##### 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, 2004    
|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 145th Street, 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


Rights to Purchase Common Stock


(Title of Class)


þ o


o


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.









---










REDHOOK ALE BREWERY, INCORPORATED


FORM 10-K


TABLE OF CONTENTS


|              |  |                                                                                                                      |    |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                      |    | Page |   
|              |  |                                                                                                                      |    |      |   
|PART I.      
|ITEM 1.       |  | Business                                                                                                             |    |      | 1  | 
|ITEM 2.       |  | Properties                                                                                                           |    |      | 19 | 
|ITEM 3.       |  | Legal Proceedings                                                                                                    |    |      | 19 | 
|ITEM 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 19 | 
|ITEM 4A.      |  | Executive Officers of the Company                                                                                    |    |      | 20 | 
|PART II.     
|ITEM 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 21 | 
|ITEM 6.       |  | Selected Financial Data                                                                                              |    |      | 22 | 
|ITEM 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 23 | 
|ITEM 7A.      |  | Quantitative and Qualitative Disclosures
    about Market Risk                                                       |    |      | 38 | 
|ITEM 8.       |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 39 | 
|ITEM 9.       |  | Changes In and Disagreements With
    Accountants on Accounting and Financial Disclosure                             |    |      | 62 | 
|ITEM 9A.      |  | Controls and Procedures                                                                                              |    |      | 62 | 
|ITEM 9B.      |  | Other Information                                                                                                    |    |      | 62 | 
|PART III.    
|ITEM 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 63 | 
|ITEM 11.      |  | Executive Compensation                                                                                               |    |      | 63 | 
|ITEM 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholders Matters                  |    |      | 63 | 
|ITEM 13.      |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 63 | 
|ITEM 14.      |  | Principal Accounting Fees and Services                                                                               |    |      | 64 | 
|PART IV.     
|ITEM 15.      |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 64 | 
|SIGNATURES    |  |                                                                                                                      | 69 |     
|EXHIBIT 10.4 
|EXHIBIT 10.8 
|EXHIBIT 10.10
|EXHIBIT 10.11
|EXHIBIT 10.18
|EXHIBIT 23.1 
|EXHIBIT 23.2 
|EXHIBIT 23.3 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



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PART I.







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



Redhook E.S.B. Redhook India Pale Ale, Redhook Blonde Ale, Blackhook Porter,
Chinook Copper Ale Winterhook, Redhook Sunrye Ale Redhook Nut Brown
Ale 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.




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Products






Redhook E.S.B. Redhook E.S.B.,


Redhook India Pale Ale. Redhook IPA


Redhook Blonde Ale.


Blackhook Porter. Blackhook


Chinook Copper Ale. Chinook Copper


Winterhook. Winterhook Winterhook


Redhook Sunrye Ale. Sunrye Sunrye


Redhook Nut Brown Ale. Nut Brown Ale


Widmer Hefeweizen Widmer
Hefeweizen Widmer Hefeweizen


Widmer
Hefeweizen


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Widmer Hefeweizen Redhook Hefe-weizen, Redhook Hefe-weizen


Pacific Ridge Pacific Ridge Pacific Ridge


Redhook
India Pale Ale, Redhook Nut Brown Ale, Redhook Blonde
Ale


Brewing Operations


The Brewing Process. Saccharomyces cerevisiae,




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Brewing Equipment.


Packaging.


Quality Control.


Ingredients and Raw Materials.


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Saccharomyces cerevisiae


Product Distribution


















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Relationship with Anheuser-Busch, Incorporated








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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
    (a) 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.                                                                                                                                                                                                                





| |    |                                                                                                                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                                                                             

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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.








Staging Cost and Cooperage Handling Cost.


10



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Inventory Manager Fee.










Relationship with Craft Brands Alliance LLC






11



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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;

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| |    |                                                                                                                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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; or
|
| | 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 The Equity Method of Accounting for
Investments in Common Stock Exhibits and Financial Statement Schedules


Sales and Marketing




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Seasonality




Competition












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Regulation






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









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





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



Trademarks


Ballard Bitter, Blackhook, India Pale
Ale  Ballard Bitter, Pacific Ridge, Redhook, Redhook
ESB, Sunrye Winterhook Blackhook, Redhook Winterhook, Redhook Doubleblack Stout


17



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Forecasters Trolleyman Redhook Redhook


Employees




18



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



The Washington Brewery.


The New Hampshire Brewery.







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








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



19



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

Paul S. Shipman (52)  President, Chief Executive
Officer and Chairman of the Board




David J. Mickelson (45)  Executive Vice President,
Chief Financial Officer and Chief Operating Officer




Gerard C. Prial (50)  Vice President, East Coast
Operations




Allen L. Triplett (46)  Vice President, Brewing






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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 | 
|     |                |      |   |       |     | 
|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 | 
|2003 |                |      |   |       |     |  |   |      
|     | First quarter  |      | $ | 2.400 |     |  | $ | 2.020 | 
|     | Second quarter |      | $ | 2.860 |     |  | $ | 1.900 | 
|     | Third quarter  |      | $ | 2.600 |     |  | $ | 1.900 | 
|     | Fourth quarter |      | $ | 3.410 |     |  | $ | 2.300 | 





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



|                                              |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------- |  | --------------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                              |  | Year Ended December 31,                             |        
|                                              |  |                                                     |        
|                                              |  | 2004                                                |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                              |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |        
|                                              |  | (In thousands, except per share and operating data) |        
|Statement of Operations Data:                 |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Sales                                         |  | $                                                   | 36,640  |   |      | $ | 42,213  |      |  | $ | 40,913  |   |  | $    | 40,117  |   |  | $ | 37,837  |  
|Less Excise Taxes                             |  |                                                     | 3,268   |   |      |   | 3,498   |      |  |   | 3,465   |   |  |      | 3,412   |   |  |   | 3,425   |  
|                                              |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |        
|Net Sales                                     |  |                                                     | 33,372  |   |      |   | 38,715  |      |  |   | 37,448  |   |  |      | 36,705  |   |  |   | 34,412  |  
|Cost of Sales                                 |  |                                                     | 27,171  |   |      |   | 28,702  |      |  |   | 27,597  |   |  |      | 26,740  |   |  |   | 24,581  |  
|                                              |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |        
|Gross Profit                                  |  |                                                     | 6,201   |   |      |   | 10,013  |      |  |   | 9,851   |   |  |      | 9,965   |   |  |   | 9,831   |  
|Selling, General and Administrative Expenses  |  |                                                     | 7,639   |   |      |   | 11,689  |      |  |   | 10,910  |   |  |      | 11,817  |   |  |   | 11,747  |  
|Income from Equity Investment in Craft Brands |  |                                                     | 1,123   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Craft Brands Shared Formation Expenses        |  |                                                     | 535     |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                              |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |        
|Operating Income (Loss)                       |  |                                                     | (850    | ) |      |   | (1,676  | )    |  |   | (1,059  | ) |  |      | (1,852  | ) |  |   | (1,916  | )
|Interest Expense                              |  |                                                     | 189     |   |      |   | 192     |      |  |   | 230     |   |  |      | 394     |   |  |   | 593     |  
|Other Income (Expense)  Net(1)               |  |                                                     | 116     |   |      |   | 59      |      |  |   | 30      |   |  |      | 249     |   |  |   | 1,453   |  
|                                              |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |        
|Income (Loss) before Income Taxes             |  |                                                     | (923    | ) |      |   | (1,809  | )    |  |   | (1,259  | ) |  |      | (1,997  | ) |  |   | (1,056  | )
|Income Tax Provision (Benefit)                |  |                                                     | 30      |   |      |   | 30      |      |  |   | (126    | ) |  |      | (679    | ) |  |   | (328    | )
|                                              |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |        
|Net Income (Loss)                             |  | $                                                   | (953    | ) |      | $ | (1,839  | )    |  | $ | (1,133  | ) |  | $    | (1,318  | ) |  | $ | (728    | )
|                                              |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |        
|Basic Earnings (Loss) per Share               |  | $                                                   | (0.14   | ) |      | $ | (0.30   | )    |  | $ | (0.18   | ) |  | $    | (0.19   | ) |  | $ | (0.10   | )
|Diluted Earnings (Loss) per Share             |  | $                                                   | (0.14   | ) |      | $ | (0.30   | )    |  | $ | (0.18   | ) |  | $    | (0.19   | ) |  | $ | (0.10   | )
|                                             
|Operating Data (in barrels):                  |  |                                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Beer Shipped                                  |  |                                                     | 216,400 |   |      |   | 228,800 |      |  |   | 225,900 |   |  |      | 223,100 |   |  |   | 212,600 |  
|Production Capacity, End of Period(2)         |  |                                                     | 375,000 |   |      |   | 375,000 |      |  |   | 360,000 |   |  |      | 350,000 |   |  |   | 350,000 |  

|                                       |  |              |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|-------------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ |  |  | ---- | ------ |  |  | - | ------ | 
|                                       |  | December 31, |       
|                                       |  |              |       
|                                       |  | 2004         |        |  | 2003 |   |        | 2002 |  |   | 2001   |  |  | 2000 |       
|                                       |  |              |        |  |      |   |        |      |  |   |        |  |  |      |       
|Balance Sheet Data (in thousands):     |  |              |        |  |      |   |        |      |  |   |        |  |  |      |        |  |  |   |        | 
|Cash and Cash Equivalents              |  | $            | 5,590  |  |      | $ | 6,123  |      |  | $ | 7,007  |  |  | $    | 6,364  |  |  | $ | 7,487  | 
|Working Capital                        |  |              | 3,661  |  |      |   | 4,511  |      |  |   | 4,346  |  |  |      | 4,640  |  |  |   | 4,817  | 
|Total Assets                           |  |              | 74,128 |  |      |   | 77,131 |      |  |   | 79,982 |  |  |      | 82,155 |  |  |   | 85,621 | 
|Long-term Debt, Net of Current Portion |  |              | 5,175  |  |      |   | 5,625  |      |  |   | 6,075  |  |  |      | 6,525  |  |  |   | 6,975  | 
|Convertible Redeemable Preferred Stock |  |              |       |  |      |   | 16,233 |      |  |   | 16,188 |  |  |      | 16,144 |  |  |   | 16,099 | 
|Common Stockholders Equity            |  |              | 61,462 |  |      |   | 47,916 |      |  |   | 50,027 |  |  |      | 52,474 |  |  |   | 54,502 | 






|    |                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a gain of approximately $1.0 million for the year
    ended December 31, 2000, resulting from the July 2000 sale
    of a warehousing facility and land owned by the Company which
    was used as the keg filling, storage and shipping facility prior
    to the 1998 curtailment of brewery operations in the Fremont
    neighborhood of Seattle.
|   
|(2) | 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.                         

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



Overview


Craft Brands Alliance LLC








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Widmer Hefeweizen Widmer
Hefeweizen Redhook Hefe-weizen, Redhook Hefe-weizen






Widmer Hefeweizen,






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Results of Operations




|                                                |  |                         |       |    |      |  |       |      |  |  |       |   
|----------------------------------------------- |  | ----------------------- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | --
|                                                |  | Year Ended December 31, |      
|                                                |  |                         |      
|                                                |  | 2004                    |       |    | 2003 |  |       | 2002 | 
|                                                |  |                         |       |    |      |  |       |      | 
|Sales                                           |  |                         | 109.8 | %  |      |  | 109.0 | %    |  |  | 109.3 | % 
|Less Excise Taxes                               |  |                         | 9.8   |    |      |  | 9.0   |      |  |  | 9.3   |   
|                                                |  |                         |       |    |      |  |       |      | 
|Net Sales                                       |  |                         | 100.0 |    |      |  | 100.0 |      |  |  | 100.0 |   
|Cost of Sales                                   |  |                         | 81.4  |    |      |  | 74.1  |      |  |  | 73.7  |   
|                                                |  |                         |       |    |      |  |       |      | 
|Gross Profit                                    |  |                         | 18.6  |    |      |  | 25.9  |      |  |  | 26.3  |   
|Selling, General and Administrative Expenses    |  |                         | 22.9  |    |      |  | 30.2  |      |  |  | 29.1  |   
|Income from Equity Investment in Craft Brands   |  |                         | 3.4   |    |      |  |      |      |  |  |      |   
|Craft Brands Alliance Shared Formation Expenses |  |                         | 1.6   |    |      |  |      |      |  |  |      |   
|                                                |  |                         |       |    |      |  |       |      | 
|Operating Income (Loss)                         |  |                         | (2.5  | )  |      |  | (4.3  | )    |  |  | (2.8  | ) 
|Interest Expense                                |  |                         | 0.6   |    |      |  | 0.5   |      |  |  | 0.6   |   
|Other Income (Expense)  Net                    |  |                         | 0.3   |    |      |  | 0.2   |      |  |  | 0.1   |   
|                                                |  |                         |       |    |      |  |       |      | 
|Income (Loss) before Income Taxes               |  |                         | (2.8  | )  |      |  | (4.6  | )    |  |  | (3.3  | ) 
|Income Tax Provision (Benefit)                  |  |                         | 0.1   |    |      |  | 0.1   |      |  |  | (0.3  | ) 
|                                                |  |                         |       |    |      |  |       |      | 
|Net Income (Loss)                               |  |                         | (2.9  | )% |      |  | (4.7  | )%   |  |  | (3.0  | )%
|                                                |  |                         |       |    |      |  |       |      | 

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| |                                                                          
| | -------------------------------------------------------------------------
| | 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) |         |   |          
|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 Alliance 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)                  |  |                               | 30      |   |           |   | 30      |            |  |   |        |   |  |  |      |   
|                                                |  |                               |         |   |           |   |         |            |  |   |         |  
|Net Income (Loss)                               |  | $                             | (953    | ) |           | $ | (1,839  | )          |  | $ | 886     |   |  |  | 48.2  | % 
|                                                |  |                               |         |   |           |   |         |            |  |   |         |  
|Beer Shipped (in barrels)                       |  |                               | 216,400 |   |           |   | 228,800 |            |  |   | (12,400 | ) |  |  | (5.4  | )%
|                                                |  |                               |         |   |           |   |         |            |  |   |         |  

Sales.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sales to Craft Brands Alliance. Significantly impacting
    the comparability of 2004 to 2003 are those sales of Redhook
    product to Craft Brands in the second half of 2004.
    Approximately 29.5% of the 2004 total shipments were sold to
    Craft Brands at a price substantially below wholesale pricing
    levels. Redhook manufactures and sells its product to Craft
    Brands at a fixed transfer price; 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | 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 packaged products and a
    0.2% increase in shipments of the Companys draft products.
    Since the mid 1990s, package beer sales have steadily increased
    as a percentage of total beer sales; this migration reversed
    slightly in 2004, with 62.8% of total shipments in 2004 being
    package shipments versus 64.9% in 2003. 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.
    Since 1997, the Company has 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.

26



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Pricing and Fees. Total Company average revenue per
    barrel for 2004 was significantly impacted by sales of Redhook
    product to Craft Brands during the six months ended
    December 31, 2004. 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 29.5% of total shipments, or
    64,000 barrels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Redhook 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 of the
    contract brewing arrangement, sold at a significantly lower
    revenue per barrel during the second quarter of 2004, with
    Widmer. 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 bottle
    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.
|
| | In connection with all sales through the Distribution Alliance
    prior to July 1, 2004, the Company paid a Margin fee to
    A-B. 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. The
    incremental margin 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

27



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Excise Taxes.


Cost of Sales.


Selling, General and Administrative Expenses.


Income from Equity Investment in Craft Brands Alliance.


Craft Brands Alliance Shared Formation Expenses.


Interest Expense.


Other Income (Expense) Net.


Income Taxes.


28



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

The Equity Method of Accounting for Investments in Common
Stock. Exhibits and
Financial Statement Schedules


Sales.


Cost of Sales.


Selling, General and Administrative Expenses.


Net Income.


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Year Ended December 31,
2003 Compared to Year Ended December 31, 2002




|                                                |  |                               |         |   |           |   |         |            |  |   |        |   |  |  |       |   
|----------------------------------------------- |  | ----------------------------- | ------- | - | --------- | - | ------- | ---------- |  | - | ------ | - |  |  | ----- | --
|                                                |  | Year Ended                    |         |   |           |   |        
|                                                |  | December 31,                  |         |   |           |   |        
|                                                |  |                               |         |   | Increase/ |   |         | %          | 
|                                                |  | 2003                          |         |   | 2002      |   |         | (Decrease) |  |   | Change |  
|                                                |  |                               |         |   |           |   |         |            |  |   |        |  
|                                                |  | (In thousands except barrels) |         |   |          
|Sales                                           |  | $                             | 42,213  |   |           | $ | 40,913  |            |  | $ | 1,300  |   |  |  | 3.2   | % 
|Less Excise Taxes                               |  |                               | 3,498   |   |           |   | 3,465   |            |  |   | 33     |   |  |  | 1.0   |   
|                                                |  |                               |         |   |           |   |         |            |  |   |        |  
|Net Sales                                       |  |                               | 38,715  |   |           |   | 37,448  |            |  |   | 1,267  |   |  |  | 3.4   |   
|Cost of Sales                                   |  |                               | 28,702  |   |           |   | 27,597  |            |  |   | 1,104  |   |  |  | 4.0   |   
|                                                |  |                               |         |   |           |   |         |            |  |   |        |  
|Gross Profit                                    |  |                               | 10,013  |   |           |   | 9,851   |            |  |   | 163    |   |  |  | 1.7   |   
|Selling, General and Administrative Expenses    |  |                               | 11,689  |   |           |   | 10,910  |            |  |   | 780    |   |  |  | 7.1   |   
|Income from Equity Investment in Craft Brands   |  |                               |        |   |           |   |        |            |  |   |       |   |  |  |      |   
|Craft Brands Alliance Shared Formation Expenses |  |                               |        |   |           |   |        |            |  |   |       |   |  |  |      |   
|                                                |  |                               |         |   |           |   |         |            |  |   |        |  
|Operating Income (Loss)                         |  |                               | (1,676  | ) |           |   | (1,059  | )          |  |   | (617   | ) |  |  | (58.3 | ) 
|Interest Expense                                |  |                               | 192     |   |           |   | 230     |            |  |   | (38    | ) |  |  | (16.8 | ) 
|Other Income (Expense)  Net                    |  |                               | 59      |   |           |   | 30      |            |  |   | 29     |   |  |  | 95.8  |   
|                                                |  |                               |         |   |           |   |         |            |  |   |        |  
|Income (Loss) before Income Taxes               |  |                               | (1,809  | ) |           |   | (1,259  | )          |  |   | (550   | ) |  |  | (43.7 | ) 
|Income Tax Provision (Benefit)                  |  |                               | (30     | ) |           |   | (126    | )          |  |   | 155    |   |  |  | 123.7 |   
|                                                |  |                               |         |   |           |   |         |            |  |   |        |  
|Net Income (Loss)                               |  | $                             | (1,839  | ) |           | $ | (1,133  | )          |  | $ | (705   | ) |  |  | (62.2 | )%
|                                                |  |                               |         |   |           |   |         |            |  |   |        |  
|Beer Shipped (in barrels)                       |  |                               | 228,800 |   |           |   | 225,900 |            |  |   | 2,900  |   |  |  | 1.3   | % 
|                                                |  |                               |         |   |           |   |         |            |  |   |        |  

Sales.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Shipments. Approximately $625,000 of the $1,300,000
    increase in gross sales is attributable to an increase in
    wholesale shipments. Total Company shipments increased 1.3% in
    2003 as compared to 2002. Total sales volume for the year ended
    December 31, 2003 increased to 228,800 barrels from
    225,900 barrels for the same period in 2002, the result of a
    2.3% increase in shipments of its packaged products, offset by a
    0.5% decrease in shipments of the Companys draft products.
    The mix of package sales to draft sales generally affects
    overall revenue per barrel, with package product generating a
    higher revenue per barrel but also an increased cost of sales
    per barrel. The sales mix continued to migrate towards an
    increasing proportion of package sales in 2003, with 64.9% of
    2003 total volume being package shipments versus 64.3% in 2002.
    Contrary to the trend during the past several years, sales
    volume for the 12-pack package, which is more costly to produce,
    decreased to 33.6% of package sales from 34.1% in 2002. West
    Coast sales decreased 5.0% in 2003 as compared to 2002, largely
    due to a significant decline in sales in California and, to a
    smaller degree, to a 2.4% decline in shipments in Washington
    State, the Companys largest market. At December 31,
    2003 and 2002, the Companys products were distributed in
    48 states.
|
| | Pricing and Fees. Average wholesale revenue per barrel
    showed modest improvement. Average wholesale revenue per barrel
    for draft products, net of discounts, increased approximately
    2.0% in 2003 as compared to 2002. This increase in pricing
    accounted for approximately $200,000 of the $1,300,000 increase
    in total sales. Average wholesale revenue per barrel for bottle
    products, net of discounts, increased approximately 1.2% in 2003
    as compared to 2002. This increase in pricing accounted for
    approximately $330,000 of the $1,300,000 increase in gross
    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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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| |                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | competitive promotions and discounting. Additionally, the
    Company may experience a decline in sales in certain regions
    following a price increase.                                                                                                                                                                                                                                                    
|
| | 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. For the year ended
    December 31, 2002, the Margin was paid to A-B on shipments
    totaling 161,000 barrels to 532 Alliance distribution
    points. The Margin paid is reflected as a reduction of sales in
    the Companys statement of operations.
|
| | Retail Operations. Sales other than wholesale beer sales,
    primarily retail pub revenues, totaled $4,581,000 in 2003
    compared to $4,455,000 in 2002. This increase was due to
    increasing sales in the Companys pubs located in its two
    breweries, partially offset by the September 2002 closure of the
    Companys Trolleyman Pub, located in the Companys
    former Fremont Brewery.    

Excise Taxes.


Cost of Sales.


Selling, General and Administrative Expenses.


Interest Expense.


Other Income (Expense)  Net.


Income Taxes.


Liquidity and Capital Resources




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|                            |  |                          |  |                   |            | 
|--------------------------- |  | ------------------------ |  | ----------------- | ---------- | 
|                            |  |                          |  | Quarter Ended     |           
|                            |  | Required by Term Loan    |  | December 31, 2004 |           
|                            |  |                          |  |                   |           
|Tangible Net Worth          |  | Greater than $60,000,000 |  | $                 | 61,440,616 | 
|Capital Ratio               |  | Less than: 1.25:1        |  |                   | 0.21:1     | 
|Working Capital             |  | Greater than $1,900,000  |  | $                 | 3,660,512  | 
|Fixed Charge Coverage Ratio |  | Greater than 1.15:1      |  |                   | 3.014:1    | 



Contractual Commitments.


|                                        |  |                         |       |  |      |                |       |      |  |   |       |  |  |      |     |  |            |   |     |       |  |   |        |  |  |   |        | 
|--------------------------------------- |  | ----------------------- | ----- |  | ---- | -------------- | ----- | ---- |  | - | ----- |  |  | ---- | --- |  | ---------- | - | --- | ----- |  | - | ------ |  |  | - | ------ | 
|                                        |  | Year Ended December 31, |       |  |      |                |      
|                                        |  |                         |       |  |      |                |      
|                                        |  | 2005                    |       |  | 2006 |                |       | 2007 |  |   | 2008  |  |  | 2009 |     |  | Thereafter |   |     | Total | 
|                                        |  |                         |       |  |      |                |       |      |  |   |       |  |  |      |     |  |            |   |     |       | 
|                                        |  |                         |       |  |      | (In thousands) |       |      |  |   |       |  | 
|Long-term Debt(1)                       |  | $                       | 450   |  |      | $              | 450   |      |  | $ | 4,725 |  |  | $    |    |  |            | $ |    |       |  | $ |       |  |  | $ | 5,625  | 
|Operating Leases(2)                     |  |                         | 271   |  |      |                | 269   |      |  |   | 267   |  |  |      | 267 |  |            |   | 267 |       |  |   | 12,102 |  |  |   | 13,442 | 
|Hop Purchase Commitments(3)             |  |                         | 388   |  |      |                | 269   |      |  |   | 171   |  |  |      | 118 |  |            |   |    |       |  |   |       |  |  |   | 946    | 
|Other Operating Purchase Obligations(4) |  |                         | 109   |  |      |                | 83    |      |  |   | 70    |  |  |      | 70  |  |            |   | 6   |       |  |   |       |  |  |   | 338    | 
|                                        |  |                         |       |  |      |                |       |      |  |   |       |  |  |      |     |  |            |   |     |       | 
|                                        |  | $                       | 1,218 |  |      | $              | 1,071 |      |  | $ | 5,233 |  |  | $    | 455 |  |            | $ | 273 |       |  | $ | 12,102 |  |  | $ | 20,351 | 
|                                        |  |                         |       |  |      |                |       |      |  |   |       |  |  |      |     |  |            |   |     |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents annual principal payments required on the
    Companys Term Loan. Interest on the Term Loan accrues at
    LIBOR plus 1.75%. Payment of accrued interest due monthly is 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 specialty hops to meet future production
    requirements. 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. 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




33



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##### Table of Contents





Relationship with Anheuser-Busch, Incorporated and Craft
Brands Alliance LLC.


Craft Brands Alliance LLC.




Dependence on Distributors.


34



---



##### Table of Contents



Effect of Competition on Future Sales.


Sales Prices.


Dependence on Sales in Washington State.


Variability of Gross Margin and Cost of Sales.


Advertising and Promotional Costs.


35



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##### Table of Contents





Customer Acceptance, Consumer Trends and Public
Attitudes.


Effect of Sales Trends on Brewery Efficiency and
Operations. Accounting
for the Impairment or Disposal of Long-Lived Assets,


Income Tax Benefits.


36



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##### Table of Contents





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


37



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##### Table of Contents



The Equity Method of Accounting for
Investments in Common Stock. Exhibits and Financial Statement Schedules,


Revenue Recognition.


Recent Accounting Pronouncements


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


Shared-Based Payment







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





38



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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                                |  |      | 40 | 
|                                                                                                      
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm                         |  |      | 41 | 
|                                                                                                      
|Balance Sheets as of December 31, 2004
    and 2003                                                    |  |      | 42 | 
|                                                                                                      
|Statements of Operations for the Years
    Ended December 31, 2004, 2003 and 2002                      |  |      | 43 | 
|                                                                                                      
|Statements of Common Stockholders
    Equity for the Years Ended December 31, 2004, 2003 and
    2002 |  |      | 44 | 
|                                                                                                      
|Statements of Cash Flows for the Years
    Ended December 31, 2004, 2003 and 2002                      |  |      | 45 | 
|                                                                                                      
|Notes to Financial Statements                                                                          |  |      | 46 | 

39



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS





















40



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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, |           
|                                                                 |                                                                                                                                                                | 2004                              |                                                                        |            | 2003         |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|ASSETS                                                          
|                                                                
|Current Assets:                                                  |                                                                                                                                                                |                                   |                                                                        |            |              |            |            |           
|                                                                 | Cash and Cash Equivalents                                                                                                                                      |                                   | $                                                                      | 5,589,621  |              |            | $          | 6,123,349  |           
|                                                                 | Accounts Receivable                                                                                                                                            |                                   |                                                                        | 1,123,475  |              |            |            | 1,686,735  |           
|                                                                 | Trade Receivable from Craft Brands Alliance LLC                                                                                                                |                                   |                                                                        | 398,707    |              |            |            |           |           
|                                                                 | Inventories                                                                                                                                                    |                                   |                                                                        | 3,000,309  |              |            |            | 3,342,006  |           
|                                                                 | Other                                                                                                                                                          |                                   |                                                                        | 506,328    |              |            |            | 247,038    |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|                                                                 |                                                                                                                                                                | Total Current Assets              |                                                                        |            | 10,618,440   |            |            |            | 11,399,128 |           
|Fixed Assets, Net                                                |                                                                                                                                                                |                                   | 63,018,806                                                             |            |              |            | 65,699,658 |           
|Receivable from Craft Brands Alliance LLC                        |                                                                                                                                                                |                                   | 277,144                                                                |            |              |            |           |           
|Investment in Craft Brands Alliance LLC                          |                                                                                                                                                                |                                   | 192,857                                                                |            |              |            |           |           
|Other Assets                                                     |                                                                                                                                                                |                                   | 20,977                                                                 |            |              |            | 32,256     |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|                                                                 |                                                                                                                                                                |                                   | Total Assets                                                           |            | $            | 74,128,224 |            |            | $          | 77,131,042 | 
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|                                                                
|LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS
    EQUITY
|                                                                
|Current Liabilities:                                             |                                                                                                                                                                |                                   |                                                                        |            |              |            |            |           
|                                                                 | Accounts Payable                                                                                                                                               |                                   | $                                                                      | 1,815,380  |              |            | $          | 1,983,377  |           
|                                                                 | Trade Payable to Craft Brands Alliance LLC                                                                                                                     |                                   |                                                                        | 431,089    |              |            |            |           |           
|                                                                 | Accrued Salaries, Wages and Payroll Taxes                                                                                                                      |                                   |                                                                        | 1,220,248  |              |            |            | 1,561,526  |           
|                                                                 | Refundable Deposits                                                                                                                                            |                                   |                                                                        | 2,526,088  |              |            |            | 2,272,328  |           
|                                                                 | Other Accrued Expenses                                                                                                                                         |                                   |                                                                        | 515,123    |              |            |            | 621,185    |           
|                                                                 | Current Portion of Long-Term Debt                                                                                                                              |                                   |                                                                        | 450,000    |              |            |            | 450,000    |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|                                                                 |                                                                                                                                                                | Total Current Liabilities         |                                                                        |            | 6,957,928    |            |            |            | 6,888,416  |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|Long-Term Debt, Net of Current Portion                           |                                                                                                                                                                |                                   | 5,175,000                                                              |            |              |            | 5,625,000  |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|Deferred Income Taxes, Net                                       |                                                                                                                                                                |                                   | 468,798                                                                |            |              |            | 468,798    |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|Other Liabilities                                                |                                                                                                                                                                |                                   | 64,903                                                                 |            |              |            |           |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|Commitments                                                      |                                                                                                                                                                |                                   |                                                                        |            |              |            |            |           
|Convertible Redeemable Preferred Stock                           |                                                                                                                                                                |                                   |                                                                       |            |              |            | 16,232,655 |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|Common Stockholders Equity:                                     |                                                                                                                                                                |                                   |                                                                        |            |              |            |            |           
|                                                                 | Common Stock, Par Value $0.005 per Share, Authorized,
    50,000,000 Shares; Issued and Outstanding,
    8,188,199 Shares in 2004 and 6,226,306 Shares in 2003 |                                   |                                                                        | 40,941     |              |            |            | 31,132     |           
|                                                                 | Additional Paid-In Capital                                                                                                                                     |                                   |                                                                        | 68,761,766 |              |            |            | 54,250,059 |           
|                                                                 | Retained Earnings (Deficit)                                                                                                                                    |                                   |                                                                        | (7,341,112 | )            |            |            | (6,365,018 | )         
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|                                                                 |                                                                                                                                                                | Total Common Stockholders Equity |                                                                        |            | 61,461,595   |            |            |            | 47,916,173 |           
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           
|                                                                 |                                                                                                                                                                |                                   | Total Liabilities, Preferred Stock and Common Stockholders
    Equity |            | $            | 74,128,224 |            |            | $          | 77,131,042 | 
|                                                                 |                                                                                                                                                                |                                   |                                                                        |            |              |           



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REDHOOK ALE BREWERY, INCORPORATED





STATEMENTS OF OPERATIONS


|                                                |  |                         |            |   |      |   |            |      |  |   |            |  
|----------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                |  | Year Ended December 31, |           
|                                                |  |                         |           
|                                                |  | 2004                    |            |   | 2003 |   |            | 2002 | 
|                                                |  |                         |            |   |      |   |            |      | 
|Sales                                           |  | $                       | 36,639,552 |   |      | $ | 42,212,771 |      |  | $ | 40,912,532 |  
|Less Excise Taxes                               |  |                         | 3,267,513  |   |      |   | 3,497,714  |      |  |   | 3,464,762  |  
|                                                |  |                         |            |   |      |   |            |      | 
|Net Sales                                       |  |                         | 33,372,039 |   |      |   | 38,715,057 |      |  |   | 37,447,770 |  
|Cost of Sales                                   |  |                         | 27,171,255 |   |      |   | 28,701,946 |      |  |   | 27,597,345 |  
|                                                |  |                         |            |   |      |   |            |      | 
|Gross Profit                                    |  |                         | 6,200,784  |   |      |   | 10,013,111 |      |  |   | 9,850,425  |  
|Selling, General and Administrative Expenses    |  |                         | 7,639,290  |   |      |   | 11,689,410 |      |  |   | 10,909,476 |  
|Income from Equity Investment in Craft Brands   |  |                         | 1,123,283  |   |      |   |           |      |  |   |           |  
|Craft Brands Alliance Shared Formation Expenses |  |                         | 534,628    |   |      |   |           |      |  |   |           |  
|                                                |  |                         |            |   |      |   |            |      | 
|Operating Income (Loss)                         |  |                         | (849,851   | ) |      |   | (1,676,299 | )    |  |   | (1,059,051 | )
|Interest Expense                                |  |                         | 189,662    |   |      |   | 191,404    |      |  |   | 229,916    |  
|Other Income (Expense)  Net                    |  |                         | 115,619    |   |      |   | 58,891     |      |  |   | 30,074     |  
|                                                |  |                         |            |   |      |   |            |      | 
|Income (Loss) before Income Taxes               |  |                         | (923,894   | ) |      |   | (1,808,812 | )    |  |   | (1,258,893 | )
|Income Tax Provision (Benefit)                  |  |                         | 30,000     |   |      |   | 29,801     |      |  |   | (125,610   | )
|                                                |  |                         |            |   |      |   |            |      | 
|Net Income (Loss)                               |  | $                       | (953,894   | ) |      | $ | (1,838,613 | )    |  | $ | (1,133,283 | )
|                                                |  |                         |            |   |      |   |            |      | 
|Basic Earnings (Loss) per Share                 |  | $                       | (0.14      | ) |      | $ | (0.30      | )    |  | $ | (0.18      | )
|                                                |  |                         |            |   |      |   |            |      | 
|Diluted Earnings (Loss) per Share               |  | $                       | (0.14      | ) |      | $ | (0.30      | )    |  | $ | (0.18      | )
|                                                |  |                         |            |   |      |   |            |      | 



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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, 2002   |                                                                              |              | 6,920,046 |           |            | $ | 34,600  |          |       | $        | 55,743,429 |            |               | $      | (3,304,322 | )          |   | $ | 52,473,707 |           
|                           | Repurchase of Common Stock                                                   |              |           | (593,900  | )          |   |         | (2,969   | )     |          |            | (1,266,248 | )             |        |            |           |   |   |            | (1,269,217 | )
|                           | Other                                                                        |              |           |          |            |   |         |         |       |          |            |           |               |        |            | (44,400    | ) |   |            | (44,400    | )
|                           | Net Loss                                                                     |              |           |          |            |   |         |         |       |          |            |           |               |        |            | (1,133,283 | ) |   |            | (1,133,283 | )
|                           |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |           
|Balance, December 31, 2002 |                                                                              |              | 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                                                                     |              |           |          |            |   |         |         |       |          |            |           |               |        |            | (953,894   | ) |   |            | (953,894   | )
|                           |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |           
|Balance, December 31, 2004 |                                                                              |              | 8,188,199 |           |            | $ | 40,941  |          |       | $        | 68,761,766 |            |               | $      | (7,341,112 | )          |   | $ | 61,461,595 |           
|                           |                                                                              |              |           |           |            |   |         |          |       |          |            |            |               |        |           



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REDHOOK ALE BREWERY, INCORPORATED





STATEMENTS OF CASH FLOWS


|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |          |   |            |           |         |  
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ---------- | ---------- | -------- | - | ---------- | --------- | -------- | - | ---------- | --------- | ------- | -
|                                                                                             |                                                                                                                                                                           | Year Ended December 31,                         |           
|                                                                                             |                                                                                                                                                                           |                                                 |           
|                                                                                             |                                                                                                                                                                           | 2004                                            |            |            | 2003     |   |            | 2002      |         
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|Operating Activities                                                                         |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |          |   |            |          
|Net Income (Loss)                                                                            |                                                                                                                                                                           | $                                               | (953,894   | )          |          | $ | (1,838,613 | )         |          | $ | (1,133,283 | )        
|Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
    by Operating Activities: |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |          |   |            |          
|                                                                                             | Depreciation and Amortization                                                                                                                                             |                                                 |            | 2,944,412  |          |   |            | 3,024,536 |          |   |            | 3,092,441 |        
|                                                                                             | Deferred Income Taxes                                                                                                                                                     |                                                 |            |           |          |   |            |          |          |   |            | (106,542  | )      
|                                                                                             | Loss on Disposal of Fixed Assets                                                                                                                                          |                                                 |            |           |          |   |            |          |          |   |            | 97,122    |        
|                                                                                             | Income from Equity Investment in Craft Brands In Excess of Cash
    Distributions                                                                                         |                                                 |            | (219,901   | )        |   |            |          |          |   |            |          |        
|                                                                                             | Changes in Operating Assets and Liabilities:                                                                                                                              |                                                 |            |            |          |   |            |           |          |   |            |           |        
|                                                                                             |                                                                                                                                                                           | Accounts Receivable                             |            |            | 563,260  |   |            |           | (196,218 | ) |            |           | (84,188 | )
|                                                                                             |                                                                                                                                                                           | Trade Receivable from Craft Brands Alliance LLC |            |            | (398,707 | ) |            |           |         |   |            |           |        |  
|                                                                                             |                                                                                                                                                                           | Inventories                                     |            |            | 341,697  |   |            |           | (509,579 | ) |            |           | 306,863 |  
|                                                                                             |                                                                                                                                                                           | Other Current Assets                            |            |            | (259,290 | ) |            |           | (8,770   | ) |            |           | (69,919 | )
|                                                                                             |                                                                                                                                                                           | Other Assets                                    |            |            | 4,400    |   |            |           | (4,400   | ) |            |           | 53,765  |  
|                                                                                             |                                                                                                                                                                           | Accounts Payable and Other Accrued Expenses     |            |            | (274,059 | ) |            |           | 63,477   |   |            |           | 417,658 |  
|                                                                                             |                                                                                                                                                                           | Trade Payable to Craft Brands Alliance LLC      |            |            | 431,089  |   |            |           |         |   |            |           |        |  
|                                                                                             |                                                                                                                                                                           | Accrued Salaries, Wages and Payroll Taxes       |            |            | (341,278 | ) |            |           | (73,937  | ) |            |           | (22,155 | )
|                                                                                             |                                                                                                                                                                           | Refundable Deposits                             |            |            | 253,760  |   |            |           | 329,525  |   |            |           | 546,348 |  
|                                                                                             |                                                                                                                                                                           | Other Liabilities                               |            |            | 64,903   |   |            |           |         |   |            |           |        |  
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|Net Cash Provided by Operating Activities                                                    |                                                                                                                                                                           |                                                 | 2,156,392  |            |          |   | 786,021    |           |          |   | 3,098,110  |          
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|Investing Activities                                                                         |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |          |   |            |          
|Expenditures for Fixed Assets                                                                |                                                                                                                                                                           |                                                 | (252,098   | )          |          |   | (991,985   | )         |          |   | (705,416   | )        
|Investment in Craft Brands Alliance LLC                                                      |                                                                                                                                                                           |                                                 | (250,100   | )          |          |   |           |           |          |   |           |          
|Other, Net                                                                                   |                                                                                                                                                                           |                                                 | (4,583     | )          |          |   | (417       | )         |          |   | (29,912    | )        
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|Net Cash Used in Investing Activities                                                        |                                                                                                                                                                           |                                                 | (506,781   | )          |          |   | (992,402   | )         |          |   | (735,328   | )        
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|Financing Activities                                                                         |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |          |   |            |          
|Payment to A-B pursuant to Exchange and Recapitalization
    Agreement                       |                                                                                                                                                                           |                                                 | (2,000,000 | )          |          |   |           |           |          |   |           |          
|Principal Payments on Debt                                                                   |                                                                                                                                                                           |                                                 | (450,000   | )          |          |   | (450,000   | )         |          |   | (450,000   | )        
|Repurchase of Common Stock                                                                   |                                                                                                                                                                           |                                                 |           |            |          |   | (230,667   | )         |          |   | (1,269,217 | )        
|Issuance of Common Stock                                                                     |                                                                                                                                                                           |                                                 | 266,661    |            |          |   | 3,046      |           |          |   |           |          
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|Net Cash Used in Financing Activities                                                        |                                                                                                                                                                           |                                                 | (2,183,339 | )          |          |   | (677,621   | )         |          |   | (1,719,217 | )        
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|Increase (Decrease) in Cash and Cash Equivalents                                             |                                                                                                                                                                           |                                                 | (533,728   | )          |          |   | (884,002   | )         |          |   | 643,565    |          
|Cash and Cash Equivalents:                                                                   |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |          |   |            |          
|                                                                                             | Beginning of Year                                                                                                                                                         |                                                 |            | 6,123,349  |          |   |            | 7,007,351 |          |   |            | 6,363,786 |        
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|                                                                                             | End of Year                                                                                                                                                               |                                                 | $          | 5,589,621  |          |   | $          | 6,123,349 |          |   | $          | 7,007,351 |        
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|Supplemental Disclosures of Cash Flow Information:                                           |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |          |   |            |          
|                                                                                             | Disposal of Fixed Assets in Exchange for Related Deposit
    Liability                                                                                                    |                                                 | $          |           |          |   | $          | 603,825   |          |   | $          |          |        
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         
|                                                                                             | 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 |          |   | $          |          |          |   | $          |          |        
|                                                                                             |                                                                                                                                                                           |                                                 |            |            |          |   |            |           |         



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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. | Significant Accounting Policies



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





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





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





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


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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)


The Equity Method of Accounting for Investments
in Common Stock




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

Accounting for the
Impairment or Disposal of Long-Lived Assets




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





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





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

Accounting for Income Taxes


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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




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





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

Disclosures about Segments of an Enterprise and Related
Information.




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

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




|                                                                                                                                             |                       |                         |            |       |      |   |            |       |   |   |            |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | ---------- | ----- | ---- | - | ---------- | ----- | - | - | ---------- | ----- | -
|                                                                                                                                             |                       | Year Ended December 31, |           
|                                                                                                                                             |                       |                         |           
|                                                                                                                                             |                       | 2004                    |            |       | 2003 |   |            | 2002  |  
|                                                                                                                                             |                       |                         |            |       |      |   |            |       |  
|Net income (loss), as reported                                                                                                               |                       | $                       | (953,894   | )     |      | $ | (1,838,613 | )     |   | $ | (1,133,283 | )    
|Add: Stock-based employee compensation expense as reported under
    APB 25                                                                  |                       |                         |           |       |      |   |           |       |   |   |           |      
|Less: Stock-based employee compensation expense determined under
    fair value based method for all options, net of related tax
    effects |                       |                         | (194,718   | )     |      |   | (260,220   | )     |   |   | (219,518   | )    
|                                                                                                                                             |                       |                         |            |       |      |   |            |       |  
|Pro forma net income (loss)                                                                                                                  |                       | $                       | (1,148,612 | )     |      | $ | (2,098,833 | )     |   | $ | (1,352,801 | )    
|                                                                                                                                             |                       |                         |            |       |      |   |            |       |  
|Earnings (loss) per share:                                                                                                                   |                       |                         |            |       |      |   |            |       |   |   |            |      
|                                                                                                                                             | Basic  as reported   |                         | $          | (0.14 | )    |   | $          | (0.30 | ) |   | $          | (0.18 | )
|                                                                                                                                             | Basic  pro forma     |                         | $          | (0.16 | )    |   | $          | (0.34 | ) |   | $          | (0.21 | )
|                                                                                                                                             | Diluted  as reported |                         | $          | (0.14 | )    |   | $          | (0.30 | ) |   | $          | (0.18 | )
|                                                                                                                                             | Diluted  pro forma   |                         | $          | (0.16 | )    |   | $          | (0.34 | ) |   | $          | (0.21 | )

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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




|                                      |  |      |        |   |      |  |        |      |  |  |        |  
|------------------------------------- |  | ---- | ------ | - | ---- |  | ------ | ---- |  |  | ------ | -
|                                      |  | 2004 |        |   | 2003 |  |        | 2002 | 
|                                      |  |      |        |   |      |  |        |      | 
|Expected life of option               |  |      | 5 yrs. |   |      |  | 5 yrs. |      |  |  | 5 yrs. |  
|Risk-free interest rate               |  |      | 3.88   | % |      |  | 2.63   | %    |  |  | 3.25   | %
|Volatility of the Companys stock     |  |      | 52.0   | % |      |  | 52.5   | %    |  |  | 63.3   | %
|Dividend yield on the Companys stock |  |      | 0.0    | % |      |  | 0.0    | %    |  |  | 0.0    | %



|                                                  |  |      |        |  |      |   |        |      |  |   |         | 
|------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | ---- |  | - | ------- | 
|                                                  |  | 2004 |        |  | 2003 |   |        | 2002 | 
|                                                  |  |      |        |  |      |   |        |      | 
|Total number of options granted                   |  |      | 16,000 |  |      |   | 12,000 |      |  |   | 296,800 | 
|Estimated fair value of each option granted       |  | $    | 1.08   |  |      | $ | 0.97   |      |  | $ | 1.04    | 
|Total estimated fair value of all options granted |  | $    | 17,000 |  |      | $ | 12,000 |      |  | $ | 309,000 | 





| |                          
| | -------------------------
| | 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,
Chapter 4.


Share-Based Payment,




|   |            
|-- | -----------
|3. | Inventories



|                        |  |              |           |  |      |   |           | 
|----------------------- |  | ------------ | --------- |  | ---- | - | --------- | 
|                        |  | December 31, |          
|                        |  |              |          
|                        |  | 2004         |           |  | 2003 |  
|                        |  |              |           |  |      |  
|Raw materials           |  | $            | 1,122,290 |  |      | $ | 1,184,733 | 
|Work in process         |  |              | 833,846   |  |      |   | 900,388   | 
|Finished goods          |  |              | 350,543   |  |      |   | 408,561   | 
|Promotional merchandise |  |              | 480,338   |  |      |   | 631,147   | 
|Packaging materials     |  |              | 213,292   |  |      |   | 217,177   | 
|                        |  |              |           |  |      |  
|                        |  | $            | 3,000,309 |  |      | $ | 3,342,006 | 
|                        |  |              |           |  |      |  



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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




|   |             
|-- | ------------
|4. | Fixed Assets



|                                               |  |              |            |  |      |   |            | 
|---------------------------------------------- |  | ------------ | ---------- |  | ---- | - | ---------- | 
|                                               |  | December 31, |           
|                                               |  |              |           
|                                               |  | 2004         |            |  | 2003 |  
|                                               |  |              |            |  |      |  
|Brewery equipment                              |  | $            | 46,191,232 |  |      | $ | 45,941,954 | 
|Buildings                                      |  |              | 35,753,363 |  |      |   | 35,753,363 | 
|Land and improvements                          |  |              | 4,601,427  |  |      |   | 4,601,427  | 
|Furniture, fixtures and other equipment        |  |              | 2,094,100  |  |      |   | 2,055,809  | 
|Vehicles                                       |  |              | 81,730     |  |      |   | 81,730     | 
|Construction in progress                       |  |              | 2,096      |  |      |   | 37,567     | 
|                                               |  |              |            |  |      |  
|                                               |  |              | 88,723,948 |  |      |   | 88,471,850 | 
|Less accumulated depreciation and amortization |  |              | 25,705,142 |  |      |   | 22,772,192 | 
|                                               |  |              |            |  |      |  
|                                               |  | $            | 63,018,806 |  |      | $ | 65,699,658 | 
|                                               |  |              |            |  |      |  



|   |                          
|-- | -------------------------
|5. | Craft Brands Alliance LLC









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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




Exhibits and Financial Statement Schedules






|   |     
|-- | ----
|6. | Debt



|                                                                                                                                    |  |              |           |   |      |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                                                                                                                    |  | December 31, |          
|                                                                                                                                    |  |              |          
|                                                                                                                                    |  | 2004         |           |   | 2003 |  
|                                                                                                                                    |  |              |           |   |      |  
|Term Loan, payable to bank monthly at $37,500 plus accrued
    interest; interest at 4.2% at December 31, 2004 due
    June 5, 2007 |  | $            | 5,625,000 |   |      | $ | 6,075,000 |  
|Current portion                                                                                                                     |  |              | (450,000  | ) |      |   | (450,000  | )
|                                                                                                                                    |  |              |           |   |      |  
|                                                                                                                                    |  | $            | 5,175,000 |   |      | $ | 5,625,000 |  
|                                                                                                                                    |  |              |           |   |      |  



|     |  |   |           | 
|---- |  | - | --------- | 
|2005 |  |   | 450,000   | 
|2006 |  |   | 450,000   | 
|2007 |  |   | 4,725,000 | 
|     |  |   |          
|     |  | $ | 5,625,000 | 
|     |  |   |          



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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)










|   |                                       
|-- | --------------------------------------
|7. | Convertible Redeemable Preferred Stock



|                                                                                                                                                        |  |              |   |      |  |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - | ---- |  | - | ---------- | 
|                                                                                                                                                        |  | December 31, |  
|                                                                                                                                                        |  |              |  
|                                                                                                                                                        |  | 2004         |   | 2003 | 
|                                                                                                                                                        |  |              |   |      | 
|Series B, par value $0.005 per share, issued and
    outstanding, no shares in 2004 and 1,289,872 shares in
    2003; net of unamortized offering costs |  | $            |  |      |  | $ | 16,232,655 | 
|                                                                                                                                                        |  |              |   |      |  |  





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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)






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



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









| |                           
| | --------------------------
| | 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, 2002   |           |           | 1,208,092 |          |          | $ | 4.27 |             |  |  | 439,622  |  |  | $ | 7.57 | 
|                             | Granted   |           |           | 296,800  |          |   |      | 2.03        |  |  |          |  |  |   |      |  | 
|                             | Exercised |           |           |         |          |   |      |            |  |  |          |  |  |   |      |  | 
|                             | Canceled  |           |           | (97,290  | )        |   |      | 5.16        |  |  |          |  |  |   |      |  | 
|                             |           |           |           |          |          |   |      |             |  |  |          | 
|Balance at December 31, 2002 |           |           | 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 | 
|                             |           |           |           |          |          |   |      |             |  |  |          | 



|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |         |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | --------- | ------------------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | ------- |  |  | - | ----- | 
|                         |  | 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          |  |                     | 36,000    |           |                     |  | 5.72     |          |  | $ | 1.60        |          |  |          | 27,250  |  |  | $ | 1.61  | 
|1.87 to   1.87           |  |                     | 446,630   |           |                     |  | 6.59     |          |  |   | 1.87        |          |  |          | 242,610 |  |  |   | 1.87  | 
|2.02 to   2.02           |  |                     | 219,901   |           |                     |  | 7.64     |          |  |   | 2.02        |          |  |          | 81,901  |  |  |   | 2.02  | 
|2.18 to   2.45           |  |                     | 37,999    |           |                     |  | 8.54     |          |  |   | 2.36        |          |  |          | 37,999  |  |  |   | 2.36  | 
|3.97 to   3.97           |  |                     | 176,400   |           |                     |  | 4.31     |          |  |   | 3.97        |          |  |          | 176,400 |  |  |   | 3.97  | 
|5.73 to  25.50           |  |                     | 137,600   |           |                     |  | 2.13     |          |  |   | 10.83       |          |  |          | 137,600 |  |  |   | 10.83 | 
|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |        
|$1.49 to $25.50          |  |                     | 1,054,530 |           |                     |  | 5.89     |          |  | $ | 3.43        |          |  |          | 703,760 |  |  | $ | 4.18  | 
|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |        





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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, |          
|                                           |                                                |                         |          
|                                           |                                                | 2004                    |           |          | 2003 |   |            | 2002       |  
|                                           |                                                |                         |           |          |      |   |            |            |  
|Net income (loss)                          |                                                | $                       | (953,894  | )        |      | $ | (1,838,613 | )          |   | $ | (1,133,283 | )         
|Preferred stock accretion                  |                                                |                         | (22,200   | )        |      |   | (44,400    | )          |   |   | (44,400    | )         
|                                           |                                                |                         |           |          |      |   |            |            |  
|                                           | Income (loss) available to common stockholders |                         | $         | (976,094 | )    |   | $          | (1,883,013 | ) |   | $          | (1,177,683 | )
|                                           |                                                |                         |           |          |      |   |            |            |  
|Weighted-average common shares outstanding |                                                |                         | 7,228,674 |          |      |   | 6,243,208  |            |   |   | 6,689,189  |           
|                                           |                                                |                         |           |          |      |   |            |            |  
|                                           | Basic and diluted earnings (loss) per share    |                         | $         | (0.14    | )    |   | $          | (0.30      | ) |   | $          | (0.18      | )
|                                           |                                                |                         |           |          |      |   |            |            |  





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



|         |  |                         |        |  |      |   |        |      |  |   |          |  
|-------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | -------- | -
|         |  | Year Ended December 31, |       
|         |  |                         |       
|         |  | 2004                    |        |  | 2003 |   |        | 2002 | 
|         |  |                         |        |  |      |   |        |      | 
|Current  |  | $                       | 30,000 |  |      | $ | 29,801 |      |  | $ | 30,344   |  
|Deferred |  |                         |       |  |      |   |       |      |  |   | (155,954 | )
|         |  |                         |        |  |      |   |        |      | 
|         |  | $                       | 30,000 |  |      | $ | 29,801 |      |  | $ | (125,610 | )
|         |  |                         |        |  |      |   |        |      | 

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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)






|                                                         |  |                         |       |    |      |  |       |      |  |  |       |  
|-------------------------------------------------------- |  | ----------------------- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | -
|                                                         |  | Year Ended December 31, |      
|                                                         |  |                         |      
|                                                         |  | 2004                    |       |    | 2003 |  |       | 2002 | 
|                                                         |  |                         |       |    |      |  |       |      | 
|Federal statutory rate                                   |  |                         | 34.0  | %  |      |  | 34.0  | %    |  |  | 34.0  | %
|State taxes, net of federal benefit                      |  |                         | 2.7   |    |      |  | 2.7   |      |  |  | 2.6   |  
|Permanent differences, primarily meals and entertainment |  |                         | (6.9  | )  |      |  | (3.8  | )    |  |  | (4.8  | )
|Other items, net                                         |  |                         | 22.8  |    |      |  | 0.2   |      |  |  | (0.3  | )
|Valuation allowance                                      |  |                         | (55.9 | )  |      |  | (34.7 | )    |  |  | (21.5 | )
|                                                         |  |                         |       |    |      |  |       |      | 
|                                                         |  |                         | (3.3  | )% |      |  | (1.6  | )%   |  |  | 10.0  | %
|                                                         |  |                         |       |    |      |  |       |      | 



|                           |                                  |              |            |            |      |   |            |            |  
|-------------------------- | -------------------------------- | ------------ | ---------- | ---------- | ---- | - | ---------- | ---------- | -
|                           |                                  | December 31, |           
|                           |                                  |              |           
|                           |                                  | 2004         |            |            | 2003 |  
|                           |                                  |              |            |            |      |  
|Deferred tax liabilities:  |                                  |              |            |            |      |   |            |           
|                           | Tax-over-book depreciation       |              | $          | 11,074,306 |      |   | $          | 11,373,318 |  
|                           | Other                            |              |            | 150,716    |      |   |            | 119,213    |  
|                           |                                  |              |            |            |      |  
|                           |                                  |              | 11,225,022 |            |      |   | 11,492,531 |           
|Deferred tax assets:       |                                  |              |            |            |      |   |            |           
|                           | NOL and AMT credit carryforwards |              |            | 11,468,505 |      |   |            | 11,542,567 |  
|                           | Other                            |              |            | 441,503    |      |   |            | 218,849    |  
|                           | Valuation allowance              |              |            | (1,153,784 | )    |   |            | (737,683   | )
|                           |                                  |              |            |            |      |  
|                           |                                  |              | 10,756,224 |            |      |   | 11,023,733 |           
|                           |                                  |              |            |            |      |  
|Net deferred tax liability |                                  | $            | 468,798    |            |      | $ | 468,798    |           
|                           |                                  |              |            |            |      |  





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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)






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





|           |  |   |            | 
|---------- |  | - | ---------- | 
|2005       |  | $ | 271,584    | 
|2006       |  |   | 268,784    | 
|2007       |  |   | 266,701    | 
|2008       |  |   | 266,701    | 
|2009       |  |   | 266,701    | 
|Thereafter |  |   | 12,101,633 | 
|           |  |   |           
|           |  | $ | 13,442,104 | 
|           |  |   |           











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



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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




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



















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REDHOOK ALE BREWERY, INCORPORATED


NOTES TO FINANCIAL STATEMENTS  (Continued)




Widmer Hefeweizen




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

|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |   |  |   |        |  |  |   |        |  
|----------------------------------------------- |  | ---------------------------------------- | ----- | - | ------------------ | - | ----- | ------- |  | - | ------- | - |  | ------- | ----- | - | -------- | - | ------ | ------- |  | - | ------- | - |  | - | ------ |  |  | - | ------ | -
|                                                |  | 2004 Quarter Ended                       |       |   | 2003 Quarter Ended |  
|                                                |  |                                          |       |   |                    |  
|                                                |  | Dec. 31                                  |       |   | Sept. 30           |   |       | June 30 |  |   | Mar. 31 |   |  | Dec. 31 |       |   | Sept. 30 |   |        | June 30 |  |   | Mar. 31 |  
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|                                                |  | (In thousands, except per share amounts) |      
|Sales                                           |  | $                                        | 7,016 |   |                    | $ | 8,790 |         |  | $ | 11,443  |   |  | $       | 9,391 |   |          | $ | 10,099 |         |  | $ | 11,110  |   |  | $ | 12,332 |  |  | $ | 8,671  |  
|Less Excise Taxes                               |  |                                          | 666   |   |                    |   | 878   |         |  |   | 952     |   |  |         | 771   |   |          |   | 828    |         |  |   | 868     |   |  |   | 1,068  |  |  |   | 733    |  
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|Net Sales                                       |  |                                          | 6,350 |   |                    |   | 7,912 |         |  |   | 10,491  |   |  |         | 8,620 |   |          |   | 9,271  |         |  |   | 10,242  |   |  |   | 11,264 |  |  |   | 7,938  |  
|Cost of Sales                                   |  |                                          | 6,167 |   |                    |   | 6,951 |         |  |   | 7,479   |   |  |         | 6,575 |   |          |   | 7,412  |         |  |   | 7,178   |   |  |   | 7,844  |  |  |   | 6,267  |  
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|Gross Profit                                    |  |                                          | 183   |   |                    |   | 961   |         |  |   | 3,012   |   |  |         | 2,045 |   |          |   | 1,859  |         |  |   | 3,064   |   |  |   | 3,420  |  |  |   | 1,671  |  
|Selling, General and Administrative Expenses    |  |                                          | 1,255 |   |                    |   | 1,310 |         |  |   | 2,546   |   |  |         | 2,528 |   |          |   | 2,683  |         |  |   | 3,236   |   |  |   | 2,937  |  |  |   | 2,833  |  
|Income from Equity Investment in Craft Brands   |  |                                          | 466   |   |                    |   | 658   |         |  |   |        |   |  |         |      |   |          |   |       |         |  |   |        |   |  |   |       |  |  |   |       |  
|Craft Brands Alliance Shared Formation Expenses |  |                                          |      |   |                    |   | (2    | )       |  |   | 131     |   |  |         | 407   |   |          |   |       |         |  |   |        |   |  |   |       |  |  |   |       |  
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|Operating Income (Loss)                         |  |                                          | (606  | ) |                    |   | 311   |         |  |   | 335     |   |  |         | (890  | ) |          |   | (824   | )       |  |   | (172    | ) |  |   | 483    |  |  |   | (1,162 | )
|Interest Expense                                |  |                                          | 55    |   |                    |   | 48    |         |  |   | 43      |   |  |         | 44    |   |          |   | 45     |         |  |   | 46      |   |  |   | 50     |  |  |   | 51     |  
|Other Income (Expense)  Net                    |  |                                          | 33    |   |                    |   | 59    |         |  |   | 11      |   |  |         | 13    |   |          |   | 18     |         |  |   | 7       |   |  |   | 15     |  |  |   | 19     |  
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|Income (Loss) before Income Taxes               |  |                                          | (628  | ) |                    |   | 322   |         |  |   | 303     |   |  |         | (921  | ) |          |   | (851   | )       |  |   | (211    | ) |  |   | 448    |  |  |   | (1,194 | )
|Income Tax Provision (Benefit)                  |  |                                          | 10    |   |                    |   | 10    |         |  |   | 10      |   |  |         |      |   |          |   | 30     |         |  |   |        |   |  |   |       |  |  |   |       |  
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|Net Income (Loss)                               |  | $                                        | (638  | ) |                    | $ | 312   |         |  | $ | 293     |   |  | $       | (921  | ) |          | $ | (881   | )       |  | $ | (211    | ) |  | $ | 448    |  |  | $ | (1,194 | )
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|Basic Earnings (Loss) per Share                 |  | $                                        | (0.08 | ) |                    | $ | 0.04  |         |  | $ | (0.04   | ) |  | $       | (0.15 | ) |          | $ | (0.14  | )       |  | $ | (0.04   | ) |  | $ | 0.07   |  |  | $ | (0.19  | )
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|Diluted Earnings (Loss) per Share               |  | $                                        | (0.08 | ) |                    | $ | 0.04  |         |  | $ | (0.04   | ) |  | $       | (0.15 | ) |          | $ | (0.14  | )       |  | $ | (0.04   | ) |  | $ | 0.06   |  |  | $ | (0.19  | )
|                                                |  |                                          |       |   |                    |   |       |         |  |   |         |   |  |         |       |   |          |   |        |         |  |   |         |  
|Barrels Shipped                                 |  |                                          | 47.2  |   |                    |   | 57.1  |         |  |   | 62.0    |   |  |         | 50.2  |   |          |   | 54.6   |         |  |   | 58.7    |   |  |   | 67.9   |  |  |   | 47.7   |  

61



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














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










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



62



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##### Table of Contents



PART III.







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












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








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|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     |       |                      | 1,054,530 |           |                      | $                    | 3.43                |                          |  |  | 87,109 |       
|Equity compensation plans not approved by security holders |       |                      |          |           |                      |                      |                    |                          |  |  |       |       
|                                                           |       |                      |           |           |                      |                      |                     |                          | 
|                                                           | Total |                      |           | 1,054,530 |                      |                      | $                   | 3.43                     |  |  |        | 87,109 | 
|                                                           |       |                      |           |           |                      |                      |                     |                          | 








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



63



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##### Table of Contents








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



PART IV.







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



Audited Financial
Statements


|                                                                                                   |  |      |    | 
|-------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                   |  | Page |   
|                                                                                                   |  |      |   
|Report of Moss-Adams LLP, Independent Registered Public
    Accountants                            |  |      | 40 | 
|Report of Ernst & Young LLP, Independent Registered
    Public Accounting Firm                     |  |      | 41 | 
|Balance Sheets as of December 31, 2004 and 2003                                                    |  |      | 42 | 
|Statements of Operations for the Years Ended December 31,
    2004, 2003 and 2002                  |  |      | 43 | 
|Statements of Common Stockholders Equity for the Years
    Ended December 31, 2004, 2003 and 2002 |  |      | 44 | 
|Statements of Cash Flows for the Years Ended December 31,
    2004, 2003 and 2002                  |  |      | 45 | 
|Notes to Financial Statements                                                                      |  |      | 46 | 

Financial Statement
Schedules


|                                                                                                               |  |      |    | 
|-------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                               |  | Page |   
|                                                                                                               |  |      |   
|Report of Moss-Adams LLP, Independent Registered Public
    Accountants                                        |  |      | 70 | 
|Craft Brands Alliance LLC Balance Sheet as of December 31,
    2004                                            |  |      | 71 | 
|Craft Brands Alliance LLC Statement of Income from Inception
    (July 1, 2004) through December 31, 2004      |  |      | 72 | 
|Craft Brands Alliance Statement of Members Equity from
    Inception (July 1, 2004) through December 31, 2004 |  |      | 73 | 
|Craft Brands Alliance Statement of Cash Flows from Inception
    (July 1, 2004) through December 31, 2004      |  |      | 74 | 
|Notes to Financial Statements                                                                                  |  |      | 75 | 



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All other Financial Statement Schedules are omitted because they
    are not applicable or the required information is shown in the
    Financial Statements and Notes.

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)     

64



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| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | 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                                                                                                                                                                     
|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                                                                                                                                                           
|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                                                                                                                                                       
|10.11 |  | Form of Stock Option Agreement (Executive Officer Grants) for
    Registrants 2002 Stock Option Plan                                                                                                                                               
|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 |  | 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)                                 
|10.14 |  | 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)                                  
|10.15 |  | 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)                                 

65



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|      |  |                                                                                                                                                                                                               
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.16 |  | 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)
|10.17 |  | 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)  
|10.18 |  | Summary Sheet of Director Compensation and Executive Cash
    Compensation                                                                                                                                    



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

|      |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.19 |  | 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)                                                                                                                                                                  
|10.20 |  | 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)                                                                                                                                                         
|10.21 |  | 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)*                                                                                                                                                              
|10.22 |  | 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)                                                                                                  
|10.23 |  | 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)                                                                                                                                                                            
|10.24 |  | 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)                                                                                
|10.25 |  | 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)                                                                                                                                                                         
|10.26 |  | 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)                                                                                                                                                                      
|10.27 |  | Multi-Tenant Lease between the Quadrant Corporation and
    Registrant, dated June 1, 1987, as amended,
    November 5, 1987, February 1, 1988, March 29,
    1988, June 27, 1988, October 27, 1988, June 18,
    1991, October 1, 1991, December 22, 1992 and
    March 31,1993 (Incorporated by reference from
    Exhibit 10.9 to the Companys Registration Statement
    on Form S-1, No. 33-94166)
|10.28 |  | 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)                                                                                                                                                                  
|10.29 |  | 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)                                                                                                                                        
|10.30 |  | 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)                                                                                                                                         
|10.31 |  | 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)                                                                        

66



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.32 |  | 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)                                                                         
|10.33 |  | 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)                                                                                                
|10.34 |  | 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)                                                                                                            
|10.35 |  | 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)                                                                                                                    
|10.36 |  | 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)                                                                                                               
|10.37 |  | 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)                                                                                                                  
|10.38 |  | 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)                                                                                                                  
|10.39 |  | 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)                                                                                                          
|10.40 |  | 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)                                                                                                          
|10.41 |  | 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)                                                                                                                
|10.42 |  | 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)                                                                                                                                                  
|10.43 |  | 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)*                                                                                                                                                             
|10.44 |  | 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)                                                                                                                                                             
|10.45 |  | 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)*                                                                                                                                                
|10.46 |  | 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)*                                                                                                                                                  
|10.47 |  | 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)

67



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| |                                                                
| | ---------------------------------------------------------------
| | 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 and 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.

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SIGNATURES






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



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

| |                            
| | ---------------------------
| |                            
| | David J. Mickelson         
| | Executive Vice President,  
| | Chief Financial Officer and
| | Chief Operating Officer    



|                                               |  |                                                                                                                     |  |                |  | 
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                      |  | Title                                                                                                               |  | Date          
|                                               |  |                                                                                                                     |  |               
|/s/ Paul S. ShipmanPaul
    S. Shipman         |  | President, Chief Executive Officer and Chairman of the Board
    (Principal Executive Officer)                      |  | March 30, 2005
|                                              
|/s/ David J. MickelsonDavid
    J. Mickelson   |  | Executive Vice President, Chief Financial Officer and Chief
    Operating Officer
    (Principal Financial Officer) |  | March 30, 2005
|                                              
|/s/ Lorri L. JonesLorri
    L. Jones           |  | Controller and Treasurer
    (Principal Accounting Officer)                                                         |  | March 30, 2005
|                                              
|/s/ Frank H. ClementFrank
    H. Clement       |  | Director                                                                                                            |  | March 30, 2005
|                                              
|/s/ Jerry D. JonesJerry
    D. Jones           |  | Director                                                                                                            |  | March 30, 2005
|                                              
|/s/ David R. LordDavid
    R. Lord             |  | Director                                                                                                            |  | March 30, 2005
|                                              
|/s/ Patrick J. McGauleyPatrick
    J. McGauley |  | Director                                                                                                            |  | March 30, 2005
|                                              
|/s/ John D. Rogers, Jr.John
    D. Rogers, Jr. |  | Director                                                                                                            |  | March 30, 2005
|                                              
|/s/ Anthony J. ShortAnthony
    J. Short       |  | Director                                                                                                            |  | March 30, 2005

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS



















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##### Table of Contents



CRAFT BRANDS ALLIANCE LLC


BALANCE SHEET


December 31, 2004


|                                |                           |   |           |           | 
|------------------------------- | ------------------------- | - | --------- | --------- | 
|ASSETS                         
|                               
|Current Assets                  |                           |   |           |          
|                                | Cash and Cash Equivalents |   | $         | 146,423   | 
|                                | Accounts Receivable, net  |   |           | 1,916,879 | 
|                                | Inventory                 |   |           | 754,778   | 
|                                | Prepaid Expenses          |   |           | 111,678   | 
|                                |                           |   |          
|                                |                           | $ | 2,929,758 |          
|                                |                           |   |          
|                               
|LIABILITIES AND MEMBERS EQUITY
|                               
|Current Liabilities             |                           |   |           |          
|                                | Accounts Payable          |   | $         | 1,982,340 | 
|                                | Other Accrued Expenses    |   |           | 673,352   | 
|                                |                           |   |          
|                                |                           |   | 2,655,692 |          
|Members Equity                 |                           |   | 274,066   |          
|                                |                           |   |          
|                                |                           | $ | 2,929,758 |          
|                                |                           |   |          



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CRAFT BRANDS ALLIANCE LLC


STATEMENT OF INCOME


From Inception (July 1, 2004) through December 31,
2004


|                       |                      |   |            |         |  
|---------------------- | -------------------- | - | ---------- | ------- | -
|Sales                  |                      | $ | 27,777,282 |        
|Cost of Sales          |                      |   | 20,103,807 |        
|                       |                      |   |           
|Gross Profit           |                      |   | 7,673,475  |        
|Operating Expenses     |                      |   | 4,704,232  |        
|                       |                      |   |           
|Income from Operations |                      |   | 2,969,243  |        
|                       |                      |   |           
|Other Income (Expense) |                      |   |            |        
|                       | Interest Expense     |   |            | (3,347  | )
|                       | Miscellaneous Income |   |            | 108     |  
|                       | Royalty Expense      |   |            | (97,294 | )
|                       |                      |   |           
|                       |                      |   | (100,533   | )      
|                       |                      |   |           
|Net Income             |                      | $ | 2,868,710  |        
|                       |                      |   |           



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CRAFT BRANDS ALLIANCE LLC


STATEMENT OF MEMBERS EQUITY


From Inception (July 1, 2004) through December 31,
2004


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



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CRAFT BRANDS ALLIANCE LLC


STATEMENTS OF CASH FLOWS


From Inception (July 1, 2004) through December 31,
2004


|                                          |                                          |                                             |            |         |            |  
|----------------------------------------- | ---------------------------------------- | ------------------------------------------- | ---------- | ------- | ---------- | -
|Cash Flows from Operating Activities      |                                          |                                             |            |        
|Net Income                                |                                          | $                                           | 2,868,710  |        
|Changes in Assets and Liabilities         |                                          |                                             |            |        
|                                          |                                          | Accounts Receivable                         |            |         | (1,916,879 | )
|                                          |                                          | Inventory                                   |            |         | (754,778   | )
|                                          |                                          | Prepaid Expenses                            |            |         | (111,678   | )
|                                          |                                          | Accounts Payable and Other Accrued Expenses |            |         | 2,655,692  |  
|                                          |                                          |                                             |           
|Net Cash from Operating Activities        |                                          |                                             | 2,741,067  |        
|                                          |                                          |                                             |           
|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                       |                                          |                                             | (2,844,844 | )      
|                                          |                                          |                                             |           
|Net Cash from Financing Activities        |                                          |                                             | (2,594,644 | )      
|                                          |                                          |                                             |           
|Net Increase in Cash and Cash Equivalents |                                          |                                             | 146,423    |        
|                                          | Beginning of Period                      |                                             |            |        |           
|                                          |                                          |                                             |           
|                                          | End of Period                            |                                             | $          | 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


December 31, 2004


Note 1  Description of Operations and Summary
of Significant Accounting Policies


Description of Operations


Cash Equivalents


Accounts Receivable


Inventory


|              |  |   |         | 
|------------- |  | - | ------- | 
|Merchandise   |  | $ | 286,989 | 
|Point of Sale |  |   | 467,789 | 
|              |  |   |        
|              |  | $ | 754,778 | 
|              |  |   |        

Income Taxes


Use of Estimates


Concentration of Credit Risk




Fair Value of Financial Instruments


Product Purchase Price


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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS  (Continued)




Advertising


Recent Accounting Pronouncements


Note 2  Company Operating Agreement


















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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS  (Continued)


















Limited Liability Company Profit Distribution 


Master Distributor Agreement with Anheuser-Busch 






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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS  (Continued)


Note 3  Related Party Transactions




|            |  |        |         |  |         |   |         |      |  |   |         |   |  |       |           |  |  |   |           | 
|----------- |  | ------ | ------- |  | ------- | - | ------- | ---- |  | - | ------- | - |  | ----- | --------- |  |  | - | --------- | 
|            |  | Widmer |         |  | Redhook |   |         | Kona |  |   | ABI     |   |  | 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  Members Equity




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



Note 6  Retirement Plan




Note 7  Commitments




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CRAFT BRANDS ALLIANCE LLC


NOTES TO FINANCIAL STATEMENTS  (Continued)


Note 8  Subsequent Events




79