**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

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**FORM 10-QSB**

 

|                                                               | **ý**                                                                                         | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 29,  2003** |
|--------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|
|                                                               |                                                                                               |                                                                                                                                      |
|                                                               | **o**                                                                                              | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                   |
|                                                               |                                                                                               |                                                                                                                                      |
| **Commission File Number 000-29643**                               |
|                                                               |
| **GRANITE  CITY FOOD & BREWERY LTD.**                          |
| (Exact Name of Small Business Issuer as  Specified in Its Charter) |
|                                                               |
|                                                               | **Minnesota**                                                                                      |                                                                                                                                      | **41-1883639** |
|                                                               |  (State or Other Jurisdiction  of Incorporation or Organization)                              |                                                                                                                                      | (I.R.S. Employer  Identification No.) |
|                                                               |                                                                                               |
|                                                               | **5831 Cedar Lake Road  St. Louis Park, MN 55416  (952) 525-2070**                                 |
|                                                               | (Address of Principal Executive Offices and  Issuer’s  Telephone Number, including Area Code) |
|                                                                    |                                                                                                    |                                                                                                                                           |  |  |

 

Check whether the issuer:  (1)filed all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes   ý   No  o.

 

As of August 1, 2003, the issuer had outstanding 3,945,392 sharesof common stock and 1,000,000 Class A Warrants.  The number of outstanding shares of common stock includes theshares issuable upon separation of the units, each consisting of one share ofcommon stock and one redeemable Class A Warrant, sold in the issuer’s initialpublic offering.

 

Transitional Small Business Disclosure Format:

Yes   o   No  ý.

 

** **

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**TABLE OF CONTENTS**

** **
| **PART I**            | **FINANCIAL INFORMATION**                                                                                                 |
|-----------------------|---------------------------------------------------------------------------------------------------------------------------|
|                  |                                                                                                                      |
| ITEM 1                | Financial Statements                                                                                                      |
|                  |                                                                                                                      |
|                  | Condensed Balance Sheet as of June 29,  2003                                                                         |
|                  |                                                                                                                      |
|                  | Condensed Statements of Operations for the  thirteen and twenty-six weeks ended June 30, 2002 and June 29, 2003 |
|                  |                                                                                                                      |
|                  | Condensed Statements of Cash Flows for the  thirteen and twenty-six weeks ended June 30, 2002 and June 29, 2003 |
|                  |                                                                                                                      |
|                  | Notes to Condensed Financial Statements                                                                                   |
|                  |                                                                                                                      |
| ITEM 2                | Management’s Discussion and Analysis or Plan of Operation                                                            |
|                  |                                                                                                                      |
| ITEM 3                | Controls and Procedures                                                                                                   |
|                  |                                                                                                                      |
| **PART II**           | **OTHER INFORMATION**                                                                                                     |
|                  |                                                                                                                      |
| ITEM 1                | Legal Proceedings                                                                                                         |
|                  |                                                                                                                      |
| ITEM 2                | Changes in Securities                                                                                                     |
|                  |                                                                                                                      |
| ITEM 3                | Defaults upon Senior Securities                                                                                           |
|                  |                                                                                                                      |
| ITEM 4                | Submission of Matters to a Vote of Security Holders                                                                       |
|                  |                                                                                                                      |
| ITEM 5                | Other Information                                                                                                         |
|                  |                                                                                                                      |
| ITEM 6                | Exhibits and Reports on Form 8-K                                                                                          |
|                  |                                                                                                                      |
| **SIGNATURES**        |
|                  |
| **INDEX TO EXHIBITS** |

 

i

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**PART I**       FINANCIAL INFORMATION

** **

**ITEM1  Financial Statements**

** **

**GRANITE CITY FOOD & BREWERY LTD.**

** **

# **CONDENSED BALANCE SHEET**

**(Unaudited)**

** **
|                                                                                                                           |   | **June 29,  2003** |       |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|
| **ASSETS:**                                                                                                                    |   |                    |       |
| Current assets:                                                                                                                |   |                    |       |
| Cash                                                                                                                           |   | $                       | 3,417,861  |   |
| Inventory                                                                                                                      |   | 102,447                 |       |
| Prepaids and other                                                                                                             |   | 171,332                 |       |
| Total current assets                                                                                                           |   | 3,691,640               |       |
|                                                                                                                           |   |                    |       |
| Property and equipment, net                                                                                                    |   | 9,604,617               |       |
| Intangible assets and other                                                                                                    |   | 341,862                 |       |
| Total assets                                                                                                                   |   | $                       | 13,638,119 |   |
|                                                                                                                           |   |                    |       |
| **LIABILITIES AND  SHAREHOLDERS’ EQUITY:**                                                                                |   |                    |       |
| Current liabilities:                                                                                                           |   |                    |       |
| Accounts payable                                                                                                               |   | $                       | 329,135    |   |
| Accrued expenses                                                                                                               |   | 644,631                 |       |
| Long-term debt, current portion                                                                                                |   | 32,454                  |       |
| Capital lease obligations, current portion                                                                                     |   | 273,931                 |       |
| Total current liabilities                                                                                                      |   | 1,280,151               |       |
|                                                                                                                           |   |                    |       |
| Long-term debt, net of current portion                                                                                         |   | 1,426,265               |       |
| Capital lease obligations, net of current  portion                                                                             |   | 3,558,748               |       |
| Total liabilities                                                                                                              |   | 6,265,164               |       |
|                                                                                                                           |   |                    |       |
| Shareholders’ equity:                                                                                                     |   |                    |       |
| Common stock, $0.01 par value, 90,000,000  shares authorized;  3,875,668 shares issued and outstanding                         |   | 38,757                  |       |
| Preferred stock, $0.01 par value,  10,000,000 authorized;  55,600 Series A Convertible Preferred shares issued and outstanding |   | 556                     |       |
| Additional paid-in capital                                                                                                     |   | 9,592,452               |       |
| Stock dividends distributable                                                                                                  |   | 697                     |       |
| Accumulated deficit                                                                                                            |   | (2,259,507              | )          |
| Total shareholders’ equity                                                                                                |   | 7,372,955               |       |
|                                                                                                                           |   |                    |       |
| Total liabilities and shareholders’ equity                                                                                |   | $                       | 13,638,119 |   |

 

See notes tocondensed financial statements.

 

1

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**GRANITECITY FOOD & BREWERY LTD.**

** **

**CONDENSEDSTATEMENTS OF OPERATIONS**

**(Unaudited)**

** **
|                                                    |   | **Thirteen Weeks Ended** |      | **Twenty-six Weeks Ended** |   |
|---------------------------------------------------------|--------|--------------------------|-----------|----------------------------|--------|
|                                                    |   | **June 30,  2002**  |      | **June 29,  2003**    |   | **June 30,  2002** |   | **June 29,  2003** |   |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Restaurant revenues                                     |   | $                        | 3,162,279 |                       | $      | 3,111,026 |   | $ | 6,276,619 |   | $ | 5,981,186 |   |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Cost of sales:                                          |   |                     |      |                       |   |   |   |   |   |
| Food, beverage and retail                               |   | 908,625                  |      | 909,316                    |   | 1,815,378 |   | 1,728,198 |   |
| Labor                                                   |   | 1,076,435                |      | 1,061,028                  |   | 2,151,562 |   | 2,046,861 |   |
| Direct and occupancy                                    |   | 629,289                  |      | 653,660                    |   | 1,293,004 |   | 1,316,927 |   |
| Total cost of sales                                     |   | 2,614,349                |      | 2,624,004                  |   | 5,259,944 |   | 5,091,986 |   |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| General and administrative                              |   | 203,977                  |      | 412,806                    |   | 419,398 |   | 706,423 |   |
| Depreciation and amortization                           |   | 191,535                  |      | 197,159                    |   | 382,320 |   | 390,195 |   |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Operating income (loss)                                 |   | 152,418                  |      | (122,943                   | )      | 214,957 |   | (207,418 | ) |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Interest:                                               |   |                     |      |                       |   |   |   |   |   |
| Income                                                  |   | 312                      |      | 23,581                     |   | 470 |   | 46,882 |   |
| Expense                                                 |   | (132,722                 | )         | (121,727                   | )      | (272,275 | ) | (245,175 | ) |
| Other income, net                                       |   | (14,833                  | )         | —                     |   | 32,354 |   | — |   |
| Net other expense                                       |   | (147,243                 | )         | (98,146                    | )      | (239,451 | ) | (198,293 | ) |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Net income (loss)                                       |   | $                        | 5,175     |                       | $      | (221,089 | ) | $ | (24,494 | ) | $ | (405,711 | ) |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Earnings (loss) per common share                        |   | $                        | 0.00      |                       | $      | (0.10 | ) | $ | (0.01 | ) | $ | (0.17 | ) |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Earnings (loss) per common share, assuming  dilution    |   | $                        | 0.00      |                       | $      | (0.10 | ) | $ | (0.01 | ) | $ | (0.17 | ) |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Weighted average shares outstanding                     |   | 3,809,116                |      | 3,871,101                  |   | 3,808,255 |   | 3,858,208 |   |
|                                                    |   |                     |      |                       |   |   |   |   |   |
| Weighted average shares outstanding,  assuming dilution |   | 3,882,238                |      | 3,871,101                  |   | 3,808,255 |   | 3,858,208 |   |

 

See notes to condensed financial statements.

 

2

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**GRANITE CITY FOOD & BREWERY LTD.**

** **

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
|                                                                                       |   | **Twenty-six Weeks Ended** |    |
|--------------------------------------------------------------------------------------------|--------|----------------------------|---------|
|                                                                                       |   | **June 30,  2002**    |    | **June 29,  2003** |   |
|                                                                                       |   |                       |    |   |   |
| Cash flows from operating activities:                                                      |   |                       |    |   |   |
| Net loss                                                                                   |   | $                          | (24,494 | ) | $ | (405,711 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                       |    |   |   |
| Depreciation and amortization                                                              |   | 382,320                    |    | 390,195 |   |
| Decrease (increase) in:                                                                    |   |                       |    |   |   |
| Inventory                                                                                  |   | 12,088                     |    | (72 | ) |
| Prepaids and other                                                                         |   | (170,448                   | )       | (64,675 | ) |
| Increase (decrease) in:                                                                    |   |                       |    |   |   |
| Accounts payable                                                                           |   | 32,996                     |    | (12,833 | ) |
| Accrued expenses                                                                           |   | (85,858                    | )       | (226,753 | ) |
| Net cash provided by (used in) operating  activities                                       |   | 146,604                    |    | (319,849 | ) |
|                                                                                       |   |                       |    |   |   |
| Cash flows from investing activities:                                                      |   |                       |    |   |   |
| Purchase of:                                                                               |   |                       |    |   |   |
| Property and equipment                                                                     |   | (444,265                   | )       | (908,056 | ) |
| Intangible assets and other                                                                |   | (1,827                     | )       | (12,327 | ) |
| Net cash used in investing activities                                                      |   | (446,092                   | )       | (920,383 | ) |
|                                                                                       |   |                       |    |   |   |
| Cash flows from financing activities:                                                      |   |                       |    |   |   |
| Payments on capital lease obligations                                                      |   | (118,972                   | )       | (129,057 | ) |
| Payments on long term-debt                                                                 |   | (14,503                    | )       | (15,331 | ) |
| Payment of dividends                                                                       |   | —                     |    | (168,348 | ) |
| Proceeds from:                                                                             |   |                       |    |   |   |
| Related parties                                                                            |   | 200,000                    |    | — |   |
| Issuance of stock                                                                          |   | 10,087                     |    | 1,448,987 |   |
| Net cash provided by financing activities                                                  |   | 76,612                     |    | 1,136,251 |   |
|                                                                                       |   |                       |    |   |   |
| Net decrease in cash                                                                       |   | (222,876                   | )       | (103,981 | ) |
| Cash, beginning                                                                            |   | 384,394                    |    | 3,521,842 |   |
| Cash, ending                                                                               |   | $                          | 161,518 |   | $ | 3,417,861 |   |

 

See notes tocondensed financial statements.

 

3

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**GRANITE CITY FOOD & BREWERY LTD.**

** **

**NOTES TO CONDENSED FINANCIAL STATEMENTS**

**(Unaudited)**

** **

Thirteen andtwenty-six weeks ended June 30, 2002 and June 29, 2003

 

**1.****              Natureof business and basis of presentation:**

** **

Nature of business:

Granite City Food& Brewery Ltd. (the “Company”) was formed to develop and operate casualdining restaurants featuring on-premises breweries.  The Company is developing these restaurant-microbreweries, knownas Granite City Food & Brewery®, in selected markets throughout the UnitedStates.  The theme is casual dining witha wide variety of menu items that are prepared fresh daily, combined withfreshly brewed hand-crafted beers.  TheCompany produces its beer using a process called Fermentus InterruptusTM, whichis intended to maintain high beer quality while enhancing overall profitabilityby reducing unit-level brewing costs. The first facility, located in St. Cloud, Minnesota, opened inJuly 1999.  The second facility, locatedin Sioux Falls, South Dakota, opened in December 2000 and a third facilitylocated in Fargo, North Dakota, opened in November 2001.  Construction for new restaurants iscurrently underway in West Des Moines and Cedar Rapids, Iowa.  Additionally, the Company has signed a leasefor a site in Davenport, Iowa, for its sixth restaurant.

 

The Company’s currentexpansion strategy focuses on development of restaurants in markets wheremanagement believes the Company’s concept will have broad appeal and attractiverestaurant-level economics.

 

Interim financial statements:

The Company has prepared the condensedfinancial statements for the thirteen and twenty-six weeks ended June 30,2002 and June 29, 2003 without audit by the Company’s independentauditors.  In the opinion of theCompany’s management, all adjustments necessary to present fairly the financialposition of the Company at June 29, 2003 and the results of operations andcash flows for the periods ended June 30, 2002 and June 29, 2003 havebeen made. Those adjustments consist only of normal and recurring adjustments.

 

Certain information and note disclosuresnormally included in the Company’s annual financial statements have beencondensed or omitted.  These condensedfinancial statements should be read in conjunction with the financialstatements and notes thereto included in the Company’s Annual Report on Form10-KSB for the fiscal year ended December 29, 2002, filed with theSecurities and Exchange Commission on March 28, 2003.

 

The results of operations for the thirteenand twenty-six weeks ended June 29, 2003 are not necessarily indicative ofthe results to be expected for the entire year.

 

Earnings (loss) per share:

Basic earnings (loss) percommon share is calculated by dividing net income (loss) less preferred stockdividends declared by the weighted average number of common sharesoutstanding.  Diluted earnings (loss)per common share assumes that outstanding common shares were increased byshares issuable upon exercise of stock options and warrants for which marketprice exceeds exercise price, less shares which could have been purchased bythe Company with the related proceeds. Calculations of the Company’s net earnings (loss) per common share forthe thirteen and twenty-six weeks ended June 30, 2002 and June 29,2003 are set forth in the following table:

 

4

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|                                                    |   | **Thirteen  Weeks Ended** |   | **Twenty-six  Weeks Ended** |   |
|---------------------------------------------------------|--------|---------------------------|--------|-----------------------------|--------|
|                                                    |   | **June 30,  2002**   |   | **June 29,  2003**     |   | **June 30,  2002** |   | **June 29,  2003** |   |
|                                                    |   |                      |   |                        |   |   |   |   |   |
| Net income (loss)                                       |   | $                         | 5,175  |                        | $      | (221,089 | ) | $ | (24,494 | ) | $ | (405,711 | ) |
| Less dividends declared                                 |   | —                    |   | (168,732                    | )      | — |   | (265,081 | ) |
| Net income (loss) available to common shareholders      |   | $                         | 5,175  |                        | $      | (389,821 | ) | $ | (24,494 | ) | $ | (670,792 | ) |
|                                                    |   |                      |   |                        |   |   |   |   |   |
| Income (loss) per common share                          |   | $                         | 0.00   |                        | $      | (0.10 | ) | $ | (0.01 | ) | $ | (0.17 | ) |
|                                                    |   |                      |   |                        |   |   |   |   |   |
| Income (loss) per common share, assuming dilution       |   | $                         | 0.00   |                        | $      | (0.10 | ) | $ | (0.01 | ) | $ | (0.17 | ) |
|                                                    |   |                      |   |                        |   |   |   |   |   |
| Weighted average shares outstanding                     |   | 3,809,116                 |   | 3,871,101                   |   | 3,808,255 |   | 3,858,208 |   |
|                                                    |   |                      |   |                        |   |   |   |   |   |
| Weighted average shares outstanding, assuming  dilution |   | 3,882,238                 |   | 3,871,101                   |   | 3,808,255 |   | 3,858,208 |   |

 

**2.****              Stockcompensation:**

** **

The Company accounts for its stock-basedcompensation awards using the intrinsic value method prescribed by AccountingPrinciples Board (APB) Opinion No. 25, *Accountingfor Stock Issued to Employees. *Nocompensation cost has been recognized for options issued to employees when theexercise price of the options granted is at least equal to the fair value ofthe common stock on the date of grant. Had compensation cost been determined consistent with Statement ofFinancial Accounting Standard (SFAS) No. 123, *Accountingfor Stock-Based Compensation*, as amended by SFAS No. 148, *Accounting for Stock-Based Compensation—Transitionand Disclosure,* the Company’s net income (loss) and net income(loss) per common share would have been changed to the following pro formaamounts:

 
|                               |   | **Thirteen  Weeks Ended** |    | **Twenty-six  Weeks Ended** |   |
|------------------------------------|--------|---------------------------|---------|-----------------------------|--------|
|                               |   | **June 30,  2002**   |    | **June 29,  2003**     |   | **June 30,  2002** |   | **June 29,  2003** |   |
| Net income (loss):                 |   |                      |    |                        |   |   |   |   |   |
| As reported                        |   | $                         | 5,175   |                        | $      | (221,089 | ) | $ | (24,494 | ) | $ | (405,711 | ) |
| Pro forma                          |   | $                         | (27,813 | )                           | $      | (294,559 | ) | $ | (90,471 | ) | $ | (620,724 | ) |
|                               |   |                      |    |                        |   |   |   |   |   |
| Net income (loss) per common share |   |                      |    |                        |   |   |   |   |   |
| Basic and diluted as reported      |   | $                         | (0.00   | )                           | $      | (0.10 | ) | $ | (0.01 | ) | $ | (0.17 | ) |
| Basic and diluted pro forma        |   | $                         | (0.01   | )                           | $      | (0.12 | ) | $ | (0.02 | ) | $ | (0.23 | ) |

 

The fair value of each option grant for thepro forma disclosure required by SFAS No. 123, as amended by SFAS No. 148, isestimated on the grant date using the Black-Scholes option-pricing model withthe following assumptions for the grants:

 

5

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|                    |   | **2002** |   | **2003**   |   |
|-------------------------|--------|----------|--------|------------|--------|
| Dividend yield          |   | None     |   | None       |   |
| Expected volatility     |   | 101.4    | %      | 78.6       | %      |
| Expected life of option |   | 5 years  |   | 5-10 years |   |
| Risk-free interest rate |   | 3.9      | %      | 3.4        | %      |

** **

**3.****              Changein capitalization:**

** **

Issuance of preferred stock and warrants topurchase common stock:

During the fourth quarter of 2002, theCompany conducted a private placement to accredited investors of Series AConvertible Preferred Stock and warrants to purchase common stock.  The Company sold 55,600 shares of preferredstock for aggregate gross proceeds of $5,560,000.  The outstanding preferred stock is convertible into an aggregateof 3,518,964 shares of common stock at a conversion price of $1.58 pershare.  The preferred stock pays an 8%cumulative dividend in cash or in the Company’s common stock.  The Company may require conversion undercertain circumstances.  The preferredstock was sold with five-year warrants to purchase an aggregate of 1,759,473shares of common stock at an exercise price of $1.58 per share.  In connection with such placement, theCompany issued its agents warrants to purchase an aggregate of 288,604 sharesof common stock at an exercise price of $1.58 per share and paid its agentscash commissions aggregating $471,000.

 

Exercise of warrants:

As part of the sale of common stock in 1997and 1998, the Company sold to its private placement agent, for $50, a stock purchasewarrant for the purchase of 111,950 shares of common stock at $1 pershare.  As of December 29, 2002,78,150 of such warrants remained outstanding. On February 19, 2003, affiliates of the private placement agentexercised 76,450 warrants on a cashless basis. The remaining 1,700 warrants expired February 20, 2003.

 

On June 10, 2003, 15,822 of the1,759,473 warrants sold with the Series A Convertible Preferred Stock, wereexercised on a cashless basis.

 

Dividends:

On March 21, 2003, the Company authorizedpayment of dividends to holders of its preferred stock as of that date.  Such dividends aggregated $96,349 and werepaid in cash on March 31, 2003.

 

On June 23, 2003, the Company authorizedpayment of dividends to holders of its preferred stock as of that date.  Such dividends were paid June 30, 2003through the issuance of an aggregate of 69,724 shares of common stock and $36cash in lieu of fractional shares.

 

6

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**ITEM2****                                Management’sDiscussion****and Analysis or Plan ofOperation**

** **

*Thisdiscussion and analysis contains various non-historical forward-lookingstatements within the meaning of Section 21E of the Exchange Act.  Although we believe that, in making any suchstatement, our expectations are based on reasonable assumptions, any suchstatement may be influenced by factors that could cause actual outcomes andresults to be materially different from those projected.  When used in the following discussion, thewords “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates” andsimilar expressions, as they relate to us or our management, are intended toidentify such forward-looking statements. You are cautioned not to place undue reliance on such forward-lookingstatements, which are qualified in their entirety by the cautions and risksdescribed herein.  Please refer to ourAnnual Report on Form 10-KSB for the fiscal year ended December 29, 2002,filed with the Securities and Exchange Commission on March 28, 2003, foradditional factors known to us that may cause actual results to vary.*

* *

**Overview**

** **

We operate three casual dining restaurants featuringon-premises breweries under the name Granite City Food & Brewery.  Our activities through June 1999 wererelated to the development of our restaurant-microbrewery concept and thedevelopment and financing of our first restaurant.  Our initial restaurant commenced operations in St. Cloud,Minnesota, in June 1999.  Oursecond restaurant, located in Sioux Falls, South Dakota, commenced operationsin December 2000.  Our thirdrestaurant, located in Fargo, North Dakota, opened in November 2001.  We developed these restaurants using the netproceeds from a private placement conducted in late 1997, our initial publicoffering in June 2000, financing in the form of long-term building andequipment leases, bank financing, and loans from a related party.

 

In the fourth quarter of 2002, we obtained financingthrough the private placement of convertible preferred stock and warrants topurchase common stock.  We plan tofinance the development of additional restaurants in markets throughout theMidwest with the use of the proceeds from this financing.  We have entered into a multi-sitedevelopment agreement whereby we will be provided assistance in site selection,construction management and financing for new Granite City Food & Breweryrestaurants.  Under this agreement, wewill lease each new restaurant from our developer.  We have begun construction in the West Des Moines and CedarRapids, Iowa markets where we plan to open our fourth and fifth restaurants inthe fall of 2003.  Additionally, we haveentered into a lease agreement for a site in the Davenport, Iowa market, wherewe anticipate opening our sixth restaurant in the first quarter of 2004.

 

We believe that our operating results will fluctuatesignificantly because of several factors, including the timing of newrestaurant openings and related expenses, profitability of new restaurants,increases or decreases in comparable restaurant sales, general economicconditions, consumer confidence in the economy, changes in consumerpreferences, competitive factors and weather conditions.

 

Restaurantrevenues are comprised almost entirely of the sales of food and beverages.  Product costs include the costs of food, beveragesand retail items.  Labor costs includedirect hourly and management wages, taxes and benefits for restaurantemployees.  Direct and occupancy costsinclude restaurant supplies, marketing costs, rent, utilities, real estatetaxes, repairs and maintenance and other related costs.  General and administrative expenses arecomprised of expenses associated with all corporate and administrativefunctions that support existing operations, management and staff salaries,employee benefits, travel, information systems and training and marketresearch.  Depreciation and amortizationinclude depreciation on capital expenditures. Other income and expense includes primarily the cost of interest expenseon debt and capital leases and interest income on invested assets

 

7

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**Resultsof Operations**

 

Thefollowing table compares operating results expressed as a percentage of totalrevenue for the thirteen and twenty-six weeks ended June 30, 2002 andJune 29, 2003.

 
|                          |   | **Thirteen Weeks Ended** |   | **Twenty-six Weeks Ended** |   |
|-------------------------------|--------|--------------------------|--------|----------------------------|--------|
|                          |   | **June 30,  2002**  |   | **June 29,  2003**    |   | **June 30,  2002** |   | **June 29,  2003** |   |
|                          |   |                     |   |                       |   |   |   |   |   |
| Restaurant revenues           |   | 100.0                    | %      | 100.0                      | %      | 100.0 | % | 100.0 | % |
|                          |   |                     |   |                       |   |   |   |   |   |
| Cost of sales:                |   |                     |   |                       |   |   |   |   |   |
| Food, beverage and retail     |   | 28.7                     |   | 29.2                       |   | 28.9 |   | 28.9 |   |
| Labor                         |   | 34.0                     |   | 34.1                       |   | 34.3 |   | 34.2 |   |
| Direct and occupancy          |   | 19.9                     |   | 21.0                       |   | 20.6 |   | 22.0 |   |
| Total cost of sales           |   | 82.6                     |   | 84.3                       |   | 83.8 |   | 85.1 |   |
|                          |   |                     |   |                       |   |   |   |   |   |
| General and administrative    |   | 6.5                      |   | 13.3                       |   | 6.7 |   | 11.8 |   |
| Depreciation and amortization |   | 6.1                      |   | 6.3                        |   | 6.1 |   | 6.5 |   |
|                          |   |                     |   |                       |   |   |   |   |   |
| Operating income (loss)       |   | 4.8                      |   | (3.9                       | )      | 3.4 |   | (3.4 | ) |
|                          |   |                     |   |                       |   |   |   |   |   |
| Interest:                     |   |                     |   |                       |   |   |   |   |   |
| Income                        |   | 0.0                      |   | 0.8                        |   | 0.0 |   | 0.8 |   |
| Expense                       |   | (4.2                     | )      | (3.9                       | )      | (4.3 | ) | (4.1 | ) |
| Other income, net             |   | (0.5                     | )      | —                     |   | 0.5 |   | — |   |
| Net other expense             |   | (4.7                     | )      | (3.1                       | )      | (3.8 | ) | (3.3 | ) |
|                          |   |                     |   |                       |   |   |   |   |   |
| Net income (loss)             |   | 0.1                      | %      | (7.0                       | )%     | (0.4 | )% | (6.7 | )% |

** **

**Critical Accounting Policies**

** **

This discussion and analysisis based upon our financial statements, which were prepared in conformity withgenerally accepted accounting principles. These principles require management to make estimates and assumptionsthat affect the amounts reported in the financial statements and accompanyingnotes.  We believe our estimates andassumptions are reasonable; however, actual results and the timing of therecognition of such amounts could differ from those estimates.  We have identified the following criticalaccounting policies and estimates utilized by management in the preparation of ourfinancial statements:

 

*Property and equipment*:

 

The cost of property andequipment is depreciated over the estimated useful lives of the related assetsranging from three to 20 years.  Thecost of leasehold improvements is depreciated over the length of the relatedlease.  Depreciation is computed usingthe straight-line method for financial reporting purposes and acceleratedmethods for income tax purposes. Amortization of assets acquired under capital lease is included indepreciation expense.  Our accountingpolicies regarding property and equipment include certain management judgmentsregarding the estimated useful lives of such assets and the determination as towhat constitutes enhancing the value of or increasing the life of existingassets.  These 

 

8

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judgments and estimates may produce materially different amounts ofdepreciation and amortization expense than would be reported if differentassumptions were used.

 

We continually reassess ourassumptions and judgments and make adjustments when significant facts andcircumstances dictate.  Historically,actual results have not been materially different than the estimates we havemade.

 

**Results of Operations for theThirteen and Twenty-six Weeks Ended June 30, 2002 and June 29, 2003**

** **

**Revenue**

** **

We generated $3,162,279 and $3,111,026 of revenuesduring the second quarter of 2002 and 2003, respectively.  During the first half of 2002 we hadrevenues of $6,276,619 while during the first half of 2003 we had revenues of$5,981,186.  Due to increased demandfostered by publicity surrounding the opening of our Fargo location in lateNovember 2001, we experienced a temporary period of high revenues known asthe “honeymoon effect” during the first quarter of 2002.  The overall 4.7% decrease in revenues in thefirst half of the current fiscal year was due primarily to the honeymoon effectin the comparable period of 2002.

 

We anticipate that restaurant revenues will vary fromquarter to quarter.  We anticipateseasonal fluctuations in restaurant revenues due in part to increased outdoorseating and generally favorable weather conditions at all locations during thesummer months.  We expect the timing ofnew restaurant openings and the related honeymoon effect to cause fluctuationsin restaurant revenues.  Additionally,consumer confidence in the economy and changes in consumer preferences mayaffect our future revenues.

 

**Costof Sales**

** **

*Food,Beverage and Retail*

* *

Our food and beverage cost increased 0.5% as apercentage of revenues during the thirteen weeks ended June 29, 2003compared to the thirteen-week period ended June 30, 2002.  These costs remained steady at 28.9% percentof revenue during the first half of 2002 and the first half of 2003.  We expect that our food and beverage costswill vary going forward due to numerous variables, including seasonal changesin food costs and guest preferences.  Weperiodically create new menu offerings in both our craftbrewed beers and ourfood based upon guest preferences. Although such menu modifications may temporarily result in increasedfood and beverage cost, we are able to offset such increases with our weeklyspecials which provide variety to our guests at a great price value.  Our varieties of craftbrewed beer, which wecan produce at lower cost than beers we purchase for resale, also enable us tokeep our food and beverage costs low while fulfilling guest requests andbuilding customer loyalty.  We expectthat with the addition of future locations, increased purchasing power willfurther reduce our food and beverage costs as a percentage of revenues.  Additionally, as we add new units, webelieve our brewing process, Fermentus Interruptus, will allow us to keep ourhigh quality product intact while reducing the production cost, therebyenhancing overall profitability.

 

*Labor*

* *

Our labor costs expressed as a percentage of revenuesincreased 0.1% during the first quarter of 2003 compared to the first quarterof 2002 and decreased 0.1% for the twenty-six weeks ended June 29, 2003compared to the same period of 2002.  Asour employees have become more seasoned, our labor 

 

9

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costs related to kitchen staff and training have beenreduced.  This reduction has been offsetby increased employee health insurance premiums and increased workerscompensation insurance.

 

We expect that labor costs will vary as we add newlocations.  Minimum wage laws, locallabor laws and practices, as well as unemployment rates vary from state tostate and will affect our labor costs, as will hiring and training expense atour new locations.  Our managementbelieves that retention of good employees ensures high quality guest serviceand reduces hiring and training costs. Hiring and training cost savings associated with increased staffexperience are offset slightly by pay increases to retain this more experiencedstaff.

 

*Directand Occupancy*

* *

Our direct and occupancy expenses increased 1.1% as apercentage of revenues during the thirteen weeks ended June 29, 2003compared to the thirteen weeks ended June 30, 2002.  During the first two quarters of 2003,direct and occupancy costs increased 1.4% as a percentage of revenues comparedto the first two quarters of 2002. Operating supplies, rent and occupancycosts, repairs and maintenance and advertising expense represent the majorityof our direct and occupancy expenses.  Asubstantial portion of these expenses is fixed or indirectly variable and,therefore, increased as a percent of revenue with the lower revenue base.  Increases in direct and operating expenseswere primarily in the areas of utilities, property taxes and insurance.

 

**Generaland Administrative**

** **

General and administrative expenses includesalaries and benefits associated with our corporate staff that is responsiblefor overall restaurant quality, future expansion into new locations andfinancial controls and reporting.  Othergeneral and administrative expenses include professional fees, officeadministration and centralized accounting system costs, and travel by ourcorporate management to the restaurant locations.  General and administrative expenses increased $208,829 from$203,977 during the second quarter of 2002 to $412,806 during the secondquarter of 2003.  Such costs increased$287,025 during the first half of 2003 compared to the first half of 2002.  In order to retain core management andfurther build our infrastructure to facilitate growth, we incurred increasedpayroll and benefits related expenses in the first half of 2003.  As we have increased our corporate staff, wehave incurred additional rent and office upkeep expenses.  Additionally, our travel related expenseshave increased with the development of new sites for expansion.  From the inception of our company throughthe end of fiscal year 2002, our executive officers did not receive anymonetary compensation from our company as we believe the options issued tothese officers in 1999, 2001 and 2003 represented reasonable compensation fortheir services through March 30, 2003. At a meeting held in February 2003, our board of directorsestablished a $160,000 annual salary for our President and Chief ExecutiveOfficer which became effective April 1, 2003.  His salary increased our general and administrative expenses forthe second quarter of 2003

 

We expect that general and administrativecosts will continue to fluctuate as a percentage of restaurant revenues in thenear term as we build our infrastructure to adequately sustain operationsacross multiple locations.  Theanticipated additional restaurant revenues associated with further expansionare expected to result in greater economies of scale for our corporate expensesin the long-term.

 

10

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**Depreciation and Amortization**

** **

Depreciation and amortization expense increased $5,624during the second quarter 2003 compared to the second quarter of 2002.  Depreciation and amortization expenseincreased $7,875 during the first half of 2003 compared to the first half of2002.  As a percentage of revenues,depreciation and amortization expense increased 0.4% during the first half of2003 compared to that of 2002.

** **

**Other Income and Expense**

** **

Interest expense net of interest income decreased $34,264 during thethirteen weeks ended June 29, 2003 compared to the similar period in2002.  Interest expense net of interestincome decreased $73,512 during the twenty-six weeks ended June 29, 2003compared to the similar period in 2002. Interest expense decreased due to the reduction of outstanding debt while interest incomeincreased due to interest earned on proceeds from the private placement of oursecurities during the fourth quarter of 2002. Other income and expense for the first half of 2002 included a loss onassets we replaced which had not been fully depreciated, as well as theproceeds awarded by a NASD Arbitration Panel related to a claim we filed inNovember 2000 against Equity Securities Investments, Inc., less relatedlegal fees.

 

**Liquidity and Capital Resources**

** **

We have required capital principally for thedevelopment, construction and opening of new restaurants.  To date, we have obtained gross proceedsaggregating approximately $11.0 million through the sales of oursecurities.  Additionally, we have obtainedfinancing through building and equipment leases, long-term debt from an independentfinancial institution, and loans from New Brighton Ventures, Inc., an entityowned in part by our President and Chief Executive Officer.

 

Using the proceeds from our sale of Series AConvertible Preferred Stock, we intend to expand in markets where we believeour concept will have broad appeal and attractive restaurant-leveleconomics.  To aid in our expansion, weentered into a multi-site development agreement in October 2002 withDunham Capital Management L.L.C. (“Dunham”) for the development of restaurants.  Dunham is controlled by Donald A. Dunham,Jr., who is an affiliate of Brew Buddies, L.L.C. (“Brew Buddies”), our largestbeneficial owner of securities.  Underthis agreement, Dunham provides us assistance in site selection, constructionmanagement and financing for future Granite City Food & Breweryrestaurants.  As of June 29, 2003,construction was in progress in West Des Moines and Cedar Rapids, Iowa andDunham had secured a site for us in the Davenport, Iowa market.

 

During the twenty-six weeks ended June 29, 2003,the issuance of securities provided us $1,448,987 of net cash.  We used $319,849 in operating activities,$920,383 to purchase equipment, primarily for our West Des Moines location, paiddividends of $168,348 to holders of our preferred stock and made payments onour debt and capital leases aggregating $144,388.

 

During the twenty-six weeks ended June 30, 2002,our operating activities provided $146,604 of net cash.  Using proceeds from promissory notes weissued to a related party aggregating $200,000 in February andMay 2002, $10,087 in proceeds from issuing common stock pursuant to theexercise of a stock option and warrants and the net cash provided byoperations, we purchased $446,092 of assets, primarily for our Fargo location,and made payments on our debt and capital lease obligations aggregating$133,475.

 

11

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As part of our expansion strategy, we developed aprototype model for future restaurants. Our prototypical restaurant will be approximately 8,700 square feet andwill require an investment of approximately $3.5 million to $4.0 million forland, building and equipment.  Weanticipate these costs will vary from one market to another based on realestate values, zoning regulations, labor markets and other variables.  Under the above referenced developmentagreement, we will provide funding for the initial purchase of furniture,fixtures and equipment and our pre-opening expenses, which we anticipate willaggregate approximately $1.0 million to $1.5 million per location.  Additionally, we will lease each newrestaurant from our developer.

 

In January 2003, we entered into a 20-year netlease relating to the restaurant under construction in Cedar Rapids, Iowa and a20-year net lease relating to the restaurant being developed in Davenport,Iowa.  Each lease was entered into underthe terms specified in the development agreement with Dunham.  These restaurants will be constructed for uson areas ranging from approximately 1.7 to 2.8 acres on build-to-suitbasis.  The annual rent at each locationwill be equal to 10.5% of the sum of the construction cost and land cost.  The term of each lease will commence whenoperations begin at the specified location and each may be extended at ouroption for up to five additional five-year periods on the same terms andconditions, except the rent may increase based on a formula using the ConsumerPrice Index during any such extension.

 

With the netproceeds raised through the sale of Series A Convertible Preferred Stock,management believes that we will have sufficient funds to pursue our expansionstrategy over the next 9 to 15 months. We are also considering various alternatives to obtain capital to fundadditional expansion, including debt and equity financing, partnerships withinvestors or combinations thereof.  Theamount of financing required for new restaurants depends upon the definitivelocations, leasehold improvement costs, construction costs and the type oftransactions pursuant to which we establish new locations.  We cannot assure you that the financingneeded to pursue our expansion strategy will be available on terms acceptableor favorable to us, or at all.

 

**Commitmentsand Contingent Liabilities**

** **

*Operatingand Capital Leases:*

* *

We have two landand building lease agreements expiring in 2019 and 2020 with renewable optionsfor additional periods.  The buildingportions of these leases are classified as capital leases because their presentvalue was greater than 90% of the estimated fair value at the beginning of thelease.  The land portions of theseleases are classified as operating leases because the fair value of the landwas more than 25% of the leased property at the inception of each lease.  Under these leases, we are required to payadditional percentage rent based upon restaurant sales.  As of June 29, 2003, future obligationsrelating to the land portion of these leases aggregated $3,423,336 pluspercentage rent.  The scheduled rentincreases for the land during the life of each lease are recognized on astraight-line basis.

 

In 2001, weentered into a 20-year operating lease for land upon which we built our thirdrestaurant.  As of June 29, 2003,future obligations under the terms of the lease aggregated $1,323,800 plus percentagerent.  In January andApril 2003, we entered into three separate 20-year net leases relating tofuture restaurants in West Des Moines, Cedar Rapids and Davenport, Iowa.  The annual rent for each lease will be equalto 10.5% of the sum of the construction cost and land cost.  The terms of these leases will commence whenoperations begin at each location.

 

12

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*PersonalGuaranties:*

* *

Certain of ourdirectors have personally guaranteed the lease on two of our restaurants andthe $1.5 million loan we obtained to finance our third restaurant.  In connection with the loan, we entered intoan agreement concerning guaranty which provides, among other things, that suchguarantors will be indemnified from any liabilities they may incur by reason oftheir guaranties of our indebtedness. The agreement contains various covenants,one of which requires us to use our best efforts to obtain a release of oneindividual’s guarantee obligation by January 1, 2006.  If we have not accomplished this, we areobligated to pay him a monthly guarantee fee in the amount of $1,000 until suchrelease is obtained.  Additionally, ourboard of directors agreed to compensate each of the guarantors for theirexisting and possible future guaranties of our indebtedness.  Although the amount has not yet beendetermined, our board agreed that such compensation would be paid upon theinitial payment of rent on our fourth restaurant lease.

 

*EmploymentAgreement:*

* *

We have enteredinto an employment agreement with our President and Chief ExecutiveOfficer.  In lieu of a salary, we issuedstock options to him in 1999, 2001 and 2003 as compensation for his servicesthrough March 30, 2003.  At ameeting held in February 2003, our board of directors established a$160,000 annual salary for him effective April 1, 2003.  Among other provisions, the employmentagreement includes change in control provisions that would entitle him toreceive severance pay equal to 18 months of salary if there is a change incontrol of our company and his employment terminates.  Based on his current salary, the maximum contingent liabilityunder this agreement would be $240,000.

 

*DevelopmentAgreement:*

 

We have enteredinto a development agreement with Dunham for the development of ourrestaurants.  Dunham is controlled byDonald A. Dunham, Jr., who is an affiliate of Brew Buddies, our largestbeneficial owner of securities.  Theagreement gives Dunham the right to develop, construct and lease up to 22restaurants for us prior to December 31, 2012.  We are not bound to authorize the construction of restaurantsduring that time period, but generally cannot use another developer to developor own a restaurant as long as the development agreement is in effect.  We can use another developer if Dunhamdeclines to build a particular restaurant, if the agreement is terminatedbecause of a default by Dunham, or if our company is sold or merged intoanother company.  In the case of amerger or sale of our company, the development agreement may be terminated atsuch time as Dunham has completed seven restaurants under the agreement.  The development agreement provides for acooperative process between Dunham and our company for the selection of restaurantsites and the development of restaurants on those sites, scheduling for thedevelopment and construction of each restaurant once a location is approved,and controls on the costs of development and construction using bidding andguaranteed maximum cost concepts.  Thedevelopment agreement provides that restaurants will be leased to us on thebasis of a triple net lease.  The rentalrate of each lease will be calculated using a variable formula which is basedon approved and specified costs of development and construction and an indexedinterest rate.  The term of each leaseis 20 years with five five-year options to renew.

 

*Summaryof Contractual Obligations:*

* *

The followingtable summarizes our future obligations under contractual agreements as ofJune 29, 2003 and the time frame within which payments on such obligationsare due.  This table does not includeamounts related to loan guarantee fees, employment contracts, percentage rentor the lease agreement for our West Des Moines, Cedar Rapids and Davenport,Iowa locations as such amounts have not yet been determined.

 

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|                         |   | **Payments due by period** |       |
|------------------------------|--------|----------------------------|------------|
| **Contractual  Obligations** |   | **Total**                  |       | **Less than 1  year** |   | **1-3 years** |   | **3-5 years** |   | **More than 5  years** |   |
| Long-term debt               |   | $                          | 1,458,720  |   | $ | 16,071 |   | $ | 70,489 |   | $ | 1,372,160 |   | $ | — |   |
| Capital lease obligations    |   | 7,000,305                  |       | 308,997 |   | 1,233,865 |   | 1,012,701 |   | 4,444,742 |   |
| Operating lease obligations  |   | 4,758,272                  |       | 131,973 |   | 525,538 |   | 530,818 |   | 3,569,943 |   |
|                         |   |                       |       |   |   |   |   |   |   |   |   |
| Total Obligations            |   | $                          | 13,217,297 |   | $ | 457,041 |   | $ | 1,829,892 |   | $ | 2,915,679 |   | $ | 8,014,685 |   |

 

**Qualitativeand Quantitative Disclosures about Market Risk**

 

Our company isexposed to market risk from changes in interest rates on debt and changes incommodity prices.

 

*Changesin Interest Rate:*

 

We are exposed tomarket risk from changes in interest rates relating to a lease for equipmentunder an agreement expiring in 2008.  Asof June 15, 2004, we will be required to amortize approximately $264,100of the then remaining balance at an interest rate of prime plus 2% for 24additional months. At such time, our payments will increase if the prime rateis more than 8.5%.  Each percentagepoint above such rate would increase the total payments over the remaining lifeof the lease by approximately $3,000. On November 20, 2004, we will be required to amortize approximately$416,600 of the then remaining balance at an interest rate of prime plus 2% for42 additional months.  At such time, ourpayments will increase if the prime rate is more than 10.3%.  Each percentage point above such rate wouldincrease the total payments over the remaining life of the lease byapproximately $8,500.

 

InFebruary 2007, we will have a balloon payment due of approximately$1,325,000 on the loan we obtained from an independent financial institution inJuly 2001.  Currently, this loanbears a fixed interest rate of 8.75%. If it becomes necessary to refinance suchballoon balance, we may not be able to secure financing at the same interestrate.  The effect of a higher interestrate would depend upon the negotiated financing terms.

 

*Changesin Commodity Prices:*

* *

Many of the foodproducts we purchase are affected by commodity pricing and are, therefore,subject to unpredictable price volatility.  These commodities are generally purchased based upon market pricesestablished with vendors.  Extremefluctuations in commodity prices and/or long-term changes could have an adverseaffect on us.  Substantially all of ourfood and supplies are available from several sources, which helps to controlfood commodity risks.  Additionally, wehave the ability to increase menu prices, or vary the menu items offered, inresponse to a food product price increases. If, however, competitive circumstances limit our menu price flexibility,margins could be negatively impacted.

 

Our company doesnot enter into derivative contracts either to hedge existing risks or forspeculative purposes.

 

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**Seasonality**

** **

We expect that our sales and earnings will fluctuatebased on seasonal patterns.  Weanticipate that our highest sales and earnings will occur in the second andthird quarters due to the milder climate and availability of outdoor seatingduring those quarters in our existing and proposed markets.

 

**Inflation**

** **

The primary inflationary factors affecting ouroperations are food, supplies and labor costs. A large number of our restaurant personnel are paid at rates based onthe applicable minimum wage, and increases in the minimum wage directly affectour labor costs.  In the past, we havebeen able to minimize the effect of these increases through menu priceincreases and other strategies.  Todate, inflation has not had a material impact on our operating results.

 

**ITEM 3****           Controls and Procedures**

 

We maintain a system of disclosure controls andprocedures that is designed to provide reasonable assurance that information,which is required to be disclosed, is accumulated and communicated tomanagement timely.  Within the 90-dayperiod prior to the filing date of this periodic report, we carried out anevaluation under the supervision and with the participation of our management,including our Chief Executive Officer and Interim Chief Financial Officer, ofthe effectiveness of the design and operation of our disclosure controls and procedurespursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and InterimChief Financial Officer concluded that our disclosure controls and proceduresare effective in timely alerting them to material information relating to ourcompany required to be disclosed in our periodic filings with the SEC.

 

There were no significant changes in our internalcontrols or in other factors that could significantly affect our internalcontrols subsequent to the date of their most recent evaluation.

 
| **PART  II** |   | **OTHER  INFORMATION** |
|--------------|--------|------------------------|

 

ITEM 1           LegalProceedings

 

Notapplicable.

 

ITEM 2           Changesin Securities

 

(a)   Notapplicable.

 

(b)   Notapplicable.

 

(c)   On May 12, 2003, we entered into a financial advisory servicesagreement with First American Securities, Inc. ("FASI") pusuant towhich FASI agreed to provide to our company, on a non-exclusive andas-requested basis, cuonsulting sevices with respect to financing, investorrelations and related matters.  Inconsideration of such agreement, we issued to FASI five-year warrants topurchase an aggregate of 35,000 shares at excercise prices ranging from $2.85to $5.40 per share, exercisable as follows:

 

| **Warrants**  |   | **Excercise  Price** |   |
|---------------|--------|----------------------|--------|
|          |   | **Per Share**        |   |
|          |   |                 |   |
| 12,000 shares |   | $                    | 2.85   |   |
| 10,000 shares |   | 3.40                 |   |
| 8,000 shares  |   | 4.40                 |   |
| 5,000 shares  |   | 5.40                 |   |
|               |        |                      |        |  |

 

On June 10, 2003, we issued 2,927 shares ofcommon stock to each of Draft Co. and Raft Co., both accredited investors, uponthe exercise of warrants originally issued to such holders on October 1,2002, in connection with a private placement of Series A Convertible PreferredStock and warrants.  Each warrant wasexercisable at $1.58 per share for the purchase of 7,911 shares of commonstock.  Each warrant containedprovisions allowing the holders to convert the securities into common stockwithout any cash consideration in exchange for the surrender of the remainingshares of common stock otherwise purchasable upon exercise of thewarrant.  The holders elected to exercise their warrants in this manner.  The net shares issued to each holder wasdetermined based on the 10-day average closing price of our common stock of$2.508 from May 28, 2003 to June 10, 2003.

 

15

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The foregoing issuances were made in reliance uponthe exemption provided in Section 4(2) of the Securities Act.  Certificates representing such securitiescontain restrictive legends preventing sale, transfer or other disposition,unless registered under the Securities Act. Prior to the resale registration covering the shares issued to Draft Co.and Raft Co., they were restricted as to sale or transfer.  The securities issued to FASI are restrictedas to sale or transfer.  The recipientsof such securities received, or had access to, material information concerningour company, including, but not limited to, our reports of Form 10-KSB, Form10-QSB and Form 8-K, as filed with the SEC. No discount or commission was paid in connection with the issuance ofwarrants to FASI or the issuance of common stock upon the exercise of warrantsheld by Draft Co. and Raft Co.

 

(d)   Notapplicable.

 

ITEM 3           Defaultsupon Senior Securities

 

Not applicable.

 

ITEM 4           Submission of Matters to a Vote ofSecurity Holders

 

Not applicable.

 

ITEM 5           OtherInformation

 

Not Applicable.

 

ITEM 6           Exhibitsand Reports on Form 8-K

 

(a)   Exhibits

 

See “Index to Exhibits.”

 

(b)   Reports on Form 8-K

 

None.

 

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**SIGNATURES**

** **

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|                            | GRANITE CITY FOOD & BREWERY LTD. |
|---------------------------------|--------------------------------------|
|                            |
|                            |
| Date:  August 8, 2003 | By:                                  | /s/ Monica A. Underwood |
|                            |                                 | Monica A. Underwood |
|                            |                                 | Interim Chief Financial  Officer and  Corporate Controller |
|                                 |                                      |  |  |

 

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**INDEX TO EXHIBITS**

 
| **Exhibit Number** |   | **Description**                                                                                                                                                                                            |
|--------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                                                                       |
| 31.1               |   | Certification by  Steven J. Wagenheim, President and Chief Executive Officer of the Company,  pursuant to Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |
|               |   |                                                                                                                                                                                                       |
| 31.2               |   | Certification by  Monica A. Underwood, Interim Chief Financial Officer of the Company, pursuant  to Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.       |
|               |   |                                                                                                                                                                                                       |
| 32.1               |   | Certification by  Steven J. Wagenheim, President and Chief Executive Officer of the Company,  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.   |
|               |   |                                                                                                                                                                                                       |
| 32.2               |   | Certification by  Monica A. Underwood, Interim Chief Financial Officer of the Company, pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.         |

 

 

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