Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 0-27116

Pyramid Breweries Inc.

91 South Royal Brougham Way,

(206) 682-8322

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

      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  þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

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

      The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second quarter, June 30, 2003, was $29,930,975.

      The number of shares outstanding of the registrant’s common stock as of March 8, 2004, was 8,665,085.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders (to be filed) to be held on May 12, 2004 are incorporated by reference into Part III of this Form 10-K.

PYRAMID BREWERIES INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003

i

Table of Contents

PYRAMID BREWERIES INC.

PART I

Item 1 — Business

General

      Pyramid Breweries Inc. (the Company) is one of the leading brewers of fresh, full-flavored specialty beers, generally known as craft beers. The Company produces and markets over 20 styles of beer under the Pyramid and Thomas Kemper brand names and a line of six premium sodas produced under the Thomas Kemper Soda Company brand name. The Company also operates restaurants adjacent to its breweries under the Pyramid Alehouse brand name.

      The Company’s breweries produce high quality, full-flavored beers in small batches using traditional brewing methods. The Company also produces high quality, full-flavored, batch brewed sodas. The Company has two main breweries, one in Seattle, Washington (Seattle Brewery) which opened in March 1995, and one in Berkeley, California (Berkeley Brewery), which opened in February 1997. The Company’s third and fourth breweries which are located in Walnut Creek and Sacramento, California produce products primarily for on-site consumption. The Company believes that the breweries and adjacent alehouses provide increased consumer awareness and loyalty for the Company’s brands by increasing opportunities for sampling and local product promotion. In 2003, the Company sold approximately 159,000 barrels of its beer and soda products.

      The Company was incorporated as Hart Brewing in Washington in March 1984 and changed its name to Pyramid Breweries Inc. in May 1996 and is headquartered in Seattle, Washington. The Company’s headquarters mailing address is 91 South Royal Brougham Way, Seattle, Washington, 98134, and the telephone number at that location is (206) 682-8322. The Company’s website address is www.PyramidBrew.com.

Industry Background

      The Company’s Pyramid and Thomas Kemper beer brands compete primarily in the craft beer category, and secondarily in the larger “specialty” category (which includes craft beers, imports and super premium beers). Nationally, craft beers represented approximately 3% of total beer shipments in 2002 including imports. Craft beers are distinguishable from mass-produced beers by their wide range of fuller flavors and adherence to traditional European styles and higher quality ingredients. Industry experts estimate that total beer shipments, including imports, increased approximately 1% in 2002, craft beer shipments were estimated to have increased 3.4%, and imports represented a 6% increase.

      The Company has been successful in marketing a full line of flavorful ales and lagers. Under the Pyramid brand, Pyramid Hefeweizen, Pyramid Apricot Ale and Pyramid Snowcap are the Company’s best selling beer styles. Thomas Kemper Weizenberry is currently the Company’s best selling beer within the Thomas Kemper brand.

      Craft beers generally sell for retail prices ranging from $5.99 to $7.99 per six-pack. Retail prices are set independently by distributors and retailers. The Company’s retail prices are usually at the higher end of this range. Increased consumer demand for high quality, full-flavored beers allows for a price premium relative to mass-produced domestic beers. This price premium results in higher profit margins, which can motivate distributors and retailers to offer and promote craft beers. The Company’s craft beers are sold primarily in Washington, Oregon and California, which accounted for approximately 82% of the Company’s 2003 beer sales.

      The Company participates in the craft soda category with a line of full flavored, batch brewed sodas sold under the Thomas Kemper Soda Company label. Thomas Kemper Soda Company’s premium soft drinks include root beer, cream soda, orange cream, black cherry, grape and ginger ale. The Company distributes its soda products in supermarkets, independent food stores, convenience stores and restaurants, taking advantage of distribution channels established for beer products. Craft sodas typically sell for $3.99 to $5.49 per six-pack,

1

Table of Contents

      The Company currently operates restaurants adjacent to its Seattle and Berkeley breweries and the Sacramento and Walnut Creek Alehouses with the brewery situated within the restaurant. The restaurants are operated under the Pyramid Alehouse brand name. In 2003, the restaurants contributed sales of $12,420,000 including approximately $4,050,000 in the Company’s beers and sodas and $221,000 in branded clothing and other merchandise. The restaurants have a total of over 1,300 seats, including outdoor eating areas, and are situated in highly visible, high traffic locations. The Alehouses had approximately 744,000 guest visits during 2003.

      The Company’s beverage operations (sales to third party distributors) contributed 64% of net sales in 2003, with beer comprising 48% and soda 16%. Alehouse operations contributed 36% of net sales in 2003.

Business Strategy

      The Company has developed a balanced internal and external growth strategy which includes growing the Company’s beverage portfolio in its core western markets, expanding the Alehouse segment through the development of new properties in that same geography, and continuing to improve the Company’s cost structure. Key elements of the Company’s strategy are: (i) building a strong portfolio of craft beer brands, (ii) increasing the focus on the craft soda business, (iii) building brand awareness and sales through company-owned restaurants, and (iv) maintaining a direct store delivery (DSD) distribution system.

      The Company is committed to producing a portfolio of high quality craft beers to appeal to a variety of discerning consumer tastes. The Company currently markets over 20 styles of beer under the Pyramid and Thomas Kemper brands. The Pyramid brand accounted for 97% of the Company’s beer sales and 73% of the Company’s beverage sales in 2003. The Company continues to seek opportunities to develop or acquire other distinctive regional brands, which may help broaden the Company’s product portfolio and strengthen the Company’s presence geographically. The wide range of styles enables the Company to obtain better market penetration through greater shelf space for its packaged products in retail stores and additional tap handles in draft beer outlets.

      The Company brews its beers and specialty beverages in company-operated breweries, providing direct control of the entire production process from purchase of ingredients to packaging and shipment. The proximity of the Company’s breweries to its key West Coast markets helps optimize product freshness, reduces freight costs and minimizes the inventory of kegs required to service draft accounts.

      The Company focuses on local sales and marketing strategies to build its brands. It uses targeted advertising and promotions, event marketing, sponsorships, local fairs and festivals and targeted charitable donations of its products to assist in developing its market presence. The Company also has a website located at www.PyramidBrew.com. The Company does not compete directly with the national brands in terms of mass-media advertising.

      The Company acquired the Thomas Kemper Soda Company in 1997. Since that time, the brand has added significant revenues to the Company. The soda business represented 25% of beverage sales in 2003, and 16% of total net sales. The craft soda category possesses many characteristics that are similar to the craft beer category, and the Company believes it can leverage its experience and existing infrastructure to further develop the Thomas Kemper Soda brands. The Company will also seek opportunities to expand the craft soda portfolio within its core western markets.

2

Table of Contents

      The Company’s breweries and restaurants are focal points for marketing, creating brand awareness, and generating sampling opportunities for the Company’s products. Initially, the breweries provided the attraction to introduce consumers to the Company’s craft products. However, the restaurants have now become popular and a significant source of revenues.

      In addition to providing sampling and educational opportunities to Alehouse customers, the Company’s breweries and restaurants are used to entertain the beverage trade and build relationships with distributors. The breweries’ and restaurants’ highly knowledgeable employees are an important source of education and training for the Company’s distributors and retailers.

      The Company intends to further develop the Alehouse concept via new developments or acquisitions of existing brewpubs. These sites would not be full-scale production breweries, but rather would produce beer for local consumption and sales. Experience has shown that the “local status” of a brand is an important determinant of success, and also provides clear differentiation versus other specialty beers.

      The Company distributes its products through a network of selected independent distributors who deliver directly to local grocery stores, convenience stores, restaurants and taverns. The Company feels this type of distribution system is best suited for developing local distribution of Company products, particularly in draft beer accounts where there are important sampling and brand building opportunities. The Company has not aligned itself with the distribution system of a single larger brewer. This approach allows the Company to select distributors in each market that it believes will focus the greatest attention on its products and best promote its high quality craft beers and sodas. Additionally, the ability to change distribution arrangements for performance related issues is an important advantage. During 2003, the Company distributed its products through 163 wholesalers in 32 states and Canada. Consolidation in the distribution industry has resulted in a decrease in the number of distributors to which the Company ships. The Company expects this trend to continue as additional industry consolidation is expected.

Products

      The Company produces over 20 authentic, full-flavored, European beer styles using traditional ingredients and brewing methods. Eight of these styles are available on a seasonal basis, and others are available only in certain geographic areas in accordance with the Company’s regional marketing strategy and state alcohol regulations. Each unique beer style is brewed with malted barley and wheat grains, hops and, where appropriate, natural fruit extracts and spices. The Company avoids the use of less expensive ingredients due to its belief that quality is supremely important to success in the craft beer segment.

      A similar philosophy is adopted with regard to the Company’s soda products. Each batch of soda is made from high quality ingredients, rather than from diluting mass-produced syrups. The sodas are characterized by much more pronounced flavors. The Company’s beverages are not pasteurized and are currently distributed only in bottles and kegs.

      The Company will continue to innovate, develop and test new products in order to meet the varying and changing tastes of its consumers.

Competition

      Competition within the craft beer and soda markets is based on product quality, taste, consistency, freshness, distribution, price, ability to differentiate products, promotional methods and other product support. Statistics from the latest study of the Institute of Brewing Studies indicate there were approximately 1,300 craft brewers in the United States at the end of 2003. Approximately two thirds of these brewers are brewpubs that sell all of their production at retail on the brewery premises. The remaining brewers market their products

3

Table of Contents

      The Company’s past sales growth was achieved predominantly through increasing penetration in Washington, Oregon and California, which the Company believes comprise one of the largest and most competitive craft and specialty beer markets in the United States. As this market has matured, the Company has experienced intensified competition, increased seasonal product offerings and aggressive price promotions. Although certain competitors distribute their products nationally and may have greater sales and financial resources than the Company, the Company believes that being a local supplier of high quality, traditionally brewed ales, lagers and sodas will differentiate the Company’s products and allow it to obtain good market share in those markets adjacent to its breweries and Alehouses.

      The Company also competes against producers of imported specialty beers. Although imported beers currently account for a much greater share of the U.S. beer market than craft beers, the Company believes that craft brewers have a number of competitive advantages over specialty beer imports, including lower transportation costs, no importation duties, proximity to and familiarity with local consumers, a higher degree of product freshness and eligibility for lower federal excise taxes.

      In response to the growth of the craft beer segment in prior years, all of the national domestic brewers have introduced full-flavored beers. National brewers, with their greater financial resources, access to raw materials and their influence over their established national distribution networks, have increased competition for market share and increased price competition within the craft beer segment. The Company is aware that certain national brewing companies are using their considerable influence over their independent distributors to induce them to exclude competing products from their portfolios. There is also awareness that distributors are consolidating to improve profit margins. These factors could have the effect of reducing the distribution options for the Company’s products. While such actions have not at this time denied access to any market for the Company’s products, there can be no guarantee that this will not happen in the future.

      The Company’s soda products compete in the non-alcoholic beverages segment of the commercial beverage industry. That segment is highly competitive, consisting of numerous firms including firms that compete in multiple geographic areas as well as those that are primarily local in operation, many of which are marketed by companies with substantially greater financial resources than the Company. Competitive products include other carbonated drinks, packaged water, fruit juices, fruit drinks and other beverages sold to customers in a ready to drink form.

      Competitive factors with respect to the Company’s nonalcoholic beverages include pricing, promotion programs, production efficiency, access to shelf space in retail outlets and consumer acceptance. The Company competes by providing a higher quality, full flavored soda product which requires fresh and natural ingredients, whereas many of the Company’s competitors, utilizing low cost concentrates, compete more on providing a low cost product.

      The restaurant industry is highly competitive. There are a substantial number of restaurant operations that compete directly and indirectly with the Company, many of which have significantly greater financial resources, higher revenues and greater economies of scale. The restaurant business is often affected by changes in consumer tastes and discretionary spending patterns; national and regional economic and public safety conditions; demographic trends; the cost and availability of raw materials, labor and energy; purchasing power; governmental regulations and local competitive factors. Any change in these or other related factors could adversely affect the Company’s restaurant operations. Accordingly, the Company must constantly evolve and refine the critical elements of the restaurant concepts over time to protect its longer-term competitiveness. Multi-unit foodservice operations such as the Company’s can also be substantially affected by adverse publicity resulting from food quality, illness, injury, health concerns or operating issues stemming from a single restaurant. The Company attempts to manage these factors, but the occurrence of any one of these factors

4

Table of Contents

Internal Controls

      The Company maintains internal controls for each of its restaurants and breweries through the use of accounting and management information systems. Each restaurant has the ability to compile its sales and labor information on a daily basis through the utilization of point-of-sale terminals. Cash is controlled through daily deposits of sales proceeds into the Company’s principal depository account, maintained in Seattle, Washington. The Company stresses the interaction with restaurant management to ensure accurate, efficient and timely reporting. Brewery facilities also have time collection computer payroll systems that have allowed management to manage and control labor costs efficiently as well as transmit payroll information directly to the Company.

Government Regulations

      The Company’s Alehouse facilities are subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, safety, fire and other departments relating to the development and operation of restaurants. These regulations include matters relating to environmental, building and zoning requirements, the preparation and sale of food and alcoholic beverages, designation of non-smoking and smoking areas and accessibility of restaurants to disabled customers. Various federal and state labor laws govern the Company’s relationship with its employees, including minimum wage requirements, overtime, working conditions and immigration requirements. Significant additional government-imposed increases in minimum wages, paid leaves of absence and mandated health benefits, or increased tax reporting and tax payment requirements for employees who receive gratuities, could have an adverse effect on the Company’s results of operations. Delays or failures in obtaining the required construction and operating licenses, permits or approvals could delay or prevent the opening of new restaurants. Management believes the Company is operating in substantial compliance with applicable laws and regulations governing its operations.

      The manufacture and sale of alcoholic beverages is a highly regulated and taxed business. The Company’s operations are subject to more restrictive regulations and increased taxation by federal, state, and local governmental entities than are those of non-alcohol related beverage businesses. Federal, state, and local laws and regulations govern the production and distribution of beer, including permitting, licensing, trade practices, labeling, advertising, marketing, alcohol content, distributor relationships, and related matters. Federal, state, and local governmental entities also levy various taxes, license fees, and other similar charges and may require bonds to ensure compliance with applicable laws and regulations. Failure by the Company to comply with applicable federal, state, or local laws and regulations could result in penalties, fees, suspension, or revocation of permits, licenses, or approvals. There can be no assurance that other or more restrictive laws, regulations or higher taxes will not be enacted in the future.

      The Company produces and sells its alcoholic beverages to distributors pursuant to a federal wholesaler’s basic permit and a federal brewer’s notice. Brewery and wholesale operations require various federal, state, and local licenses, permits, and approvals. In addition, some states prohibit wholesalers and/or retailers from holding an interest in any supplier, such as the Company or the Company owning any interest in a distributor or retailer. Violation of such regulations can result in the loss or revocation of existing licenses by the wholesaler, retailer, and/or the supplier. The loss or revocation of any existing licenses, permits or approvals, and/or the failure to obtain any additional or new licenses, could have a material adverse effect on the ability of the Company to conduct its business.

5

Table of Contents

      On January 24, 2003 (60 days after the Homeland Security Act became law), the Bureau of Alcohol Tobacco and Firearms (BATF) was divided into two new bureaus, the BATF and the Alcohol and Tobacco Tax Trade Bureau (TTB). The BATF, part of the Department of Justice, will oversee the firearms, explosives and arson programs and the TTB, Department of Treasury, will handle the regulatory aspects of the alcohol and tobacco industries.

      On the federal level, brewers are required to file an amended notice with the TTB in the event of a material change in the production process, production equipment, the brewery’s location, the brewery’s management, or the brewery’s ownership. The Company’s operations are subject to audit and inspection by the TTB at any time.

      On the state and local level, some jurisdictions merely require notice of any material change in the operations, management or ownership of the permit or licensee. State and local laws and regulations governing the sale of beer within a particular state by an out-of-state brewer or wholesaler vary from locale to locale.

      The TTB permits and registrations can be suspended, revoked or otherwise adversely affected for failure to pay tax, keep proper accounts, pay fees, bond premises, abide by federal alcoholic beverage production and distribution regulations, and to notify the TTB of any change (as described above). Permits, licenses, and approvals from state regulatory agencies can be revoked for many of the same reasons.

      Because of the many and various state and federal licensing and permitting requirements, there is a risk that one or more regulatory agencies could determine that the Company has not complied with applicable licensing or permitting regulations or has not maintained the approvals necessary for it to conduct business within its jurisdiction. There can be no assurance that any such regulatory action would not have a material adverse effect upon the Company or its operating results. Management believes the Company is operating in substantial compliance with applicable laws and regulations governing its operations.

      The federal government and all of the states levy excise taxes on alcoholic beverages, including beer. For brewers producing no more than 2.0 million barrels of beer per calendar year, the federal excise tax is $7.00 per barrel on the first 60,000 barrels of beer removed for consumption or sale during a calendar year, and $18.00 per barrel for each barrel in excess of 60,000. For brewers producing more than 2.0 million barrels of beer for domestic consumption in a calendar year, the federal excise tax is $18.00 per barrel. The Company has been able to take advantage of this reduced tax on the first 60,000 barrels of its beers produced. Individual states also impose excise taxes on alcoholic beverages in varying amounts, which have also been subject to change. The determination of the party responsible, between the Company or the distributor, to bear the liability of these taxes varies by state. Federal and state legislators routinely consider various proposals to impose additional excise taxes on the production and distribution of alcoholic beverages. Further increases in excise taxes on beer could result in a general reduction in sales for the affected products and/or in the profit realized from the sales of the affected products.

      The Company is subject to “dram-shop” laws in most states where it currently operates and will potentially be subject to such statutes in certain other states for future sites. These laws generally provide a person injured by an intoxicated person the right to recover damages from an establishment which wrongfully served alcoholic beverages to such person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance which it believes is consistent with coverage carried by other entities in the restaurant industry. However, a judgment against the Company under a dram-shop statute in excess of the Company’s liability coverage could have a material adverse effect on the Company.

Trademarks

      The Company has obtained United States Trademark Registrations for several trademarks, including but not limited to Pyramid®, Pyramid Ales®, Pyramid Alehouse®, Pyramid Breweries® and Thomas Kemper® as

6

Table of Contents

Environmental Regulations and Operating Considerations

      The Company’s operations are subject to a variety of extensive and changing federal, state, and local environmental laws, regulations, and ordinances that govern activities or operations that may have adverse effects on human health or the environment. Such laws, regulations, or ordinances may impose liability for the cost of remediation of, and for certain damages resulting from sites of past releases of hazardous materials. The Company believes that it currently conducts, and in the past has conducted, its activities and operations in substantial compliance with applicable environmental laws, and believes that any cost arising from existing environmental laws will not have a material adverse effect on the Company’s financial condition or results of operations. However, there can be no assurance that environmental laws will not become more stringent in the future or that the Company will not incur costs in the future in order to comply with such laws.

      The Company’s operations are subject to certain hazards and liability risks faced by all producers of alcoholic beverages, such as potential contamination of ingredients or products by bacteria or other external agents that may be wrongfully or accidentally introduced into products or packaging. While the Company has never experienced a contamination problem in its products, the occurrence of such a problem could result in a costly product recall and cause serious damage to the Company’s reputation for product quality, as well as give rise to product liability claims. The Company maintains insurance which the Company believes is sufficient to cover any product liability claims which might result from a contamination problem in its products.

Employees

      At December 31, 2003, the Company employed 395 people, including 43 in the Brewery Operations, 298 in the Alehouse Segment, 32 in sales and marketing and 22 in administration capacities (including home office, administrative and executive personnel). No employee is covered by a collective bargaining agreement, and the Company has never experienced an organized work stoppage, strike or labor dispute. The Company believes it maintains a good working relationship with its employees and has no reason to believe that a good working relationship will not continue.

Available Information

      We maintain an Internet site at http://www.PyramidBrew.com. We make available free of charge on or through our Internet site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We will voluntarily provide electronic copies of our filings free of charge upon request.

Item 2 — Properties

      The Company currently owns and operates four breweries, each with an adjacent restaurant: one in Seattle, Washington, one in Berkeley, California, one in Sacramento, California and one in Walnut Creek, California. The estimated total annual beer capacity of the four breweries was approximately 204,000 barrels at the end of 2003.

      In March 1995, the Company completed the Seattle Brewery, Alehouse and corporate offices near downtown Seattle. This brewery and 340 seat restaurant plus an outdoor seating area, operated as the Pyramid Alehouse, consists of approximately 33,000 square feet of leased building area. The estimated annual beer

7

Table of Contents

      Completed and opened in February 1997, the Berkeley Brewery and its adjacent Pyramid Alehouse are housed in a leased building of approximately 93,000 square feet. During January 2000, the Company exercised an option to lease an additional 29,000 square feet of adjacent space and is currently subleasing that space. The brewery had an estimated beer production capacity of 150,000 barrels at the end of 2003. During 2000, fermentation capacity was added which increased the estimated annual beer capacity to 150,000 barrels from 80,000 barrels. The Berkeley Brewery has a designed maximum potential capacity in excess of 200,000 barrels, which can be achieved by adding more fermentation capacity. The Berkeley Alehouse has seating for 350 plus an outdoor seating area. The building was leased commencing in November 1995 for a 15-year term, with options to extend the lease term for two five-year periods. The Company also has the option to purchase the entire building during the lease term at its fair market value.

      Completed and opened in May 2002, the Walnut Creek Alehouse is located in a leased building of approximately 7,800 square feet. The restaurant has a small, on-site brewery with an estimated beer production capacity of 2,600 barrels. The Walnut Creek Alehouse has seating for 275 plus an outdoor seating area. The building was leased commencing in October 2001 for an initial 11-year term, with options to extend the lease term for three five-year periods and one final option for a four-year period.

      Completed and opened in July 2003, the Sacramento Alehouse is located in a leased building of approximately 9,500 square feet. The restaurant has a small, on-site brewery with an estimated beer production capacity of 1,600 barrels. The Sacramento Alehouse is designed with seating for 295, plus an outdoor seating area. The building lease was entered into April 2002, commencing in July 2003 for an initial 10-year and 8-month term, with options to extend the lease term for two five-year periods.

Item 3 — Legal Proceedings

      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.

Item 4 — Submission of Matters to a Vote of the Security Holders

      There were no matters submitted to a vote of security holders during the fourth quarter of 2003.

PART II

Item 5 — Market for Registrant’s Common Equity and Related Stockholder Matters

      Trading in Pyramid Breweries Inc.’s common stock began on December 14, 1995, and is quoted on the NASDAQ Stock Market’s National Market under the ticker symbol “PMID”.

8

Table of Contents

      The following table sets forth the high and low sales prices and the cash dividends paid per share of Pyramid Breweries Inc.’s common stock for the years ended December 31, 2003 and 2002.

      On March 8, 2004, the Company had approximately 4,377 stockholders. The last reported sale price per share on March 8, 2004, was $3.10. The Company had no sales of unregistered securities during 2003.

DIVIDEND POLICY

      On December 15, 1999, the Company announced a new dividend policy and declared its first quarterly cash dividend. The Company paid approximately $1,502,000, or $0.176 per common share, of cash dividends during the fiscal year ended December 31, 2003. On March 5, 2004, the Board of Directors declared a quarterly cash dividend of $0.044 per common share to shareholders of record on March 31, 2004. Any 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.

9

Table of Contents

SELECTED FINANCIAL AND OPERATING DATA

Item 6 — Selected Financial Data

      The following selected financial data should be read in conjunction with the Company’s Financial Statements and the Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

SELECTED FINANCIAL DATA