UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-QSB/A

 

 

Commission File Number 000-29643

 

GRANITE CITY FOOD & BREWERY LTD.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Minnesota		41-1883639
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
5831 Cedar Lake Road
St. Louis Park, MN 55416
(952) 525-2070
(Address of Principal Executive Offices and Issuer’s
Telephone Number, including Area Code)

 

Check whether the issuer:  (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter 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 July 16, 2004, the issuer had outstanding 4,311,284 shares of common stock and 1,000,000 Class A Warrants.  The number of outstanding shares of common stock includes the shares issuable upon separation of the units, each consisting 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.

 

 

PART I     FINANCIAL INFORMATION

 

ITEM 1  Financial Statements

 

GRANITE CITY FOOD & BREWERY LTD.

 

CONDENSED BALANCE SHEET

(Unaudited)

 

		June 27, 2004 (Restated)
Current assets:
Cash		$	704,439
Inventory		277,297
Prepaids and other		268,368
Total current assets		1,250,104
Property and equipment, net		22,137,100
Intangible assets and other		401,262
Total assets		$	23,788,466
Current liabilities:
Accounts payable		$	861,517
Accrued expenses		1,840,715
Line of credit		95,348
Long-term debt, current portion		226,874
Capital lease obligations, current portion		504,612
Total current liabilities		3,529,066
Long-term debt, net of current portion		2,611,477
Capital lease obligations, net of current portion		12,012,146
Total liabilities		18,152,689
Shareholders’ equity:
Common stock, $0.01 par value, 90,000,000 shares authorized; 4,311,284 shares issued and outstanding		43,113
Preferred stock, $0.01 par value, 10,000,000 authorized; 54,355 Series A Convertible Preferred shares issued and outstanding		544
Additional paid-in capital		12,544,924
Accumulated deficit		(6,952,804		)
Total shareholders’ equity		5,635,777
Total liabilities and shareholders’ equity		$	23,788,466

 

See notes to condensed financial statements.

 

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GRANITE CITY FOOD & BREWERY LTD.

 

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Thirteen Weeks Ended						Twenty-six Weeks Ended
		June 29, 2003			June 27, 2004			June 29, 2003			June 27, 2004
Restaurant revenues		$	3,111,026		$	7,625,932		$	5,981,186		$	13,918,803
Cost of sales:
Food, beverage and retail		909,316			2,333,702			1,728,198			4,209,817
Labor		1,061,028			2,526,463			2,046,861			4,569,684
Direct and occupancy		653,660			1,382,331			1,316,927			2,647,193
Total cost of sales		2,624,004			6,242,496			5,091,986			11,426,694
Pre-opening		—			483,349			—			748,323
General and administrative		412,806			605,478			706,423			1,194,062
Depreciation and amortization		197,159			384,970			390,195			715,010
Operating loss		(122,943		)	(90,361		)	(207,418		)	(165,286		)
Interest:
Income		23,581			221			46,882			4,192
Expense		(121,727		)	(279,125		)	(245,175		)	(511,298		)
Net other expense		(98,146		)	(278,904		)	(198,293		)	(507,106		)
Net loss		(221,089		)	(369,265		)	(405,711		)	(672,392		)
Less preferred stock dividends declared		(168,732		)	(108,710		)	(265,081		)	(455,816		)
Net loss available to common shareholders		$	(389,821	)	$	(477,975	)	$	(670,792	)	$	(1,128,208	)
Loss per common share, basic and diluted		$	(0.10	)	$	(0.11	)	$	(0.17	)	$	(0.27	)
Weighted average shares outstanding, basic and diluted		3,871,101			4,271,439			3,858,208			4,202,186

 

See notes to condensed financial statements.

 

2

 

GRANITE CITY FOOD & BREWERY LTD.

 

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Twenty-six Weeks Ended
		June 29, 2003			June 27, 2004
Cash flows from operating activities:
Net loss		$	(405,711	)	$	(672,392	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		390,195			715,010
Stock option/warrant compensation		—			12,780
Decrease (increase) in:
Inventory		(72		)	(100,121		)
Prepaids and other		(64,675		)	(122,511		)
Increase (decrease) in:
Accounts payable		(12,833		)	391,473
Accrued expenses		(226,753		)	438,764
Net cash provided by (used in) operating activities		(319,849		)	663,003
Cash flows from investing activities:
Purchase of:
Property and equipment		(908,056		)	(1,979,625		)
Intangible assets and other		(12,327		)	(29,561		)
Net cash used in investing activities		(920,383		)	(2,009,186		)
Cash flows from financing activities:
Payments on capital lease obligations		(129,057		)	(223,642		)
Payments on long term-debt		(15,331		)	(90,985		)
Proceeds from (payments on) line of credit		—			95,348
Payment of dividends		(168,348		)	(36		)
Proceeds from long-term debt		—			750,000
Proceeds from issuance of stock		1,448,987			79,977
Net cash provided by financing activities		1,136,251			610,662
Net decrease in cash		(103,981		)	(735,521		)
Cash, beginning		3,521,842			1,439,960
Cash, ending		$	3,417,861		$	704,439
Supplemental disclosure of non-cash investing activities:
Buildings acquired under capital lease agreements		$	—		$	5,675,128

 

See notes to condensed financial statements.

 

3

 

GRANITE CITY FOOD & BREWERY LTD.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

Thirteen and twenty-six weeks ended June 29, 2003 and June 27, 2004

 

1.     Nature of business and basis of presentation:

 

Nature of business:

Granite City Food & Brewery Ltd. (“the Company”) was formed to develop and operate casual dining restaurants featuring on-premise breweries.  The Company is developing these restaurant-microbreweries, known as Granite City Food & Brewery®, in selected markets throughout the United States.  The theme is casual dining with a wide variety of menu items that are prepared fresh daily, combined with freshly brewed hand-crafted beers made on-premise.  The Company produces its beer using a process called Fermentus Interruptus™, which is intended to maintain high beer quality while enhancing overall profitability by reducing unit-level brewing costs.  The first facility, located in St. Cloud, Minnesota, opened in July 1999.  Subsequently, the Company opened restaurants in Sioux Falls, South Dakota; Fargo, North Dakota; West Des Moines, Cedar Rapids and Davenport, Iowa, Lincoln, Nebraska and Minneapolis, Minnesota.

 

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

 

Interim financial statements:

The Company has prepared the condensed financial statements for the thirteen and twenty-six weeks ended June 29, 2003 and June 27, 2004 without audit by the Company’s independent auditors.  In the opinion of the Company’s management, all adjustments necessary to present fairly the financial position of the Company at June 27, 2004 and the results of operations and cash flows for the periods ended June 29, 2003 and June 27, 2004 have been made. Those adjustments consist only of normal and recurring adjustments.

 

Certain information and note disclosures normally included in the Company’s annual financial statements have been condensed or omitted.  These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 28, 2003, filed with the Securities and Exchange Commission on March 29, 2004, as amended on December 21, 2004.

 

The results of operations for the thirteen and twenty-six weeks ended June 27, 2004 are not necessarily indicative of the results to be expected for the entire year.

 

4

 

Earnings (loss) per share:

Basic earnings (loss) per common share is calculated by dividing net income (loss) less preferred stock dividends declared by the weighted average number of common shares outstanding.  Diluted earnings (loss) per common share assumes that outstanding common shares were increased by shares issuable upon exercise of stock options and warrants for which market price exceeds exercise price, less shares which could have been purchased by the Company with the related proceeds.  Calculations of the Company’s net loss per common share for the thirteen and twenty-six weeks ended June 29, 2003 and June 27, 2004 are set forth in the following table:

 

		Thirteen Weeks Ended						Twenty-six Weeks Ended
		June 29, 2003			June 27, 2004			June 29, 2003			June 27, 2004
Net loss		$	(221,089	)	$	(369,265	)	$	(405,711	)	$	(672,392	)
Less dividends declared		(168,732		)	(108,710		)	(265,081		)	(455,816		)
Net loss available to common shareholders		$	(389,821	)	$	(477,975	)	$	(670,792	)	$	(1,128,208	)
Loss per common share, basic and diluted		$	(0.10	)	$	(0.11	)	$	(0.17	)	$	(0.27	)
Weighted average shares outstanding, basic and diluted		3,871,101			4,271,439			3,858,208			4,202,186

 

2.     Stock compensation:

 

The Company accounts for its stock-based compensation awards using the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.  No compensation cost has been recognized for options issued to employees when the exercise price of the options granted is at least equal to the fair value of the common stock on the date of grant.  Had compensation cost been determined consistent with Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation, 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 to the following pro forma amounts:

 

		Thirteen Weeks Ended						Twenty-six Weeks Ended
		June 29, 2003			June 27, 2004			June 29, 2003			June 27, 2004
Net income (loss):
As reported		$	(221,089	)	$	(369,265	)	$	(405,711	)	$	(672,392	)
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		$	(73,470	)	$	(168,831	)	$	(215,013	)	$	(322,523	)
Pro forma		$	(294,559	)	$	(538,096	)	$	(620,724	)	$	(994,915	)
Net income (loss) per common share
Basic and diluted as reported		$	(0.10	)	$	(0.11	)	$	(0.17	)	$	(0.27	)
Basic and diluted pro forma		$	(0.12	)	$	(0.15	)	$	(0.23	)	$	(0.35	)

 

5

 

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

 

		2003		2004
Dividend yield		None		None
Expected volatility		78.6%		71.4%
Expected life of option		5-10 years		5-10 years
Risk-free interest rate		3.4%		4.8%

 

3.     Change in capitalization:

 

Exercise of warrants and options:

 

During the first quarter of 2004, the Company issued an aggregate of 40,822 shares of common stock to accredited investors, upon the conversion of 645 shares of Series A Convertible Preferred Stock originally issued on October 1, 2002.  The convertible preferred stock was converted at $1.58 per share.

 

During the first quarter of 2004, the Company issued 31,645 shares of common stock to accredited investors upon the exercise for cash of warrants originally issued on October 1, 2002, in connection with a private placement of Series A Convertible Preferred Stock and warrants.  Each warrant was exercised at $1.58 per share.

 

As part of the Company’s initial public offering, the Company sold to the underwriter, for $100, stock purchase warrants for the purchase of an aggregate of 100,000 units exercisable at $4.95 per unit after June 6, 2001. Each unit consists of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $5.00 per share, subject to adjustment.  The agreement that set forth the terms and conditions of these warrants contains certain anti-dilution provisions.  Pursuant to these provisions, the number of shares purchasable upon exercise of these warrants and the related purchase price both required adjustment upon the issuance of common stock in lieu of cash dividends to the holders of the Company’s Series A Convertible Preferred Stock.  These warrants also provide for a cashless exercise provision and expire on June 6, 2005.  During the first quarter of 2004, the Company issued 6,514 units upon the cashless exercise of 19,368 of such warrants.  As a result of these exercises and the anti-dilution adjustments, as of June 27, 2004, the number of units purchasable under this agreement was 87,670 and the exercise price was $4.61.

 

On June 8, 2004, the Company issued 15,822 shares of common stock to an accredited investor upon the exercise for cash of warrants originally issued on October 1, 2002, in connection with a private placement of Series A Convertible Preferred Stock and warrants.  Each warrant was exercised at $1.58 per share.

 

On June 10, 2004, the Company issued an aggregate of 31,645 shares of common stock to an accredited investor, upon the conversion of 500 shares of Series A Convertible Preferred Stock originally issued on October 1, 2002.  The convertible preferred stock was converted at $1.58 per share.

 

6

 

As part of the Company’s initial public offering, the Company sold 1,000,000 units, each unit consisting of one share of common stock and one redeemable Class A warrant.  Each Class A warrant entitles the holder to purchase one share of common stock at an exercise price of $5.00 per share.  The agreement that set forth the terms and conditions of the Class A Warrants contains certain anti-dilution provisions.  Pursuant to these provisions, the number of shares purchasable upon exercise of these warrants and the related purchase price both required adjustment upon the issuance of common stock in lieu of cash dividends to the holders of the Company’s Series A Convertible Preferred Stock. As a result of these adjustments and the issuance, pursuant to Registration File No. 333-93459, of 1,072 shares of common stock upon the exercise of such warrants in May 2004 at an exercise price of $4.66, the number of shares purchasable under this agreement at June 27, 2004 was 1,071,889 and the exercise price was $4.66 per share.  The warrants expire on June 6, 2005.

 

Dividends:

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

 

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

 

On June 15, 2004, the Company authorized cash payment of dividends to holders of its preferred stock as of June 23, 2004.  Such dividends aggregated $108,710 and were included in accrued expenses on the Company’s balance sheet at June 27, 2004.  Such dividends were paid on June 30, 2004.

 

4.     Line of Credit:

 

In April 2004, the Company entered into a revolving line of credit agreement with maximum availability of $750,000 with an independent financial institution.  The Company pays 6.75% annual interest on amounts it borrows.  This line of credit expires September 1, 2004.  The line of credit is secured by substantially all the personal property of the Company and is guaranteed by one of the Company’s directors.  As of June 27, 2004, the Company had $95,348 outstanding on this line.

 

5.     Restatement:

 

The financial statements for the year ended December 29, 2002 have been restated to record a beneficial conversion feature reducing retained earnings and increasing additional paid-in-capital by $1,958,572.  The balance sheet presented herein has been restated to reflect this change.

 

7

 

SIGNATURES

 

 

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

 

 

		GRANITE CITY FOOD & BREWERY LTD.
Date:  December 21, 2004	By:	/s/ Monica A. Underwood
		Monica A. Underwood
		Interim Chief Financial Officer and
		Corporate Controller

 

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INDEX TO EXHIBITS

 

Exhibit Number		Description
10.1		Business Loan Agreement between Granite City Food & Brewery Ltd. and First National Bank, dated April 14, 2004 (incorporated by reference to our Quarterly Report on Form 10-QSB, filed on May 3, 2004 (File No. 0-29643)).
10.2		Promissory Note for the principal sum of $750,000 issued by Granite City Food & Brewery Ltd., Borrower, to First National Bank, Lender, dated April 14, 2004 (incorporated by reference to our Quarterly Report on Form 10-QSB, filed on May 3, 2004 (File No. 0-29643)).
10.3		Commercial Guarantee Agreement between Granite City Food & Brewery Ltd., Borrower, First National Bank, Lender, and Steven J. Wagenheim, Guarantor, dated April 14, 2004 (incorporated by reference to our Quarterly Report on Form 10-QSB, filed on May 3, 2004 (File No. 0-29643)).
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.

 

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