##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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|(MARK ONE)
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|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2002

OR

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|--- |  | ----------------------------------------------------------------------------------------
|box |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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|    |  | FOR THE TRANSITION PERIOD FROM _______________________TO _______________________.       

COMMISSION FILE NUMBER 000-32527

BRIAZZ, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


|                                  |  |                                     
|--------------------------------- |  | ------------------------------------
|WASHINGTON                        |  | 91-1672311                          
|(STATE OR OTHER JURISDICTION      |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)
|                                 
|                                 
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|OF INCORPORATION OR ORGANIZATION) |  |                                     

3901 7TH AVENUE SOUTH, SUITE 200
SEATTLE, WASHINGTON 98108-5206
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(206) 467-0994
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 þ No  box

The number of outstanding shares of common stock, no par value, of the
Registrant at March 31, 2002 was 5,847,310.





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TABLE OF CONTENTS



|                               |                                                                                                                    |                                   |  |  |  |  |  | 
|------------------------------ | ------------------------------------------------------------------------------------------------------------------ | --------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | ITEM 1. FINANCIAL STATEMENTS                                                                                      
|                               |                                                                                                                    | BALANCE SHEETS                   
|                               |                                                                                                                    | STATEMENTS OF OPERATIONS         
|                               |                                                                                                                    | STATEMENT OF STOCKHOLDERS EQUITY
|                               |                                                                                                                    | STATEMENTS OF CASH FLOWS         
|                               |                                                                                                                    | NOTES TO FINANCIAL STATEMENTS    
|                               | ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                      RESULTS OF OPERATIONS
|                               | ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                                 
|PART II  OTHER INFORMATION   
|                               | ITEM 1. LEGAL PROCEEDINGS                                                                                         
|                               | ITEM 2. CHANGES IN 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 AND REPORTS ON FORM 8-K                                                                          
|SIGNATURES                    



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##### Table of Contents



BRIAZZ, INC.

INDEX TO THE FORM 10-Q
FOR THE 13-WEEK PERIOD ENDED March 31, 2002

|                               |                                                                                                           |  |                                   |    |      |   | 
|------------------------------ | --------------------------------------------------------------------------------------------------------- |  | --------------------------------- | -- | ---- | - | 
|                               |                                                                                                           |  |                                   |    | PAGE
|                               |                                                                                                           |  |                                   |    |     
|PART I  FINANCIAL INFORMATION |                                                                                                           |  |                                   |   
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|                               | ITEM 1. FINANCIAL STATEMENTS                                                                              |  |                                   | 2  |     
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|                               |                                                                                                           |  | BALANCE SHEETS                    |    |      | 2 | 
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|                               |                                                                                                           |  | STATEMENTS OF OPERATIONS          |    |      | 3 | 
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|                               |                                                                                                           |  | STATEMENT OF STOCKHOLDERS EQUITY |    |      | 4 | 
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|                               |                                                                                                           |  | STATEMENTS OF CASH FLOWS          |    |      | 5 | 
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|                               |                                                                                                           |  | NOTES TO FINANCIAL STATEMENTS     |    |      | 6 | 
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|                               | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
            OPERATIONS |  |                                   | 10 |     
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|                               | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                                         |  |                                   | 13 |     
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|PART II  OTHER INFORMATION    |                                                                                                           |  |                                   |   
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|                               | ITEM 1. LEGAL PROCEEDINGS                                                                                 |  |                                   | 14 |     
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|                               | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                                         |  |                                   | 14 |     
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|                               | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                                   |  |                                   | 14 |     
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|                               | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                               |  |                                   | 14 |     
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|                               | ITEM 5. OTHER INFORMATION                                                                                 |  |                                   | 14 |     
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|                               | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                                  |  |                                   | 15 |     
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|SIGNATURES                     |                                                                                                           |  | 16                                |   





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##### Table of Contents









PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS




BRIAZZ, INC.

BALANCE SHEETS
(in thousands, except share data)

|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |         |       |        | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------- | ------ | ------------ | ------- | ----- | ------ | 
|                                                           |                                                                                                                                |                                                                     |                                            |         | March 31,   |        | December 30,
|                                                           |                                                                                                                                |                                                                     |                                            |         | 2002        |        | 2001        
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |             
|                                                           |                                                                                                                                |                                                                     |                                            |         | (unaudited) |        |              |         |      
|Assets                                                     |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                          
|                                                          
|                                                          
|                                                          
|Current assets                                            
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Cash and cash equivalents                                           |                                            | $       | 3,591       |        |              | $       | 6,193 |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Accounts receivable, net of allowance of $44 (2002) and $104 (2001) |                                            |         | 656         |        |              |         | 472   |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Inventory                                                           |                                            |         | 520         |        |              |         | 507   |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Prepaid expenses and other current assets                           |                                            |         | 746         |        |              |         | 447   |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Current portion of restricted certificates of deposit               |                                            |         | 102         |        |              |         | 149   |       
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total current assets                       |         |             | 5,615  |              |         |       | 7,768  | 
|                                                          
|                                                          
|                                                          
|                                                          
|Property and equipment, net                                |                                                                                                                                |                                                                     | 13,190                                     |         |             |        | 13,555       |        
|                                                          
|                                                          
|                                                          
|                                                          
|Restricted certificates of deposit, net of current portion |                                                                                                                                |                                                                     | 421                                        |         |             |        | 453          |        
|                                                          
|                                                          
|                                                          
|                                                          
|Deposits and other assets                                  |                                                                                                                                |                                                                     | 181                                        |         |             |        | 177          |        
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total assets                               |         | $           | 19,407 |              |         | $     | 21,953 | 
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Liabilities and Stockholders Equity                       |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                          
|                                                          
|                                                          
|                                                          
|Current liabilities                                       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Bank overdraft                                                      |                                            | $       | 527         |        |              | $       | 754   |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Current portion of long-term debt                                   |                                            |         | 97          |        |              |         | 138   |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Accounts payable                                                    |                                            |         | 1,381       |        |              |         | 1,322 |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Accrued compensation                                                |                                            |         | 755         |        |              |         | 996   |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                                                                                                | Accrued and other liabilities                                       |                                            |         | 475         |        |              |         | 492   |       
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total current liabilities                  |         |             | 3,235  |              |         |       | 3,702  | 
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Long-term debt, net of current portion                     |                                                                                                                                |                                                                     | 335                                        |         |             |        | 334          |        
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Commitments and contingencies                              |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                          
|                                                          
|                                                          
|                                                          
|Stockholders equity                                       |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Common
stock, no par value; 100,000,000 shares authorized; 5,847,310 (2002)
and 5,824,993 (2001) shares issued and outstanding |                                                                     |                                            | 73,765  |             |        |              | 73,746  |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Additional paid-in capital                                                                                                     |                                                                     |                                            | 29      |             |        |              | 209     |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Deferred stock compensation                                                                                                    |                                                                     |                                            | (894    | )           |        |              | (980    | )    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Accumulated deficit                                                                                                            |                                                                     |                                            | (57,243 | )           |        |              | (55,058 | )    
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total stockholder equity                  |         |             | 15,837 |              |         |       | 17,917 | 
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total liabilities and stockholders equity |         | $           | 19,407 |              |         | $     | 21,953 | 
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        

The accompanying notes are an integral part of these financial statements.

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##### Table of Contents






BRIAZZ, INC.

STATEMENTS OF OPERATIONS
(in thousands, except share data)

|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |       | 
|------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------ | --------- | -------------------- | ----- | -------- | ------- | ----- | ----- | 
|                                                                               |                                                                                                                              |                          |           | Thirteen weeks ended
|                                                                               |                                                                                                                              |                          |           |                     
|                                                                               |                                                                                                                              |                          |           | March 31,            |       | April 1,
|                                                                               |                                                                                                                              |                          |           | 2002                 |       | 2001    
|                                                                               |                                                                                                                              |                          |           |                      |       |         
|                                                                               |                                                                                                                              |                          |           | (unaudited)         
|Sales                                                                          |                                                                                                                              |                          |           |                      |       |          |         |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Retail                                                                                                                       |                          | $         | 5,376                |       |          | $       | 5,854 |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Branded Sales                                                                                                                |                          |           | 2,062                |       |          |         | 2,409 |      
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|                                                                               |                                                                                                                              | Total Sales              |           |                      | 7,438 |          |         |       | 8,263 | 
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Operating Expenses                                                             |                                                                                                                              |                          |           |                      |       |          |         |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Cost of food and packaging                                                                                                   |                          |           | 2,813                |       |          |         | 3,165 |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Occupancy expenses                                                                                                           |                          |           | 996                  |       |          |         | 932   |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Labor expenses (including amortization of deferred stock compensation
of $0 for 2002 and $46 for 2001)                       |                          |           | 2,726                |       |          |         | 2,763 |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Depreciation and amortization                                                                                                |                          |           | 788                  |       |          |         | 606   |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Other operating expenses                                                                                                     |                          |           | 453                  |       |          |         | 435   |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | General and administrative expenses (including amortization of deferred
stock compensation of $87 for 2002 and $22 for 2001) |                          |           | 1,851                |       |          |         | 1,651 |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Loss on sale of assets                                                                                                       |                          |           | 2                    |       |          |         |      |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Provision for asset impairment and store closure                                                                             |                          |           | 16                   |       |          |         |      |      
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|                                                                               |                                                                                                                              | Total operating expenses |           |                      | 9,645 |          |         |       | 9,552 | 
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|Loss from operations                                                           |                                                                                                                              |                          | (2,207    | )                    |       |          | (1,289  | )    
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Other (expense) income                                                         |                                                                                                                              |                          |           |                      |       |          |         |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Interest and other expense                                                                                                   |                          |           | (10                  | )     |          |         | (48   | )    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                               | Interest and other income                                                                                                    |                          |           | 32                   |       |          |         | 26    |      
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|                                                                               |                                                                                                                              |                          | 22        |                      |       |          | (22     | )    
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|Net loss                                                                       |                                                                                                                              |                          | (2,185    | )                    |       |          | (1,311  | )    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Accretion of dividends/amortization of discount on preferred stock             |                                                                                                                              |                          |          |                      |       |          | (1,054  | )    
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|Net loss attributable to common stockholders                                   |                                                                                                                              | $                        | (2,185    | )                    |       | $        | (2,365  | )    
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|Basic and diluted net loss per share                                           |                                                                                                                              | $                        | (0.37     | )                    |       | $        | (926.63 | )    
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      
|Weighted-average shares used in computing basic and diluted
net loss per share |                                                                                                                              |                          | 5,831,370 |                      |       |          | 2,552   |      
|                                                                               |                                                                                                                              |                          |           |                      |       |          |         |       |      

The accompanying notes are an integral part of these financial statements.

3



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##### Table of Contents






BRIAZZ, INC.
STATEMENT OF STOCKHOLDERS EQUITY
(in thousands)
(unaudited)

|                                      |  |                      |       |            |  |          |        |              |  |         |     |       |  |   |      |   |  |   |         |   |  |   |        |  
|------------------------------------- |  | -------------------- | ----- | ---------- |  | -------- | ------ | ------------ |  | ------- | --- | ----- |  | - | ---- | - |  | - | ------- | - |  | - | ------ | -
|                                      |  | Stockholders' equity
|                                      |  |                     
|                                      |  | Common Stock         |       | Additional |  | Deferred |        |              |  |         |     |       |  |  
|                                      |  |                      |       | paid-in    |  | stock    |        | Accumulated  |  |         |     |      
|                                      |  | Shares               |       | Amount     |  | capital  |        | compensation |  | deficit |     | Total
|                                      |  |                      |       |            |  |          |        |              |  |         |     |      
|Balance at December 30, 2001          |  |                      | 5,825 |            |  |          | 73,746 |              |  |         | 209 |       |  |   | (981 | ) |  |   | (55,058 | ) |  |   | 17,916 |  
|                                     
|                                     
|                                     
|                                     
|Amortization of deferred compensation |  |                      |      |            |  |          |       |              |  |         |    |       |  |   | 87   |   |  |   |        |   |  |   | 87     |  
|                                     
|                                     
|                                     
|                                     
|Employee stock purchase plan          |  |                      | 22    |            |  |          | 19     |              |  |         |    |       |  |   |     |   |  |   |        |   |  |   | 19     |  
|                                     
|                                     
|                                     
|                                     
|Net loss                              |  |                      |      |            |  |          |       |              |  |         |    |       |  |   |     |   |  |   | (2,185  | ) |  |   | (2,185 | )
|                                      |  |                      |       |            |  |          |        |              |  |         |     |       |  |   |      |   |  |   |         |   |  |   |        |  
|Balance at March 31, 2002             |  |                      | 5,847 |            |  | $        | 73,765 |              |  | $       | 209 |       |  | $ | (894 | ) |  | $ | (57,243 | ) |  | $ | 15,837 |  
|                                      |  |                      |       |            |  |          |        |              |  |         |     |       |  |   |      |   |  |   |         |   |  |   |        |  

The accompanying notes are an integral part of these financial statements.

4



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##### Table of Contents






BRIAZZ, INC.
STATEMENTS OF CASH FLOWS
(in thousands)

|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |     |        |        |  
|---------------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | --- | -------------------- | ------ | -------- | --- | ------ | ------ | -
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     | Thirteen weeks ended
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                     
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     | March 31,            |        | April 1,
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     | 2002                 |        | 2001    
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |         
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     | (unaudited)         
|Cash flows from operating activities                                   |                                                                            |                                                                  |                                           |                                                     |     |                      |        |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Net loss                                                                   |                                                                  | $                                         | (2,185                                              | )   |                      | $      | (1,311   | )  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Adjustments
to reconcile net loss to net cash used in operating activities
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            | Amortization of deferred stock compensation                      |                                           |                                                     | 87  |                      |        |          | 68  |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            | Depreciation and amortization                                    |                                           |                                                     | 788 |                      |        |          | 606 |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            | Loss on sale of assets                                           |                                           |                                                     | 2   |                      |        |          |    |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            | Provision for asset impairment and store closure                 |                                           |                                                     | 16  |                      |        |          |    |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            | Non-cash expense related to issuance of common stock and options |                                           |                                                     |    |                      |        |          | 10  |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            | Changes in operating assets and liabilities:                     |                                           |                                                     |     |                      |        |          |     |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            |                                                                  | Accounts receivable                       |                                                     |     | (184                 | )      |          |     | (104   | )     
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            |                                                                  | Inventory                                 |                                                     |     | (13                  | )      |          |     | ( 8    | )     
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            |                                                                  | Prepaid expenses and other current assets |                                                     |     | (299                 | )      |          |     | 210    |       
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            |                                                                  | Deposits and other assets                 |                                                     |     | (4                   | )      |          |     | (378   | )     
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            |                                                                  | Accounts payable                          |                                                     |     | 252                  |        |          |     | (1,770 | )     
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            |                                                                  | Accrued compensation                      |                                                     |     | (241                 | )      |          |     | (77    | )     
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       |                                                                            |                                                                  | Accrued and other liabilities             |                                                     |     | (17                  | )      |          |     | (77    | )     
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    
|                                                                       |                                                                            |                                                                  |                                           | Net cash used in operating activities               |     |                      | (1,798 | )        |     |        | (2,831 | )
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    
|Cash flows from investing activities                                   |                                                                            |                                                                  |                                           |                                                     |     |                      |        |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Purchases of property and equipment                                        |                                                                  |                                           | (643                                                | )   |                      |        | (104     | )  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Proceeds from asset disposal                                               |                                                                  |                                           | 8                                                   |     |                      |        |         |    
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    
|                                                                       |                                                                            |                                                                  |                                           | Net cash used in investing activities               |     |                      | (635   | )        |     |        | (104   | )
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Cash flows from financing activities                                   |                                                                            |                                                                  |                                           |                                                     |     |                      |        |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Change in bank overdraft                                                   |                                                                  |                                           | (227                                                | )   |                      |        |         |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Proceeds from (repayment of) line-of-credit borrowings                     |                                                                  |                                           |                                                    |     |                      |        | (10      | )  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Repayment of long-term debt                                                |                                                                  |                                           | (40                                                 | )   |                      |        | (37      | )  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | (Increase) decrease in restricted certificate of deposit                   |                                                                  |                                           | 79                                                  |     |                      |        | 1        |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Proceeds from sale of preferred stock, net of issuance costs               |                                                                  |                                           |                                                    |     |                      |        | 3,034    |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Proceeds from exercise of stock options                                    |                                                                  |                                           |                                                    |     |                      |        | 5        |    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Employee stock purchase plan                                               |                                                                  |                                           | 19                                                  |     |                      |        |         |    
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    
|                                                                       |                                                                            |                                                                  |                                           | Net
cash (used in) provided by financing activities |     |                      | (169   | )        |     |        | 2,993  |  
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    
|Net (decrease) increase in cash and cash equivalents                   |                                                                            |                                                                  | (2,602                                    | )                                                   |     |                      | 58     |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Cash and cash equivalents                                             
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Beginning of period                                                        |                                                                  |                                           | 6,193                                               |     |                      |        | 555      |    
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    
|                                                                       | End of period                                                              |                                                                  | $                                         | 3,591                                               |     |                      | $      | 613      |    
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    
|Supplemental disclosure of cash flow information                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Cash paid for interest                                                     |                                                                  | $                                         | 10                                                  |     |                      | $      | 49       |    
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    
|Supplemental disclosure of non-cash investing and financing activities |                                                                            |                                                                  |                                           |                                                     |     |                      |        |         
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Accretion of dividends/amortizaton of discount on preferred stock          |                                                                  | $                                         |                                                    |     |                      | $      | 1,054    |    
|                                                                       |                                                                            |                                                                  |                                           |                                                     |     |                      |        |          |    

The accompanying notes are an integral part of these financial statements.

5



---



##### Table of Contents






BRIAZZ, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)



|1. |  | Summary of operations and significant accounting policies
|-- |  | ---------------------------------------------------------

Operations

BRIAZZ, Inc. (Briazz or the Company) manufactures and distributes
branded lunch and breakfast foods through multiple points of distribution in
urban and suburban locations. The Company commenced operations in 1995 in
Seattle, and opened new markets in San Francisco in 1996, Chicago in 1997 and
Los Angeles in 1998. The Companys business strategy is to solidify current
markets and build Briazz into a national brand by expanding in major
metropolitan areas across the United States. The Companys retail distribution
network includes Briazz cafes, as well as box lunch delivery. The Company also
distributes its products through select strategic alliances. Each market
operates a central kitchen, which prepares meals daily.

Interim financial information

The financial information at March 31, 2002, and for the 13-week periods
ended March 31, 2002 and April 1, 2001 is unaudited but includes all
adjustments, consisting of only normal recurring adjustments, that the Company
considers necessary for a fair presentation, in all material respects, of its
financial position, operating results and cash flows for the interim dates and
periods presented. The results of operation for the 13-week periods ended
March 31, 2002 and April 1, 2001 are not necessarily indicative of results for
the entire fiscal year or future periods.

Recent accounting pronouncements

In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations (SFAS No. 141). SFAS No. 141 addresses
financial accounting and reporting for business combinations. SFAS No. 141 is
effective for all business combinations for which the date of acquisition is
July 1, 2001 or later. The adoption of SFAS No. 141 is not expected to have a
material impact on the Companys results of operations or financial position.

In July 2001, the Financial Accounting Standards Board issued SFAS No.
142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 142
addresses financial accounting and reporting for acquired goodwill and other
intangible assets. The provisions of SFAS No. 142 will be effective for fiscal
years beginning after December 15, 2001, except that certain provisions of SFAS
No. 142 shall be applied to goodwill and other acquired intangible assets for
which the acquisition date is after June 30, 2001. The adoption of SFAS No.
142 is not expected to have a material impact on the Companys results of
operations or financial position.

In July 2001, the Financial Accounting Standards Board issued SFAS No.
143, Accounting for Asset Retirement Obligations (SFAS No. 143). SFAS No.
143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development, and (or) the normal operation of a long-lived asset, except for
certain obligations of lessees. The provisions of SFAS No. 143 will be
effective for fiscal years beginning after June 15, 2002, however early
application is permitted. The Company is currently evaluating the implications
of adoption of SFAS No. 143.

In August 2001, the Financial Accounting Standards Board issued SFAS No.
144 Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No.
144). This Statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This Statement supersedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business. The provisions of SFAS No. 144 will
be effective for fiscal years beginning after December 15, 2001. The adoption
of SFAS No. 144 is not expected to have a material impact on the Companys
results of operations or financial position.

6



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##### Table of Contents



Impairment of long-lived assets

The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 (SFAS No. 121), Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which
requires the Company to review for impairment of long-lived assets, whenever
events or changes in circumstances indicate that the carrying amount of an
asset might not be recoverable. When such an event occurs, management
determines whether there has been an impairment by comparing the anticipated
undiscounted future net cash flows at the lowest level for which there are
identifiable cash flows, which is at the store level, to the related assets
carrying value. If an asset is considered impaired, the asset is written down
to fair value, which is determined based either on discounted cash flows or
appraised values, depending on the nature of the asset.



|2. |  | Net loss per share
|-- |  | ------------------

The computation of basic and diluted net loss per share is based on the
weighted-average number of shares of common stock outstanding during the
period. The Company has excluded all outstanding options and warrants to
purchase common stock from the calculation of diluted net loss per share, as
such securities are anti-dilutive for all periods presented.

The following table presents the calculation of basic and diluted net loss per
share (in thousands, except share and per share data):

|                                                                               |  |                      |           |               |  |   |           |  
|------------------------------------------------------------------------------ |  | -------------------- | --------- | ------------- |  | - | --------- | -
|                                                                               |  | 13-week period ended
|                                                                               |  |                     
|                                                                               |  | March 31, 2002       |           | April 1, 2001
|                                                                               |  |                      |           |              
|Net loss attributable to common stockholders                                   |  | $                    | (2,185    | )             |  | $ | (2,365    | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Weightedaverage shares used in computing basic
and diluted net loss per share |  |                      | 5,831,370 |               |  |   | 2,552     |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Basic and diluted net loss per share                                           |  | $                    | (0.37     | )             |  | $ | (926.63   | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Antidilutive securities not included in diluted net loss
per share calculation
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Options to purchase common stock                                               |  |                      | 920,176   |               |  |   | 537,818   |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Redeemable convertible preferred stock                                         |  |                      |          |               |  |   | 3,633,486 |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Warrants to purchase redeemable convertible
preferred stock                    |  |                      |          |               |  |   | 907,240   |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Warrants to purchase common stock                                              |  |                      | 930,404   |               |  |   |           |  



|3. |  | Mandatorily redeemable convertible preferred stock and stockholders
equity
|-- |  | ---------------------------------------------------------------------------

At various times throughout fiscal year 2001 and 2000, the Company
triggered the anti-dilution provisions of the Series A, B and C mandatorily
redeemable convertible preferred stock. As a result, in January 2001 the rates
at which preferred stock converted to common stock became 1.0634, 1.0635 and
1.0447 for Series A, B, and C, respectively.

In connection with a $3 million private placement offering of shares of
Series C preferred stock in January and February 2001, the Company issued
approximately 500,000 shares at $6.00 per share. At the time of issuance of
the Series C preferred stock, the Company determined that the fair value of its
common stock exceeded the conversion price of the convertible preferred stock.
As a result, the Company recorded a beneficial conversion feature in accordance
with EITF 00- 27 Application of Issue 98-5 to Certain Convertible Instruments
at the time of issuance of the preferred stock. Accordingly, the beneficial
conversion feature was calculated as of January 29, 2001, the commitment date,
as the difference between the conversion price and the fair value of the common
stock multiplied by the number of shares into which the security was
convertible (intrinsic value). The Company recorded a beneficial conversion
feature of approximately $3 million. The beneficial conversion feature is
analogous to a dividend and was being recognized as a return to the preferred
shareholders over the period from date of issuance to the redemption date
(October 2005) using the effective interest yield method. As of May 1, 2001,
the beneficial conversion feature of $3.0 million was fully amortized upon the
conversion of the Series C preferred stock to common stock. This beneficial
conversion feature was recognized as a dividend, increasing net loss
attributable to common stockholders.

The warrants outstanding to purchase 907,240 (947,817 as adjusted
for anti-dilution) shares of Series C preferred stock were converted into warrants to
purchase common stock on May 7, 2001. In February 2001, the Company modified
the warrants to remove the automatic expiration date upon an initial public offering,
thereby allowing the warrant holders the ability

7



---



##### Table of Contents



to exercise the warrants
through the original expiration date. This modification initially resulted in
a non-cash charge to expense of approximately $635,000 at the time of the
initial public offering, related to approximately 100,000 warrants held by an
officer of the Company. This charge to expense was reversed as of July 1, 2001
when the market price of the Companys common stock dropped to a level below
the exercise price.



|4. |  | Commitments and contingencies
|-- |  | -----------------------------

The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. Company management currently believes that
resolution of such legal matters will not have a material adverse impact on the
Companys financial position, results of operations or cash flows.



|5. |  | Segment information
|-- |  | -------------------

The Company has changed its segment disclosures from previous period
disclosures, to more closely match how it currently manages its business. In
previous periods, the Company disclosed two reportable segments: Retail and
Wholesale and Other. Beginning in the fourth quarter of fiscal 2001, the
Company has managed its business through four reportable segments: Retail,
Branded Sales, Kitchens and General and Administrative. Retail consists of
sales generated through the Companys cafes. Branded Sales consists of two
subgroups: 1) box lunch, catering and vending and 2), wholesale and grocery.
Branded Sales subgroups consist of sales which are aggregated because they have
similar economic characteristics. Kitchens consist of unallocated cost of
products and packaging, along with unallocated costs of kitchen operations.
General and Administrative consists of all costs incurred by the corporate
office as well as those administrative costs incurred by Retail. Management
evaluates segment performance primarily based on sales and segment operating
income (loss). Prior periods have been restated to reflect the new
classifications.

In the table below, EBITDA represents earnings before interest income and
expense, income taxes and depreciation and amortization.

The following table presents certain financial information for each segment
(amounts in thousands).

8



---



##### Table of Contents



Briazz, Inc.
Segment Report (in thousands)

|                                       |                                 |   |                |        |          |   |        |        |  
|-------------------------------------- | ------------------------------- | - | -------------- | ------ | -------- | - | ------ | ------ | -
|                                       |                                 |   | 13-Weeks Ended
|                                       |                                 |   |               
|                                       |                                 |   | March 31,      |        | April 1,
|                                       |                                 |   | 2002           |        | 2001    
|                                       |                                 |   |                |        |         
|Retail                                 |                                 |   |                |        |          |   |        |       
|                                      
|                                      
|                                      
|                                      
|Net Sales                              |                                 | $ | 5,376          |        |          | $ | 5,854  |       
|                                      
|                                      
|                                      
|                                      
|Cost of food and packaging             |                                 |   | (1,953         | )      |          |   | (2,058 | )     
|                                       |                                 |   |                |        |          |   |        |       
|                                       |                                 |   | 3,423          |        |          |   | 3,796  |       
|                                      
|                                      
|                                      
|                                      
|Cost of operations                     |                                 |   | (3,129         | )      |          |   | (2,903 | )     
|                                       |                                 |   |                |        |          |   |        |       
|Income from operations                 |                                 | $ | 294            |        |          | $ | 893    |       
|                                       |                                 |   |                |        |          |   |        |       
|EBITDA                                 |                                 | $ | 747            |        |          | $ | 1,276  |       
|                                       |                                 |   |                |        |          |   |        |       
|Branded Sales                          |                                 |   |                |        |          |   |        |       
|                                      
|                                      
|                                      
|                                      
|                                       | Box Lunch, Catering and Vending |   |                |        |          |   |        |        |  
|                                      
|                                      
|                                      
|                                      
|                                       | Net Sales                       |   | $              | 1,337  |          |   | $      | 1,303  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Cost of food and packaging      |   |                | (405   | )        |   |        | (486   | )
|                                       |                                 |   |                |        |          |   |        |       
|                                       |                                 |   | 932            |        |          |   | 817    |       
|                                       |                                 |   |                |        |          |   |        |       
|                                       | Wholesale and Grocery           |   |                |        |          |   |        |        |  
|                                      
|                                      
|                                      
|                                      
|                                       | Net Sales                       |   |                | 725    |          |   |        | 1,106  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Cost of food and packaging      |   |                | (395   | )        |   |        | (534   | )
|                                       |                                 |   |                |        |          |   |        |       
|                                       |                                 |   | 330            |        |          |   | 572    |       
|                                       |                                 |   |                |        |          |   |        |       
|                                       | Total Branded Sales             |   |                |        |          |   |        |        |  
|                                      
|                                      
|                                      
|                                      
|                                       | Net Sales                       |   |                | 2,062  |          |   |        | 2,409  |  
|                                      
|                                      
|                                      
|                                      
|                                       | Cost of food and packaging      |   |                | (800   | )        |   |        | (1,020 | )
|                                       |                                 |   |                |        |          |   |        |       
|                                       |                                 |   | 1,262          |        |          |   | 1,389  |       
|                                      
|                                      
|                                      
|                                      
|                                       | Cost of operations              |   |                | (1,054 | )        |   |        | (1,085 | )
|                                       |                                 |   |                |        |          |   |        |       
|                                       | Income from operations          |   | $              | 208    |          |   | $      | 304    |  
|                                       |                                 |   |                |        |          |   |        |       
|                                       | EBITDA                          |   | $              | 269    |          |   | $      | 350    |  
|                                       |                                 |   |                |        |          |   |        |       
|Kitchens                               |                                 |   |                |        |          |   |        |       
|                                      
|                                      
|                                      
|                                      
|Unallocated cost of food and packaging |                                 | $ | (60            | )      |          | $ | (87    | )     
|                                      
|                                      
|                                      
|                                      
|Unallocated cost of operations         |                                 |   | (857           | )      |          |   | (877   | )     
|                                       |                                 |   |                |        |          |   |        |       
|Loss from operations                   |                                 | $ | (917           | )      |          | $ | (964   | )     
|                                       |                                 |   |                |        |          |   |        |       
|EBITDA                                 |                                 | $ | (761           | )      |          | $ | (821   | )     
|                                       |                                 |   |                |        |          |   |        |       
|General and Administrative             |                                 |   |                |        |          |   |        |       
|                                       |                                 |   |                |        |          |   |        |       
|                                      
|                                      
|                                      
|                                      
|Cost of operations                     |                                 | $ | (1,792         | )      |          | $ | (1,521 | )     
|                                       |                                 |   |                |        |          |   |        |       
|EBITDA                                 |                                 | $ | (1,674         | )      |          | $ | (1,487 | )     
|                                       |                                 |   |                |        |          |   |        |       
|Total                                  |                                 |   |                |        |          |   |        |       
|                                      
|                                      
|                                      
|                                      
|Net Sales                              |                                 | $ | 7,438          |        |          | $ | 8,263  |       
|                                      
|                                      
|                                      
|                                      
|Cost of food and packaging             |                                 |   | (2,813         | )      |          |   | (3,165 | )     
|                                       |                                 |   |                |        |          |   |        |       
|                                       |                                 |   | 4,625          |        |          |   | 5,098  |       
|                                      
|                                      
|                                      
|                                      
|Cost of operations                     |                                 |   | (6,832         | )      |          |   | (6,386 | )     
|                                       |                                 |   |                |        |          |   |        |       
|Loss from operations                   |                                 | $ | (2,207         | )      |          | $ | (1,288 | )     
|                                       |                                 |   |                |        |          |   |        |       
|EBITDA                                 |                                 | $ | (1,419         | )      |          | $ | (682   | )     
|                                       |                                 |   |                |        |          |   |        |       

9



---



##### Table of Contents





|6. |  | Initial Public Offering and stockholders equity
|-- |  | ------------------------------------------------

The Companys registration statement with respect to its initial public
offering was declared effective by the Securities and Exchange Commission on
May 1, 2001. The offering closed on May 7, 2001. 2,000,000 shares of common
stock were offered in this initial public offering at a price to the public of
$8.00 per share. Net proceeds after deduction of expenses from the initial
public offering totaled approximately $13.6 million.

Immediately prior to the closing date of the initial public offering, all
of the redeemable convertible preferred stock outstanding automatically
converted into common stock at their respective conversion rates (Note 3). The
conversion resulted in the issuance of approximately 3,816,000 shares of common
stock.



|7. |  | Equity-based compensation
|-- |  | -------------------------

Stock options

In February 2002, the board of directors approved a grant of option of
approximately 29,000 shares of common stock to employees with exercise prices
of $1.66 per share. Since the exercise price was equal to the fair value at
the date of grant, no deferred compensation was recognized.




ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations contains forward-looking statements within the meaning of section
27A of the Securities Act of 1933 and section 21E of the Securities Exchange
Act of 1934. Our actual results and the timing of certain events could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors including, but not limited to, those described in
connection with the forward-looking statement and the factors listed on Exhibit
99 to this report, which factors are hereby incorporated by reference in this
report.

In some cases, you can identify forward-looking statements by our use of
words such as may, will, should, could, expect, plan, intend,
anticipate, believe, estimate, predict, potential or continue or
the negative or other variations of these words, or other comparable words or
phrases.

Although we believe the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements or other future events. Moreover,
neither we nor anyone else assumes responsibility for the accuracy and
completeness of forward-looking statements. We are under no duty to update any
of our forward-looking statements after the date of this filing. You should
not place undue reliance on forward-looking statements.

OVERVIEW

BRIAZZ prepares and sells high-quality, branded lunch and breakfast foods
for the on-the-go consumer. We sell our products primarily through our
Company-operated cafes, through delivery of box lunches and catered platters
directly to corporate customers and through selected wholesale accounts. Our
core products are sandwiches, salads and soups, which are complemented by a
variety of fresh baked goods, premium juices, Starbucks coffees and fresh
fruit.

We currently operate 45 cafes in the Seattle, San Francisco, Chicago and
Los Angeles metropolitan areas. The two café increase is due to the
opening of one cafe in the first quarter, two more
cafés as of May 15, 2002 and the closure of one location in the first
quarter of 2002. Our growth strategy is to open new cafes in
our existing markets and, when appropriate, enter into new markets by
concurrently opening a central kitchen and at least four to six cafes and
initiating delivery of box lunch and catering services.

During the fourth quarter 2001, we made a reduction in our workforce at
our general and administrative office. The cost of this reduction has
approximated the salary expense in the fourth quarter of 2001 that would have
been incurred without the reduction. The expected annual cash savings going
forward in 2002 will approximate $0.63 million.

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RESULTS OF OPERATIONS 13-WEEK PERIOD ENDED MARCH 31, 2002 COMPARED WITH 13-WEEK
PERIOD ENDED APRIL 1, 2001

Sales

Total sales decreased by $0.82 million, or 10.0%, from $8.26 million to
$7.44 million.

Retail sales decreased by $0.48 million, or 8.2%, from $5.85 million to
$5.38 million. This decrease was primarily due to lower office occupancy rates
in these areas and the closure of the Westin store in Seattle. Same-store
sales decreased by $0.84 million, or 14.6%, from $5.75 million to $4.91
million. Same-store sales consist only of sales from cafes, and do not include
sales from Branded Sales. The decrease in same-store sales was
primarily due to the decrease in occupancy rates of many of the
buildings in which we are located.

Branded sales decreased by $0.35 million, or 14.4%, from $2.41 million to
$2.06 million. This decrease was primarily due to a decrease in Tullys sales
and the discontinuation of sales to Safeway and Kozmo.com. Safeway was
discontinued due to unprofitable sales while Kozmo.com was eliminated due to
discontinuance of that company. In addition, as our brand awareness has
matured in each geographic region, we have been able to grow our box lunch and
catering sales.

Operating expenses

Operating expenses consist of costs of food and packaging, occupancy,
labor, depreciation and amortization, other operating, general and
administrative and provision for asset impairment and store closure. Total
operating expenses increased by $0.09 million, or 1.0%, from $9.55 million to
$9.65 million. As a percentage of sales, our operating expenses increased from
115.6% to 129.7%. The increase in operating expense and percentage of
sale was primarily due to the costs related to
being a public company, occupancy expenses for new retail locations and
decreased sales.

Cost of food and packaging decreased by $0.35 million, or 11.1%, from
$3.17 million to $2.81 million due to lower sales volume. Cost of food and
packaging decreased as a percentage of sales from 38.3% to 37.8%.

Cost of food and packaging for retail sales decreased by $0.11 million, or
5.1%, from $2.06 million to $1.95 million. Cost of food and packaging for
branded sales decreased by $0.22 million, or 21.6%, from $1.02 million to $0.80
million. The decrease for both retail sales and branded sales was due to the
lower sales volumes. Unallocated cost of food and packaging for kitchens
decreased by $0.03 million, or 32.2%, from $0.08 million to $0.06 million.
This decrease was due to implementing a series of changes in the management and
operations of our central kitchens to reduce our operating costs, particularly
with respect to unit labor costs.

Occupancy expenses consists of costs related to the leasing of retail
space for our cafes and our central kitchens. Occupancy expense increased by
$0.06 million, or 6.9%, from $0.93 million to $1.0 million. This increase was
due to the opening of five additional cafés during the fiscal year 2001 and one
café opening in the first quarter of 2002, offset by the closure of one café
during February 2002. As a percentage of sales, occupancy expense increased
from 11.3% to 13.4%, primarily due to decreased sales. Our rents are fixed or
variable determined as a percentage of sales, or a combination of both.

Labor expenses consist of wages and salaries paid to employees. Labor
expenses decreased by $0.04 million, or 1.3%, from $2.76 million to $2.73
million. This decrease was due to the decrease in sales volumes. As a
percentage of sales, labor expenses increased from 33.4% to 36.6%. This
increase was primarily due to decreased sales.

Depreciation and amortization relates to leasehold improvements, equipment
and vehicles. Depreciation and amortization expense increased by $0.18
million, or 30.0%, from $0.61 million to $0.79 million. As a percentage of
sales, depreciation and amortization increased from 7.3% to 10.6%. This
increase was primarily due to decreased sales.

Other operating expenses consist of direct operating, marketing, repair
and maintenance expense. Other operating expenses increased by $0.02 million,
or 4.1%, from $0.44 million to $0.45 million. As a percentage of sales, other
operating expenses increased from 5.3% to 6.1%. This increase was primarily
due to decreased sales.

General and administrative expenses relate to the support functions
performed by our corporate office, such as finance, human resources, marketing,
food development and information systems. This expense primarily consists of
salaries of our corporate executives, senior management and staff, and our corporate
office lease and related office expenses. General and administrative expenses
increased by $0.20 million, or 12.1%, from $1.65 million to $1.85 million.
Primarily the increase was

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due to expenses relating to being a public company
such as additional legal and accounting expenses. As a percentage of sales,
general and administrative expenses increased from 20.0% to 24.9%.

Provision for asset impairment and store closure relates to the write-down
of leasehold improvements at some cafe locations. Provision for asset
impairment and store closure increased by $16,000 in the thirteen weeks ended
March 31, 2002, due to the closure of the Westin store located in Seattle. No
other store closures are planned.

Other (Expense) Income

Other (expense) income includes interest and other expense and interest
and other income. Other (expense) income increased by $.04 million, or 200%,
from ($.02) million to $.02 million. This increase was due to the interest
income generated from the proceeds associated with the Series C financing that
closed February 1, 2001 and the initial public offering that closed on May 7,
2001. As a percentage of sales, other (expense) income increased from (0.3%)
to 0.3%.

Net Loss

Net loss increased by $0.87 million, or 66.7%, from $1.31 million to $2.19
million. This increase was primarily due to decreased sales and increased
occupancy, and general and administrative expenses. As a percentage of sales,
net loss increased from 15.9% to 29.4%.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities during the 13 weeks ending March 31,
2002 and April 1, 2001 was $1.8 million and $2.83 million, respectively. Net
cash used in operating activities resulted primarily from net loss before
non-cash charges.

Net cash used in investing activities for the 13 weeks ending March 31,
2002 and April 1, 2001 was approximately $0.64 million and $0.10 million,
respectively. Net cash used in investing activities resulted from capital
additions primarily related to cafés opened in 2002 and those
cafés still under construction.

Net cash used by financing activities for the 13 weeks ending March 31,
2002 was approximately $0.17 million. The net cash provided by financing
activities for the 13 week ending April 1, 2001 was $3.0 million. Net cash
provided by financing activities in fiscal year 2001 resulted primarily from
the issuance of capital stock, which was partially offset by financing costs,
and scheduled principal repayments primarily relating to delivery vehicle
financing. In January and February 2001, net cash provided from the issuance
of additional shares of Series C preferred stock was $3.0 million.

We have opened five cafes in 2001 and one in the first quarter of 2002. We
closed a café during the first quarter of 2002. This closure resulted from
decreased sales as the cafés building occupancy shifted from normal office
occupancy to a data-center. In 2002, costs associated with this café closure
are estimated to be $16,000 and we plan to transfer assets with a net book
value of $26,000. Subject to the availability of adequate funding, we plan to
open five additional cafes in the second and third quarters of 2002. These five
additional cafés to be opened in 2002 will require approximately $1.4 million
of additional funds in 2002 for leasehold improvements and equipment.

We have lease obligations in 2002 of $2.9 million which are mostly due to
our operating leases on our facilities. Capital vehicle leases make up $0.1
million of our total 2002 lease obligation. A small portion of our 2002 lease
obligation is for office equipment. The increase in rental expense in
future years is not material. The lease obligation amount will
increase with the addition of each new café.

Since inception we have financed our operations primarily through the
issuance of capital stock and debt. Since inception, we have raised cash of
approximately $62.9 million from sales of preferred stock, convertible debt and
common stock. In addition to funding capital expenditures, which have
approximated $26.8 million since inception, cash provided by financing
activities has funded our initiatives in business and market development and
related operating losses. Since inception through the 13 weeks ending March
31, 2002, we have reported net losses of approximately $50.3 million. In the
near term, operating losses may continue despite actions taken to reduce
negative cash flow from operations. Actions taken to reduce negative cash
flow from operations, including improving operational efficiencies, cost
controls and cutbacks and closing of certain unprofitable operating properties,
continued during 2002.

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The accompanying financial statements have been prepared assuming that we
will continue as a going concern and do not include any adjustments to reflect
the possible future effects on the recoverability of assets and liquidation of
liabilities that may result from this uncertainty. We have incurred
substantial operating losses and negative cash flows from operations since
inception and had an accumulated deficit of $57.2 million at March 31, 2002.
These matters raise substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependant upon numerous
factors, including our ability to obtain additional financing, our ability to
increase our level of future revenues or our ability to reduce operating
expenses.

At March 31, 2002, we had cash and cash equivalents of approximately $3.6
million. We believe our current cash and cash equivalents, will be sufficient
to meet our anticipated cash needs for working capital and capital expenditures
for at least the next six to nine months. Thereafter, we may need to raise additional
capital to finance our operations, as well as to enhance our operations, fund
our expansion and respond to competitive pressures. There can be no assurance
that we will be able to obtain additional financing at terms favorable to us,
or at all, reduce expenses or successfully complete other steps to continue as
a going concern. If we are unable to obtain sufficient funds to satisfy our
cash requirements, we may be forced to curtail operations, dispose of assets,
or seek extended payment terms from its vendors. Such events would materially
and adversely affect our financial position and results of operations.

Poor financial results, unanticipated expenses or unanticipated
opportunities that require financial commitments could give rise to additional
financing requirements sooner than we expect. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our existing shareholders would be reduced, and these securities
may have rights, preferences or privileges senior to those of our common stock.
If adequate funds are not available or are not available on acceptable terms,
our ability to enhance our services, fund our expansion, respond to competitive
pressures or take advantage of business opportunities would be significantly
limited, and we might need to significantly restrict our operations.

EQUITY-BASED COMPENSATION

Stock options

In December 2001, the board of directors approved a grant of option of
approximately 4,000 shares of common stock to a consultant for services to be
rendered in connection with leasehold improvements and food development. Since
the exercise price was equal to the fair value at the date of grant, no
deferred compensation was recognized.

In February 2002, the board of directors approved a grant of option of
approximately 29,000 shares of common stock to employees with exercise prices
of $1.66 per share. Since the exercise price was equal to the fair value at
the date of grant, no deferred compensation was recognized.

Preferred stock

In April 2001, 18,917 shares of Series C preferred stock, with an
approximate fair value of $155,000, were issued to two consultants for services
to be rendered in connection with leasehold improvements and food development.
This amount will be depreciated as a leasehold improvement over 5
years.




ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We have no derivative financial instruments or derivative commodity
investments. We invest our excess cash in investment grade, highly liquid
investments, consisting of money market instruments, bank certificates of
deposit and short-term investments in commercial paper. We do not believe
these investments are subject to significant market risk.

All of our transactions are conducted, and our accounts are denominated,
in United States dollars. Accordingly, we are not exposed to foreign currency
risk.

Many of the food products purchased by us are affected by commodity
pricing and are, therefore, subject to price volatility caused by weather,
production problems, delivery difficulties, utility costs and other factors
that are outside our control. We believe that substantially all of our food
and supplies are available from numerous sources, which helps to control
food commodity risk. We believe we have the ability to increase menu
prices, or vary the menu items offered, if needed in response to a food product
price increase.




PART II  OTHER INFORMATION

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ITEM 1. LEGAL PROCEEDINGS

BRIAZZ is not currently a party to any material legal proceeding.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(a)  Changes in Securities

There have been no changes in our registered securities.

(b)  Sales of Unregistered Securities

None

(c)  Use of proceeds

On May 1, 2001, the Securities and Exchange Commission declared effective
our registration statement on Form S-1 (Commission File No. 333-54922). On May
7, 2001 we closed our initial public offering of 2,000,000 shares of our common
stock at an initial public offering price of $8.00 per share. The managing
underwriter in the initial public offering was WR Hambrecht+Co, LLC. Net
proceeds to BRIAZZ, after deduction of $2.4 million in underwriting discounts,
commissions and other expenses from the initial public offering totaled $13.6 million.
Our expenses for the offering consisted of approximately $0.96 million in underwriting
discounts and
commissions and $1.46 million in other expenses. None of the expenses incurred
in the offering were direct or indirect payments to affiliates, directors,
officers or persons owning ten percent or more of any class of our equity
securities. In the period from the closing of the initial public offering
through March 31, 2002, we used $2.0 million for the repayment of
line-of-credit borrowings and scheduled principal repayments primarily relating
to delivery vehicle financing. The remaining initial public offering funds will
be used to finance growth and on-going operations. In 2001, we spent $3.8
million on capital purchases. In 2002, of the total $0.64 million spent on capital
purchases we spent $0.57 on the build-out of new cafés and $0.06 on our new
point of sale system, order entry system and our internet web sit. The last
$0.01 million was for general operations. Until the proceeds are used they are
invested in short-term commercial paper.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.




ITEM 5. OTHER INFORMATION

Charles
Matteson, Jr. was added as a Director in 2002.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following exhibits are filed as part of this report:

|            |  |                                                                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit     |  |                                                                                                                                                             
|Number      |  | Description                                                                                                                                                 
|            |  |                                                                                                                                                             
|3.1(2)      |  | Amended and Restated Articles of Incorporation.                                                                                                             
|           
|           
|           
|           
|3.2(2)      |  | Bylaws.                                                                                                                                                     
|           
|           
|           
|           
|4.1(2)      |  | Specimen Stock Certificate.                                                                                                                                 
|           
|           
|           
|           
|10.1(1)(2)  |  | 1996 Amended Stock Option Plan.                                                                                                                             
|           
|           
|           
|           
|10.2(1)(2)  |  | Form of Option Agreement (Fresh Options prior to February 2001)                                                                                             
|           
|           
|           
|           
|10.3(1)(2)  |  | Form of Option Agreement (other options prior to February 2001)                                                                                             
|           
|           
|           
|           
|10.4(1)(2)  |  | 2001 Employee Stock Purchase Plan.                                                                                                                          
|           
|           
|           
|           
|10.5(2)     |  | Form of Warrant.                                                                                                                                            
|           
|           
|           
|           
|10.6(1)(2)  |  | Employment Agreement between BRIAZZ and Charles William Vivian dated July 14, 1999.                                                                         
|           
|           
|           
|           
|10.7(2)     |  | Retail Lease between BRIAZZ and Benaroya Capital Company regarding 1100 Olive Way, Seattle,
WA dated November 6, 1998.                                      
|           
|           
|           
|           
|10.8(2)     |  | Form of Registration Rights Agreement among BRIAZZ and certain of our shareholders dated
August 15, 1997, as amended.                                       
|           
|           
|           
|           
|10.9(2)     |  | Agreement between BRIAZZ and Stusser Realty Group Limited Partnership dated January 1998.                                                                   
|           
|           
|           
|           
|10.10(2)    |  | Sublease between BRIAZZ and Stusser Electric Company regarding 3901 7th Avenue South,
Seattle, WA dated February 6, 1998.                                   
|           
|           
|           
|           
|10.11(2)    |  | Sublease Amendment between BRIAZZ and Stusser Electric Company regarding 3901 7th Avenue
South, Seattle, WA dated August 28, 2000.                          
|           
|           
|           
|           
|10.12(2)    |  | Lease between BRIAZZ and Mission-Taylor Properties regarding 225 Mendell St., San
Francisco, CA dated June 28 1996.                                         
|           
|           
|           
|           
|10.13(2)    |  | Amendment to Lease between BRIAZZ and Mission-Taylor Properties regarding 225 Mendell St.,
San Francisco, CA dated May 25, 2000.                            
|           
|           
|           
|           
|10.14(2)    |  | Lease between BRIAZZ and Time Realty Investments, Inc. regarding 200 Center St., El
Segundo, CA dated December 15, 1997.                                    
|           
|           
|           
|           
|10.15(2)    |  | Industrial Building Lease between BRIAZZ and Walnut Street Properties, Inc. regarding 1642
Lake Street, Chicago, IL dated April 7, 1997.                    
|           
|           
|           
|           
|10.16(2)    |  | Promissory Note made by BRIAZZ and Victor Alhadeff in favor of U.S. Bank National
Association in the principal amount of $2,000,000 dated December 30, 1999.
|           
|           
|           
|           
|10.17(2)    |  | Commercial Security Agreement among BRIAZZ, Victor Alhadeff and U.S.Bank National
Association dated December 30, 1999.                                      
|           
|           
|           
|           
|10.18(2)    |  | Noncompetition Agreement between BRIAZZ and Victor D. Alhadeff dated October 18, 1996.                                                                      
|           
|           
|           
|           
|10.19(1)(2) |  | Form of Option Agreement (all options since February 2001)                                                                                                  
|           
|           
|           
|           
|10.20(2)    |  | Extension or Revision Agreement between BRIAZZ and Victor Alhadeff and U.S. Bank National
Association dated March 26, 2001.                                 
|           
|           
|           
|           
|10.21       |  | Form 8-K report filed February 15, 2002                                                                                                                     
|           
|           
|           
|           
|99.1(3)     |  | Risk Factors                                                                                                                                                



---

|(1) |  | Indicates management contract                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference to our registration statement on Form S-1 (No. 333-54922)                     
|   
|   
|   
|   
|(3) |  | Incorporated by reference to
the Companys Form 10-Q, for the Quarterly Period ended
September 30, 2001.
|   
|   
|   
|   
|(b) |  | Form 8-K                                                                                                
|   
|   
|   
|   
|    |  | Briazz filed a Form 8-K on
February 15, 2002 and is incorporated by reference in this Form
10-Q         

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|      |  |              |  |                  |  |                                                                                                          
|----- |  | ------------ |  | ---------------- |  | ---------------------------------------------------------------------------------------------------------
|      |  |              |  | BRIAZZ, INC.    
|     
|Date: |  | May 15, 2002 |  | By:
Name:
Title: |  | /s/   Victor D. AlhadeffVictor D. Alhadeff
Chief Executive Officer and
Chairman of the Board of Directors

16