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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-Q



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(mark one)



|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTER ENDED JUNE 30, 2002
|--- | --------------------------------------------------------------------------------------------------------------------------



|[   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|----- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM _______________ TO______________.

COMMISSION FILE NUMBER 0-27116

PYRAMID BREWERIES INC.
(Exact name of registrant as specified in its charter)

|                                                                          |  |                                                
|------------------------------------------------------------------------- |  | -----------------------------------------------
|Washington
(State or other jurisdiction of
incorporation or organization) |  | 91-1258355
(I.R.S. Employer
Identification No.)

91 South Royal Brougham Way
Seattle, WA 98134
(Address of principal executive offices) (Zip Code)

Registrants telephone number, including area code: (206) 682-8322

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [   ].

Common stock, par value of $.01 per share: 8,379,825 shares of common
stock outstanding as of June 30, 2002

Pages 1 of 16 sequentially numbered pages.

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TABLE OF CONTENTS



|                             |                                                                                                |                               |  |  |  |  |  | 
|---------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------- |  |  |  |  |  | 
|PART I                      
|                             | Item 1  FINANCIAL STATEMENTS                                                                 
|                             |                                                                                                | BALANCE SHEETS               
|                             |                                                                                                | STATEMENTS OF OPERATIONS     
|                             |                                                                                                | STATEMENTS OF CASH FLOWS     
|                             |                                                                                                | NOTES TO FINANCIAL STATEMENTS
|                             | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II.  OTHER INFORMATION
|                             | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   
|                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURE                   
|EXHIBIT INDEX               
|EXHIBIT 99.1                
|EXHIBIT 99.2                



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##### Table of Contents



PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTERLY AND SIX MONTH PERIODS ENDED JUNE 30, 2002

TABLE OF CONTENTS

|        |  |                                                                                       |  |                                                                                         |    |      |    | 
|------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------- | -- | ---- | -- | 
|        |  |                                                                                       |  |                                                                                         |    | Page
|        |  |                                                                                       |  |                                                                                         |    |     
|PART I  |  | FINANCIAL INFORMATION                                                                 |  |                                                                                         |    |     
|Item 1. |  | Financial Statements (Unaudited)                                                      |  |                                                                                         |    |     
|        |  |                                                                                       |  | Balance Sheets
June 30, 2002 and December 31, 2001                                      |    |      | 3  | 
|        |  |                                                                                       |  | Statements of Operations
Three Month and Six Month Periods Ended June 30, 2002 and 2001 |    |      | 4  | 
|        |  |                                                                                       |  | Statements of Cash Flows
Six Month Periods Ended June 30, 2002 and 2001                 |    |      | 5  | 
|        |  |                                                                                       |  | Notes to Financial Statements                                                           |    |      | 6  | 
|Item 2. |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  |                                                                                         | 11 |     
|Item
3. |  | Quantitative
and Qualitative Disclosures about Market Risk                            |  |                                                                                         | 14 |     
|       
|PART II |  | OTHER INFORMATION                                                                     |  |                                                                                         |    |     
|Item 4. |  | Submission of Matters to a vote of Security Holders                                   |  |                                                                                         | 14 |     
|Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                         | 14 |     
|       
|        |  |                                                                                       |  | SIGNATURE                                                                               |    |      | 15 | 
|       
|        |  |                                                                                       |  | EXHIBIT INDEX                                                                           |    |      | 16 | 

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##### Table of Contents






PART I




Item 1  FINANCIAL STATEMENTS




PYRAMID BREWERIES INC.

BALANCE SHEETS
(Unaudited)

|                                                                                                                  |                            |                                            |             |           |            |              |            |           |            | 
|----------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ----------- | --------- | ---------- | ------------ | ---------- | --------- | ---------- | 
|                                                                                                                  |                            |                                            |             | June 30,  |            | December 31,
|                                                                                                                  |                            |                                            |             | 2002      |            | 2001        
|                                                                                                                  |                            |                                            |             |           |            |             
|CURRENT ASSETS:                                                                                                   |                            |                                            |             |           |            |              |            |          
|                                                                                                                  | Cash and cash equivalents  |                                            | $           | 4,116,036 |            |              | $          | 5,075,454 |           
|                                                                                                                  | Accounts receivable, net   |                                            |             | 2,317,598 |            |              |            | 1,425,592 |           
|                                                                                                                  | Inventories                |                                            |             | 1,145,501 |            |              |            | 1,178,148 |           
|                                                                                                                  | Prepaid expenses and other |                                            |             | 216,013   |            |              |            | 382,826   |           
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|                                                                                                                  |                            | Total current assets                       |             |           | 7,795,148  |              |            |           | 8,062,020  | 
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|Long term investments                                                                                             |                            |                                            | 491,742     |           |            |              | 491,742    |          
|Note receivable related party                                                                                     |                            |                                            | 100,562     |           |            |              | 106,965    |          
|Fixed assets, net                                                                                                 |                            |                                            | 20,821,843  |           |            |              | 20,222,560 |          
|Other assets                                                                                                      |                            |                                            | 541,142     |           |            |              | 547,466    |          
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|                                                                                                                  |                            | Total assets                               |             | $         | 29,750,437 |              |            | $         | 29,430,753 | 
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|CURRENT LIABILITIES:                                                                                              |                            |                                            |             |           |            |              |            |          
|                                                                                                                  | Accounts payable           |                                            | $           | 894,117   |            |              | $          | 662,527   |           
|                                                                                                                  | Accrued expenses           |                                            |             | 2,235,678 |            |              |            | 1,312,641 |           
|                                                                                                                  | Refundable deposits        |                                            |             | 470,267   |            |              |            | 550,259   |           
|                                                                                                                  | Note payable-current       |                                            |             | 20,000    |            |              |            | 20,000    |           
|                                                                                                                  | Dividends payable          |                                            |             | 368,714   |            |              |            | 365,178   |           
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|                                                                                                                  |                            | Total current liabilities                  |             |           | 3,988,776  |              |            |           | 2,910,605  | 
|                                                                                                                  | Note payable               |                                            |             | 46,919    |            |              |            | 43,397    |           
|                                                                                                                  | Deferred rent              |                                            |             | 1,190,814 |            |              |            | 1,252,650 |           
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|                                                                                                                  |                            | Total liabilities                          |             |           | 5,226,509  |              |            |           | 4,206,652  | 
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|COMMITMENTS AND CONTINGENCIES                                                                                     |                            |                                            |             |           |            |              |            |          
|STOCKHOLDERS EQUITY:                                                                                             |                            |                                            |             |           |            |              |            |          
|Preferred stock, 10,000,000 shares authorized, none issued                                                        |                            |                                            |            |           |            |              |           |          
|Common stock, $.01 par value; 40,000,000 shares authorized,
8,379,825 and 8,299,493 shares issued and outstanding |                            |                                            | 83,799      |           |            |              | 82,995     |          
|Additional paid-in capital                                                                                        |                            |                                            | 35,812,624  |           |            |              | 35,649,120 |          
|Note receivable                                                                                                   |                            |                                            | (786,818    | )         |            |              | (786,818   | )        
|Accumulated compensation                                                                                          |                            |                                            | (142,239    | )         |            |              | (185,486   | )        
|Accumulated deficit                                                                                               |                            |                                            | (10,443,438 | )         |            |              | (9,535,710 | )        
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|                                                                                                                  |                            | Total stockholders equity                 |             |           | 24,523,928 |              |            |           | 25,224,101 | 
|                                                                                                                  |                            |                                            |             |           |            |              |            |          
|                                                                                                                  |                            | Total liabilities and stockholders equity |             | $         | 29,750,437 |              |            | $         | 29,430,753 | 
|                                                                                                                  |                            |                                            |             |           |            |              |            |          

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

STATEMENTS OF OPERATIONS
(Unaudited)

|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |        | 
|--------------------------------------------- | -------------------------------- | - | --------------------------- | ------ | ------------------------- | - | --------- | ------ | -------- | - | ---------- | ------ | ---- | - | ---------- | ------ | 
|                                              |                                  |   | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                              |                                  |   |                             |        |                          
|                                              |                                  |   |                             |        |                           |   | 2001      |        |          |   |            |        | 2001
|                                              |                                  |   | 2002                        |        | Restated                  |   | 2002      |        | Restated
|                                              |                                  |   |                             |        |                           |   |           |        |         
|Gross sales                                   |                                  | $ | 10,177,068                  |        |                           | $ | 9,366,493 |        |          | $ | 17,010,947 |        |      | $ | 15,944,313 |       
|Less excise taxes                             |                                  |   | 472,109                     |        |                           |   | 446,788   |        |          |   | 814,282    |        |      |   | 724,594    |       
|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |       
|Net sales                                     |                                  |   | 9,704,959                   |        |                           |   | 8,919,705 |        |          |   | 16,196,665 |        |      |   | 15,219,719 |       
|Cost of sales                                 |                                  |   | 7,021,217                   |        |                           |   | 6,219,562 |        |          |   | 12,157,228 |        |      |   | 11,112,028 |       
|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |       
|Gross margin                                  |                                  |   | 2,683,742                   |        |                           |   | 2,700,143 |        |          |   | 4,039,437  |        |      |   | 4,107,691  |       
|Selling, general and administrative expenses  |                                  |   | 2,219,452                   |        |                           |   | 2,517,303 |        |          |   | 4,394,707  |        |      |   | 4,792,070  |       
|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |       
|Operating income (loss)                       |                                  |   | 464,290                     |        |                           |   | 182,840   |        |          |   | (355,270   | )      |      |   | (684,379   | )     
|Other income, net                             |                                  |   | 129,591                     |        |                           |   | 161,874   |        |          |   | 181,753    |        |      |   | 263,100    |       
|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |       
|Income (loss) before income taxes             |                                  |   | 593,881                     |        |                           |   | 344,714   |        |          |   | (173,517   | )      |      |   | (421,279   | )     
|Provision for income taxes                    |                                  |   |                            |        |                           |   |          |        |          |   |           |        |      |   |           |       
|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |       
|Net income (loss)                             |                                  | $ | 593,881                     |        |                           | $ | 344,714   |        |          | $ | (173,517   | )      |      | $ | (421,279   | )     
|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |       
|Basic and diluted net income (loss) per share |                                  | $ | 0.07                        |        |                           | $ | 0.04      |        |          | $ | (0.02      | )      |      | $ | (0.05      | )     
|Weighted average basic shares outstanding     |                                  |   | 8,173,219                   |        |                           |   | 7,920,376 |        |          |   | 8,142,677  |        |      |   | 7,894,132  |       
|Weighted average diluted shares outstanding   |                                  |   | 8,241,812                   |        |                           |   | 8,077,134 |        |          |   | 8,142,677  |        |      |   | 7,894,132  |       
|                                              | Cash
dividend declared per share |   | $                           | 0.044  |                           |   | $         | 0.044  |          |   | $          | 0.088  |      |   | $          | 0.088  | 
|                                             
|                                              | Beer barrels shipped             |   |                             | 31,900 |                           |   |           | 31,600 |          |   |            | 55,100 |      |   |            | 53,900 | 
|                                              | Soda barrels shipped             |   |                             | 15,000 |                           |   |           | 15,100 |          |   |            | 24,300 |      |   |            | 24,900 | 
|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |       
|                                              | Total barrels shipped            |   |                             | 46,900 |                           |   |           | 46,700 |          |   |            | 79,400 |      |   |            | 78,800 | 
|                                              |                                  |   |                             |        |                           |   |           |        |          |   |            |        |      |   |            |       

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                 |                                                                                          |                                        |                                           |          |                           |            |           |          |           |           |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | -------------------------------------- | ----------------------------------------- | -------- | ------------------------- | ---------- | --------- | -------- | --------- | --------- | -
|                                                 |                                                                                          |                                        |                                           |          | Six Months Ended June 30,
|                                                 |                                                                                          |                                        |                                           |          |                          
|                                                 |                                                                                          |                                        |                                           |          |                           |            |           |          | 2001     
|                                                 |                                                                                          |                                        |                                           |          | 2002                      |            | Restated 
|                                                 |                                                                                          |                                        |                                           |          |                           |            |          
|OPERATING ACTIVITIES:                            |                                                                                          |                                        |                                           |          |                           |            |           |         
|                                                 | Net
income (loss)                                                                        |                                        | $                                         | (173,517 | )                         |            | $         | (421,279 | )        
|                                                 | Adjustments
to reconcile net income (loss) to net cash provided by
operating activities: |                                        |                                           |          |                           |            |           |          |          
|                                                 |                                                                                          | Depreciation and amortization          |                                           |          | 1,107,582                 |            |           |          | 1,060,060 |          
|                                                 |                                                                                          | Stock compensation                     |                                           |          | 46,019                    |            |           |          | 183,599   |          
|                                                 |                                                                                          | Interest expense                       |                                           |          | 3,522                     |            |           |          |          |          
|                                                 |                                                                                          | (Gain)
loss on sales of fixed assets   |                                           |          | (53                       | )          |           |          | 436       |          
|                                                 |                                                                                          | Deferred rent                          |                                           |          | (61,836                   | )          |           |          | 65,197    |          
|Changes in operating assets and liabilities:     |                                                                                          |                                        |                                           |          |                           |            |           |         
|                                                 |                                                                                          | Accounts receivable                    |                                           |          | (892,006                  | )          |           |          | (475,551  | )        
|                                                 |                                                                                          | Inventories                            |                                           |          | 32,647                    |            |           |          | (305,410  | )        
|                                                 |                                                                                          | Prepaid expenses and other             |                                           |          | 4,011                     |            |           |          | 276,690   |          
|                                                 |                                                                                          | Accounts payable and accrued expenses  |                                           |          | 987,905                   |            |           |          | 715,745   |          
|                                                 |                                                                                          | Refundable deposits                    |                                           |          | (79,992                   | )          |           |          | (22,038   | )        
|                                                 |                                                                                          |                                        |                                           |          |                           |            |           |         
|                                                 |                                                                                          |                                        | Net cash provided by operating activities |          |                           | 974,282    |           |          |           | 1,077,449 |  
|INVESTING ACTIVITIES:                            |                                                                                          |                                        |                                           |          |                           |            |           |         
|                                                 |                                                                                          | Acquisitions of fixed assets           |                                           |          | (1,381,499                | )          |           |          | (429,725  | )        
|                                                 |                                                                                          | Proceeds from sales of fixed assets    |                                           |          | 10,535                    |            |           |          | 1,577     |          
|                                                 |                                                                                          |                                        |                                           |          |                           |            |           |         
|                                                 |                                                                                          |                                        | Net cash used in investing activities     |          |                           | (1,370,964 | )         |          |           | (428,148  | )
|FINANCING ACTIVITIES:                            |                                                                                          |                                        |                                           |          |                           |            |           |         
|                                                 |                                                                                          | Proceeds from the sale of common stock |                                           |          | 161,536                   |            |           |          | 98,071    |          
|                                                 |                                                                                          | Notes receivable                       |                                           |          | 6,403                     |            |           |          | (114,587  | )        
|                                                 |                                                                                          | Cash dividends paid                    |                                           |          | (730,675                  | )          |           |          | (660,785  | )        
|                                                 |                                                                                          |                                        |                                           |          |                           |            |           |         
|                                                 |                                                                                          |                                        | Net cash used in financing activities     |          |                           | (562,736   | )         |          |           | (677,301  | )
|                                                 |                                                                                          |                                        |                                           |          |                           |            |           |         
|Decrease in cash and cash equivalents            |                                                                                          |                                        | (959,418                                  | )        |                           |            | (28,000   | )       
|Cash and cash equivalents at beginning of period |                                                                                          |                                        | 5,075,454                                 |          |                           |            | 6,444,145 |         
|                                                 |                                                                                          |                                        |                                           |          |                           |            |           |         
|Cash and cash equivalents at end of period       |                                                                                          | $                                      | 4,116,036                                 |          |                           | $          | 6,416,145 |         
|                                                 |                                                                                          |                                        |                                           |          |                           |            |           |         

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION:

Pyramid Breweries Inc. (the Company), a Washington corporation, is
engaged in the brewing, marketing and selling of craft beers and premium sodas
and in restaurant operations. The Company operates breweries in Seattle,
Washington, Berkeley, California, and Walnut Creek, California. The Company
sells its beer through a network of selected independent distributors primarily
in Washington, Oregon and California under the Pyramid and Thomas Kemper
brands. Pyramid also manufactures a line of gourmet sodas under the Thomas
Kemper Soda Company label. As of June 30, 2002, the Companys products were
distributed in 32 states and Canada. The Company operates three restaurants
adjacent to its breweries under the Pyramid Alehouse brand name.

Revenue Recognition

Revenue from the sale of wholesale beer and soda product is recognized at
the time of shipment, when the title of the Company product passes to the
customer, in accordance with distributor sales agreements.

Restatement

The Company changed the accounting method for package design costs to
reflect the expensing of these costs as incurred rather than capitalizing and
amortizing over twelve months. This change has been accounted for as a prior
period adjustment in accordance with Accounting Principals Board Opinion No. 20
Accounting Changes. The financial statements for the period presented have
been restated to reflect this change.

Impact of Restatement on Prior Period  Increase (Decrease) in Amounts
(Dollars in thousands, except per share data)

|                                             |  |                    |     |                  |  |   |      |  
|-------------------------------------------- |  | ------------------ | --- | ---------------- |  | - | ---- | -
|                                             |  | Three Months Ended |     | Six Months Ended
|Income Statement Data:                       |  | June 30, 2001      |     | June 30, 2001   
|                                             |  |                    |     |                 
|Cost of sales                                |  | $                  | (69 | )                |  | $ | (134 | )
|Selling, general and administrative expenses |  |                    | 41  |                  |  |   | 146  |  
|Net income                                   |  |                    | 28  |                  |  |   | (12  | )
|Basic and diluted net income per share       |  | $                  |    |                  |  | $ |     |  

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Other Income, net

Other Income, net consists of interest income and parking fee income, and
other insignificant non-operating income and expenses.

|                       |  |                             |         |      |  |   |         |  
|---------------------- |  | --------------------------- | ------- | ---- |  | - | ------- | -
|                       |  | Three Months Ended June 30,
|                       |  |                            
|                       |  | 2002                        |         | 2001
|                       |  |                             |         |     
|Interest income        |  | $                           | 23,765  |      |  | $ | 66,334  |  
|Parking income         |  |                             | 96,406  |      |  |   | 95,924  |  
|Interest expense       |  |                             | (2,113  | )    |  |   |        |  
|Loss on sale of assets |  |                             | (908    | )    |  |   | (436    | )
|Other income (expense) |  |                             | 12,441  |      |  |   | 52      |  
|                       |  |                             |         |      |  |   |         |  
|Other income, net      |  | $                           | 129,591 |      |  | $ | 161,874 |  
|                       |  |                             |         |      |  |   |         |  

|                       |  |                           |         |      |  |   |         |  
|---------------------- |  | ------------------------- | ------- | ---- |  | - | ------- | -
|                       |  | Six Months Ended June 30,
|                       |  |                          
|                       |  | 2002                      |         | 2001
|                       |  |                           |         |     
|Interest income        |  | $                         | 54,971  |      |  | $ | 159,979 |  
|Parking income         |  |                           | 107,884 |      |  |   | 106,299 |  
|Interest expense       |  |                           | (3,522  | )    |  |   |        |  
|Loss on sale of assets |  |                           | (53     | )    |  |   | (436    | )
|Other income (expense) |  |                           | 22,473  |      |  |   | (2,742  | )
|                       |  |                           |         |      |  |   |         |  
|Other income, net      |  | $                         | 181,753 |      |  | $ | 263,100 |  
|                       |  |                           |         |      |  |   |         |  

The accompanying condensed financial statements have been prepared by the
Company, without audit, in accordance with accounting principles generally
accepted in the United States for interim financial information and pursuant to
the rules and regulations of the Securities and Exchange Commission. With the
exception of the historical information contained herein, the matters described
may contain forward-looking statements that involve risks and uncertainties,
including those described under the caption entitled Risk Factors and
Forward-Looking Statements in the Companys Annual Report on Form 10-K for the
year ended December 31, 2001, filed with the Securities and Exchange
Commission, and elsewhere in the Companys periodic reports. In the opinion of
management, the accompanying unaudited financial statements contain all
material adjustments, consisting only of those of a normal recurring nature,
considered necessary for a fair presentation of the Companys financial
position, results of operations and cash flows at the dates and for the periods
presented. The operating results for the interim periods presented are not
necessarily indicative of the results expected for the full year.

2. INVENTORIES:

|                |  |          |           |              |  |   |           | 
|--------------- |  | -------- | --------- | ------------ |  | - | --------- | 
|                |  | June 30, |           | December 31,
|                |  | 2002     |           | 2001        
|                |  |          |           |             
|Raw materials   |  | $        | 531,297   |              |  | $ | 522,226   | 
|Work in process |  |          | 194,794   |              |  |   | 138,231   | 
|Finished goods  |  |          | 419,410   |              |  |   | 517,691   | 
|                |  |          |           |              |  |   |           | 
|                |  | $        | 1,145,501 |              |  | $ | 1,178,148 | 
|                |  |          |           |              |  |   |           | 

Raw materials primarily include ingredients, flavorings and packaging.
Work in process includes beer held in fermentation prior to the filtration and
packaging process. Finished goods primarily include product ready for shipment,
as well as promotional merchandise held for sale

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3. FIXED ASSETS:

|                                                |  |          |             |              |  |   |            |  
|----------------------------------------------- |  | -------- | ----------- | ------------ |  | - | ---------- | -
|                                                |  | June 30, |             | December 31,
|                                                |  | 2002     |             | 2001        
|                                                |  |          |             |             
|Brewery and retail equipment                    |  | $        | 14,757,687  |              |  | $ | 14,465,637 |  
|Furniture and fixtures                          |  |          | 937,330     |              |  |   | 918,879    |  
|Leasehold improvements                          |  |          | 15,468,267  |              |  |   | 13,808,247 |  
|Construction in progress                        |  |          | 253,405     |              |  |   | 584,855    |  
|                                                |  |          |             |              |  |   |            |  
|                                                |  |          | 31,416,689  |              |  |   | 29,777,618 |  
|Less:
accumulated depreciation and amortization |  |          | (10,594,846 | )            |  |   | (9,555,058 | )
|                                                |  |          |             |              |  |   |            |  
|                                                |  | $        | 20,821,843  |              |  | $ | 20,222,560 |  
|                                                |  |          |             |              |  |   |            |  

4. NOTE RECEIVABLE RELATED PARTY

In June 2001, the Company issued a $787,000 full recourse note to the CEO
in exchange for the exercise of options for 387,400 shares of the Companys
common stock. In addition, the Company issued a $115,000 full recourse note to
the CEO to fund his payment of taxes on the exercise of the options. The notes
are due on the earlier of June 30, 2011 or upon the sale of the stock and bear
an annual interest rate of 5.6%. A total of 135,100 of those shares are
unrestricted, except for being pledged as collateral for the loans, and the
remaining 252,300 shares become unrestricted over the next three and one-half
years. During the quarter and six months ended June 31, 2002,
the Company recorded $11,000 and $43,000, respectively, in
compensation expense in connection with this equity arrangement which
is included in selling, general and administrative expenses.

5. EARNINGS PER SHARE

Basic earnings per share was computed by dividing net income available to
common shareholders by weighted average shares outstanding. Options to purchase
approximately 263,000 and 341,000 shares of common
stock were outstanding as of June 30, 2002 and 2001,
respectively, but were not included in the calculation of diluted
earnings per share for the quarter ended June 30, 2002 and 2001 because
the exercise price of the options were greater than the average market price of
the common shares. Dilutive earnings per share was calculated as follows:

|          |                                             |                            |   |                    |      |                  |   |           |      |          |   |           |       |      |   |           |       |  
|--------- | ------------------------------------------- | -------------------------- | - | ------------------ | ---- | ---------------- | - | --------- | ---- | -------- | - | --------- | ----- | ---- | - | --------- | ----- | -
|          |                                             |                            |   | Three Months Ended |      | Six Months Ended
|          |                                             |                            |   | June 30,           |      | June 30,        
|          |                                             |                            |   |                    |      |                 
|          |                                             |                            |   |                    |      |                  |   | 2001      |      |          |   |           |       | 2001
|          |                                             |                            |   | 2002               |      | Restated         |   | 2002      |      | Restated
|          |                                             |                            |   |                    |      |                  |   |           |      |         
|Earnings: |                                             |                            |   |                    |      |                  |   |           |      |          |   |           |       |      |   |          
|          | Net income (loss)                           |                            | $ | 593,881            |      |                  | $ | 316,669   |      |          | $ | (173,517  | )     |      | $ | (409,769  | )    
|Shares:   |                                             |                            |   |                    |      |                  |   |           |      |          |   |           |       |      |   |          
|          | Weighted average basic shares outstanding   |                            |   | 8,173,219          |      |                  |   | 7,920,376 |      |          |   | 8,142,677 |       |      |   | 7,894,132 |      
|          | Stock option dilution                       |                            |   | 68,593             |      |                  |   | 156,758   |      |          |   |          |       |      |   |          |      
|          |                                             |                            |   |                    |      |                  |   |           |      |          |   |           |       |      |   |          
|          | Weighted average diluted shares outstanding |                            |   | 8,241,812          |      |                  |   | 8,077,134 |      |          |   | 8,142,677 |       |      |   | 7,894,132 |      
|          |                                             |                            |   |                    |      |                  |   |           |      |          |   |           |       |      |   |          
|          |                                             | Diluted earnings per share |   | $                  | 0.07 |                  |   | $         | 0.04 |          |   | $         | (0.02 | )    |   | $         | (0.05 | )
|          |                                             |                            |   |                    |      |                  |   |           |      |          |   |           |       |      |   |          

6. STOCKHOLDERS EQUITY

|                             |                                                                 |  |              |        |            |   |         |     |            |   |             |         |               |   |          |   |       |   |          |        |  |   |             |          |   |   |            |          |  
|---------------------------- | --------------------------------------------------------------- |  | ------------ | ------ | ---------- | - | ------- | --- | ---------- | - | ----------- | ------- | ------------- | - | -------- | - | ----- | - | -------- | ------ |  | - | ----------- | -------- | - | - | ---------- | -------- | -
|                             |                                                                 |  | Common Stock |        | Additional |   |         |     |            |   | Deferred    |         |               |   |          |   | Total
|                             |                                                                 |  |              |        | Paid-In    |   | Note    |     | Compen-    |   | Accumulated |         | Stockholders
|                             |                                                                 |  | Shares       |        | Amount     |   | Capital |     | Receivable |   | sation      |         | Deficit       |   | Equity  
|                             |                                                                 |  |              |        |            |   |         |     |            |   |             |         |               |   |         
|Balance at December 31, 2001 |                                                                 |  | 8,299,493    |        |            | $ | 82,995  |     |            | $ | 35,649,120  |         |               |   | (786,818 | ) |       |   | (185,486 | )      |  | $ | (9,535,710  | )        |   | $ | 25,224,101 |         
|                             | Net loss                                                        |  |              |       |            |   |         |    |            |   |             |        |               |   |          |  |       |   |          |       |  |   |             | (173,517 | ) |   |            | (173,517 | )
|                             | Shares issued                                                   |  |              | 80,332 |            |   |         | 804 |            |   |             | 160,732 |               |   |          |  |       |   |          |       |  |   |             |         |   |   |            | 161,536  |  
|                             | Stock compensation including
amortization of stock compensation |  |              |       |            |   |         |    |            |   |             | 2,772   |               |   |          |  |       |   |          | 43,247 |  |   |             |         |   |   |            | 46,019   |  
|                             | Dividends declared                                              |  |              |       |            |   |         |    |            |   |             |        |               |   |          |  |       |   |          |       |  |   |             | (734,211 | ) |   |            | (734,211 | )
|                             |                                                                 |  |              |        |            |   |         |     |            |   |             |         |               |   |          |   |       |   |          |        |  |   |             |          |   |   |            |         
|Balance at June 30, 2002     |                                                                 |  | 8,379,825    |        |            | $ | 83,799  |     |            | $ | 35,812,624  |         |               | $ | (786,818 | ) |       | $ | (142,239 | )      |  | $ | (10,443,438 | )        |   | $ | 24,523,928 |         
|                             |                                                                 |  |              |        |            |   |         |     |            |   |             |         |               |   |          |   |       |   |          |        |  |   |             |          |   |   |            |         

8



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##### Table of Contents



7. COMMITMENTS AND CONTINGENCIES:

The Company is involved from time to time in claims, proceedings and
litigation arising in the ordinary course of business. The Company does not
believe that any such claim, proceeding or litigation, either alone or in the
aggregate, will have a material adverse effect on the Companys financial
position or results of operations.

8. CASH DIVIDEND:

The Board of Directors announced on May 9, 2002, the declaration of a
$0.044 per common share dividend payable on July 12, 2002 to shareholders of
record on June 28, 2002. The cash dividend declared totaled approximately
$369,000 for all common stock outstanding as of the date of record.

|     |  |                    |       |                  |  |   |       | 
|---- |  | ------------------ | ----- | ---------------- |  | - | ----- | 
|     |  | Three Months Ended |       | Six Months Ended
|     |  | June 30,           |       | June 30,        
|     |  |                    |       |                 
|2002 |  | $                  | 0.044 |                  |  | $ | 0.088 | 
|2001 |  | $                  | 0.044 |                  |  | $ | 0.088 | 

Although the Company has declared and paid a dividend every quarter since
the fourth quarter of 1999, continued future declaration of dividends will
depend, among other things, on the Companys results of operations, capital
requirements and financial condition, and on such other factors as the
Companys Board of Directors may in its discretion consider relevant and in the
best long term interest of the shareholders.

9. SEGMENT INFORMATION:

The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 131 Disclosures about Segments of an Enterprise and
Related Information, and reports segment information in the same format as
reviewed by the Companys management, which is organized around differences in
products and services.

Products and Services

The Companys reportable segments include beverage operations and
alehouses. Beverage operations include the production and sale of Pyramid ales
and lagers, Thomas Kemper beers and Thomas Kemper Soda Company products. The
alehouse segment consists of three full-service alehouses, which market and
sell the full line of the Companys beer and soda products as well as food and
certain merchandise.

Factors used to identify reportable segments

The Companys reportable segments are strategic business units that offer
distinct and different products and services. These segments are managed
separately because each business requires different production, management and
marketing strategies.

Measurement of segment profit and segment assets

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before income taxes not
including nonrecurring gains and losses. The Company records intersegment
sales at cost.

9



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##### Table of Contents



Segment profit and segment assets are as follows:

|                               |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |        |  
|------------------------------ | -------------------------------- |  | ---------------------- | ------ | -------- |  | ----- | ----- | ----- |  | - | ------ | - |  | - | ------ | -
|                               |                                  |  | Beverage               |        |          |  |       |       |       |  |   |        |   |  |  
|                               |                                  |  | Operations             |        | Alehouse |  | Other |       | Total
|                               |                                  |  |                        |        |          |  |       |       |      
|                               |                                  |  | (Dollars in thousands)
|Quarter ended June 30, 2002    |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |       
|                               | Revenues from external customers |  | $                      | 7,256  |          |  | $     | 2,921 |       |  | $ |       |   |  | $ | 10,177 |  
|                               | Intersegment revenues            |  |                        | 107    |          |  |       | (107  | )     |  |   |       |   |  |   |       |  
|                               | Interest income                  |  |                        |       |          |  |       |      |       |  |   | 24     |   |  |   | 24     |  
|                               | Depreciation and amortization    |  |                        | 383    |          |  |       | 109   |       |  |   | 48     |   |  |   | 540    |  
|                               | Operating
income (loss)          |  |                        | 819    |          |  |       | 333   |       |  |   | (688   | ) |  |   | 464    |  
|                               | Capital expenditures             |  |                        | 76     |          |  |       | 515   |       |  |   | 129    |   |  |   | 720    |  
|                               | Total assets                     |  |                        | 15,775 |          |  |       | 4,401 |       |  |   | 9,574  |   |  |   | 29,750 |  
|Quarter ended June 30, 2001    |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |       
|                               | Revenues from external customers |  | $                      | 7,044  |          |  | $     | 2,322 |       |  | $ |       |   |  | $ | 9,366  |  
|                               | Intersegment revenues            |  |                        | 86     |          |  |       | (86   | )     |  |   |       |   |  |   |       |  
|                               | Interest income                  |  |                        |       |          |  |       |      |       |  |   | 66     |   |  |   | 66     |  
|                               | Depreciation and amortization    |  |                        | 396    |          |  |       | 103   |       |  |   | 217    |   |  |   | 716    |  
|                               | Operating
income (loss)          |  |                        | 750    |          |  |       | 364   |       |  |   | (931   | ) |  |   | 183    |  
|                               | Capital expenditures             |  |                        | 91     |          |  |       | 14    |       |  |   | 78     |   |  |   | 183    |  
|                               | Total assets                     |  |                        | 16,641 |          |  |       | 3,228 |       |  |   | 12,161 |   |  |   | 32,030 |  
|Six months ended June 30, 2002 |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |       
|                               | Revenues from external customers |  | $                      | 12,238 |          |  | $     | 4,773 |       |  | $ |       |   |  | $ | 17,011 |  
|                               | Intersegment revenues            |  |                        | 171    |          |  |       | (171  | )     |  |   |       |   |  |   |       |  
|                               | Interest income                  |  |                        |       |          |  |       |      |       |  |   | 55     |   |  |   | 55     |  
|                               | Depreciation and amortization    |  |                        | 820    |          |  |       | 207   |       |  |   | 127    |   |  |   | 1,154  |  
|                               | Operating income (loss)          |  |                        | 673    |          |  |       | 418   |       |  |   | (1,265 | ) |  |   | (174   | )
|                               | Capital expenditures             |  |                        | 151    |          |  |       | 1,136 |       |  |   | 147    |   |  |   | 1,434  |  
|                               | Total assets                     |  |                        | 15,775 |          |  |       | 4,401 |       |  |   | 9,574  |   |  |   | 29,750 |  
|Six months ended June 30, 2001 |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |       
|                               | Revenues from external customers |  | $                      | 11,812 |          |  | $     | 4,132 |       |  | $ |       |   |  | $ | 15,944 |  
|                               | Intersegment revenues            |  |                        | 140    |          |  |       | (140  | )     |  |   |       |   |  |   |       |  
|                               | Interest income                  |  |                        |       |          |  |       |      |       |  |   | 160    |   |  |   | 160    |  
|                               | Depreciation and amortization    |  |                        | 785    |          |  |       | 206   |       |  |   | 253    |   |  |   | 1,244  |  
|                               | Operating
income (loss)          |  |                        | 405    |          |  |       | 496   |       |  |   | (1,585 | ) |  |   | (684   | )
|                               | Capital expenditures             |  |                        | 211    |          |  |       | 99    |       |  |   | 120    |   |  |   | 430    |  
|                               | Total assets                     |  |                        | 16,641 |          |  |       | 3,228 |       |  |   | 12,161 |   |  |   | 32,030 |  

Other

Other consists of interest income, general and administrative expense,
corporate office assets and other reconciling items that are not allocated to
segments for internal management reporting purposes. Total assets include all
assets except for fixed assets, which are presented by segment.

10. NEW ACCOUNTING PRONOUNCEMENTS:

Effective January 1, 2002 the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 requires companies to cease amortizing
goodwill that existed at June 30, 2001. The annual amortization of existing
goodwill of approximately $80,000 ceased on December 31, 2001. SFAS No. 142
also establishes a new method of testing goodwill for impairment on an annual
basis or on an interim basis if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting unit below its
carrying value. The Company is currently evaluating whether there will be
additional impacts from the adoption of SFAS No. 142 on the Companys financial
statements such as an impairment of existing goodwill amounts, however, the
Company does not expect to recognize any material impairment change.

10



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##### Table of Contents






Item 2  Managements Discussion and Analysis of Financial Condition and
Results of Operations

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
selected unaudited operating data, expressed as a percentage of net sales.

SELECTED UNAUDITED OPERATING DATA

|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       |  | 
|-------------------------------------------- | ---------------------------------------- | - | ---------------------- | ------- | --------- |  | ----- |  | --------- | - | --------- | ------- | ---- |  | ----- |  | 
|                                             |                                          |   | Quarter Ended June 30,
|                                             |                                          |   |                       
|                                             |                                          |   |                        |         |           |  | % of  |  |           |   |           |         | % of
|                                             |                                          |   | 2002                   |         | Net Sales |  | 2001  |  | Net Sales
|                                             |                                          |   |                        |         |           |  |       |  |          
|Gross sales                                  |                                          | $ | 10,177,068             |         |           |  |       |  |           | $ | 9,366,493 |         |      |  |       | 
|Less excise taxes                            |                                          |   | 472,109                |         |           |  |       |  |           |   | 446,788   |         |      |  |       | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Net sales                                    |                                          |   | 9,704,959              |         |           |  | 100.0 |  |           |   | 8,919,705 |         |      |  | 100.0 | 
|Cost of sales                                |                                          |   | 7,021,217              |         |           |  | 72.3  |  |           |   | 6,219,562 |         |      |  | 69.7  | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Gross margin                                 |                                          |   | 2,683,742              |         |           |  | 27.7  |  |           |   | 2,700,143 |         |      |  | 30.3  | 
|Selling, general and administrative expenses |                                          |   | 2,219,452              |         |           |  | 22.9  |  |           |   | 2,517,303 |         |      |  | 28.2  | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Operating income                             |                                          |   | 464,290                |         |           |  | 4.8   |  |           |   | 182,840   |         |      |  | 2.1   | 
|Other income, net                            |                                          |   | 129,591                |         |           |  | 1.3   |  |           |   | 161,874   |         |      |  | 1.8   | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Income before income taxes                   |                                          |   | 593,881                |         |           |  | 6.1   |  |           |   | 344,714   |         |      |  | 3.9   | 
|Provision for income taxes                   |                                          |   |                       |         |           |  |      |  |           |   |          |         |      |  |      | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Net income                                   |                                          | $ | 593,881                |         |           |  | 6.1   |  |           | $ | 344,714   |         |      |  | 3.9   | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Basic and diluted net income per share       |                                          | $ | 0.07                   |         |           |  |       |  |           | $ | 0.04      |         |      |  |       | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Weighted average basic shares outstanding    |                                          |   | 8,173,219              |         |           |  |       |  |           |   | 7,920,376 |         |      |  |       | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Weighted average diluted shares outstanding  |                                          |   | 8,241,812              |         |           |  |       |  |           |   | 8,077,134 |         |      |  |       | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|Operating data (in barrels):                 |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|                                             | Beer barrels shipped                     |   |                        | 31,900  |           |  |       |  |           |   |           | 31,600  |      |  |       |  | 
|                                             | Soda barrels shipped                     |   |                        | 15,000  |           |  |       |  |           |   |           | 15,100  |      |  |       |  | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|                                             | Total barrels shipped                    |   |                        | 46,900  |           |  |       |  |           |   |           | 46,700  |      |  |       |  | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 
|                                             | Annual production capacity at period end |   |                        | 200,000 |           |  |       |  |           |   |           | 200,000 |      |  |       |  | 
|                                             |                                          |   |                        |         |           |  |       |  |           |   |           |         |      |  |       | 

|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |   | 
|--------------------------------------------- | ---------------------------------------- | - | ------------------------- | ------- | --------- |  | ----- | - | --------- | - | ---------- | ------- | ---- |  | ----- | - | 
|                                              |                                          |   | Six Months Ended June 30,
|                                              |                                          |   |                          
|                                              |                                          |   |                           |         |           |  | % of  |   |           |   |            |         | % of
|                                              |                                          |   | 2002                      |         | Net Sales |  | 2001  |   | Net Sales
|                                              |                                          |   |                           |         |           |  |       |   |          
|Gross sales                                   |                                          | $ | 17,010,947                |         |           |  |       |   |           | $ | 15,944,313 |         |      |  |       |  
|Less excise taxes                             |                                          |   | 814,282                   |         |           |  |       |   |           |   | 724,594    |         |      |  |       |  
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Net sales                                     |                                          |   | 16,196,665                |         |           |  | 100.0 |   |           |   | 15,219,719 |         |      |  | 100.0 |  
|Cost of sales                                 |                                          |   | 12,157,228                |         |           |  | 75.1  |   |           |   | 11,112,028 |         |      |  | 73.0  |  
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Gross margin                                  |                                          |   | 4,039,437                 |         |           |  | 24.9  |   |           |   | 4,107,691  |         |      |  | 27.0  |  
|Selling, general and administrative expenses  |                                          |   | 4,394,707                 |         |           |  | 27.1  |   |           |   | 4,792,070  |         |      |  | 31.4  |  
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Operating loss                                |                                          |   | (355,270                  | )       |           |  | (2.2  | ) |           |   | (684,379   | )       |      |  | (4.4  | )
|Other income, net                             |                                          |   | 181,753                   |         |           |  | 1.1   |   |           |   | 263,100    |         |      |  | 1.7   |  
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Income
(loss) before income taxes             |                                          |   | (173,517                  | )       |           |  | (1.1  | ) |           |   | (421,279   | )       |      |  | (2.7  | )
|Provision for income taxes                    |                                          |   |                          |         |           |  |      |   |           |   |           |         |      |  |      |  
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Net
income (loss)                             |                                          | $ | (173,517                  | )       |           |  | (1.1  | ) |           | $ | (421,279   | )       |      |  | (2.7  | )
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Basic and diluted net income (loss) per share |                                          | $ | (0.02                     | )       |           |  |       |   |           | $ | (0.05      | )       |      |  |       |  
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Weighted average basic shares outstanding     |                                          |   | 8,142,677                 |         |           |  |       |   |           |   | 7,894,132  |         |      |  |       |  
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Weighted average diluted shares outstanding   |                                          |   | 8,142,677                 |         |           |  |       |   |           |   | 7,894,132  |         |      |  |       |  
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|Operating data (in barrels):                  |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|                                              | Beer barrels shipped                     |   |                           | 55,100  |           |  |       |   |           |   |            | 53,900  |      |  |       |   | 
|                                              | Soda barrels shipped                     |   |                           | 24,300  |           |  |       |   |           |   |            | 24,900  |      |  |       |   | 
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|                                              | Total barrels shipped                    |   |                           | 79,400  |           |  |       |   |           |   |            | 78,800  |      |  |       |   | 
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  
|                                              | Annual production capacity at period end |   |                           | 200,000 |           |  |       |   |           |   |            | 200,000 |      |  |       |   | 
|                                              |                                          |   |                           |         |           |  |       |   |           |   |            |         |      |  |       |  

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QUARTER ENDED JUNE 30, 2002 COMPARED TO QUARTER ENDED JUNE 30, 2001

Gross Sales. Gross sales increased 8.7% to $10,177,000 for the second
quarter ended June 30, 2002 from $9,366,000 in the same quarter of the prior
year. This increase in gross sales was the result of increased sales in both
divisions, wholesale beverage and alehouse restaurants. Wholesale beverage
sales increased 3.0% to $7,256,000 in the second quarter of 2002 from
$7,044,000 in the same quarter of 2001. This increase was primarily due to a 3%
increase in Pyramid beer sales. Alehouse sales increased 25.8% to $2,921,000
from $2,323,000 for the quarters ended June 30, 2002 and 2001, respectively, due to
the addition of the Walnut Creek, CA alehouse, which opened this year on May
8th and
contributed $607,000 in revenues. Total wholesale beer shipments increased 0.9%
to 31,900 barrels for the second quarter of 2002 from 31,600 over the same
quarter of the prior year. Of total beer shipments, Pyramid beer increased 3.3%
to 30,900 barrels while Thomas Kemper beer shipments decreased 43.4% to 1,000
barrels for the second quarter of 2002 compared to the same quarter of the
prior year.

Excise Taxes. Excise taxes decreased to 4.6% of gross sales for the second
quarter ended June 30, 2002 from 4.8% of gross sales in the same quarter of the
prior year. The decrease in excise taxes as a percentage of gross sales was due
to a greater portion of alehouse sales during the quarter ended June 30, 2002,
which do not bear excise tax.

Gross Margin.Gross margin decreased 0.6% to $2,684,000 for the second
quarter ended June 30, 2002 from $2,700,000 in the same quarter of the prior
year. Gross margin as a percentage of net sales decreased to 27.7% for the
second quarter ended June 30, 2002 from 30.3% for the same quarter of the prior
year. This decrease as a percentage of net sales was due primarily to increased
costs associated with the opening of the Walnut Creek alehouse and a greater
portion of overall sales being alehouse sales with a lower relative gross
margin.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 11.8% to $2,219,000 from $2,517,000 for the
quarters ended June 30, 2002 and 2001, respectively. Selling, general and
administrative expenses as a percent of net sales decreased to 22.9% from 28.2%
for the same quarter of the prior year. This decrease in expense was primarily
due to a prior year charge of $180,000 related to the equity arrangement with
the companys CEO and lower labor and promotional costs.

Other Income, net. Other income decreased 19.9% to $130,000 for the second
quarter ended June 30, 2002 from $162,000 for the second quarter of the prior
year. The decrease was due primarily to lower interest income during the
current year.

Income Taxes.The Company recorded no income tax benefit or provision for
the quarters ended June 30, 2002 and 2001. As of December 31, 2001, the Company
had deferred tax assets arising from deductible temporary differences, tax
losses, and tax credits offset against certain deferred tax liabilities. A
valuation allowance was recorded against the deferred tax asset for the
benefits of tax losses which may not be realized. Realization of the deferred
tax asset representing tax loss and credit carryforwards is dependent on the
Companys ability to generate future U.S. taxable income. The Company will
continue to evaluate the realizability of the deferred tax assets quarterly by
assessing the need for and amount of a valuation allowance.

Net Income. Net income increased $249,000 to $594,000 for the quarter
ended June 30, 2002 from $345,000 reported for the same quarter of the prior
year. The increase in net income was due mainly to decreased selling, general
and administrative expenses for the second quarter ended June 30, 2002.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001

Gross Sales. Gross sales increased 6.7% to $17,011,000 for the six month
period ended June 30, 2002 from $15,944,000 in the same six month period of the
prior year. This increase in gross sales was mainly the result of increased
wholesale beer and alehouse sales. Wholesale beverage sales increased 3.6% to
$12,238,000 in the six month period ended June 30, 2002 from $11,812,000 in the
same period of 2001. This increase was due to a 2% increase in beer barrels
shipped to 55,100 barrels from 53,900 barrels in the same six month period of
the prior year. Alehouse sales increased 15.5% to $4,773,000 from
$4,132,000
for six months ended June 30, 2002 and 2001, respectively, due primarily to the
addition of the Walnut Creek, CA alehouse, which opened this year on May
8th, and
contributed $607,000. Of wholesale beer shipments, Pyramid beer increased 4.5%
to 52,900 barrels while Thomas Kemper beer shipments decreased 33.1% to 2,200
barrels for the six month period ended June 30, 2002 compared to the same six
month period of the prior year.

Excise Taxes.Excise taxes totaled 4.8% and 4.5% of gross sales for the
six-month period ended June 30, 2002 and 2001, respectively. The increase in
excise taxes as a percentage of gross sales was due mainly to a greater portion
of beer sales, which bear excise tax.

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Gross Margin. Gross margin decreased 1.7% to $4,039,000 for the six month
period ended June 30, 2002 from $4,108,000 for the same six month period of the
prior year. Gross margin as a percentage of net sales decreased to 24.9% for
the six month period ended June 30, 2002 from 27.0% for the same six month
period of the prior year. Although gross margins in the beverage division have
improved slightly due to cost efficiencies, these improvements have been offset
by opening costs associated with the Walnut Creek, CA alehouse and a greater
portion of overall sales coming from the Alehouse Division with lower relative
gross margins.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 8.3% to $4,395,000 for the six month period
ended June 30, 2002 from $4,792,000 for the same period of the prior year.
Selling, general and administrative expenses as a percent of net sales also
decreased to 27.1% from 31.4% for the same period of the prior year. This
decrease in expense was primarily due to decreased marketing expense of
$261,000 related to a brand awareness campaign and a non-cash charge of
$180,000 related to the new equity arrangement with the companys CEO recorded
during the prior year.

Other Income, net. Other income decreased to $182,000 for the six month
period ended June 30, 2002 from $263,000 for the same six month period of the
prior year. The decrease was due primarily to a decrease in interest income
during the current year.

Income Taxes.The Company recorded no income tax benefit or provision for
the six months ended June 30, 2002 and 2001. As of December 31, 2001, the Company
had deferred tax assets arising from deductible temporary differences, tax
losses, and tax credits offset against certain deferred tax liabilities. A
valuation allowance was recorded against the deferred tax asset for the
benefits of tax losses which may not be realized. Realization of the deferred
tax asset representing tax loss and credit carryforwards is dependent on the
Companys ability to generate future U.S. taxable income. The Company will
continue to evaluate the realizability of the deferred tax assets quarterly by
assessing the need for and amount of a valuation allowance.

Net (Loss) Income. The net loss for the six month period ended June 30,
2002 was $174,000, a decrease of $247,000, compared to net loss of $421,000
reported for the same period of the prior year. The improved net loss was due
mainly to decreased selling, general and administrative expense.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities during the six month period
ended June 30, 2002 was relatively flat at $974,000 compared to $1,077,000
for the same period of the prior year. Net cash used in investing activities
for the six months ended June 30, 2002 was $1,371,000 compared to net cash used
in investing activities of $428,000 for the same period of the prior year. The
cash used in investing activities in 2002 included funds used to complete the
new Walnut Creek, CA alehouse location which opened in May 2002, expand the
Seattle alehouse kitchen area and install production equipment in the Berkeley
and Seattle breweries. At June 30, 2002, the Company had working capital of
$3,806,000 compared to $5,151,000 at December 31, 2001.

On December 15, 1999, the Company announced a stock buyback plan to
repurchase up to $2,000,000 of the Companys common stock from time to time on
the open market. Stock repurchases are at the discretion of management and
depend, among other things, on the Companys results of operations, capital
requirements and financial condition, and on such other factors as the
Companys management may consider relevant. As of June 30, 2002, the Company
has repurchased 457,724 shares at an average price of $1.94 per share.

Future capital requirements may vary depending on such factors as the cost
of acquisition of businesses, brands and real estate costs in the markets
selected for future expansion, whether such real estate is leased or purchased
and the extent of improvements necessary. Capital expenditures in 2002 are
expected to be greater than 2001 expenditures. Planned projects include the
Walnut Creek Alehouse development which opened in May 2002, Sacramento Alehouse
development scheduled to open in the third quarter 2003 and the upgrading of
brewery equipment and alehouse facilities in the Seattle and Berkeley
locations. The Company estimates that total Alehouse development costs to be
incurred in 2002 will be approximately $1,400,000. While there can be no
assurance that current expectations will be realized and plans are subject to
change upon further review, the Company believes that its cash reserves,
together with cash from operations, will be sufficient for the Companys
working capital needs.

The Companys future cash requirements and cash flow expectations are
closely related to its expansion plans. The Company generally expects to meet
future financing needs through cash on-hand and cash flow from operations.
Additionally, the Company has opened discussions with several lenders related
to establishing a line of credit to help support the costs of future expansion.
Although the Company has declared and paid a dividend every quarter since the
fourth quarter of 1999, continued future declaration of dividends will depend,
among other things, on the Companys results of operations, capital
requirements and financial condition, and on such other factors as the
Companys Board of Directors may in its discretion consider relevant and in the
best long term interest of the shareholders.

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CRITICAL ACCOUNTING
POLICIES

The Company believes
that its critical accounting policies include the following:

 Long-lived asset impairment

 Valuation of returnable containers

 Realization of deferred tax assets

Refer to the
Liquidity and Capital Resources discussion in the Managements
Discussion and Analysis of Financial Condition section of the 2001
Pyramid Breweries Inc. 10-K.

RISK FACTORS AND FORWARD LOOKING STATEMENTS

The Company does not provide forecasts of future financial performance.
However this report does contain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, which are subject to the
safe harbor created by that section. There are numerous important factors
that could cause results to differ materially from those anticipated by some of
the statements made by the Company. Investors are cautioned that all
forward-looking statements involve a high degree of risk and uncertainty.
Additional information concerning those and other factors is contained in the
Companys Securities and Exchange Commission filings including its Form 10-K
for the year ended December 31, 2001.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

The Company has not and does not currently have any intention to hold any
derivative instruments or engage in hedging activities. Also, the Company does
not have any outstanding variable rate debt and does not enter into significant
transactions denominated in foreign currency. Therefore, the Companys direct
exposure to risks arising from changes in interest rates, foreign currency
exchange rates, commodity prices, equity prices, and other market changes that
affect market risk sensitive instruments is not material.




PART II.  OTHER INFORMATION




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual shareholder meeting was held on May 2, 2002. During the
meeting, the election of three directors was submitted to a vote of security
holders and duly elected for terms of one to three years each. George Hancock
was re-elected by a vote of 7,696,951 for and 405,211 votes were withheld.
Scott Barnum was re-elected by a vote of 7,696,301 for and 405,861 votes were
withheld. Scott Svenson was elected to serve a one year term by a vote of
7,696,741 for and 405,421 votes were withheld. The terms of office as directors
continued after the meeting for Kurt Dammeier, Martin Kelly and Nancy Mootz.

The shareholders approved the amendment of the Amended and Restated 1995
Employee Stock Option Plan. The results of the vote were as follows:

|        |  |       |           | 
|------- |  | ----- | --------- | 
|        |  | Votes
|        |  |      
|For     |  |       | 7,518,360 | 
|Against |  |       | 555,404   | 
|Abstain |  |       | 28,397    | 




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

The following exhibits are filed as part of this report.



| | 3.1* |  | Amended and Restated Articles of Incorporation                                                                        
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------
|
| | 3.2* |  | Amended and Restated Bylaws                                                                                           
|
| | 99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|
| | 99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002



---

|* |  | Incorporated by reference to the exhibits filed as part of the Companys
Registration Statement on Form S-1 (File No. 33-97834).
|- |  | --------------------------------------------------------------------------------------------------------------------------------

(B) REPORTS ON FORM 8-K

Change in auditors from Arthur Andersen LLP to KPMG LLP

Items 1, 2, 3, and 5 of PART II are not applicable and have been omitted.

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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on August 8, 2002.

| |                                                              |                       
| | ------------------------------------------------------------ | ----------------------
| | PYRAMID BREWERIES INC.                                      
|
| | By:                                                          | /s/   ERIC G. PETERSON
| |                                                             
| | Eric G. Peterson, Vice-President and
Chief Financial Officer
|
| | By:                                                          | /s/   R. MARTIN KELLY 
| |                                                             
| | R. Martin Kelly, President andChief Executive Officer       

DATE: August 8, 2002

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EXHIBIT INDEX

|        |  |                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                       
|NO.     |  | DESCRIPTION                                                                                                           
|        |  |                                                                                                                       
|99.1    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
|99.2    |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

16