March 1, 2010

Dear Friends:

Firstly, I wish to apologize for not putting out a news letter for many months, but we have had a number of behind the scene changes in the company which have delayed the release of information.

In mid 2008, our President, Dave Voorhies, retired. Dave served as President since 1997 and had been with Bayhawk from its beginning. His presence on the board of directors has been and will be missed. The company by-laws call for the presences of at least four directors to serve. After much discussion and search, we were finally able to reorganize our board in October of 2009. The new broad is composed of the following gentlemen, Daniel Hilker, Ralph Scott, David Schofield, Dean Lynn, Pete Wachob, Roy Roberson, and Karl Zappa. The later three persons are original members of the board elected in 1996.* Presently, Karl Zappa is holding all officer positions in the company and is serving as General Manger overseeing daily operations. It is our hope that the new members of the board will bring fresh ideas regarding the future of the company.

Over the past three years, Bayhawk has demonstrated a rate of growth in sales of approximately eleven percent. This figure is reflective of the entire microbrew industry which is growing annually at roughly ten percent. The company has displayed very modest profitability during this period. Unfortunately, the amount of profit has not been sufficient to provide the company with adequate capital to expand or relocate. In 2009, we were forced to exercise the first option on our lease. This will keep us in the McCormick & Schmick's location for another five years. Our association with the restaurant seriously handicaps our ability to grow. In my opinion, it may be the single most restrictive obstacle to the company's success. When I first came to Bayhawk in 1997, it was estimated that our location was costing the company $50,000 in annual profit. It is my belief that this figure could conservatively be tripled today and maybe exponential. This is due largely to the inefficiency of the location. Our raw materials are not stored on site. The company needs to employ at least one full-time person to handle material from our off-site warehouse to the brewery. We find it more convenient, to work during the hours that the restaurant is not open for business. Of course, this discourages retail sales and exposure to the public. The rent we pay for the brewery is comparable to that of up-scale restaurant space in good economic times. During the negotiation of our option, McCormick's management did not reduce our rent. In our warehouse facility, the owner has seen fit to reduce rent in order to maintain occupancy.

Last year, we introduced our Imperial (Brown) Ale into the Southern California area. It is available in 22oz bottles and has been well received in most of the major package stores selling micro-brewed products. Along with our Porter and California Pale Ale (CPA), the company's bottle sales have displayed a marked increase over previous years. In 2010, we are seriously attempting push forward with a bottled version of our number one selling beer, Hefe Weizen. It is our hope to have a 4-pak available in Southern California before year's end.

In addition to the strides made with our bottled products, Bayhawk has made even greater progress with our draft sales. We now provide all three styles of private label beer to the Claim Jumper restaurant chain. Our stock holders in the Pacific Northwest can enjoy Claim Jumper Red, Honey and Hefe Weizen with the knowledge that the product they are consuming has hometown roots. This is the culmination of 12 years of dogged customer service. The first account I secured in my first weeks at Bayhawk was the Claim Jumper chain brewing their Hefe Weizen. Bayhawk has been the only brewery to brew this beer. The Claim Jumpers have employed no less than 6 different breweries to make their Red and Honey Blonde over the past 12 years. Bayhawk has constantly provided the highest quality product at the lowest price while maintaining an unsurpassed level of customer service.

In the first week of March 2010, we will be adding the Wood Ranch BBQ chain to Southern California to our list of customers. Bayhawk is proud to be the producer of Wood Ranch Honey Blonde. Many of our shareholders know we produce Outback Amber Ale, Lazy Dog Porter, Lazy Dog Hefe Weizen, Lucille's Amber Ale, Honey Blonde, and Hefe Weizen in addition to the Claim Jumper beers. Some may not be aware that our beers are available in the Greater Phoenix area under the Capistrano label, and we are the producers of Tommy Bahama Blonde and Brew. These products are in addition to the afore-mentioned beers. Arizona is our second largest market outside of Southern California.

In order to reduce operating expenses, the company has had to withdraw from unprofitable markets. In 2008, we discontinued operations in Texas. Last year, we withdrew from Illinois, and presently we are closing down operations in Hawaii. Most of the difficulties in market resulted from poor distribution and freight costs. Bayhawk has a philosophy of attempting to maintain a foothold in many markets for the future sale of its products. Unfortunately in the afore mentioned markets, our chain restaurant customers were not selling enough beer to come close to a profitable situation for the company. At present, Bayhawk does not have a budget that would facilitate marketing of its own brands in these states. Grudgingly, it seemed prudent to withdraw and focus the branding of our products in the State of California and our larger secondary markets.

As many of our stockholders are aware during my tenure, Bayhawk has had a philosophy of strength in long term growth. I find it gratifying to receive e-mails from many of you that remind me that my goal has always been a company that will be in business for 100 years. This idea is as true today as it was when I came to Bayhawk in 1997. My forecast for the coming year is for modest growth and profitability.

Thank you for your continued support.

Cheers,

Karl Zappa
President &
General Manager

* No Member of the board of directors holds a majority share of stock or is compensated for their board position.