      | 2.18        |  |  |          |  |  |   |      |  | 
|                             | Exercised |           |           | (1,600   | )        |   |      | 1.90        |  |  |          |  |  |   |      |  | 
|                             | Canceled  |           |           | (45,680  | )        |   |      | 7.03        |  |  |          |  |  |   |      |  | 
|                             |           |           |           |          |          |   |      |             |  |  |          | 
|Balance at December 31, 2003 |           |           | 1,372,322 |          |          |   | 3.61 |             |  |  | 766,562  |  |  |   | 4.85 | 
|                             | Granted   |           |           | 16,000   |          |   |      | 2.45        |  |  |          |  |  |   |      |  | 
|                             | Exercised |           |           | (153,650 | )        |   |      | 1.74        |  |  |          |  |  |   |      |  | 
|                             | Canceled  |           |           | (180,142 | )        |   |      | 6.19        |  |  |          |  |  |   |      |  | 
|                             |           |           |           |          |          |   |      |             |  |  |          | 
|Balance at December 31, 2004 |           |           | 1,054,530 |          |          |   | 3.43 |             |  |  | 703,760  |  |  |   | 4.18 | 
|                             | Granted   |           |           | 16,000   |          |   |      | 3.15        |  |  |          |  |  |   |      |  | 
|                             | Exercised |           |           | (34,410  | )        |   |      | 1.93        |  |  |          |  |  |   |      |  | 
|                             | Canceled  |           |           | (189,800 | )        |   |      | 4.92        |  |  |          |  |  |   |      |  | 
|                             |           |           |           |          |          |   |      |             |  |  |          | 
|Balance at December 31, 2005 |           |           | 846,320   |          |          | $ | 3.15 |             |  |  | 846,320  |  |  | $ | 3.15 | 
|                             |           |           |           |          |          |   |      |             |  |  |          | 



|                         |  |                     |         |           |                     |  |          |          |  |   |             |          |  |          |         |  |  |   |       | 
|------------------------ |  | ------------------- | ------- | --------- | ------------------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | ------- |  |  | - | ----- | 
|                         |  | Options Outstanding |         |           | Options Exercisable | 
|                         |  |                     |         |           |                     | 
|                         |  |                     |         | Weighted  |                     |  |          |          | 
|                         |  |                     |         | Average   |                     |  | Weighted |          |  |   |             | Weighted | 
|                         |  |                     |         | Remaining |                     |  | Average  |          |  |   |             | Average  | 
|                         |  | Number              |         |           | Contractual         |  |          | Exercise |  |   | Number      |          |  | Exercise |        
|Range of Exercise Prices |  | Outstanding         |         |           | Life (Yrs)          |  |          | Price    |  |   | Exercisable |          |  | Price    |        
|                         |  |                     |         |           |                     |  |          |          |  |   |             |          |  |          |        
|$ 1.49 to $ 1.82         |  |                     | 16,000  |           |                     |  | 4.89     |          |  | $ | 1.65        |          |  |          | 16,000  |  |  | $ | 1.65  | 
|1.87 to   1.87           |  |                     | 346,870 |           |                     |  | 5.59     |          |  |   | 1.87        |          |  |          | 346,870 |  |  |   | 1.87  | 
|2.02 to   2.02           |  |                     | 166,901 |           |                     |  | 6.66     |          |  |   | 2.02        |          |  |          | 166,901 |  |  |   | 2.02  | 
|2.18 to   3.15           |  |                     | 53,999  |           |                     |  | 8.09     |          |  |   | 2.59        |          |  |          | 53,999  |  |  |   | 2.59  | 
|3.97 to   3.97           |  |                     | 168,950 |           |                     |  | 3.38     |          |  |   | 3.97        |          |  |          | 168,950 |  |  |   | 3.97  | 
|5.73 to   7.63           |  |                     | 68,600  |           |                     |  | 2.03     |          |  |   | 6.39        |          |  |          | 68,600  |  |  |   | 6.39  | 
|10.13 to  10.13          |  |                     | 13,000  |           |                     |  | 1.10     |          |  |   | 10.13       |          |  |          | 13,000  |  |  |   | 10.13 | 
|22.75 to  22.75          |  |                     | 12,000  |           |                     |  | 0.89     |          |  |   | 22.75       |          |  |          | 12,000  |  |  |   | 22.75 | 
|                         |  |                     |         |           |                     |  |          |          |  |   |             |          |  |          |        
|$ 1.49 to $22.75         |  |                     | 846,320 |           |                     |  | 5.08     |          |  | $ | 3.15        |          |  |          | 846,320 |  |  | $ | 3.15  | 
|                         |  |                     |         |           |                     |  |          |          |  |   |             |          |  |          |        





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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                             
| | ----------------------------
| | Shareholder Rights Agreement





|   |                          
|-- | -------------------------
|9. | Earnings (Loss) Per Share



|                                           |                                                |                         |            |            |      |   |            |            |   |   |            |            |  
|------------------------------------------ | ---------------------------------------------- | ----------------------- | ---------- | ---------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                           |                                                | Year Ended December 31, |           
|                                           |                                                |                         |           
|                                           |                                                | 2005                    |            |            | 2004 |   |            | 2003       |  
|                                           |                                                |                         |            |            |      |   |            |            |  
|                                           |                                                |                         |            | (Restated) |      |   |           
|Net income (loss)                          |                                                | $                       | (1,200,443 | )          |      | $ | (1,254,894 | )          |   | $ | (1,838,613 | )         
|Preferred stock accretion                  |                                                |                         |           |            |      |   | (22,200    | )          |   |   | (44,400    | )         
|                                           |                                                |                         |            |            |      |   |            |            |  
|                                           | Income (loss) available to common stockholders |                         | $          | (1,200,443 | )    |   | $          | (1,277,094 | ) |   | $          | (1,883,013 | )
|                                           |                                                |                         |            |            |      |   |            |            |  
|Weighted-average common shares outstanding |                                                |                         | 8,206,219  |            |      |   | 7,228,674  |            |   |   | 6,243,208  |           
|                                           |                                                |                         |            |            |      |   |            |            |  
|                                           | Basic and diluted earnings (loss) per share    |                         | $          | (0.15      | )    |   | $          | (0.18      | ) |   | $          | (0.30      | )
|                                           |                                                |                         |            |            |      |   |            |            |  





|    |             
|--- | ------------
|10. | Income Taxes





|         |  |                         |         |            |      |   |         |      |  |   |        | 
|-------- |  | ----------------------- | ------- | ---------- | ---- | - | ------- | ---- |  | - | ------ | 
|         |  | Year Ended December 31, |        
|         |  |                         |        
|         |  | 2005                    |         |            | 2004 |   |         | 2003 | 
|         |  |                         |         |            |      |   |         |      | 
|         |  |                         |         | (Restated) |      |   |        
|Current  |  | $                       | 41,077  |            |      | $ | 30,000  |      |  | $ | 29,801 | 
|Deferred |  |                         | 176,597 |            |      |   | 301,000 |      |  |   |       | 
|         |  |                         |         |            |      |   |         |      | 
|         |  | $                       | 217,674 |            |      | $ | 331,000 |      |  | $ | 29,801 | 
|         |  |                         |         |            |      |   |         |      | 



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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                                         |  |                         |       |            |      |  |       |      |  |  |       |   
|-------------------------------------------------------- |  | ----------------------- | ----- | ---------- | ---- |  | ----- | ---- |  |  | ----- | --
|                                                         |  | Year Ended December 31, |      
|                                                         |  |                         |      
|                                                         |  | 2005                    |       |            | 2004 |  |       | 2003 | 
|                                                         |  |                         |       |            |      |  |       |      | 
|                                                         |  |                         |       | (Restated) |      |  |      
|Federal statutory rate                                   |  |                         | 34.0  | %          |      |  | 34.0  | %    |  |  | 34.0  | % 
|State taxes, net of federal benefit                      |  |                         | 2.9   |            |      |  | 2.7   |      |  |  | 2.7   |   
|Permanent differences, primarily meals and entertainment |  |                         | (6.8  | )          |      |  | (6.9  | )    |  |  | (3.8  | ) 
|Other items, net                                         |  |                         | (1.1  | )          |      |  | (20.6 | )    |  |  | 0.2   |   
|Valuation allowance                                      |  |                         | (51.1 | )          |      |  | (45.0 | )    |  |  | (34.7 | ) 
|                                                         |  |                         |       |            |      |  |       |      | 
|                                                         |  |                         | (22.1 | )%         |      |  | (35.8 | )%   |  |  | (1.6  | )%
|                                                         |  |                         |       |            |      |  |       |      | 



|                           |                                  |              |            |            |      |   |            |            |  
|-------------------------- | -------------------------------- | ------------ | ---------- | ---------- | ---- | - | ---------- | ---------- | -
|                           |                                  | December 31, |           
|                           |                                  |              |           
|                           |                                  | 2005         |            |            | 2004 |  
|                           |                                  |              |            |            |      |  
|                           |                                  |              |            | (Restated) |     
|Deferred tax liabilities:  |                                  |              |            |            |      |   |            |           
|                           | Tax-over-book depreciation       |              | $          | 10,549,576 |      |   | $          | 11,074,306 |  
|                           | Other                            |              |            | 154,349    |      |   |            | 150,716    |  
|                           |                                  |              |            |            |      |  
|                           |                                  |              | 10,703,925 |            |      |   | 11,225,022 |           
|Deferred tax assets:       |                                  |              |            |            |      |   |            |           
|                           | NOL and AMT credit carryforwards |              |            | 10,938,218 |      |   |            | 11,167,505 |  
|                           | Other                            |              |            | 475,445    |      |   |            | 441,503    |  
|                           | Valuation allowance              |              |            | (1,656,133 | )    |   |            | (1,153,784 | )
|                           |                                  |              |            |            |      |  
|                           |                                  |              | 9,757,530  |            |      |   | 10,455,224 |           
|                           |                                  |              |            |            |      |  
|Net deferred tax liability |                                  | $            | 946,395    |            |      | $ | 769,798    |           
|                           |                                  |              |            |            |      |  





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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |            
|--- | -----------
|11. | Commitments





|           |  |   |            | 
|---------- |  | - | ---------- | 
|2006       |  | $ | 265,181    | 
|2007       |  |   | 263,097    | 
|2008       |  |   | 263,097    | 
|2009       |  |   | 263,097    | 
|2010       |  |   | 271,866    | 
|Thereafter |  |   | 11,828,217 | 
|           |  |   |           
|           |  | $ | 13,154,555 | 
|           |  |   |           







|           |  |   |           | 
|---------- |  | - | --------- | 
|2006       |  | $ | 2,128,699 | 
|2007       |  |   | 1,876,294 | 
|2008       |  |   | 741,226   | 
|2009       |  |   | 9,767     | 
|2010       |  |   | 3,934     | 
|Thereafter |  |   | 2,951     | 
|           |  |   |          
|           |  | $ | 4,762,871 | 
|           |  |   |          

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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)






|    |                      
|--- | ---------------------
|12. | Employee Benefit Plan





|    |                                                                           
|--- | --------------------------------------------------------------------------
|13. | Financial Instruments, Major Customers, and Related-Party
    Transactions









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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)








Pacific Ridge














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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)


Widmer Hefeweizen Widmer Hefeweizen






|    |                                     
|--- | ------------------------------------
|14. | Quarterly Financial Data (Unaudited)

|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |   |  |   |        |  |  |   |       |  
|--------------------------------------------- |  | ---------------------------------------- | ----- | ---------- | ------------------ | - | ----- | ------- |  | - | ------- |  |  | ------- | ----- | - | -------- | - | ----- | ------- |  | - | ------- | - |  | - | ------ |  |  | - | ----- | -
|                                              |  | 2005 Quarter Ended                       |       |            | 2004 Quarter Ended |  
|                                              |  |                                          |       |            |                    |  
|                                              |  | Dec. 31                                  |       |            | Sept. 30           |   |       | June 30 |  |   | Mar. 31 |  |  | Dec. 31 |       |   | Sept. 30 |   |       | June 30 |  |   | Mar. 31 |  
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|                                              |  | (In thousands, except per share amounts) |      
|                                              |  |                                          |       | (Restated) |                    |   |      
|Sales                                         |  | $                                        | 7,956 |            |                    | $ | 9,498 |         |  | $ | 9,741   |  |  | $       | 7,325 |   |          | $ | 7,016 |         |  | $ | 8,790   |   |  | $ | 11,443 |  |  | $ | 9,391 |  
|Less Excise Taxes                             |  |                                          | 740   |            |                    |   | 947   |         |  |   | 982     |  |  |         | 752   |   |          |   | 666   |         |  |   | 878     |   |  |   | 952    |  |  |   | 771   |  
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|Net Sales                                     |  |                                          | 7,216 |            |                    |   | 8,551 |         |  |   | 8,759   |  |  |         | 6,573 |   |          |   | 6,350 |         |  |   | 7,912   |   |  |   | 10,491 |  |  |   | 8,620 |  
|Cost of Sales                                 |  |                                          | 6,789 |            |                    |   | 7,429 |         |  |   | 7,277   |  |  |         | 6,048 |   |          |   | 6,167 |         |  |   | 6,951   |   |  |   | 7,479  |  |  |   | 6,575 |  
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|Gross Profit                                  |  |                                          | 427   |            |                    |   | 1,122 |         |  |   | 1,482   |  |  |         | 525   |   |          |   | 183   |         |  |   | 961     |   |  |   | 3,012  |  |  |   | 2,045 |  
|Selling, General and Administrative Expenses  |  |                                          | 1,484 |            |                    |   | 1,905 |         |  |   | 1,852   |  |  |         | 1,543 |   |          |   | 1,255 |         |  |   | 1,310   |   |  |   | 2,546  |  |  |   | 2,528 |  
|Income from Equity Investment in Craft Brands |  |                                          | 767   |            |                    |   | 674   |         |  |   | 691     |  |  |         | 259   |   |          |   | 466   |         |  |   | 658     |   |  |   |       |  |  |   |      |  
|Craft Brands Shared Formation Expenses        |  |                                          |      |            |                    |   |      |         |  |   |        |  |  |         |      |   |          |   |      |         |  |   | (2      | ) |  |   | 131    |  |  |   | 407   |  
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|Operating Income (Loss)                       |  |                                          | (290  | )          |                    |   | (109  | )       |  |   | 321     |  |  |         | (759  | ) |          |   | (606  | )       |  |   | 311     |   |  |   | 335    |  |  |   | (890  | )
|Interest Expense                              |  |                                          | 72    |            |                    |   | 72    |         |  |   | 66      |  |  |         | 61    |   |          |   | 55    |         |  |   | 48      |   |  |   | 43     |  |  |   | 44    |  
|Other Income (Expense)  Net                  |  |                                          | 40    |            |                    |   | 20    |         |  |   | 36      |  |  |         | 29    |   |          |   | 33    |         |  |   | 59      |   |  |   | 11     |  |  |   | 13    |  
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|Income (Loss) before Income Taxes             |  |                                          | (322  | )          |                    |   | (161  | )       |  |   | 291     |  |  |         | (791  | ) |          |   | (628  | )       |  |   | 322     |   |  |   | 303    |  |  |   | (921  | )
|Income Tax Provision (Benefit)                |  |                                          | 259   |            |                    |   | 10    |         |  |   | 8       |  |  |         | (59   | ) |          |   | 311   |         |  |   | 10      |   |  |   | 10     |  |  |   |      |  
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|Net Income (Loss)                             |  | $                                        | (581  | )          |                    | $ | (171  | )       |  | $ | 283     |  |  | $       | (732  | ) |          | $ | (939  | )       |  | $ | 312     |   |  | $ | 293    |  |  | $ | (921  | )
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|Basic Earnings (Loss) per Share               |  | $                                        | (0.07 | )          |                    | $ | (0.02 | )       |  | $ | 0.03    |  |  | $       | (0.09 | ) |          | $ | (0.11 | )       |  | $ | 0.04    |   |  | $ | 0.04   |  |  | $ | (0.15 | )
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|Diluted Earnings (Loss) per Share             |  | $                                        | (0.07 | )          |                    | $ | (0.02 | )       |  | $ | 0.03    |  |  | $       | (0.09 | ) |          | $ | (0.11 | )       |  | $ | 0.04    |   |  | $ | 0.04   |  |  | $ | (0.15 | )
|                                              |  |                                          |       |            |                    |   |       |         |  |   |         |  |  |         |       |   |          |   |       |         |  |   |         |  
|Barrels Shipped                               |  |                                          | 50.5  |            |                    |   | 61.6  |         |  |   | 64.0    |  |  |         | 49.2  |   |          |   | 47.2  |         |  |   | 57.1    |   |  |   | 62.0   |  |  |   | 50.2  |  

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure



8-K


S-K. 10-K


S-K) S-K).







|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

13a-15(e) 15d-15(e)) 10-K.




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|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III.







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant





8-K







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation



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|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation
Plans




|                                                           |       |                      |         |         |                      |                      |                     |                          |  |  |         |         | 
|---------------------------------------------------------- | ----- | -------------------- | ------- | ------- | -------------------- | -------------------- | ------------------- | ------------------------ |  |  | ------- | ------- | 
|                                                           |       |                      |         |         |                      | Number of Securities |                    
|                                                           |       |                      |         |         |                      | Remaining Available  |                    
|                                                           |       | Number of Securities |         |         |                      |                      | for Future Issuance |                         
|                                                           |       | to be Issued Upon    |         |         | Weighted Average     |                      |                     | under Equity             | 
|                                                           |       | Exercise of          |         |         | Exercise Price of    |                      |                     | Compensation Plans       | 
|                                                           |       | Outstanding Options, |         |         | Outstanding Options, |                      |                     | (excluding securities    | 
|                                                           |       | Warrants and Rights  |         |         | Warrants and Rights  |                      |                     | reflected in column (a)) | 
|Plan Category                                              |       | (a)                  |         |         | (b)                  |                      |                     | (c)                      | 
|                                                           |       |                      |         |         |                      |                      |                     |                          | 
|Equity compensation plans approved by security holders     |       |                      | 846,320 |         |                      | $                    | 3.15                |                          |  |  | 109,559 |        
|Equity compensation plans not approved by security holders |       |                      |        |         |                      |                      |                    |                          |  |  |        |        
|                                                           |       |                      |         |         |                      |                      |                     |                          | 
|                                                           | Total |                      |         | 846,320 |                      |                      | $                   | 3.15                     |  |  |         | 109,559 | 
|                                                           |       |                      |         |         |                      |                      |                     |                          | 








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accounting Fees and Services






PART IV.







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                                        
| | ---------------------------------------
| | 1.     Audited Financial
    Statements

|                                                                                                       |  |      |    | 
|------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                       |  | Page |   
|                                                                                                       |  |      |   
|Report of Moss Adams LLP, Independent Registered Public
    Accountants                                |  |      | 49 | 
|Report of Ernst & Young LLP, Independent Registered
    Public Accounting Firm                         |  |      | 50 | 
|Balance Sheets as of December 31, 2005 and 2004                                                        |  |      | 51 | 
|Statements of Operations for the Years Ended December 31,
    2005, 2004 and 2003                      |  |      | 52 | 
|Statements of Common Stockholders Equity for the Years
    Ended
    December 31, 2005, 2004 and 2003 |  |      | 53 | 
|Statements of Cash Flows for the Years Ended
    December 31, 2005, 2004 and 2003                      |  |      | 54 | 
|Notes to Financial Statements                                                                          |  |      | 55 | 

76



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##### Table of Contents





| |                                         
| | ----------------------------------------
| | 2.     Financial Statement
    Schedules

|                                                                                                                                                   |  |      |    | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                                   |  | Page |   
|                                                                                                                                                   |  |      |   
|Report of Moss Adams LLP, Independent Registered Public
    Accountants                                                                            |  |      | 84 | 
|Craft Brands Alliance LLC Balance Sheets as of December 31,
    2005 and 2004                                                                      |  |      | 85 | 
|Craft Brands Alliance LLC Statement of Income for the Year Ended
    December 31, 2005 and for the Six Months Ended
    December 31, 2004          |  |      | 86 | 
|Craft Brands Alliance LLC Statement of Members Equity for
    the Year Ended December 31, 2005 and for the Six Months
    Ended December 31, 2004 |  |      | 87 | 
|Craft Brands Alliance LLC Statement of Cash Flows for the Year
    Ended December 31, 2005 and for the Six Months Ended
    December 31, 2004      |  |      | 88 | 
|Notes to Financial Statements                                                                                                                      |  |      | 89 | 



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All other Financial Statement Schedules are omitted because they
    are not applicable or the required information is shown in the
    Financial Statements and Notes.
|
| | 3.     Exhibits                                                                                                                                                        
|
| | The following exhibits are filed with or incorporated by
    reference into this report pursuant to Item 601 of
    Regulation S-K:                                    
|
| | EXHIBIT NO. 3 Articles of Incorporation and Bylaws                                                                                                                     

| |     |  |  |                                                                                                                                                                                             
| | --- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1 |  |  | Restated Articles of Incorporation of Registrant, dated
    July 7, 2004 (Incorporated by reference from
    Exhibit 3.1 to the Companys Form 10-Q for the
    quarter ended June 30, 2004)
| | 3.2 |  |  | Amended and Restated Bylaws of Registrant, dated April 7,
    2004 (Incorporated by reference from Exhibit 3.1 to the
    Companys Form 10-Q for the quarter ended
    March 31, 2004)     



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | EXHIBIT NO. 4 Instruments Defining the Rights of Security
    Holders, Including Indentures

| |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                      
| | --- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.1 |  |  | Amended and Restated Rights Agreement, dated as of May 12,
    1999 between Redhook Ale Brewery, Incorporated and ChaseMellon
    Shareholder Services, L.L.C. (Incorporated by reference from
    Exhibit 10.39 to the Companys Form 10-Q for the
    quarter ended March 31, 1999)                                                                                                
| | 4.2 |  |  | Amendment No. 1, dated as of May 18, 2004, to Amended
    and Restated Rights Agreement dated May 12, 1999 between
    Redhook Ale Brewery, Incorporated and Mellon Investor Services
    LLC (formerly known as ChaseMellon Shareholder Services,
    L.L.C.), as Rights Agent (Incorporated by reference from
    Exhibit 1 to the Companys Form 8-A/A filed on
    June 28, 2004)



| |                                            
| | -------------------------------------------
| | EXHIBIT NO. 10 Material Contracts          
|
| | Executive Compensation Plans and Agreements

| |      |  |  |                                                                                                                                                                                                                                                     
| | ---- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1 |  |  | Registrants Incentive Stock Option Plan, dated
    September 12, 1990 (Incorporated by reference from
    Exhibit 10.15 to the Companys Registration Statement
    on Form S-1, No. 33-94166)                                                     
|
| | 10.2 |  |  | Amended and Restated Registrants Directors Stock Option
    Plan (Incorporated by reference from Exhibit 10.14 to the
    Companys Registration Statement on Form S-1,
    No. 33-94166)                                                          
|
| | 10.3 |  |  | Amendment dated as of February 27, 1996, to Amended and
    Restated Registrants Directors Stock Option Plan
    (Incorporated by reference from Exhibit 10.32 to the
    Companys Form 10-Q for the quarter ended
    June 30, 1996, No. 0-26542)
|
| | 10.4 |  |  | Form of Stock Option Agreement for Registrants Directors
    Stock Option Plan (Incorporated by reference from
    Exhibit 10.4 to the Companys Form 10-K for the
    year ended December 31, 2004)                                               

77



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##### Table of Contents



| |       |  |  |                                                                                                                                                                                                                                                  
| | ----- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10.5  |  |  | Registrants 1992 Stock Incentive Plan, approved
    October 20, 1992, as amended, October 11, 1994 and
    May 25, 1995 (Incorporated by reference from
    Exhibit 10.16 to the Companys Registration Statement
    on Form S-1, No. 33-94166)
|
| | 10.6  |  |  | Amendment dated as of July 25, 1996, to Registrants
    1992 Stock Incentive Plan, as amended (Incorporated by reference
    from Exhibit 10.33 to the Companys Form 10-Q for
    the quarter ended June 30, 1996, No. 0-26542)                
|
| | 10.7  |  |  | Amendment dated as of February 27, 1996, to
    Registrants 1992 Stock Incentive Plan, as amended
    (Incorporated by reference from Exhibit 10.31 to the
    Companys Form 10-Q for the quarter ended
    June 30, 1996, No. 0-26542)        
|
| | 10.8  |  |  | Form of Stock Option Agreement for Registrants 1992 Stock
    Incentive Plan, as amended (Incorporated by reference from
    Exhibit 10.8 to the Companys Form 10-K for the
    year ended December 31, 2004)                                  
|
| | 10.9  |  |  | Registrants 2002 Stock Option Plan (Incorporated by
    reference from the Addendum to the Companys Proxy
    Statement for 2002 Annual Meeting of Shareholders)                                                                               
|
| | 10.10 |  |  | Form of Stock Option Agreement (Directors Grants) for
    Registrants 2002 Stock Option Plan (Incorporated by
    reference from Exhibit 10.10 to the Companys
    Form 10-K for the year ended December 31, 2004)                             
|
| | 10.11 |  |  | Form of Stock Option Agreement (Executive Officer Grants) for
    Registrants 2002 Stock Option Plan (Incorporated by
    reference from Exhibit 10.11 to the Companys
    Form 10-K for the year ended December 31, 2004)                     
|
| | 10.12 |  |  | Employment Agreement between Registrant and Paul Shipman, dated
    November 1, 2000 (Incorporated by reference from
    Exhibit 10.43 to the Companys Form 10-K for the
    year ended December 31, 2000)                                      
|
| | 10.13 |  |  | Letter of agreement regarding employment between Registrant and
    Paul S. Shipman, dated June 23, 2005 (Incorporated by
    reference from Exhibit 10.1 to the Companys
    Form 8-K filed on June 28, 2005)                                  
|
| | 10.14 |  |  | Employment Agreement between Registrant and David J. Mickelson,
    dated August 1, 2000 (Incorporated by reference from
    Exhibit 10.27 to the Companys Form 10-Q for the
    quarter ended September 30, 2000)                              
|
| | 10.15 |  |  | Letter of agreement regarding employment between Registrant and
    David J. Mickelson, dated June 23, 2005 (Incorporated by
    reference from Exhibit 10.2 to the Companys
    Form 8-K filed on June 28, 2005)                               
|
| | 10.16 |  |  | Employment Agreement between Registrant and Allen L. Triplett,
    dated August 1, 2000 (Incorporated by reference from
    Exhibit 10.28 to the Companys Form 10-Q for the
    quarter ended September 30, 2000)                               
|
| | 10.17 |  |  | Letter of agreement regarding employment between Registrant and
    Allen L. Triplett, dated December 6, 2005 (Incorporated by
    reference from Exhibit 10.2 to the Companys
    Form 8-K filed on December 7, 2005)                          
|
| | 10.18 |  |  | Employment Agreement between Registrant and Pamela J. Hinckley,
    dated August 1, 2000 (Incorporated by reference from
    Exhibit 10.29 to the Companys Form 10-Q for the
    quarter ended September 30, 2000)                              
|
| | 10.19 |  |  | Employment Agreement between Registrant and Greg Marquina, dated
    August 1, 2000 (Incorporated by reference from
    Exhibit 10.41 to the Companys Form 10-Q for the
    quarter ended September 30, 2000)                                   
|
| | 10.20 |  |  | Employment Agreement between Registrant and Gerard C. Prial,
    dated August 1, 2000 (Incorporated by reference from
    Exhibit 10.46 to the Companys Form 10-K for the
    year ended December 31, 2001)                                     
|
| | 10.21 |  |  | Letter of agreement regarding employment between Registrant and
    Gerard C. Prial, dated December 6, 2005 (Incorporated by
    reference from Exhibit 10.1 to the Companys
    Form 8-K filed on December 7, 2005)                            
| | 10.22 |  |  | Summary Sheet of Director Compensation and Executive Cash
    Compensation                                                                                                                                                                       

78



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##### Table of Contents





| |                         
| | ------------------------
| | Other Material Contracts

| |       |  |  |                                                                                                                                                                                                                                                                                                                                 
| | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.23 |  |  | Investment Agreement dated as of October 18, 1994, between
    the Registrant and Anheuser-Busch, Incorporated (Incorporated by
    reference from Exhibit 10.4 to the Companys
    Registration Statement on Form S-1, No. 33-94166)                                                                                          
|
| | 10.24 |  |  | Registration Rights Agreement dated as of October 18, 1994,
    between Registrant and Anheuser-Busch, Incorporated
    (Incorporated by reference from Exhibit 10.7 to the
    Companys Registration Statement on Form S-1,
    No. 33-94166)                                                                                 
|
| | 10.25 |  |  | Master Distributor Agreement between Registrant and
    Anheuser-Busch, Incorporated, dated October 18, 1994
    (Incorporated by reference from Exhibit 10.21 to the
    Companys Registration Statement on Form S-1,
    No. 33-94166)*                                                                                      
|
| | 10.26 |  |  | Amendment No. 1 dated as of June 26, 1996, to Master
    Distribution Agreement between Registrant and Anheuser-Busch,
    Incorporated, dated October 18, 1994 (Incorporated by
    reference from Exhibit 10.30 to the Companys
    Form 10-Q for the quarter ended June 30, 1996,
    No. 0-26542)                          
|
| | 10.27 |  |  | Letter Agreement dated as of July 31, 1995, between
    Registrant and Anheuser-Busch, Incorporated (Incorporated by
    reference from Exhibit 10.25 to the Companys
    Registration Statement on Form S-1, No. 33-94166)                                                                                                    
|
| | 10.28 |  |  | Consent, Waiver and Amendment, dated September 19, 1997, to
    Master Distributor Agreement between Registrant and
    Anheuser-Busch, Incorporated, dated October 18, 1994
    (Incorporated by reference from Exhibit 10.36 to the
    Companys Form 10-Q for the quarter ended
    September 30, 1997, No. 0-26542)        
|
| | 10.29 |  |  | Purchasing Agreement dated as of March 27, 1998, between
    Registrant and Anheuser-Busch, Incorporated (Incorporated by
    reference from Exhibit 10.37 to the Companys
    Form 10-Q for the quarter ended March 31, 1998)                                                                                                 
|
| | 10.30 |  |  | Purchasing Agreement dated as of November 21, 2002, between
    Registrant and Anheuser-Busch, Incorporated (Incorporated by
    reference from Exhibit 10.21 to the Companys
    Form 10-K for the year ended December 31, 2002)                                                                                              
|
| | 10.31 |  |  | Sublease between Pease Development Authority as Sublessor and
    Registrant as Sublessee, dated May 30, 1995 (Incorporated
    by reference from Exhibit 10.11 to the Companys
    Registration Statement on Form S-1, No. 33-94166)                                                                                          
|
| | 10.32 |  |  | Assignment of Sublease and Assumption Agreement dated as of
    July 1, 1995, between Registrant and Redhook of New
    Hampshire, Inc. (Incorporated by reference from
    Exhibit 10.24 to the Companys Registration Statement
    on Form S-1, No. 33-94166)                                                                
|
| | 10.33 |  |  | Amended and Restated Credit Agreement between U.S. Bank of
    Washington, National Association and Registrant, dated
    June 5, 1995 (Incorporated by reference from
    Exhibit 10.18 to the Companys Registration Statement
    on Form S-1, No. 33-94166)                                                                 
|
| | 10.34 |  |  | First Amendment dated as of July 25, 1996, to Amended and
    Restated Credit Agreement between U.S. Bank of Washington,
    National Association and Registrant, dated June 5, 1995
    (Incorporated by reference from Exhibit 10.34 to the
    Companys Form 10-Q for the quarter ended
    September 30, 1996, No. 0-26542)
|
| | 10.35 |  |  | Second Amendment to Amended and Restated Credit Agreement
    between U.S. Bank of Washington, National Association and
    Registrant, dated September 15, 1997 (Incorporated by
    reference from Exhibit 10.35 to the Companys
    Form 10-Q for the quarter ended September 30, 1997,
    No. 0-26542)                    
|
| | 10.36 |  |  | Third Amendment to Amended and Restated Credit Agreement between
    U.S. Bank of Washington, National Association and
    Registrant, dated February 22, 1999 (Incorporated by
    reference from Exhibit 10.38 to the Companys
    Form 10-Q for the quarter ended March 31, 1999)                                           
|
| | 10.37 |  |  | Fourth Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and Registrant,
    dated August 10, 2000 (Incorporated by reference from
    Exhibit 10.42 to the Companys Form 10-Q for the
    quarter ended September 30, 2000)                                                       

79



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| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                      
| | ----- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10.38 |  |  | Fifth Amendment to Amended and Restated Credit Agreement between
    U.S. Bank National Association and Registrant, dated
    June 19, 2001 (Incorporated by reference from
    Exhibit 10.44 to the Companys Form 10-Q for the
    quarter ended June 30, 2001)                                                                                                                    
|
| | 10.39 |  |  | Sixth Amendment to Amended and Restated Credit Agreement between
    U.S. Bank National Association and Registrant, dated
    December 31, 2001 (Incorporated by reference from
    Exhibit 10.45 to the Companys Form 10-K for the
    year ended December 31, 2001)                                                                                                               
|
| | 10.40 |  |  | Seventh Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and Registrant,
    dated June 21, 2002 (Incorporated by reference from
    Exhibit 10.47 to the Companys Form 10-Q for the
    quarter ended June 30, 2002)                                                                                                                  
|
| | 10.41 |  |  | Eighth Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and Registrant,
    dated March 18, 2003 (Incorporated by reference from
    Exhibit 10.1 to the Companys Form 10-Q for the
    quarter ended March 31, 2003)                                                                                                                  
|
| | 10.42 |  |  | Ninth Amendment to Amended and Restated Credit Agreement between
    U.S. Bank National Association and Registrant, dated as of
    October 31, 2003 (Incorporated by reference from
    Exhibit 10.34 to the Companys Form 10-K for the
    year ended December 31, 2003)                                                                                                          
|
| | 10.43 |  |  | Tenth Amendment to Amended and Restated Credit Agreement between
    U.S. Bank National Association and Registrant, dated as of
    February 9, 2004 (Incorporated by reference from
    Exhibit 10.35 to the Companys Form 10-K for the
    year ended December 31, 2003)                                                                                                          
|
| | 10.44 |  |  | Eleventh Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and Registration,
    dated as of September 28, 2004 (Incorporated by reference
    from Exhibit 10.1 to the Companys Form 8-K filed
    on October 26, 2004)                                                                                                                
|
| | 10.45 |  |  | Twelfth Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and Registration,
    dated as of January 30, 2006 (Incorporated by reference
    from Exhibit 10.1 to the Companys Form 8-K filed
    on February 15, 2006)                                                                                                                  
|
| | 10.46 |  |  | Exchange and Recapitalization Agreement dated as of
    June 30, 2004 between the Registrant and Anheuser-Busch,
    Incorporated (Incorporated by reference from Exhibit 10.1
    to the Companys Form 8-K filed on July 2, 2004)                                                                                                                                                  
|
| | 10.47 |  |  | Master Distributor Agreement dated as of July 1, 2004
    between the Registrant and Anheuser-Busch, Incorporated
    (Incorporated by reference from Exhibit 10.2 to the
    Companys Form 8-K filed on July 2, 2004)*                                                                                                                                                             
|
| | 10.48 |  |  | Registration Rights Agreement dated as of July 1, 2004
    between the Registrant and Anheuser-Busch, Incorporated
    (Incorporated by reference from Exhibit 10.3 to the
    Companys Form 8-K filed on July 2, 2004)                                                                                                                                                             
|
| | 10.49 |  |  | Supply, Distribution and Licensing Agreement dated as of
    July 1, 2004 between the Registrant and Craft Brands
    Alliance LLC (Incorporated by reference from Exhibit 10.4
    to the Companys Form 8-K filed on July 2, 2004)*                                                                                                                                                
|
| | 10.50 |  |  | Master Distributor Agreement dated as of July 1, 2004
    between Craft Brands Alliance LLC and Anheuser-Busch,
    Incorporated (Incorporated by reference from Exhibit 10.5
    to the Companys Form 8-K filed on July 2, 2004)*                                                                                                                                                  
|
| | 10.51 |  |  | Amendment No. 1, dated as of May 18, 2004, to Amended
    and Restated Rights Agreement dated May 12, 1999 between
    Redhook Ale Brewery, Incorporated and Mellon Investor Services
    LLC (formerly known as ChaseMellon Shareholder Services,
    L.L.C.), as Rights Agent (Incorporated by reference from
    Exhibit 1 to the Companys Form 8-A/A filed on
    June 28, 2004)

80



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##### Table of Contents





| |                                                                
| | ---------------------------------------------------------------
| | EXHIBIT NO. 16 Letter regarding Change in Certifying Accountant

| |      |  |  |                                                                                                                                                                                                        
| | ---- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 16.1 |  |  | Letter dated July 29, 2004 from the Companys former
    principal independent accountants (Incorporated by reference
    from Exhibit 16.1 to the Companys Form 8-K filed
    on July 30, 2004)      
| | 16.2 |  |  | Letter dated August 20, 2004 from the Companys former
    principal independent accountants (Incorporated by reference
    from Exhibit 16.1 to the Companys Form 8-K/A
    filed on August 20, 2004)



| |                                              
| | ---------------------------------------------
| | EXHIBIT NO. 21 Subsidiaries of the Registrant

| |      |  |  |                                                                                                                                                       
| | ---- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | 21.1 |  |  | Subsidiaries of the Registrant (Incorporated by reference from
    Exhibit 21.1 to the Companys Registration Statement
    on Form S-1, No. 33-94166)



| |                                               
| | ----------------------------------------------
| | EXHIBIT NO. 23 Consents of Experts and Counsel

| |      |  |  |                                                                                
| | ---- |  |  | -------------------------------------------------------------------------------
| | 23.1 |  |  | Consent of Moss Adams LLP, Independent Registered Public
    Accountants       
| | 23.2 |  |  | Consent of Ernst & Young LLP, Independent Registered
    Public Accounting Firm
| | 23.3 |  |  | Consent of Moss Adams LLP, Independent Registered Public
    Accountants       



| |                                   
| | ----------------------------------
| | EXHIBIT NO. 31 & 32 Certifications

| |      |  |  |                                                                                                                                                                                                    
| | ---- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 31.1 |  |  | Certification of Chief Executive Officer of Redhook Ale Brewery,
    Incorporated pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002                                                    
| | 31.2 |  |  | Certification of Chief Financial Officer of Redhook Ale Brewery,
    Incorporated pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002                                                    
| | 32.1 |  |  | Certification of Chief Executive Officer of Redhook Ale Brewery,
    Incorporated pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002 
| | 32.2 |  |  | Certification of Chief Financial Officer of Redhook Ale
    Brewery,, Incorporated pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002



| | 
| | 
| | 



| |     |                                                                           
| | --- | --------------------------------------------------------------------------
| | (*) | Confidential treatment has been granted for portions of this
    document.

81



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##### Table of Contents






SIGNATURES






| |                                  
| | ---------------------------------
| | REDHOOK ALE BREWERY, INCORPORATED



| |    |                       
| | -- | ----------------------
| | By | /s/ David J. Mickelson

| | 
| | 
| | 

| |  |                   
| |  | ------------------
| |  | David J. Mickelson

| |                                      
| | -------------------------------------
| | President and Chief Financial Officer



|                                           |  |                                                                                         |  |                |  | 
|------------------------------------------ |  | --------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                  |  | Title                                                                                   |  | Date          
|                                           |  |                                                                                         |  |               
|                                          
|/s/ Paul S. ShipmanPaul S. Shipman         |  | Chief Executive Officer and
    Chairman of the Board
    (Principal Executive Officer) |  | March 31, 2006
|                                          
|/s/ David J. MickelsonDavid J. Mickelson   |  | President and Chief Financial Officer
    (Principal Financial Officer)                 |  | March 31, 2006
|                                          
|/s/ Lorri L. JonesLorri L. Jones           |  | Controller and Treasurer
    (Principal Accounting Officer)                             |  | March 31, 2006
|                                          
|/s/ Frank H. ClementFrank H. Clement       |  | Director                                                                                |  | March 31, 2006
|                                          
|/s/ John W. GlickJohn W. Glick             |  | Director                                                                                |  | March 31, 2006
|                                          
|/s/ David R. LordDavid R. Lord             |  | Director                                                                                |  | March 31, 2006
|                                          
|/s/ Michael LoughranMichael Loughran       |  | Director                                                                                |  | March 31, 2006
|                                          
|/s/ John D. Rogers, Jr.John D. Rogers, Jr. |  | Director                                                                                |  | March 31, 2006
|                                          
|/s/ Anthony J. ShortAnthony J. Short       |  | Director                                                                                |  | March 31, 2006

82



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CRAFT BRANDS ALLIANCE LLC


REPORT OF INDEPENDENT


REGISTERED PUBLIC ACCOUNTANTS


and


FINANCIAL STATEMENTS


DECEMBER 31, 2005 AND 2004


83



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS



















84



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##### Table of Contents



CRAFT BRANDS ALLIANCE LLC


BALANCE SHEETS


|                                      |                           |              |           |           |      |   |           |           | 
|------------------------------------- | ------------------------- | ------------ | --------- | --------- | ---- | - | --------- | --------- | 
|                                      |                           | December 31, |          
|                                      |                           |              |          
|                                      |                           | 2005         |           |           | 2004 |  
|                                      |                           |              |           |           |      |  
|ASSETS                               
|CURRENT ASSETS                        |                           |              |           |           |      |   |           |          
|                                      | Cash and cash equivalents |              | $         | 177,131   |      |   | $         | 146,423   | 
|                                      | Accounts receivable, net  |              |           | 2,808,631 |      |   |           | 1,916,879 | 
|                                      | Inventory                 |              |           | 1,138,658 |      |   |           | 754,778   | 
|                                      | Prepaid expenses          |              |           | 154,324   |      |   |           | 111,678   | 
|                                      |                           |              |           |           |      |  
|                                      |                           |              | 4,278,744 |           |      |   | 2,929,758 |          
|FIXED ASSETS, net                     |                           |              | 33,456    |           |      |   |          |          
|                                      |                           |              |           |           |      |  
|TOTAL ASSETS                          |                           | $            | 4,312,200 |           |      | $ | 2,929,758 |          
|                                      |                           |              |           |           |      |  
|                                     
|LIABILITIES AND MEMBERS EQUITY      
|CURRENT LIABILITIES                   |                           |              |           |           |      |   |           |          
|                                      | Accounts payable          |              | $         | 3,132,033 |      |   | $         | 1,982,340 | 
|                                      | Other accrued expenses    |              |           | 957,894   |      |   |           | 673,352   | 
|                                      |                           |              |           |           |      |  
|                                      |                           |              | 4,089,927 |           |      |   | 2,655,692 |          
|COMMITMENTS                           |                           |              |           |           |      |   |           |          
|                                     
|MEMBERS EQUITY                       |                           |              | 222,273   |           |      |   | 274,066   |          
|                                      |                           |              |           |           |      |  
|TOTAL LIABILITIES AND MEMBERS EQUITY |                           | $            | 4,312,200 |           |      | $ | 2,929,758 |          
|                                      |                           |              |           |           |      |  



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CRAFT BRANDS ALLIANCE LLC


STATEMENTS OF INCOME


Year Ended December 31, 2005 AND Six Months Ended
December 31, 2004


|                       |                                |                              |            |            |          |   |            |           |          |  
|---------------------- | ------------------------------ | ---------------------------- | ---------- | ---------- | -------- | - | ---------- | --------- | -------- | -
|                       |                                | Periods Ended December 31,   |           
|                       |                                |                              |           
|                       |                                | 2005                         |            |            | 2004     |  
|                       |                                |                              |            |            |          |  
|SALES                  |                                | $                            | 60,783,551 |            |          | $ | 27,777,282 |          
|COST OF SALES          |                                |                              | 44,821,500 |            |          |   | 20,103,807 |          
|                       |                                |                              |            |            |          |  
|                       | Gross profit                   |                              |            | 15,962,051 |          |   |            | 7,673,475 |         
|OPERATING EXPENSES     |                                |                              | 9,708,203  |            |          |   | 4,704,232  |          
|                       |                                |                              |            |            |          |  
|                       | Income from operations         |                              |            | 6,253,848  |          |   |            | 2,969,243 |         
|                       |                                |                              |            |            |          |  
|OTHER INCOME (EXPENSE) |                                |                              |            |            |          |   |            |          
|                       | Interest expense               |                              |            |           |          |   |            | (3,347    | )       
|                       | Miscellaneous income (expense) |                              |            | (125,136   | )        |   |            | 108       |         
|                       | Royalty expense                |                              |            | (205,052   | )        |   |            | (97,294   | )       
|                       |                                |                              |            |            |          |  
|                       |                                | Total other income (expense) |            |            | (330,188 | ) |            |           | (100,533 | )
|                       |                                |                              |            |            |          |  
|NET INCOME             |                                | $                            | 5,923,660  |            |          | $ | 2,868,710  |          
|                       |                                |                              |            |            |          |  



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CRAFT BRANDS ALLIANCE LLC


STATEMENT OF MEMBERS EQUITY


|                                          |                                                                                   |   |         |            |  
|----------------------------------------- | --------------------------------------------------------------------------------- | - | ------- | ---------- | -
|BALANCE, July 1, 2004 (Date of Inception) |                                                                                   | $ |        |           
|                                          | Issuance of Units                                                                 |   |         | 200        |  
|                                          | Sales and Marketing Capital Contribution by Redhook Ale Brewery,
    Incorporated |   |         | 250,000    |  
|                                          | Net Income                                                                        |   |         | 2,868,710  |  
|                                          | Profit Distributions to Members                                                   |   |         | (2,844,844 | )
|                                          |                                                                                   |   |        
|BALANCE, December 31, 2004                |                                                                                   |   | 274,066 |           
|                                          | Net Income                                                                        |   |         | 5,923,660  |  
|                                          | Profit Distributions to Members                                                   |   |         | (5,975,453 | )
|                                          |                                                                                   |   |        
|BALANCE, December 31, 2005                |                                                                                   | $ | 222,273 |           
|                                          |                                                                                   |   |        



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CRAFT BRANDS ALLIANCE LLC


STATEMENTS OF CASH FLOWS


Year Ended December 31, 2005 AND Six Months Ended
December 31, 2004


|                                             |                                          |                                             |            |         |           |   |            |       |            |  
|-------------------------------------------- | ---------------------------------------- | ------------------------------------------- | ---------- | ------- | --------- | - | ---------- | ----- | ---------- | -
|                                             |                                          | Periods Ended December 31,                  |           
|                                             |                                          |                                             |           
|                                             |                                          | 2005                                        |            |         | 2004      |  
|                                             |                                          |                                             |            |         |           |  
|CASH FLOWS FROM OPERATING ACTIVITIES         |                                          |                                             |            |         |           |   |            |      
|Net income                                   |                                          | $                                           | 5,923,660  |         |           | $ | 2,868,710  |      
|Depreciation                                 |                                          |                                             | 6,311      |         |           |   |           |      
|Change in assets and liabilities:            |                                          |                                             |            |         |           |   |            |      
|                                             |                                          | Accounts receivable                         |            |         | (891,752  | ) |            |       | (1,916,879 | )
|                                             |                                          | Inventory                                   |            |         | (383,880  | ) |            |       | (754,778   | )
|                                             |                                          | Prepaid expenses                            |            |         | (42,646   | ) |            |       | (111,678   | )
|                                             |                                          | Accounts payable and other accrued expenses |            |         | 1,434,235 |   |            |       | 2,655,692  |  
|                                             |                                          |                                             |            |         |           |  
|Net Cash from Operating Activities           |                                          |                                             | 6,045,928  |         |           |   | 2,741,067  |      
|                                             |                                          |                                             |            |         |           |  
|CASH FLOWS FROM INVESTMENT ACTIVITIES        |                                          |                                             |            |         |           |   |            |      
|                                             | Fixed asset additions                    |                                             |            | (39,767 | )         |   |            |      |           
|                                             |                                          |                                             |            |         |           |  
|CASH FLOWS FROM FINANCING ACTIVITIES         |                                          |                                             |            |         |           |   |            |      
|Issuance of units                            |                                          |                                             |           |         |           |   | 200        |      
|Capital contributions                        |                                          |                                             |           |         |           |   | 250,000    |      
|Issuance of member notes payable             |                                          |                                             |           |         |           |   | 300,000    |      
|Payoff of member notes payable               |                                          |                                             |           |         |           |   | (300,000   | )    
|Profit distribution                          |                                          |                                             | (5,975,453 | )       |           |   | (2,844,844 | )    
|                                             |                                          |                                             |            |         |           |  
|Net Cash from Financing Activities           |                                          |                                             | (5,975,453 | )       |           |   | (2,594,644 | )    
|                                             |                                          |                                             |            |         |           |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS    |                                          |                                             | 30,708     |         |           |   | 146,423    |      
|CASH AND CASH EQUIVALENTS, beginning of year |                                          |                                             | 146,423    |         |           |   |           |      
|                                             |                                          |                                             |            |         |           |  
|CASH AND CASH EQUIVALENTS, end of year       |                                          | $                                           | 177,131    |         |           | $ | 146,423    |      
|                                             |                                          |                                             |            |         |           |  
|SUPPLEMENTAL CASH FLOW INFORMATION           |                                          |                                             |            |         |           |   |            |      
|                                             | Cash paid during the period for interest |                                             | $          |        |           |   | $          | 3,347 |           
|                                             |                                          |                                             |            |         |           |  



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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS




|         |                            
|-------- | ---------------------------
|Note 1  | Company Operating Agreement















| |                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A Supply, Distribution, and Licensing Agreement by and between
    Widmer and Company, pursuant to which Company purchases
    Widmers Products from Widmer and has the exclusive right
    to advertise and market the Widmer Products in the Initial
    Territory and to distribute the Widmer Products in the Initial
    Territory except for Washington.       
|
| | A Supply, Distribution, and Licensing Agreement by and between
    Redhook and Company, pursuant to which Company purchases the
    Redhook Products from Redhook and has the exclusive right to
    advertise and market the Redhook Products in the Initial
    Territory and to distribute the Redhook Products in the Initial
    Territory except for Washington.
|
| | A Master Distributor Agreement by and between A-B and Company,
    pursuant to which A-B distributes the Redhook Products and the
    Widmer Products in the Initial Territory (other than Washington).                                                                                                                                                               
|
| | A Master Distributor Agreement between A-B and Widmer, pursuant
    to which A-B wholesalers continue to distribute Widmer Products
    in Washington.                                                                                                                                                                                                                
|
| | A Master Distributor Agreement between A-B and Redhook, pursuant
    to which A-B continues to distribute Redhook Products outside
    the Initial Territory.                                                                                                                                                                                                         
|
| | A Management Services Agreement by and between Company and
    Widmer, pursuant to which Widmer provides Company certain
    management services, and licenses to Company certain office
    space.                                                                                                                                                                   
|
| | A License and Services Agreement by and between Company and
    Redhook pursuant to which Redhook licenses certain space and
    provides certain services to Company.                                                                                                                                                                                                

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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A Consulting Services Agreement by and between Company and
    Widmer pursuant to which Company provides certain consulting
    services to Widmer.                                                                                                   
|
| | A Consulting Services Agreement by and between Company and
    Redhook pursuant to which Company provides certain consulting
    services to Redhook.                                                                                                 
|
| | A Cross-Indemnity Agreement pursuant to which each Member agrees
    to indemnify and defend the other Member and Company from claims
    brought by the shareholders of the indemnifying Member against
    either the indemnified Member or Company.

Limited Liability Company Profit Distribution


Master Distributor Agreement with
Anheuser-Busch








|         |                                                                             
|-------- | ----------------------------------------------------------------------------
|Note 2  | Description of Operations and Summary of Significant
    Accounting Policies

Description of operations


Cash equivalents


Accounts receivable


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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS  (Continued)




Inventory


|              |  |      |           |  |      |   |         | 
|------------- |  | ---- | --------- |  | ---- | - | ------- | 
|              |  | 2005 |           |  | 2004 |  
|              |  |      |           |  |      |  
|Merchandise   |  | $    | 702,174   |  |      | $ | 286,989 | 
|Point of Sale |  |      | 436,484   |  |      |   | 467,789 | 
|              |  |      |           |  |      |  
|              |  | $    | 1,138,658 |  |      | $ | 754,778 | 
|              |  |      |           |  |      |  

Fixed Assets


Accounting for the Disposal of Long-Lived
Assets


|                                     |  |      |        |   |      |   |   | 
|------------------------------------ |  | ---- | ------ | - | ---- | - | - | 
|                                     |  | 2005 |        |   | 2004
|                                     |  |      |        |   |     
|Office and data processing equipment |  | $    | 39,767 |   |      | $ |  | 
|Accumulated depreciation             |  |      | (6,311 | ) |      |   |  | 
|                                     |  |      |        |   |      |  
|                                     |  | $    | 33,456 |   |      | $ |  | 
|                                     |  |      |        |   |      |  

Income taxes


Use of estimates


Concentration of credit risk




Fair value of financial instruments


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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS  (Continued)


Product purchase price 12-months 12-month


Advertising


Recent accounting pronouncements




|         |                           
|-------- | --------------------------
|Note 3  | Related Party Transactions



|            |  |                         |           |  |         |   |         |      |  |   |         |  |  |       |           |  |  |   |           | 
|----------- |  | ----------------------- | --------- |  | ------- | - | ------- | ---- |  | - | ------- |  |  | ----- | --------- |  |  | - | --------- | 
|            |  | For the Year Ended 2005 |          
|            |  |                         |          
|            |  | Widmer                  |           |  | Redhook |   |         | Kona |  |   | A-B     |  |  | Total |          
|            |  |                         |           |  |         |   |         |      |  |   |         |  |  |       |          
|Payables    |  | $                       | 1,652,676 |  |         | $ | 698,273 |      |  | $ | 338,448 |  |  | $     | 129,408   |  |  | $ | 2,818,805 | 
|Receivables |  | $                       | 207,267   |  |         | $ | 367,590 |      |  | $ | 26,387  |  |  | $     | 2,175,322 |  |  | $ | 2,776,566 | 

|            |  |                           |         |  |         |   |         |      |  |   |         |   |  |       |           |  |  |   |           | 
|----------- |  | ------------------------- | ------- |  | ------- | - | ------- | ---- |  | - | ------- | - |  | ----- | --------- |  |  | - | --------- | 
|            |  | For the Period Ended 2004 |        
|            |  |                           |        
|            |  | Widmer                    |         |  | Redhook |   |         | Kona |  |   | A-B     |   |  | Total |          
|            |  |                           |         |  |         |   |         |      |  |   |         |   |  |       |          
|Payables    |  | $                         | 814,593 |  |         | $ | 398,707 |      |  | $ | 142,897 |   |  | $     | 52,294    |  |  | $ | 1,408,491 | 
|Receivables |  | $                         | 233,749 |  |         | $ | 431,089 |      |  | $ | (1,152  | ) |  | $     | 1,232,016 |  |  | $ | 1,895,702 | 



|         |              
|-------- | -------------
|Note 4  | Notes Payable





|         |                
|-------- | ---------------
|Note 5  | Members Equity



|                         |  |            |     |  |                    |   |     | 
|------------------------ |  | ---------- | --- |  | ------------------ | - | --- | 
|Member                   |  | # of Units |     |  | Initial Investment |  
|                         |  |            |     |  |                    |  
|Redhook Ale Brewery      |  |            | 500 |  |                    | $ | 100 | 
|Widmer Bros. Brewing Co. |  |            | 500 |  |                    | $ | 100 | 

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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS  (Continued)






|         |                
|-------- | ---------------
|Note 6  | Retirement Plan





|         |            
|-------- | -----------
|Note 7  | Commitments



93