##### Table of Contents



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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 1934
|--- | ---------------------------------------------------------------------------------------

FOR THE QUARTER ENDED SEPTEMBER 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: 8,387,576 shares of common
stock outstanding as of September 30, 2002

Pages 1 of 19 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
|                             | ITEM 3. Quantitative and Qualitative Disclosures about Market Risk                            
|                             | ITEM 4. Controls and Procedures                                                               
|PART II.  OTHER INFORMATION
|                             | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURE                   
|Exhibit 99.1                
|Exhibit 99.2                
|Exhibit 99.3                



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##### Table of Contents



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

TABLE OF CONTENTS

|        |  |                                                                                       |  |                                                                                               |    |      |    | 
|------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|        |  |                                                                                       |  |                                                                                               |    | Page
|        |  |                                                                                       |  |                                                                                               |    |     
|PART I  |  | FINANCIAL INFORMATION                                                                 |  |                                                                                               |    |     
|Item 1. |  | Financial Statements (Unaudited)                                                      |  |                                                                                               |    |     
|        |  |                                                                                       |  | Balance Sheets
September 30, 2002 and December 31, 2001                                       |    |      | 3  | 
|        |  |                                                                                       |  | Statements of Operations
Three Month and Nine Month Periods Ended September 30, 2002 and 2001 |    |      | 4  | 
|        |  |                                                                                       |  | Statements of Cash Flows
Nine Month Periods Ended September 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 |     
|Item 4. |  | Controls and Procedures                                                               |  |                                                                                               | 14 |     
|PART II |  | OTHER INFORMATION                                                                     |  |                                                                                               |    |     
|Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                               | 15 |     
|        |  |                                                                                       |  | SIGNATURE                                                                                     |    |      | 16 | 

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##### Table of Contents






PART I




Item 1  FINANCIAL STATEMENTS




PYRAMID BREWERIES INC.

BALANCE SHEETS
(Unaudited)

|                                                                                                                  |                              |                                            |             |               |            |              |            |           |            | 
|----------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------------------------------------------ | ----------- | ------------- | ---------- | ------------ | ---------- | --------- | ---------- | 
|                                                                                                                  |                              |                                            |             | September 30, |            | December 31,
|                                                                                                                  |                              |                                            |             | 2002          |            | 2001        
|                                                                                                                  |                              |                                            |             |               |            |             
|CURRENT ASSETS:                                                                                                   |                              |                                            |             |               |            |              |            |          
|                                                                                                                  | Cash and cash equivalents    |                                            | $           | 4,571,444     |            |              | $          | 5,075,454 |           
|                                                                                                                  | Accounts receivable, net     |                                            |             | 1,622,728     |            |              |            | 1,425,592 |           
|                                                                                                                  | Inventories                  |                                            |             | 1,555,533     |            |              |            | 1,178,148 |           
|                                                                                                                  | Prepaid expenses and other   |                                            |             | 393,355       |            |              |            | 382,826   |           
|                                                                                                                  |                              |                                            |             |               |            |              |            |          
|                                                                                                                  |                              | Total current assets                       |             |               | 8,143,060  |              |            |           | 8,062,020  | 
|                                                                                                                  |                              |                                            |             |               |            |              |            |          
|Long term investments                                                                                             |                              |                                            | 491,742     |               |            |              | 491,742    |          
|Note receivable  related party                                                                                   |                              |                                            | 97,195      |               |            |              | 106,965    |          
|Fixed assets, net                                                                                                 |                              |                                            | 20,711,666  |               |            |              | 20,222,560 |          
|Other assets                                                                                                      |                              |                                            | 116,813     |               |            |              | 132,853    |          
|Goodwill                                                                                                          |                              |                                            | 414,613     |               |            |              | 414,613    |          
|                                                                                                                  |                              |                                            |             |               |            |              |            |          
|                                                                                                                  |                              | Total assets                               |             | $             | 29,975,089 |              |            | $         | 29,430,753 | 
|                                                                                                                  |                              |                                            |             |               |            |              |            |          
|CURRENT LIABILITIES:                                                                                              |                              |                                            |             |               |            |              |            |          
|                                                                                                                  | Accounts payable             |                                            | $           | 737,531       |            |              | $          | 662,527   |           
|                                                                                                                  | Accrued expenses             |                                            |             | 2,468,659     |            |              |            | 1,312,641 |           
|                                                                                                                  | Refundable deposits          |                                            |             | 532,396       |            |              |            | 550,259   |           
|                                                                                                                  | Note payable-current         |                                            |             | 20,000        |            |              |            | 20,000    |           
|                                                                                                                  | Dividends payable            |                                            |             | 369,053       |            |              |            | 365,178   |           
|                                                                                                                  |                              |                                            |             |               |            |              |            |          
|                                                                                                                  |                              | Total current liabilities                  |             |               | 4,127,639  |              |            |           | 2,910,605  | 
|                                                                                                                  | Note payable, net of current |                                            |             | 49,032        |            |              |            | 43,397    |           
|                                                                                                                  | Deferred rent                |                                            |             | 1,159,896     |            |              |            | 1,252,650 |           
|                                                                                                                  |                              |                                            |             |               |            |              |            |          
|                                                                                                                  |                              | Total liabilities                          |             |               | 5,336,567  |              |            |           | 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,
8,387,576 and 8,299,493 shares issued and outstanding |                              |                                            | 83,876      |               |            |              | 82,995     |          
|Additional paid-in capital                                                                                        |                              |                                            | 35,829,066  |               |            |              | 35,649,120 |          
|Note receivable  related party                                                                                   |                              |                                            | (785,260    | )             |            |              | (786,818   | )        
|Deferred stock compensation                                                                                       |                              |                                            | (139,590    | )             |            |              | (185,486   | )        
|Accumulated deficit                                                                                               |                              |                                            | (10,349,570 | )             |            |              | (9,535,710 | )        
|                                                                                                                  |                              |                                            |             |               |            |              |            |          
|                                                                                                                  |                              | Total stockholders equity                 |             |               | 24,638,522 |              |            |           | 25,224,101 | 
|                                                                                                                  |                              |                                            |             |               |            |              |            |          
|                                                                                                                  |                              | Total liabilities and stockholders equity |             | $             | 29,975,089 |              |            | $         | 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 |        | Nine Months Ended
|                                              |                       |   | September 30,      |        | September 30,    
|                                              |                       |   |                    |        |                  
|                                              |                       |   | 2002               |        | 2001              |   | 2002      |        | 2001
|                                              |                       |   |                    |        |                   |   |           |        |     
|Gross sales                                   |                       | $ | 9,871,008          |        |                   | $ | 8,428,921 |        |      | $ | 26,881,955 |         |  | $ | 24,373,234 |        
|Less excise taxes                             |                       |   | 462,584            |        |                   |   | 403,796   |        |      |   | 1,276,866  |         |  |   | 1,128,390  |        
|                                              |                       |   |                    |        |                   |   |           |        |      |   |            |         |  |   |            |        
|Net sales                                     |                       |   | 9,408,424          |        |                   |   | 8,025,125 |        |      |   | 25,605,089 |         |  |   | 23,244,844 |        
|Cost of sales                                 |                       |   | 6,947,821          |        |                   |   | 6,217,374 |        |      |   | 19,105,049 |         |  |   | 17,329,402 |        
|                                              |                       |   |                    |        |                   |   |           |        |      |   |            |         |  |   |            |        
|Gross margin                                  |                       |   | 2,460,603          |        |                   |   | 1,807,751 |        |      |   | 6,500,040  |         |  |   | 5,915,442  |        
|Selling, general and administrative expenses  |                       |   | 2,134,552          |        |                   |   | 1,999,370 |        |      |   | 6,529,259  |         |  |   | 6,791,440  |        
|                                              |                       |   |                    |        |                   |   |           |        |      |   |            |         |  |   |            |        
|Operating income (loss)                       |                       |   | 326,051            |        |                   |   | (191,619  | )      |      |   | (29,219    | )       |  |   | (875,998   | )      
|Other income, net                             |                       |   | 136,868            |        |                   |   | 200,496   |        |      |   | 318,621    |         |  |   | 463,596    |        
|                                              |                       |   |                    |        |                   |   |           |        |      |   |            |         |  |   |            |        
|Income (loss) before income taxes             |                       |   | 462,919            |        |                   |   | 8,877     |        |      |   | 289,402    |         |  |   | (412,402   | )      
|Provision for income taxes                    |                       |   |                   |        |                   |   |          |        |      |   |           |         |  |   |           |        
|                                              |                       |   |                    |        |                   |   |           |        |      |   |            |         |  |   |            |        
|Net income (loss)                             |                       | $ | 462,919            |        |                   | $ | 8,877     |        |      | $ | 289,402    |         |  | $ | (412,402   | )      
|                                              |                       |   |                    |        |                   |   |           |        |      |   |            |         |  |   |            |        
|Basic and diluted net income (loss) per share |                       | $ | 0.06               |        |                   | $ | 0.00      |        |      | $ | 0.04       |         |  | $ | (0.05      | )      
|Weighted average basic shares outstanding     |                       |   | 8,234,838          |        |                   |   | 8,079,760 |        |      |   | 8,173,398  |         |  |   | 7,826,916  |        
|Weighted average diluted shares outstanding   |                       |   | 8,293,664          |        |                   |   | 8,205,258 |        |      |   | 8,234,388  |         |  |   | 7,826,916  |        
|Cash dividend declared per share              |                       | $ | 0.044              |        |                   | $ | 0.044     |        |      | $ | 0.132      |         |  | $ | 0.132      |        
|                                              | Beer barrels shipped  |   |                    | 31,400 |                   |   |           | 27,800 |      |   |            | 86,600  |  |   |            | 81,700  | 
|                                              | Soda barrels shipped  |   |                    | 13,100 |                   |   |           | 12,600 |      |   |            | 37,300  |  |   |            | 37,500  | 
|                                              |                       |   |                    |        |                   |   |           |        |      |   |            |         |  |   |            |        
|                                              | Total barrels shipped |   |                    | 44,500 |                   |   |           | 40,400 |      |   |            | 123,900 |  |   |            | 119,200 | 
|                                              |                       |   |                    |        |                   |   |           |        |      |   |            |         |  |   |            |        

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                 |                                                                                          |                                                                |                                           |         |                   |            |           |          |            |            |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ----------------------------------------- | ------- | ----------------- | ---------- | --------- | -------- | ---------- | ---------- | -
|                                                 |                                                                                          |                                                                |                                           |         | Nine Months Ended
|                                                 |                                                                                          |                                                                |                                           |         | September 30,    
|                                                 |                                                                                          |                                                                |                                           |         |                  
|                                                 |                                                                                          |                                                                |                                           |         | 2002              |            | 2001     
|                                                 |                                                                                          |                                                                |                                           |         |                   |            |          
|OPERATING ACTIVITIES:                            |                                                                                          |                                                                |                                           |         |                   |            |           |         
|                                                 | Net income (loss)                                                                        |                                                                | $                                         | 289,402 |                   |            | $         | (412,402 | )         
|                                                 | Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                |                                           |         |                   |            |           |          |           
|                                                 |                                                                                          | Depreciation and amortization                                  |                                           |         | 1,649,832         |            |           |          | 1,598,181  |           
|                                                 |                                                                                          | Stock compensation expense                                     |                                           |         | 50,054            |            |           |          | 214,159    |           
|                                                 |                                                                                          | Interest expense                                               |                                           |         | 5,635             |            |           |          | 1,028      |           
|                                                 |                                                                                          | Gain on disposal of fixed assets                               |                                           |         | (53               | )          |           |          |           |           
|                                                 |                                                                                          | Deferred rent                                                  |                                           |         | (92,754           | )          |           |          | 35,929     |           
|Changes in operating assets and liabilities:     |                                                                                          |                                                                |                                           |         |                   |            |           |         
|                                                 |                                                                                          | Accounts receivable                                            |                                           |         | (197,136          | )          |           |          | 294,110    |           
|                                                 |                                                                                          | Inventories                                                    |                                           |         | (377,385          | )          |           |          | (358,471   | )         
|                                                 |                                                                                          | Prepaid expenses and other                                     |                                           |         | (190,968          | )          |           |          | (48,434    | )         
|                                                 |                                                                                          | Accounts payable and accrued expenses                          |                                           |         | 972,104           |            |           |          | (120,741   | )         
|                                                 |                                                                                          | Refundable deposits                                            |                                           |         | (17,863           | )          |           |          | (99,996    | )         
|                                                 |                                                                                          |                                                                |                                           |         |                   |            |           |         
|                                                 |                                                                                          |                                                                | Net cash provided by operating activities |         |                   | 2,090,868  |           |          |            | 1,103,363  |  
|INVESTING ACTIVITIES:                            |                                                                                          |                                                                |                                           |         |                   |            |           |         
|                                                 |                                                                                          | Acquisitions of fixed assets                                   |                                           |         | (1,694,025        | )          |           |          | (581,480   | )         
|                                                 |                                                                                          | Proceeds from sales of fixed assets                            |                                           |         | 10,537            |            |           |          | 15,147     |           
|                                                 |                                                                                          |                                                                |                                           |         |                   |            |           |         
|                                                 |                                                                                          |                                                                | Net cash used in investing activities     |         |                   | (1,683,488 | )         |          |            | (566,333   | )
|FINANCING ACTIVITIES:                            |                                                                                          |                                                                |                                           |         |                   |            |           |         
|                                                 |                                                                                          | Proceeds from the sale of common stock and exercise of options |                                           |         | 176,669           |            |           |          | 111,628    |           
|                                                 |                                                                                          | Notes receivable                                               |                                           |         | 11,328            |            |           |          | (109,921   | )         
|                                                 |                                                                                          | Cash dividends paid                                            |                                           |         | (1,099,387        | )          |           |          | (1,025,922 | )         
|                                                 |                                                                                          |                                                                |                                           |         |                   |            |           |         
|                                                 |                                                                                          |                                                                | Net cash used in financing activities     |         |                   | (911,390   | )         |          |            | (1,024,215 | )
|                                                 |                                                                                          |                                                                |                                           |         |                   |            |           |         
|Decrease in cash and cash equivalents            |                                                                                          |                                                                | (504,010                                  | )       |                   |            | (487,185  | )       
|Cash and cash equivalents at beginning of period |                                                                                          |                                                                | 5,075,454                                 |         |                   |            | 6,444,145 |         
|                                                 |                                                                                          |                                                                |                                           |         |                   |            |           |         
|Cash and cash equivalents at end of period       |                                                                                          | $                                                              | 4,571,444                                 |         |                   | $          | 5,956,960 |         
|                                                 |                                                                                          |                                                                |                                           |         |                   |            |           |         

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 and is
constructing a fourth alehouse and brewery in Sacramento, California which is
expected to open in 2003. The Company sells its beer through a network of
selected independent distributors primarily in Washington, Oregon and
California under the Pyramid brand and to a lesser extent the Thomas Kemper
brand. Pyramid also manufactures a line of gourmet sodas under the Thomas
Kemper Soda Company label. As of September 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.

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. 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. For a
presentation including all disclosures required by generally accepted
accounting principles, these financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 2001,
included in the Annual Report on Form 10-K.

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.

2. INVENTORIES:

|                |  |               |           |              |  |   |           | 
|--------------- |  | ------------- | --------- | ------------ |  | - | --------- | 
|                |  | September 30, |           | December 31,
|                |  | 2002          |           | 2001        
|                |  |               |           |             
|Raw materials   |  | $             | 701,099   |              |  | $ | 522,226   | 
|Work in process |  |               | 191,129   |              |  |   | 138,231   | 
|Finished goods  |  |               | 663,305   |              |  |   | 517,691   | 
|                |  |               |           |              |  |   |           | 
|                |  | $             | 1,555,533 |              |  | $ | 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.

3. FIXED ASSETS:

|                               |  |               |             |              |  |   |            |  
|------------------------------ |  | ------------- | ----------- | ------------ |  | - | ---------- | -
|                               |  | September 30, |             | December 31,
|                               |  | 2002          |             | 2001        
|                               |  |               |             |             
|Brewery and retail equipment   |  | $             | 14,981,554  |              |  | $ | 14,465,637 |  
|Furniture and fixtures         |  |               | 962,916     |              |  |   | 918,879    |  
|Leasehold improvements         |  |               | 15,497,961  |              |  |   | 13,808,247 |  
|Construction in progress       |  |               | 378,978     |              |  |   | 584,855    |  
|                               |  |               |             |              |  |   |            |  
|                               |  |               | 31,821,409  |              |  |   | 29,777,618 |  
|Less: accumulated depreciation |  |               | (11,109,743 | )            |  |   | (9,555,058 | )
|                               |  |               |             |              |  |   |            |  
|                               |  | $             | 20,711,666  |              |  | $ | 20,222,560 |  
|                               |  |               |             |              |  |   |            |  

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4. NOTE RECEIVABLE  RELATED PARTY

In June 2001, the Company issued a $787,000 full recourse note to the
Companys Chief Executive Officer (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
nine months ended September 30, 2002, the Company recorded $3,000 and $46,000,
respectively, in compensation expense in connection with this equity
arrangement which is included in selling, general and administrative expenses.

5. 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
|                       |  | September 30,     
|                       |  |                   
|                       |  | 2002               |         | 2001
|                       |  |                    |         |     
|Interest income        |  | $                  | 25,558  |      |  | $ | 71,201  | 
|Parking income         |  |                    | 100,548 |      |  |   | 116,622 | 
|Interest expense       |  |                    | (2,113  | )    |  |   |        | 
|Other income (expense) |  |                    | 12,875  |      |  |   | 12,673  | 
|                       |  |                    |         |      |  |   |         | 
|Other income, net      |  | $                  | 136,868 |      |  | $ | 200,496 | 
|                       |  |                    |         |      |  |   |         | 

|                       |  |                   |         |      |  |   |         | 
|---------------------- |  | ----------------- | ------- | ---- |  | - | ------- | 
|                       |  | Nine Months Ended
|                       |  | September 30,    
|                       |  |                  
|                       |  | 2002              |         | 2001
|                       |  |                   |         |     
|Interest income        |  | $                 | 80,529  |      |  | $ | 231,180 | 
|Parking income         |  |                   | 208,432 |      |  |   | 222,921 | 
|Interest expense       |  |                   | (5,635  | )    |  |   |        | 
|Other income (expense) |  |                   | 35,295  |      |  |   | 9,495   | 
|                       |  |                   |         |      |  |   |         | 
|Other income, net      |  | $                 | 318,621 |      |  | $ | 463,596 | 
|                       |  |                   |         |      |  |   |         | 

6. EARNINGS PER SHARE

Basic earnings per share was computed by dividing net income available to
common shareholders by weighted average shares outstanding. Options outstanding
as of September 30, 2002 and not included in the diluted earnings per share
calculation because the exercise price of the options were greater than the
average market price of the common shares were 511,000 and 486,000 for the
quarter and nine months ended September 30, 2002, respectively. Options to
purchase approximately 313,000 and 813,000 shares of common stock were
outstanding as of September 30, 2001 but were not included in the diluted
earnings per share calculation for the quarter and nine months ended September
30, 2001, respectively, because the exercise price of the options were greater
than the average market price of the common shares and the effects of these
options are anti-dilutive. Dilutive earnings per share was calculated as
follows:

|          |                                             |                            |   |                    |      |                   |   |           |      |      |   |           |      |  |   |           |       |  
|--------- | ------------------------------------------- | -------------------------- | - | ------------------ | ---- | ----------------- | - | --------- | ---- | ---- | - | --------- | ---- |  | - | --------- | ----- | -
|          |                                             |                            |   | Three Months Ended |      | Nine Months Ended
|          |                                             |                            |   | September 30,      |      | September 30,    
|          |                                             |                            |   |                    |      |                  
|          |                                             |                            |   | 2002               |      | 2001              |   | 2002      |      | 2001
|          |                                             |                            |   |                    |      |                   |   |           |      |     
|Earnings: |                                             |                            |   |                    |      |                   |   |           |      |      |   |           |      |  |   |          
|          | Net income (loss)                           |                            | $ | 462,919            |      |                   | $ | 8,877     |      |      | $ | 289,402   |      |  | $ | (412,402  | )    
|Shares:   |                                             |                            |   |                    |      |                   |   |           |      |      |   |           |      |  |   |          
|          | Weighted average shares outstanding         |                            |   | 8,385,638          |      |                   |   | 8,304,060 |      |      |   | 8,345,198 |      |  |   | 8,051,216 |      
|          | Shares subject to repurchase                |                            |   | (150,800           | )    |                   |   | (224,300  | )    |      |   | (171,800  | )    |  |   | (224,300  | )    
|          | Weighted average basic shares outstanding   |                            |   | 8,234,838          |      |                   |   | 8,079,760 |      |      |   | 8,173,398 |      |  |   | 7,826,916 |      
|          |                                             |                            |   |                    |      |                   |   |           |      |      |   |           |      |  |   |          
|          |                                             | Basic earnings per share   |   | $                  | 0.06 |                   |   | $         | 0.00 |      |   | $         | 0.04 |  |   | $         | (0.05 | )
|          |                                             |                            |   |                    |      |                   |   |           |      |      |   |           |      |  |   |          
|          | Stock option dilution                       |                            |   | 58,826             |      |                   |   | 125,498   |      |      |   | 60,990    |      |  |   |          |      
|          |                                             |                            |   |                    |      |                   |   |           |      |      |   |           |      |  |   |          
|          | Weighted average diluted shares outstanding |                            |   | 8,293,664          |      |                   |   | 8,205,258 |      |      |   | 8,234,388 |      |  |   | 7,826,916 |      
|          |                                             |                            |   |                    |      |                   |   |           |      |      |   |           |      |  |   |          
|          |                                             | Diluted earnings per share |   | $                  | 0.06 |                   |   | $         | 0.00 |      |   | $         | 0.04 |  |   | $         | (0.05 | )
|          |                                             |                            |   |                    |      |                   |   |           |      |      |   |           |      |  |   |          

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7. STOCKHOLDERS EQUITY

|                              |                                                                 |  |              |        |            |   |         |     |            |   |             |         |               |   |          |       |       |   |          |        |  |   |             |            |   |   |            |            |  
|----------------------------- | --------------------------------------------------------------- |  | ------------ | ------ | ---------- | - | ------- | --- | ---------- | - | ----------- | ------- | ------------- | - | -------- | ----- | ----- | - | -------- | ------ |  | - | ----------- | ---------- | - | - | ---------- | ---------- | -
|                              |                                                                 |  |              |        |            |   |         |     |            |   |             |         |               |   |          |       |       |   | Deferred |        |  |   |             |            |   |   |           
|                              |                                                                 |  | Common Stock |        | Additional |   |         |     |            |   | Stock       |         |               |   |          |       | 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 income                                                      |  |              |       |            |   |         |    |            |   |             |        |               |   |          |      |       |   |          |       |  |   |             | 289,402    |   |   |            | 289,402    |  
|                              | Shares issued                                                   |  |              | 88,083 |            |   |         | 881 |            |   |             | 175,788 |               |   |          |      |       |   |          |       |  |   |             |           |   |   |            | 176,669    |  
|                              | Stock compensation including
amortization of stock compensation |  |              |       |            |   |         |    |            |   |             | 4,158   |               |   |          |      |       |   |          | 45,896 |  |   |             |           |   |   |            | 50,054     |  
|                              | Note repayment                                                  |  |              |       |            |   |         |    |            |   |             |        |               |   |          | 1,558 |       |   |          |       |  |   |             |           |   |   |            | 1,558      |  
|                              | Dividends declared                                              |  |              |       |            |   |         |    |            |   |             |        |               |   |          |      |       |   |          |       |  |   |             | (1,103,262 | ) |   |            | (1,103,262 | )
|                              |                                                                 |  |              |        |            |   |         |     |            |   |             |         |               |   |          |       |       |   |          |        |  |   |             |            |   |   |            |           
|Balance at September 30, 2002 |                                                                 |  | 8,387,576    |        |            | $ | 83,876  |     |            | $ | 35,829,066  |         |               | $ | (785,260 | )     |       | $ | (139,590 | )      |  | $ | (10,349,570 | )          |   | $ | 24,638,522 |           
|                              |                                                                 |  |              |        |            |   |         |     |            |   |             |         |               |   |          |       |       |   |          |        |  |   |             |            |   |   |            |           

8. 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.

9. CASH DIVIDEND:

The Board of Directors announced on August 15, 2002, the declaration of a
$0.044 per common share dividend payable on October 11, 2002 to shareholders of
record on September 30, 2002. The cash dividend declared totaled approximately
$369,000 for all common stock outstanding as of the date of record. A summary
of cash dividends declared follows:

|     |  |                    |       |                   |  |   |       | 
|---- |  | ------------------ | ----- | ----------------- |  | - | ----- | 
|     |  | Three Months Ended |       | Nine Months Ended
|     |  | September 30,      |       | September 30,    
|     |  |                    |       |                  
|2002 |  | $                  | 0.044 |                   |  | $ | 0.132 | 
|2001 |  | $                  | 0.044 |                   |  | $ | 0.132 | 

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.

10. 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 critical accounting policies included in the notes to the
financial statements included in the Companys current Form 10-K. 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.

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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 September 30, 2002     |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |       
|                                     | Revenues from external customers |  | $                      | 6,748  |          |  | $     | 3,123 |       |  | $ |       |   |  | $ | 9,871  |  
|                                     | Intersegment revenues            |  |                        | 110    |          |  |       |      |       |  |   | (110   | ) |  |   |       |  
|                                     | Interest income                  |  |                        |       |          |  |       |      |       |  |   | 26     |   |  |   | 26     |  
|                                     | Depreciation and amortization    |  |                        | 387    |          |  |       | 117   |       |  |   | 38     |   |  |   | 542    |  
|                                     | Operating income (loss)          |  |                        | 668    |          |  |       | 422   |       |  |   | (764   | ) |  |   | 326    |  
|                                     | Capital expenditures             |  |                        | 200    |          |  |       | 147   |       |  |   | 58     |   |  |   | 405    |  
|                                     | Total assets                     |  |                        | 15,506 |          |  |       | 4,449 |       |  |   | 10,020 |   |  |   | 29,975 |  
|Quarter ended September 30, 2001     |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |       
|                                     | Revenues from external customers |  | $                      | 5,989  |          |  | $     | 2,440 |       |  | $ |       |   |  | $ | 8,429  |  
|                                     | Intersegment revenues            |  |                        | 89     |          |  |       |      |       |  |   | (89    | ) |  |   |       |  
|                                     | Interest income                  |  |                        |       |          |  |       |      |       |  |   | 71     |   |  |   | 71     |  
|                                     | Depreciation and amortization    |  |                        | 401    |          |  |       | 104   |       |  |   | 33     |   |  |   | 538    |  
|                                     | Operating income (loss)          |  |                        | 45     |          |  |       | 272   |       |  |   | (509   | ) |  |   | (192   | )
|                                     | Capital expenditures             |  |                        | 57     |          |  |       | 19    |       |  |   | 75     |   |  |   | 151    |  
|                                     | Total assets                     |  |                        | 16,343 |          |  |       | 3,128 |       |  |   | 11,303 |   |  |   | 30,774 |  
|Nine months ended September 30, 2002 |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |       
|                                     | Revenues from external customers |  | $                      | 18,986 |          |  | $     | 7,896 |       |  | $ |       |   |  | $ | 26,882 |  
|                                     | Intersegment revenues            |  |                        | 281    |          |  |       |      |       |  |   | (281   | ) |  |   |       |  
|                                     | Interest income                  |  |                        |       |          |  |       |      |       |  |   | 81     |   |  |   | 81     |  
|                                     | Depreciation and amortization    |  |                        | 1,205  |          |  |       | 324   |       |  |   | 121    |   |  |   | 1,650  |  
|                                     | Operating income (loss)          |  |                        | 1,341  |          |  |       | 840   |       |  |   | (2,210 | ) |  |   | (29    | )
|                                     | Capital expenditures             |  |                        | 351    |          |  |       | 1,283 |       |  |   | 205    |   |  |   | 1,839  |  
|                                     | Total assets                     |  |                        | 15,506 |          |  |       | 4,449 |       |  |   | 10,020 |   |  |   | 29,975 |  
|Nine months ended September 30, 2001 |                                  |  |                        |        |          |  |       |       |       |  |   |        |   |  |   |       
|                                     | Revenues from external customers |  | $                      | 17,801 |          |  | $     | 6,572 |       |  | $ |       |   |  | $ | 24,373 |  
|                                     | Intersegment revenues            |  |                        | 228    |          |  |       |      |       |  |   | (228   | ) |  |   |       |  
|                                     | Interest income                  |  |                        |       |          |  |       |      |       |  |   | 231    |   |  |   | 231    |  
|                                     | Depreciation and amortization    |  |                        | 1,186  |          |  |       | 310   |       |  |   | 102    |   |  |   | 1,598  |  
|                                     | Operating income (loss)          |  |                        | 450    |          |  |       | 768   |       |  |   | (2,094 | ) |  |   | (876   | )
|                                     | Capital expenditures             |  |                        | 268    |          |  |       | 118   |       |  |   | 195    |   |  |   | 581    |  
|                                     | Total assets                     |  |                        | 16,343 |          |  |       | 3,128 |       |  |   | 11,303 |   |  |   | 30,774 |  

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.

11. 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 established 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 has determined that there was no impairment of
goodwill upon the adoption of SFAS No. 142 and therefore has not recognized any
impairment charge.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. The statement will be effective
for the 2003 fiscal year, and early adoption is permitted. The adoption of
SFAS 143 is not expected to have a material impact on the Companys financial
position, results of operations or cash flows.

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##### Table of Contents



Effective January 1, 2002, the Company also adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which
supersedes SFAS No. 121 and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30 Reporting the Results of Operations
 Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions for
the disposal of a segment of a business. SFAS No. 144 requires that long-lived
assets to be disposed of by sale be measured at the lower of carrying amounts
or fair value less cost to sell, whether reported in continuing operations or
in discontinued operations. SFAS No. 144 also expands the reporting of
discontinued operations to include portions of an entity that have been or will
be disposed of rather than limiting such discontinuance to a segment of a
business. There was no impact on the Companys financial position, results of
operations or cash flows upon adoption of SFAS No. 144.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Correction. SFAS No. 145 eliminates extraordinary accounting treatment for
reporting gain or loss on debt extinguishment, and amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
statement will be effective for the 2003 fiscal year, and early application is
permitted. The Company does not anticipate a material impact on its results of
operations from the adoption of SFAS No. 145.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon managements commitment to an exit plan, which is generally before
an actual liability has been incurred. Adoption of the statement is required at
the beginning of the 2003 fiscal year. The statement will impact the timing of
exit or disposal activities reported by the Company after adoption.

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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 September 30,
|                                             |                                          |   |                            
|                                             |                                          |   |                             |         |           |  | % of  |  |           |   |           |         | % of
|                                             |                                          |   | 2002                        |         | Net Sales |  | 2001  |  | Net Sales
|                                             |                                          |   |                             |         |           |  |       |  |          
|Gross sales                                  |                                          | $ | 9,871,008                   |         |           |  |       |  |           | $ | 8,428,921 |         |      |  |       | 
|Less excise taxes                            |                                          |   | 462,584                     |         |           |  |       |  |           |   | 403,796   |         |      |  |       | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Net sales                                    |                                          |   | 9,408,424                   |         |           |  | 100.0 |  |           |   | 8,025,125 |         |      |  | 100.0 | 
|Cost of sales                                |                                          |   | 6,947,821                   |         |           |  | 73.8  |  |           |   | 6,217,374 |         |      |  | 77.5  | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Gross margin                                 |                                          |   | 2,460,603                   |         |           |  | 26.2  |  |           |   | 1,807,751 |         |      |  | 22.5  | 
|Selling, general and administrative expenses |                                          |   | 2,134,552                   |         |           |  | 22.7  |  |           |   | 1,999,370 |         |      |  | 24.9  | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Operating income (loss)                      |                                          |   | 326,051                     |         |           |  | 3.5   |  |           |   | (191,619  | )       |      |  | -2.4  | 
|Other income, net                            |                                          |   | 136,868                     |         |           |  | 1.4   |  |           |   | 200,496   |         |      |  | 2.5   | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Income before income taxes                   |                                          |   | 462,919                     |         |           |  | 4.9   |  |           |   | 8,877     |         |      |  | 0.1   | 
|Provision for income taxes                   |                                          |   |                            |         |           |  |      |  |           |   |          |         |      |  |      | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Net income                                   |                                          | $ | 462,919                     |         |           |  | 4.9   |  |           | $ | 8,877     |         |      |  | 0.1   | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Basic and diluted net income per share       |                                          | $ | 0.06                        |         |           |  |       |  |           | $ | 0.00      |         |      |  |       | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Weighted average basic shares outstanding    |                                          |   | 8,234,838                   |         |           |  |       |  |           |   | 8,079,760 |         |      |  |       | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Weighted average diluted shares outstanding  |                                          |   | 8,293,664                   |         |           |  |       |  |           |   | 8,205,258 |         |      |  |       | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|Operating data (in barrels):                 |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|                                             | Beer barrels shipped                     |   |                             | 31,400  |           |  |       |  |           |   |           | 27,800  |      |  |       |  | 
|                                             | Soda barrels shipped                     |   |                             | 13,100  |           |  |       |  |           |   |           | 12,600  |      |  |       |  | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|                                             | Total barrels shipped                    |   |                             | 44,500  |           |  |       |  |           |   |           | 40,400  |      |  |       |  | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 
|                                             | Annual production capacity at period end |   |                             | 200,000 |           |  |       |  |           |   |           | 200,000 |      |  |       |  | 
|                                             |                                          |   |                             |         |           |  |       |  |           |   |           |         |      |  |       | 

|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       |  | 
|--------------------------------------------- | ---------------------------------------- | - | ------------------------------- | ------- | --------- |  | ----- |  | --------- | - | ---------- | ------- | ---- |  | ----- |  | 
|                                              |                                          |   | Nine Months Ended September 30,
|                                              |                                          |   |                                
|                                              |                                          |   |                                 |         |           |  | % of  |  |           |   |            |         | % of
|                                              |                                          |   | 2002                            |         | Net Sales |  | 2001  |  | Net Sales
|                                              |                                          |   |                                 |         |           |  |       |  |          
|Gross sales                                   |                                          | $ | 26,881,955                      |         |           |  |       |  |           | $ | 24,373,234 |         |      |  |       | 
|Less excise taxes                             |                                          |   | 1,276,866                       |         |           |  |       |  |           |   | 1,128,390  |         |      |  |       | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Net sales                                     |                                          |   | 25,605,089                      |         |           |  | 100.0 |  |           |   | 23,244,844 |         |      |  | 100.0 | 
|Cost of sales                                 |                                          |   | 19,105,049                      |         |           |  | 74.6  |  |           |   | 17,329,402 |         |      |  | 74.6  | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Gross margin                                  |                                          |   | 6,500,040                       |         |           |  | 25.4  |  |           |   | 5,915,442  |         |      |  | 25.4  | 
|Selling, general and administrative expenses  |                                          |   | 6,529,259                       |         |           |  | 25.5  |  |           |   | 6,791,440  |         |      |  | 29.2  | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Operating loss                                |                                          |   | (29,219                         | )       |           |  | -0.1  |  |           |   | (875,998   | )       |      |  | -3.8  | 
|Other income, net                             |                                          |   | 318,621                         |         |           |  | 1.2   |  |           |   | 463,596    |         |      |  | 2.0   | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Income (loss) before income taxes             |                                          |   | 289,402                         |         |           |  | 1.1   |  |           |   | (412,402   | )       |      |  | -1.8  | 
|Provision for income taxes                    |                                          |   |                                |         |           |  |      |  |           |   |           |         |      |  |      | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Net income (loss)                             |                                          | $ | 289,402                         |         |           |  | 1.1   |  |           | $ | (412,402   | )       |      |  | -1.8  | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Basic and diluted net income (loss) per share |                                          | $ | 0.04                            |         |           |  |       |  |           | $ | (0.05      | )       |      |  |       | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Weighted average basic shares outstanding     |                                          |   | 8,173,398                       |         |           |  |       |  |           |   | 7,826,916  |         |      |  |       | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Weighted average diluted shares outstanding   |                                          |   | 8,234,388                       |         |           |  |       |  |           |   | 7,826,916  |         |      |  |       | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|Operating data (in barrels):                  |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|                                              | Beer barrels shipped                     |   |                                 | 86,600  |           |  |       |  |           |   |            | 81,700  |      |  |       |  | 
|                                              | Soda barrels shipped                     |   |                                 | 37,300  |           |  |       |  |           |   |            | 37,500  |      |  |       |  | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|                                              | Total barrels shipped                    |   |                                 | 123,900 |           |  |       |  |           |   |            | 119,200 |      |  |       |  | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 
|                                              | Annual production capacity at period end |   |                                 | 200,000 |           |  |       |  |           |   |            | 200,000 |      |  |       |  | 
|                                              |                                          |   |                                 |         |           |  |       |  |           |   |            |         |      |  |       | 

11



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##### Table of Contents



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

Note that the comparisons to the third quarter of 2001 are affected by
reduced revenue relating to the September 11, 2001 tragedy and the impact of
the higher energy costs primarily in California that the Company experienced
last year.

Gross Sales. Gross sales increased 17.1% to $9,871,000 for the third
quarter ended September 30, 2002 from $8,429,000 in the same quarter of the
prior year, reflecting advances in both divisions, wholesale beverage and
alehouse restaurants. Wholesale beverage sales increased 12.7% to $6,748,000 in
the third quarter of 2002 from $5,989,000 in the same quarter of 2001, due
primarily to a 16% increase in Pyramid beer volume sales. Total wholesale beer
shipments increased 10.1% to 31,400 barrels for the third quarter of 2002 from
27,800 over the same quarter of the prior year. Of total beer shipments,
Pyramid beer increased 16% to 30,300 barrels while Thomas Kemper beer shipments
decreased 18% to 1,100. Alehouse sales increased 28.0% to $3,123,000 from
$2,440,000 for the quarters ended September 30, 2002 and 2001, respectively,
due to the addition of the Walnut Creek Alehouse, which contributed $832,000 in
revenues.

Excise Taxes. Excise taxes decreased to 4.7% of gross sales for the third
quarter ended September 30, 2002 from 4.8% of gross sales in the same quarter
of the prior year due to a greater portion of alehouse sales during the quarter
ended September 30, 2002, which do not bear excise tax.

Gross Margin.Gross margin increased 36.1% to $2,461,000 for the third
quarter ended September 30, 2002 from $1,808,000 in the same quarter of the
prior year. Gross margin as a percentage of net sales increased to 26.2% for
the third quarter ended September 30, 2002 from 22.5% for the same quarter of
the prior year due in part to increased sales of the Companys core beverage
products, more effective capacity utilization, efficiency improvements in the
Seattle Brewery, higher beverage prices versus 2001 and lower operating costs
in the alehouses. Gross margin in the third quarter of 2001 was particularly
affected during the period following September 11, when revenues fell while the
Company maintained expense levels.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 6.8% to $2,135,000 from $1,999,000 for the
quarters ended September 30, 2002 and 2001, respectively. As a percent of net
sales these expenses decreased to 22.7% from 24.9% for the same quarter of the
prior year primarily as a result of higher sales in the third quarter of 2002.

Other Income, net. Other income decreased 15.4% to $137,000 for the third
quarter ended September 30, 2002 from $200,000 for the third quarter of the
prior year 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 September 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 $454,000 to $463,000 for the quarter
ended September 30, 2002 from $9,000 reported for the same quarter of the prior
year for the reasons discussed above.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2001

Gross Sales. Gross sales increased 10.3% to $26,882,000 for the nine-month
period ended September 30, 2002 from $24,373,000 in the same nine month period
of the prior year reflecting increases in wholesale beer and alehouse sales.
Wholesale beverage sales increased 6.7% to $18,986,000 in the nine month period
ended September 30, 2002 from $17,801,000 in the same period of 2001 due to a
4% increase in beer barrels shipped to 123,900 barrels from 119,200 barrels in
the same nine month period of the prior year. Of wholesale beer shipments,
Pyramid beer increased 9.9% to 83,300 barrels while Thomas Kemper beer
shipments decreased 28.4 % to 3,300 barrels and soda shipments remained flat
for the nine-month period ended September 30, 2002 compared to the same nine
month period of the prior year. Alehouse sales increased 20.1% to $7,896,000
from $6,572,000 for nine months ended September 30, 2002 and 2001,
respectively, due to the addition of the Walnut Creek Alehouse which opened
this year on May 8th and contributed $1,439,000 in revenues.

Excise Taxes.Excise taxes totaled 4.7% and 4.6% of gross sales for the
nine-month period ended September 30, 2002 and 2001, respectively due mainly to
a greater portion of sales attributable to beer sales, which bear excise tax.

12



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##### Table of Contents



Gross Margin. Gross margin increased 9.9% to $6,500,000 for the nine-month
period ended September 30, 2002 from $5,915,000 for the same nine month period
of the prior year. Gross margin as a percentage of net sales remained flat at
25.4% for the nine-month period ended September 30, 2002 and 2001. Although
gross margin in the Beverage Division has improved due to price increases and
cost efficiencies, these improvements have been offset by a greater portion of
overall sales coming from the Alehouse Division which has a lower relative
gross margin, specifically the new Walnut Creek Alehouse, which showed a slight
loss for the nine-month period ended September 30, 2002 due to start up costs
including pre-opening expenses.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 3.9% to $6,529,000 for the nine-month period
ended September 30, 2002 from $6,791,000 for the same period of the prior year.
As a percent of net sales these expenses also decreased to 25.5% from 29.2% for
the same period of the prior year primarily due to decreased marketing expenses
of $264,000 related to a brand awareness campaign that was completed in 2001, a
non-cash charge of $180,000 recorded in 2001 related to an equity arrangement
with the Companys CEO and off-set in part by various expense increases in
2001.

Other Income, net. Other income decreased to $319,000 for the nine-month
period ended September 30, 2002 from $464,000 for the same nine-month period of
the prior year 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 nine-months ended September 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. The net income for the nine-month period ended September 30,
2002 was $289,000, an increase of $701,000, compared to net loss of $412,000
reported for the same period of the prior year for the reasons discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities during the nine-month period
ended September 30, 2002 was $2,091,000 compared to $1,103,000 for the same
period of the prior year. Net cash used in investing activities for the
nine-months ended September 30, 2002 was $1,683,000 compared to net cash used
in investing activities of $566,000 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 Alehouse which opened in May 2002, to install production
equipment in the Berkeley and Seattle breweries, to purchase additional kegs,
and to upgrade the Seattle alehouse. Capital spending has now also begun on the
new alehouse location in Sacramento. At September 30, 2002, the Company had
working capital of $4,015,000 compared to $5,151,000 at December 31, 2001.

Operating Leases.The Company leases its office, warehouse and plant
facilities under operating leases in Seattle, Berkeley, Walnut Creek and
Sacramento. These lease agreements contain provisions for free rent periods and
scheduled rent increases. Accordingly, the Company has recorded deferred rent
of approximately $1,160,000 and $1,284,000 at September 30, 2002 and 2001,
respectively, representing the pro rata rent which would have been due if equal
payments had been required under the lease terms. The Company also leases
office and storage facilities under month-to-month lease agreements.

At September 30, 2002, future minimum rental payments are as follows:

|           |  |   |            | 
|---------- |  | - | ---------- | 
|2002       |  | $ | 301,000    | 
|2003       |  |   | 1,319,000  | 
|2004       |  |   | 1,233,000  | 
|2005       |  |   | 1,023,000  | 
|2006       |  |   | 1,099,000  | 
|Thereafter |  |   | 5,400,000  | 
|           |  |   |            | 
|           |  | $ | 10,375,000 | 
|           |  |   |            | 

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 September 30, 2002, the
Company has repurchased 457,724 shares at an average price of $1.94 per share.
No shares were repurchased during the quarter and nine-months ended September
30, 2002.

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.

13



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##### Table of Contents



Planned projects include the 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 balances, 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. 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.

Critical Accounting Policies

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



| |  | Long-lived assets impairment      
|- |  | ----------------------------------
| 
| |  | Valuation of returnable containers
| 
| |  | Realization of deferred tax assets

Long-Lived Assets Impairment.The Company reviews its long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. The Companys evaluation
is based on an estimate of the future undiscounted net cash flows of the
related asset or asset grouping over the remaining life in measuring whether
the assets are recoverable. Long-lived assets to be disposed of are evaluated
in relation to the estimated fair value of such assets less the estimated costs
to sell. Long-lived assets are written down to their estimated net fair value
calculated using a discounted future cash flow analysis in the event of an
impairment. Effective in the fiscal year 2002, the Company will account for
long-lived assets in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. If circumstances related to the Companys long-lived assets change,
the Companys valuation of the long-lived assets could materially change.

Returnable Containers.The accounting for returnable containers
(primarily kegs) requires management to make judgments and estimates of
physical quantities and valuation as of each balance sheet date. Containers
held by the Company are counted as part of the Companys annual physical
inventory count procedures. The number of kegs held by distributors is
primarily based on annual confirmation with distributors. Kegs are capitalized
at their purchased cost as part of fixed assets and are depreciated over their
estimated useful economic life based on historical experience, which currently
ranges from five to ten years. In the period it is identified the Company
recognizes a loss for the average remaining undepreciated cost for lost and
obsolete containers. The Company also collects a deposit from customers for
containers shipped to them and recognizes a liability for the deposits
collected. The recorded liability is adjusted as necessary to be consistent
with the estimate of the number of containers held by distributors. If
circumstances related to the Companys returnable container physical quantities
or estimated valuation change, the Companys recorded assets containers and
related deposit liabilities for returnable containers could materially change.

Realization of Deferred Tax Assets.The Company evaluates the
realizability of its deferred tax assets quarterly by assessing the need for
and amount of the valuation allowance. The evaluation of the realizability of
the deferred tax assets is based on an assessment of the Companys ability to
generate future U.S. taxable income. Results of operations in recent years are
considered in the assessment. The Company records a valuation allowance for
the portion of its deferred tax assets that do not meet the recognition
criteria of Statement of Financial Accounting Standards No. 109 Accounting for
Income Taxes. If circumstances related to the Companys ability to generate
future U.S. taxable income change, the Companys evaluation of the
realizability of its deferred tax assets could materially change.

RISK FACTORS AND FORWARD LOOKING STATEMENTS

The Company does not provide forecasts of future financial performance.
However, this report contains forward looking statements: discussions of a
number of matters and subject areas that are not historical or current facts
but that address potential future circumstances, operations, and prospects.
These forward-looking statements are subject to the safe harbor created by
Section 21E of the Securities Exchange Act of 1934, are qualified by the
inherent risks and uncertainties surrounding future expectations generally and
may differ materially from the Companys actual future experience as a result
of such factors as: the effects of increased competition from regional craft
brewers and major breweries, the Companys ability to gain and continue access
to the markets through independent distributors and chain stores, the effects
of governmental regulation and the Companys ability to obtain and maintain
necessary permits, licenses and approvals, the Companys ability to maintain or
increase the price of its products without decreasing demand and the Companys
ability to maintain or increase operating margins which may decline as a result
of lower sales volumes or selling prices and increased production,
transportation and promotions costs. 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.

14



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##### Table of Contents






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.




ITEM 4. Controls and Procedures

The Company maintains a set of disclosure controls and procedures and
internal controls designed to ensure that information required to be disclosed
in its filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms. The Companys principal
executive and financial officers have evaluated our disclosure controls and
procedures within 90 days prior to the filing of this Quarterly Report on Form
10-Q and have determined that such disclosure controls and procedures are
effective.

Subsequent to our evaluation, there were no significant changes in
internal controls or other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.




PART II.  OTHER INFORMATION




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: R. Martin Kelly,
President and Chief Executive Officer.     
|
| | 99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002: Eric G. Peterson,
Vice-President and Chief Financial Officer
|
| | 99.3 |  | 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      



|* |  | 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

None filed during the quarter ended September 30, 2002

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

15



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##### Table of Contents






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 November 8, 2002.

| |                                                        |                      
| | ------------------------------------------------------ | ---------------------
| | PYRAMID BREWERIES INC.                                
|
| | By:                                                    | /s/   R. MARTIN KELLY
| |                                                       
| | R. Martin Kelly, President and
Chief Executive Officer

| |                                                              |                       
| | ------------------------------------------------------------ | ----------------------
| | By:                                                          | /s/   ERIC G. PETERSON
| |                                                             
| | Eric G. Peterson, Vice-President and
Chief Financial Officer

| |                                                        |                    
| | ------------------------------------------------------ | -------------------
| | By:                                                    | /s/   JASON W. REES
| |                                                       
| | Jason W. Rees, Controller and
Chief Accounting Officer

DATE: November 8, 2002

16



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##### Table of Contents



CERTIFICATION

I, R. Martin Kelly, President and Chief Executive Officer of Pyramid Breweries
Inc. (registrant), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 8, 2002

|                                                      |  | 
|----------------------------------------------------- |  | 
|/s/   R. Martin Kelly                                 |  | 
|R. Martin Kelly
President and Chief Executive Officer |  | 

17



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##### Table of Contents



CERTIFICATION

I, Eric G. Peterson, Vice-President and Chief Financial Officer of Pyramid
Breweries Inc. (registrant), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 8, 2002

|                                                            |  | 
|----------------------------------------------------------- |  | 
|/s/   Eric G. Peterson                                      |  | 
|Eric G. Peterson
Vice-President and Chief Financial Officer |  | 

18



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##### Table of Contents



CERTIFICATION

I, Jason W. Rees, Controller and Chief Accounting Officer of Pyramid Breweries
Inc. (registrant), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |  | a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| |  | c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |  | a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 8, 2002

|                                                      |  | 
|----------------------------------------------------- |  | 
|/s/   Jason W. Rees                                   |  | 
|Jason W. Rees
Controller and Chief Accounting Officer |  | 

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