**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

----

 

**FORM10-QSB**

 

ý                                  **QUARTERLY REPORT UNDERSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLYPERIOD ENDED MARCH 29, 2005**

 

**o****                              ****TRANSITION REPORT UNDERSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission File Number 000-29643**

 

**GRANITECITY FOOD & BREWERY LTD.**

(Exact Name of SmallBusiness Issuer as Specified in Its Charter)

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

 

Check whether the issuer:  (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 

Yes ý  No o.

 

As of May 4, 2005, the issuer had outstanding 11,620,067****shares of common stock and 1,000,000 Class A Warrants.  The number of outstanding shares of commonstock includes the shares issuable upon separation of the units, eachconsisting of one share of common stock and one redeemable Class A Warrant,sold in the issuer’s initial public offering.

 

Transitional Small Business Disclosure Format:

Yes o No ý.

 

 

----

 

**TABLE OF CONTENTS**

 
| **PART I**            | **FINANCIAL INFORMATION**                                                                          |   |
|-----------------------|----------------------------------------------------------------------------------------------------|--------|
|                  |                                                                                               |   |
| ITEM 1                | Financial Statements                                                                               |   |
|                  |                                                                                               |   |
|                  | Condensed Balance Sheets as of  December 28, 2004 and March 29, 2005                               |   |
|                  |                                                                                               |   |
|                  | Condensed Statements  of Operations for the thirteen weeks ended March 28, 2004 and March 29, 2005 |   |
|                  |                                                                                               |   |
|                  | Condensed Statements  of Cash Flows for the thirteen weeks ended March 28, 2004 and March 29, 2005 |   |
|                  |                                                                                               |   |
|                  | 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                | Unregistered  Sales of Equity Securities and Use of Proceeds                                       |   |
|                  |                                                                                               |   |
| ITEM 3                | Defaults  upon Senior Securities                                                                   |   |
|                  |                                                                                               |   |
| ITEM 4                | Submission  of Matters to a Vote of Security Holders                                               |   |
|                  |                                                                                               |   |
| ITEM 5                | Other  Information                                                                                 |   |
|                  |                                                                                               |   |
| ITEM 6                | Exhibits                                                                                           |   |
|                  |                                                                                               |   |
| **SIGNATURES**        |                                                                                               |   |
|                  |                                                                                               |   |
| **INDEX TO EXHIBITS** |                                                                                               |

 

i

----

 

**PART I**                               FINANCIAL INFORMATION

 

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

 

**GRANITECITY FOOD & BREWERY LTD.**

 

# **CONDENSED BALANCESHEETS**

 
| ** **                                                                                                                                                                    | ** ** | **December 28,  2004** | ** ** | **March 29,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------|------------|
| ** **                                                                                                                                                                    | ** ** | **(audited)**          | ** ** | **(unaudited)**     | ** ** |
| **ASSETS:**                                                                                                                                                                   |       |                   |       |                |       |
| Current assets:                                                                                                                                                               |       |                   |       |                |       |
| Cash                                                                                                                                                                          |       | $                      | 9,297,247  |                | $          | 7,739,907 |   |
| Inventory                                                                                                                                                                     |       | 190,897                |       | 190,897             |       |
| Prepaids and other                                                                                                                                                            |       | 335,435                |       | 223,450             |       |
| Total current  assets                                                                                                                                                         |       | 9,823,579              |       | 8,154,254           |       |
|                                                                                                                                                                          |       |                   |       |                |       |
| Property and  equipment, net                                                                                                                                                  |       | 21,950,428             |       | 23,001,855          |       |
| Intangible  assets and other                                                                                                                                                  |       | 394,950                |       | 394,178             |       |
| Total assets                                                                                                                                                                  |       | $                      | 32,168,957 |                | $          | 31,550,287 |   |
|                                                                                                                                                                          |       |                   |       |                |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY:**                                                                                                                               |       |                   |       |                |       |
| Current  liabilities:                                                                                                                                                         |       |                   |       |                |       |
| Accounts payable                                                                                                                                                              |       | $                      | 654,334    |                | $          | 431,847 |   |
| Accrued expenses                                                                                                                                                              |       | 2,179,017              |       | 1,674,813           |       |
| Deferred rent  incentive, current portion                                                                                                                                     |       | 30,000                 |       | 30,000              |       |
| Long-term debt,  current portion                                                                                                                                              |       | 226,283                |       | 229,991             |       |
| Capital lease  obligations, current portion                                                                                                                                   |       | 517,232                |       | 578,684             |       |
| Total current  liabilities                                                                                                                                                    |       | 3,606,866              |       | 2,945,335           |       |
|                                                                                                                                                                          |       |                   |       |                |       |
| Deferred rent  incentive, net of current portion                                                                                                                              |       | 400,000                |       | 392,500             |       |
| Long-term debt,  net of current portion                                                                                                                                       |       | 2,504,310              |       | 2,444,739           |       |
| Capital lease  obligations, net of current portion                                                                                                                            |       | 11,775,436             |       | 12,230,282          |       |
| Total  liabilities                                                                                                                                                            |       | 18,286,612             |       | 18,012,856          |       |
|                                                                                                                                                                          |       |                   |       |                |       |
| Shareholders’  equity:                                                                                                                                                   |       |                   |       |                |       |
| Common stock,  $0.01 par value, 90,000,000 shares authorized; 11,601,067 and 11,620,067  shares issued and outstanding at December 28, 2004 and March 29, 2005,  respectively |       | 116,011                |       | 116,201             |       |
| Additional  paid-in capital                                                                                                                                                   |       | 20,717,101             |       | 20,796,363          |       |
| Accumulated  deficit                                                                                                                                                          |       | (6,950,767             | )          | (7,375,133          | )          |
| Total  shareholders’ equity                                                                                                                                              |       | 13,882,345             |       | 13,537,431          |       |
|                                                                                                                                                                          |       |                   |       |                |       |
| Total  liabilities and shareholders’ equity                                                                                                                              |       | $                      | 32,168,957 |                | $          | 31,550,287 |   |
|                                                                                                                                                                               |            |                        |            |                     |            |  |  |  |  |

 

See notes tocondensed financial statements.

 

1

----

 

**GRANITECITY FOOD & BREWERY LTD.**

 

**CONDENSEDSTATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                                              | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------------------------|------------|--------------------------|------------|
| ** **                                              | ** ** | **March 28,  2004**      | ** ** | **March 29,  2005** | ** ** |
|                                                    |       |                     |       |   |   |
| Restaurant  revenues                                    |       | $                        | 6,139,367  |   | $ | 7,870,335 |   |
|                                                    |       |                     |       |   |   |
| Cost of sales:                                          |       |                     |       |   |   |
| Food, beverage  and retail                              |       | 1,876,115                |       | 2,355,388 |   |
| Labor                                                   |       | 2,043,221                |       | 2,713,753 |   |
| Direct and  occupancy                                   |       | 1,111,358                |       | 1,482,815 |   |
| Total cost of  sales                                    |       | 5,030,694                |       | 6,551,956 |   |
|                                                    |       |                     |       |   |   |
| Pre-opening                                             |       | 264,974                  |       | 7,713 |   |
| General and  administrative                             |       | 588,584                  |       | 952,353 |   |
| Depreciation and  amortization                          |       | 330,040                  |       | 444,396 |   |
|                                                    |       |                     |       |   |   |
| Operating loss                                          |       | (74,925                  | )          | (86,083 | ) |
|                                                    |       |                     |       |   |   |
| Interest:                                               |       |                     |       |   |   |
| Income                                                  |       | 3,971                    |       | 38,261 |   |
| Expense                                                 |       | (232,173                 | )          | (323,989 | ) |
| Other expense,  net                                     |       | —                   |       | (10,843 | ) |
| Net other  expense                                      |       | (228,202                 | )          | (296,571 | ) |
|                                                    |       |                     |       |   |   |
| Net loss                                                |       | (303,127                 | )          | (382,654 | ) |
| Less preferred  stock dividends declared                |       | (347,106                 | )          | — |   |
| Net loss  available to common shareholders              |       | $                        | (650,233   | ) | $ | (382,654 | ) |
|                                                    |       |                     |       |   |   |
| Loss per common  share, basic and diluted               |       | $                        | (0.16      | ) | $ | (0.03 | ) |
|                                                    |       |                     |       |   |   |
| Weighted average  shares outstanding, basic and diluted |       | 4,132,933                |       | 11,614,276 |   |

 

See notes tocondensed financial statements.

 

2

----

 

**GRANITECITY FOOD & BREWERY LTD.**

 

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                   | ** ** | **Thirteen Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                   | ** ** | **March 28,  2004**      | ** ** | **March 29,  2005** | ** ** |
|                                                                         |       |                     |       |   |   |
| Cash flows from  operating activities:                                       |       |                     |       |   |   |
| Net loss                                                                     |       | $                        | (303,127   | ) | $ | (382,654 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                     |       |   |   |
| Depreciation and  amortization                                               |       | 330,040                  |       | 444,396 |   |
| Stock  option/warrant compensation                                           |       | 6,390                    |       | 6,390 |   |
| Loss on disposal  of asset                                                   |       | —                   |       | 10,843 |   |
| Rent incentive                                                               |       | —                   |       | (7,500 | ) |
| Decrease  (increase) in:                                                     |       |                     |       |   |   |
| Inventory                                                                    |       | (23,121                  | )          | — |   |
| Prepaids and  other                                                          |       | (40,105                  | )          | 111,985 |   |
| Increase  (decrease) in:                                                     |       |                     |       |   |   |
| Accounts payable                                                             |       | (179,970                 | )          | (212,564 | ) |
| Accrued expenses                                                             |       | (261,748                 | )          | (463,136 | ) |
| Net cash used in  operating activities                                       |       | (471,641                 | )          | (492,240 | ) |
|                                                                         |       |                     |       |   |   |
| Cash flows from  investing activities:                                       |       |                     |       |   |   |
| Purchase of:                                                                 |       |                     |       |   |   |
| Property and  equipment                                                      |       | (1,100,170               | )          | (861,704 | ) |
| Intangible  assets and other                                                 |       | (18,366                  | )          | (4,113 | ) |
| Net cash used in  investing activities                                       |       | (1,118,536               | )          | (865,817 | ) |
|                                                                         |       |                     |       |   |   |
| Cash flows from  financing activities:                                       |       |                     |       |   |   |
| Payments on  capital lease obligations                                       |       | (106,339                 | )          | (133,702 | ) |
| Payments on long  term-debt                                                  |       | (38,907                  | )          | (55,863 | ) |
| Payment of  dividends                                                        |       | (36                      | )          | (41,068 | ) |
| Proceeds from  issuance of long term-debt                                    |       | 750,000                  |       | — |   |
| Proceeds from  issuance of stock                                             |       | 49,982                   |       | 31,350 |   |
| Net cash  provided by (used in) financing activities                         |       | 654,700                  |       | (199,283 | ) |
|                                                                         |       |                     |       |   |   |
| Net decrease in  cash                                                        |       | (935,477                 | )          | (1,557,340 | ) |
| Cash, beginning                                                              |       | 1,439,960                |       | 9,297,247 |   |
| Cash, ending                                                                 |       | $                        | 504,483    |   | $ | 7,739,907 |   |
|                                                                         |       |                     |       |   |   |
| Supplemental  disclosure of non-cash investing and financing activities:     |       |                     |       |   |   |
| Land and  buildings acquired under capital lease agreements                  |       | $                        | 1,850,000  |   | $ | 650,000 |   |
| Equipment  purchased and included in accounts payable                        |       | $                        | 4,871      |   | $ | 9,923 |   |

 

See notes tocondensed financial statements.

 

3

----

 

**GRANITECITY FOOD & BREWERY LTD.**

 

**NOTES TOCONDENSED FINANCIAL STATEMENTS**

**(Unaudited)**

 

Thirteen weeksended March 28, 2004 and March 29, 2005

 

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

 

Nature ofbusiness:

Granite City Food & Brewery Ltd. (“the Company”)develops and operates casual dining restaurants featuring on-premise breweriesknown as Granite City Food & Brewery®, in selected markets throughout theUnited States.  The theme is casualdining with a wide variety of menu items that are prepared fresh daily, combinedwith freshly brewed hand-crafted beers made on-premise.  The Company produces its beer using a processcalled Fermentus InterruptusTM, which is intended to maintain high beer qualitywhile enhancing overall profitability by reducing unit-level brewing costs.  The first restaurant, located in St. Cloud,Minnesota, opened in July 1999. Subsequently, the Company opened restaurants in Sioux Falls, SouthDakota; Fargo, North Dakota; West Des Moines, Cedar Rapids and Davenport, Iowa;Lincoln, Nebraska; and Minneapolis, Minnesota.

 

The Company’s current expansion strategy focuses ondevelopment of restaurants in markets where management believes the Company’sconcept will have broad appeal and attractive restaurant-level economics.

 

Interim financialstatements:

The Company hasprepared the condensed financial statements for the thirteen weeks ended March28, 2004 and March 29, 2005 without audit by the Company’s independentauditors.  In the opinion of the Company’smanagement, all adjustments necessary to present fairly the financial positionof the Company at March 29, 2005 and the results of operations and cash flowsfor the thirteen week periods ended March 28, 2004 and March 29, 2005 have beenmade. Those adjustments consist only of normal and recurring adjustments.

 

The balance sheet at December 28, 2004 has been derived from theaudited financial statements at that date, but does not include all of theinformation and notes required by generally accepted accounting principles forcomplete financial statements.  Certaininformation and note disclosures normally included in the Company’s annualfinancial 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, 2004, filed with the Securities and Exchange Commission on March24, 2005.

 

The results ofoperations for the thirteen weeks ended March 29, 2005 are not necessarilyindicative of the results to be expected for the entire year.

 

Earnings (loss)per share:

Basic earnings (loss) percommon share is calculated by dividing net income (loss) less the sum ofpreferred stock dividends declared, by the weighted average number ofcommon shares outstanding in each year. Diluted earnings (loss) percommon share assumes that outstanding common shares were increasedby shares issuable upon exercise of stock options and warrants for which themarket price exceeds the exercise price, less shares which could have beenpurchased by the Company with related proceeds.  Calculations of theCompany’s net loss per common share for the thirteen weeks ended March 28,2004 and March 29, 2005 are set forth in the following table:

 

4

----

 
| ** **                                              | ** ** | **Thirteen Weeks Ended** | ** ** |
|---------------------------------------------------------|------------|--------------------------|------------|
| ** **                                              | ** ** | **March 28,  2004**      | ** ** | **March 29,  2005** | ** ** |
|                                                    |       |                     |       |   |   |
| Net loss                                                |       | $                        | (303,127   | ) | $ | (382,654 | ) |
| Less dividends  declared                                |       | (347,106                 | )          | — |   |
| Net loss  available to common shareholders              |       | $                        | (650,233   | ) | $ | (382,654 | ) |
|                                                    |       |                     |       |   |   |
| Loss per common  share, basic and diluted               |       | $                        | (0.16      | ) | $ | (0.03 | ) |
|                                                    |       |                     |       |   |   |
| Weighted average  shares outstanding, basic and diluted |       | 4,132,933                |       | 11,614,276 |   |

 

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

 

The Companyaccounts for its stock-based compensation awards using the intrinsic valuemethod prescribed by Accounting Principles Board (APB) Opinion No. 25, *Accounting for Stock Issued to Employees. *No compensation cost has beenrecognized for options issued to employees when the exercise price of theoptions granted is at least equal to the fair value of the common stock on thedate of grant.  Had compensation costbeen 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 28,  2004**      | ** ** | **March 29,  2005** | ** ** |
| Net loss:                                                                                                                                   |       |                     |       |   |   |
| As reported                                                                                                                                 |       | $                        | (303,127   | ) | $ | (382,654 | ) |
| Less: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | $                        | (153,692   | ) | $ | (189,080 | ) |
| Pro forma                                                                                                                                   |       | $                        | (456,819   | ) | $ | (571,734 | ) |
|                                                                                                                                        |       |                     |       |   |   |
| Net loss per  common share                                                                                                                  |       |                     |       |   |   |
| Basic and  diluted as reported                                                                                                              |       | $                        | (0.16      | ) | $ | (0.03 | ) |
| Basic and  diluted pro forma                                                                                                                |       | $                        | (0.19      | ) | $ | (0.05 | ) |

 

The fair value ofeach option grant for the pro forma disclosure required by SFAS No. 123, asamended by SFAS No. 148, is estimated on the grant date using the Black-Scholesoption-pricing model with the following assumptions for the grants:

 
| ** **               | ** ** | **2004**   | ** ** | **2005**   | ** ** |
|--------------------------|------------|------------|------------|------------|------------|
| Dividend yield           |       | None       |       | None       |       |
| Expected  volatility     |       | 72.9%      |       | 37.6%      |       |
| Expected life of  option |       | 5-10 years |       | 5-10 years |       |
| Risk-free  interest rate |       | 3.8%       |       | 3.6%-4.5%  |       |

 

5

----

 

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

 

Exercise of warrantsand options:

On January 3,2005, an employee of the Company exercised a stock option for the purchase of 1,000shares of common stock at an exercise price of $1.65 per share.  These options were issued pursuant to the1997 Stock Option Plan.

 

On January 27,2005, a former employee of the Company exercised a stock option for thepurchase of 18,000 shares of common stock at an exercise price of $1.65 pershare.  These options were issued outsidethe Company’s plans.

 

Dividends:

On November 4,2004, the last day shares of the Company’s Series A Convertible Preferred Stockwere outstanding, the Company, pursuant to the terms of the preferred stock, authorizedcash payment of dividends to holders of its preferred stock as of thatdate.  Such dividends aggregated $41,068and were paid on December 31, 2004.

 

**4.****              Lineof credit:**

 

In September 2004, the Company entered into a revolving line of creditagreement with maximum availability of $750,000 with an independent financialinstitution.  The Company incurred nointerest and borrowed no money against this line in the first quarter of2005.  In April 2005, the Companyterminated this line of credit agreement.

 

**5.****             ****Reclassification:**

 

Asof March 29, 2005, the Company has reclassified certain of its restaurantoperating costs relating to complimentary and employee meals from operatingexpenses to a contra-revenue account. This reclassification has no effect on netloss or accumulated deficit.  The totalamount reclassified is reflected as a reduction of operating expenses and acorresponding reduction of revenues in the same amount in each period affected.For the quarter ended March 28, 2004, the reclassification totaled $153,504.

 

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

 

*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, 2004, filedwith the Securities and Exchange Commission on March 24, 2005, for additionalfactors known to us that may cause actual results to vary.*

 

6

----

 

**Overview**

 

We operate eight casual dining restaurants featuring on-premisesbreweries under the name Granite City Food & Brewery®.  The location of each restaurant and the monthand year of its opening appear in the following chart:

 
| **Location**              | ** ** | **Opened**     |
|---------------------------|------------|----------------|
|                      |       |           |
| St. Cloud, Minnesota      |       | June 1999      |
|                      |       |           |
| Sioux Falls, South Dakota |       | December 2000  |
|                      |       |           |
| Fargo, North Dakota       |       | November 2001  |
|                      |       |           |
| West Des Moines, Iowa     |       | September 2003 |
|                      |       |           |
| Cedar Rapids, Iowa        |       | November 2003  |
|                      |       |           |
| Davenport, Iowa           |       | January 2004   |
|                      |       |           |
| Lincoln, Nebraska         |       | May 2004       |
|                      |       |           |
| Minneapolis, Minnesota    |       | June 2004      |

 

We developed the foregoing restaurants using proceeds from the sale ofour securities, building and equipment leases, debt financing and cash flowfrom operations.

 

The last five units were built based upon the prototype we developed inearly 2003.  These units were developedunder our multi-site development agreement with a commercial developer thatprovides us with assistance in site selection, construction management andfinancing for new restaurants.  Underthis agreement, we lease each new restaurant from our developer.

 

In September 2004, we entered into a securities purchaseagreement with accredited investors for the sale of approximately $8.5 millionof common stock and warrants to purchase common stock.  Usingthe proceeds from this private placement and equipment loans as needed, weintend to add four additional restaurants in 2005, six additional restaurantsin 2006, and eight additional restaurants in 2007.  The restaurants we plan to open in 2005include sites in Kansas, Minnesota and Missouri.  We anticipate that all of these restaurants willbe designed based on our 2003 prototype.

 

In 2001, we developed a patent-pending brewing process called FermentusInterruptusTM.  We believe that FermentusInterruptus improves the economics of our microbrewing process as it eliminatesthe initial stages of brewing and storage at multiple locations, therebyreducing equipment and development costs at new restaurant locations.  Having a common starting point for ourinitial brewing process creates consistency of taste for our product from unitto unit.  In December 2004 we enteredinto a lease agreement for a building which will facilitate the initialstage of our brewing process, the production of wort.  The non-alcoholic wort produced at thisfacility will be transported via truck to the fermentation vessels at each ofour restaurants where the brewing process will be completed. We believe this commissary brewing process will allow us to serviceapproximately 30 restaurant locations from one wort production site.  We are evaluating strategies to capitalize onFermentus Interruptus, including licensing of our brewing technology.

 

Webelieve that our operating results will fluctuate significantly because ofseveral factors, including the timing of new restaurant openings and relatedexpenses, profitability of new restaurants, changes in food and labor costs,increases or decreases in comparable restaurant sales, general economicconditions, consumer confidence in the economy, changes in consumerpreferences, competitive factors and weather conditions.

 

7

----

 

We expect the timing of new restaurant openings to have a significantimpact on restaurant revenues and costs. We believe we will incur the most significant portion of pre-openingcosts associated with a new restaurant within the two months immediatelypreceding, and the month of, the opening of such restaurant.

 

Our restaurantrevenues are comprised almost entirely of the sales of food and beverages.  The sale of retail items, such as cigarettesand promotional items, typically represents approximately 0.3% to 1.4% of totalrevenue.  Product costs include the costsof 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 amortizationincludes depreciation on capital expenditures. Other income and expense represents the cost of interest on debt andcapital leases, interest income on invested assets and loss on disposal ofassets.

 

**Results of Operations**

 

The following tablecompares operating results expressed as a percentage of total revenue for thethirteen weeks ended March 28, 2004 and March 29, 2005.

 
| ** **                     | ** ** | **Thirteen Weeks Ended** | ** ** |
|--------------------------------|------------|--------------------------|------------|
| ** **                     | ** ** | **March 28,  2004**      | ** ** | **March 29,  2005** | ** ** |
|                           |       |                     |       |   |   |
| Restaurant  revenues           |       | 100.0                    | %          | 100.0 | % |
|                           |       |                     |       |   |   |
| Cost of sales:                 |       |                     |       |   |   |
| Food, beverage  and retail     |       | 30.6                     |       | 29.9 |   |
| Labor                          |       | 33.3                     |       | 34.5 |   |
| Direct and  occupancy          |       | 18.1                     |       | 18.8 |   |
| Total cost of  sales           |       | 81.9                     |       | 83.2 |   |
|                           |       |                     |       |   |   |
| Pre-opening                    |       | 4.3                      |       | 0.1 |   |
| General and  administrative    |       | 9.6                      |       | 12.1 |   |
| Depreciation and  amortization |       | 5.4                      |       | 5.6 |   |
|                           |       |                     |       |   |   |
| Operating loss                 |       | (1.2                     | )          | (1.1 | ) |
|                           |       |                     |       |   |   |
| Interest:                      |       |                     |       |   |   |
| Income                         |       | 0.1                      |       | 0.5 |   |
| Expense                        |       | (3.8                     | )          | (4.1 | ) |
| Other expense,  net            |       | —                   |       | (0.1 | ) |
| Net other  expense             |       | (3.7                     | )          | (3.8 | ) |
|                           |       |                     |       |   |   |
| Net loss                       |       | (4.9                     | )%         | (4.9 | )% |

 

Certain percentageamounts do not sum due to rounding.

 

8

----

 

**Critical Accounting Policies**

 

This discussion and analysis is based upon our financial statements,which were prepared in conformity with generally accepted accounting principlesin the United States of America.  Theseprinciples require management to make estimates and assumptions that affect theamounts reported in the consolidated financial statements and accompanyingnotes.  We believe our estimates andassumptions are reasonable; however, actual results and the timing of therecognition of such amounts could differ from those estimates.  We have identified the following criticalaccounting policies and estimates utilized by management in the preparation ofour financial statements:

 

*Property and equipment*

 

The cost of property and equipment is depreciated over the estimateduseful lives of the related assets ranging from three to 20 years.  The cost of leasehold improvements isdepreciated over the initial term of the related lease.  Depreciation is computed on the straight-linemethod for financial reporting purposes and accelerated methods for income taxpurposes.  Amortization of assetsacquired under capital lease is included in depreciation expense.  We review property and equipment,including leasehold improvements, for impairment when events or circumstancesindicate these assets might be impaired pursuant to Statement of FinancialAccounting Standard (SFAS) No. 144.  Webase this assessment upon the carrying value versus the fair market value ofthe asset and whether that difference is recoverable.  Such assessment is performed on arestaurant-by-restaurant basis and includes other relevant facts andcircumstances, including the physical condition of the asset.

 

Our accounting policies regarding property and equipment include certainmanagement judgments regarding the estimated useful lives of such assets andthe determination as to what constitutes enhancing the value of or increasingthe life of existing assets.  Thesejudgments and estimates may produce materially different amounts ofdepreciation and amortization expense than would be reported if different assumptionswere 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 theThirteen Weeks Ended March 28, 2004 and March 29, 2005**

 

**Revenue**

 

We generated $6,139,167and $7,870,335 of revenues during the first quarter of 2004 and 2005,respectively.  The thirteen weeks endedMarch 29, 2005 included 104 restaurant weeks, which is the sum of the actualnumber of weeks each restaurant operated. The thirteen weeks ended March 28, 2004 included only 74 restaurantweeks.  The increase in sales of 28.2% forthese periods was primarily the result of 30 additional restaurant weeks in thefirst quarter of 2005.

 

Due to increaseddemand fostered by the publicity surrounding the opening of a new restaurant,that restaurant typically experiences a temporary period of high revenuesimmediately following its opening (the “honeymoon effect”).  During the first quarter of 2004, we hadthree restaurants experiencing the honeymoon effect while no restaurants were inthis honeymoon period in the first quarter of 2005.  As such, average weekly sales decreased from$82,964 to $75,676 per week.  Comparablerestaurant sales, which include restaurants in operation over 18 months,decreased 5.7%.  As of March 29, 2005,three restaurants were included in comparable restaurant sales.

 

9

----

 

We anticipate thatrestaurant revenues will vary from quarter to quarter.  We anticipate seasonal fluctuations inrestaurant revenues due in part to increased outdoor seating and generallyfavorable weather conditions at our locations during the summer months.  Due to the honeymoon effect, we expect thetiming of new restaurant openings to cause fluctuations in restaurantrevenues.  Additionally, consumerconfidence in the economy and changes in consumer preferences may affect ourfuture revenues.

 

**Restaurant Costs**

 

***Food and Beverage***

 

Our food andbeverage costs decreased by 0.7% as a percentage of revenues during the firstquarter of 2005 compared to the first quarter of 2004.  The decrease we experienced was due primarilyto more staff members becoming familiar with our operations since our mostrecent restaurant opening in June 2004.

 

We expect that ourfood and beverage costs will vary going forward due to numerous variables,including seasonal changes in food costs and guest preferences.  We periodically create new menu offerings andintroduce new craftbrewed beers based upon guest preferences.  Although such menu modifications maytemporarily result in increased food and beverage cost, we believe we are ableto offset such increases with our weekly specials which provide variety to ourguests at a great price value.  Ourvarieties of craftbrewed beer, which we can produce at lower cost than beers wepurchase for resale, also enable us to keep our food and beverage costs low whilefulfilling guest requests and building customer loyalty.  As we have opened additional units, we haveexperienced increased purchasing power and believe we will continue to do sowith additional expansion, thereby mitigating product price increases andmaintaining or reducing 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 increased1.2% as a percentage of revenues during the first quarter of 2005 from thatexperienced in the first quarter of 2004. This increase in labor costs was due to the increases we haveexperienced in health and workers compensation insurance expenses.

 

We expect thatlabor costs will vary as we add new restaurants.  Minimum wage laws, local labor laws andpractices, as well as unemployment rates vary from state to state and willaffect our labor costs, as will hiring and training expense at our new units.  Our management believes that retaining goodemployees and more experienced staff ensures high quality guest service andreduces hiring and training costs.

 

***Direct and Occupancy***

 

Our direct andoccupancy expenses increased 0.7% as a percentage of revenues during the firstquarter of 2005 from that experienced in the first quarter of 2004.  Operating supplies, rent and occupancy costs,repairs and maintenance, advertising and restaurant-level administrative expenserepresent the majority of our direct and occupancy expenses, a substantialportion of which is fixed or indirectly variable.  This increase in direct and occupancy expensewas due primarily to the increase in utilities expense, particularly naturalgas.

 

**Pre-Opening Costs**

 

Pre-opening costs during the first quarter of 2004 related to our Davenportrestaurant which opened in January 2004, while the pre-opening costs in thefirst quarter of 2005 related to our Wichita restaurant which we anticipateopening in July 2005.  Based upon thecosts of labor, travel, lodging and training incurred prior to opening, weexpect pre-opening expenses to average between $275,000 and $300,000 perunit.  Such costs are primarily incurredin the month of, and two months prior to, the restaurant opening.

 

10

----

 

**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 advertising, professional fees, office administration, centralizedaccounting system costs, and travel by our corporate management to therestaurant locations.  General andadministrative expenses increased $363,769, or 2.5% as a percent of revenue, duringthe first quarter of 2005 compared to the first quarter of 2004.  In order to retain and recruit core management and further build ourinfrastructure to facilitate growth, we incurred increased expenses primarilyrelated to payroll, employee benefits, recruiting and relocation.  Additionally, our professional fees,including investor relations, legal and accounting increased in the firstquarter of 2005 over the first quarter of 2004.

 

We expect that generaland administrative costs will continue to fluctuate as a percentage ofrestaurant revenues in the near term as we build our infrastructure toadequately sustain operations through our aggressive expansion schedule.  The anticipated additional restaurantrevenues associated with further expansion are expected to result in greatereconomies of scale for our corporate expenses in the long term.

 

**Depreciation andAmortization**

 

Depreciation andamortization expense increased $114,356 in the first quarter of 2005 comparedto the first quarter of 2004 due to depreciation related to the restaurantsopened after the first quarter of 2004. As a percentage of revenues, depreciation expense increased 0.2% from thefirst quarter of 2004 to the first quarter of 2005.

 

**Other Income and Expense**

 

Interest expense increased $91,816 in the firstquarter of 2005 compared to the first quarter of 2004 due to an increase indebt and capital leases as a result of additional units.  Interest income increased $34,290 over thesame period due to interest earned on cash obtained from the sale of oursecurities in September 2004.  Management expects interest expense willincrease and interest income will decrease as we pursue our three yearexpansion schedule.  As we remodeled our threeolder restaurants to mirror the prototype units, we recorded a $10,843 loss onassets which had not been fully depreciated.

 

**Liquidity and Capital Resources**

 

We have funded ourcapital requirements since inception through sales of securities, building andequipment leases, debt financing and cash flow from operations.  As of March 29, 2005, we had net workingcapital of $5,208,919 compared to net working capital of $6,216,713 at December28, 2004.

 

During the quarterended March 29, 2005, we used $492,240 of net cash in operating activities, $865,817in net cash to purchase equipment and other assets primarily for our wortproduction facility and our Wichita restaurant, and made payments aggregating$189,565 on our debt and capital lease obligations.  Additionally, during the first quarter of2005, we paid cash dividends to shareholders of our preferred stock aggregating$41,068 and received net cash of $31,350 from the issuance of our common stockupon the exercise of options.

 

During first quarter of 2004,the issuance of our common stock upon the exercise of warrants provided us$49,982 of net cash and proceeds from long-term debt provided us $750,000 ofcash.  We used $471,641 of cash inoperating activities, $1,118,536 to purchase equipment and other assetsprimarily for our Davenport, Lincoln and Minneapolis restaurants, and madepayments on our debt and capital lease obligations aggregating $145,246.

 

11

----

 

Usingthe proceeds from our 2004 private placement, we continue to expand intomarkets where we believe our concept will have broad appeal and attractiverestaurant-level economics.  We plan todevelop four additional restaurants in 2005, six additional restaurants in 2006and eight additional restaurants in 2007. We are utilizing the multi-site development agreement we entered into inOctober 2002 with Dunham Capital Management L.L.C. (“Dunham”) to facilitatethis expansion plan.  Dunham iscontrolled by Donald A. Dunham, Jr., who is an affiliate of Granite Partners,L.L.C., a beneficial owner of a significant percentage of our securities.  Under this agreement, our developer providesus assistance in site selection, construction management and restaurantfinancing for new restaurants.

 

Aspart of our expansion strategy, we will continue using the prototype model wedeveloped and used forour five most recently constructed restaurants. We anticipate that each of these prototypical restaurants will requirean investment by our developer of approximately $3.5 million to $4.0 millioneach for land, building and equipment. We anticipate these costs will vary from one market to another based on realestate values, zoning regulations, labor markets and other variables. Under ourdevelopment agreement, we will lease each new restaurant from ourdeveloper.  We anticipate thatpre-opening expenses and the initial purchase of furniture, fixtures and equipmentwill require an investment by us of approximately $1.0 million to $1.6 millionper unit.

 

InFebruary 2005, we commenced leasing a building in Ellsworth, Iowa which isbeing constructed in accordance with our specifications from an unrelated thirdparty. This building will be used to facilitate the initial stage of our FermentusInterruptus brewing process, the production of wort.  We have the option to purchase the facilityat any time during the lease term for one dollar plus the unamortizedconstruction costs.  Because theconstruction costs will be fully amortized through payment of rent during thebase term, if the option is exercised at or after the end of the initialten-year period, the option price will be one dollar.  As such, the lease is classified as a capitallease.

 

With cash generated fromoperations, proceeds from our 2004 private placement and equipment financing,management believes that we will have sufficient funds to pursue our businessstrategy over the next three years.  Ifwe do not generate the cash needed from operations and/or are not able toobtain suitable equipment financing, which we anticipate requiring for one outof every two restaurants we open, we may have reduce or delay our plannedexpansion.

 

**Commitments and ContingentLiabilities**

 

*Operating and Capital Leases:*

 

As of March 29, 2005, wehad seven land and building lease agreements. One of these leases expires in 2019, one in 2020, two in 2023, and theremaining three expire in 2024, 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 three of the leases, we are required topay additional percentage rent based upon restaurant sales.  As of March 29, 2005, future obligationsrelating to the land portion of these seven leases aggregated $15,177,292 pluspercentage rent.  The scheduled rentincreases for the land during the life of each lease are recognized on astraight-line basis.  Future obligationsrelating to the building portion of these seven leases aggregated $23,164,526 asof March 29, 2005.

 

In 2001, we entered intoa 20-year operating lease for land upon which we built our Fargorestaurant.  As of March 29, 2005, futureobligations under the terms of this lease aggregated $1,197,800 plus percentagerent.

 

12

----

 

In December 2004, we enteredinto a land and building lease agreement to be used as a wort productionfacility.  This ten-year lease commencedFebruary 1, 2005 and is classified as a capital lease as it contains a bargainpurchase option.  As of March 29, 2005,future obligations under the terms of this lease aggregated $849,604.

 

As of March 29, 2005, wehave additional capital lease obligations outstanding aggregating $646,471 forequipment leases expiring in 2008, and an operating lease obligationoutstanding of $26,800 for a lease expiring in 2005 for office space.

 

*Personal Guaranties:*

 

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 compensate ourPresident and Chief Executive Officer for his personal guaranties of equipmentloans entered into in August 2003 and January 2004.  The amount of annual compensation is 3% ofthe balance of such loans.  This amount iscalculated and accrued based on the weighted average daily balances of suchloans at the end of each monthly accounting period.  As of March 29, 2005, $24,571 of loanguarantee fees were included as a liability on our balance sheet, $9,677 ofwhich was accrued during the first quarter of 2005.

 

*Employment Agreement:*

 

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 through March30, 2003.  Effective April 1, 2003, webegan paying an annual salary to such officer. 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.  On March 15,2005, the Compensation Committee of our board of directors authorized a newthree-year employment and compensation arrangement with him.  The arrangement provides for a minimum basesalary of $225,000, commencing January 1, 2005, cash incentive compensation for2005 ranging from $0 to $125,550 based on performance, and a stock option forthe purchase of 150,000 shares of common stock.

 

*Development Agreement:*

 

We have entered into adevelopment agreement with Dunham for the development of our restaurants.  The agreement gives Dunham the right todevelop, construct and lease up to 22 restaurants for us prior to December 31,2012.  We are not bound to authorize theconstruction of restaurants during that time period, but generally cannot useanother developer to develop or own a restaurant as long as the developmentagreement is in effect.  We can useanother developer if Dunham declines to build a particular restaurant, if theagreement is terminated because of a default by Dunham, or if our company issold or merged into another company.  Inthe case of a merger or sale of our company, the development agreement may beterminated at such time as Dunham has completed seven restaurants under theagreement.  As of March 29, 2005, fiverestaurants had been constructed for us under this development agreement.

 

13

----

 

The development agreementprovides for a cooperative process between Dunham and our company for theselection of restaurant sites and the development of restaurants on thosesites, scheduling for the development and construction of each restaurant oncea location is approved, and controls on the costs of development andconstruction using bidding and guaranteed maximum cost concepts.  The development agreement provides thatrestaurants will be leased to us on the basis of a triple net lease.  The rental rate of each lease will becalculated using a variable formula which is based on approved and specifiedcosts of development and construction and an indexed interest rate.  The term of each lease is 20 years with fivefive-year options to renew.

 

*Summary of Contractual Obligations:*

 

The following tablesummarizes our obligations under contractual agreements as of March 29, 2005and the time frame within which payments on such obligations are due.  This table does not include amounts relatedto percentage rent as such amounts have not yet been determined.  In addition, whether or not we would incurany additional expense on our employment agreement with Mr. Wagenheim dependsupon the existence of a change in control of the company.  Therefore, no percentage rent nor severanceexpense has been included in the following table.

 
| ** **                                       | ** ** | **Payments due by period** | ** ** |
|--------------------------------------------------|------------|----------------------------|------------|
| **Contractual Obligations**                      | ** ** | **Total**                  | ** ** | **Less than 1  year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than 5  years** | ** ** |
| Long-term debt,  principal                       |       | $                          | 2,674,730  |   | $ | 170,420 |   | $ | 1,788,123 |   | $ | 469,763 |   | $ | 246,424 |   |
| Interest on  long-term debt                      |       | 460,776                    |       | 149,085 |   | 242,356 |   | 61,245 |   | 8,090 |   |
| Capital lease  obligations, including interest   |       | 24,660,602                 |       | 1,235,493 |   | 3,083,365 |   | 2,796,336 |   | 17,545,407 |   |
| Operating lease  obligations, including interest |       | 16,401,892                 |       | 726,373 |   | 1,876,663 |   | 1,891,922 |   | 11,906,934 |   |
| Loan guarantee                                   |       | 148,233                    |       | 61,153 |   | 55,170 |   | 28,581 |   | 3,330 |   |
| Total obligations                                |       | 44,346,233                 |       | 2,342,524 |   | 7,045,677 |   | 5,247,847 |   | 29,710,185 |   |
|                                                  |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Basedon our working capital position at March 29, 2005, we believe we havesufficient working capital to meet our current obligations.

 

**Qualitative and QuantitativeDisclosures about Market Risk**

 

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

 

*Changes in Interest Rate:*

 

In February 2007, we willhave a balloon payment due of approximately $1,325,000 on the loan we obtained froman 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.

 

14

----

 

*Changes in Commodity Prices:*

 

Many of the food productswe purchase are affected by commodity pricing and are, therefore, subject tounpredictable price volatility.   Thesecommodities are generally purchased based upon market prices established withvendors.  Extreme fluctuations incommodity prices and/or long-term changes could have an adverse affect onus.  Although SYSCO Corporation is ourprimary supplier of food, substantially all of the food and supplies wepurchase 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 oursales and earnings will fluctuate based on seasonal patterns.  We anticipate that our highest sales andearnings will occur in the second and third quarters due to the milder climateand availability of outdoor seating during those quarters in our existing andproposed markets.

 

**Inflation**

 

The primary inflationaryfactors affecting our operations are food, supplies and labor costs.  A large number of our restaurant personnelare paid at rates based on the applicable minimum wage, and increases in theminimum wage directly affect our labor costs. In the past, we have been able to minimize the effect of these increasesthrough 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 a system of disclosure controls andprocedures that is designed to provide reasonable assurance that information,which is required to be disclosed, is accumulated and communicated tomanagement timely.  At the end of theperiod covered by this report, we carried out an evaluation under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Interim Chief Financial Officer, of the effectiveness ofthe design and operation of our disclosure controls and procedures pursuant toExchange Act Rule 13a-15.  Based uponthat evaluation, our Chief Executive Officer and Interim Chief FinancialOfficer concluded that our disclosure controls and procedures are effective intimely alerting them to material information relating to our company requiredto be disclosed in our periodic filings with the SEC.

 

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

 

15

----

 

**PART II****                          ****OTHER INFORMATION**

 
| ITEM 1 |   | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | Not applicable.                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
| ITEM 2 |   | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | (a)                                                                                                                                                                                                                                                                                                                                                                                      | Not applicable. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
|   |   | (b)                                                                                                                                                                                                                                                                                                                                                                                      | Not applicable. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |   |
|   |   | (c)                                                                                                                                                                                                                                                                                                                                                                                      | Not applicable. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
| ITEM 3 |   | Defaults upon Senior  Securities                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | Not applicable.                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
| ITEM 4 |   | Submission of Matters  to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | Not applicable.                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
| ITEM 5 |   | Other  Information                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | On May 4, 2005, we  announced that our board of directors had extended the expiration date  of our Class A Warrants through 5:00 p.m., Minneapolis time, on December  15, 2005. As a consequence, our publicly traded units, each consisting  of one share of common stock and one Class A Warrant, will also remain in existence  through this new expiration date. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
| ITEM 6 |   | Exhibits                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | See “Index to  Exhibits.”                                                                                                                                                                                                                                                                                                                                                      |

 

16

----

 

**SIGNATURES**

 

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

 
|              |   |   | GRANITE CITY FOOD & BREWERY LTD. |
|-------------------|--------|--------|--------------------------------------|
|              |   |   |                                 |
|              |   |   |                                 |
| Date: May 9, 2005 |   | By:    | /s/ Monica A. Underwood              |   |
|              |   |   | Monica A. Underwood                  |
|              |   |   | Interim Chief Financial Officer and  |
|              |   |   | Corporate Controller                 |

 

17

----

 

**INDEX TO EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                                               |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                          |
| 10.1                |       | Amendment  No. 2 to Warrant Agreement (including Specimen Class A Warrant certificate).                                                                                                                                       |
|                |       |                                                                                                                                                                                                                          |
| 10.2                |       | Form  of Non-qualified Stock Option Agreement under the Company’s 1997 Stock Option  Plan (incorporated by reference to our Current Report on Form 8-K, filed on  March 21, 2005 (File No. 000-29643)).                  |
|                |       |                                                                                                                                                                                                                          |
| 10.3                |       | Form  of Stock Option Agreement under the Company’s 1997 Stock Option Plan  (incorporated by reference to our Current Report on Form 8-K, filed on March  21, 2005 (File No. 000-29643)).                                |
|                |       |                                                                                                                                                                                                                          |
| 10.4                |       | Form  of Stock Option Agreement under the Company’s 1997 Director Stock Option Plan  (incorporated by reference to our Current Report on Form 8-K, filed on March  21, 2005 (File No. 000-29643)).                       |
|                |       |                                                                                                                                                                                                                          |
| 10.5                |       | Form  of Non-qualified Stock Option Agreement under the Company’s 2002 Equity  Incentive Plan (incorporated by reference to our Current Report on Form 8-K,  filed on March 21, 2005 (File No. 000-29643)).              |
|                |       |                                                                                                                                                                                                                          |
| 10.6                |       | Form  of Incentive Stock Option Agreement under the Company’s 2002 Equity Incentive  Plan (incorporated by reference to our Current Report on Form 8-K, filed on  March 21, 2005 (File No. 000-29643)).                  |
|                |       |                                                                                                                                                                                                                          |
| 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.   |

 

18

----