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Exhibit 99.1

RISK FACTORS

Risks Related To Our Business

We Have A History Of Losses And Anticipate Continued Losses In The Future,
Which May Have A Material Adverse Effect On Our Business, Our Ability To
Implement Our Business Strategy And Our Stock Price.

We incurred losses of $5.1 million during the fiscal year ended December 28,
1997, $12.5 million during the fiscal year ended December 27, 1998, $15.4
million during the fiscal year ended December 26, 1999, $6.3 million during the
fiscal year ended December 31, 2000, $6.8 million during the fiscal year ended
December 30, 2001 and $4.7 million during the 26 weeks
ended June,
2002. Since inception, we had accumulated net losses of $52.8 million as of
June 30, 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. Failure to achieve profitability, or maintain
profitability if achieved, may have a material adverse effect on our business,
our ability to implement our business strategy and our stock price.

There can be no assurance that we will be able to obtain additional financing,
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 our vendors. Such events would materially and
adversely affect our financial position and results of operations.

Without Substantial Financing in the Immediate Future, On Terms Favorable To
Us, We May Be Required to Limit or Discontinue Our Operations.

We believe our current cash and cash equivalents will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for
approximately two to five months, depending upon the
success of our initiatives with current and potential wholesale customers,
including Target and Albertsons. We intend to seek an additional $5 to $10
million in equity financing to fulfill our cash requirements for the near
future. We may also seek additional debt financing prior to seeking the $5 to
$10 million in equity financing. There can be no assurance that we will be
able to obtain additional financing, reduce expenses or successfully complete
other steps to reduce or eliminate our losses. In addition, the terms of our
outstanding convertible debt may adversely affect our ability to obtain
additional financing on terms favorable to us, or at all. If we are unable to
obtain additional funds to satisfy our cash requirements on terms favorable to
us, we may be forced to limit our operations, dispose of assets, seek extended
payment terms from our vendors or discontinue our operations entirely. Such
events would adversely affect our business and results of operations.

Any Default in the Repayment of the Convertible Note Held By Laurus Master
Fund, Ltd. Could Have a Material and Adverse Affect on Our Business, Prospects,
Results of Operations or Financial Condition.

Unpaid principal and accrued and unpaid interest on our convertible note is
payable in 16 equal installments on the first business day of each calendar
month, beginning on September 1, 2002. Interest only payments are payable
prior to that date, monthly beginning July 18, 2002. Although the convertible
note provides us with the option of making such payments by issuing shares, we
are not permitted to make such payments in shares and are required to make such
payments in cash if any of the following events occurs: (i) there fails to
exist an effective resale registration statement with respect to the shares;
(ii) such conversion of the note would result in the issuance pursuant to the
note and associated warrants of more than 1,163,614 shares of common stock, or
19.9% of the number of shares of common stock outstanding on June 18, 2002,
unless the issuance of the shares is approved by our shareholders; or (iii)
there occurs any event of default. The events of default under the convertible
note are similar to those customary for convertible debt securities, including
breaches of material terms, failure to pay amounts owed, delisting of our
common stock from the Nasdaq Stock Market (unless our common stock is
subsequently listed on the Nasdaq SmallCap Market, the OTC Bulletin Board or a
national securities exchange), or failure to comply with the reporting, filing
or other obligations of listing on such market. Assuming the note was
converted on June 18, 2002 by the holder at the conversion price of $1.20,
1,041,667 shares representing 17.8% of the shares of common stock outstanding
on June 18, 2002 would be issued. If we default on our obligations under the
convertible note, if we fail to have a resale registration statement declared
and maintained as effective with

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respect to the shares, or if the convertible note becomes exercisable for more
than 1,163,614 shares, due to changes in our stock price, anti-dilution
adjustments or otherwise, we may be required to immediately repay the
outstanding principal amount of the convertible note and any accrued and unpaid
interest. We do not currently have cash or cash equivalents or available debt
or equity financing sufficient to repay such amounts if such repayment is
required. Accordingly, we anticipate that additional financing would be
required to repay such amounts. We cannot guarantee that such financing would
be available on terms favorable to us, or at all. If we could not arrange for
such financing on favorable terms, our business and financial results would be
materially adversely affected. In the event of any sale or liquidation of our
assets to repay such debt, the note holder, as a secured party, would have
priority over other creditors and over our shareholders with respect to such
assets and the proceeds of such assets.

We May Be Unsuccessful In Developing New Product Lines Or New Distribution
Channels For Our Products, Which May Harm Our Business.

We frequently review and evaluate new product lines and new distribution
channels for our products. We may, however, be unable to successfully
implement any new product lines or distribution channels after having dedicated
considerable management time and financial resources to them. We are currently
testing the sale of frozen panini sandwiches through Target and fresh food with
an extended shelf life through Albertsons. In the past, we distributed our
products through Safeway, Ralphs and Dominicks grocery stores. We also
developed a line of dinner foods for home meal replacement that was tested
through one of our Seattle cafes. These attempts were unsuccessful and have
been discontinued. Inability to successfully develop new product lines or new
distribution channels in the future could slow our growth and divert
managements attention from other areas of our business.

Our Growth Strategy Requires Us To Open A Significant Number Of New Cafes In
Our Existing Markets. If We Are Not Able To Achieve This Planned Expansion,
Our Business May Suffer And We May Be Unable To Achieve Or Sustain
Profitability.

The success of our growth strategy will depend in large part on our ability to
open new cafes and to operate our cafes profitably. We do not currently plan
to open additional cafes in 2002. In 2001 and 2002, we postponed certain cafe
openings due to lower than expected office occupancy rates and poor market
conditions in Seattle, San Francisco and Los Angeles. We cannot assure you
that we will be able to achieve our current expansion goals, that we will
operate profitably, or, if we do achieve profitability, that we will be able to
sustain or increase profitability on a quarterly or annual basis. We estimate
that a central kitchen must supply at least four to six cafes and generate
non-cafe sales to achieve positive cash flow. Any inability to achieve our
expansion goals may adversely affect our financial results or stock price.

The success of our planned expansion will depend upon numerous other factors,
many of which are beyond our control, including our ability to:



| |  |  | hire, train and retain qualified operating personnel;                                                                                                     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | identify and obtain suitable cafe sites at favorable lease terms;                                                                                         
|
| |  |  | timely develop new cafes, including our ability to obtain available construction materials and labor;                                                     
|
| |  |  | manage construction and development costs of new cafes;                                                                                                   
|
| |  |  | develop sufficient sales volumes through our cafes and other
distribution channels to support our central kitchens;                                       
|
| |  |  | secure required governmental approvals and permits, and comply with
ongoing and changing regulatory requirements; and compete successfully
in our markets.

In the past, we have closed cafes because they did not generate sufficient
revenues and we cannot assure you that additional cafes will not be closed.
For the past four quarters ended June 30, 2002, March 31, 2002, December 30, 2001 and
September 30, 2001, our same-store sales have decreased compared to the
quarterly periods for the prior year. If our

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same-store sales continue to decline or fail to sufficiently improve, we may be
required to close additional cafes. The closing of a significant number of
cafes or the failure to increase same-store sales could have an adverse impact
on our reputation, operations and financial results.

We May Not Be Successful In Implementing Our Business Strategy, Which Would
Impede Our Growth And Operating Results.

Our business strategy is to focus our retail expansion on cafes in amenity
locations (i.e., office buildings where the competition is limited or where we
are the only food supplier), maintain our current cafe locations, and expand
our box lunch and catering distribution capabilities to serve locations outside
the core metropolitan areas in which we operate. Our ability to implement this
business strategy depends on our ability to:



| |  |  | identify and lease amenity locations suitable for new cafes;                                                                                                   
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increase our brand recognition in our existing markets; and                                                                                                    
|
| |  |  | manage growth in administrative overhead and distribution costs
likely to result from the planned expansion of our retail and
non-retail distribution channels.

Any inability to implement our business strategy would have a material adverse
impact on our operating results.

Any inability to manage our growth effectively could adversely affect our
operating results.

Failure to manage our growth effectively could harm our business. We have
grown significantly since our inception and intend to grow substantially in the
future. We have increased the number of our cafes from two cafes as of
December 31, 1996 to 47 cafes currently and, subject to available funding, we
anticipate opening new cafes in the future. Our existing cafe management
systems, financial and management controls and information systems may not be
adequate to support our planned expansion. Our ability to manage our growth
effectively will require us to continue to expend funds to improve these
systems, procedures and controls, which we expect will increase our operating
expenses and capital requirements. In addition, we must effectively expand,
train and manage our work force. We cannot assure you that we will be able to
respond on a timely basis to all of the changing demands that our planned
expansion will impose on management and on our existing systems, procedures and
controls. In addition, we cannot assure you that we will be able to continue
to improve our information systems and financial controls or to manage other
factors necessary for us to achieve our growth strategy. For any of these
reasons, we could lose opportunities or overextend our resources, which could
adversely affect our operating results.

If We Are Unable To Continue Leasing Our Retail Locations Or Obtain Acceptable
Leases For New Cafes, Our Business May Suffer.

All of our 47 cafe locations are on leased premises. If we are unable to renew
our leases on acceptable terms, or if we are subject to substantial rent
increases, our business could suffer. Because we compete with other retailers
for cafe sites and because some landlords may grant exclusive rights to
locations to our competitors, we may not be able to obtain new leases or renew
existing leases on acceptable terms. Any inability to renew or obtain leases
could increase our costs and adversely affect our operating results and
brand-building strategy.

Our Restaurant Expansion Strategy Focuses Primarily On Further Penetration Of
Existing Markets. This Strategy Could Cause Sales In Some Of Our Existing
Cafes To Decline.

In accordance with our expansion strategy, we intend to open new cafes
primarily in our existing markets. Many of our cafes are situated in
concentrated downtown areas. As a result, the presence of additional cafes in
existing markets may result in diminished sales performance and customer counts
for cafes near the area in which a new cafe opens, due to sales
cannibalization.

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Tenant Turnover And Vacancies In Office Buildings Where Our Cafes Are Located
Could Cause Our Cafe Sales To Decline.

Our business could suffer as a result of tenant turnover and vacancies. Many
of our cafes are located in office buildings, and office workers are our target
customers. Vacancies, tenant turnover or tenants with few office workers,
especially in San Francisco and Seattle, have negatively impacted the
operations of our cafes located in office buildings during the last year due to
the reduction in the number of potential customers in the building, and could
continue to have a negative impact on our operations. The risk related to
vacancies and tenant turnover is greater in office buildings with larger
tenants, where the loss of a single tenant may have a greater impact on that
cafes sales.

If Any Of Our Central Kitchens Were To Close For Any Reason, We Will Be Unable
To Supply Our Cafes In That Geographic Market And Our Business Will Suffer.

Our central kitchens produce or distribute substantially all of our food
products for the cafes and wholesale accounts in their geographic regions, as
well as all of the box lunches and catered platters in each region. If any of
our central kitchens were to close for any reason, such as fire, natural
disaster or failure to comply with government regulations, we would be unable
to provide our food products in the areas served by the affected central
kitchen. Our four existing central kitchens are geographically dispersed and
none could supply another market if a central kitchen were to close. Any
closure of a central kitchen, even for a short period of time, would have a
material adverse effect on our operating results.

The Loss Of One Of Our Major Wholesale Customers Could Negatively Impact Our
Results.

For the fiscal year ended December 30, 2001, approximately 29.0% of our revenue
resulted from branded sales, which consists of box lunch, catering and vending,
and wholesale and grocery sales. Our wholesale and grocery sales are made to a
relatively small number of companies, including, for example, Quality Food
Centers, Inc., a regional grocery store chain, and Tullys Coffee Corporation,
a specialty coffee retailer. In 2001, Quality Food Centers accounted for 9% of
our total revenue. Until Kozmo.com, Inc., an Internet-based consumer delivery
service, ceased operations in April 2001, it was also a wholesale customer
which accounted for 1.8% of our total sales in 2000 and approximately 1.0% of
our total sales in the 13-week period ended April 1, 2001. We cannot assure
you that the remainder of our major wholesale and grocery customers will
continue to maintain accounts or that they will successfully maintain or expand
their product offerings. Furthermore, we cannot assure you that our major
wholesale customers will not exit our existing markets. The loss of any of our
other major wholesale customers could harm our business.

We Are Substantially Dependent On Third-Party Suppliers And Distributors And
The Loss Of Any One Of Them Could Harm Our Operating Results.

We are substantially dependent on a small number of suppliers and distributors
for our products, including suppliers of meat, breads and soups, and Sysco
Distribution Services, which during June 2002 procured from our suppliers and
delivered to us approximately 32% of our ingredients and packaging products.
As of December 30, 2001, Pacific Coast Fruit Company provided approximately
6.6% of our total cost of food and packaging, while Stockpot, Inc. provided
approximately 5.7%. Any failure or delay by any of these suppliers or
distributors to deliver products to our central kitchens, even for a short
period of time, would impair our ability to supply our cafes and could harm our
business. We have limited control over these third parties, and we cannot
assure you that we will be able to maintain satisfactory relationships with any
of them on acceptable commercial terms. Nor can we assure you that they will
continue to provide food products that meet our quality standards. Our
relationships with our suppliers are generally governed by short-term
contracts. If any of these relationships were to terminate unexpectedly, we
may have difficulty obtaining adequate quantities of products of the same
quality at competitive prices in a timely fashion, which could limit our
product offerings or our ability to adequately supply our cafes and could
adversely affect our operating results.

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If We Fail To Further Develop And Maintain Our Brand, Our Business Could
Suffer.

We believe that maintaining and developing our brand is critical to our success
and that the importance of brand recognition may increase as a result of
competitors offering products similar to ours. Subject to available funding,
we intend to increase our marketing expenditures to create and maintain brand
loyalty and increase awareness of our brand. If our brand-building strategy is
unsuccessful, these expenses may never be recovered, and we may be unable to
increase or maintain our revenues.

Our success in promoting and enhancing the BRIAZZ brand will also depend on our
ability to provide customers with high-quality products and customer service.
We cannot assure you that consumers will perceive our products as being of high
quality. If they do not, the value of our brand may be diminished and,
consequently, our ability to implement our business strategy may be adversely
affected.

If Our Customers Do Not Perceive Pre-Packaged Sandwiches And Salads As Fresh
And Desirable, Or If They Would Prefer Made-To-Order Food Items, Our Operating
Results Will Suffer.

Our business strategy focuses on pre-packaged food items. All of our salads
and most of our sandwiches are prepared and assembled in our central kitchens
and sold as pre-packaged items. Unlike delicatessens, our cafes generally do
not add or omit specific ingredients to or from food items at the customers
request. If customers prefer custom prepared items over pre-packaged items, or
if they do not perceive pre-packaged sandwiches and salads as fresh and
desirable, we may be unsuccessful in attracting and retaining customers,
causing our operating results to suffer.

Our Business Could Be Harmed By Litigation Or Publicity Concerning Food
Quality, Health And Other Issues, Which May Cause Customers To Avoid Our
Products And Result In Liabilities.

Our business could be harmed by litigation or complaints from customers or
government authorities relating to food quality, illness, injury or other
health concerns or operating issues. Because we prepare most of our food
products for each geographic market in a central kitchen, health concerns
surrounding our food products, if raised, may adversely affect sales in all of
our cafes in that market. Adverse publicity about such allegations may
negatively affect our business, regardless of whether the allegations are true,
by discouraging customers from buying our products. Because we emphasize the
freshness and quality of our products, adverse publicity relating to food
quality or similar concerns may affect us more than it would food service
businesses that compete primarily on other factors. Such adverse publicity
could damage our reputation and divert the attention of our management from
other business concerns. We could also incur significant liabilities if a
lawsuit or claim resulted in an adverse decision or in a settlement payment,
and incur substantial litigation costs regardless of the outcome of such
litigation.

Our Quarterly Operating Results May Fluctuate And Could Fall Below Expectations
Of Securities Analysts And Investors, Resulting In A Decline In Our Stock
Price.

Our quarterly and yearly operating results have varied in the past, and we
believe that our operating results will continue to vary in the future. For
this reason, you should not rely on our operating results as indications of
future performance. In future periods, our operating results may fall below
the expectations of securities analysts and investors, causing the trading
price of our common stock to fall. In addition, most of our expenses, such as
employee compensation and lease payments for facilities and equipment, are
relatively fixed. Our expense levels are based, in part, on our expectations
regarding future sales. As a result, any shortfall in sales relative to our
expectations may cause significant decreases in our operating results from
quarter to quarter, cause us to fail to meet the expectations of securities
analysts and investors and result in a decline in our stock price.

Our Cafes Are Currently Located In Four Geographic Markets. As A Result, We
Are Highly Vulnerable To Negative Occurrences In Those Markets.

We currently operate our cafes in Seattle, San Francisco, Chicago and Los
Angeles. As a result, we are susceptible to adverse trends and economic
conditions in these markets. Additionally, given our geographic concentration,
negative publicity regarding any of our cafes, or other regional occurrences
such as local strikes, earthquakes or

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other natural disasters, in these markets, may have a material adverse affect
on our business and operations.

Our Food Preparation And Presentation Methods Are Not Proprietary, And
Therefore Competitors May Be Able To Copy Them, Which May Harm Our Business.

We consider our food preparation and presentation methods, including our food
product packaging, box lunch packaging and design of the interior of our cafes,
essential to the appeal of our products and brand. Although we consider our
packaging and store design to be essential to our brand identity, we have not
applied to register all trademarks or trade dress in connection with these
features, and therefore cannot rely on the legal protections provided by
trademark registration. Because we do not hold any patents for our preparation
methods, it may be difficult for us to prevent competitors from copying our
methods. If our competitors copy our preparation and presentation methods, the
value of our brand may be diminished and our market share may decrease. In
addition, competitors may be able to develop food preparation and presentation
methods that are more appealing to consumers than our methods, which may also
harm our business.

We Depend On The Expertise Of Key Personnel. If Any Of These Individuals Were
To Leave, Our Business May Suffer.

We are dependent to a large degree on the services of Victor D. Alhadeff, our
Chairman of the Board and Chief Executive Officer, and C. William Vivian, our
President and Chief Operating Officer and a director. Our operations may
suffer if we were to lose the services of either of these individuals, either
of whom could leave BRIAZZ at any time. In addition, competition for qualified
management in our industry is intense. Many of the companies with which we
compete for experienced management personnel have greater financial and other
resources than we do.

Two Of Our Customers Account For A Significant Portion Of Our Accounts
Receivable Balance. The Failure Of Any Of These Customers To Pay Its Account
May Harm Our Operating Results.

One of our customers, QFC, accounted for an aggregate of approximately 42.4% of
our accounts receivable balance as of December 30, 2001. We anticipate that we
will continue to extend credit to QFC and other customers. The failure of any
one of these customers to pay its account, now or in the future, may harm our
operating results.

Risks Relating To Our Industry

Our Operations Are Susceptible To Changes In Food And Supply Costs, Which Could
Adversely Affect Our Margins.

Our profitability depends, in part, on our ability to anticipate and react to
changes in food and supply costs. Our purchasing staff negotiates prices for
all of our ingredients and supplies based upon current market prices. Various
factors beyond our control, including, for example, governmental regulations,
rising energy costs and adverse weather conditions, may cause our food and
supply costs to increase. We cannot assure you that we will be able to
anticipate and react to changing food and supply costs by adjusting our
purchasing practices. Any failure to do so may adversely affect our operating
results.

If We Face Increased Labor Costs Or Labor Shortages, Our Growth And Operating
Results May Be Adversely Affected.

Labor is a primary component in the cost of operating our business. As of
December 30, 2001, we employed 100 salaried and 350 hourly employees. We
expend significant resources in recruiting and training our managers and
employees. Employee turnover for fiscal 2001 was approximately 137% for hourly
employees and 39% for salaried employees. If we face increased labor costs
because of increases in competition for employees, the federal minimum wage or
employee benefits costs (including costs associated with health insurance
coverage), or unionization of our employees, our operating expenses will likely
increase and our growth may be adversely affected. Additionally, any increases
in employee turnover rates are likely to lead to additional recruiting and
training costs.

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Our success depends upon our ability to attract, motivate and retain a
sufficient number of qualified employees, including cafe managers and kitchen
staff, to keep pace with our growth strategy. Qualified persons to fill these
positions are in short supply in the markets in which we operate. Any
inability to recruit and retain sufficient numbers of employees may delay or
prevent the anticipated openings of new cafes or central kitchens.

Competition In Our Markets May Result In Price Reductions, Reduced Margins Or
The Inability To Achieve Market Acceptance For Our Products.

The market for lunch and breakfast foods in the geographic markets where we
operate is intensely competitive and constantly changing. We may be unable to
compete successfully against our current and future competitors, which may
result in pricing reductions, reduced margins and the inability to achieve
market acceptance for our products.

Many businesses provide services similar to ours. Our competitors include
sandwich shops, company cafeterias, delicatessens, pushcart vendors, fast food
chains and catering companies. Pret a Manger has successfully executed a
concept similar to ours in Great Britain and has opened 11 stores in New York
City. In addition, during 2001 Pret a Manger announced that it had received a
significant equity investment from McDonalds Corporation. Pret a Manger may
expand its operations to markets in which we operate or expect to enter and it
may serve as a model for other competitors to enter into markets in which we
operate or expect to enter. Many of our competitors have significantly more
capital, research and development, manufacturing, distribution, marketing,
human and other resources than we do. As a result, they may be able to adapt
more quickly to market trends, devote greater resources to the promotion or
sale of their products, receive greater support and better pricing terms from
independent distributors, initiate or withstand substantial price competition,
or take advantage of acquisition or other opportunities more readily than we
can.

We May Be Subject To Product Liability Claims, Which May Adversely Affect Our
Operations.

We may be held liable or incur costs to settle liability claims if any of the
food products we prepare or sell cause injury or are found unsuitable during
preparation, sale or use. Although we currently maintain product liability
insurance, we cannot assure you that this insurance is adequate, and, at any
time, it is possible that such insurance coverage may cease to be available on
commercially reasonable terms, or at all. A product liability claim could
result in liability to us greater than our total assets or insurance coverage.
Moreover, product liability claims could have an adverse impact on our business
even if we have adequate insurance coverage.

Changes In Consumer Preferences Or Discretionary Consumer Spending Could
Negatively Impact Our Results.

Our success depends, in part, upon the popularity of our food products and our
ability to develop new menu items that appeal to consumers. Shifts in consumer
preferences away from our cafes or away from our cuisine, our inability to
develop new menu items that appeal to consumers, or changes in our menu that
eliminate items popular with some consumers could harm our business. Also, our
success depends to a significant extent on numerous factors affecting
discretionary consumer spending, including economic conditions, disposable
consumer income and consumer confidence. Adverse changes in these factors
could reduce customer traffic or impose practical limits on pricing, either of
which could harm our business.

Inability To Obtain Regulatory Approvals, Or To Comply With Ongoing And
Changing Regulatory Requirements, For Our Central Kitchens Or Cafes Could
Restrict Our Business And Operations.

Our central kitchens and our cafes are subject to various local, state and
federal governmental regulations, standards and other requirements for food
storage, preparation facilities, food handling procedures, other good
manufacturing practices requirements and product labeling. We are also subject
to license and permit requirements relating to health and safety, building and
land use and environmental protection. If we encounter difficulties in
obtaining any necessary licenses or permits or complying with these ongoing and
changing regulatory requirements:



| |  |  | the opening of new cafes or central kitchens could be delayed;
| | - |  | --------------------------------------------------------------

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| |  |  | existing cafes or central kitchens could be closed temporarily or permanently; or
| | - |  | ---------------------------------------------------------------------------------
|
| |  |  | our product offerings could be limited.                                          

The occurrence of any of these problems could harm our operating results.

Risks Relating To Our Securities

Our Directors, Executive Officers And Significant Shareholders Hold A
Substantial Portion Of Our Stock, Which May Lead To Conflicts With Other
Shareholders Over Corporate Governance.

Our directors, executive officers and current holders of 5% or more of our
outstanding common stock, including the holder of our convertible note, hold a
substantial portion of our stock. These shareholders, acting together, and
Victor D. Alhadeff, acting alone, will be able to significantly influence all
matters requiring shareholder approval, including the election of directors and
significant corporate transactions, such as mergers or other business
combinations. This control may delay, deter or prevent a third party from
acquiring or merging with us, which in turn could reduce the market price of
our common stock.

Conversion of Our Outstanding Debt Securities Could Substantially Dilute Your
Investment Because the Conversion Prices Of Those Securities and/or the Number
of Shares of Common Stock Issuable Upon Conversion of Those Securities Are
Subject to Adjustment.

We have issued and plan to issue in the future various securities that are
convertible or exercisable at prices that are subject to adjustment due to a
variety of factors, including fluctuations in the market price of our common
stock and the issuance of securities at an exercise or conversion price less
than the then-current exercise or conversion price of those securities. As of
July 25, 2002, the closing price of a share of our common stock on the Nasdaq
National Market was $0.6963. The number of shares of common stock that these
adjustable securities ultimately may be converted into or exercised for could
prove to be greater than this amount if the market price of our common stock
declines. You could, therefore, experience substantial dilution of your
investment as a result of the conversion or exercise of our outstanding
derivative securities.

The applicable conversion price of the $1.25 million note issued to Laurus
Master Fund, Ltd. is variable and does not have a lower-limit; therefore the
dilutive effect to our existing security holders is theoretically limitless.
Conversely, because the variable conversion price of this note has an upper
limit, an increase in the trading price of a share of our common stock will
result in a limited benefit to existing security holders with respect to the
conversion of this note. The following table sets forth the number of shares
issuable upon conversion of the principal portion of the note based upon the
indicated hypothetical trading prices, based on the initial conversion price of
$1.20 per share and assuming that the note is converted at our election in
accordance with the regular payment schedule:

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|                 |  |                     |      |            |  |                  |      |                   |  |  |           |  |  |  |      |  
|---------------- |  | ------------------- | ---- | ---------- |  | ---------------- | ---- | ----------------- |  |  | --------- |  |  |  | ---- | -
|                 |  | Hypothetical        |      |            |  |                  |      |                   |  |  |           |  |  | 
|Hypothetical     |  | Average of 5 Lowest |      |            |  |                  |      |                   |  |  |           |  |  | 
|Average VWAP For |  | Closing Prices For  |      |            |  |                  |      |                   |  |  |           |  |  | 
|Last 11 Trading  |  | Last 30 Trading     |      | Conversion |  | Number of Shares |      | Percentage of Our
|Days(1)          |  | Days(2)             |      | Price(3)   |  | Issuable         |      | Common Stock(4)  
|                 |  |                     |      |            |  |                  |      |                  
|$2.00            |  | $                   | 1.80 |            |  | $                | 1.20 |                   |  |  | 1,041,667 |  |  |  | 15.1 | %
|                 |  | $                   | 1.60 |            |  | $                | 1.20 |                   |  |  | 1,041,667 |  |  |  | 15.1 | %
|$1.50            |  | $                   | 1.30 |            |  | $                | 1.20 |                   |  |  | 1,041,667 |  |  |  | 15.1 | %
|                 |  | $                   | 1.10 |            |  | $                | 1.20 |                   |  |  | 1,041,667 |  |  |  | 15.1 | %
|$1.00            |  | $                   | 0.80 |            |  | $                | 0.68 |                   |  |  | 1,838,236 |  |  |  | 23.9 | %
|                 |  | $                   | 0.60 |            |  | $                | 0.51 |                   |  |  | 2,450,981 |  |  |  | 29.5 | %
|$0.50            |  | $                   | 0.40 |            |  | $                | 0.34 |                   |  |  | 3,676,471 |  |  |  | 38.6 | %
|                 |  | $                   | 0.20 |            |  | $                | 0.17 |                   |  |  | 7,352,942 |  |  |  | 55.7 | %



---

|(1) |  | Hypothetical average daily volume weighted average (VWAP) of the common
stock as reported by Bloomberg, L.P. on the Nasdaq National Market for the
11 trading days preceding a repayment date.                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Hypothetical average of the five lowest closing prices during the 30
trading days immediately preceding the conversion date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|   
|   
|   
|(3) |  | The initial conversion price is $1.20 per share. However, if the average
VWAP of the common stock as reported by Bloomberg, L.P. on the principal
trading market for our common stock for the 11 trading days preceding a
repayment date is less than 125% of the conversion price, and we have
elected to pay the monthly repayment amount in shares of our common stock,
then the holder is permitted to convert the repayment amount into our
common stock at a conversion price of 85% of the average of the five
lowest closing prices during the 30 trading days immediately preceding the
conversion date.
|   
|   
|   
|   
|(4) |  | Amounts are based on 5,847,310 shares of our common stock outstanding as
of June 18, 2002, plus the corresponding number of shares issuable. The
holder has contractually agreed to certain restrictions on the number of
shares of common stock that may be issued upon conversion of the note.                                                                                                                                                                                                                                                                                                                 

In addition to the adjustments described in footnote (3) to the foregoing
table, the initial conversion price of $1.20 per share is subject to downward
adjustments:



| |  |  | on a fully weighted average basis, to adjust for the dilutive
effect of any additional issuances of our securities prior to the
conversion of the note at prices lower than the conversion price then
in effect (subject to customary exclusions); and                                                                        
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | in the event any event of default has occurred and is continuing
under the note, in which case the conversion price shall be the lower
of $1.20 or 70% of the average of the three lowest closing prices for
the common stock as repost on the principal trading exchange of our
common stock for the prior thirty trading days.

The foregoing adjustments to the conversion price of the note are cumulative.

As a result of conversions of the principal or interest portion of our
convertible note and related sales of our common stock by the holder, the
market price of our common stock could be depressed, thereby resulting in a
significant increase in the number of shares issuable upon conversion of the
principal and interest portions of the note. You could, therefore, experience
substantial dilution of your investment as a result of the conversion of the
principal or interest portions of our convertible debentures.

If Our Security Holders Engage in Short Sales Of Our Common Stock, Including
Sales of Shares to Be Issued Upon Conversion of Debt Securities, the Price of
Our Common Stock May Decline.

Selling short is a technique used by a shareholder to take advantage of an
anticipated decline in the price of a security. A significant number of short
sales or a large volume of other sales within a relatively short period of time
can create downward pressure on the market price of a security. The decrease in
market price would allow holders of our debt securities that have conversion
prices based upon a discount on the market price of our common stock to

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##### 



convert their debt securities into or for an increased number of shares of our
common stock. Further sales of common stock issued upon conversion of our debt
securities could cause even greater declines in the price of our common stock
due to the number of additional shares available in the market, which could
encourage short sales that could further undermine the value of our common
stock. You could, therefore, experience a decline in the value of your
investment as a result of short sales of our common stock.

Our Current Financing Arrangements Could Prevent Our Common Stock From Being
Listed on Nasdaq or Other Principal Markets.

Nasdaq and other principal markets require that, to be eligible for inclusion
in the stock market, a companys common stock have a specified minimum bid
price per share. Convertible debt financings, especially those with variable
conversion prices with low or no low-price limits, characteristically exert
downward pressure on the market for a companys common stock. This pressure,
if applied against the market for our common stock, may cause our common stock
from to be delisted on Nasdaq or other principal markets due to low stock
price.

The Aggregate Value of Our Public Float, or the Shares of Our Common Stock Held
By Non-Insiders, and the Minimum Bid Price of Our Common Stock Has Recently Not
Been in Compliance with Nasdaqs Criteria For Continued Listing on the Nasdaq
National Market, and We May Be Transferred to the Nasdaq SmallCap Market or
Delisted If We Are Unable to Comply.




Our common stock is quoted on the Nasdaq National Market. There are a number
of continuing requirements that must be met in order for our common stock to
remain eligible for quotation on the Nasdaq National Market or the Nasdaq
SmallCap Market. The failure to meet the maintenance criteria in the future
could result in the delisting of our common stock from Nasdaq. If our common
stock were to be delisted, trading, if any, in the common stock may then
continue to be conducted on the OTC Bulletin Board. As a result, an investor
may find it more difficult to sell our common stock or to obtain accurate
quotations as to the market value of our common stock. On August 6, 2002, we were notified
by Nasdaq that we are out of compliance with the Nasdaq National Market rule that requires a National Market-listed
company to maintain a $5.0 million minimum aggregate value for its shares held in public
float. If we are unable to regain compliance with the rule for a
minimum of 10 consecutive trading days prior to November 5, 2002, Nasdaq has informed us that unless
we have applied and are accepted for listing on the Nasdaq SmallCap Market, we will be provided with
written notification that our shares will be delisted. Based on the bid price
and closing price of our common stock on August 5, 2002, we are also out of
compliance with the Nasdaq National Market rule that requires a National
Market-listed company to maintain a $1.00 minimum bid price. Nasdaq may
notify us that we are not in compliance with the minimum bid price rule and, if we are not able
to regain compliance with such rule within the prescribed timeframe, Nasdaq may
notify us that we will be delisted. We cannot guarantee you that we will be
able to regain compliance with the public float or minimum bid rules within the prescribed timeframe, or at
all. If Nasdaq provides us with a notice of delisting, we would have the
option of appealing the delisting decision to a Nasdaq listing qualifications
review panel and presenting our argument for continued National Market listing
to such panel, of applying for listing on the Nasdaq SmallCap Market or of allowing the delisting to occur. Even if we appeal
and/or apply for listing on the Nasdaq SmallCap Market, we cannot guarantee
that the appeal will be successful or that the application will be accepted,
as the case may be, in which event delisting will occur and trading of our
common stock may thereafter take place on the OTC Bulletin Board.




Our Stock Price May Be Volatile Because Of Factors Beyond Our Control, And You
May Lose All Or A Part Of Your Investment.

The market price of our common stock may fluctuate significantly in response to
a number of factors, most of which are beyond our control, including:



| |  |  | changes in securities analysts recommendations or estimates of our financial performance;                                                                   
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in market valuations of similar companies; and                                                                                                       
|
| |  |  | announcements by us or our competitors of significant contracts,
new products, acquisitions, commercial relationships, joint ventures or
capital commitments.

In the past, companies that have experienced volatility in the market price of
their stock have been subject to securities class action litigation. A
securities class action lawsuit against us, regardless of its merit, could
result in

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substantial costs and divert the attention of our management from other
business concerns, which in turn could have a materially adverse impact on our
financial results.

Our Articles Of Incorporation, Bylaws And The Washington Business Corporation
Act Contain Anti-Takeover Provisions Which Could Discourage Or Prevent A
Takeover, Even If An Acquisition Would Be Beneficial To Our Shareholders.

Provisions of our amended and restated articles of incorporation and bylaws
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our shareholders. These provisions include:



| |  |  | authorizing the issuance of blank check preferred stock that
could be issued by our board of directors, without shareholder
approval, to increase the number of outstanding shares or change the
balance of voting control and thwart a takeover attempt;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prohibiting cumulative voting in the election of directors, which
would otherwise allow less than a majority of shareholders to elect
directors;                                                                                                           
|
| |  |  | limiting the ability of shareholders to call special meetings of
shareholders; and                                                                                                                                                                         
|
| |  |  | prohibiting shareholder action by non-unanimous written consent and
requiring all shareholder actions to be taken at a meeting of our
shareholders.                                                                                                        

In addition, Chapter 23B.19 of the Washington Business Corporation Act and the
terms of our stock option plan may discourage, delay or prevent a change in
control which you may favor.

22