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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(mark one)

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

[   ]

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

FOR THE TRANSITION PERIOD FROM _______________ TO______________.

COMMISSION FILE NUMBER 0-27116

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

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

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

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

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

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

Pages 1 of 16 sequentially numbered pages.

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

TABLE OF CONTENTS

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

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PART I

Item 1 — FINANCIAL STATEMENTS

PYRAMID BREWERIES INC.

BALANCE SHEETS
(Unaudited)

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

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

STATEMENTS OF OPERATIONS
(Unaudited)

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

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

STATEMENTS OF CASH FLOWS
(Unaudited)

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

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRESENTATION:

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

Revenue Recognition

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

Restatement

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

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

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Other Income, net

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

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

2. INVENTORIES:

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

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3. FIXED ASSETS:

4. NOTE RECEIVABLE RELATED PARTY

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

5. EARNINGS PER SHARE

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

6. STOCKHOLDERS’ EQUITY

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

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7. COMMITMENTS AND CONTINGENCIES:

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

8. CASH DIVIDEND:

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

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

9. SEGMENT INFORMATION:

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

     Products and Services

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

     Factors used to identify reportable segments

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

     Measurement of segment profit and segment assets

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

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Segment profit and segment assets are as follows:

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

Other

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

10. NEW ACCOUNTING PRONOUNCEMENTS:

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

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

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

SELECTED UNAUDITED OPERATING DATA

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

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