Back to GetFilings.com

Table of Contents

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 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.

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

2

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.

3

Table of Contents

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.

4

Table of Contents

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.

5

Table of Contents

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:

     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:

6

Table of Contents

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.

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	)