Pyramid Breweries Inc. Reports Fourth Quarter and Year End Results

Business Wire, March 10, 2007

TTB Settlement

As previously reported by the Company in its Current Reports on Form 8-K filed with the SEC on February 17, 2006, July 21, 2006, and October 4, 2006 and in its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2006, June 30, 2006 and September 30, 2006, certain federal excise tax returns and related operations of the Company were recently audited by the TTB. The TTB audit was completed in the second quarter of 2006, and the TTB's findings were presented to the Company. Among other things, the TTB reviewed the Company's contract brewing arrangement with Portland Brewing Company ("Portland Brewing"). At the conclusion of the audit, the TTB asserted that the Company, not Portland Brewing, had legal control of the Portland brewery facility for purposes of the federal excise tax laws and consequently had underpaid federal excise taxes on beer produced at that facility during the period January 1, 2005 through May 31, 2006. The TTB also concluded that since Portland Brewing was not the legal brewer at the Portland brewery facility, it had overpaid federal excise taxes on beer produced at the facility. Based on its findings in the audit, the TTB issued the Company a notice of proposed assessment asserting that the Company owed a total of approximately $2.1 million in excise taxes and interest for that period, which did not take into account the approximately $1 million in excise taxes paid by Portland Brewing on beer produced at the Portland brewery facility during the same period.

After receiving the notice of proposed assessment, the Company engaged in discussions with the TTB relating to a possible compromise of the assessment and also voluntarily began to pay federal excise taxes on beer produced at the Portland brewery facility as if the Company were the legal brewer at that facility (i.e., at a higher average rate per barrel). As a result of its discussions with the TTB, the Company reached an agreement with the TTB that it will pay $700,000 to resolve all issues arising from the audit, including the federal tax assessment for the period at issue, which includes a credit for the excise taxes previously paid by Portland Brewing for the period at issue, due to Portland Brewing's waiver of its right to receive a refund of those excise tax payments. Under the terms of the agreement, the Company was obligated to make an initial payment of $50,000, with the balance payable in monthly installments of principal and interest for a period of three years, at a variable interest rate that is currently estimated at 8%.

The Company recognized the $700,000 assessment as a charge to earnings for the quarter ended September 30, 2006. The Company anticipates that its current operating cash flows and other sources of liquidity will be sufficient to enable it to satisfy the payment terms described above.

For further information, readers are encouraged to review the Forms 8-K, which are available on the SEC's EDGAR database at www.sec.gov.