**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  MARCH 28, 2004** |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **o** | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|----------------------------------------------------------------------------------------------|

 

**CommissionFile Number 000-29643**

 

**GRANITECITY FOOD & BREWERY LTD.**

(Exact Name of Small Business Issuer asSpecified 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 theExchange 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 April 26, 2004, the issuer had outstanding 4,262,745 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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**TABLEOF CONTENTS**

 
| **PART I**            | **FINANCIAL INFORMATION** |                                                                                                              |
|-----------------------|---------------------------|-------------------------------------------------------------------------------------------------------------------|
|                  |                      |                                                                                                              |   |
|                  | ITEM 1                    | Financial Statements                                                                                              |   |
|                  |                      |                                                                                                              |   |
|                  |                      | Condensed Balance Sheet as of  March 28, 2004                                                                |   |
|                  |                      |                                                                                                              |   |
|                  |                      | Condensed Statements of Operations for the  thirteen weeks ended March 30, 2003 and March 28, 2004 |   |
|                  |                      |                                                                                                              |   |
|                  |                      | Condensed Statements of Cash Flows for the  thirteen weeks ended March 30, 2003 and March 28, 2004 |   |
|                  |                      |                                                                                                              |   |
|                  |                      | 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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**PARTI          FINANCIAL INFORMATION**

 

**ITEM 1**** Financial Statements**

 

**GRANITECITY FOOD & BREWERY LTD.**

 

# **CONDENSED BALANCE SHEET**

**(Unaudited)**

 
|                                                                                                                           |   | **March 28,  2004** |       |
|--------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|------------|
| **ASSETS:**                                                                                                                    |   |                     |       |
| Current assets:                                                                                                                |   |                     |       |
| Cash                                                                                                                           |   | $                        | 504,483    |   |
| Inventory                                                                                                                      |   | 200,297                  |       |
| Prepaids and other                                                                                                             |   | 185,962                  |       |
| Total current assets                                                                                                           |   | 890,742                  |       |
|                                                                                                                           |   |                     |       |
| Property and equipment, net                                                                                                    |   | 17,850,612               |       |
| Intangible assets and other                                                                                                    |   | 395,769                  |       |
| Total assets                                                                                                                   |   | $                        | 19,137,123 |   |
|                                                                                                                           |   |                     |       |
| **LIABILITIES AND  SHAREHOLDERS’ EQUITY:**                                                                                |   |                     |       |
| Current liabilities:                                                                                                           |   |                     |       |
| Accounts payable                                                                                                               |   | $                        | 328,901    |   |
| Accrued expenses                                                                                                               |   | 1,031,493                |       |
| Long-term debt, current portion                                                                                                |   | 215,294                  |       |
| Capital lease obligations, current portion                                                                                     |   | 408,427                  |       |
| Total current liabilities                                                                                                      |   | 1,984,115                |       |
|                                                                                                                           |   |                     |       |
| Long-term debt, net of current portion                                                                                         |   | 2,675,135                |       |
| Capital lease obligations, net of current  portion                                                                             |   | 8,400,506                |       |
| Total liabilities                                                                                                              |   | 13,059,756               |       |
|                                                                                                                           |   |                     |       |
| Shareholders’ equity:                                                                                                     |   |                     |       |
| Common stock, $0.01 par value, 90,000,000  shares authorized; 4,193,331 shares issued and outstanding                          |   | 41,933                   |       |
| Preferred stock, $0.01 par value,  10,000,000 authorized; 54,855 Series A Convertible Preferred shares issued  and outstanding |   | 549                      |       |
| Additional paid-in capital                                                                                                     |   | 10,556,838               |       |
| Stock dividends distributable                                                                                                  |   | 694                      |       |
| Accumulated deficit                                                                                                            |   | (4,522,647               | )          |
| Total shareholders’ equity                                                                                                |   | 6,077,367                |       |
|                                                                                                                           |   |                     |       |
| Total liabilities and shareholders’ equity                                                                                |   | $                        | 19,137,123 |   |

 

See notes to condensed financial statements.

 

1

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**GRANITE CITY FOOD & BREWERY LTD.**

 

**CONDENSEDSTATEMENTS OF OPERATIONS**

**(Unaudited)**

 
|                                                    |   | **Thirteen  Weeks Ended** |      |
|---------------------------------------------------------|--------|---------------------------|-----------|
|                                                    |   | **March 30,  2003**  |      | **March 28,  2004** |   |
|                                                    |   |                      |      |   |   |
| Restaurant revenues                                     |   | $                         | 2,870,160 |   | $ | 6,292,871 |   |
|                                                    |   |                      |      |   |   |
| Cost of sales:                                          |   |                      |      |   |   |
| Food, beverage and retail                               |   | 818,882                   |      | 1,876,115 |   |
| Labor                                                   |   | 985,833                   |      | 2,043,221 |   |
| Direct and occupancy                                    |   | 663,267                   |      | 1,264,862 |   |
| Total cost of sales                                     |   | 2,467,982                 |      | 5,184,198 |   |
|                                                    |   |                      |      |   |   |
| Pre-opening                                             |   | —                    |      | 264,974 |   |
| General and administrative                              |   | 293,617                   |      | 588,584 |   |
| Depreciation and amortization                           |   | 193,036                   |      | 330,040 |   |
|                                                    |   |                      |      |   |   |
| Operating loss                                          |   | (84,475                   | )         | (74,925 | ) |
|                                                    |   |                      |      |   |   |
| Interest:                                               |   |                      |      |   |   |
| Income                                                  |   | 23,301                    |      | 3,971 |   |
| Expense                                                 |   | (123,448                  | )         | (232,173 | ) |
| Net other expense                                       |   | (100,147                  | )         | (228,202 | ) |
|                                                    |   |                      |      |   |   |
| Net loss                                                |   | (184,622                  | )         | (303,127 | ) |
| Less preferred stock dividends declared                 |   | (96,349                   | )         | (347,106 | ) |
| Net loss available to common shareholders               |   | $                         | (280,971  | ) | $ | (650,233 | ) |
|                                                    |   |                      |      |   |   |
| Loss per common share, basic and diluted                |   | $                         | (0.07     | ) | $ | (0.16 | ) |
|                                                    |   |                      |      |   |   |
| Weighted average shares outstanding, basic  and diluted |   | 3,845,315                 |      | 4,132,933 |   |

 

See notes to condensed financial statements.

 

2

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**GRANITECITY FOOD & BREWERY LTD.**

 

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
|                                                                                       |   | **Thirteen  Weeks Ended** |      |
|--------------------------------------------------------------------------------------------|--------|---------------------------|-----------|
|                                                                                       |   | **March 30,  2003**  |      | **March 28,  2004** |   |
|                                                                                       |   |                      |      |   |   |
| Cash flows from operating activities:                                                      |   |                      |      |   |   |
| Net loss                                                                                   |   | $                         | (184,622  | ) | $ | (303,127 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                      |      |   |   |
| Depreciation and amortization                                                              |   | 193,036                   |      | 330,040 |   |
| Stock option/warrant compensation                                                          |   | —                    |      | 6,390 |   |
| Decrease (increase) in:                                                                    |   |                      |      |   |   |
| Inventory                                                                                  |   | 9,990                     |      | (23,121 | ) |
| Prepaids and other                                                                         |   | (93,492                   | )         | (40,105 | ) |
| Increase (decrease) in:                                                                    |   |                      |      |   |   |
| Accounts payable                                                                           |   | 94,155                    |      | (179,970 | ) |
| Accrued expenses                                                                           |   | (175,235                  | )         | (261,748 | ) |
| Net cash used in operating activities                                                      |   | (156,168                  | )         | (471,641 | ) |
|                                                                                       |   |                      |      |   |   |
| Cash flows from investing activities:                                                      |   |                      |      |   |   |
| Purchase of:                                                                               |   |                      |      |   |   |
| Property and equipment                                                                     |   | (385,908                  | )         | (1,100,170 | ) |
| Intangible assets and other                                                                |   | —                    |      | (18,366 | ) |
| Net cash used in investing activities                                                      |   | (385,908                  | )         | (1,118,536 | ) |
|                                                                                       |   |                      |      |   |   |
| Cash flows from financing activities:                                                      |   |                      |      |   |   |
| Payments on capital lease obligations                                                      |   | (64,642                   | )         | (106,339 | ) |
| Payments on long term-debt                                                                 |   | (7,567                    | )         | (38,907 | ) |
| Payment of dividends                                                                       |   | (71,999                   | )         | (36 | ) |
| Proceeds from:                                                                             |   |                      |      |   |   |
| Issuance of long-term debt                                                                 |   | —                    |      | 750,000 |   |
| Issuance of stock                                                                          |   | 1,280,408                 |      | 49,982 |   |
| Net cash provided by financing activities                                                  |   | 1,136,200                 |      | 654,700 |   |
|                                                                                       |   |                      |      |   |   |
| Net increase (decrease) in cash                                                            |   | 594,124                   |      | (935,477 | ) |
| Cash, beginning                                                                            |   | 3,521,842                 |      | 1,439,960 |   |
| Cash, ending                                                                               |   | $                         | 4,115,966 |   | $ | 504,483 |   |

 

See notes to condensed financial statements.

 

3

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**GRANITECITY FOOD & BREWERY LTD.**

 

**NOTESTO CONDENSED FINANCIAL STATEMENTS**

**(Unaudited)**

 

Thirteen weeks ended March 30, 2003 andMarch 28, 2004

 

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

 

Nature of business:

Granite City Food & Brewery Ltd. (“the Company”) was formed todevelop and operate casual dining restaurants featuring on-premise breweries.  The Company is developing theserestaurant-microbreweries, known as Granite City Food & Brewery®, inselected markets throughout the United States. The theme is casual dining with a wide variety of menu items that areprepared fresh daily, combined with freshly brewed hand-crafted beers madeon-premise.  The Company produces itsbeer using a process called Fermentus InterruptusTM, which is intended tomaintain high beer quality while enhancing overall profitability by reducingunit-level brewing costs.  The firstfacility, located in St. Cloud, Minnesota, opened in July 1999.  Subsequently, the Company opened restaurantsin Sioux Falls, South Dakota; Fargo, North Dakota; and West Des Moines, CedarRapids and Davenport, Iowa.

 

The Company’s current expansion strategy focuses on development ofrestaurants in markets where management believes the Company’s concept willhave broad appeal and attractive restaurant-level economics.

 

Interim financial statements:

The Company has prepared the condensed financial statements for thethirteen weeks ended March 30, 2003 and March 28, 2004 without auditby the Company’s independent auditors. In the opinion of the Company’s management, all adjustments necessary topresent fairly the financial position of the Company at March 28, 2004 andthe results of operations and cash flows for the periods ended March 30,2003 and March 28, 2004  have beenmade. Those adjustments consist only of normal and recurring adjustments.

 

Certain information and note disclosures normally included in theCompany’s annual financial statements have been condensed or omitted.  These condensed financial statements shouldbe read in conjunction with the financial statements and notes thereto includedin the Company’s Annual Report on Form 10-KSB for the fiscal year endedDecember 28, 2003, filed with the Securities and Exchange Commission onMarch 29, 2004.

 

The results of operations for the thirteen weeks ended March 28,2004 are not necessarily indicative of the results to be expected for theentire year.

 

Earnings (loss) per share:

Basic earnings(loss) per common share is calculated by dividing net income (loss) lesspreferred stock dividends declared by the weighted average number of commonshares outstanding.  Diluted earnings(loss) per common share assumes that outstanding common shares were increasedby shares 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.  Calculationsof the Company’s net loss per common share for the thirteen weeks endedMarch 30, 2003 and March 28, 2004 are set forth in the followingtable:

 

4

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|                                                    |   | **Thirteen  Weeks Ended** |     |
|---------------------------------------------------------|--------|---------------------------|----------|
|                                                    |   | **March 30,  2003**  |     | **March 28,  2004** |   |
|                                                    |   |                      |     |   |   |
| Net loss                                                |   | $                         | (184,622 | ) | $ | (303,127 | ) |
| Less dividends declared                                 |   | (96,349                   | )        | (347,106 | ) |
| Net loss available to common shareholders               |   | $                         | (280,971 | ) | $ | (650,233 | ) |
|                                                    |   |                      |     |   |   |
| Loss per common share, basic and diluted                |   | $                         | (0.07    | ) | $ | (0.16 | ) |
|                                                    |   |                      |     |   |   |
| Weighted average shares outstanding, basic  and diluted |   | 3,845,315                 |     | 4,132,933 |   |

 

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

 

The Company accounts for its stock-based compensation awards using theintrinsic value method prescribed by Accounting Principles Board (APB) OpinionNo. 25, *Accounting for Stock Issued toEmployees. *No compensationcost has been recognized for options issued to employees when the exerciseprice of the options granted is at least equal to the fair value of the commonstock on the date of grant.  Had compensationcost been determined consistent with Statement of Financial Accounting Standard(SFAS) No. 123, *Accounting for Stock-BasedCompensation*, as amended by SFAS No. 148, *Accounting for Stock-Based Compensation—Transition and Disclosure,*the Company’s net loss and net loss per common share would have been changed tothe following pro forma amounts:

 
|                                                                                                                                        |   | **Thirteen  Weeks Ended** |     |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|----------|
|                                                                                                                                        |   | **March 30,  2003**  |     | **March 28,  2004** |   |
| Net income (loss):                                                                                                                          |   |                      |     |   |   |
| As reported                                                                                                                                 |   | $                         | (184,622 | ) | $ | (303,127 | ) |
| Less: Total stock-based employee  compensation expense determined under fair value based method for all awards,  net of related tax effects |   | $                         | (141,543 | ) | $ | (153,692 | ) |
| Pro forma                                                                                                                                   |   | $                         | (326,165 | ) | $ | (456,819 | ) |
|                                                                                                                                        |   |                      |     |   |   |
| Net income (loss) per common share                                                                                                          |   |                      |     |   |   |
| Basic and diluted as reported                                                                                                               |   | $                         | (0.07    | ) | $ | (0.16 | ) |
| Basic and diluted pro forma                                                                                                                 |   | $                         | (0.11    | ) | $ | (0.19 | ) |

 

The fair value of each option grant for the pro forma disclosurerequired by SFAS No. 123, as amended by SFAS No. 148, is estimated on the grantdate using the Black-Scholes option-pricing model with the followingassumptions for the grants:

 
|                    |   | **2003**   |   | **2004**   |   |
|-------------------------|--------|------------|--------|------------|--------|
| Dividend yield          |   | None       |   | None       |   |
| Expected volatility     |   | 89.4%      |   | 72.9%      |   |
| Expected life of option |   | 5-10 years |   | 5-10 years |   |
| Risk-free interest rate |   | 4.0%       |   | 3.8%       |   |

 

5

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

 

Exercise of warrants and options:

 

Duringthe first quarter of 2004, we issued an aggregate of 40,822 shares of commonstock to accredited investors, upon the conversion of 645 shares of our SeriesA Convertible Preferred Stock originally issued on October 1, 2002.  The convertible preferred stock wasconverted at $1.58 per share.

 

DuringMarch 2004, we issued 31,645 shares of common stock to accreditedinvestors upon the exercise for cash of warrants originally issued onOctober 1, 2002, in connection with a private placement of Series AConvertible Preferred Stock and warrants. Each warrant was exercised at $1.58 per share.

 

As part of the Company’s initial public offering, the Company sold to theunderwriter, for $100, stock purchase warrants for the purchase of an aggregateof 100,000 units exercisable at $4.95 per unit after June 6, 2001. Eachunit consists of one share of common stock and one warrant to purchase oneshare of common stock at an exercise price of $5.00 per share, subject toadjustment.  The agreement that setforth the terms and conditions of these warrants contains certain anti-dilutionprovisions.  Pursuant to theseprovisions, the number of shares purchasable upon exercise of these warrantsand the related purchase price both required adjustment each time the Companyissues common stock in lieu of cash dividends to the holders of the Company’sSeries A Convertible Preferred Stock. These warrants also provide for a cashless exercise provision and expireon June 6, 2005.  InMarch 2004, the Company issued 6,514 units upon the cashless exercise of19,368 of such warrants.  As a result ofthese exercises and the anti-dilution adjustments, as of March 28, 2004,the number of units purchasable under this agreement was 86,175 and theexercise price was $4.69.

 

Dividends:

OnDecember 10, 2003, the Company authorized payment of dividends to holdersof its preferred stock as of December 23, 2003.  Such dividends were paid on December 31, 2003 through theissuance of an aggregate of 70,230 shares of common stock valued at $1.58 pershare.  The closing price of the stockon December 23, 2003 was $3.97 per share. Additionally, $37 cash in lieu of fractional shares was distributed.

 

On March 11, 2004, the Company authorized payment of dividends toholders of its preferred stock as of March 23, 2004.  Such dividends were paid on March 31,2004 through the issuance of an aggregate of 69,414 shares of common stockvalued at $1.58 per share.  The closingprice of the stock on March 23, 2004 was $5.00 per share.  Additionally, $36 cash in lieu of fractionalshares was distributed.

 

**ITEM 2****        Management’s Discussion 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 28, 2003,filed with the Securities and Exchange Commission on March 29, 2004, foradditional factors known to us that may cause actual results to vary.*

 

6

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**Overview**

 

We operate six casualdining restaurants featuring on-premises breweries under the name Granite CityFood & Brewery®.  Our activitiesthrough June 1999 were related to the development of our restaurant-microbreweryconcept and the development and financing of our first restaurant whichcommenced operations in St. Cloud, Minnesota, in June 1999.  Over the next two-and one-half years, weopened a restaurant in Sioux Falls, South Dakota and a restaurant in Fargo,North Dakota.  We developed theserestaurants using the net proceeds from a private placement of common stockcompleted in late 1997, an initial public offering in June 2000, financingin the form of long-term building and equipment leases, bank financing, andloans from a related party.

 

After opening twoadditional restaurants during the later part of 2003 located in West Des Moinesand Cedar Rapids, Iowa, we opened one restaurant in the first quarter of2004.  This restaurant openedJanuary 27, 2004 in Davenport, Iowa. We developed these restaurants using a portion of the proceeds weobtained through the private placement of convertible preferred stock andwarrants to purchase common stock in the fourth quarter of 2002, as well asequipment loans.  Using the remainingproceeds from this financing, we plan to develop additional restaurants inMidwest markets.  We have entered into amulti-site development agreement with a commercial developer that provides usassistance in site selection, construction management and financing for newrestaurants.  Under this agreement, welease each new restaurant from our developer. We plan to open a restaurant in Lincoln, Nebraska in May 2004 and one inMaple Grove, Minnesota in June 2004. We continue to explore additional methods of financing in order tofurther pursue our expansion plans.

 

We have developed abrewing process called Fermentus Interruptus. We believe that Fermentus Interruptus improves the economics of ourmicrobrewing process as it eliminates the initial stages of brewing and storageat multiple locations, thereby reducing equipment and development costs at newrestaurant locations.  Having a commonstarting point for our initial brewing process creates consistency of taste forour product from unit to unit.  Webelieve that Fermentus Interruptus gives us the ability to improve unit leveleconomics while maintaining the consistency of our beers.  This commissary brewing process will allowus to service up to 25 locations from one wort production site.  We are evaluating strategies forcapitalizing on Fermentus Interruptus, including licensing of our brewingtechnology.

 

We believe that ouroperating results will fluctuate significantly because of several factors,including the timing of new restaurant openings and related expenses,profitability of new restaurants, increases or decreases in comparablerestaurant sales, general economic conditions, consumer confidence in theeconomy, changes in consumer preferences, competitive factors and weatherconditions.

 

Our restaurant revenuesare comprised almost entirely of the sales of food and beverages.  The sale of retail items, such as cigarettesand promotional items, typically represent approximately 0.3% to 0.7% of totalrevenue.  Product costs include thecosts of food, beverages and retail items. Labor costs include direct hourly and management wages, taxes andbenefits for restaurant employees. Direct and occupancy costs include restaurant supplies, marketing costs,rent, utilities, real estate taxes, repairs and maintenance and other relatedcosts.  Pre-opening costs consist ofdirect costs related to hiring and training the initial restaurant workforceand certain other direct costs associated with opening new restaurants.  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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**Results of Operations**

 

Thefollowing table compares operating results expressed as a percentage of totalrevenue for the thirteen weeks ended March 30, 2003 and March 28,2004.

 
|                          |   | **Thirteen  Weeks Ended** |   |
|-------------------------------|--------|---------------------------|--------|
|                          |   | **March 30,  2003**  |   | **March 28,  2004** |   |
|                          |   |                      |   |   |   |
| Restaurant revenues           |   | 100.0                     | %      | 100.0 | % |
|                          |   |                      |   |   |   |
| Cost of sales:                |   |                      |   |   |   |
| Food, beverage and retail     |   | 28.5                      |   | 29.8 |   |
| Labor                         |   | 34.3                      |   | 32.5 |   |
| Direct and occupancy          |   | 23.1                      |   | 20.1 |   |
| Total cost of sales           |   | 86.0                      |   | 82.4 |   |
|                          |   |                      |   |   |   |
| Pre-opening                   |   | —                    |   | 4.2 |   |
| General and administrative    |   | 10.2                      |   | 9.4 |   |
| Depreciation and amortization |   | 6.7                       |   | 5.2 |   |
|                          |   |                      |   |   |   |
| Operating income (loss)       |   | (2.9                      | )      | (1.2 | ) |
|                          |   |                      |   |   |   |
| Interest:                     |   |                      |   |   |   |
| Income                        |   | 0.8                       |   | 0.1 |   |
| Expense                       |   | (4.3                      | )      | (3.7 | ) |
| Net other expense             |   | (3.5                      | )      | (3.6 | ) |
|                          |   |                      |   |   |   |
| Net income (loss)             |   | (6.4                      | )%     | (4.8 | )% |

 

Certain percentageamounts do not sum due to rounding.

 

**Critical Accounting Policies**

 

This discussion and analysis 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 isdepreciated over the estimated useful lives of the related assets ranging fromthree to 20 years.  The cost ofleasehold improvements is depreciated over the length of the related lease.  Depreciation is computed on thestraight-line method for financial reporting purposes and accelerated methodsfor income tax purposes.  Amortizationof assets acquired under capital lease is included in depreciationexpense.  Our accounting policiesregarding property and equipment include certain management judgments regardingthe estimated useful lives of such assets and the determination as to whatconstitutes enhancing the value of or increasing the life of existingassets.  These judgments and estimatesmay produce materially different amounts of depreciation and amortizationexpense than would be reported if different assumptions were used.

 

8

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We continually reassess our assumptions andjudgments and make adjustments when significant facts and circumstancesdictate.  Historically, actual resultshave not been materially different than the estimates we have made.

 

**Results of Operations for theThirteen Weeks Ended March 30, 2003 and March 28, 2004**

 

**Revenue**

 

We generated $2,870,160and $6,292,871of revenues during the first quarter of 2003 and 2004,respectively, with average restaurant sales increasing from $73,594 to $85,039per week.  The overall 119.3% increasein revenues during the first quarter of the current fiscal year was dueprimarily to the opening of three additional restaurants since the firstquarter of 2003.

 

We anticipate thatrestaurant revenues will vary from quarter to quarter.  We anticipate seasonal fluctuations inrestaurant revenues due in part to increased outdoor seating and generally favorableweather conditions at all locations during the summer months.  A restaurant typically experiences atemporary period of high revenues immediately following its opening due toincreased demand fostered by the publicity surrounding the opening (the “honeymooneffect”).  We experienced this effect inthe Cedar Rapids and Davenport locations in the first quarter of 2004 andexpect Davenport’s honeymoon to continue into the second quarter of 2004.  Therefore, we expect the timing of newrestaurant openings to cause fluctuations in restaurant revenues.  Additionally, consumer confidence in theeconomy and changes in consumer preferences may affect our future revenues.

 

**Cost of Sales**

 

*Food, Beverage and Retail*

 

Our food and beveragecost increased by 1.3% as a percentage of revenues during the first quarter of2004 compared to the first quarter of 2003. The increase we experienced was due primarily to lower experience levelsof our new staff as we opened restaurants in late 2003 and early 2004, as wellas product price increase in some areas.

 

We expect that our foodand beverage costs will vary going forward due to numerous variables, includingseasonal changes in food costs and guest preferences.  We periodically create new menu offerings in both our craftbrewedbeers and our food based upon guest preferences.  Although such menu modifications may temporarily result inincreased food and beverage cost, we believe we are able to offset suchincreases with our weekly specials which provide variety to our guests at agreat 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. We expect that with the addition of future locations, increasedpurchasing power will reduce our food and beverage costs as a percentage ofrevenues.  Additionally, as we add newunits, we believe our brewing process, Fermentus Interruptus, will allow us tokeep our high quality product intact while reducing the production cost,thereby enhancing overall profitability.

 

*Labor*

 

Our labor costs expressedas a percentage of revenues decreased 1.8% during the first quarter of 2004compared to the first quarter of 2003. Although we experienced increases in employee benefit costs throughout2003, our increased revenue base in the first quarter of 2004, due to thehoneymoon effect, enabled us to obtain this overall decrease in labor as apercentage of revenue.

 

We expect that laborcosts 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 labor costs,

 

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as will hiring andtraining expense at our new locations. Our management believes that retaining good employees through payincreases for more experienced staff ensures high quality guest service andreduces hiring and training costs.

 

*Direct and Occupancy*

 

Our direct and occupancyexpenses decreased 3.0% as a percentage of revenues during the thirteen weeksended March 28, 2004 compared to the thirteen weeks ended March 30,2003.  Operating supplies, rent and occupancycosts, repairs and maintenance and advertising expense represent the majorityof our direct and occupancy expenses, a substantial portion of which is fixedor indirectly variable.  Decreases indirect and operating expenses were primarily in the areas of employee mealcosts and repair and maintenance.  Thedecrease was also attributable to higher unit volumes which reduced fixed andindirectly variable costs as a percentage of revenues.

 

**Pre-Opening Costs**

 

Pre-openingcosts experienced during the thirteen weeks ended March 28, 2004 relatedto our Davenport, Lincoln and Maple Grove restaurants.  During the first quarter, we incurredpre-opening costs of $197,523 in Davenport, $61,204 in Lincoln and $6,247 inMaple Grove.  We expect totalpre-opening expenses at each location will be approximately $215,000 to$250,000.  Such costs are primarilyincurred in the month of, and two months prior to, the restaurant opening.

 

**General and Administrative**

 

General and administrative expenses include salaries and benefitsassociated with our corporate staff that is responsible for overall restaurantquality, future expansion into new locations and financial controls andreporting.  Other general andadministrative expenses include advertising, professional fees, office administration,centralized accounting system costs, and travel by our corporate management tothe restaurant locations.  General andadministrative expenses increased $294,967 during the first quarter of 2004compared to the first quarter of 2003. As a percent of revenue, general and administrative expenses decreased0.8% over the same period due to higher unit volumes.  In order to retain and recruit core management and further buildour infrastructure to facilitate growth, we incurred increased payroll and benefitsrelated expenses and additional rent and office upkeep expenses in the firstquarter of 2004 compared to that of 2003. During the first quarter of 2003, our executive officers did not receiveany monetary compensation from our company as we believe the options issued tothese officers represented reasonable compensation for their services throughMarch 30, 2003.  During the firstquarter of 2003, we had two fewer positions at the corporate level compared tothe same period in 2004, and we had not yet begun paying our President andChief Executive Officer a salary. Additionally, our travel related expenses have increased with theopening of new restaurants and the development of new sites for expansion, ouradvertising costs increased with a billboard campaign in the first two monthsof 2004, and our investor relations cost have increased with heightenedinvestor activity.

 

We expect that general and administrative costs will continue tofluctuate as a percentage of restaurant revenues in the near term as we buildour infrastructure to adequately sustain operations across multiplelocations.  The anticipated additionalrestaurant revenues associated with further expansion are expected to result ingreater economies of scale for our corporate expenses in the long-term.

 

**Depreciationand Amortization**

 

Depreciation andamortization expense increased $137,004 during the first quarter 2004 comparedto the first quarter of 2003 due principally to the additional depreciationrelated to the newly opened restaurants. As a percentage of revenues, during the first quarter of 2004,depreciation expense decreased by 1.5% compared to the similar period in 2003,indicating that revenues generated from our new locations more than offset therelated increase in depreciation expense.

 

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**OtherIncome and Expense**

** **

Interest expense net of interest income increased $128,055 during thethirteen weeks ended March 28, 2004 compared to the similar period in2003.  The increase was due to theincrease of debt and capital leases and the reduction of invested cash. Management expects interest expense will increase as we enter intoadditional capital leases and loan agreements for our new facilities andequipment, while interest income will decrease as the proceeds from our privateplacement are fully utilized.

 

**Liquidityand Capital Resources**

** **

We have required capitalprincipally for the development, construction and opening of newrestaurants.  To date, we have obtainedgross proceeds aggregating approximately $11.0 million through the sales of oursecurities in our initial public offering and two private placements.  Additionally, we have obtained financingthrough building and equipment leases, long-term debt from an independent financialinstitution, loans from New Brighton Ventures, Inc., an entity owned in part byour President and Chief Executive Officer, and the exercise for cash of variousoptions and warrants.

 

During the thirteen weeksended March 28, 2004, the issuance of our common stock upon the exerciseof warrants provided us $49,982 of net cash and proceeds from long-term debtprovided us $750,000 of net cash.  Weused $471,641 of cash in operating activities, $1,118,536 to purchase equipmentand other assets primarily for our Davenport, Lincoln and Maple Grovelocations, and made payments on our debt and capital lease obligationsaggregating $145,246.

 

During the thirteen weeksended March 30, 2003, the issuance of our convertible preferred stock andour issuance of common stock upon the exercise of options and warrants providedus $1,280,408 of net cash.  We used$156,168 in operating activities, $385,908 to purchase equipment primarily forour West Des Moines location, paid cash dividends of $71,999 to holders of ourpreferred stock and made payments on our debt and capital leases aggregating$72,209.

 

In January 2004, weopened our restaurant in Davenport.  Weare leasing this property from our developer under a 20-year leaseagreement.  Our annual lease paymentsare $341,250 with $194,250 classified as a capital lease and the remaining$147,000 classified as an operating lease. This lease may be extended at ouroption for up to five additional five-year periods.

 

In January 2004, we entered into a $750,000 loan agreement with anindependent financial institution.  Theproceeds of this loan financed the purchase of equipment for the Davenportlocation.  The loan is secured by substantially all ofthe personal property of our company and is guaranteed by one of ourdirectors.  The interest rate on theloan is 6.125% per annum and the loan matures in January 2011.

 

InApril 2004, we entered into a revolving line of credit with maximumavailability of $750,000 with an independent financial institution.  We will pay 6.75% annual interest on anyamount we borrow and this line of credit will be available to us untilSeptember 1, 2004.  The line ofcredit is secured by substantially all the personal property of our company andis guaranteed by one of our directors.

 

Our developer haspurchased land and begun construction of restaurants for us in Lincoln andMaple Grove.  Upon commencement ofoperations, these restaurants will be leased to us by our developer under theterms of our development agreement.  Weplan to begin operations at Lincoln in May 2004 and at Maple Grove inJune 2004.  With the remaining netproceeds raised through the sale of Series A Convertible Preferred Stock, therevolving line of credit and cash generated from operations, managementbelieves that we will have sufficient funds to pursue our business strategyover the next 12 months.  We are alsoconsidering various alternatives to obtain capital to fund additionalexpansion, including debt and equity financing, partnerships with investors orcombinations thereof.  The amount offinancing required for new restaurants depends upon the definitive locations,leasehold improvement costs and construction

 

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costs.  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:*

 

As of March 28,2004, we had five land and building lease agreements.  One of these leases expires in 2019, one in 2020 and theremaining three expire in 2023, all with renewable options for additionalperiods.  The building portions of theseleases are classified as capital leases because their present value was greaterthan 90% of the estimated fair value at the beginning of the lease.  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 two of the four leases, we arerequired to pay additional percentage rent based upon restaurant sales.  As of March 28, 2004, futureobligations relating to the land portion of these leases aggregated $11,082,942plus percentage rent.  The scheduledrent increases 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 Fargorestaurant.  As of March 28, 2004,future obligations under the terms of the lease aggregated $1,269,800 pluspercentage rent.

 

We have entered into twoseparate 20-year net leases relating to future restaurants in Lincoln and MapleGrove.  The annual rent for each leasewill be equal to 10.5% of the sum of the construction cost and land cost.  The terms of these leases will commence whenoperations begin at each location.

 

*PersonalGuaranties:*

 

Certain of our directorshave personally guaranteed certain of our leases and loan agreements.  In connection with the $1.5 million loan weobtained in July 2001 to finance our Fargo restaurant, we entered into anagreement 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, at ameeting held in March 2004, our board of directors agreed to compensateour President and Chief Executive Officer for his personal guaranties ofequipment loans entered into in August 2003 and January 2004.  The amount of such compensation shall becalculated based on 3% of the balances of such loans at specific timesthroughout the agreements.  The preciseformula which will be used has not yet been determined.

 

*EmploymentAgreement:*

 

We have entered into anemployment agreement with our President and Chief Executive Officer.  In lieu of a salary, we issued stock optionsto him in 1999, 2001 and 2003 as compensation for his services throughMarch 30, 2003.  At a meeting heldin February 2003, our board of directors established a $160,000 annualsalary for him effective April 1, 2003. Among other provisions, the employment agreement includes change incontrol provisions that would entitle him to receive severance pay equal to 18months of salary if there is a change in control of our company and hisemployment terminates.  Based on hiscurrent salary, the maximum contingent liability under this agreement would be$240,000.  At a meeting held in March 2004,our board of directors approved an increase in his annual salary to $175,000commencing July 1, 2004.  At thattime, the maximum contingent liability under this agreement will be $262,500.

 

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*DevelopmentAgreement:*

 

We have entered into adevelopment agreement with Dunham Capital Management L.L.C. (“Dunham”)  for the development of our restaurants.  Dunham is controlled by Donald A. Dunham,Jr., who is an affiliate of Brew Buddies, L.L.C., the largest beneficial ownerof our securities.  The agreement givesDunham the right to develop, construct and lease up to 22 restaurants for usprior to December 31, 2012.  We arenot bound to authorize the construction of restaurants during that time period,but generally cannot use another developer to develop or own a restaurant as longas the development agreement is in effect. We can use another developer if Dunham declines to build a particularrestaurant, if the agreement is terminated because of a default by Dunham, orif our company is sold or merged into another company.  In the case of a merger or sale of ourcompany, the development agreement may be terminated at such time as Dunham hascompleted seven restaurants under the agreement.  The development agreement provides for a cooperative processbetween Dunham and our company for the selection of restaurant sites and thedevelopment of restaurants on those sites, scheduling for the development andconstruction of each restaurant once a location is approved, and controls onthe costs of development and construction using bidding and guaranteed maximumcost concepts.  The developmentagreement provides that restaurants will be leased to us on the basis of atriple net lease.  The rental rate ofeach lease will be calculated using a variable formula which is based onapproved 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 following tablesummarizes our future obligations under contractual agreements as ofMarch 28, 2004 and the time frame within which payments on suchobligations are due.  This table doesnot include amounts related to loan guarantee fees or percentage rent as suchamounts have not yet been determined. Whether or not we would incur any additional expense on our employmentagreement with Mr. Wagenheim depends upon the existence of a change in controlof the company.  Therefore, no suchamounts have been included in the following table.

 
|                        |   | **Payments  due by period** |       |
|-----------------------------|--------|-----------------------------|------------|
| **Contractual Obligations** |   | **Total**                   |       | **Less than1  year** |   | **1-3 years** |   | **3-5 years** |   | **More than  5  years** |   |
| Long-term debt              |   | $                           | 2,890,431  |   | $ | 159,439 |   | $ | 467,917 |   | $ | 1,774,487 |   | $ | 488,588 |   |
| Capital lease obligations   |   | 17,156,610                  |       | 869,025 |   | 2,225,498 |   | 1,934,100 |   | 12,127,987 |   |
| Operating lease obligations |   | 12,425,356                  |       | 524,926 |   | 1,351,272 |   | 1,324,368 |   | 9,224,790 |   |
| Total Obligations           |   | $                           | 32,472,397 |   | $ | 1,553,390 |   | $ | 4,044,687 |   | $ | 5,032,955 |   | $ | 21,841,365 |   |

 

**Qualitativeand Quantitative Disclosures about Market Risk**

 

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

 

*Changesin Interest Rate:*

 

We are exposed to marketrisk from changes in interest rates relating to a lease for equipment under anagreement expiring in 2008.  As ofJune 15, 2004, we will be required to amortize approximately $264,100 ofthe 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,

 

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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.

 

In February 2007, wewill have a balloon payment due of approximately $1,325,000 on the loan weobtained from 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.

 

*Changesin 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 commodityprice risks.  Additionally, we have theability to increase menu prices, or vary the menu items offered, in response toa food product price increases.  If,however, competitive circumstances limit our menu price flexibility, marginscould be negatively impacted.

 

Our company does notenter into derivative contracts either to hedge existing risks or forspeculative purposes.

 

**Seasonality**

 

We expect that our salesand 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**

 

Theprimary inflationary factors affecting our operations are food, supplies andlabor costs.  A large number of ourrestaurant personnel are paid at rates based on the applicable minimum wage,and increases in the minimum wage directly affect our labor costs.  In the past, we have been able to minimizethe effect of these increases through menu price increases and other strategies.  To date, inflation has not had a materialimpact on our operating results.

 

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

 

Wemaintain a system of disclosure controls and procedures that is designed toprovide reasonable assurance that information, which is required to bedisclosed, is accumulated and communicated to management timely.  At the end of the period covered by thisreport, we carried out an evaluation under the supervision and with theparticipation of our management, including our Chief Executive Officer andInterim Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures pursuant to Exchange ActRule 13a-15.  Based upon thatevaluation, our Chief Executive Officer and Interim 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.

 

Duringour most recent fiscal quarter, there has been no change in our internalcontrol over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)under the Exchange Act) that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

 

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**PARTII        OTHERINFORMATION**

 

ITEM 1                                                        Legal Proceedings

 

Not applicable.

 

ITEM 2                                                        Changes in Securities

 

(a)                                  Not applicable.

 

(b)                                 Not applicable.

 

(c)                                  On December 31, 2003, we issued 70,230shares of common stock to the holders of our Series A Convertible PreferredStock.  We issued such common stock inlieu of $109,710 in cash dividends otherwise payable to those investors on thatdate.

 

During the first quarter of 2004, we issued anaggregate of 40,822 shares of common stock to accredited investors, upon theconversion of 645 shares of our Series A Convertible Preferred Stock originallyissued on October 1, 2002.  Theconvertible preferred stock was converted at $1.58 per share.

 

During March 2004, we issued 31,645 shares ofcommon stock to accredited investors upon the exercise for cash of warrantsoriginally issued on October 1, 2002, in connection with a privateplacement of Series A Convertible Preferred Stock and warrants.  Each warrant was exercised at $1.58 pershare.

 

In March 2004, we issued 6,514 unitsupon the cashless exercise of 19,368 warrants we sold to the underwriter of ourinitial public offering on June 6, 2000. Each unit consists of one share of common stock and one warrant topurchase one share of common stock.  Theexercise price of the warrants was $4.69 per share.

 

The foregoing issuances were made in reliance uponthe exemption provided in Section 4(2) of the Securities Act.  Such securities are restricted as to sale ortransfer, unless registered under the Securities Act, and the certificatesrepresenting such securities contain restrictive legends preventing sale,transfer or other disposition, unless registered under the Securities Act.  In addition, the recipients of such securitiesreceived, or had access to, material information concerning our company,including, but not limited to, our reports on Form 10-KSB, Form 10-QSB and Form8-K, as filed with the SEC.  Nounderwriting discounts or commissions were paid in connection with theissuances of such common stock.

 

(d)                                 Not applicable.

 

(e)                                  Not applicable.

 

ITEM 3                                                        Defaults upon Senior Securities

 

Not applicable.

 

ITEM 4                                                        Submission of Matters to a Vote ofSecurity Holders

 

Not applicable.

 

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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

 

None.

 

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**SIGNATURES**

 

 

Inaccordance with the requirements of the Exchange Act, the registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
|                    |   | GRANITE CITY FOOD & BREWERY LTD. |
|-------------------------|--------|--------------------------------------|
|                    |   |                                 |
|                    |   |                                 |
| Date:  May 3, 2004 | 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**                                                                                                                                                                                                                       |
|---------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                                                  |
| 10.1                |   | Business Loan  Agreement between Granite City Food & Brewery Ltd. and First National  Bank, dated April 14, 2004.                                                                                                            |
|                |   |                                                                                                                                                                                                                                  |
| 10.2                |   | Promissory Note  for the principal sum of $750,000 issued by Granite City Food & Brewery  Ltd., Borrower, to First National Bank, Lender, dated April 14, 2004.                                                              |
|                |   |                                                                                                                                                                                                                                  |
| 10.3                |   | Commercial  Guarantee Agreement between Granite City Food & Brewery Ltd., Borrower,  First National Bank, Lender, and Steven J. Wagenheim, Guarantor, dated  April 14, 2004.                                                 |
|                |   |                                                                                                                                                                                                                                  |
| 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 and Corporate Controller  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  and Corporate Controller 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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