##### Table of Contents





UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number 0-26542
  REDHOOK ALE BREWERY,
    INCORPORATED
 (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

98072-6950Woodinville, Washington

(Zip Code)(Address of principal executive
    offices)   (425) 483-3232
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, Par Value $0.005 Per Share

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None.
 (Title of Class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
    Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    Company þ   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
    (1)
    Excludes shares held of record on that date by directors and
    executive officers and greater than 10% shareholders of the
    registrant. Exclusion of such shares should not be construed to
    indicate that any such person directly or indirectly possesses
    the power to direct or cause the direction of the management of
    the policies of the registrant.




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##### 





REDHOOK
    ALE BREWERY, INCORPORATED
  FORM 10-K
  TABLE OF
    CONTENTS
  PagePART I.ITEM  1.


Business


1ITEM  1A.


Risk Factors


19ITEM  1B.


Unresolved Staff Comments


26ITEM  2.


Properties


26ITEM  3.


Legal Proceedings


27ITEM  4.


Submission of Matters to a Vote of Security
    Holders


27ITEM  4A.


Executive Officers of the Company


27PART II.ITEM  5.


Market for Registrants Common Equity,
    Related Stockholder Matters  and Issuer Purchases of Equity
    Securities


29ITEM  6.


Selected Financial Data


31ITEM  7.


Managements Discussion and Analysis of
    Financial Condition  and Results of Operations


32ITEM  7A.


Quantitative and Qualitative Disclosures about
    Market Risk


54ITEM  8.


Financial Statements and Supplementary Data


55ITEM  9.


Changes In and Disagreements With Accountants  on
    Accounting and Financial Disclosure


83ITEM 9A(T).


Controls and Procedures


83ITEM 9B.


Other Information


84PART III.ITEM 10.


Directors, Executive Officers and Corporate
    Governance


84ITEM 11.


Executive Compensation


84ITEM 12.


Security Ownership of Certain Beneficial Owners
    and Management  and Related Stockholders Matters


84ITEM 13.


Certain Relationships and Related Transactions,
    and Director Independence


85ITEM 14.


Principal Accountant Fees and Services


85PART IV.ITEM 15.


Exhibits and Financial Statement Schedules


85SIGNATURES


90EXHIBIT 10.20EXHIBIT 10.44EXHIBIT 10.45EXHIBIT 10.48EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 31.3EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 32.3   i




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INFORMATION
    REGARDING FORWARD-LOOKING STATEMENTS
  This annual report on
    Form 10-K
    includes forward-looking statements. Generally, the words
    believe, expect, intend,
    estimate, anticipate,
    project, will and similar expressions or
    their negatives identify forward-looking statements, which
    generally are not historical in nature. These statements are
    based upon assumptions and projections that the Company believes
    are reasonable, but are by their nature inherently uncertain.
    Many possible events or factors could affect the Companys
    future financial results and performance, and could cause actual
    results or performance to differ materially from those
    expressed, including those risks and uncertainties described in
    Item 1A.  Risk Factors and those
    described from time to time in the Companys future reports
    filed with the Securities and Exchange Commission. Caution
    should be taken not to place undue reliance on these
    forward-looking statements, which speak only as of the date of
    this quarterly report.
 PART I.  Item 1.
    Business    Redhook ESB Long Hammer IPA Redhook Blonde Ale Blackhook
    Porter Sunrye Late
    Harvest Autumn Winterhook Copperhook
    Ales Widmer
    Hefeweizen
    Proposed
    Merger with Widmer Brothers Brewing Company
   1




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Form 8-K
  Form 10-K
  Industry
    Background
         2




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Business
    Strategy
      Production of High-Quality Craft Beers.
  Control of Production in Company-Owned
    Breweries.
  Strategic Distribution Relationship with Industry
    Leader.
 3




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A-B
  Sales and Marketing Relationship with Craft Brands Alliance
    LLC.
  Operation of Regional Brewing
    Facilities.
  Promotion of Products.
   4




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Products
      Redhook ESB (ESB). ESB ESB, Redhook
    Long Hammer IPA Widmer Hefeweizen
  Long Hammer IPA (Long Hammer). Long Hammer Long Hammer
  Redhook Blonde Ale.
  Blackhook Porter (Blackhook). Blackhook
  Copperhook Ale (Copperhook). Copperhook
  Redhook Sunrye Ale
    (Sunrye). Sunrye Sunrye
  Late Harvest Autumn Ale (Autumn
    Ale). Autumn Ale Autumn Ale
  Winterhook. Winterhook Winterhook
  Widmer Hefeweizen Widmer
    Hefeweizen
 5




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##### Table of Contents



Widmer Hefeweizen Widmer Hefeweizen Widmer Hefeweizen Widmer Hefeweizen Widmer Hefeweizen
  Pacific Ridge Pacific Ridge Pacific Ridge
  Long
    Hammer, Redhook Blonde Ale
  Brewing
    Operations
  The Brewing Process. Saccharomyces
 6




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Brewing Equipment. 100-barrel 100-barrel, 200-barrel, 600-barrel 300-barrel 400-barrel 100-barrel 100-barrel, 200-barrel 400-barrel 200-barrel 400-barrel
 7




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Packaging.
  Quality Control. on-site on-site
  Ingredients and Raw Materials. Saccharomyces cerevisiae
  Product
    Distribution
           8




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Relationship
    with Anheuser-Busch, Incorporated
     9




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10




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##### Table of Contents



A-Bs
          Fees
    Margin.
    Invoicing Cost.
    Staging Cost and Cooperage Handling
    Charge. A-B
 11




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##### Table of Contents



Inventory Manager Fee.
    Wholesaler Support Center Fee.
      Relationship
    with Craft Brands Alliance LLC
       12




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13




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##### Table of Contents



Consolidation of Variable Interest Entities  an
    Interpretation of ARB No. 51, The Equity Method of Accounting for Investments
    in Common Stock.
 14




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Form 10-K Exhibits and Financial
    Statement Schedules Rule 3-09 Regulation S-X.
  Sales and
    Marketing
      on-site
    on-site Properties
 15




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Seasonality
    Competition
         16




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Long Hammer IPA Long
 17




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##### Table of Contents



Hammer IPA
  Regulation
      Alcoholic
    Beverage Regulation and Taxation
       18




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##### Table of Contents



State
    and Federal Environmental Regulation
    Dram
    Shop Laws
    Trademarks
    Employees
    Item 1A.
    Risk
    Factors    We are dependent upon our continuing relationship with
    Anheuser-Busch, Incorporated.
 19




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Our agreement with A-B contains limitations on our ability to
    engage in or reject certain transactions, including acquisitions
    and changes of control.
  
    issuing equity securities;
    acquiring or selling assets or stock;
    amending our Articles of Incorporation or bylaws;
    granting board representation rights;
    entering into certain transactions with affiliates;
    distributing our products in the U.S. other than through
    A-B, Craft Brands or as provided in the A-B Distribution
    Agreement;
    distributing or licensing the production of any malt beverage
    product in any country outside of the U.S.;
    voluntarily delisting or terminating our listing on the Nasdaq
    Stock Market; or
    disposing of any of our interest in Craft Brands.      Our investment in Craft Brands Alliance LLC may not provide
    anticipated benefits.
  The Operating Agreement requires us to make certain capital
    contributions to support the operations of Craft
    Brands
 20




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The proposed Merger with Widmer Brothers Brewing Company may
    not occur, and failure to complete the transaction may have a
    negative impact on our stock price or our future business and
    financial results.
  
    failure to pursue other beneficial opportunities as a result of
    the focus of management on the merger, without realizing any of
    the anticipated benefits of completing the transaction;
    the market price of our Common Stock might decline; and
    our costs related to the merger, such as legal and accounting
    fees, which total approximately $738,000 through
    December 31, 2007, must be paid even if the merger is not
    completed.     21




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We are dependent on our distributors for the sale of our
    products.
  Changes in state laws regarding distribution arrangements may
    adversely impact our operations.
  Increased competition could adversely affect sales and
    results of operations.
  Future price promotions to generate demand for our products
    may be unsuccessful.
  Due to our concentration of sales in the Pacific Northwest,
    our results of operations and financial condition are subject to
    fluctuations in regional economic conditions.
 22




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Our business is seasonal in nature, and we are likely to
    experience fluctuations in our results of operations and
    financial condition.
  Our gross margins may fluctuate while our expenses remain
    constant.
  An increase in lower margin contract brewing could negatively
    impact our overall profit margins
  We are dependent on contract brewing to keep our production
    facilities operating at an efficient capacity; a decrease in
    contract brewing could have an unfavorable and significant
    financial impact on our financial statements and results of
    operations.
  Changes in consumer preferences or public attitudes about our
    products could reduce demand.
 23




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We are subject to governmental regulations affecting our
    breweries and pubs; the costs of complying with governmental
    regulations, or our failure to comply with such regulations,
    could affect our financial condition and results of
    operations.
      We may experience material losses in excess of insurance
    coverage.
  Declining sales trends could adversely affect brewery
    efficiency and our financial results. Accounting for the Impairment or Disposal of
    Long-Lived
    Assets
 24




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An increase in excise taxes could adversely affect our
    financial condition.
  We may experience a shortage in kegs necessary to distribute
    draft beer.
  Our key raw materials may become significantly more costly
    and adequate supplies may be difficult to
    secure.
  Loss of income tax benefits could negatively impact results
    of operations.
  The loss of the services of certain key personnel could have
    a material adverse effect on operations.
 25




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Litigation risks could have a material adverse effect on our
    financial condition and operations.
  Our common stock price could be subject to significant
    fluctuations
    and/or may
    decline.
  
    the entry into, or termination of, key agreements;
    the loss of key employees;
    the introduction of new products by us or our competitors;
    changes in estimates or recommendations by securities analysts,
    if any, who cover our common stock
    future sales of our common stock;
    variations in our operating results;
    changes in the market values of public companies that operate in
    our business segment;
    general market conditions; and
    domestic economic factors unrelated to our performance.    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    The Washington Brewery. 100-barrel
 26




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##### Table of Contents



The New Hampshire Brewery.
  Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders    Item 4A.
    Executive
    Officers of the Company  Paul S.
    Shipman (55)  Chief Executive Officer and Chairman of
    the Board
      David J.
    Mickelson (48)  President and Chief Operating
    Officer
   27




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Gerard C.
    Prial (53)  Vice President, Sales and Eastern
    Operations
      Allen L.
    Triplett (49)  Vice President, Brewing
      Jay T.
    Caldwell (55)  Chief Financial Officer and
    Treasurer
       28




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PART II.  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


Low2007First quarter

$
7.80


$
5.00Second quarter

$
8.08


$
6.17Third quarter

$
8.21


$
5.68Fourth quarter

$
7.11


$
5.842006First quarter

$
3.74


$
3.10Second quarter

$
4.00


$
3.43Third quarter

$
4.18


$
3.31Fourth quarter

$
5.31


$
3.76      29




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Comparative
    Performance Graph
    
  2002

2003

2004

2005

2006

2007Redhook

$
100


$
126


$
171


$
154


$
253


$
323Peer Group Index

$
100


$
136


$
166


$
190


$
254


$
268Russell 2000 Index

$
100


$
145


$
170


$
176


$
215


$
200    30




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Managements Discussion and Analysis
    of Financial Condition and Results of Operations Form 10-K.
  Year Ended December 31,2007


2006


2005


2004


2003Statement of Operations Data (in thousands, except earnings
    (loss) per share):Sales

$
46,544


$
40,007


$
34,520


$
36,640


$
42,213Less excise taxes


5,074



4,292



3,421



3,268



3,498Net sales


41,470



35,715



31,099



33,372



38,715Cost of sales


36,785



30,918



27,544



27,171



28,702Gross profit


4,685



4,797



3,555



6,201



10,013Selling, general and administrative expenses


8,841



6,848



6,784



7,639



11,689Income from equity investment in Craft Brands


2,826



2,655



2,392



1,123



Craft Brands shared formation expenses














535



Operating income (loss)


(1,330
)


604



(837
)


(850
)


(1,676
)Interest expense


302



347



271



189



192Other income, net


517



384



125



116



59Income (loss) before income taxes


(1,115
)


641



(983
)


(923
)


(1,809
)Income tax provision (benefit)


(176
)


125



217



331



30Net income (loss)

$
(939
)

$
516


$
(1,200
)

$
(1,254
)

$
(1,839
)Basic earnings (loss) per share

$
(0.11
)

$
0.06


$
(0.15
)

$
(0.18
)

$
(0.30
)Diluted earnings (loss) per share

$
(0.11
)

$
0.06


$
(0.15
)

$
(0.18
)

$
(0.30
)Operating Data (in barrels):Beer shipped


316,900



271,600



225,300



216,400



228,800Production capacity, end of period(1)


485,000



460,000



375,000



375,000



375,000Balance Sheet Data (in thousands):Cash and cash equivalents

$
5,527


$
9,435


$
6,436


$
5,590


$
6,123Working capital


5,714



8,310



5,232



3,661



4,511Total assets


71,390



73,841



72,578



74,128



77,131Long-term debt(2)


47



4,786



5,211



5,625



6,075Convertible preferred stock


















16,233Common stockholders equity

$
60,080


$
60,692


$
60,027


$
61,161


$
47,916Preferred shares outstanding


















1,290Common shares outstanding


8,354



8,281



8,223



8,188



6,226     (1)
    
    Based on the Companys estimate of theoretical production
    capacity of brewing equipment, assuming ideal brewing
    conditions, in service as of the end of such period. Amounts do
    not reflect maximum designed production capacity. See
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations.(2)
    
    Includes term loan and capital lease obligations. See
    Note 7 to the Financial Statements included elsewhere
    herein. 31




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
  Craft Brands Alliance LLC
       32




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400-barrel
      Risk Factors
  Proposed
    Merger with Widmer Brothers Brewing Company
   33




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Form 8-K
  Business Combinations.
   34




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##### Table of Contents



Results
    of Operations
    Year Ended December 31,2007


2006


2005Sales


112.2
%


112.0
%


111.0
%Less excise taxes


12.2



12.0



11.0Net sales


100.0



100.0



100.0Cost of sales


88.7



86.6



88.6Gross profit


11.3



13.4



11.4Selling, general and administrative expenses


21.3



19.2



21.8Income from equity investment in Craft Brands


6.8



7.4



7.7Operating income (loss)


(3.2
)


1.6



(2.7
)Interest expense


0.7



1.0



0.9Other income, net


1.2



1.1



0.4Income (loss) before income taxes


(2.7
)


1.7



(3.2
)Income tax provision (benefit)


(0.4
)


0.3



0.7Net income (loss)


(2.3
)%


1.4
%


(3.9
)%   Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
    Year Ended December 31,


Increase /


%2007


2006


(Decrease)


ChangeSales

$
46,543,501


$
40,006,708


$
6,536,793



16.3
%Less excise taxes


5,073,564



4,292,324



781,240



18.2Net sales


41,469,937



35,714,384



5,755,553



16.1Cost of sales


36,785,214



30,918,137



5,867,077



19.0Gross profit


4,684,723



4,796,247



(111,524
)


2.3Selling, general and administrative expenses


8,841,079



6,848,050



1,993,029



29.1Income from equity investment in Craft Brands


2,825,928



2,655,248



170,680



6.4Operating income (loss)


(1,330,428
)


603,445



(1,933,873
)


320.5Interest expense


302,429



346,455



(44,026
)


12.7Other income, net


517,577



384,025



133,552



34.8Income (loss) before income taxes


(1,115,280
)


641,015



(1,756,295
)


274.0Income tax provision (benefit)


(175,794
)


124,850



(300,644
)


240.8Net income (loss)

$
(939,486
)

$
516,165


$
(1,455,651
)


282.0
%  35




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Sales.
  
    An increase in pricing and an increase in shipments in the
    midwest and eastern U.S. resulted in a $1,942,000 increase
    in 2007 sales;
    An overall decrease in pricing and an overall decrease in
    shipments in the western U.S. (not including beer brewed on
    a contract basis) resulted in a $68,000 decrease in sales in
    2007;
    An increase in shipments of beer brewed on a contract basis,
    slightly offset by a decrease in pricing of these shipments,
    contributed to a $4,099,000 increase in sales in 2007; and
    An increase of $807,000 in pub and other sales in 2007.   Shipments.
  Year Ended December 31,2007


2006Draft


Bottle


Total


Draft


Bottle


Total


Increase /Shipments


Shipments


Shipments


Shipments


Shipments


Shipments


(Decrease)


% ChangeA-B


46,100



61,800



107,900



44,600



56,800



101,400



6,500



6.4
%Craft Brands


35,300



86,600



121,900



37,200



85,400



122,600



(700
)


(0.6
)Contract brewing


48,300



33,600



81,900



43,000







43,000



38,900



90.5Pubs and other


3,900



1,300



5,200



3,400



1,200



4,600



600



13.0Total shipped


133,600



183,300



316,900



128,200



143,400



271,600



45,300



16.7
%       36




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Widmer
    Hefeweizen Widmer Hefeweizen Widmer Hefeweizen Widmer
    Hefeweizen Widmer Hefeweizen Widmer Hefeweizen Widmer
    Hefeweizen
  Widmer Hefeweizen
     37




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Pricing and Fees. agreed-upon
       38




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Retail Operations and Other
    Sales.
  Excise Taxes.
  Cost of Sales.
       39




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##### Table of Contents



Widmer
    Hefeweizen
      Selling, General and Administrative
    Expenses. Business Combinations
    Income from Equity Investment in Craft
    Brands.
 40




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##### Table of Contents



Interest Expense.
  Other Income, net.
  Income Taxes.
  Craft
    Brands Alliance LLC
  The
    Equity Method of Accounting for Investments in Common Stock Form 10-K Exhibits and Financial
    Statement Schedules, Rule 3-09 Regulation S-X.
  Sales.
  Cost of Sales.
 41




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Selling, General and Administrative
    Expenses.
  Net Income.
  Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
    Year Ended December 31,


Increase /2006


2005


(Decrease)


% ChangeSales

$
40,006,708


$
34,520,401


$
5,486,307



15.9
%Less excise taxes


4,292,324



3,421,494



870,830



25.5Net sales


35,714,384



31,098,907



4,615,477



14.8Cost of sales


30,918,137



27,543,639



3,374,498



12.3Gross profit


4,796,247



3,555,268



1,240,979



34.9Selling, general and administrative expenses


6,848,050



6,783,821



64,229



0.9Income from equity investment in Craft Brands


2,655,248



2,391,936



263,312



11.0Operating income (loss)


603,445



(836,617
)


1,440,062



172.1Interest expense


346,455



271,460



74,995



27.6Other income, net


384,025



125,308



258,717



206.5Income (loss) before income taxes


641,015



(982,769
)


1,623,784



165.2Income tax provision (benefit)


124,850



217,674



(92,824
)


42.6Net income (loss)

$
516,165


$
(1,200,443
)

$
1,716,608



143.0
%    Sales.
  
    An increase in pricing and increase in shipments in the midwest
    and eastern U.S. resulted in a $3,035,000 increase in sales
    in 2006;
    An increase in pricing and decrease in shipments in the western
    U.S. (not including beer brewed on a contract basis)
    resulted in a $345,000 decrease in sales in 2006;
    An increase in shipments of beer brewed on a contract basis,
    partially offset by a decrease in pricing of these shipments,
    contributed to a $2,483,000 increase in sales in 2006; and
    Pub and other sales increased $204,000 in 2006. 42




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Shipments.
   Year Ended December 31,2006


2005Draft


Bottle


Total


Draft


Bottle


Total


Increase /Shipments


Shipments


Shipments


Shipments


Shipments


Shipments


(Decrease)


% ChangeA-B


44,600



56,800



101,400



39,700



45,400



85,100



16,300



19.2
%Craft Brands


37,200



85,400



122,600



39,900



86,600



126,500



(3,900
)


(3.1
)Contract brewing


43,000







43,000



8,900







8,900



34,100



383.1Pubs and other


3,400



1,200



4,600



3,500



1,300



4,800



(200
)


(4.2
)Total shipped


128,200



143,400



271,600



92,000



133,300



225,300



46,300



20.6
%    Widmer Hefeweizen
    Widmer
    Hefeweizen Widmer Hefeweizen Widmer
    Hefeweizen Widmer Hefeweizen Widmers
 43




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Widmer
    Hefeweizen
  Widmer Hefeweizen
    Pricing and Fees. agreed-upon
   44




---



##### Table of Contents



Retail Operations and Other
    Sales.
  Excise Taxes.
  Cost of Sales.
     45




---



##### Table of Contents



Selling, General and Administrative
    Expenses. Share-Based Payment
    Income from Equity Investment in Craft
    Brands.
  Interest Expense.
  Other Income, Net.
 46




---



##### Table of Contents



Income Taxes.
  Craft
    Brands Alliance LLC
  The
    Equity Method of Accounting for Investments in Common Stock Form 10-K Exhibits and Financial
    Statement Schedules, Rule 3-09 Regulation S-X.
  Sales.
  Cost of Sales. Widmer Hefeweizen
  Selling, General and Administrative
    Expenses.
 47




---



##### Table of Contents



Net Income.
  Outlook
  Widmer Hefeweizen Widmer Hefeweizen
  Liquidity
    and Capital Resources
           48




---



##### Table of Contents



14-30 day
  Contractual Commitments. (in thousands)
   Year Ended December 31,2008


2009


2010


2011


2012


Thereafter


TotalLong-term debt(1)

$
18


$
18


$
12


$
3


$



$



$
51Operating leases(2)


275



269



276



277



278



11,268



12,643Malt and hop commitments(3)


4,024



1,889



1,613



1,245



1,042



885



10,698Other operational commitments(4)


120



36



20



2











178$
4,437


$
2,212


$
1,921


$
1,527


$
1,320


$
12,153


$
23,570     (1)
    
    Represents annual lease payments (including portion of payments
    imputed as interest) on capital lease obligations. Interest on
    capital leases is calculated at the Companys incremental
    borrowing rate at the inception of each lease.(2)
    
    Represents minimum aggregate future lease payments under
    noncancelable operating leases.(3)
    
    Represents purchase commitments to ensure that the Company has
    the necessary supply of malted barley and specialty hops to meet
    future production requirements. Payments for malted barley are
    made as deliveries are received. Hop contracts generally provide
    for payment upon delivery of the product with the balance due on
    any unshipped product during the year following the harvest
    year. The Company believes 49




---



##### Table of Contents



that, based upon its relationships with its hop suppliers, the
    risk of non-delivery is low and that if non-delivery of its
    required supply of hops were to occur, the Company would be able
    to purchase hops to support its operations from other
    competitive sources. Malt and hop commitments in excess of
    future requirements, if any, will not materially affect the
    Companys financial condition or results of operations.(4)
    
    Represents legally-binding production and operating purchase
    commitments.  Certain
    Considerations: Issues and Uncertainties
  Risk Factors
  Critical
    Accounting Policies and Estimates
    Income Taxes. Accounting for Income Taxes
  Accounting for Uncertainty in Income Taxes an
    interpretation of FASB Statement No. 109 Accounting for
    Contingencies
   50




---



##### Table of Contents



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




---



##### Table of Contents



Refundable Deposits on Kegs.
    Revenue Recognition.
  Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes an
    interpretation of FASB Statement No. 109 Accounting for
    Contingencies
  Fair Value Measurements
 52




---



##### Table of Contents



The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115
  Business Combinations. Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51.
  No. 07-1, Accounting for Collaborative Arrangements
 53




---



##### Table of Contents



No. 99-19 No. 07-1 No. 07-1
  Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk     54




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Share-Based Payment
  
    55




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
 BALANCE
    SHEETS  December 31,


December 31,2007


2006ASSETSCurrent assets:Cash and cash equivalents

$
5,526,843


$
9,435,073Accounts receivable, net of allowance for doubtful accounts of
    $95,243 and $68,808 in 2007 and 2006, respectively


3,892,737



1,842,388Trade receivable from Craft Brands


670,469



854,507Inventories, net


2,927,518



2,571,732Deferred income tax asset, net


944,361



506,886Other


1,043,034



203,594Total current assets


15,004,962



15,414,180Fixed assets, net


55,862,297



58,076,434Investment in Craft Brands


415,592



127,555Other assets


107,489



222,573Total assets

$
71,390,340


$
73,840,742LIABILITIES AND COMMON STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
3,148,613


$
2,233,689Trade payable to Craft Brands


416,116



324,900Accrued salaries, wages and payroll taxes


1,524,240



1,547,482Refundable deposits


3,500,200



2,153,127Other accrued expenses


686,261



380,394Current portion of long-term debt and capital lease obligations


15,498



464,648Total current liabilities


9,290,928



7,104,240Long-term debt and capital lease obligations, net of current
    portion


31,118



4,321,616Deferred income tax liability, net


1,762,428



1,548,699Other liabilities


226,123



173,768Common stockholders equity:Common stock, par value $0.005 per share, authorized,
    50,000,000 shares; issued and outstanding,
    8,354,239 shares in 2007 and 8,281,489 shares in 2006


41,771



41,407Additional paid-in capital


69,303,848



68,977,402Retained earnings (deficit)


(9,265,876
)


(8,326,390
)Total common stockholders equity


60,079,743



60,692,419Total liabilities and common stockholders equity

$
71,390,340


$
73,840,742    56




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
 STATEMENTS
    OF OPERATIONS  Year Ended December 31,2007


2006


2005Sales

$
46,543,501


$
40,006,708


$
34,520,401Less excise taxes


5,073,564



4,292,324



3,421,494Net sales


41,469,937



35,714,384



31,098,907Cost of sales


36,785,214



30,918,137



27,543,639Gross profit


4,684,723



4,796,247



3,555,268Selling, general and administrative expenses


8,841,079



6,848,050



6,783,821Income from equity investment in Craft Brands


2,825,928



2,655,248



2,391,936Operating income (loss)


(1,330,428
)


603,445



(836,617
)Interest expense


302,429



346,455



271,460Other income, net


517,577



384,025



125,308Income (loss) before income taxes


(1,115,280
)


641,015



(982,769
)Income tax provision (benefit)


(175,794
)


124,850



217,674Net income (loss)

$
(939,486
)

$
516,165


$
(1,200,443
)Basic earnings (loss) per share

$
(0.11
)

$
0.06


$
(0.15
)Diluted earnings (loss) per share

$
(0.11
)

$
0.06


$
(0.15
)    57




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
 STATEMENTS
    OF COMMON STOCKHOLDERS EQUITY  Common Stock


Additional





Total CommonPar


Paid-In


Retained


StockholdersShares


Value


Capital


Deficit


EquityBalance as of January 1, 2005


8,188,199


$
40,941


$
68,761,766


$
(7,642,112
)

$
61,160,595Issuance of common stock


34,410



172



66,243







66,415Net loss














(1,200,443
)


(1,200,443
)Balance as of December 31, 2005


8,222,609



41,113



68,828,009



(8,842,555
)


60,026,567Issuance of common stock


58,880



294



95,633







95,927Stock-based compensation










53,760







53,760Net income














516,165



516,165Balance as of December 31, 2006


8,281,489



41,407



68,977,402



(8,326,390
)


60,692,419Issuance of common stock


48,550



243



157,167







157,410Stock-based compensation


24,200



121



169,279







169,400Net loss














(939,486
)


(939,486
)Balance as of December 31, 2007


8,354,239


$
41,771


$
69,303,848


$
(9,265,876
)

$
60,079,743    58




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
 STATEMENTS
    OF CASH FLOWS  Year Ended December 31,2007


2006


2005Operating ActivitiesNet income (loss)

$
(939,486
)

$
516,165


$
(1,200,443
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation and amortization


2,863,124



2,999,916



2,938,088Income from equity investment in Craft Brands less than (in
    excess of) cash distributions


(288,037
)


(34,749
)


377,195Stock-based compensation


169,400



53,760



Deferred income taxes


(223,746
)


95,418



176,597(Gain) loss on disposition of fixed assets


(2,791
)






25,631Changes in operating assets and liabilities:Accounts receivable


(2,050,349
)


(544,984
)


(173,929
)Trade receivables from Craft Brands


184,038



(156,235
)


(299,565
)Inventories


(355,786
)


455,988



(27,411
)Other current assets


(839,440
)


299,073



3,661Other assets


112,517



(86,146
)


(131,140
)Accounts payable and other accrued expenses


1,220,791



243,062



(128,676
)Trade payable to Craft Brands


91,216



(42,690
)


(63,499
)Accrued salaries, wages and payroll taxes


(23,242
)


287,659



39,575Refundable deposits


1,626,008



354,850



(85,292
)Other liabilities


52,355



219,420



58,639Net cash provided by operating activities


1,596,572



4,660,507



1,509,431Investing ActivitiesExpenditures for fixed assets


(1,409,681
)


(1,295,668
)


(585,392
)Proceeds from disposition of fixed assets


487,117







305,260Other, net










4,961Net cash used in investing activities


(922,564
)


(1,295,668
)


(275,171
)Financing ActivitiesPrincipal payments on debt and capital lease obligations


(4,739,648
)


(461,302
)


(454,687
)Issuance of common stock


157,410



95,927



66,415Net cash used in financing activities


(4,582,238
)


(365,375
)


(388,272
)Increase (decrease) in cash and cash equivalents


(3,908,230
)


2,999,464



845,988Cash and cash equivalents:Beginning of period


9,435,073



6,435,609



5,589,621End of period

$
5,526,843


$
9,435,073


$
6,435,609Supplemental DisclosuresCash paid for interest

$
332,271


$
343,629


$
263,000Cash paid for taxes

$
53,000


$
52,000


$
42,000Acquisition of fixed assets under capital leases

$



$
36,401


$
40,852    59




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS
  1.
    Nature of
    Operations           60




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  2.
    Agreement
    and Plan of Merger        Form 8-K
  Business Combinations
   61




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  3.
    Significant
    Accounting Policies  Cash
    and Cash Equivalents
    Accounts
    Receivable
    Inventories
  first-in,
  Fixed
    Assets
    Buildings


31 - 40 yearsBrewery equipment


10 - 25 yearsFurniture, fixtures and other equipment


2 - 10 yearsVehicles


5 years   Investment
    in Craft Brands Alliance LLC
  Consolidation of Variable Interest Entities  an
    Interpretation of ARB No. 51
 62




---



##### Table of Contents



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
  Refundable
    Deposits on Kegs
     63




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Revenue
    Recognition
    Excise
    Taxes
    Shipping
    and Handling Costs
    Income
    Taxes
  Accounting for Income Taxes.
  Accounting for Uncertainty in Income Taxes an
    interpretation of FASB Statement No. 109 Accounting for Contingencies
 64




---



##### Table of Contents



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
  Share-Based Payment
  Earnings
    (Loss) per Share
  Earnings per
    Share
 65




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Use of
    Estimates
    Fair
    Value of Financial Instruments
    Recent
    Accounting Pronouncements
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115
  Business Combinations. Business Combinations
 66




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51.
  No. 07-1, Accounting for Collaborative Arrangements No. 99-19 No. 07-1 No. 07-1
  4.
    Inventories    December 31,2007


2006Raw materials

$
537,695


$
666,938Work in process


922,157



622,352Finished goods, net


510,461



247,333Promotional merchandise, net


469,995



538,339Packaging materials


487,210



496,770$
2,927,518


$
2,571,732  67




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    5.
    Fixed
    Assets    December 31,2007


2006Brewery equipment

$
47,081,696


$
46,387,322Buildings


35,846,181



35,838,145Land and improvements


4,604,130



4,601,427Furniture, fixtures and other equipment


2,339,430



2,284,062Vehicles


81,730



81,730Contruction in progress


314,363



460,38990,267,530



89,653,075Less accumulated depreciation and amortization


34,405,233



31,576,641$
55,862,297


$
58,076,434     6.
    Craft
    Brands Alliance LLC       68




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
                Form 10-K Exhibits and Financial Statement Schedules Rule 3-09 Regulation S-X.
 69




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  7.
    Debt and
    Capital Lease Obligations    December 31,2007


2006Term loan, payable to bank monthly at $37,500 plus accrued
    interest; balance repaid December 2007

$



$
4,725,000Various capital lease obligations


46,616



61,26446,616



4,786,264Less current portion, term loan






(450,000
)Less current portion, capital leases


(15,498
)


(14,648
)Less total current portion of term loan and capital leases


(15,498
)


(464,648
)Long-term portion of term loan and capital leases

$
31,118


$
4,321,616     Term
    Loan
    Capital
    Leases Obligations
    2008

$
17,8542009


17,8542010


11,7102011


3,669Thereafter


Total minimum lease payments


51,087Less amount representing interest


(4,471
)Present value of minimum lease payments

$
46,616  70




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    8.
    Common
    Stockholders Equity  Issuance
    of Common Stock
    A-B.
      Shareholder
    Rights Agreement
    Stock
    Plans
     71




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
        Accounting
    for Stock-Based Compensation
  Overview
  Share-Based Payment Accounting for Stock Issued to Employees Accounting for
    Stock-Based Compensation
    Share-Based Payment
 72




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Stock-Based
    Compensation Expense
       73




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Accounting for
    Stock-Based Compensation
  Year EndedDecember 31,2005Net loss as reported

$
(1,200,443
)Add: Stock compensation as reported under APB 25


Less: Stock-based employee compensation expense
    determined under the fair value based method for all options,
    net of related tax effects


(244,585
)Pro forma net loss

$
(1,445,028
)Net loss per shareBasicAs reported

$
(0.15
)Proforma

$
(0.18
)DilutedAs reported

$
(0.15
)Proforma

$
(0.18
)     2006


2005Expected life (years)


0 yrs.



5 yrs.Risk-free interest rate


4.70
%


3.88
%Expected volatility rate


0.00
%


46.0
%Expected dividend yield


0.00
%


0.0
%     2006


2005Total number of options granted


14,000



16,000Estimated fair value of each option granted

$
3.84


$
1.24Total estimated fair value of all options granted

$
54,000


$
20,000    74




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  Stock
    Option Plan Activity
    Weighted


WeightedAverage


AverageShares


Exercise


Remaining


AggregateSubject to


Price per


Contractual


IntrinsicOptions


Share


Life (Years)


ValueOutstanding at January 1, 2005


1,054,530


$
3.43



5.89


$
624,841Granted


16,000


$
3.15Exercised


(34,410
)

$
1.93Canceled


(189,800
)

$
4.92Outstanding at December 31, 2005


846,320


$
3.15



5.08


$
700,258Granted


14,000


$
0.01Exercised


(58,880
)

$
1.63Canceled


(18,000
)

$
17.04Outstanding at December 31, 2006


783,440


$
2.89



4.10


$
1,950,534Granted





$
Exercised


(48,550
)

$
3.24Canceled


(45,750
)

$
7.23Outstanding at December 31, 2007


689,140


$
2.57



3.33


$
2,809,485Exercisable at December 31, 2007


689,140


$
2.57



3.33


$
2,809,485       Average


WeightedNumber


Remaining


AverageOutstanding &


Contractual Life


ExerciseRange of Exercise Prices

Exercisable


(Yrs)


Price$
1.485



to


$1.815


8,000



2.89


$
1.650$
1.816



to


$1.865


322,540



3.59


$
1.865$
1.866



to


$2.180


142,434



4.69


$
2.028$
2.181



to


$3.150


34,666



6.46


$
2.768$
3.151



to


$5.730


181,500



1.21


$
4.263$
1.485



to


$5.730


689,140



3.33


$
2.573    75




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    9.
    Earnings
    (Loss) Per Share    Year Ended December 31,2007


2006


2005Numerator for basic and diluted net income (loss) per
    share  net income (loss)

$
(939,486
)

$
516,165


$
(1,200,443
)Denominator for basic net income (loss) per share 
    weighted average common shares outstanding


8,331,445



8,250,613



8,206,219Dilutive effect of stock options on weighted average common
    shares






274,542



Denominator for diluted net income (loss) per share


8,331,445



8,525,155



8,206,219Basic net income (loss) per share

$
(0.11
)

$
0.06


$
(0.15
)Diluted net income (loss) per share

$
(0.11
)

$
0.06


$
(0.15
)     10.
    Income
    Taxes    Year Ended December 31,2007


2006


2005Current

$
47,952


$
29,432


$
41,077Deferred


(223,746
)


95,418



176,597Income tax provision (benefit)

$
(175,794
)

$
124,850


$
217,674    76




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Federal statutory rate


(34.0
)%


34.0
%


(34.0
)%State taxes, net of federal benefit


(2.3
)


2.9



(2.9
)Permanent differences, primarily meals and entertainment


7.2



11.6



6.8Merger expenses


13.3



Other items, net






11.7



1.1Adjustment to deferred tax asset tax rate






52.4



Valuation allowance






(93.1
)


51.1Effective income tax rate


(15.8
)%


19.5
%


22.1
%       Year Ended December 31,2007


2006Deferred tax liabilities:Tax-over-book depreciation

$
9,058,807


$
9,760,169Other






9,058,807



9,760,169Deferred tax assets:NOL and AMT credit carryforwards


8,781,504



9,405,515Other


518,558



372,163Valuation allowance


(1,059,322
)


(1,059,322
)8,240,740



8,718,356Net deferred tax liability

$
818,067


$
1,041,813Deferred income tax liability, net

$
1,762,428


$
1,548,699Deferred income tax asset, net


944,361



506,886Net deferred tax liability

$
818,067


$
1,041,813    77




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
          11.
    Commitments      2008

$
274,6212009


268,9212010


275,7302011


278,1542012


277,520Thereafter


11,267,525$
12,642,471  78




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
        2008

$
4,024,4612009


1,888,9692010


1,613,1702011


1,245,1502012


1,041,990Thereafter


884,490$
10,698,230     12.
    Employee
    Benefit Plan    13.
    Financial
    Instruments, Major Customers, and Related-Party
    Transactions     79




---



##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
            Pacific Ridge
       80




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##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
        Widmer Hefeweizen Widmer Hefeweizen Widmer Hefeweizen
     81




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##### Table of Contents



REDHOOK
    ALE BREWERY, INCORPORATED
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    14.
    Subsequent
    Events  14-30 day
  15.
    Quarterly
    Financial Data (Unaudited)  2007 Quarter Ended


2006 Quarter EndedDec. 31


Sept. 30


Jun. 30


Mar. 31


Dec. 31


Sept. 30


Jun. 30


Mar. 31(In thousands, except per share amounts)Sales

$
11,160


$
12,357


$
13,470


$
9,557


$
9,381


$
10,813


$
11,144


$
8,669Less excise taxes


1,207



1,285



1,567



1,014



1,046



1,169



1,187



890Net sales


9,953



11,072



11,903



8,543



8,335



9,644



9,957



7,779Cost of sales


9,478



9,654



9,848



7,806



7,554



8,012



8,110



7,242Gross profit


475



1,418



2,055



737



781



1,632



1,847



537Selling, general and administrative expenses


2,231



2,430



2,144



2,036



1,557



1,777



1,800



1,714Income from equity investment in Craft Brands


616



562



970



678



579



743



819



514Operating income (loss)


(1,140
)


(450
)


881



(621
)


(197
)


598



866



(663
)Interest expense


56



81



82



83



88



92



84



83Other income, net


113



121



170



115



185



57



88



54Income (loss) before income taxes


(1,083
)


(410
)


969



(589
)


(100
)


563



870



(692
)Income tax provision (benefit)


(224
)


(121
)


436



(265
)


(93
)


199



11



8Net income (loss)

$
(859
)

$
(289
)

$
533


$
(324
)

$
(7
)

$
364


$
859


$
(700
)Basic earnings (loss) per share

$
(0.10
)

$
(0.03
)

$
0.06


$
(0.04
)

$



$
0.04


$
0.10


$
(0.09
)Diluted earnings (loss) per share

$
(0.10
)

$
(0.03
)

$
0.06


$
(0.04
)

$



$
0.04


$
0.10


$
(0.09
)Barrels shipped


75.8



80.0



95.8



65.3



64.7



72.9



76.0



58.0     Seasonality
   82




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##### Table of Contents



Item 9.
    Changes
    In and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A(T).
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15(e) 15d-15(e)) Form 10-K.
      Changes
    in Internal Control Over Financial Reporting
  Rule 13a-15 15d-15
  Report of
    Management on Internal Control over Financial
    Reporting
  Rule 12a-15.
  Internal Control 
    Integrated Framework
 83




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##### Table of Contents



Item 9B.
    Other
    Information   PART III.  Item 10.
    Directors,
    Executive Officers and Corporate Governance      Form 8-K
  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 SecuritiesRemaining Availablefor Future IssuanceNumber to be Issued


Weighted Average


Under EquityUpon Exercise of


Exercise Price of


Compensation PlansOutstanding


Outstanding


(Excluding SecuritiesPlan Category

Options and Rights (a)


Options and Rights (b)


Reflected in Column (a))(c)Equity compensation plans approved by security holders


689,140


$
2.57



175,759Equity compensation plans not approved by security holders










Total


689,140


$
2.57



175,759    84




---



##### 



Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   PART IV.  Item 15.
    Exhibits
    and Financial Statement Schedules  (a)
    The
    following documents are filed as part of this report:  
  Page1.  Audited Financial Statements Report of Moss Adams LLP, Independent
    Registered Public Accountants


55 Balance Sheets as of December 31, 2007 and 2006


56 Statements of Operations for the Years Ended
    December 31, 2007, 2006 and 2005


57 Statements of Common Stockholders Equity
    for the Years Ended December 31, 2007, 2006 and 2005


58 Statements of Cash Flows for the Years Ended
    December 31, 2007, 2006 and 2005


59 Notes to Financial Statements


602.  Financial Statement Schedules Report of Moss Adams LLP, Independent
    Registered Public Accountants


92 Craft Brands Alliance LLC Balance Sheets as of
    December 31, 2007 and 2006


93 Craft Brands Alliance LLC Statements of Income
    for the Years Ended December 31, 2007 and 2006


94 Craft Brands Alliance LLC Statement of
    Members Equity for the Years Ended December 31, 2007 and
    2006


95 Craft Brands Alliance LLC Statements of Cash
    Flows for the Years Ended December 31, 2007 and 2006


96 Notes to Financial Statements


97    3.
    Exhibits  Regulation S-K:
  EXHIBIT NO. 2 Plan of Purchase, Sale, Reorganization,
    Arrangement, Liquidation or Succession2.1

Agreement and Plan of Merger between the Registrant and Widmer
    Brothers Brewing Company, dated November 13, 2007
    (incorporated by reference from Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K
    filed on November 13, 2007)2.2

Form of
    Lock-Up
    Agreement to be delivered by certain of the shareholders of
    Widmer Brothers Brewing Company (incorporated by reference from
    Exhibit B to the Agreement and Plan of Merger dated
    November 13, 2007, between the Registrant and Widmer
    Brothers Brewing Company, which was filed as Exhibit 2.1 to
    the Registrants Current Report on
    Form 8-K
    filed on November 13, 2007) 85




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##### Table of Contents



EXHIBIT NO. 3 Articles of Incorporation or Bylaws3.1

Amended and Restated Articles of Incorporation of the Registrant
    (incorporated by reference from Exhibit 3.1 to the
    Registrants
    Form 10-Q
    for the quarter ended June 30, 2004)3.2

Amended and Restated Bylaws of the Registrant, dated
    November 30, 2007 (incorporated by reference from
    Exhibit 3.1 to the Registrants Current Report on
    Form 8-K
    filed on December 5, 2007)EXHIBIT NO. 10 Material Contracts10.1

Amended and Restated Directors Stock Option Plan (incorporated
    by reference from Exhibit 10.14 to the Registrants
    Registration Statement on
    Form S-1,
    No. 33-94166)10.2

Amendment dated as of February 27, 1996 to Amended and
    Restated Directors Stock Option Plan (incorporated by reference
    from Exhibit 10.32 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 1996)10.3

Form of Stock Option Agreement for the Directors Stock Option
    Plan (incorporated by reference from Exhibit 10.4 to the
    Registrants
    Form 10-K
    for the year ended December 31, 2004)10.4

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
    Registrants Registration Statement on
    Form S-1,
    No. 33-94166)10.5

Amendment dated as of July 25, 1996 to 1992 Stock Incentive
    Plan, as amended (incorporated by reference from
    Exhibit 10.33 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 1996)10.6

Amendment dated as of February 27, 1996 to the 1992 Stock
    Incentive Plan, as amended (incorporated by reference from
    Exhibit 10.31 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 1996)10.7

Form of Stock Option Agreement for the 1992 Stock Incentive
    Plan, as amended (incorporated by reference from
    Exhibit 10.8 to the Registrants
    Form 10-K
    for the year ended December 31, 2004)10.8

2002 Stock Option Plan (incorporated by reference from the
    Addendum to the Registrants Proxy Statement for its 2002
    Annual Meeting of Shareholders)10.9

Form of Stock Option Agreement (Directors Grants) for the 2002
    Stock Option Plan (incorporated by reference from
    Exhibit 10.10 to the Registrants
    Form 10-K
    for the year ended December 31, 2004)10.10

Form of Stock Option Agreement (Executive Officer Grants) for
    the 2002 Stock Option Plan (incorporated by reference from
    Exhibit 10.11 to the Registrants
    Form 10-K
    for the year ended December 31, 2004)10.11

2007 Stock Incentive Plan (incorporated by reference from the
    Addendum to the Registrants Proxy Statement for its 2007
    Annual Meeting of Shareholders)10.12

Letter of agreement regarding employment between the Registrant
    and Paul Shipman, dated June 23, 2005 (incorporated by
    reference from Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    filed on June 28, 2005)10.13

Employment Agreement between Registrant and Paul S. Shipman,
    dated November 19, 2007 (incorporated by reference from
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on November 21, 2007)10.14

Amended and Restated Employment Agreement between the Registrant
    and Paul S. Shipman, dated February 13, 2008 (incorporated
    by reference from Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    filed on February 19, 2008)10.15

Letter of agreement regarding employment between the Registrant
    and David Mickelson, dated June 23, 2005 (incorporated by
    reference from Exhibit 10.2 to the Registrants
    Current Report on
    Form 8-K
    filed on June 28, 2005)10.16

Letter of agreement regarding employment between the Registrant
    and Allen L. Triplett, dated December 6, 2005 (incorporated
    by reference from Exhibit 10.2 to the Registrants
    Current Report on
    Form 8-K
    filed on December 7, 2005) 86




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##### Table of Contents



10.17

Letter of agreement regarding employment between the Registrant
    and Gerard C. Prial, dated December 6, 2005 (incorporated
    by reference from Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    filed on December 7, 2005)10.18

Letter of agreement regarding employment between the Registrant
    and Gerard C. Prial, dated February 12, 2008 (incorporated
    by reference from Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    filed on February 12, 2008)10.19

Letter of agreement regarding employment between the Registrant
    and Jay T. Caldwell, dated December 10, 2007 (incorporated
    by reference from Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    filed on December 12, 2007)10.20

Summary Sheet of Director Compensation and Executive Cash
    Compensation10.21

Purchasing Agreement dated as of November 21, 2002, between
    the Registrant and Anheuser-Busch, Incorporated (incorporated by
    reference from Exhibit 10.21 to the Registrants
    Form 10-K
    for the year ended December 31, 2002)10.22

Sublease between Pease Development Authority as Sublessor and
    the Registrant as Sublessee, dated May 30, 1995
    (incorporated by reference from Exhibit 10.11 to the
    Registrants Registration Statement on
    Form S-1,
    No. 33-94166)10.23

Assignment of Sublease and Assumption Agreement dated as of
    July 1, 1995, between the Registrant and Redhook of New
    Hampshire, Inc. (incorporated by reference from
    Exhibit 10.24 to the Registrants Registration
    Statement on
    Form S-1,
    No. 33-94166)10.24

Amended and Restated Credit Agreement between U.S. Bank of
    Washington, National Association and the Registrant, dated
    June 5, 1995 (incorporated by reference from
    Exhibit 10.18 to the Registrants Registration
    Statement on
    Form S-1,
    No. 33-94166)10.25

First Amendment dated as of July 25, 1996, to Amended and
    Restated Credit Agreement between U.S. Bank of Washington,
    National Association and the Registrant, dated June 5, 1995
    (incorporated by reference from Exhibit 10.34 to the
    Registrants
    Form 10-Q
    for the quarter ended September 30, 1996,
    No. 0-26542)10.26

Second Amendment to Amended and Restated Credit Agreement
    between U.S. Bank of Washington, National Association and the
    Registrant, dated September 15, 1997 (incorporated by
    reference from Exhibit 10.35 to the Registrants
    Form 10-Q
    for the quarter ended September 30, 1997,
    No. 0-26542)10.27

Third Amendment to Amended and Restated Credit Agreement between
    U.S. Bank of Washington, National Association and the
    Registrant, dated February 22, 1999 (incorporated by
    reference from Exhibit 10.38 to the Registrants
    Form 10-Q
    for the quarter ended March 31, 1999)10.28

Fourth Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and the Registrant, dated
    August 10, 2000 (incorporated by reference from
    Exhibit 10.42 to the Registrants
    Form 10-Q
    for the quarter ended September 30, 2000)10.29

Fifth Amendment to Amended and Restated Credit Agreement between
    U.S. Bank National Association and the Registrant, dated
    June 19, 2001 (incorporated by reference from
    Exhibit 10.44 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 2001)10.30

Sixth Amendment to Amended and Restated Credit Agreement between
    U.S. Bank National Association and the Registrant, dated
    December 31, 2001 (incorporated by reference from
    Exhibit 10.45 to the Registrants
    Form 10-K
    for the year ended December 31, 2001)10.31

Seventh Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and the Registrant, dated
    June 21, 2002 (incorporated by reference from
    Exhibit 10.47 to the Registrants
    Form 10-Q
    for the quarter ended June 30, 2002)10.32

Eighth Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and the Registrant, dated
    March 18, 2003 (incorporated by reference from
    Exhibit 10.1 to the Registrants
    Form 10-Q
    for the quarter ended March 31, 2003)10.33

Ninth Amendment to Amended and Restated Credit Agreement between
    U.S. Bank National Association and the Registrant, dated as of
    October 31, 2003 (incorporated by reference from
    Exhibit 10.34 to the Registrants
    Form 10-K
    for the year ended December 31, 2003) 87




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##### Table of Contents



10.34

Tenth Amendment to Amended and Restated Credit Agreement between
    U.S. Bank National Association and the Registrant, dated as of
    February 9, 2004 (incorporated by reference from
    Exhibit 10.35 to the Registrants
    Form 10-K
    for the year ended December 31, 2003)10.35

Eleventh Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and the Registrant, dated
    as of September 28, 2004 (incorporated by reference from
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on October 26, 2004)10.36

Twelfth Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and the Registrant, dated
    as of January 30, 2006 (incorporated by reference from
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on February 15, 2006)10.37

Thirteenth Amendment to Amended and Restated Credit Agreement
    between U.S. Bank National Association and the Registrant, dated
    as of June 5, 2006 (incorporated by reference from
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on June 8, 2006)10.38

Loan agreement between the Registrant and Bank of America, N.A.,
    dated February 15, 2008 (incorporated by reference from
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on February 19, 2008)10.39

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 Registrants Current Report on
    Form 8-K
    filed on July 2, 2004)10.40

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
    Registrants Current Report on
    Form 8-K
    filed on July 2, 2004)10.41

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
    Registrants Current Report on
    Form 8-K
    filed on July 2, 2004)10.42

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 Registrants Current Report on
    Form 8-K
    filed on July 2, 2004)10.43

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 Registrants Current Report on
    Form 8-K
    filed on July 2, 2004)10.43

Licensing Agreement dated as of February 1, 2003 between
    the Registrant and Widmer Brothers Brewing Company (incorporated
    by reference from Exhibit 10.1 to the Registrants
    Form 10-Q
    for quarter ended March 31, 2006)10.44

Amendment No. 1 to Licensing Agreement between Redhook Ale
    Brewery and Widmer Brothers Brewing Company, dated as of
    June 200510.45

Amendment No. 2 to Licensing Agreement between Redhook Ale
    Brewery and Widmer Brothers Brewing Company, dated as of
    March 1, 200810.46

Manufacturing and Licensing Agreement between the Registrant and
    Widmer Brothers Brewing Company, dated as of August 28,
    2006 (incorporated by reference from Exhibit 10.54 to the
    Form 10-K
    for the year ended December 31, 2006)10.47

Amendment No. 1 to Manufacturing and Licensing Agreement
    between the Registrant and Widmer Brothers Brewing Company,
    dated as of December 31, 2006 (incorporated by reference
    from Exhibit 10.55 to the
    Form 10-K
    for the year ended December 31, 2006)10.48

Amended and Restated Manufacturing and Licensing Agreement
    between the Registrant and Widmer Brothers Brewing Company,
    dated February 28, 2008EXHIBIT NO. 2121.1

Subsidiaries of the Registrant (Incorporated by reference from
    Exhibit 21.1 to the Companys Registration Statement
    on
    Form S-1,
    No. 33-94166) 88




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##### Table of Contents



EXHIBIT NO. 23. Consents of Experts and Counsel23.1

Consent of Moss Adams LLP, Independent Registered Public
    Accounting FirmEXHIBIT NO. 31 Certifications31.1

Certification of Chief Executive Officer of Redhook Ale Brewery,
    Incorporated pursuant to Section 302 of the Sarbanes-Oxley
    Act of 200231.2

Certification of President and Chief Operating Officer of
    Redhook Ale Brewery, Incorporated pursuant to Section 302
    of the Sarbanes-Oxley Act of 200231.3

Certification of Chief Financial Officer of Redhook Ale Brewery,
    Incorporated pursuant to Section 302 of the Sarbanes-Oxley
    Act of 200232.1

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 200232.2

Certification of President and Chief Operating 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 200232.3

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 requested with respect to
    portions of this exhibit. A complete copy of the agreement,
    including the redacted terms, has been separately filed with the
    Securities and Exchange Commission 89




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##### Table of Contents



SIGNATURES    REDHOOK ALE BREWERY, INCORPORATED
  By
    /s/  JAY
    T. CALDWELL   Chief Financial Officer and Treasurer
     Signature

Title

Date/s/  Paul
    S. ShipmanPaul
    S. Shipman

Executive Officer and Chairman of the Board (Principal Executive
    Officer)

March 26, 2008/s/  David
    J. MickelsonDavid
    J. Mickelson

President and Chief Operating Officer (Principal Executive
    Officer)

March 26, 2008/s/  Jay
    T. CaldwellJay
    T. Caldwell

Chief Financial Officer and Treasurer (Principal Financial
    Officer)

March 26, 2008/s/  Frank
    H. ClementFrank
    H. Clement

Director

March 26, 2008/s/  John
    W. GlickJohn
    W. Glick

Director

March 26, 2008/s/  David
    R. LordDavid
    R. Lord

Director

March 26, 2008/s/  Michael
    LoughranMichael
    Loughran

Director

March 26, 2008/s/  John
    D. Rogers, Jr.John
    D. Rogers, Jr.

Director

March 26, 2008/s/  Anthony
    J. ShortAnthony
    J. Short

Director

March 26, 2008  90




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##### Table of Contents



Rule 3-09 Regulation S-X,
  CRAFT
    BRANDS ALLIANCE LLC
 REPORT OF
    INDEPENDENT
    REGISTERED PUBLIC ACCOUNTANTS
    and
    FINANCIAL STATEMENTS
    DECEMBER 31, 2007 AND 2006
 91




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS           
    92




---



##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
 BALANCE
    SHEETS  December 31,2007


2006ASSETSCURRENT ASSETSCash and cash equivalents

$
1,033,993


$
Accounts receivable, less allowance for doubtful accounts of
    $10,000 for 2007 and 2006


5,635,207



4,587,486Inventory


1,099,638



1,959,801Prepaid expenses


148,638



258,775Current assets


7,917,476



6,806,062FIXED ASSETS, net


193,161



67,290OTHER ASSETS, net


36,667



102,667TOTAL ASSETS

$
8,147,304


$
6,976,019LIABILITIES AND MEMBERS EQUITYCURRENT LIABILITIESBank overdraft

$



$
308,477Accounts payable


5,254,738



4,712,043Other accrued expenses


1,899,859



1,647,872Current liabilities


7,154,597



6,668,392COMMITMENTS (NOTE 6)MEMBERS EQUITY


992,707



307,627TOTAL LIABILITIES AND MEMBERS EQUITY

$
8,147,304


$
6,976,019  93




---



##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
 STATEMENTS
    OF INCOME  Years Ended December 31,2007


2006SALES

$
65,358,336


$
58,664,324COST OF SALES


44,087,569



40,453,726Gross profit


21,270,767



18,210,598OPERATING EXPENSES


14,559,331



11,878,976Income from operations


6,711,436



6,331,622OTHER INCOME (EXPENSE)Interest expense


(1,664
)


(117
)Miscellaneous income


18,630



7,125Total other income (expense)


16,966



7,008NET INCOME

$
6,728,402


$
6,338,630  94




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
 STATEMENT
    OF MEMBERS EQUITY  BALANCE, December 31, 2005

$
222,273Net income


6,338,630Profit distributions to members


(6,253,276
)BALANCE, December 31, 2006


307,627Net income


6,728,402Profit distributions to members


(6,043,322
)BALANCE, December 31, 2007

$
992,707  95




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
 STATEMENTS
    OF CASH FLOWS  Years Ended December 31,2007


2006CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
6,728,402


$
6,338,630Depreciation expense


29,847



9,608Amortization expense


11,000



7,333Change in assets and liabilitiesAccounts receivable, net


(1,047,721
)


(1,778,855
)Inventory


860,163



(821,143
)Prepaid expenses


110,137



(104,451
)Cash received from glass molds


55,000



Purchase of glass molds






(110,000
)Accounts payable and other accrued expenses


486,205



2,578,465Net cash from operating activities


7,233,033



6,119,587CASH FLOWS FROM INVESTMENT ACTIVITIESFixed asset additions


(155,718
)


(43,442
)CASH FLOWS FROM FINANCING ACTIVITIESProfit distribution


(6,043,322
)


(6,253,276
)NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS


1,033,993



(177,131
)CASH AND CASH EQUIVALENTS, beginning of year






177,131CASH AND CASH EQUIVALENTS, end of year

$
1,033,993


$
SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest

$
1,664


$
117  96




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
  NOTES TO
    FINANCIAL STATEMENTS
  NOTE 1 
    COMPANY
    OPERATING AGREEMENT                           97




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
          Limited Liability Company Profit Distribution 58%/42%
  Master Distributor Agreement with
    Anheuser-Busch
     98




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  NOTE 2 
    DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES
  Description of operations
  Consolidation
  Cash equivalents
  Accounts receivable
  Inventory
    2007


2006Merchandise/Point of Sale

$
1,099,638


$
1,959,801   Fixed Assets
   99




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    2007


2006Office and data processing equipment

$
169,787


$
83,209General Equipment


48,878



Truck


20,262



Accumulated depreciation


(45,766
)


(15,919
)$
193,161


$
67,290   Other assets
  Income taxes
        Use of estimates
  Concentration of credit risk
 100




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
    Fair value of financial instruments
  Product purchase price 12-months 12-month
  Revenue recognition
  Shipping and handling costs
  Research and Development Expense
  Advertising
  Reclassification
   101




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
  NOTE 3 
    RELATED
    PARTY TRANSACTIONS    For the Year Ended 2007Widmer


Redhook


Kona


A-B


TotalPayables

$
3,280,564


$
666,188


$
293,626


$
459,851


$
4,700,229Receivables

$
313,652


$
416,116


$
181,317


$
4,716,412


$
5,627,497   For the Year Ended 2006Widmer


Redhook


Kona


A-B


TotalPayables

$
2,229,198


$
854,507


$
552,617


$
323,369


$
3,959,691Receivables

$
526,111


$
324,900


$
75,912


$
3,648,334


$
4,575,257   NOTE 4 
    MEMBERS
    EQUITY    Member

# of Units


Initial InvestmentRedhook Ale Brewery


500


$
100Widmer Bros. Brewing Co.


500


$
100       NOTE 5 
    RETIREMENT
    PLAN    NOTE 6 
    COMMITMENTS   102




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##### Table of Contents



CRAFT
    BRANDS ALLIANCE LLC
  NOTES TO
    FINANCIAL STATEMENTS  (Continued)
          2008

$
152,4742009


155,9022010


159,4332011


94,6202012


Thereafter


$
562,429     NOTE 7 
    SUBSEQUENT
    EVENTS   103