##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
 For the transition period from            to            .
 Commission file number 0-27116
 
 PYRAMID BREWERIES INC.
  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
 (206) 682-8322
 
 þ o
 o þ




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PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
 TABLE OF CONTENTS
 PagePART IFINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Balance
SheetsJune 30, 2005 and December 31, 2004
    
    
    3Condensed
Statements of OperationsThree Month and Six Month Periods Ended June 30, 2005 and 2004
    
    
    4Condensed Statements of Cash FlowsSix Month Periods Ended June 30, 2005 and 2004
    
    
    5Notes to Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    19PART IIOTHER INFORMATIONItem 6. Exhibits and Reports on Form 8-K.
    
    
    20SIGNATURE
    
    
    21EXHIBIT 10.26EXHIBIT 10.27EXHIBIT 10.28EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 31.3EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 32.3
  2




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##### Table of Contents



PART I
 
 Item 1  FINANCIAL STATEMENTS
 PYRAMID BREWERIES INC.
 
 BALANCE SHEETS
(Unaudited)
 June 30,
    
    December 31,(in thousands)2005
    
    2004CURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, net of $20 allowance
    
    
    3,524
    
    
    
    2,191Inventories
    
    
    2,037
    
    
    
    2,129Prepaid expenses and other
    
    
    314
    
    
    
    324Total current assets
    
    
    5,875
    
    
    
    4,644Note receivable related party
    
    
    
    
    
    
    Fixed assets, net
    
    
    27,997
    
    
    
    28,859Goodwill
    
    
    415
    
    
    
    415Intangibles
    
    
    186
    
    
    
    209Other assets
    
    
    814
    
    
    
    189Total assets
    
    $
    35,287
    
    
    $
    34,316CURRENT LIABILITIES:Accounts payable
    
    $
    3,790
    
    
    $
    2,776Accrued expenses
    
    
    2,829
    
    
    
    2,682Refundable deposits
    
    
    756
    
    
    
    582Line of credit
    
    
    554
    
    
    
    400Current portion of long-term financing
    
    
    96
    
    
    
    83Note payable  current
    
    
    20
    
    
    
    20Deferred rent  current
    
    
    75
    
    
    
    75Dividends payable
    
    
    
    
    
    
    193Total current liabilities
    
    
    8,120
    
    
    
    6,811Long-term financing, net of current
    
    
    7,721
    
    
    
    7,117Deferred rent, net of current
    
    
    581
    
    
    
    615Total liabilities
    
    
    16,422
    
    
    
    14,543COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, 10,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 40,000,000 shares authorized,
8,790,000 and 8,776,000 shares issued and outstanding
    
    
    88
    
    
    
    88Additional paid-in capital
    
    
    37,237
    
    
    
    37,214Deferred stock-based compensation
    
    
    (352
    )
    
    
    (384
    )Accumulated deficit
    
    
    (18,108
    )
    
    
    (17,145
    )Total stockholders equity
    
    
    18,865
    
    
    
    19,773Total liabilities and stockholders equity
    
    $
    35,287
    
    
    $
    34,316
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PYRAMID BREWERIES INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amount)
 Three Month Period Ended June 30,
    
    Six Month Period Ended June 30,2005
    
    2004
    
    2005
    
    2004Gross sales
    
    $
    13,713
    
    
    $
    10,936
    
    
    $
    24,170
    
    
    $
    19,225Less excise taxes
    
    
    693
    
    
    
    534
    
    
    
    1,250
    
    
    
    942Net sales
    
    
    13,020
    
    
    
    10,402
    
    
    
    22,920
    
    
    
    18,283Cost of sales
    
    
    10,025
    
    
    
    7,939
    
    
    
    18,420
    
    
    
    14,534Gross margin
    
    
    2,995
    
    
    
    2,463
    
    
    
    4,500
    
    
    
    3,749Selling, general and administrative expenses
    
    
    2,820
    
    
    
    2,397
    
    
    
    5,389
    
    
    
    4,692Operating income (loss)
    
    
    175
    
    
    
    66
    
    
    
    (889
    )
    
    
    (943
    )Other income, net
    
    
    (7
    )
    
    
    81
    
    
    
    (71
    )
    
    
    95Income (loss) before income taxes
    
    
    168
    
    
    
    147
    
    
    
    (960
    )
    
    
    (848
    )Provision for income taxes
    
    
    
    
    
    
    (2
    )
    
    
    (3
    )
    
    
    (3
    )Net income (loss)
    
    $
    168
    
    
    $
    145
    
    
    $
    (963
    )
    
    $
    (851
    )Basic and diluted net income (loss) per share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.11
    )
    
    $
    (0.10
    )Weighted average basic shares outstanding
    
    
    8,790,000
    
    
    
    8,391,000
    
    
    
    8,786,000
    
    
    
    8,495,000Weighted average diluted shares outstanding
    
    
    9,141,000
    
    
    
    8,462,000
    
    
    
    8,786,000
    
    
    
    8,495,000Cash dividend declared per share
    
    $
    
    
    
    $
    0.022
    
    
    $
    
    
    
    $
    0.066
  4




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PYRAMID BREWERIES INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Month Period Ended June 30,( in thousands)2005
    
    2004OPERATING ACTIVITIES:Net loss
    
    $
    (963
    )
    
    $
    (851
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,370
    
    
    
    1,325Stock-based compensation expense
    
    
    32
    
    
    
    (10
    )Interest expense
    
    
    
    
    
    
    2Loss on sales of fixed assets
    
    
    
    
    
    
    12Deferred rent
    
    
    (34
    )
    
    
    (99
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,223
    )
    
    
    (1,292
    )Inventories
    
    
    92
    
    
    
    (196
    )Prepaid expenses and other
    
    
    39
    
    
    
    125Accounts payable and accrued expenses
    
    
    1,161
    
    
    
    1,384Refundable deposits
    
    
    174
    
    
    
    51Net cash provided by operating activities
    
    
    648
    
    
    
    451INVESTING ACTIVITIES:Purchases of short-term investments
    
    
    
    
    
    
    Proceeds from the sale and maturities of short-term
investments
    
    
    
    
    
    
    Acquisitions of fixed assets
    
    
    (633
    )
    
    
    (384
    )Proceeds from sales of fixed assets
    
    
    33
    
    
    
    Net cash used in investing activities
    
    
    (600
    )
    
    
    (384
    )FINANCING ACTIVITIES:Proceeds from the sale of common stock and option exercises
    
    
    23
    
    
    
    187Note Payable
    
    
    (32
    )
    
    
    Cash dividends paid
    
    
    (193
    )
    
    
    (761
    )Cash paid on line of credit
    
    
    154
    
    
    
    (31
    )Purchase and retirement of common stock
    
    
    
    
    
    
    (365
    )Net cash used in financing activities
    
    
    (48
    )
    
    
    (970
    )(Decrease) increase in cash and cash equivalents
    
    
    
    
    
    
    (903
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,558Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    655
  5




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PYRAMID BREWERIES INC.
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 1. Basis of Presentation:
     Stock Based Compensation
  Three Month Period Ended June 30,
    
    Six Month Period Ended June 30,(in thousands)2005
    
    2004
    
    2005
    
    2004Net income (loss) as reported
    
    $
    168
    
    
    $
    145
    
    
    $
    (963
    )
    
    $
    (851
    )Add: Stock-based compensation cost as reported
    
    
    16
    
    
    
    
    
    
    
    32
    
    
    
    (10
    )Less: Stock-based compensation cost determined
under the fair value based method
    
    
    (26
    )
    
    
    (37
    )
    
    
    (60
    )
    
    
    (74
    )Net income (loss) pro forma
    
    $
    158
    
    
    $
    108
    
    
    $
    (991
    )
    
    $
    (935
    )Basic and diluted net income (loss) per share
as reported
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.11
    )
    
    $
    (0.10
    )Basic and diluted net income (loss) per share
pro forma
    
    $
    0.02
    
    
    $
    0.01
    
    
    $
    (0.12
    )
    
    $
    (0.11
    )
 6




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Revenue Recognition
  Reclassification
  2. Liquidity
     3. Inventories
  7




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June 30,
    
    December 31,(in thousands)2005
    
    2004Raw materials
    
    $
    834
    
    
    $
    905Work in process
    
    
    243
    
    
    
    191Finished goods
    
    
    960
    
    
    
    1,033$
    2,037
    
    
    $
    2,129
  4. Fixed Assets
  June 30,
    
    December 31,(in thousands)2005
    
    2004Land
    
    $
    6,181
    
    
    $
    6,181Buildings
    
    
    11,895
    
    
    
    11,895Brewery and retail equipment
    
    
    19,611
    
    
    
    19,328Furniture and fixtures
    
    
    1,116
    
    
    
    1,106Leasehold improvements
    
    
    6,053
    
    
    
    5,899Construction in progress
    
    
    204
    
    
    
    20845,060
    
    
    
    44,617Less: accumulated depreciation
and amortization
    
    
    (17,063
    )
    
    
    (15,758
    )$
    27,997
    
    
    $
    28,859
 5. Accrued Expenses
  June 30,
    
    December 31,(in thousands)2005
    
    2004Salaries, wages and related accruals
    
    $
    1,007
    
    
    $
    978Barrel taxes
    
    
    581
    
    
    
    157Other accruals
    
    
    1,241
    
    
    
    1,547$
    2,829
    
    
    $
    2,682
 6. Other (Expense) Income, net
  8




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Three Months Ended June 30,
    
    Six Months Ended June 30,(in thousands)
    
    (in thousands)2005
    
    2004
    
    2005
    
    2004Interest income
    
    $
    4
    
    
    $
    7
    
    
    $
    4
    
    
    $
    14Sublease income
    
    
    57
    
    
    
    
    
    
    
    111
    
    
    
    Interest expense
    
    
    (143
    )
    
    
    (1
    )
    
    
    (275
    )
    
    
    (2
    )Parking income
    
    
    82
    
    
    
    78
    
    
    
    103
    
    
    
    84(Loss) gain on sale of assets
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (12
    )Loan fee amortization
    
    
    (7
    )
    
    
    (3
    )
    
    
    (14
    )
    
    
    (3
    )Other income (expense)
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    14Other income, net
    
    $
    (7
    )
    
    $
    81
    
    
    $
    (71
    )
    
    $
    95
 7. Income (Loss) Per Share
   Three Month Period Ended June 30,
    
    Six Month Period Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    168
    
    
    $
    145
    
    
    $
    (963
    )
    
    $
    (851
    )Shares:Weighted average basic shares outstanding
    
    
    8,790,000
    
    
    
    8,391,000
    
    
    
    8,786,000
    
    
    
    8,495,000Basic income (loss) per share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.11
    )
    
    $
    (0.10
    )Stock option dilution
    
    
    351,143
    
    
    
    71,000
    
    
    
    
    
    
    
    Weighted average diluted shares outstanding
    
    
    9,141,143
    
    
    
    8,462,000
    
    
    
    8,786,000
    
    
    
    8,495,000Diluted income (loss) per share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.11
    )
    
    $
    (0.10
    )
 8. Line of Credit
 1 2
 9. Debt
  9




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2005
    
    $
    50,0002006
    
    
    99,0002007
    
    
    105,0002008
    
    
    110,0002009
    
    
    118,000Thereafter
    
    
    7,335,000$
    7,817,000
 10. Litigation and Contingencies
  11. Cash Dividend
  12. Subsequent Event
  13. Segment Information
  Products and Services
  Factors used to identify reportable segments
  Measurement of segment profit and segment assets
   10




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BeverageOperations
    
    Alehouse
    
    Other
    
    Total(Dollars in thousands)Quarter ended June 30, 2005Gross revenues from external customers
    
    $
    9,589
    
    
    $
    4,124
    
    
    $
    
    
    
    $
    13,713Net revenues from external customers
    
    
    8,896
    
    
    
    4,124
    
    
    
    
    
    
    
    13,020Intersegment revenues
    
    
    172
    
    
    
    
    
    
    
    (172
    )
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Depreciation and amortization
    
    
    435
    
    
    
    215
    
    
    
    63
    
    
    
    713Operating income (loss)
    
    
    1,444
    
    
    
    294
    
    
    
    (1,563
    )
    
    
    175Capital expenditures
    
    
    271
    
    
    
    33
    
    
    
    8
    
    
    
    312Total assets
    
    
    20,807
    
    
    
    6,463
    
    
    
    8,017
    
    
    
    35,287Quarter ended June 30, 2004Gross revenues from external customers
    
    $
    7,399
    
    
    $
    3,537
    
    
    $
    
    
    
    $
    10,936Net revenues from external customers
    
    
    6,865
    
    
    
    3,537
    
    
    
    
    
    
    
    10,402Intersegment revenues
    
    
    142
    
    
    
    
    
    
    
    (142
    )
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Depreciation and amortization
    
    
    404
    
    
    
    213
    
    
    
    45
    
    
    
    662Operating income (loss)
    
    
    959
    
    
    
    280
    
    
    
    (1,173
    )
    
    
    66Capital expenditures
    
    
    123
    
    
    
    31
    
    
    
    38
    
    
    
    192Total assets
    
    
    18,348
    
    
    
    6,458
    
    
    
    2,385
    
    
    
    27,191Six months ended June 30, 2005Gross revenues from external customers
    
    $
    16,692
    
    
    $
    7,478
    
    
    $
    
    
    
    $
    24,170Net revenues from external customers
    
    
    15,442
    
    
    
    7,478
    
    
    
    
    
    
    
    22,920Intersegment revenues
    
    
    303
    
    
    
    
    
    
    
    (303
    )
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Depreciation and amortization
    
    
    849
    
    
    
    427
    
    
    
    126
    
    
    
    1,402Operating income (loss)
    
    
    1,689
    
    
    
    235
    
    
    
    (2,813
    )
    
    
    (889
    )Capital expenditures
    
    
    410
    
    
    
    138
    
    
    
    30
    
    
    
    578Total assets
    
    
    20,807
    
    
    
    6,463
    
    
    
    8,017
    
    
    
    35,287Six months ended June 30, 2004Gross revenues from external customers
    
    $
    12,659
    
    
    $
    6,566
    
    
    $
    
    
    
    $
    19,225Net revenues from external customers
    
    
    11,717
    
    
    
    6,566
    
    
    
    
    
    
    
    18,283Intersegment revenues
    
    
    236
    
    
    
    
    
    
    
    (236
    )
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Depreciation and amortization
    
    
    804
    
    
    
    431
    
    
    
    90
    
    
    
    1,325Operating income (loss)
    
    
    1,307
    
    
    
    269
    
    
    
    (2,519
    )
    
    
    (943
    )Capital expenditures
    
    
    206
    
    
    
    93
    
    
    
    85
    
    
    
    384Total assets
    
    
    18,348
    
    
    
    6,458
    
    
    
    2,385
    
    
    
    27,191
 11




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Other
  
 Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 RESULTS OF OPERATIONS
  SELECTED UNAUDITED OPERATING DATA
 Three Months Ended June 30,(in thousands, except barrel & shares)% of
    
    
    
    
    
    % of2005
    
    Net Sales
    
    2004
    
    Net SalesGross sales
    
    $
    13,713
    
    
    
    
    
    
    $
    10,936Less excise taxes
    
    
    693
    
    
    
    
    
    
    
    534Net sales
    
    
    13,020
    
    
    
    100.0
    
    
    
    10,402
    
    
    
    100.0Cost of sales
    
    
    10,025
    
    
    
    77.0
    
    
    
    7,939
    
    
    
    76.3Gross margin
    
    
    2,995
    
    
    
    23.0
    
    
    
    2,463
    
    
    
    23.7Selling, general and administrative expenses
    
    
    2,820
    
    
    
    21.7
    
    
    
    2,397
    
    
    
    23.0Operating income
    
    
    175
    
    
    
    1.3
    
    
    
    66
    
    
    
    0.6Other (expense) income, net
    
    
    (7
    )
    
    
    (0.1
    )
    
    
    81
    
    
    
    0.8Income before income taxes
    
    
    168
    
    
    
    1.3
    
    
    
    147
    
    
    
    1.4Benefit for income taxes
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (0.0
    )Net income
    
    $
    168
    
    
    
    1.3
    
    
    $
    145
    
    
    
    1.4Basic and diluted net income per share
    
    $
    0.02
    
    
    
    
    
    
    $
    0.02Operating data (in barrels):Beer barrels shipped
    
    
    50,100
    
    
    
    
    
    
    
    34,500Soda barrels shipped
    
    
    13,700
    
    
    
    
    
    
    
    13,700Total barrels shipped
    
    
    63,800
    
    
    
    
    
    
    
    48,200Annual production capacity
    
    
    334,000
    
    
    
    
    
    
    
    204,000
 12




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Six Month Period Ended June 30,( in thousands, except barrels)% of
    
    
    
    
    
    % of2005
    
    Net Sales
    
    2004
    
    Net SalesGross sales
    
    $
    24,170
    
    
    
    
    
    
    $
    19,225Less excise taxes
    
    
    1,250
    
    
    
    
    
    
    
    942Net sales
    
    
    22,920
    
    
    
    100.0
    
    
    
    18,283
    
    
    
    100.0Cost of sales
    
    
    18,420
    
    
    
    80.4
    
    
    
    14,534
    
    
    
    79.5Gross margin
    
    
    4,500
    
    
    
    19.6
    
    
    
    3,749
    
    
    
    20.5Selling, general and administrative expenses
    
    
    5,389
    
    
    
    23.5
    
    
    
    4,692
    
    
    
    25.7Operating loss
    
    
    (889
    )
    
    
    (3.9
    )
    
    
    (943
    )
    
    
    (5.2
    )Other income, net
    
    
    (71
    )
    
    
    (0.3
    )
    
    
    95
    
    
    
    0.5Loss before income taxes
    
    
    (960
    )
    
    
    (4.2
    )
    
    
    (848
    )
    
    
    (1.8
    )Provision for income taxes
    
    
    (3
    )
    
    
    (0.0
    )
    
    
    (3
    )
    
    
    (0.0
    )Net loss
    
    $
    (963
    )
    
    
    (4.2
    )
    
    $
    (851
    )
    
    
    (1.8
    )Basic and diluted net loss per share
    
    $
    (0.11
    )
    
    
    
    
    
    $
    (0.10
    )Operating data (in barrels):Beer barrels shipped
    
    
    87,100
    
    
    
    
    
    
    
    61,100Soda barrels shipped
    
    
    23,400
    
    
    
    
    
    
    
    21,800Total barrels shipped
    
    
    110,500
    
    
    
    
    
    
    
    82,900Annual production capacity
    
    
    334,000
    
    
    
    
    
    
    
    204,000
 QUARTER ENDED JUNE 30, 2005 COMPARED TO QUARTER ENDED JUNE 30, 2004
 Gross Sales.
 Excise Taxes.
 Gross Margin
 13




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##### Table of Contents



Three Month Period Ended June 30,(in thousands)% of Div.
    
    
    
    
    
    % of Div.Gross Margin
    
    2005
    
    Net Sales
    
    2004
    
    Net Sales
    
    $ Change
    
    % ChangeBeverage Division
    
    $
    2,701
    
    
    
    30.4
    %
    
    $
    2,183
    
    
    
    31.8
    %
    
    $
    518
    
    
    
    23.7
    %Alehouse Division
    
    
    294
    
    
    
    7.1
    %
    
    
    280
    
    
    
    7.9
    %
    
    
    14
    
    
    
    5.0
    %Total
    
    $
    2,995
    
    
    
    23.0
    %
    
    $
    2,463
    
    
    
    23.7
    %
    
    $
    532
    
    
    
    21.6
    %
 Selling, General and Administrative Expenses
 Other Income (Expense), net
 Income Taxes
 Net Income
 SIX MONTH PERIOD ENDED JUNE 30, 2005 COMPARED TO SIX MONTH PERIOD ENDED JUNE 30, 2004
 Gross Sales.
 Excise Taxes.
 Gross Margin
 14




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##### Table of Contents



Six Month Period Ended June 30,(in thousands)% of Div.
    
    
    
    
    
    % of Div.Gross Margin
    
    2005
    
    Net Sales
    
    2004
    
    Net Sales
    
    $ Change
    
    % ChangeBeverage Operations
    
    $
    4,266
    
    
    
    27.6
    %
    
    $
    3,480
    
    
    
    29.7
    %
    
    $
    786
    
    
    
    22.6
    %Alehouse Operations
    
    
    234
    
    
    
    5.9
    %
    
    
    269
    
    
    
    4.1
    %
    
    
    (35
    )
    
    
    (13.0
    %)Total Operations
    
    $
    4,500
    
    
    
    19.6
    %
    
    $
    3,749
    
    
    
    20.5
    %
    
    $
    751
    
    
    
    20.0
    %
 Selling, General and Administrative Expenses
 Other Income, net
 Income Taxes
 Net Loss
      15




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##### Table of Contents



Less Than 1
    
    
    
    
    
    
    
    
    
    More ThanTotal
    
    Year (2005)
    
    1 -3 years
    
    3 - 5 years
    
    5 yearsOperating leases
    
    $
    8,718,000
    
    
    $
    888,000
    
    
    $
    2,140,000
    
    
    $
    2,220,000
    
    
    $
    3,470,000Note payable (1)
    
    
    20,000
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    Note payable (2)
    
    
    7,817,000
    
    
    
    50,000
    
    
    
    204,000
    
    
    
    228,000
    
    
    
    7,335,000
 
 (1)
    
    - The amounts are payments as stated in the non-interest bearing note. The note payable was
recorded using a 10% discount rate on the balance sheet.(2)
    
    - The amounts are principal only payments as stated in the securitized financing arrangement
for the Berkeley facility purchase.       Critical Accounting Policies
  16




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##### Table of Contents




    
    it requires us to make assumptions because information was not available at the time
or it included matters that were highly uncertain at the time we were making the
estimate, and
    
    changes in the estimate or different estimates that we reasonably could have selected
would have had a material impact on our financial condition or results of operations.
  Long-Lived Assets Impairment.
 Realization of Deferred Tax Assets.
 Stock-Based Compensation.
  Promotional Activities Accrual.
 Allowance for Keg Deposits.
 17




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##### Table of Contents



Subsequent Event
    Liquidity.
 Beverage Competition
 Alehouse Competition.
 Access to Markets.
 Government Regulations
 Selling Prices
 18




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##### Table of Contents



Variability of Margins and Operating Results
 Seasonality
 Acquisitions.
  
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
   
 ITEM 4. Controls and Procedures
 Procedures
 Evaluation of disclosure controls and procedure
  19




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##### Table of Contents



Changes in internal controls
  
 PART II  OTHER INFORMATION
 
 ITEM 6. EXHIBITS
 10.26
    
    Employment Offer Letter between Registrant and Jim Hilger*10.27
    
    Employment Offer Letter between Registrant and Patrick Coll*10.28
    
    Pyramid Breweries Inc. Directors Compensation Plan*31.1
    
    Certification Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934 , as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: John J. Lennon, Chief Executive
Officer31.2
    
    Certification Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934 , as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: James K. Hilger, Vice-President and
Chief Financial Officer31.3
    
    Certification Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: Jason W. Rees, Controller and Chief
Accounting Officer32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002: John J.
Lennon, Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002: James
K. Hilger, Vice-President and Chief Financial Officer32.3
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002: Jason
W. Rees, Controller and Chief Accounting Officer
 
 *
    
    Indicates management contract or compensatory plan or arrangement Items 1, 2, 3, 4 and 5 of PART II are not applicable and have been omitted
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##### Table of Contents



SIGNATURE
  PYRAMID BREWERIES INC.By:
    
    /s/ JOHN LENNONJohn Lennon, President and Chief Executive OfficerBy:
    
    /s/ JAMES K. HILGERJames K. Hilger, Vice-President and Chief Financial OfficerBy:
    
    /s/ JASON W. REESJason W. Rees, Controller and Chief Accounting Officer
  21