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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 2003

		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)

Commission file number 0-27116

PYRAMID BREWERIES INC.

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  No .

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes  No

     Common stock, par value of $.01 per share: 8,523,167 shares of Common Stock outstanding as of March 31, 2003

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PYRAMID BREWERIES INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

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PART I

Item 1 – FINANCIAL STATEMENTS

PYRAMID BREWERIES INC.

BALANCE SHEETS
(Unaudited)

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

STATEMENTS OF OPERATIONS
(Unaudited)

The accompanying notes are an integral part of these statements.

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PYRAMID BREWERIES INC.

STATEMENTS OF CASH FLOWS
(Unaudited)

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 the third quarter of 2003. The Company sells its beer through a network of selected independent distributors and alehouse locations primarily in Washington, Oregon and California under the Pyramid, 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 March 31, 2003, the Company’s products were distributed in 32 states and Canada. The Company also 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, 2002, included in the Annual Report on Form 10-K.

Stock Based Compensation

     At March 31, 2003, the Company has stock-based compensation plans which are described more fully in Note 15 of the 2002 Annual report. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. The Company has adopted the disclosure-only provisions of SFAS No. 123 “Accounting for Stock-Based Compensation.” Accordingly, no compensation cost has been recognized for the fair value of options issued under the Employee and Director Plans (the Plans) except as described in Note 4. Had compensation cost been recognized based on the fair value at the date of grant for options awarded under the Plans, the pro forma amounts of the Company’s net loss and net loss per share for the years ended March 31, 2003 and 2002, would have been as follows:

     The fair value of options granted in the first quarter of 2002 was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: risk-free interest rate of 5.13%; expected option lives of seven years; expected volatility of 52%; and expected future dividends. The weighted-average fair value of options granted during the first quarter ended March 31, 2002 was $0.65. There were no options granted in the first quarter of 2003.

Revenue Recognition

     The Company recognizes revenue from the sale of wholesale beer and soda products at the time of shipment, when the title of the Company’s products passes to the customer, in accordance with distributor sales agreements and collectibility is probable. The Company’s revenue from its alehouses are comprised of food, beverage and merchandise, recognized at the time of sale.

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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. Inventory levels experience fluctuations in carrying levels and values based on seasonality.

3.

FIXED ASSETS:

     Construction in progress includes leasehold improvements made to the Sacramento Alehouse which is scheduled to open mid-2003.

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 were unrestricted, except for being pledged as collateral for the loans, and the remaining 252,300 shares become unrestricted over the next two years. During the quarters ended March 31, 2003 and 2002, the Company recorded $2,470 and $32,000 in compensation expense, respectively, in connection with this equity arrangement, which is included in selling, general and administrative expenses.

5.

ACCRUED EXPENSES

     Accrued expenses consist of the following:

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6.

OTHER INCOME, NET

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

7.

EARNINGS PER SHARE

     Basic and diluted net loss per share was computed by dividing net loss by the weighted average number of shares of common stock outstanding during the quarter. The effect of stock options has not been included in the calculation of diluted net loss per share as the effect is antidilutive. Options to purchase approximately 794,200 and 756,900 shares of common stock were outstanding as of March 31, 2003 and 2002, respectively, but were not included in the computation of EPS because their effects are antidilutive.

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STOCKHOLDERS’ EQUITY