##### Table of Contents





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

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

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 0-27116
      Pyramid Breweries
    Inc.
 (exact name of registrant as
    specified in its charter)
  Washington(State or other jurisdiction
    of
    incorporation or organization)

91-1258355(IRS Employer
    Identification No.)   91 South Royal Brougham Way
 Seattle, WA 98134
 (Address of principal executive
    offices)
  (206) 682-8322
 (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 $.01 per share
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
    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




---



##### 





PYRAMID
    BREWERIES INC.
    ANNUAL REPORT ON
    FORM 10-K
    FOR THE YEAR ENDED DECEMBER 31, 2007
   
 PagePART IItem 1.

Business


3Item 1B.

Unresolved Staff Comments


10Item 2.

Properties


10Item 3.

Legal Proceedings


11Item 4.

Submission of Matters to a Vote of Security
    Holders


11PART IIItem 5.

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


11Item 7.

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


12Item 8.

Financial Statements and Supplementary Data


21Item 9.

Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


45Item 9A.

Controls and Procedures


45Item 9B.

Other Information


45PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


46Item 11.

Executive Compensation


46Item 12.

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


46Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


46Item 14.

Principal Accounting Fees and Services


46PART IVItem 15.

Exhibits, Financial Statement Schedules


47Signatures


48Exhibit Index


49EXHIBIT 10.33EXHIBIT 10.34EXHIBIT 10.35EXHIBIT 10.36EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   2




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##### Table of Contents



PART I  Item 1.
    Business  General
  on-site
      (206) 682-8322. www.PyramidBrew.com. www.macsbeer.com.
  Segment
    Financial Information
  Form 10-K.
    Industry
    Background
   3




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##### Table of Contents



Business
    Strategy
    Building
    Strong Craft Beer Brands
      Utilizing
    a Direct Store Delivery System through Independent
    Distributors
   4




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##### Table of Contents



Building
    Brand Awareness and Sales through Company-Owned Alehouse
    Restaurants
        Contract
    Brewing Arrangement and Termination
  on-site
    Products
   5




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##### Table of Contents



Competition
  Craft
    Beers
            Alehouses
   6




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##### Table of Contents



on-site
    Sources
    and Availability of Raw Materials
    Seasonality
    and Quarterly Results
    Concentration
    with a Single Distributor
  Form 10-K.
  Government
    Regulations
  Restaurant
    Regulation
   7




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##### Table of Contents



Alcoholic
    Beverage Regulation and Taxation
    Licenses
    and Permits
  and/or and/or and/or
            Taxation
   8




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##### Table of Contents



and/or
  Dram
    Shop Laws
    Trademarks
  ® ® ® ® ® ® ®
    Environmental
    Regulations and Operating Considerations
     9




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##### Table of Contents



Employees
    Available
    Information
  http://www.PyramidBrew.com. Form 10-K, Form 10-Q, Form 8-K
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  on-site
  The
    Seattle Alehouse
  on-site
  The
    Berkeley Brewery and Alehouse
    The
    Portland Brewery and MacTarnahans Taproom
   10




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##### Table of Contents



The
    Walnut Creek Alehouse
  on-site 11-year
  The
    Sacramento Alehouse
  on-site 10-year 8-month
  Item 3.
    Legal
    Proceedings    Taylor v. Pyramid Breweries
    Inc., et al,
    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


Low2007First Quarter

$
4.45


$
2.87Second Quarter


4.15



3.10Third Quarter


3.50



2.50Fourth Quarter


4.66



1.682006First Quarter

$
2.79


$
2.10Second Quarter


2.74



2.20Third Quarter


2.74



2.13Fourth Quarter


3.50



2.39  11




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##### Table of Contents



Dividend
    Policy
    Stock
    Repurchases
    Total Number


Approximate Dollarof Shares


Value ofPurchased as


Shares that May Yet BeAverage


Part of Publicly


Purchased UnderTotal Number of


Price Paid


Announced Plans


the Plans orPeriod

Shares Purchased(1)


per Share


or Programs(2)


Programs(In millions)January 1  November 30, 2007





$







$
1.1December 1  December 31, 2007


4,214



2.20



4,214



1.1Total


4,214


$
2.20



4,214


$
1.1     (1)
    
    In December 2007, we withheld 4,214 shares to pay taxes due
    upon vesting of restricted stock and plan to withhold an
    additional 11,862 shares in the first quarter of 2008 to
    pay taxes due upon vesting. No shares were repurchased in 2006
    under the stock buyback plan.(2)
    
    In December 1999, the Board of Directors authorized a stock
    buyback plan to repurchase up to $2.0 million of our
    outstanding common stock on the open market. Stock purchases are
    at the discretion of management and depend, among other things,
    on our results of operations, capital requirements and financial
    condition, and on such other factors as our management may
    consider relevant. At December 31, 2007 and 2006,
    approximately $1.1 million of our outstanding common stock
    was available from board authorizations to repurchase.  Sale of
    Unregistered Securities
    Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Forward-Looking
    Statements
  This report contains forward-looking statements within the
    meaning of the federal securities laws. All statements that do
    not concern historical facts are forward-looking statements
    concerning future performance, developments or events,
    concerning potential sales, production capacity, pending
    agreements with third parties and any other guidance on future
    periods, constitute forward-looking statements. These statements
    may be identified by the use of forward-looking terminology such
    as anticipate, believe,
    continue, could, estimate,
    expect, intend, may,
    might, plan, potential,
    predict, should, or will, or
    the negative thereof, or comparable terminology. While we
    believe these expectations, assumptions, estimates and
    projections are reasonable, such forward-looking statements are
    only predictions and involve known and unknown risks and
    uncertainties, many of which are beyond our control and which
    could cause actual results or outcomes to differ materially from
    our stated expectations. Any forward-looking statements are made
    only as of the date hereof. We do not undertake any obligation
    to update any such statements or to publicly announce the
    results of any revisions to any such statements to reflect
    future events or developments, except as may be required by law.
    Our actual future results could differ materially from those
    projected in the forward-looking statements.
 12




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Some important factors that could cause our actual results or
    outcomes to differ materially from those discussed in
    forward-looking statements include:
  
    increased competition from craft and imported beer producers
    as well as from national brewers with greater financial
    resources and more extensive distribution networks than ours,
    reductions in distribution options through our independent
    distributors,
    increased competition from national restaurant chains with
    greater financial resources and greater economies of scale,
    inability of Pyramid to achieve anticipated cost
    reductions,
    changes in and compliance with governmental policies and
    regulations with respect to our products, including the adoption
    by the TTB of more restrictive application of the excise tax
    rules,
    competitive pressures that cause decreases in the selling
    prices of our products,
    declines in our operating margins due to the impact of
    increasing raw material, fuel costs and other factors,
    seasonal fluctuations due to higher sales during the summer
    months,
    acquisitions or divestitures that may adversely affect our
    financial condition, and
    the failure by us to perform under any of our agreements.  Overview
           13




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##### Table of Contents



Results
    of Operations
  Years
    Ended December 31, 2007 and 2006
  Gross Sales.
  Excise Taxes.
  Gross Margin.
    % of





% ofSegment





SegmentGross Margin

2007


Net Sales


2006


Net Sales


$ Change


% ChangeBeverage Segment

$
11,337



35.0
%

$
10,843



30.7
%

$
494



4.6
%Alehouse Segment


457



3.0
%


752



5.1
%


(295
)


(39.2
)%Total

$
11,794



24.7
%

$
11,595



23.2
%

$
199



1.7
%  14




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##### Table of Contents



Selling, General and Administrative
    Expenses.
  Other Expense, net.
  Income Taxes.
  Net Loss.
  Liquidity
    and Capital Resources
         15




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##### Table of Contents



30-month
      
    A significant pricing increase on beer across all
    brands/packages for the retail market and on food/beer in our
    Alehouses,
    A major expense reduction initiative projected to reduce our
    2008 expenses that included targeted staff reductions affecting
    approximately 10% of our salaried workforce,
    A delay in our Eastern expansion to be even more focused on our
    core Western markets,
    Investment in a new bottling line filler in our Berkeley
    brewery, which will generate significant efficiencies, and
    Securing critical raw materials availability and pricing over
    the next several years.     16




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##### Table of Contents



Contractual
    Obligations
    Less than








AfterTotal


1 Year


1 - 3 Years


3 - 5 Years


5 YearsOperating leases(1)

$
3,809


$
1,103


$
1,540


$
909


$
257Capital leases(2)


468



468











Note payable(3)


7,566



110



243



271



6,942TTB excise tax assessment(4)


433



218



215







Raw material commitments(5)


2,147



508



745



612



282$
14,423


$
2,407


$
2,743


$
1,792


$
7,481     (1)
    
    We have obligations in the form of revenue sharing provisions in
    certain alehouse lease agreements, based on the excess of the
    percentage of revenue over the minimum lease payment. For the
    years ended December 31, 2007 and 2006, there were no
    amounts owed under revenue sharing agreements.(2)
    
    In 2006, we acquired 14,500 of new kegs under our capital lease
    agreement (Note 8 to the consolidated financial statements)
    for a total of $1.2 million, payable over a
    30-month
    period.(3)
    
    The amounts are principal only payments as stated in securitized
    financing arrangement for the Berkeley Facility purchase.(4)
    
    In 2006, we settled with the TTB, resolving all issues arising
    from the audit including the federal tax assessments for the
    period at issue for a total amount of $700,000, payable in
    monthly installments for a period of three years.(5)
    
    In 2007, we secured critical raw material availability and
    pricing over the next several years by entering into purchase
    commitments to ensure we have the necessary supply to meet
    future production requirements.    Contingencies
      Taylor v. Pyramid Breweries
    Inc., et al,
 17




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##### Table of Contents



Critical
    Accounting Policies
      
    it requires us to make assumptions because information was not
    available at the time or it included matters that were highly
    uncertain at the time we were making the estimate, and
    changes in the estimate or different estimates that we
    reasonably could have selected would have had a material impact
    on our financial condition or results of operations.    Inventory. first-in,
  Long-Lived Assets Impairment.
       18




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##### Table of Contents



Keg Deposit Liability.
  Revenue Recognition.
  99-19, Reporting Revenue Gross as a Principal versus Net as an Agent
  Stock-based Compensation. Share-Based
    Payment
  Realization of Deferred Tax Assets.
  Accounting
    for Uncertainty in Income Taxes  an Interpretation of
    FASB Statement No. 109
    Promotional Activities.
 19




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##### Table of Contents



Recently
    Issued Accounting Pronouncements
  Considering the Effects of Prior Year Misstatements when
    Quantifying Current Year Misstatements.
  Fair Value
    Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115.
  Business Combinations
 20




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data   
 PageReport of Independent Registered Public
    Accounting Firm


22Consolidated Balance Sheets


23Consolidated Statements of Operations


24Consolidated Statements of Stockholders
    Equity


25Consolidated Statements of Cash Flows


26Notes to Consolidated Financial Statements


27   21




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Report of
    Independent Registered Public Accounting Firm             
    22




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##### Table of Contents



PYRAMID
    BREWERIES INC.
 CONSOLIDATED BALANCE SHEETS  December 31,2007


2006(In thousands, except per share amounts)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
201


$
227Accounts receivable, net of $20,000 allowance


3,334



3,052Inventories


2,177



1,877Prepaid expenses and other


818



806Current assets held for sale






86Total current assets


6,530



6,048Fixed assets, net


25,996



26,284Assets held for sale, long-term


55



432Intangibles, net


72



118Escrow reserve


813



765Other assets


410



393Total assets

$
33,876


$
34,040LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable

$
3,409


$
3,260Accrued expenses


2,583



2,834Refundable deposits


1,225



483Line of credit


241



Current portion of long-term financing


110



105Current portion of capital lease obligation


468



385Deferred rent  current


127



122Liabilities held for sale






78Other current liabilities


308



201Total current liabilities


8,471



7,468Long-term financing


7,456



7,566Capital lease obligation






505Deferred rent


464



590Other liabilities


215



433COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, 10,000,000 shares authorized, none issued






Common stock, $.01 par value:Authorized shares  40,000,000 issued and outstanding
    shares  9,174,000 and 8,946,000 at December 31,
    2007 and 2006, respectively


92



89Additional paid-in capital


37,685



37,408Accumulated deficit


(20,507
)


(20,019
)Total stockholders equity


17,270



17,478Total liabilities and stockholders equity

$
33,876


$
34,040    23




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended December 31,2007


2006(In thousands, exceptper share amounts)Gross sales

$
51,088


$
53,893Less excise taxes


3,404



3,982Net sales


47,684



49,911Cost of sales


35,890



38,316Gross margin


11,794



11,595Selling, general and administrative expenses


14,561



12,961Gain on sale of net assets


2,436



Operating loss


(331
)


(1,366
)Other expense, net


(155
)


(190
)Loss before income taxes


(486
)


(1,556
)Provision for income taxes


(2
)


(5
)Net loss

$
(488
)

$
(1,561
)Basic and diluted net loss per share

$
(0.05
)

$
(0.18
)Weighted average basic and diluted shares outstanding


8,986,000



8,872,000    24




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  Additional





TotalCommon Stock


Paid-in


Accumulated


StockholdersShares


Amount


Capital


Deficit


Equity(In thousands)Balance, December 31, 2005


8,806


$
88


$
37,023


$
(18,200
)

$
18,911Cumulative effect of adjustments from the adoption of
    SAB No. 108














(258
)


(258
)Adjusted balance, December 31, 2005


8,806


$
88


$
37,023


$
(18,458
)

$
18,653Net loss














(1,561
)


(1,561
)Stock issued via employee stock purchase plan


13







26







26Exercised stock options


18







39







39Stock-based compensation


109



1



320







321Balance, December 31, 2006


8,946


$
89


$
37,408


$
(20,019
)

$
17,478Net loss














(488
)


(488
)Stock issued via employee stock purchase plan


4







7







7Exercised stock options


37



1



75







76Stock-based compensation


187



2



195







197Balance, December 31, 2007


9,174


$
92


$
37,685


$
(20,507
)

$
17,270    25




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 31,2007


2006(In thousands)OPERATING ACTIVITIES:Net loss

$
(488
)

$
(1,561
)Adjustments to reconcile net loss to net cash (used) provided by
    operating activities:Depreciation and amortization


2,211



2,381Stock-based compensation expense


197



321Gain on sale of net assets


(2,436
)


Asset impairment charge


430



Loss on sale or disposal of fixed assets


62



74Deferred rent


(122
)


(129
)TTB excise tax obligation






700Changes in operating assets and liabilities:Accounts receivable


(268
)


(214
)Inventories


(300
)


(78
)Prepaid expenses and other


37



(474
)Accounts payable and accrued expenses


(342
)


90Refundable deposits


744



(44
)Net cash (used) provided by operating activities


(275
)


1,066INVESTING ACTIVITIES:Acquisitions of fixed assets


(2,383
)


(891
)Proceeds from sale of fixed assets


2,945



Net cash provided (used) in investing activities


562



(891
)FINANCING ACTIVITIES:Note payable


(105
)


(99
)Payment on capital lease obligation


(422
)


(264
)Payment on TTB excise tax obligation


(110
)


(66
)Proceeds from exercise of stock options and stock issuance
    through the employee stock purchase plan


83



65Net borrowings on line of credit


241



Net cash used in financing activities


(313
)


(364
)Decrease in cash and cash equivalents


(26
)


(189
)Cash and cash equivalents at beginning of year


227



416Cash and cash equivalents at end of year

$
201


$
227SUPPLEMENTAL DATA:Interest paid

$
555


$
605Acquisition of fixed assets through capital lease






1,154Shares repurchased


4



    26




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Nature of
    Operations and Summary of Significant Accounting
    Policies  The
    Company
    Basis
    of Consolidation
  wholly-owned
  Use of
    Estimates
    Cash
    and Cash Equivalents
    Fair
    Value of Financial Instruments
    Accounts
    Receivable
   27




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Inventories
  first-in,
  Fixed
    Assets
    Buildings

15 to 40 yearsBrewery and retail equipment

5 to 25 yearsFurniture and fixtures

3 to 5 yearsLeasehold improvements

Shorter of lease term or life of 3 to 25 years
             Assets
    Held For Sale, Long-term
   28




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Trademarks
    Revenue
    Recognition
      99-19, Reporting Revenue Gross as a Principal versus Net as an
    Agent
  Shipping
    and Handling Costs
    Excise
    Taxes
      Cost
    of Sales
    Advertising
    Costs
   29




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Expense, Net
    Years Ended December 31,2007


2006Interest expense

$
(555
)

$
(605
)Sublease income


247



244Parking income


135



202Amortization-loan fee


(41
)


(42
)Interest income


44



12Other income (expense)


15



(1
)Other expense, net

$
(155
)

$
(190
)   Income
    Taxes
      Accounting for
    Uncertainty in Income Taxes  an Interpretation of
    FASB Statement No. 109
    Net
    Loss Per Share
   30




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Years Ended December 31,2007


2006Net loss

$
(488
)

$
(1,561
)Basic and diluted:Weighted average basic and diluted shares outstanding


8,986



8,872Basic and diluted net loss per share

$
(0.05
)

$
(0.18
)   Liquidity
            
    A significant pricing increase on beer across all
    brands/packages for the retail market and on food/beer in our
    Alehouses,
    A major expense reduction initiative projected to reduce our
    2008 expenses that included targeted staff reductions affecting
    approximately 10% of our salaried workforce,
    A delay in our Eastern expansion to be even more focused on our
    core Western markets,
    Investment in a new bottling line filler in our Berkeley
    brewery, which will generate significant efficiencies, and
    Securing critical raw materials availability and pricing over
    the next several years. 31




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Recently
    Issued Accounting Pronouncements
  Considering the Effects of Prior Year Misstatements when
    Quantifying Current Year Misstatements.
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115.
  Business Combinations
  Reclassification
   32




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2.
    Thomas
    Kemper Soda Transaction          Point of sale inventory

$
42Legal fees and transition costs


44Current assets held for sale

$
86Property and equipment, net of accumulated depreciation

$
17Goodwill


415Long term assets held for sale

$
432Keg deposit liability

$
(69
)Other liabilities


(9
)Current liabilities held for sale

$
(78
)Net assets and liabilities held for sale

$
440  33




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Inventories    2007


2006Raw materials

$
829


$
825Work in process


289



226Finished goods


1,059



826$
2,177


$
1,877     4.
    Fixed
    Assets    2007


2006Land

$
6,181


$
6,181Buildings


11,895



11,895Brewery and retail equipment


18,838



18,344Furniture and fixtures


1,143



1,095Leasehold improvements


6,058



6,086Construction in progress


478



27144,593



43,872Less accumulated depreciation and amortization


(18,597
)


(17,588
)$
25,996


$
26,284     5.
    Accrued
    Expenses    2007


2006Salaries, wages and related accruals

$
1,261


$
1,530Barrel taxes


204



283Other accruals


1,118



1,021$
2,583


$
2,834   6.
    Line of
    Credit   34




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    Debt        2008

$
1102009


1182010


1252011


1322012


139Thereafter


6,942$
7,566   8.
    Leases     35




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  30-month
  30-month
    Operating


CapitalLeases


Leases2008

$
1,103


$
4842009


873



2010


667



2011


590



2012


319



Thereafter


257



$
3,809


$
484Less portion representing interest






(16
)Total capital lease obligations including current portion





$
468     9.
    Commitments
    and Contingencies  Commitments
    2008

$
5082009


4042010


3412011


3152012


297Thereafter


282$
2,147  36




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Contingencies
      Taylor v. Pyramid Breweries
    Inc., et al,
    10.
    Stock
    Buyback Plan    11.
    Stock-Based
    Compensation  Share-Based Payment, Accounting for
    Stock-Based Compensation Accounting for Stock-Based
    Compensation Transition and Disclosure
 37




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock-Based
    Compensation Plans
          Stock
    Options
    WeightedWeighted


AverageAverage


Remaining


AggregateExercise


Contractual


Intrinsic ValueShares


Price


Term


at December 31,Outstanding at December 31, 2006


539,500


$
2.28Granted


135,000



3.03Exercised


(36,700
)


2.05






$
46,409Canceled/Forfeited






Outstanding at December 31, 2007


637,800


$
2.45



4.6


$
114,235Awards exercisable at December 31, 2007


535,577


$
2.35



3.6


$
113,902Weighted average fair value of awards granted during 2007

$
1.31Weighted average fair value of awards granted during 2006

$
1.43    38




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Awards Outstanding


Awards ExercisableWeightedWeighted


Average





WeightedAverage


Remaining





AverageExercise


Contractual





ExerciseRange of Exercise Prices

Shares


Price


Term


Shares


Price$0.01-$1.90


25,000


$
1.81



2.3



25,000


$
1.81$1.91-$2.20


262,800


$
2.09



1.6



262,800


$
2.09$2.21-$2.50


37,500


$
2.38



4.5



36,111


$
2.39$2.51-$2.80


147,500


$
2.58



3.4



146,666


$
2.57$2.81-$3.10


130,000


$
3.00



8.8



30,000


$
3.07$3.11-$3.30


35,000


$
3.17



8.1



35,000


$
3.17637,800


$
2.45



4.1



535,577


$
2.35     WeightedAverageGrant DateShares


Fair ValueNonvested balance at December 31, 2006


5,279


$
0.88Granted


135,000



1.31Vested


(38,056
)


1.43Forfeited






Nonvested balance at December 31, 2007


102,223


$
1.25Fair value of shares vested during 2007

$
54,348   Fair
    Value of Stock Option Assumptions
   39




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2007

2006Risk-free interest rate

4.02-4.79%

2.12-4.95%Expected life

5 yrs

4 yrsExpected volatility

41.6%

44.5%Expected dividend yield

$0.00

$0.00   Restricted
    Stock Awards
      WeightedAverageRemainingContractualShares


TermOutstanding at December 31, 2006


Granted


193,000Vested


(23,934
)Canceled/Forfeited


(8,066
)Outstanding at December 31, 2007


161,000



4.0Weighted average fair value of awards granted during 2007

$
3.07Weighted average fair value of awards granted during 2006


Fair value of shares vested during 2007

$
73,430   Employee
    Stock Purchase Plan
      Stock-based
    Compensation Expense and Proceeds
       40




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    12.
    Employee
    401(k) Plan    13.
    Shareholder
    Rights Plan    14.
    Income
    Taxes    2007


2006Current

$
(2
)

$
(5
)Deferred






$
(2
)

$
(5
)     December 31,2007


2006Federal statutory rate


34.0
%


34.0
%State taxes, net of federal income tax benefit


2.3



2.1Meals and entertainment


(23.7
)


(9.3
)Valuation allowance


(13.0
)


(27.0
)(0.4
)%


(0.2
)%  41




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006Deferred tax liabilities:Depreciation

$
(649
)

$
(873
)Goodwill






(50
)Deferred tax liabilities

$
(649
)

$
(923
)Deferred tax assets:Employee benefits

$
227


$
365Deferred rent


214



257Deferred compensation






107Package design costs


136



165Trademarks


42



31Unicap


40



41Charitable contribution carryforward


76



92Inventory


11



11Other


7



32Net operating loss and tax credit carryforward


3,544



3,3854,297



4,486Less valuation allowance


(3,648
)


(3,563
)Deferred tax assets, net

$
649


$
923Net deferred tax asset and liability






     15.
    Segment
    Information and Other Data     42




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        BeverageOperations


Alehouse


Other


TotalYear ended December 31, 2007Gross revenues from external customers

$
35,765


$
15,323


$



$
51,088Net revenues from external customers


32,361



15,323







47,684Intersegment revenues


533



(533
)






Interest income










44



44Depreciation and amortization


1,217



862



132



2,211Operating income (loss)


6,970



457



(7,758
)


(331
)Capital expenditures


1,597



573



213



2,383Total assets


20,500



4,385



8,991



33,876Year ended December 31, 2006Gross revenues from external customers

$
39,272


$
14,621


$



$
53,893Net revenues from external customers


35,290



14,621







49,911Intersegment revenues


542



(542
)






Interest income










12



12Depreciation and amortization


1,325



900



156



2,381Operating income (loss)


5,288



752



(7,406
)


(1,366
)Capital expenditures


1,916



72



48



2,036Total assets


20,265



4,923



8,852



34,040   16.
    Impact of
    Staff Accounting Bulletin No. 108
    (SAB 108)     43




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##### Table of Contents



PYRAMID
    BREWERIES INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Depreciation of Leasehold Improvements.
    Deferred Rent.
    Impact of Adjustment.
  Accumulated depreciation

$
34Deferred rent


174Rent expense


54Depreciation expense


(4
)Accumulated deficit

$
258   17.
    Subsequent
    Events  30-month
   44




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure
    Controls and Procedures
  Rule 13a-15(b) Rule 13a-15(e) Form 10-K,
  Managements
    Report on Internal Control Over Financial Reporting
  Rule 13a-15(f)
    Internal
    Control  Integrated Framework
  Form 10-K
  Changes
    in Internal Control Over Financial Reporting
    Item 9B.
    Other
    Information   45




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##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Board of
    Directors and Nominees, Management,
    Section 16(a) Beneficial Ownership Reporting
    Compliance Corporate Governance
  Item 11.
    Executive
    Compensation  Compensation of
    Directors Executive Compensation
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Equity
    Compensation Plan Information
    Number of SecuritiesNumber of Securities





Remaining Availableto be Issued Upon


Weighted Average


for Future IssuanceExercise of


Exercise Price of


Under EquityPlan Category

Outstanding Options


Outstanding Options


Compensation PlansEquity compensation plans approved by security holders


637,800


$
2.45



1,379,873
(1)(2)Equity compensation plans not approved by security holders










Total


637,800


$
2.45



1,379,873     (1)
    
    Of these shares, 421,121 remain under the Purchase Plan, which
    we suspended after fourth quarter 2006 purchases in January
    2007, 75,000 are available under the Director Plan, 99,820 are
    available under the Directors Compensation Plan and 783,932 are
    available under the 2004 Plan, as of December 31, 2007.
    Shares available under the Directors Compensation Plan are
    payable in shares of our stock. Shares available for issuance
    under the 2004 Plan may be issued as stock options, stock
    awards, restricted stock units, rights to purchase stock,
    warrants, stock appreciation rights or performance shares.(2)
    
    Pursuant to the Director Plan, each non-employee director
    receives an annual option grant of 5,000 shares of common
    stock on the date of each annual shareholders meeting.  Principal
    Shareholders
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Corporate
    Governance, Meetings and Committees of the Board of
    Directors Transactions with Related
    Persons
  Item 14.
    Principal
    Accounting Fees and Services  Proposal No. 3  Ratification of
    Independent Registered Public Accounting Firm
 46




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##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  Documents filed as part of this report are as
    follows:
  1.

Financial Statements:Report of Independent Registered Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Stockholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial Statements2.

Financial Statement Schedules: None.3.

Exhibits: The required exhibits are included at the end of this
    report and are described in the Exhibit Index.  47




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##### Table of Contents



SIGNATURES    
  By
    /s/  SCOTT
    S. BARNUM   Chief Executive Officer
    Signature

Title

Date/s/  GEORGE
    HANCOCKGeorge
    Hancock

Chairman of the Board and Director

March 24, 2008/s/  SCOTT
    BARNUMScott
    Barnum

President and Chief 
    Executive Officer, Director (its principal executive officer)

March 24, 2008/s/  MICHAEL
    OBRIENMichael
    OBrien

Chief Financial Officer 
    and Vice President of Finance (its principal financial officer)

March 24, 2008/s/  JURGEN
    AUERBACHJurgen
    Auerbach

Director

March 24, 2008/s/  KURT
    DAMMEIERKurt
    Dammeier

Director

March 24, 2008/s/  HELEN
    ROCKEYHelen
    Rockey

Director

March 24, 2008/s/  DAVID
    ROSTOVDavid
    Rostov

Director

March 24, 2008/s/  SCOTT
    SVENSONScott
    Svenson

Director

March 24, 2008  48




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##### Table of Contents



EXHIBIT INDEX  Form 10-K
  ExhibitNo.

Description3
.1

Amended and Restated Articles of Incorporation of Registrant(1)3
.2

Form of Amended and Restated Bylaws of Registrant(1)3
.3

Rights Agreement between ChaseMellon Shareholder Services LLC
    and the Registrant dated June 14, 1999(2)4
.1

Form of Common Stock Certificate(3)10
.1

Lease between Harold W. Hill and the Registrant dated
    April 13, 1994(3)10
.2

Addendum of Lease between Harold W. Hill and the Registrant
    dated November 28, 1994(3)10
.3

Second Addendum of Lease between 1201 Building L.L.C. and the
    Registrant dated June 26, 1995(3)10
.4

Distribution Agreement between the Registrant and Alaska
    Distributors Co. dated June 24, 2005(4)10
.5*

Registrants Non-Employee Director Stock Option Plan(3)10
.6*

Form of Non-Qualified Stock Option Agreement(3)10
.7

Assignment, Assumption and Consent Agreement between KLP
    Properties, Inc., Faultline Brewing Company Inc., and the
    Registrant dated October 26, 2001(5)10
.8

Sublease between KLP Properties, Inc. and Faultline Brewing
    Company, Inc. dated April 3, 1996(5)10
.9

Lease between Peter Vasconi and the James and Maura Belka Trust
    dated December 28, 1995(5)10
.10

Commercial Lease between County Supervisors Association of
    California and Pyramid Breweries Inc. dated April 15,
    2002(6)10
.11*

Registrants 2003 Employee Stock Purchase Plan(6)10
.12*

Registrants Non-Employee Director Stock Compensation
    Plan(6)10
.13

Asset Purchase Agreement between Pyramid Breweries Inc.,
    Portland Brewing Company and PBC Acquisition, LLC dated
    January 26, 2004(7)10
.14*

Registrants 2004 Equity Incentive Plan(8)10
.15

Promissory Note from Pyramid Gilman Street Property, LLC to
    Morgan Stanley Capital Inc.(9)10
.16

Deed of Trust, Assignment of Leases and Rents, Security
    Agreement and Fixture Filing between Pyramid Gilman Street
    Property, LLC and Morgan Stanley Mortgage Capital Inc.(9)10
.17

Reserve and Security Agreement between Pyramid Gilman Street
    Property, LLC and Morgan Stanley Mortgage Capital Inc.(9)10
.18

Guaranty of Recourse Obligations of Borrower from Pyramid
    Breweries Inc. to Morgan Stanley Mortgage Capital Inc.(9)10
.19

Indemnification Agreement between Pyramid Breweries Inc. and
    Portland Brewing Company dated February 14, 2006(10)10
.20

Indenture of Lease (Alehouse) between MacTarnahan Limited
    Partnership dba Harmer Company and PBC Acquisition, LLC dated
    July 31, 2004(10)10
.21

Indenture of Lease (Brewery) between MacTarnahan Limited
    Partnership dba Harmer Company and PBC Acquisition, LLC dated
    July 31, 2004(10)10
.22

Lease Extension Agreement between MacTarnahan Limited
    Partnership and PBC Acquisition, LLC dated July 31, 2006(4)10
.23

Assignment and Assumption of Lease (Alehouse) between PBC
    Acquisition, LLC and Pyramid Breweries Inc. dated
    October 27, 2006(4) 49




---



##### Table of Contents



ExhibitNo.

Description10
.24

Assignment and Assumption of Lease (Brewery) between PBC
    Acquisition, LLC and Pyramid Breweries Inc. dated
    October 27, 2006(4)10
.25

Commercial Security Agreement pursuant to Line of Credit with
    First Mutual Bank dated May 14, 2004, as amended(10)10
.26*

Directors Compensation Plan(10)10
.27*

2006 Officers Incentive Compensation Plan Policy(11)10
.28*

Employment Agreement between the Registrant and Gary McGrath(11)10
.29*

Employment Agreement between the Registrant and Mark House(11)10
.30*

Employment Agreement between the Registrant and Patrick Coll(11)10
.31*

Employment Agreement between the Registrant and Scott Barnum(12)10
.32*

Employment Agreement between the Registrant and Michael
    OBrien(13)10
.33*

Amended Employment Letter between the Registrant and Michael
    OBrien dated October 17, 200710
.34*

Employment Agreement between the Registrant and Tim McGettigan10
.35*

Employment Separation Agreement between the Registrant and Gary
    McGrath10
.36*

Employment Separation Agreement between the Registrant and
    Patrick Coll10
.37*

Form of Restricted Stock Agreement (Annual Award)(4)10
.38*

Form of Restricted Stock Agreement (Annual Performance Award)(4)10
.39

Summary of Termination of Portland Brewing Agreements(14)10
.40

Assets Purchase Agreement between Registrant and The Kemper
    Company dated January 2, 2007(15)10
.41

Settlement and Release Agreement between Registrant, Portland
    Brewing Company and the US Department of Treasury-Alcohol and
    Tobacco, Tax & Trade Bureau dated November 10,
    2006(4)21
.1

Subsidiaries of Pyramid Breweries Inc.23
.1

Consent of Moss Adams LLP31
.1

Certification Pursuant to 18 U.S.C Section 1350, as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
    Scott S. Barnum, President and Chief Executive Officer31
.2

Certification Pursuant to 18 U.S.C Section 1350, as Adopted
    Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
    Michael R. OBrien, Chief Financial Officer and Vice
    President of Finance32
.1

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002: Scott S. Barnum, President and Chief Executive Officer32
.2

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002: Michael R. OBrien, Chief Financial Officer and
    Vice President of Finance     *
    
    Indicates management contract or compensatory plan or arrangement(1)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K/A
    for the year ended December 31, 2003, as amended
    December 10, 2004.(2)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated June 17, 1999.(3)
    
    Incorporated by reference to the exhibits filed as part of the
    Registration Statement on
    Form S-1
    of Pyramid Breweries Inc. (File
    No. 33-97834).(4)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    for the year ended December 31, 2006.(5)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    for the year ended December 31, 2001.(6)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    for the year ended December 31, 2002. 50




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##### Table of Contents



(7)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    January 28, 2004.(8)
    
    Incorporated by reference to the Registrants
    Form S-8
    dated July 22, 2004.(9)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K/A
    for the year ended December 31, 2004, as amended
    April 11, 2005, May 4, 2005 and June 10, 2005.(10)
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    for the year ended December 31, 2005.(11)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    May 11, 2006.(12)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    dated November 16, 2006.(13)
    
    Incorporated by reference to the Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended September 30, 2006.(14)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    October 4, 2006.(15)
    
    Incorporated by reference to the Current Report on
    Form 8-K
    January 8, 2007. 51