**SECURITIES 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 SEPTEMBER 29,  2002** |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                      |
|       |                                                                                                                                      |
|       |                                                                                                                                      |
| **o**      | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE  ACT**                                                                      |

 

**Commission File Number 000-29643**

 

**GRANITE CITY FOOD & BREWERYLTD.**

(Exact Name of SmallBusiness 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 Exchange Act during the past 12 months (or such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes ý   No o.

 

As of November 6, 2002, the issuer had outstanding3,825,100 shares of common stock and 1,000,000 Class A Warrants.  The number of outstanding shares of commonstock includes the shares issuable upon separation of the units, eachconsisting of one share of common stock and one redeemable Class A Warrant,sold in the issuer’s initial public offering.

 

Transitional Small Business Disclosure Format:

Yes o   No ý

 

 

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**TABLE OFCONTENTS**

 
| **PART I**         | **FINANCIAL INFORMATION** |
|--------------------|---------------------------|
|               |                      |   |
|               | ITEM 1                    | Financial  Statements |
|               |                      |   |
|               |                      | Condensed Balance Sheet as of September  29, 2002 |
|               |                      |   |
|               |                      | Condensed Statements of  Operations for the thirteen and thirty-nine weeks ended  September 30, 2001 and September 29, 2002 |
|               |                      |   |
|               |                      | Condensed Statements of Cash  Flows for the thirty-nine weeks ended  September 30, 2001 and September 29, 2002 |
|               |                      |   |
|               |                      | 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**     |
|               |                      |   |
| **CERTIFICATIONS** |
|                    |                           |  |  |

 

i

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**PART I****FINANCIAL INFORMATION**

 

ITEM1   Financial Statements

 

**GRANITE CITY FOOD & BREWERY LTD.**

 

**CONDENSEDBALANCE SHEET**

**(Unaudited)**

** **
|                                                                                                   |   | **September 29,  2002** |       |
|--------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|
| **ASSETS:**                                                                                            |   |                    |       |
| Current assets:                                                                                        |   |                    |       |
| Cash                                                                                                   |   | $                       | 122,444    |   |
| Inventory                                                                                              |   | 92,650                  |       |
| Prepaids and  other                                                                                    |   | 187,903                 |       |
| Total current  assets                                                                                  |   | 402,997                 |       |
|                                                                                                   |   |                    |       |
| Prepaid  expenses, non-current                                                                         |   | 208,141                 |       |
| Property and  equipment, net                                                                           |   | 9,171,336               |       |
| Liquor license  and other                                                                              |   | 335,276                 |       |
| Total assets                                                                                           |   | $                       | 10,117,750 |   |
|                                                                                                   |   |                    |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY:**                                                        |   |                    |       |
| Current  liabilities:                                                                                  |   |                    |       |
| Accounts payable                                                                                       |   | $                       | 553,981    |   |
| Accrued expenses                                                                                       |   | 537,024                 |       |
| Due to related  parties                                                                                |   | 300,000                 |       |
| Long-term debt,  current portion                                                                       |   | 27,796                  |       |
| Capital lease  obligations, current portion                                                            |   | 255,297                 |       |
| Total current  liabilities                                                                             |   | 1,674,098               |       |
|                                                                                                   |   |                    |       |
| Long-term debt,  net of current portion                                                                |   | 1,450,746               |       |
| Capital lease  obligations, net of current portion                                                     |   | 3,765,092               |       |
| Total  liabilities                                                                                     |   | 6,889,936               |       |
|                                                                                                   |   |                    |       |
| Shareholders’  equity:                                                                            |   |                    |       |
| Common stock,  $0.01 par value, 90,000,000 shares authorized;  3,825,100 shares issued and outstanding |   | 38,251                  |       |
| Additional  paid-in capital                                                                            |   | 4,436,268               |       |
| Accumulated  deficit                                                                                   |   | (1,246,705              | )          |
| Total  shareholders’ equity                                                                       |   | 3,227,814               |       |
|                                                                                                   |   |                    |       |
| Total  liabilities and shareholders’ equity                                                       |   | $                       | 10,117,750 |   |

 

See notes to condensedfinancial statements.

 

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**GRANITECITY FOOD & BREWERY LTD.**

 

**CONDENSED STATEMENTS OF OPERATIONS**

**(Unaudited)**

** **
|                                                    |   | **Thirteen Weeks Ended** |      | **Thirty-nine Weeks Ended** |   |
|---------------------------------------------------------|--------|--------------------------|-----------|-----------------------------|--------|
|                                                    |   | **September 30,  2001**  |      | **September 29,  2002**     |   | **September 30,  2001** |   | **September 29,  2002** |   |
| Restaurant  revenues                                    |   | $                        | 2,217,228 |                        | $      | 3,159,837 |   | $ | 6,350,143 |   | $ | 9,436,453 |   |
|                                                    |   |                     |      |                        |   |   |   |   |   |
| Restaurant  costs:                                      |   |                     |      |                        |   |   |   |   |   |
| Food and  beverage                                      |   | 645,667                  |      | 895,748                     |   | 1,882,416 |   | 2,711,118 |   |
| Labor                                                   |   | 732,908                  |      | 1,046,846                   |   | 2,092,168 |   | 3,198,404 |   |
| Direct and  occupancy                                   |   | 468,424                  |      | 661,931                     |   | 1,326,056 |   | 1,954,940 |   |
| Total restaurant  costs                                 |   | 1,846,999                |      | 2,604,525                   |   | 5,300,640 |   | 7,864,462 |   |
|                                                    |   |                     |      |                        |   |   |   |   |   |
| Income from  restaurant operations                      |   | 370,229                  |      | 555,312                     |   | 1,049,503 |   | 1,571,991 |   |
|                                                    |   |                     |      |                        |   |   |   |   |   |
| Pre-opening  costs                                      |   | 18,420                   |      | —                      |   | 18,420 |   | — |   |
| General and  administrative                             |   | 206,050                  |      | 254,380                     |   | 536,885 |   | 673,778 |   |
| Depreciation and  amortization                          |   | 119,420                  |      | 192,053                     |   | 352,098 |   | 574,373 |   |
|                                                    |   |                     |      |                        |   |   |   |   |   |
| Operating income                                        |   | 26,339                   |      | 108,879                     |   | 142,100 |   | 323,840 |   |
| Interest:                                               |   |                     |      |                        |   |   |   |   |   |
| Income                                                  |   | 4,472                    |      | 17                          |   | 29,845 |   | 487 |   |
| Expense                                                 |   | (101,439                 | )         | (132,091                    | )      | (271,067 | ) | (404,366 | ) |
| Other income,  net                                      |   | —                   |      | —                      |   | — |   | 32,355 |   |
| Net other  expense                                      |   | (96,967                  | )         | (132,074                    | )      | (241,222 | ) | (371,524 | ) |
|                                                    |   |                     |      |                        |   |   |   |   |   |
| Net loss                                                |   | $                        | (70,628   | )                           | $      | (23,195 | ) | $ | (99,122 | ) | $ | (47,684 | ) |
|                                                    |   |                     |      |                        |   |   |   |   |   |
| Loss per common  share, basic and diluted               |   | $                        | (0.02     | )                           | $      | (0.01 | ) | $ | (0.03 | ) | $ | (0.01 | ) |
|                                                    |   |                     |      |                        |   |   |   |   |   |
| Weighted average  shares outstanding, basic and diluted |   | 3,807,350                |      | 3,819,825                   |   | 3,807,350 |   | 3,812,108 |   |

 

See notes to condensedfinancial statements.

 

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**GRANITE CITY FOOD & BREWERY LTD.**

 

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
|                                                                                       |   | **Thirty-nine Weeks Ended** |    |
|--------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                       |   | **September 30,  2001**     |    | **September 29,  2002** |   |
| Cash flows from  operating activities:                                                     |   |                        |    |   |   |
| Net loss                                                                                   |   | $                           | (99,122 | ) | $ | (47,684 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |   |                        |    |   |   |
| Depreciation and  amortization                                                             |   | 352,098                     |    | 574,373 |   |
| Decrease  (increase) in:                                                                   |   |                        |    |   |   |
| Inventory                                                                                  |   | 15,525                      |    | 23,328 |   |
| Prepaids and  other                                                                        |   | (68,349                     | )       | (72,046 | ) |
| Increase  (decrease) in:                                                                   |   |                        |    |   |   |
| Accounts payable                                                                           |   | (31,317                     | )       | 91,961 |   |
| Accrued expenses                                                                           |   | (17,159                     | )       | (190,109 | ) |
| Net cash  provided by operating activities                                                 |   | 151,676                     |    | 379,823 |   |
|                                                                                       |   |                        |    |   |   |
| Cash flows from  investing activities:                                                     |   |                        |    |   |   |
| Purchase of:                                                                               |   |                        |    |   |   |
|                                                                                       |   |                        |    |   |   |
| Property and  equipment                                                                    |   | (2,296,277                  | )       | (448,556 | ) |
| Liquor license  and intangibles                                                            |   | (107,582                    | )       | (3,809 | ) |
| Short-term  investments/redemption of short-term investments                               |   | 674,945                     |    | — |   |
| Net cash used in  investing activities                                                     |   | (1,728,914                  | )       | (452,365 | ) |
|                                                                                       |   |                        |    |   |   |
| Cash flows from  financing activities:                                                     |   |                        |    |   |   |
| Payment to  related parties                                                                |   | (6,000                      | )       | — |   |
| Payments on  capital lease obligations                                                     |   | (129,236                    | )       | (179,896 | ) |
| Payments on long  term debt                                                                |   | —                      |    | (21,458 | ) |
| Other  non-current assets                                                                  |   | —                      |    | (208,141 | ) |
| Related parties                                                                            |   | —                      |    | 200,000 |   |
| Debt financing                                                                             |   | 265,990                     |    | — |   |
| Capital lease                                                                              |   | 793,125                     |    | — |   |
| Issuance of  common stock                                                                  |   | —                      |    | 20,087 |   |
| Net cash  provided by financing activities                                                 |   | 923,879                     |    | (189,408 | ) |
|                                                                                       |   |                        |    |   |   |
| Net increase  (decrease) in cash                                                           |   | (653,359                    | )       | (261,950 | ) |
| Cash, beginning                                                                            |   | 963,541                     |    | 384,394 |   |
| Cash, ending                                                                               |   | $                           | 310,182 |   | $ | 122,444 |   |

 

See notes to condensedfinancial statements.

 

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**GRANITE CITY FOOD & BREWERY LTD.**

 

**NOTES TO****CONDENSEDFINANCIAL STATEMENTS**

**(Unaudited)**

 

Thirteen and thirty-nineweeks ended September 30, 2001 and September 29, 2002

 
| **1.** |   | **Nature  of business and basis of presentation:** |
|--------|--------|----------------------------------------------------|

 

 

Nature of business:

Granite City Food &Brewery Ltd. (the Company) was formed to develop and operate casual diningrestaurants featuring on-premise breweries. The Company is developing these restaurant-microbreweries, known asGranite 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 handcrafted beers.  TheCompany produces its beer using a patent-pending process that is intended tomaintain high beer quality while enhancing overall profitability by reducingunit-level brewing costs.  The firstrestaurant, located in St. Cloud, Minnesota, opened in July 1999.  The second restaurant, located in SiouxFalls, South Dakota, opened in December 2000 and a third restaurant located inFargo, North Dakota, opened in November 2001.

 

Subject to obtaining adequate financing, the Company’scurrent expansion strategy focuses on development of restaurants in marketswhere management believes the Company’s concept will have broad appeal andattractive restaurant-level economics. The Company also intends to explore off-premise sales of its handcraftedbeers through the supervised use of contract brewers.

 

Interim financial statements:

The Company has prepared the condensed financialstatements for the thirteen and thirty-nine weeks ended September 30, 2001 andSeptember 29, 2002 without audit by the Company’s independent auditors.  In the opinion of the Company’s management,all adjustments necessary to present fairly the financial position of theCompany at September 29, 2002 and the results of operations and cash flows forthe periods ended September 30, 2001 and September 29, 2002 have been made.Those adjustments consist only of normal and recurring adjustments.

 

Certain information and note disclosures normallyincluded in the Company’s annual financial statements have been condensed oromitted.  These condensed financial statementsshould be read in conjunction with the financial statements and notes theretoincluded in the Company’s Annual Report on Form 10-KSB for the fiscal yearended December 30, 2001, filed on February 20, 2002 with the Securities andExchange Commission.

 

The results of operations for the thirteen andthirty-nine weeks ended September 29, 2002 are not necessarily indicative ofthe results to be expected in a full year.

 

Reclassifications:

Certain reclassifications have been made to the 2001financial statements in order for them to conform to the presentation of the2002 financial statements.  Thesereclassifications have no effect on the accumulated deficit or the net income(loss) previously reported.

 

Subsequent events:

In October 2002, the Company sold $1,941,800 of SeriesA Convertible Preferred Stock and warrants to purchase common stock toaccredited investors in an unregistered offering.  The preferred stock maybe converted into 1,228,975 shares of common stock at a conversion price of $1.58per share.  The warrants are exercisable for 614,483 shares of commonstock at an exercise price of $1.58 per share.  The Company also issued awarrant to its placement agent for the purchase of 122,897 shares of commonstock at an exercise price of $1.58 per share. The Company has also accepted subscriptions for the purchase of an

 

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additional $2,333,200 of Series A ConvertiblePreferred Stock and warrants to purchase common stock, with additional paymentsdue in December 2002 and March 2003. Under the subscriptions, the preferred stock has a conversion price of$1.58 per share and the warrants have an exercise price of $1.58 per share.

 

Between November 2001 and May 2002, we issuedpromissory notes aggregating $300,000 to New Brighton Ventures, Inc.  In October 2002, we repaid the outstandingprincipal balance in full.

 

**ITEM 2****  Management’sDiscussion and Analysis or Plan of Operation**

 

*This discussion and analysiscontains various non-historical forward-looking statements within the meaningof Section 21E of the Exchange Act. Although we believe that, in making any such statement, our expectationsare based on reasonable assumptions, any such statement may be influenced byfactors that could cause actual outcomes and results to be materially differentfrom those projected.  When used in thefollowing discussion, the words “anticipates,” “believes,” “expects,”“intends,” “plans,” “estimates” and similar expressions, as they relate to usor our management, are intended to identify such forward-lookingstatements.  Potential purchasers of oursecurities 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 30, 2001, filedon February 20, 2002 with the Securities and Exchange Commission, foradditional factors known to us that may cause actual results to vary.*

 

**Overview**

 

We operate threecasual dining restaurants featuring on-premise breweries under the name GraniteCity Food & Brewery®.  Ouractivities in 1998 and through June 1999 were related to the development of ourrestaurant-microbrewery concept and the development and financing of our firstrestaurant.  Our initial restaurantcommenced operations in St. Cloud, Minnesota, in June 1999.  Our second restaurant, located in SiouxFalls, South Dakota, commenced operations in December 2000.  Our third restaurant, located in Fargo,North Dakota, opened in November 2001.

 

We developed ourfirst restaurant using the net proceeds from a private placement conducted inlate 1997, together with financing in the form of long-term building andequipment leases.  We developed oursecond restaurant using a portion of the net proceeds from our initial publicoffering in June 2000, together with financing in the form of long-termbuilding and equipment leases.  Wedeveloped our third restaurant using the remaining net proceeds from ourinitial public offering, together with bank financing, a long-term equipmentlease and loans from a related party.

 

In 2001, wedeveloped a patent-pending brewing process called Fermentus InterruptusTM.  We believe this process will aid in thequality, consistency and efficiency of serving handcrafted brews in multiplelocations.  Fermentus Interruptus isintended to improve the economics of our brewing process by eliminating theinitial stages of brewing and storage at multiple locations, thereby reducingequipment and development costs at new restaurant locations.  This process will also allow us to serviceup to 15 locations from one wort production site, which we believe will improveour quality, consistency and our brew profitability.  We are evaluating strategies for capitalizing on FermentusInterruptus, including licensing of our brewing technology.

 

We are****currently exploring methods of additionalfinancing in order to develop additional restaurants in selected marketsthroughout the United States.  Ourrevenue growth depends upon the availability of financing to develop additionalrestaurants, as we will not be able to achieve such growth using internallygenerated funds alone.  October 1, 2002,we sold $1,941,800 of Series A Convertible Preferred Stock and warrants topurchase common stock to accredited investors in an unregisteredoffering.  We have also accepted subscriptions for the purchase of anadditional $2,333,200 of Series A Convertible Preferred Stock and warrants topurchase common stock, with additional payments due in December 2002 and March2003.

 

We believe thatour operating results will fluctuate significantly because of several factors,including the timing of new restaurant openings and related expenses,profitability of new restaurants, increases or

 

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decreases in comparable restaurant sales, general economic conditions,consumer confidence in the economy, changes in consumer preferences,competitive factors and weather conditions.

 

The third quarterof fiscal year 2001 included 26 restaurant weeks while the third quarter of2002 included 39 restaurant weeks.  Thefirst three quarters of fiscal year 2001 included 78 restaurant weeks while thecomparable period of 2002 included 117 restaurant weeks.

 

Our restaurantsales are comprised almost entirely of the sales of food and beverages.  Product costs include the costs of food andbeverages.  Labor costs include directhourly and management wages, taxes and benefits for restaurant employees.  Direct and occupancy costs includerestaurant supplies, marketing costs, rent, utilities, real estate taxes, repairsand maintenance and other related costs. General and administrative expenses are comprised of expenses associatedwith all corporate and administrative functions that support existingoperations, management and staff salaries, employee benefits, travel,information systems and training and market research.  Depreciation and amortization include depreciation on capitalexpenditures.  Other income and expenseincludes primarily the cost of interest expense on debt and capital leases andinterest income on invested assets.

** **

**Resultsof Operations**

 

The followingtable compares operating results expressed as a percentage of total revenue forthe thirteen and thirty-nine weeks ended September 30, 2001 and September 29,2002.

 
|                               |   | **Thirteen weeks  ended** |   | **Thirty-nine  weeks ended** |   |
|------------------------------------|--------|---------------------------|--------|------------------------------|--------|
|                               |   | **September 30,  2001**   |   | **September 29,  2002**      |   | **September 30,  2001** |   | **September 29,  2002** |   |
| Restaurant  revenues               |   | 100.0                     | %      | 100.0                        | %      | 100.0 | % | 100.0 | % |
|                               |   |                      |   |                         |   |   |   |   |   |
| Restaurant  costs:                 |   |                      |   |                         |   |   |   |   |   |
| Food and  beverage                 |   | 29.1                      | %      | 28.3                         | %      | 29.6 | % | 28.7 | % |
| Labor                              |   | 33.1                      | %      | 33.1                         | %      | 32.9 | % | 33.9 | % |
| Direct and  occupancy              |   | 21.1                      | %      | 20.9                         | %      | 20.9 | % | 20.7 | % |
| Total restaurant  costs            |   | 83.3                      | %      | 82.3                         | %      | 83.4 | % | 83.3 | % |
|                               |   |                      |   |                         |   |   |   |   |   |
| Income from  restaurant operations |   | 16.7                      | %      | 17.6                         | %      | 16.5 | % | 16.7 | % |
|                               |   |                      |   |                         |   |   |   |   |   |
| Pre-opening  costs                 |   | 0.8                       | %      | 0.0                          | %      | 0.3 | % | 0.0 | % |
| General and  administrative        |   | 9.3                       | %      | 8.1                          | %      | 8.5 | % | 7.1 | % |
| Depreciation and  amortization     |   | 5.4                       | %      | 6.1                          | %      | 5.5 | % | 6.1 | % |
|                               |   |                      |   |                         |   |   |   |   |   |
| Operating income                   |   | 1.2                       | %      | 3.4                          | %      | 2.2 | % | 3.5 | % |
| Interest:                          |   |                      |   |                         |   |   |   |   |   |
| Income                             |   | 0.2                       | %      | 0.0                          | %      | 0.5 | % | 0.0 | % |
| Expense                            |   | (4.6                      | )%     | (4.2                         | )%     | (4.3 | )% | (4.3 | )% |
| Other income,  net                 |   | 0.0                       | %      | 0.0                          | %      | 0.0 | % | 0.3 | % |
| Net other  expense                 |   | (4.4                      | )%     | (4.2                         | )%     | (3.8 | )% | (4.0 | )% |
|                               |   |                      |   |                         |   |   |   |   |   |
| Net loss                           |   | (3.2                      | )%     | (0.8                         | )%     | (1.6 | )% | (0.5 | )% |

 

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**Critical Accounting Policies**

 

Management’s Discussion and Analysis or Plan of Operation is based uponour consolidated 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 consolidated financial statements andaccompanying notes.  We believe ourestimates and assumptions are reasonable; however, actual results and thetiming of the recognition of such amounts could differ from thoseestimates.  We have identified thefollowing critical accounting policies and estimates utilized by management inthe preparation of our financial statements:

 

*Property and equipment*:

 

The cost of property and equipment is depreciated over the estimateduseful lives of the related assets ranging from three to 20 years.  The cost of leasehold improvements isdepreciated over the length of the related lease.  Depreciation is computed on the straight-line method forfinancial reporting purposes and accelerated methods for income taxpurposes.  Amortization of assetsacquired under capital lease is included in depreciation expense.  Our accounting policies regarding propertyand equipment include certain management judgments regarding the estimated usefullives of such assets and the determination as to what constitutes enhancing thevalue of or increasing the life of existing assets.  These judgments and estimates may produce materially differentamounts of depreciation and amortization expense than would be reported ifdifferent assumptions were used.

 

*Other estimates*:

 

We are required to make judgments and/or estimates in the determinationof several of the accruals that are reflected in our consolidated financialstatements.  These accruals include, butare not limited to performance-based compensation, contingency rental expensebased upon restaurant sales, payroll expense related to employee vacations, aswell as utilities and other services provided to us for which we have notreceived billing at the time our financial statements are prepared.

 

We continually reassess our assumptions and judgments and makeadjustments when significant facts and circumstances dictate.  Historically, actual results have not beenmaterially different than the estimates we have made.

 

**Results of Operations for the Thirteen and Thirty-nine WeeksEnded September 30, 2001 and September 29, 2002**

 

**Revenue**

 

We operated threerestaurants during the third quarter and first three quarters of 2002 and tworestaurants in the third quarter and first three quarters of 2001.  We generated $2,217,228 and $3,159,837 ofrevenues during the third quarter of 2001 and 2002, respectively, and$6,350,143 and $9,436,453 of revenues during the first three quarters of 2001and 2002, respectively.  The 49%increase in revenues for the first three quarters of 2002 over 2001 wasattributed principally to the addition of our third operating unit.

 

We anticipate thatrestaurant revenues will vary from quarter to quarter.  We anticipate seasonal fluctuations inrestaurant revenues due in part to increased outdoor seating and generallyfavorable weather conditions at all locations during the summer months.  In addition, restaurants typicallyexperience a temporary period of high revenues immediately following theiropening due to increased demand fostered by the publicity surrounding theopening (the “honeymoon effect”).

 

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**Restaurant Costs**

* *

*Foodand Beverage*

 

Our food andbeverage cost decreased 0.8% as a percentage of revenues during the thirteenweeks ended September 29, 2002 compared to the thirteen-week period endedSeptember 30, 2001.  During the firstthree quarters of 2002, food and beverage costs decreased 0.9% as a percentageof revenues compared to the first three quarters of 2001.  These decreases were due primarily to anincrease in purchasing power with the opening of our Fargo location.  We expect that with the addition of futurelocations, increased purchasing power will further reduce our food and beveragecosts as a percentage of revenues.

 

We expect that ourfood and beverage costs will vary going forward due to numerous variables,including seasonal changes in food costs and guest preferences.  We periodically create new menu offerings inboth our craftbrewed beers and our food based upon guest preferences.  Although such menu modifications maytemporarily result in increased food and beverage cost, we are able to offsetsuch increases with our weekly specials which provide variety to our guests ata high price value.  Our varieties ofcraftbrewed beer, which we can produce at lower cost than beers we purchase forresale, also enable us to keep our food and beverage costs low while fulfillingguest requests and building customer loyalty.

* *

*Labor*

 

Our labor costsexpressed as a percentage of revenues remained at 33.1% during the thirteenweeks ended September 29, 2002 and September 30, 2001.  For the thirty-nine weeks ended September29, 2002 labor cost increased 1.0% as a percentage of revenue compared to thesame period in 2001.  While trainingexpense at the Fargo location has been higher than that at the other locations,we anticipate it will decrease in future quarters as the Fargo staff becomes moreexperienced.  We have also experiencedincreases in employee benefit costs, primarily health insurance, which hasincreased our labor costs, as have increases in wages paid to retain goodemployees and ensure high quality guest service.

 

We expect thatlabor costs will vary as we add new locations. Minimum wage laws, local labor laws and practices, as well asunemployment rates vary from state to state and will affect our laborcosts.  In addition, we believe that retentionof good employees ensures high quality guest service and reduces hiring andtraining costs.  Hiring and trainingcost savings associated with increased staff experience are offset slightly bypay increases as our staff gains more experience.

* *

*Directand Occupancy*

 

Our direct andoccupancy expenses decreased 0.2% as a percentage of revenues during thethirteen and thirty-nine weeks ended September 29, 2002 compared to similarperiods in 2001.  Operating supplies,rent and occupancy costs, repairs and maintenance and advertising expense representthe majority of our direct and occupancy expenses.  A substantial portion of these expenses is fixed or indirectlyvariable.  As such, our decrease indirect and occupancy expenses during the first half of 2002 can be attributedto higher unit volumes, which reduced fixed and indirectly variable costs as apercentage of revenues.

 

**Generaland Administrative**

 

General and administrative expenses include salariesand benefits associated with our corporate staff that is responsible foroverall restaurant quality, future expansion into new locations and financialcontrols and reporting.  Other generaland administrative expenses include professional fees, office administrationand centralized accounting system costs, and travel by our corporate managementto the restaurant locations.  General andadministrative expenses increased $48,330 and $136,893 during the third quarterand first three quarters of 2002, respectively, compared to the similar periodsof 2001.  In order to retain coremanagement and build our infrastructure to facilitate growth, we have incurredincreased payroll and benefits related expenses, which have been offset by adecrease in professional fees paid to outside organizations.  With the addition of an operating location,travel and communication costs between operating locations and the

 

8

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corporate office increased significantly in the first three quarters of2002 compared to the first three quarters of 2001.  From the inception of our company through September 29, 2002, ourexecutive officers did not receive any monetary compensation from our companyas we believe the options issued to these officers in 1999 and 2001 representreasonable compensation for their services through September 29, 2002.  Compensation payable to them thereafter willbe determined by our board and will increase our general and administrativeexpenses.  Despite the foregoingincreases in general and administrative expenses, the increase in restaurantrevenue associated with the opening of our third location caused our generaland administrative expenses to decrease as a percentage of revenue.  For the thirteen weeks ended September 29,2002, these expenses decreased 1.2% from the comparable period in 2001.    During the thirty-nine weeks endedSeptember 29, 2002, such expenses decreased 1.4% compared to the thirty-nineweeks ended September 30, 2001.

 

We expect that general and administrative costs willcontinue to fluctuate as a percentage of restaurant revenues in the near termas we solidify our infrastructure to adequately sustain operations acrossmultiple locations.  The anticipatedadditional restaurant revenues associated with further expansion are expectedto result in greater economies of scale for our corporate expenses in thelong-term.

 

**Depreciation and Amortization**

 

Depreciation andamortization expense increased by $72,633 from the third quarter of 2001 to thethird quarter of 2002.  The increase forthe related thirty-nine week period was $222,275.  These increases were primarily the result of depreciationrecognized on capital expenditures for our Fargo restaurant.  As a percentage of revenues, depreciationand amortization expense increased 0.7% between the first three quarters of2001 and the first three quarters of 2002.

** **

**Other Income and Expense**

 

Net interest expense increased $35,107 during thethirteen weeks ended September 29, 2002 compared to the similar period in2001.  Net interest expense increased$162,657 during the thirty-nine weeks ended September 29, 2002 compared to thethirty-nine weeks ended September 30, 2001. Such increases were due principally to increased debt incurred in theconstruction of our Fargo location. Other income and expense for the first three quarters of 2002 includes aloss on assets 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 related legalfees.

 

**Liquidity and Capital Resources**

 

To date, we haverequired capital principally for the development, construction and opening ofnew restaurants.  Prior to commencementof restaurant operations in June 1999, our capital requirements wereprincipally funded through private sales of equity.  In 1997 and 1998, we sold, through private placements, anaggregate of 1,969,500 shares of common stock for gross proceeds of$1,319,500.    In June 2000, we sold,through our initial public offering, an aggregate of 1,000,000 units for grossproceeds of $4,125,000.  We have alsoobtained additional financing through building and equipment leases, long-termdebt from an independent financial institution and loans from New BrightonVentures, Inc., an entity owned and controlled by certain members of ourexecutive management, as evidenced by promissory notes.

 

Our operatingactivities provided $379,823 of net cash during the thirty-nine weeks endedSeptember 29, 2002.  Using proceeds frompromissory notes we issued to New Brighton Ventures, Inc. aggregating $200,000in February and May 2002, $20,087 in proceeds from issuing common stockpursuant to the exercise of stock options and warrants and the net cashprovided by operations, we purchased $452,365 of assets primarily for our Fargolocation, made payments on our debt and capital lease obligations aggregating$201,354 and spent $208,141 on pre-paid expenses related to the sale of ourSeries A Convertible Preferred Stock.

 

9

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In 2000, weinvested excess cash from our initial public offering proceeds in short-terminvestments with staggered maturity dates to correspond with anticipatedpre-opening costs. During the first three quarters of 2001, we redeemed$674,945 of short-term investments.

 

During thethirty-nine weeks ended September 30, 2001, our operating activities provided$151,676 of net cash.  Using net cashprovided by operations, net proceeds from the redemption of short-terminvestments, $793,125 in proceeds from an equipment lease and $265,990 inproceeds from debt financing, we purchased equipment and a liquor licensetotaling $2,403,859 and made payments on other debt aggregating $135,236.

 

Between November2001 and May 2002, we issued promissory notes aggregating $300,000 to NewBrighton Ventures, Inc.  We used theproceeds of these notes to pay capital expenditures related to the developmentof the Fargo location.  ThroughSeptember 29, 2002, we had paid monthly installments of accrued interest only.  In October 2002, we repaid the outstandingprincipal balance in full.

 

We are pursuingthe expansion of our Granite City Food & Brewery® concept into marketswhere we believe it will have broad appeal and attractive restaurant-leveleconomics.  To raise the funds requiredto continue our expansion, on October 1, 2002, we sold $1,941,800 of Series AConvertible Preferred Stock and warrants to purchase common stock to accreditedinvestors in an unregistered offering.  The preferred stock may beconverted into 1,228,975 shares of common stock at a conversion price of $1.58per share.  The warrants are exercisable for 614,483 shares of commonstock at an exercise price of $1.58 per share.  We also issued a warrantto our placement agent for the purchase of 122,897 shares of common stock at anexercise price of $1.58 per share.  Wehave also accepted subscriptions for the purchase of an additional $2,333,200of Series A Convertible Preferred Stock and warrants to purchase common stock,with additional payments due in December 2002 and March 2003.  Under the subscriptions, the preferred stockhas a conversion price of $1.58 per share and the warrants have an exerciseprice of $1.58 per share.

 

The amount of financingrequired for new stores depends upon the definitive locations, leaseholdimprovement costs, construction costs and the type of transactions pursuant towhich we establish new locations.  Withthe net proceeds raised through the sale of Series A Convertible PreferredStock and warrants to purchase common stock, management believes that we willhave sufficient funds to pursue our expansion strategy over the next 18 to 24months.  We are also considering variousalternatives to obtain capital to fund additional expansion, including debt andequity financing, partnerships with investors or combinations thereof.  We cannot assure you that financing neededto pursue our expansion strategy will be available on terms acceptable orfavorable to us, or at all.

 

**Commitments and ContingentLiabilities**

 

*Operating and Capital Leases:*

 

We have two land andbuilding lease agreements expiring in 2019 and 2020 with renewable options foradditional periods.  The buildingportions of these leases are classified as capital leases because their presentvalue is greater than 90% of the estimated fair value.  The land portions of these leases areclassified as operating leases because the fair value of the land was more than25% 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 September 29, 2002, future obligationsrelating to the land portion of these leases aggregated $3,626,532 pluspercentage rent.  The scheduled rentincreases for the land during the life of each lease are recognized on a straight-linebasis.   In 2001, we entered into a20-year operating lease for land upon which we built our third restaurant.  As of September 29, 2002, future obligationsunder the terms of the lease aggregated $1,371,800 plus percentage rent.

 

*Personal Guaranties:*

 

Certain of our officersand directors have personally guaranteed the lease on two of our restaurantsand the $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

 

10

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indemnified from any liabilities they may incur byreason of their guaranties of our indebtedness. The agreement contains variouscovenants, one of which assures that we will use our best efforts to obtain arelease of one individual’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 guarantees 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.

 

*Employment Agreements:*

 

We have entered intoemployment agreements with two officers, both of whom are directors of ourcompany.  The agreements stated that theindividuals would receive no monetary compensation during fiscal year 2000, andthat salaries would be established in 2001. In lieu of salaries, we believe the stock options issued to the twoofficers represent reasonable compensation for their services through September29, 2002.  Among other provisions, theagreements included change in control provisions that would entitle each of theofficers to receive severance pay equal to 18 months of salary if there is achange in control of our company and their employment terminates.  The maximum contingent liability under theseagreements is not determinable, as no monetary compensation has beenestablished.

 

*Summary of Contractual Obligations:*

 

The following tablesummarizes our future obligations under contractual agreements as of September29, 2002 and the time frame within which payments on such obligations aredue.  This table does not includeamounts related to percentage rent, loan guarantee fees and employmentcontracts, as such amounts have not yet been determined.

 
|                         |   |      |       | **Payments  Due By**          |   |
|------------------------------|--------|-----------|------------|-------------------------------|--------|
|                         |   | **Total** |       | **End of  Fiscal  Year 2002** |   | **End of  Fiscal  Year 2005** |   | **End of  Fiscal  Year 2007** |   | **After  Fiscal  Year 2007** |   |
| New Brighton  Ventures, Inc. |   | $         | 300,000    |                          | $      | 300,000 |   | $ | — |   | $ | — |   | $ | — |   |
| First National  Bank         |   | 1,478,543 |       | 4,878                         |   | 101,505 |   | 1,372,160 |   | — |   |
| Capital Leases               |   | 7,477,198 |       | 129,732                       |   | 1,874,463 |   | 1,026,700 |   | 4,446,303 |   |
| Operating Leases             |   | 5,016,532 |       | 45,736                        |   | 805,513 |   | 540,661 |   | 3,624,622 |   |
| Total  Obligations           |   | $         | 14,272,273 |                          | $      | 480,346 |   | $ | 2,781,481 |   | $ | 2,939,521 |   | $ | 8,070,925 |   |

** **

**Qualitative and QuantitativeDisclosures about Market Risk**

 

Our company is exposed tomarket risk from changes in interest rates on debt and changes in commodityprices.

 

*Changes in Interest Rate:*

 

We are exposed to marketrisk from changes in interest rates relating to a lease for equipment under anagreement expiring in 2008.  As of June15, 2004, we will be required to amortize approximately $264,100 of the thenremaining balance at an interest rate of prime plus 2% for 24 additional months.At such time, our payments will increase if the prime rate is more than8.5%.  Each percentage point above suchrate would increase the total payments over the remaining life of the lease byapproximately $3,000.  On November 20,2004 we will be required to amortize approximately $416,600 of the thenremaining balance at an interest rate of prime plus 2% for 42 additionalmonths.  At such time, our payments willincrease if the prime rate is more than 10.3%. Each percentage point above such rate would increase the total paymentsover the remaining life of the lease by approximately $8,500.

 

11

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In February 2007, we willhave a balloon payment due of approximately $1,325,000 on the loan we obtainedfrom an independent financial institution in July 2001.  Currently, this loan bears a fixed interestrate of 8.75%. If it becomes necessary to refinance such balloon balance, wemay not be able to secure financing at the same interest rate.  The effect of a higher interest rate woulddepend upon the negotiated financing terms.

 

*Changes in Commodity Prices:*

 

Many of the food productswe purchase are affected by commodity pricing and are, therefore, subject tounpredictable price volatility.   Thesecommodities are generally purchased based upon market prices established withvendors.  Extreme fluctuations incommodity prices and/or long-term changes could have an adverse affect onus.  Substantially all of our food andsupplies are available from several sources, which helps to control foodcommodity risks.  Additionally, we havethe 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 does notenter into derivative contracts either to hedge existing risks or forspeculative purposes.

 

**Seasonality**

 

We expect that oursales and earnings will fluctuate based on seasonal patterns.  We anticipate that our highest sales andearnings will occur in the second and third quarters due to the milder climateand availability of outdoor seating during those quarters in our existing andproposed 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 an evaluationunder the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of our disclosure controls and procedures pursuantto Exchange Act Rule 13a-15.  Based uponthat evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures are effective in timelyalerting them to material information relating to our company required to bedisclosed 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.

 

12

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

 
| ITEM 1 | Legal Proceedings                                    |
|--------|------------------------------------------------------|
|   |                                                 |
|   | Not applicable.                                      |
|   |                                                 |
| ITEM 2 | Changes in Securities                                |
|   |                                                 |
|   | Not applicable.                                      |
|   |                                                 |
| ITEM 3 | Defaults upon Senior  Securities                     |
|   |                                                 |
|   | Not applicable.                                      |
|   |                                                 |
| ITEM 4 | Submission of Matters  to a Vote of Security Holders |
|   |                                                 |

 

The 2002 annualmeeting of shareholders was held August 27, 2002.  Five proposals were submitted for shareholder approval, all ofwhich passed with voting results as follows:

 

(1)          To electsix directors for the ensuing year and until their successors shall be electedand duly qualified.

 
|                |   | **FOR  AUTHORITY** |   | **WITHHOLD** |   |
|---------------------|--------|--------------------|--------|--------------|--------|
| William E. Burdick  |   | 2,341,403          |   | 25,300       |   |
| Steven J. Wagenheim |   | 2,341,703          |   | 25,000       |   |
| Mitchel I. Wachman  |   | 2,341,403          |   | 25,300       |   |
| Arthur E. Pew III   |   | 2,341,403          |   | 25,300       |   |
| James G. Gilbertson |   | 2,341,403          |   | 25,300       |   |
| Bruce H. Senske     |   | 2,341,703          |   | 25,000       |   |

 

(2)          To approvethe issuance and sale of shares of Series A Convertible Preferred Stock andwarrants convertible or exercisable to purchase up to a maximum of 7,500,000shares of common stock.

 
| FOR:     |   | 2,231,850 |       | AGAINST:  |       | 30,600  |       |
|----------|--------|-----------|------------|-----------|------------|---------|------------|
|     |   |      | ** ** |      | ** ** |    | ** ** |
| ABSTAIN: |   | 875       |       | NON-VOTE: |       | 103,378 |       |

 

(3)          To approvean amendment to our Articles of Incorporation, as amended, that would changeour name to Granite City Food & Brewery Ltd.

 
| FOR:     |   | 2,366,203 |   | AGAINST:  |   | 500    |   |
|----------|--------|-----------|--------|-----------|--------|--------|--------|
|     |   |      |   |      |   |   |   |
| ABSTAIN: |   | 0         |   | NON-VOTE: |   | 0      |   |

 

(4)          To approveour 2002 Equity Incentive Plan.

 
| FOR:     |   | 2,010,950 |   | AGAINST:  |   | 226,500 |   |
|----------|--------|-----------|--------|-----------|--------|---------|--------|
|     |   |      |   |      |   |    |   |
| ABSTAIN: |   | 25,875    |   | NON-VOTE: |   | 103,378 |   |

 

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(5)          To ratifythe appointment of Schechter, Dokken, Kanter, Andrews & Selcer Ltd. as ourindependent auditors for the fiscal year ending December 29, 2002.

 
| FOR:     |   | 2,365,328 |   | AGAINST:  |   | 0      |   |
|----------|--------|-----------|--------|-----------|--------|--------|--------|
|     |   |      |   |      |   |   |   |
| ABSTAIN: |   | 1,375     |   | NON-VOTE: |   | 0      |   |

 
| ITEM 5 | Other Information                |
|--------|----------------------------------|
|   |                             |
|   | Not Applicable.                  |
|   |                             |
| ITEM 6 | Exhibits and Reports on Form 8-K |
|   |                             |
|   | (a)                              | Exhibits |
|   |                             |   |
|   |                             | See “Index to Exhibits.” |
|   |                             |   |
|   | (b)                              | Reports on Form 8-K |
|   |                             |   |
|   |                             | On September 20, 2002, we filed a Current Report on  Form 8-K relating to the change in our corporate name from Founders Food  & Firkins Ltd. to Granite City Food & Brewery Ltd. |

 

14

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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.

 

 
|                           | FOUNDERS FOOD & FIRKINS LTD. |
|--------------------------------|----------------------------------|
|                           |                             |
|                           |                             |
| Date:   November 13, 2002 | By                               | /s/ Mitchel I. Wachman |   |
|                           |                             | Mitchel I. Wachman |
|                           |                             | Chief Financial Officer |

 

15

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**CERTIFICATIONS**

 

*CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO RULE13a-14*

 

I, Steven J.Wagenheim, President and Chief Executive Officer of Granite City Food &Brewery Ltd., certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-QSB of Granite City Food &Brewery Ltd.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Dated: | November 13, 2002 | By     | /s/ Steven J. Wagenheim                |   |
|--------|-------------------|--------|----------------------------------------|--------|
|   |              |   | Steven J. Wagenheim                    |
|   |              |   | President and Chief  Executive Officer |

 

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*CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO RULE13a-14*

 

I, Mitchel I.Wachman, Chief Financial Officer of Granite City Food & Brewery Ltd.,certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-QSB of Granite City Food &Brewery Ltd.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterly report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunctions):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Dated: | November 13, 2002 | By     | /s/ Mitchel I. Wachman  |   |
|--------|-------------------|--------|-------------------------|--------|
|   |              |   | Mitchel I. Wachman      |
|   |              |   | Chief Financial Officer |

 

17

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*CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350*

 

In connection withthe Quarterly Report of Granite City Food & Brewery Ltd. (the “Company”) onForm 10-QSB for the quarterly period ended September 29, 2002, as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I,Steven J. Wagenheim, President and Chief Executive Officer of the Company, certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that:

 

1.                                       theReport fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934; and

 

2.                                       theinformation contained in the Report fairly presents, in all material respects,the financial condition and results of operations of the Company.

 

 
| Dated: | November 13, 2002 | By     | /s/ Steven J. Wagenheim                |   |
|--------|-------------------|--------|----------------------------------------|--------|
|   |              |   | Steven J. Wagenheim                    |
|   |              |   | President and Chief  Executive Officer |

 

18

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*CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.SECTION 1350*

 

In connection withthe Quarterly Report of Granite City Food & Brewery Ltd. (the “Company”) onForm 10-QSB for the quarterly period ended September 29, 2002, as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I,Mitchel I. Wachman, Chief Financial Officer of the Company, certify, pursuantto 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that:

 

1.                                       theReport fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934; and

 

2.                                       theinformation contained in the Report fairly presents, in all material respects, thefinancial condition and results of operations of the Company.

 
| Dated: | November 13, 2002 | By     | /s/ Mitchel I. Wachman  |   |
|--------|-------------------|--------|-------------------------|--------|
|   |              |   | Mitchel I. Wachman      |
|   |              |   | Chief Financial Officer |

 

19

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**INDEX TOEXHIBITS**

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                         |
|---------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                    |
| 3.1                 |   | Articles  of Incorporation of the Registrant, as amended.                                                                                                                                               |
|                |   |                                                                                                                                                                                                    |
| 4.1                 |   | Reference  is made to Exhibit 3.1.                                                                                                                                                                      |
|                |   |                                                                                                                                                                                                    |
| 4.2                 |   | Specimen  common stock certificate (incorporated by reference to our Current Report on  Form 8-K, filed on September 20, 2002 (File No. 0-29643)).                                                      |
|                |   |                                                                                                                                                                                                    |
| 4.3                 |   | Specimen  unit certificate (incorporated by reference to our Current Report on Form  8-K, filed on September 20, 2002 (File No. 0-29643)).                                                              |
|                |   |                                                                                                                                                                                                    |
| 4.4                 |   | Amendment  No. 1 to Warrant Agreement (including specimen Class A Warrant certificate)  (incorporated by reference to our Current Report on Form 8-K, filed on  September 20, 2002 (File No. 0-29643)). |
|                |   |                                                                                                                                                                                                    |
| 10.1                |   | Subscription  Agreement and Letter of Investment Intent between the Registrant and Bluestem  Capital Partners III Limited Partnership, dated July 25, 2002.                                             |
|                |   |                                                                                                                                                                                                    |
| 10.2                |   | Subscription  Agreement and Letter of Investment Intent between the Registrant and Brew  Buddies, L.L.C., dated October 1, 2002.                                                                        |
|                |   |                                                                                                                                                                                                    |
| 10.3                |   | Subscription  Agreement and Letter of Investment Intent between the Registrant and Andrew  J. Redleaf, dated September 27, 2002.                                                                        |
|                |   |                                                                                                                                                                                                    |
| 10.4                |   | Form  of Common Stock Purchase Warrant issued to Purchasers of Series A Convertible  Preferred Stock.                                                                                                   |
|                |   |                                                                                                                                                                                                    |
| 10.5                |   | Form of Common Stock  Purchase Warrant issued to Aethlon Capital, LLC.                                                                                                                                  |

 

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