##### 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 SEPTEMBER 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
    
    91-1258355(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 91 South Royal Brougham Way,
Seattle, WA 98134
 (206) 682-8322
 
 þ o
 o þ
 o þ




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PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
 TABLE OF CONTENTS
 PagePART IFINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets
September 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations
Three and Nine Month Periods Ended September 30,
2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows
Nine Month Periods Ended September 30, 2005 and 2004
    
    
    5Notes to Condensed Consolidated 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
    
    
    18Item 4. Controls and Procedures
    
    
    18PART IIOTHER INFORMATIONItem 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 6. Exhibits
    
    
    19SIGNATURE
    
    
    20EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART I
 
 Item 1  FINANCIAL STATEMENTS
 PYRAMID BREWERIES INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2005
    
    
    2004(Unaudited)(in thousands)CURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    Accounts receivable, net of $20,000 and $32,000 allowance
    
    
    3,359
    
    
    
    2,191Inventories
    
    
    1,926
    
    
    
    2,129Prepaid expenses and other
    
    
    367
    
    
    
    324Total current assets
    
    
    5,652
    
    
    
    4,644Fixed assets, net
    
    
    27,297
    
    
    
    28,859Goodwill
    
    
    415
    
    
    
    415Intangibles
    
    
    175
    
    
    
    209Other assets
    
    
    838
    
    
    
    189Total assets
    
    $
    34,377
    
    
    $
    34,316CURRENT LIABILITIES:Accounts payable
    
    $
    2,958
    
    
    $
    2,776Accrued expenses
    
    
    2,933
    
    
    
    2,682Refundable deposits
    
    
    698
    
    
    
    582Line of credit
    
    
    
    
    
    
    400Current portion of long-term financing
    
    
    98
    
    
    
    83Note payable
 current
    
    
    20
    
    
    
    20Deferred
rent  current
    
    
    75
    
    
    
    75Dividends payable
    
    
    
    
    
    
    193Total current liabilities
    
    
    6,782
    
    
    
    6,811Long-term financing, net of current
    
    
    7,697
    
    
    
    7,117Deferred rent, net of current
    
    
    564
    
    
    
    615Total liabilities
    
    $
    15,043
    
    
    $
    14,543COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred stock, 10,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock, $.01 par value; 40,000,000 shares authorized,
8,799,000 and 8,776,000 shares issued and outstanding
    
    
    88
    
    
    
    88Additional paid-in capital
    
    
    37,251
    
    
    
    37,214Deferred stock-based compensation
    
    
    (336
    )
    
    
    (384
    )Accumulated deficit
    
    
    (17,669
    )
    
    
    (17,145
    )Total stockholders equity
    
    
    19,334
    
    
    
    19,773Total liabilities and stockholders equity
    
    $
    34,377
    
    
    $
    34,316
  3




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##### Table of Contents



PYRAMID BREWERIES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amount)
 Three Month Period Ended
    
    
    Nine Month Period EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Gross sales
    
    $
    14,284
    
    
    $
    11,745
    
    
    $
    38,454
    
    
    $
    30,971Less excise taxes
    
    
    758
    
    
    
    532
    
    
    
    2,007
    
    
    
    1,475Net sales
    
    
    13,526
    
    
    
    11,213
    
    
    
    36,447
    
    
    
    29,496Cost of sales
    
    
    10,587
    
    
    
    9,044
    
    
    
    29,008
    
    
    
    23,577Gross margin
    
    
    2,939
    
    
    
    2,169
    
    
    
    7,439
    
    
    
    5,919Selling, general and administrative expenses
    
    
    2,910
    
    
    
    2,592
    
    
    
    8,299
    
    
    
    7,285Operating income (loss)
    
    
    29
    
    
    
    (423
    )
    
    
    (860
    )
    
    
    (1,366
    )Other income, net
    
    
    411
    
    
    
    3
    
    
    
    340
    
    
    
    99Income (loss) before income taxes
    
    
    440
    
    
    
    (420
    )
    
    
    (520
    )
    
    
    (1,267
    )Provision for income taxes
    
    
    (1
    )
    
    
    
    
    
    
    (4
    )
    
    
    (3
    )Net income
(loss)
    
    $
    439
    
    
    $
    (420
    )
    
    $
    (524
    )
    
    $
    (1,270
    )Basic and diluted net income (loss) per share
    
    $
    0.05
    
    
    $
    (0.05
    )
    
    $
    (0.06
    )
    
    $
    (0.15
    )Weighted average basic shares outstanding
    
    
    8,799,000
    
    
    
    8,615,000
    
    
    
    8,790,000
    
    
    
    8,512,000Weighted average diluted shares outstanding
    
    
    9,156,000
    
    
    
    8,615,000
    
    
    
    8,790,000
    
    
    
    8,512,000Cash dividend declared per share
    
    $
    
    
    
    $
    0.022
    
    
    $
    
    
    
    $
    0.088
  4




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PYRAMID BREWERIES INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine Month Period Ended September 30,(in thousands)2005
    
    
    2004OPERATING ACTIVITIES:Net loss
    
    $
    (524
    )
    
    $
    (1,270
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,050
    
    
    
    1,973Stock-based compensation expense
    
    
    48
    
    
    
    3Accretion of discount on long-term debt
    
    
    
    
    
    
    4(Gain) loss on sales of fixed assets
    
    
    (415
    )
    
    
    10Deferred rent
    
    
    (51
    )
    
    
    (116
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,168
    )
    
    
    (597
    )Inventories
    
    
    203
    
    
    
    (417
    )Prepaid expenses and other
    
    
    (69
    )
    
    
    147Accounts payable and accrued expenses
    
    
    453
    
    
    
    1,575Refundable deposits
    
    
    116
    
    
    
    50Net cash provided by operating activities
    
    
    643
    
    
    
    1,362INVESTING ACTIVITIES:Proceeds from the sale and maturities of investments
    
    
    
    
    
    
    192Proceeds from sales of fixed assets
    
    
    783
    
    
    
    11Acquisitions of fixed assets
    
    
    (815
    )
    
    
    (769
    )Acquisitions of Portland Brewing Company assets
    
    
    
    
    
    
    (1,416
    )Acquisitions of Berkeley faciltiy land and building
    
    
    
    
    
    
    (195
    )Net cash used in investing activities
    
    
    (32
    )
    
    
    (2,177
    )FINANCING ACTIVITIES:Proceeds from the sale of common stock and option exercises
    
    
    37
    
    
    
    203Note payable
    
    
    (55
    )
    
    
    Deferred financing fees
    
    
    
    
    
    
    (68
    )Borrowings
on short-term note payable to related party
    
    
    
    
    
    
    200Cash dividends paid
    
    
    (193
    )
    
    
    (944
    )(Cash paid) net borrowings on line of credit
    
    
    (400
    )
    
    
    231Purchase and retirement of common stock
    
    
    
    
    
    
    (365
    )Net cash used in financing activities
    
    
    (611
    )
    
    
    (743
    )Decrease in cash and cash equivalents
    
    
    
    
    
    
    (1,558
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,558Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    
  5




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PYRAMID BREWERIES INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation:
    Stock-Based Compensation
  6




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Three Month Period Ended
    
    Nine Month Period EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Net income (loss) as reported
    
    $
    439
    
    
    $
    (420
    )
    
    $
    (524
    )
    
    $
    (1,270
    )Add: Stock-based compensation cost as reported
    
    
    16
    
    
    
    13
    
    
    
    48
    
    
    
    3Less: Stock-based compensation cost determined
under the fair value based method
    
    
    (23
    )
    
    
    (32
    )
    
    
    (83
    )
    
    
    (124
    )Net income (loss) as adjusted
    
    $
    432
    
    
    $
    (439
    )
    
    $
    (559
    )
    
    $
    (1,391
    )Basic and diluted net income (loss) per share as reported
    
    $
    0.05
    
    
    $
    (0.05
    )
    
    $
    (0.06
    )
    
    $
    (0.15
    )Basic and diluted net income (loss) per share as adjusted
    
    $
    0.05
    
    
    $
    (0.05
    )
    
    $
    (0.06
    )
    
    $
    (0.16
    )
  Three Month Period Ended
    
    Nine Month Period EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Average risk-free interest rates
    
    
    4.3
    %
    
    
    1.7
    %
    
    3.9% to 4.3
    %
    
    1.7
    %Average expected life (in years)
    
    
    5
    
    
    
    5
    
    
    
    
    5
    
    
    5Volatility
    
    
    29.0
    %
    
    
    51.0
    %
    
    29.0% to 51.0
    %
    
    51.0
    %
 Revenue Recognition
  Net Income (Loss) Per Share
  Recently Issued Accounting Pronouncements
   7




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Liquidity
    Reclassification
  2. Sale of Equipment
  3. Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    851
    
    
    $
    905Work in process
    
    
    190
    
    
    
    191Finished goods
    
    
    885
    
    
    
    1,033$
    1,926
    
    
    $
    2,129
  8




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4. Fixed Assets
  September 30,
    
    
    December 31,2005
    
    
    2004Land
    
    $
    6,181
    
    
    $
    6,181Buildings
    
    
    11,895
    
    
    
    11,895Brewery and retail equipment
    
    
    18,432
    
    
    
    19,328Furniture and fixtures
    
    
    1,106
    
    
    
    1,106Leasehold improvements
    
    
    6,060
    
    
    
    5,899Construction in progress
    
    
    201
    
    
    
    20843,875
    
    
    
    44,617Less: accumulated depreciation
and amortization
    
    
    (16,578
    )
    
    
    (15,758
    )$
    27,297
    
    
    $
    28,859
 5. Accrued Expenses
  September 30,
    
    
    December 31,2005
    
    
    2004Salaries, wages and related accruals
    
    $
    933
    
    
    $
    978Barrel taxes
    
    
    649
    
    
    
    157Other accruals
    
    
    1,351
    
    
    
    1,547$
    2,933
    
    
    $
    2,682
 6. Other Income, net
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    

2004
    
    

2005
    
    

2004Gain (loss) on sale of assets
    
    $
    415

    
    
    $
    1

    
    

    $
    415
    

    

    $

    (10
    )Interest expense
    
    

    (128

    )
    

    
    (94
    )
    

    
    (403
    )
    
    
    (96

    )Parking income
    
    

    74
    
    
    

    77

    
    
    

    178

    
    
    
    161Sublease income
    
    

    61

    
    
    
    36


    
    
    

    172

    
    
    
    36Loan fee amortization
    
    
    (13

    )
    
    
    (22
    )


    
    
    (27
    )
    
    
    (24

    )Interest income
    
    
    2
    
    
    
    5
    
    
    
    5
    
    
    
    18Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Other income, net
    
    $

    411

    
    
    $
    3
    

    
    $
    340
    
    
    $

    99
 7. Line of Credit
 1 2
 9




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8. Debt
   2005
    
    $
    242006
    
    
    992007
    
    
    1052008
    
    
    1102009
    
    
    118Thereafter
    
    
    7,338$
    7,794
 9. Litigation and Contingencies
  10. Segment Information
  Products and Services
  Factors used to identify reportable segments
  10




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Measurement of segment profit and segment assets
   BeverageOperations
    
    Alehouse
    
    Other
    
    Total(in thousands)Quarter ended September 30, 2005Gross revenues from external customers
    
    $
    10,102
    
    
    $
    4,182
    
    
    $
    
    
    
    $
    14,284Net revenues from external customers
    
    
    9,344
    
    
    
    4,182
    
    
    
    
    
    
    
    13,526Intersegment revenues
    
    
    167
    
    
    
    
    
    
    
    (167
    )
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Depreciation and amortization
    
    
    417
    
    
    
    212
    
    
    
    67
    
    
    
    696Operating income (loss)
    
    
    1,228
    
    
    
    307
    
    
    
    (1,506
    )
    
    
    29Capital expenditures
    
    
    101
    
    
    
    30
    
    
    
    30
    
    
    
    161Total assets
    
    
    20,306
    
    
    
    6,123
    
    
    
    7,948
    
    
    
    34,377Quarter ended September 30, 2004Gross revenues from external customers
    
    $
    7,941
    
    
    $
    3,804
    
    
    $
    
    
    
    $
    11,745Net revenues from external customers
    
    
    7,409
    
    
    
    3,804
    
    
    
    
    
    
    
    11,213Intersegment revenues
    
    
    161
    
    
    
    
    
    
    
    (161
    )
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Depreciation and amortization
    
    
    382
    
    
    
    203
    
    
    
    46
    
    
    
    631Operating income (loss)
    
    
    687
    
    
    
    218
    
    
    
    (1,328
    )
    
    
    (423
    )Capital expenditures operating
    
    
    209
    
    
    
    108
    
    
    
    68
    
    
    
    385Capital expenditures acquisition
    
    
    8,750
    
    
    
    1,140
    
    
    
    195
    
    
    
    10,085Total assets
    
    
    21,341
    
    
    
    6,691
    
    
    
    8,097
    
    
    
    36,129Nine months ended September 30, 2005Gross revenues from external customers
    
    $
    26,794
    
    
    $
    11,660
    
    
    $
    
    
    
    $
    38,454Net revenues from external customers
    
    
    24,787
    
    
    
    11,660
    
    
    
    
    
    
    
    36,447Intersegment revenues
    
    
    470
    
    
    
    
    
    
    
    (470
    )
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Depreciation and amortization
    
    
    1,266
    
    
    
    639
    
    
    
    193
    
    
    
    2,098Operating income (loss)
    
    
    3,027
    
    
    
    540
    
    
    
    (4,427
    )
    
    
    (860
    )Capital expenditures
    
    
    514
    
    
    
    157
    
    
    
    69
    
    
    
    740Total assets
    
    
    20,306
    
    
    
    6,123
    
    
    
    7,948
    
    
    
    34,377Nine months ended September 30, 2004Gross revenues from external customers
    
    $
    20,601
    
    
    $
    10,370
    
    
    $
    
    
    
    $
    30,971Net revenues from external customers
    
    
    19,126
    
    
    
    10,370
    
    
    
    
    
    
    
    29,496Intersegment revenues
    
    
    397
    
    
    
    
    
    
    
    (397
    )
    
    
    Interest income
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Depreciation and amortization
    
    
    1,186
    
    
    
    634
    
    
    
    153
    
    
    
    1,973Operating income (loss)
    
    
    1,994
    
    
    
    487
    
    
    
    (3,847
    )
    
    
    (1,366
    )Capital expenditures operating
    
    
    415
    
    
    
    200
    
    
    
    154
    
    
    
    769Capital expenditures acquisition
    
    
    8,750
    
    
    
    1,140
    
    
    
    195
    
    
    
    10,085Total assets
    
    
    21,341
    
    
    
    6,691
    
    
    
    8,097
    
    
    
    36,129
 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 September 30,(in thousands, except barrel & per share amounts)% of
    
    
    
    
    
    
    % of2005
    
    
    Net Sales
    
    
    2004
    
    
    Net SalesGross sales
    
    $
    14,284
    
    
    
    
    
    
    $
    11,745Less excise taxes
    
    
    758
    
    
    
    
    
    
    
    532Net sales
    
    
    13,526
    
    
    
    100.0
    
    
    
    11,213
    
    
    
    100.0Cost of sales
    
    
    10,587
    
    
    
    78.3
    
    
    
    9,044
    
    
    
    80.7Gross margin
    
    
    2,939
    
    
    
    21.7
    
    
    
    2,169
    
    
    
    19.3Selling, general and administrative expenses
    
    
    2,910
    
    
    
    21.5
    
    
    
    2,592
    
    
    
    23.1Operating
income (loss)
    
    
    29
    
    
    
    0.2
    
    
    
    (423
    )
    
    
    (3.8
    )Other income, net
    
    
    411
    
    
    
    3.0
    
    
    
    3
    
    
    
    Income (loss) before income taxes
    
    
    440
    
    
    
    3.2
    
    
    
    (420
    )
    
    
    (3.8
    )Provision for income taxes
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Net income
(loss)
    
    $
    439
    
    
    
    3.2
    
    
    $
    (420
    )
    
    
    (3.8
    )Basic and diluted net income (loss) per share
    
    $
    0.05
    
    
    
    
    
    
    $
    (0.05
    )Operating data (in barrels):Beer barrels shipped
    
    
    51,200
    
    
    
    
    
    
    
    40,600Soda barrels shipped
    
    
    13,300
    
    
    
    
    
    
    
    11,300Total barrels shipped
    
    
    64,500
    
    
    
    
    
    
    
    51,900Annual production capacity
    
    
    250,000
    
    
    
    
    
    
    
    335,000
 12




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Nine Month Period Ended September 30,( in thousands, except barrels & per share amounts)% of
    
    
    
    
    
    
    % of2005
    
    
    Net Sales
    
    
    2004
    
    
    Net SalesGross sales
    
    $
    38,454
    
    
    
    
    
    
    $
    30,971Less excise taxes
    
    
    2,007
    
    
    
    
    
    
    
    1,475Net sales
    
    
    36,447
    
    
    
    100.0
    
    
    
    29,496
    
    
    
    100.0Cost of sales
    
    
    29,008
    
    
    
    79.6
    
    
    
    23,577
    
    
    
    79.9Gross margin
    
    
    7,439
    
    
    
    20.4
    
    
    
    5,919
    
    
    
    20.1Selling, general and administrative expenses
    
    
    8,299
    
    
    
    22.8
    
    
    
    7,285
    
    
    
    24.7Operating loss
    
    
    (860
    )
    
    
    (2.4
    )
    
    
    (1,366
    )
    
    
    (4.6
    )Other income, net
    
    
    340
    
    
    
    0.9
    
    
    
    99
    
    
    
    0.3Loss before income taxes
    
    
    (520
    )
    
    
    (1.5
    )
    
    
    (1,267
    )
    
    
    (4.3
    )Provision for income taxes
    
    
    (4
    )
    
    
    (0.0
    )
    
    
    (3
    )
    
    
    (0.0
    )Net loss
    
    $
    (524
    )
    
    
    (1.5
    )
    
    $
    (1,270
    )
    
    
    (4.3
    )Basic and diluted net loss per share
    
    $
    (0.06
    )
    
    
    
    
    
    $
    (0.15
    )Operating data (in barrels):Beer barrels shipped
    
    
    138,400
    
    
    
    
    
    
    
    101,700Soda barrels shipped
    
    
    36,700
    
    
    
    
    
    
    
    33,100Total barrels shipped
    
    
    175,100
    
    
    
    
    
    
    
    134,800Annual production capacity
    
    
    250,000
    
    
    
    
    
    
    
    334,000
 QUARTER ENDED SEPTEMBER 30, 2005 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2004
 Gross
Sales.
 Excise Taxes.
 Gross Margin
 Three Month Period Ended September 30,(in thousands)% of
    
    
    
    
    
    % ofDivision
    
    
    
    
    
    DivisionGross Margin
    
    2005
    
    Net Sales
    
    2004
    
    Net Sales
    
    $ Change
    
    % ChangeBeverage Division
    
    $
    2,632
    
    
    
    28.2
    %
    
    $
    1,951
    
    
    
    26.3
    %
    
    $
    681
    
    
    
    34.9
    %Alehouse Division
    
    
    307
    
    
    
    7.3
    %
    
    
    218
    
    
    
    5.7
    %
    
    
    89
    
    
    
    40.8
    %Total
    
    $
    2,939
    
    
    
    21.7
    %
    
    $
    2,169
    
    
    
    19.3
    %
    
    $
    770
    
    
    
    35.5
    %
 13




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##### Table of Contents



Selling, General and Administrative Expenses
 Other Income, net
 Income Taxes
 Net Income (loss)
 NINE MONTH PERIOD ENDED SEPTEMBER 30, 2005 COMPARED TO NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004
 Gross Sales.
 Excise Taxes.
 Gross Margin
 Nine Month Period Ended September 30,(in thousands)% of Div.
    
    
    
    
    

% of Div.Gross Margin
    
    2005
    
    Net Sales
    
    2004
    
    Net Sales
    
    $ Change
    
    % ChangeBeverage Operations
    
    $
    6,899
    
    
    
    27.8
    %
    
    $
    5,431
    
    
    
    28.4
    %
    
    $
    1,468
    
    
    
    27.0
    %Alehouse Operations
    
    
    540
    
    
    
    4.6
    %
    
    
    488
    
    
    
    4.7
    %
    
    
    52
    
    
    
    10.7
    %Total Operations
    
    $
    7,439
    
    
    
    20.4
    %
    
    $
    5,919
    
    
    
    20.1
    %
    
    $
    1,520
    
    
    
    25.7
    %
 14




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##### Table of Contents



Selling, General and Administrative Expenses
 Other Income, net
 Income Taxes
 Net Loss
        15




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##### Table of Contents



Critical Accounting Policies
   
    
    it requires us to make assumptions because information was not available at the time
or it included matters that were highly uncertain at the time we were making the
estimate, and
    
    changes in the estimate or different estimates that we reasonably could have selected
would have had a material impact on our financial condition or results of operations.
  Inventory.
 Long-Lived Assets Impairment.
 Realization of Deferred Tax Assets.
 16




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##### Table of Contents



Promotional Activities Accrual.
 Allowance for Keg Deposits.
   Liquidity.
 Beverage Competition
 Alehouse Competition.
 Access to Markets.
 Government Regulations
 17




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##### Table of Contents



Selling Prices
 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
 18




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##### Table of Contents



Changes in internal controls
  
 PART II  OTHER INFORMATION
 
 ITEM 4. Submission of Matters to a Vote of Security Holders
   Director Nominated
    
    Term Expires
    
    Votes For
    
    WithheldGeorge Hancock
    
    
    2008
    
    
    
    8,420,102
    
    
    
    137,333Scott S. Barnum
    
    
    2008
    
    
    
    8,482,242
    
    
    
    75,193Lee Andrews
    
    
    2006
    
    
    
    8,474,904
    
    
    
    82,531John Lennon
    
    
    2007
    
    
    
    8,457,722
    
    
    
    99,713
   
 ITEM 6. EXHIBITS
 10.26
    
    Offer Letter from Pyramid Breweries Inc. to Jason Rees, dated September 2, 2005*(1)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, President and 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: Jason W.
Rees, Vice President of Finance 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, President and Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002: Jason W. Rees, Vice President of Finance and Chief Accounting Officer
 
 *
    
    Indicates management contract or compensatory plan or arrangement(1)
    
    Incorporated by reference to the Registrants Current
Report on Form 8-K filed September 6, 2005. Items 1, 2, 3 and 5 of PART II are not applicable and have been omitted
 19




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##### Table of Contents



SIGNATURE
  PYRAMID BREWERIES INC.By:
    
    /s/ JOHN LENNONJohn LennonPresident and Chief Executive OfficerBy:
    
    /s/ JASON W. REESJason W. ReesVice President of Finance and Chief Accounting Officer(Principal Financial Officer)
   20