**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 MARCH 30, 2003**                                       |
|   |                                                                                    |
| **o**  | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Commission FileNumber 000-29643**

 

**GRANITE CITY FOOD & BREWERYLTD.**

(Exact Name of Small Business Issuer as Specified in Its Charter)

 

| **Minnesota**                                                                                     |   | **41-1883639**                        |
|---------------------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or Other Jurisdiction  of Incorporation or Organization)                                   |   | (I.R.S. Employer  Identification No.) |
|                                                                                              |   |                                  |
| **5831 Cedar Lake Road  St. Louis Park, MN 55416  (952) 525-2070**                                |
| (Address of Principal Executive Offices and Issuer’s  Telephone Number, including Area Code) |

 

Check whetherthe issuer:  (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90days.

 

Yes  ý  No o.

 

As of April30, 2003, the issuer had outstanding 3,869,814 shares of common stock and1,000,000 Class A Warrants.  The numberof outstanding shares of common stock includes the shares issuable uponseparation of the units, each consisting of one share of common stock and oneredeemable Class A Warrant, sold in the issuer’s initial public offering.

 

TransitionalSmall Business Disclosure Format:

Yes  o   No  ý.

 

 

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**TABLE OF CONTENTS**

 
| **PART I**             | **FINANCIAL INFORMATION**                                                                          |
|------------------------|----------------------------------------------------------------------------------------------------|
|                   |                                                                                               |
| ITEM 1                 | Financial Statements                                                                               |
|                   |                                                                                               |
|                   | Condensed Balance Sheet as of March 30, 2003                                                       |
|                   |                                                                                               |
|                   | Condensed Statements of Operations for the  thirteen weeks ended March 31, 2002 and March 30, 2003 |
|                   |                                                                                               |
|                   | Condensed Statements of Cash Flows for the  thirteen weeks ended March 31, 2002 and March 30, 2003 |
|                   |                                                                                               |
|                   | Notes to Condensed Financial Statements                                                            |
|                   |                                                                                               |
| ITEM 2                 | Management’s Discussion and Analysis or  Plan of Operation                                    |
|                   |                                                                                               |
| ITEM 3                 | Controls and Procedures                                                                            |
|                   |                                                                                               |
| **PART II**            | **OTHER INFORMATION**                                                                              |
|                   |                                                                                               |
| ITEM 1                 | Legal Proceedings                                                                                  |
|                   |                                                                                               |
| ITEM 2                 | Changes in Securities                                                                              |
|                   |                                                                                               |
| ITEM 3                 | Defaults upon Senior Securities                                                                    |
|                   |                                                                                               |
| ITEM 4                 | Submission of Matters to a Vote of Security  Holders                                               |
|                   |                                                                                               |
| ITEM 5                 | Other Information                                                                                  |
|                   |                                                                                               |
| ITEM 6                 | Exhibits and Reports on Form 8-K                                                                   |
|                   |                                                                                               |
| **SIGNATURES**         |
|                   |                                                                                               |
| **CERTIFICATIONS**     |
|                   |                                                                                               |
| **INDEX  TO EXHIBITS** |

 

i

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**PART I****   FINANCIALINFORMATION**

 

**ITEM1  Financial Statements**

 

**GRANITE CITY FOOD& BREWERY LTD.**

 

**CONDENSEDBALANCE SHEET**

**(Unaudited)**

** **
|                                                                                                                           |   | **March 30,  2003** |       |
|--------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|
| **ASSETS:**                                                                                                                    |   |                |       |
| Current assets:                                                                                                                |   |                |       |
| Cash                                                                                                                           |   | $                   | 4,115,966  |   |
| Inventory                                                                                                                      |   | 92,385              |       |
| Prepaids and other                                                                                                             |   | 200,149             |       |
| Total current assets                                                                                                           |   | 4,408,500           |       |
|                                                                                                                           |   |                |       |
| Property and equipment, net                                                                                                    |   | 9,252,973           |       |
| Intangible assets and other                                                                                                    |   | 332,577             |       |
| Total assets                                                                                                                   |   | $                   | 13,994,050 |   |
|                                                                                                                           |   |                |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY:**                                                                                 |   |                |       |
| Current liabilities:                                                                                                           |   |                |       |
| Accounts payable                                                                                                               |   | $                   | 427,511    |   |
| Accrued expenses                                                                                                               |   | 720,499             |       |
| Long-term debt, current portion                                                                                                |   | 32,106              |       |
| Capital lease obligations, current portion                                                                                     |   | 267,691             |       |
| Total current liabilities                                                                                                      |   | 1,447,807           |       |
|                                                                                                                           |   |                |       |
| Long-term debt, net of current portion                                                                                         |   | 1,434,377           |       |
| Capital lease obligations, net of current  portion                                                                             |   | 3,629,403           |       |
| Total liabilities                                                                                                              |   | 6,511,587           |       |
|                                                                                                                           |   |                |       |
| Shareholders’ equity:                                                                                                     |   |                |       |
| Common stock, $0.01 par value, 90,000,000  shares authorized;  3,869,814 shares issued and outstanding                         |   | 38,698              |       |
| Preferred stock, $0.01 par value, 10,000,000  authorized;  54,100 Series A Convertible Preferred shares issued and outstanding |   | 541                 |       |
| Additional paid-in capital                                                                                                     |   | 9,211,432           |       |
| Accumulated deficit                                                                                                            |   | (1,768,208          | )          |
| Total shareholders’ equity                                                                                                |   | 7,482,463           |       |
|                                                                                                                           |   |                |       |
| Total liabilities and shareholders’ equity                                                                                |   | $                   | 13,994,050 |   |

 

See notes to condensed financial statements.

 

1

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**GRANITE CITY FOOD & BREWERY LTD.**

 

**CONDENSED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
|                                                    |   | **Thirteen Weeks Ended** |      |
|---------------------------------------------------------|--------|--------------------------|-----------|
|                                                    |   | **March 31,  2002**      |      | **March 30,  2003** |   |
|                                                    |   |                     |      |   |   |
| Restaurant revenues                                     |   | $                        | 3,114,340 |   | $ | 2,870,160 |   |
|                                                    |   |                     |      |   |   |
| Cost of sales:                                          |   |                     |      |   |   |
| Food, beverage and retail                               |   | 906,752                  |      | 818,882 |   |
| Labor                                                   |   | 1,075,127                |      | 985,833 |   |
| Direct and occupancy                                    |   | 663,715                  |      | 663,267 |   |
| Total cost of sales                                     |   | 2,645,594                |      | 2,467,982 |   |
|                                                    |   |                     |      |   |   |
| General and administrative                              |   | 215,424                  |      | 293,617 |   |
| Depreciation and amortization                           |   | 190,783                  |      | 193,036 |   |
|                                                    |   |                     |      |   |   |
| Operating income (loss)                                 |   | 62,539                   |      | (84,475 | ) |
|                                                    |   |                     |      |   |   |
| Interest:                                               |   |                     |      |   |   |
| Income                                                  |   | 157                      |      | 23,301 |   |
| Expense                                                 |   | (139,552                 | )         | (123,448 | ) |
| Other income, net                                       |   | 47,187                   |      | — |   |
| Net other expense                                       |   | (92,208                  | )         | (100,147 | ) |
|                                                    |   |                     |      |   |   |
| Net loss                                                |   | $                        | (29,669   | ) | $ | (184,622 | ) |
|                                                    |   |                     |      |   |   |
| Loss per common share, basic and diluted                |   | $                        | (0.01     | ) | $ | (0.07 | ) |
|                                                    |   |                     |      |   |   |
| Weighted average shares outstanding, basic  and diluted |   | 3,807,394                |      | 3,845,315 |   |

 

See notes to condensed financial statements.

 

2

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**GRANITE CITY FOOD& BREWERY LTD.**

 

**CONDENSED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
|                                                                                       |   | **Thirteen Weeks Ended** |    |
|--------------------------------------------------------------------------------------------|--------|--------------------------|---------|
|                                                                                       |   | **March 31,  2002**      |    | **March 30,  2003** |   |
|                                                                                       |   |                     |    |   |   |
| Cash flows from operating activities:                                                      |   |                     |    |   |   |
| Net loss                                                                                   |   | $                        | (29,669 | ) | $ | (184,622 | ) |
| Adjustments to reconcile net loss to net  cash provided by (used in) operating activities: |   |                     |    |   |   |
| Depreciation and amortization                                                              |   | 190,783                  |    | 193,036 |   |
| Decrease (increase) in:                                                                    |   |                     |    |   |   |
| Inventory                                                                                  |   | 11,536                   |    | 9,990 |   |
| Prepaids and other                                                                         |   | (82,945                  | )       | (93,492 | ) |
| Increase (decrease) in:                                                                    |   |                     |    |   |   |
| Accounts payable                                                                           |   | 100,052                  |    | 94,155 |   |
| Accrued expenses                                                                           |   | (63,892                  | )       | (175,235 | ) |
| Net cash provided by (used in) operating  activities                                       |   | 125,865                  |    | (156,168 | ) |
|                                                                                       |   |                     |    |   |   |
| Cash flows from investing activities:                                                      |   |                     |    |   |   |
| Purchase of:                                                                               |   |                     |    |   |   |
| Property and equipment                                                                     |   | (371,345                 | )       | (385,908 | ) |
| Intangible assets and other                                                                |   | (50                      | )       | — |   |
| Net cash used in investing activities                                                      |   | (371,395                 | )       | (385,908 | ) |
|                                                                                       |   |                     |    |   |   |
| Cash flows from financing activities:                                                      |   |                     |    |   |   |
| Payments on capital lease obligations                                                      |   | (59,133                  | )       | (64,642 | ) |
| Payments on long term-debt                                                                 |   | (7,349                   | )       | (7,567 | ) |
| Payment of dividends                                                                       |   | —                   |    | (71,999 | ) |
| Proceeds from:                                                                             |   |                     |    |   |   |
| Related parties                                                                            |   | 100,000                  |    | — |   |
| Issuance of securities                                                                     |   | 1,650                    |    | 1,280,408 |   |
| Net cash provided by financing activities                                                  |   | 35,168                   |    | 1,136,200 |   |
|                                                                                       |   |                     |    |   |   |
| Net increase (decrease) in cash                                                            |   | (210,362                 | )       | 594,124 |   |
| Cash, beginning                                                                            |   | 384,394                  |    | 3,521,842 |   |
| Cash, ending                                                                               |   | $                        | 174,032 |   | $ | 4,115,966 |   |

 

See notes to condensed financial statements.

 

3

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**GRANITE CITY FOOD& BREWERY LTD.**

 

**NOTES TO CONDENSEDFINANCIAL STATEMENTS**

**(Unaudited)**

 

Thirteen weeks ended March 31, 2002 and March 30, 2003

 

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

 

Nature of business:

Granite CityFood & Brewery Ltd. (the “Company”) was formed to develop and operatecasual dining restaurants featuring on-premises 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.  The Company produces its beer using aprocess called Fermentus InterruptusTM, which is intended to maintain high beerquality while enhancing overall profitability by reducing unit-level brewingcosts.  The first facility, located inSt. Cloud, Minnesota, opened in July 1999. The second facility, located in Sioux Falls, South Dakota, opened inDecember 2000 and a third facility located in Fargo, North Dakota, opened inNovember 2001.

 

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.

 

Interim financial statements:

The Companyhas prepared the condensed financial statements for the thirteen weeks endedMarch 31, 2002 and March 30, 2003 without audit by the Company’s independentauditors.  In the opinion of theCompany’s management, all adjustments necessary to present fairly the financialposition of the Company at March 30, 2003 and the results of operations andcash flows for the periods ended March 31, 2002 and March 30, 2003 have beenmade. Those adjustments consist only of normal and recurring adjustments.

 

Certaininformation and note disclosures normally included in the Company’s annualfinancial statements have been condensed or omitted.  These condensed financial statements should be read inconjunction with the financial statements and notes thereto included in theCompany’s Annual Report on Form 10-KSB for the fiscal year ended December 29,2002, filed with the Securities and Exchange Commission on March 28, 2003.

 

The results ofoperations for the thirteen weeks ended March 30, 2003 are not necessarilyindicative of the results to be expected for the entire 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. Calculations of the Company’s net loss per common share for the thirteenweeks ended March 31, 2002 and March 30, 2003 are set forth in the followingtable:

 

4

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|                                                    |   | **Thirteen  Weeks Ended** |    |
|---------------------------------------------------------|--------|---------------------------|---------|
|                                                    |   | **March 31,  2002**       |    | **March 30,  2003** |   |
|                                                    |   |                      |    |   |   |
| Net loss                                                |   | $                         | (29,699 | ) | $ | (184,622 | ) |
| Less dividends declared                                 |   | —                    |    | (96,349 | ) |
| Net loss available to common shareholders               |   | $                         | (29,699 | ) | $ | (280,971 | ) |
|                                                    |   |                      |    |   |   |
| Loss per common share, basic and diluted                |   | $                         | (0.01   | ) | $ | (0.07 | ) |
|                                                    |   |                      |    |   |   |
| Weighted average shares outstanding, basic  and diluted |   | 3,807,394                 |    | 3,845,315 |   |

 

**2.     Stockcompensation:**

 

The Company accounts for itsstock-based compensation awards using the intrinsic value method prescribed byAccounting Principles Board (APB) Opinion No. 25, *Accounting for Stock Issued to Employees. *No compensation cost has been recognized for optionsissued to employees when the exercise price of the options granted is at leastequal to the fair value of the common stock on the date of grant.  Had compensation cost been determinedconsistent with Statement of Financial Accounting Standard (SFAB) No. 123, *Accounting for Stock-Based Compensation*,as amended by SFAS No. 148, *Accounting forStock-Based Compensation—Transition and Disclosure,* the Company’snet loss and net loss per common share would have been increased to thefollowing pro forma amounts:

 
|                                           |   | **Thirteen  Weeks Ended** |    |
|------------------------------------------------|--------|---------------------------|---------|
|                                           |   | **March 31,  2002**       |    | **March 30,  2003** |   |
| Net loss:                                      |   |                      |    |   |   |
| As reported                                    |   | $                         | (29,669 | ) | $ | (184,622 | ) |
| Pro forma                                      |   | $                         | (62,658 | ) | $ | (326,165 | ) |
|                                           |   |                      |    |   |   |
| Net loss per common share, basic and  diluted: |   |                      |    |   |   |
| As reported                                    |   | $                         | (0.01   | ) | $ | (0.07 | ) |
| Pro forma                                      |   | $                         | (0.02   | ) | $ | (0.11 | ) |

 

The fair value of each optiongrant for the pro forma disclosure required by SFAS No. 123, as amended by SFASNo. 148, is estimated on the grant date using the Black-Scholes option-pricingmodel with the following assumptions for the grants:

 
|                    |   | **2002** |   | **2003**   |   |
|-------------------------|--------|----------|--------|------------|--------|
| Dividend yield          |   | None     |   | None       |   |
| Expected volatility     |   | 101.4    | %      | 89.4       | %      |
| Expected life of option |   | 5 years  |   | 5-10 years |   |
| Risk-free interest rate |   | 3.9      | %      | 4.0        | %      |

 

5

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**3.     Changein capitalization:**

 

Issuance of preferred stock andwarrants to purchase common stock:

During thefourth quarter of 2002, the Company conducted a private placement to accreditedinvestors of Series A Convertible Preferred Stock and warrants to purchasecommon stock.  The Company sold 55,600shares of preferred stock for aggregate gross proceeds of $5,560,000.  As of April 30, 2003, the outstandingpreferred stock was convertible into an aggregate of 3,518,964 shares of commonstock at a conversion price of $1.58 per share.  The preferred stock pays an 8% cumulative dividend in cash or inthe Company's common stock.  The Companymay require conversion under certain circumstances.  The preferred stock was sold with five-year warrants to purchasean aggregate of 1,759,473 shares of common stock at an exercise price of $1.58per share.  In connection with suchplacement, the Company issued its agents warrants to purchase an aggregate of288,604 shares of common stock at an exercise price of $1.58 per share and paidits agents cash commissions aggregating $456,000.

 

Exercise of warrants:

As part of thesale of common stock in 1997 and 1998, the Company sold to its privateplacement agent, for $50, a stock purchase warrant for the purchase of 111,950shares of common stock at $1 per share. As of December 29, 2002, 78,150 of such warrants remainedoutstanding.  On February 19, 2003,affiliates of the private placement agent exercised 76,450 warrants on acashless basis.  The remaining 1,700warrants expired February 20, 2003.

 

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

 

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

 

**Overview**

 

We operatethree casual dining restaurants featuring on-premises breweries under the nameGranite City Food & Brewery.  Ouractivities 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 these restaurants using the net proceeds from a privateplacement conducted in late 1997, our initial public offering in June 2000,financing in the form of long-term building and equipment leases, bankfinancing, and loans from a related party.

 

In the fourthquarter of 2002, we obtained financing through the private placement ofconvertible preferred stock and warrants to purchase common stock.  We plan to finance the development ofadditional restaurants in markets throughout the Midwest with the use of theproceeds from this financing.  We haveentered into a multi-site development agreement whereby we will be providedassistance in site selection, construction management and financing for newGranite City Food & Brewery restaurants.

 

6

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Under this agreement, we willlease each new restaurant from our developer. In March 2003, we began construction in the West Des Moines, Iowa marketwhere we plan to open our restaurant in the fall of 2003.  Additionally, our developer has purchasedsites for us in the Cedar Rapids and Davenport, Iowa markets where weanticipate our restaurants will open in the fourth quarter of 2003 and thefirst quarter of 2004, respectively.

 

We believethat our operating results will fluctuate significantly because of severalfactors, 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 weather conditions.

 

Our restaurantsales are comprised almost entirely of the sales of food and beverages.  Product costs include the costs of food,beverages and retail items.  Labor costsinclude direct hourly and management wages, taxes and benefits for restaurant employees.  Direct and occupancy costs includerestaurant supplies, marketing costs, rent, utilities, real estate taxes,repairs and maintenance and other related costs.  General and administrative expenses are comprised of expensesassociated with all corporate and administrative functions that supportexisting operations, 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.

 

**Results of Operations**

 

The followingtable compares operating results expressed as a percentage of total revenue forthe thirteen weeks ended March 31, 2002 and March 30, 2003.

 
|                          |   | **Thirteen Weeks Ended** |   |
|-------------------------------|--------|--------------------------|--------|
|                          |   | **March 31,  2002**      |   | **March 30,  2003** |   |
| Restaurant revenues           |   | 100.0                    | %      | 100.0 | % |
| Cost of sales:                |   |                     |   |   |   |
| Food, beverage and retail     |   | 29.1                     |   | 28.5 |   |
| Labor                         |   | 34.5                     |   | 34.4 |   |
| Direct and occupancy          |   | 21.4                     |   | 23.1 |   |
| Total cost of sales           |   | 85.0                     |   | 86.0 |   |
|                          |   |                     |   |   |   |
| General and administrative    |   | 6.9                      |   | 10.2 |   |
| Depreciation and amortization |   | 6.1                      |   | 6.7 |   |
|                          |   |                     |   |   |   |
| Operating income (loss)       |   | 2.0                      |   | (2.9 | ) |
| Interest:                     |   |                     |   |   |   |
| Income                        |   | —                   |   | 0.8 |   |
| Expense                       |   | (4.5                     | )      | (4.3 | ) |
| Other income, net             |   | 1.5                      |   | — |   |
| Net other expense             |   | (3.0                     | )      | (3.5 | ) |
|                          |   |                     |   |   |   |
| Net loss                      |   | (1.0                     | )%     | (6.4 | )% |

 

7

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**Critical Accounting Policies**

 

This discussion and analysis is based upon our financial statements,which were prepared in conformity with generally accepted accountingprinciples.  These principles requiremanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes.  We believe our estimates and assumptions are reasonable; however,actual results and the timing of the recognition of such amounts could differfrom those estimates.  We haveidentified the following critical accounting policies and estimates utilized bymanagement in the 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 is depreciatedover the length of the related lease. Depreciation is computed using the straight-line method for financialreporting purposes and accelerated methods for income tax purposes.  Amortization of assets acquired undercapital lease is included in depreciation expense.  Our accounting policies regarding property and equipment includecertain management judgments regarding the estimated useful lives of suchassets and the determination as to what constitutes enhancing the value of orincreasing the life of existing assets. These judgments and estimates may produce materially different amountsof depreciation and amortization expense than would be reported if differentassumptions were used.

 

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 WeeksEnded March 31, 2002 and March 30, 2003**

 

**Revenue**

 

We generated$3,114,340 and $2,870,160 of revenues during the first quarter of 2002 and2003, respectively.  Due to increaseddemand fostered by publicity surrounding the opening of our Fargo location inlate November 2001, we experienced a temporary period of high revenues known asthe “honeymoon effect” during the first quarter of 2002.  The 7.8% decrease in revenues was dueprimarily to the lack of the honeymoon effect in the first quarter of 2003.

 

We anticipatethat restaurant 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.  We expect the timing of new restaurantopenings and the related honeymoon effect to cause fluctuations in restaurantrevenues.  Additionally, consumerconfidence in the economy and changes in consumer preferences may affect ourfuture revenues.

 

**Cost of Sales**

 

*Food, Beverage and Retail*

 

Our food andbeverage cost decreased 0.6% as a percentage of revenues during the thirteenweeks ended March 30, 2003 compared to the thirteen-week period ended March 31,2002.  We expect that our food andbeverage 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 craftbrewed

 

8

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beers and our food based uponguest preferences.  Although such menumodifications may temporarily result in increased food and beverage cost, weare able to offset such increases with our weekly specials which providevariety to our guests at a great price value. Our varieties of craftbrewed beer, which we can produce at lower costthan beers we purchase for resale, also enable us to keep our food and beveragecosts low while fulfilling guest requests and building customer loyalty.  We expect that with the addition of futurelocations, increased purchasing power will further reduce our food and beveragecosts as a percentage of revenues. Additionally, as we add new units, we believe our brewing process,Fermentus Interruptus, will allow us to keep our high quality product intactwhile reducing the production cost, thereby enhancing overall profitability.

 

*Labor*

 

Our laborcosts expressed as a percentage of revenues decreased 0.1% during the firstquarter of 2003 compared to the first quarter of 2002.  As our employees have become more seasoned,our labor costs related to kitchen staff and training have been reduced.  This reduction has been offset by increasedemployee health insurance premiums and increased workers compensationinsurance.

 

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 thatretention of good employees ensures high quality guest service and reduceshiring and training costs.  Hiring andtraining cost savings associated with increased staff experience are offsetslightly by pay increases as our staff gains more experience.

 

*Direct and Occupancy*

 

Our direct andoccupancy expenses increased 1.7% as a percentage of revenues during the thirteenweeks ended March 30, 2003 compared to the thirteen weeks ended March 31,2002.  Operating supplies, rent andoccupancy costs, repairs and maintenance and advertising expense represent themajority of our direct and occupancy expenses. A substantial portion of these expenses is fixed or indirectly variableand, therefore, increased as a percent of revenue with the lower revenuebase.  Increases in direct and operatingexpenses were primarily in the areas of promotion, utilities, property taxesand insurance.

 

**General and Administrative**

 

General andadministrative expenses include salaries and benefits associated with ourcorporate staff that is responsible for overall restaurant quality, futureexpansion into new locations and financial controls and reporting.  Other general and administrative expensesinclude professional fees, office administration and centralized accountingsystem costs, and travel by our corporate management to the restaurantlocations.  General and administrativeexpenses increased $78,193 from $215,424 during the first quarter of 2002 to$293,617 during the first quarter of 2003. In order to retain core management and further build our infrastructureto facilitate growth, we incurred increased payroll and benefits relatedexpenses in the first quarter of 2003. From the inception of our company through the end of fiscal year 2002,our executive officers did not receive any monetary compensation from ourcompany as we believe the options issued to these officers in 1999, 2001 and2003 represent reasonable compensation for their services through March 30,2003.  At a meeting held February 11,2003, our board of directors established a $160,000 annual salary for ourPresident and Chief Executive Officer effective April 1, 2003.  His salary and that of additional personnelneeded to facilitate our expansion will increase our general and administrativeexpenses in future periods.

 

9

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We expect thatgeneral and administrative costs will continue to fluctuate as a percentage ofrestaurant revenues in the near term as we build our infrastructure toadequately sustain operations across multiple locations.  The anticipated additional restaurantrevenues associated with further expansion are expected to result in greatereconomies of scale for our corporate expenses in the long-term.

 

**Depreciationand Amortization**

 

Depreciationand amortization expense increased $2,253 during the first quarter of 2003compared to the first quarter of 2002. As a percentage of revenues, depreciation and amortization expenseincreased 0.6% between such quarterly periods.

 

**OtherIncome and Expense**

 

Interestexpense net of interest income decreased $39,248 during the thirteen weeksended March 30, 2003 compared to the similar period in 2002.  Interest expense decreased due to thereduction of outstanding principal while interest income increased due tointerest earned on proceeds from the private placement of our securities duringthe fourth quarter of 2002.  Otherincome and expense for the first quarter of 2002 included the proceeds awardedby a NASD Arbitration Panel related to a claim we filed in November 2000against Equity Securities Investments, Inc., less related legal fees.

 

**Liquidityand Capital Resources**

 

We haverequired capital principally for the development, construction and opening ofnew restaurants.  To date, we haveobtained gross proceeds aggregating approximately $11.0 million through thesales of our securities.  Additionally,we have obtained financing through building and equipment leases, long-termdebt from an independent financial institution and loans from New BrightonVentures, Inc., an entity owned in part by our President and Chief ExecutiveOfficer.

 

Using theproceeds from our sale of Series A Convertible Preferred Stock, we intend toexpand in markets where we believe our concept will have broad appeal andattractive restaurant-level economics. To aid in our expansion, we entered into a multi-site developmentagreement in October 2002 with Dunham Capital Management L.L.C. (“Dunham”) forthe development of restaurants.  Dunhamis controlled by Donald A. Dunham, Jr., who is an affiliate of Brew Buddies,L.L.C. (“Brew Buddies”), our largest beneficial owner of securities.  Under this agreement Dunham will provide usassistance in site selection, construction management and financing for futureGranite City Food & Brewery restaurants. As of March 30, 2003, we had begun construction in the West Des Moines,Iowa area and Dunham had purchased sites for us in the Cedar Rapids andDavenport, Iowa markets.

 

During thethirteen weeks ended March 30, 2003, the issuance of securities provided us$1,280,408 of net cash.  We used$156,168 in operating activities, $385,908 to purchase equipment primarily for ourWest Des Moines location, paid dividends of $71,999 to holders of our preferredstock and made payments on our debt and capital leases aggregating$72,209.  During the thirteen weeksended March 31, 2002, our operating activities provided $125,865 of netcash.  Using $100,000 of proceeds from apromissory note we issued to a related party in February 2002, $1,650 inproceeds from issuing common stock pursuant to the exercise of a stock optionand the net cash provided by operations, we purchased $371,395 of equipmentprimarily for our Fargo location and made payments on our debt and capitallease obligations aggregating $66,482.

 

10

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As part of ourexpansion strategy, we developed a prototype model for future restaurants.  Our prototypical restaurant will beapproximately 8,700 square feet and will require an investment of approximately$3.5 million to $4.0 million for land, building and equipment.  We anticipate these costs will vary from onemarket to another based on real estate values, zoning regulations, labormarkets and other variables.  Under theabove referenced development agreement, we will provide funding for the initialpurchase of furniture, fixtures and equipment and our pre-opening expenses, whichwe anticipate will aggregate approximately $1.0 million to $1.5 million perlocation.  Additionally, we will leaseeach new restaurant from our developer.

 

In January2003, we entered into a 20-year net lease relating to the restaurant underconstruction in West Des Moines, Iowa under the terms specified in thedevelopment agreement with Dunham.  Therestaurant will be constructed for us on an area of approximately 2.2 acres ona build-to-suit basis.  The annual rentwill be equal to 10.5% of the sum of the construction cost and land cost.  The term of the lease will commence whenoperations begin and may be extended at our option for up to five additionalfive-year periods on the same terms and conditions, except the rent mayincrease based on a formula using the Consumer Price Index during any suchextension.

 

With the netproceeds raised through the sale of Series A Convertible Preferred Stock,management believes that we will have sufficient funds to pursue our expansionstrategy over the next 18 to 24 months. We are also considering various alternatives to obtain capital to fundadditional expansion, including debt and equity financing, partnerships withinvestors or combinations thereof.  Theamount of financing required for new stores depends upon the definitivelocations, leasehold improvement costs, construction costs and the type oftransactions pursuant to which we establish new locations.  We cannot assure you that the financingneeded to pursue our expansion strategy will be available on terms acceptableor favorable to us, or at all.

 

**Commitmentsand Contingent Liabilities**

 

*Operating and Capital Leases:*

 

We have twoland and building lease agreements expiring in 2019 and 2020 with renewableoptions for additional periods.  Thebuilding portions of these leases are classified as capital leases becausetheir present value was greater than 90% of the estimated fair value at thebeginning of the lease.  The landportions of these leases are classified as operating leases because the fairvalue of the land was more than 25% of the leased property at the inception ofeach lease.  Under these leases, we arerequired to pay additional percentage rent based upon restaurant sales.  As of March 30, 2003, future obligationsrelating to the land portion of these leases aggregated $3,525,727 pluspercentage rent.  The scheduled rentincreases for the land during the life of each lease are recognized on astraight-line basis.

 

In 2001, weentered into a 20-year operating lease for land upon which we built our thirdrestaurant.  As of March 30, 2003,future obligations under the terms of the lease aggregated $1,341,800 pluspercentage rent.  In January 2003, weentered into a 20-year net lease relating to the restaurant under constructionin West Des Moines, Iowa.  The annualrent will be equal to 10.5% of the sum of the construction cost and landcost.  The term of the lease willcommence when operations begin.

 

11

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*Personal Guaranties:*

 

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

 

*Employment Agreement:*

 

We haveentered into an employment agreement with our President and Chief ExecutiveOfficer.  In lieu of a salary, we issuedstock options to him in 1999, 2001 and 2003 as compensation for his servicesthrough March 30, 2003.  At a meeting heldFebruary 11, 2003, our board of directors established a $160,000 annual salaryfor him effective April 1, 2003.  Amongother provisions, the employment agreement included change in controlprovisions that would entitle him to receive severance pay equal to 18 monthsof salary if there is a change in control of our company and his employmentterminates.  Base on his current salary,the maximum contingent liability under this agreement would be $240,000.

 

*Development Agreement:*

 

We haveentered into a development agreement with Dunham for the development of ourrestaurants.  Dunham is controlled byDonald A. Dunham, Jr., who is an affiliate of Brew Buddies, our largestbeneficial owner of securities.  Theagreement gives Dunham the right to develop, construct and lease up to 22restaurants for us prior to December 31, 2012. We are not bound to authorize the construction of restaurants duringthat time period, but generally cannot use another developer to develop or owna restaurant as long as the development agreement is in effect.  We can use another developer if Dunhamdeclines to build a particular restaurant, if the agreement is terminatedbecause of a default by Dunham, or if our company is sold or merged into anothercompany.  In the case of a merger orsale of our company, the development agreement may be terminated at such timeas Dunham has completed seven restaurants under the agreement.  The development agreement provides for acooperative process between Dunham and our company for the selection ofrestaurant sites and the development of restaurants on those sites, schedulingfor the development and construction of each restaurant once a location isapproved, and controls on the costs of development and construction usingbidding and guaranteed maximum cost concepts. The development agreement provides that restaurants will be leased to uson the basis of a triple net lease.  Therental rate of each lease will be calculated using a variable formula which isbased on approved and specified costs of development and construction and anindexed interest rate.  The term of eachlease is 20 years with five five-year options to renew.

 

12

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*Summary of Contractual Obligations:*

 

The followingtable summarizes our future obligations under contractual agreements as ofMarch 30, 2003 and the time frame within which payments on such obligations aredue.  This table does not includeamounts related to loan guarantee fees, employment contracts, percentage rentand the lease agreement for our West Des Moines, Iowa location as such amountshave not yet been determined.

 
|                        |   | **Payments due by period** |       |
|-----------------------------|--------|----------------------------|------------|
| **Contractual Obligations** |   | **Total**                  | ** ** | **Less than 1  year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than 5  years** | ** ** |
| Long-term debt              |   | $                          | 1,466,483  |   | $ | 23,834 |   | $ | 70,489 |   | $ | 1,372,160 |   | $ | — |   |
| Capital lease obligations   |   | 7,154,804                  |       | 463,496 |   | 1,233,865 |   | 1,012,701 |   | 4,444,742 |   |
| Operating lease obligations |   | 4,881,437                  |       | 198,899 |   | 525,538 |   | 530,818 |   | 3,626,182 |   |
| Total Obligations           |   | $                          | 13,502,724 |   | $ | 686,229 |   | $ | 1,829,892 |   | $ | 2,915,679 |   | $ | 8,070,924 |   |

 

**Qualitativeand Quantitative Disclosures about Market Risk**

 

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

 

*Changes in Interest Rate:*

 

We are exposedto market risk from changes in interest rates relating to a lease for equipmentunder an agreement expiring in 2008.  Asof June 15, 2004, we will be required to amortize approximately $264,100 of thethen remaining balance at an interest rate of prime plus 2% for 24 additionalmonths. 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.

 

In February2007, we will have a balloon payment due of approximately $1,325,000 on theloan we obtained 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 would dependupon the negotiated financing terms.

 

*Changes in Commodity Prices:*

 

Many of thefood products we purchase are affected by commodity pricing and are, therefore,subject to unpredictable price volatility.  These commodities are generally purchased based upon market pricesestablished with vendors.  Extremefluctuations in commodity prices and/or long-term changes could have an adverseaffect on us.  Substantially all of ourfood and supplies are available from several sources, which helps to 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.

 

13

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Our companydoes not enter into derivative contracts either to hedge existing risks or forspeculative purposes.

 

**Seasonality**

 

We expect thatour sales 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 primaryinflationary factors affecting our operations are food, supplies and laborcosts.  A large number of our restaurantpersonnel are paid at rates based on the applicable minimum wage, and increasesin the minimum wage directly affect our labor costs.  In the past, we have been able to minimize the effect of theseincreases through menu price increases and other strategies.  To date, inflation has not had a materialimpact on our operating results.

 

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

 

We maintain asystem of disclosure controls and procedures that is designed to providereasonable assurance that information, which is required to be disclosed, isaccumulated and communicated to management timely.  Within the 90-day period prior to the filing date of this periodicreport, 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.

 

There were nosignificant changes in our internal controls or in other factors that couldsignificantly affect our internal controls subsequent to the date of their mostrecent evaluation.

 

**PART II****  ****OTHERINFORMATION**

 

ITEM 1                                                        LegalProceedings

 

Notapplicable.

 

ITEM 2                                                        Changes in Securities

 

(a)           Not applicable.

 

(b)           Not applicable.

 

(c)           On February 11, 2003, we issued anon-qualified stock option to a former officer of our company for the purchaseof 20,000 shares of our common stock at an exercise price of $2.45 pershare.  This ten-year option vests tothe extent of 25% upon grant and an additional 25% on each of the first threeanniversaries of the date of grant. This option was granted as compensation for services rendered to ourcompany through the cessation of the recipient’s employment with ourcompany.

 

14

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During the fourth quarter of 2002, we conducted a private placement toaccredited investors of Series A Convertible Preferred Stock and warrants topurchase common stock.  We sold 55,600shares of preferred stock for aggregate gross proceeds of $5,560,000.  As of April 30, 2003, the outstandingpreferred stock was convertible into an aggregate of 3,518,964 shares of commonstock at a conversion price of $1.58 per share.  The preferred stock pays an 8% cumulative dividend in cash or inour common stock.  We may requireconversion under certain circumstances. The preferred stock was sold with five-year warrants to purchase anaggregate of 1,759,473 shares of common stock at an exercise price of $1.58 pershare.  In connection with suchplacement, we issued our agents warrants to purchase an aggregate of 288,604shares of common stock at an exercise price of $1.58 per share and paid ouragents cash commissions aggregating $456,000.

 

The foregoing issuances were made in reliance upon the exemptionprovided in Section 4(2) of the Securities Act.  In addition, the private placement was made in reliance upon thesafeharbor provided by Rule 506 of the Securities Act.  Such securities are restricted as to sale ortransfer, unless registered under the Securities Act, and certificatesrepresenting such securities contain restrictive legends preventing sale,transfer or other disposition unless registered under the Securities Act.  In addition, the recipients of suchsecurities received, or had access to, material information concerning GraniteCity Food & Brewery Ltd., including, but not limited to, our reports onForm 10-KSB, Form 10-QSB and Form 8-K, as filed with the SEC.

 

(d)           Not applicable.

 

ITEM 3                                                        Defaults upon Senior Securities

 

Notapplicable.

 

ITEM 4                                                        Submissionof Matters to a Vote of Security Holders

 

Not applicable.

 

ITEM 5                                                        OtherInformation

 

NotApplicable.

 

ITEM 6                                                        Exhibitsand Reports on Form 8-K

 

(a)                                  Exhibits

 

See “Index toExhibits.”

 

(b)                                 Reportson Form 8-K

 

None.

 

15

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**SIGNATURES**

 

In accordance with the requirementsof the Exchange Act, the registrant caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

 
|                                | GRANITE CITY  FOOD & BREWERY LTD. |
|-------------------------------------|---------------------------------------|
|                                |                                  |   |
|                                |                                  |   |
| **Date:   May  13, 2003** | By:                                   | /s/ Monica  A. Underwood |   |
|                                |                                  | Monica A.  Underwood |
|                                |                                  | Interim  Chief Financial Officer and  Corporate Controller |

 

16

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**CERTIFICATIONS**

 

*CHIEF EXECUTIVE OFFICER CERTIFICATIONPURSUANT TO RULE 13a-14*

 

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

 
| 1.     | I have  reviewed this quarterly report on Form 10-QSB of Granite City Food &  Brewery Ltd.;                                                                                                                                                                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 2.     | Based on my  knowledge, this quarterly report does not contain any untrue statement of a  material fact or omit to state a material fact necessary to make the  statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this  quarterly report;                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.     | Based on my  knowledge, the financial statements, and other financial information included  in this quarterly report, fairly present in all material respects the  financial condition, results of operations and cash flows of the registrant  as of, and for, the periods presented in this quarterly report;                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.     | The  registrant’s other certifying officers and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange  Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| a)     | designed  such disclosure controls and procedures to ensure that material information  relating to the registrant, including its consolidated subsidiaries, is made  known to us by others within those entities, particularly during the period  in which this quarterly report is being prepared;                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| b)     | evaluated  the effectiveness of the registrant’s disclosure controls and procedures as  of a date within 90 days prior to the filing date of this quarterly report  (the “Evaluation Date”); and                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| c)     | presented in  this quarterly report our conclusions about the effectiveness of the  disclosure controls and procedures based on our evaluation as of the  Evaluation Date;                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 5.     | The  registrant’s other certifying officers and I have disclosed, based on our  most recent evaluation, to the registrant’s auditors and the audit committee  of registrant’s board of directors (or persons performing the equivalent  functions):                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| a)     | all  significant deficiencies in the design or operation of internal controls  which could adversely affect the registrant’s ability to record, process,  summarize and report financial data and have identified for the registrant’s  auditors any material weaknesses in internal controls; and                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| b)     | any fraud,  whether or not material, that involves management or other employees who have  a significant role in the registrant’s internal controls; and                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 6.     | The  registrant’s other certifying officers and I have indicated in this quarterly  report whether or not there were significant changes in internal controls or  in other factors that could significantly affect internal controls subsequent  to the date of our most recent evaluation, including any corrective actions  with regard to significant deficiencies and material weaknesses. |

 

 
| **Dated:   May  13, 2003** |   |   | By     | /s/ Steven  J. Wagenheim |                                   |
|--------------------------------------|--------|--------|--------|--------------------------|----------------------------------------|
|                                 |   |   |   |                     | Steven J.  Wagenheim                   |
|                                 |   |   |   |                     | President  and Chief Executive Officer |

 

17

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*CHIEF FINANCIAL OFFICER CERTIFICATIONPURSUANT TO RULE 13a-14*

 

I, Monica A.Underwood, Interim Chief Financial Officer and Corporate Controller of GraniteCity Food & Brewery Ltd., certify that:

 
| 1.     | I have  reviewed this quarterly report on Form 10-QSB of Granite City Food &  Brewery Ltd.;                                                                                                                                                                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 2.     | Based on my  knowledge, this quarterly report does not contain any untrue statement of a  material fact or omit to state a material fact necessary to make the  statements made, in light of the circumstances under which such statements  were made, not misleading with respect to the period covered by this  quarterly report;                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.     | Based on my  knowledge, the financial statements, and other financial information included  in this quarterly report, fairly present in all material respects the  financial condition, results of operations and cash flows of the registrant  as of, and for, the periods presented in this quarterly report;                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.     | The  registrant’s other certifying officers and I are responsible for establishing  and maintaining disclosure controls and procedures (as defined in Exchange  Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| a)     | designed such  disclosure controls and procedures to ensure that material information  relating to the registrant, including its consolidated subsidiaries, is made  known to us by others within those entities, particularly during the period  in which this quarterly report is being prepared;                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| b)     | evaluated  the effectiveness of the registrant’s disclosure controls and procedures as  of a date within 90 days prior to the filing date of this quarterly report  (the “Evaluation Date”); and                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| c)     | presented in  this quarterly report our conclusions about the effectiveness of the  disclosure controls and procedures based on our evaluation as of the  Evaluation Date;                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 5.     | The  registrant’s other certifying officers and I have disclosed, based on our  most recent evaluation, to the registrant’s auditors and the audit committee  of registrant’s board of directors (or persons performing the equivalent  functions):                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| a)     | all  significant deficiencies in the design or operation of internal controls  which could adversely affect the registrant’s ability to record, process,  summarize and report financial data and have identified for the registrant’s  auditors any material weaknesses in internal controls; and                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| b)     | any fraud,  whether or not material, that involves management or other employees who have  a significant role in the registrant’s internal controls; and                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                |
| 6.     | The  registrant’s other certifying officers and I have indicated in this quarterly  report whether or not there were significant changes in internal controls or  in other factors that could significantly affect internal controls subsequent  to the date of our most recent evaluation, including any corrective actions  with regard to significant deficiencies and material weaknesses. |

 

 
| **Dated:   May  13, 2003** |   |   | By     | /s/ Monica A. Underwood                                    |   |
|--------------------------------------|--------|--------|--------|------------------------------------------------------------|--------|
|                                 |   |   |   | Monica A.  Underwood                                       |
|                                 |   |   |   | Interim  Chief Financial Officer and Corporate  Controller |

 

18

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**INDEX TO EXHIBITS**

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                          |
|---------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                                                                     |
| 99.1                |   | 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. |
|                |   |                                                                                                                                                                                                     |
| 99.2                |   | Certification  by Monica A. Underwood, Interim Chief Financial Officer of the Company,  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002        |

 

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