##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(MARK ONE)

|  |  |                                                                                                                                    
|- |  | -----------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2003

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|  |  | FOR THE TRANSITION PERIOD FROM ________________________TO ________________.             

COMMISSION FILE NUMBER 000-32527

BRIAZZ, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


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

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   x    No   o

The number of outstanding shares of common stock, no par value, of the
Registrant at August 1, 2003 was 5,990,916.

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of Exchange Act). Yes   o    No   x





---

TABLE OF CONTENTS



|                               |                                                                                                |                                             |  |  |  |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | ITEM 1. FINANCIAL STATEMENTS                                                                  
|                               |                                                                                                | BALANCE SHEETS                             
|                               |                                                                                                | STATEMENTS OF OPERATIONS                   
|                               |                                                                                                | Statement of Stockholders Equity (Deficit)
|                               |                                                                                                | 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 DISCLOSURES ABOUT MARKET RISK                            
|                               | ITEM 4. CONTROLS AND PROCEDURES                                                               
|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                    
|EXHIBIT 3.1.3                 
|EXHIBIT 4.2                   
|EXHIBIT 10.11                 
|EXHIBIT 10.28                 
|EXHIBIT 10.29                 
|EXHIBIT 10.52                 
|EXHIBIT 31.1                  
|EXHIBIT 32.1                  
|EXHIBIT 99.1                  



---



##### Table of Contents



BRIAZZ, INC.

INDEX TO THE FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2003

|                               |                                                                                               |                                             |    |      |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------- | -- | ---- | - | 
|                               |                                                                                               |                                             |    | PAGE
|                               |                                                                                               |                                             |    |     
|PART I  FINANCIAL INFORMATION |                                                                                               |                                             |    |     
|                               | ITEM 1. Financial Statements                                                                  |                                             |    | 2    |  
|                               |                                                                                               | Balance Sheets                              |    |      | 2 | 
|                               |                                                                                               | Statements of Operations                    |    |      | 3 | 
|                               |                                                                                               | Statement of Stockholders Equity (Deficit) |    |      | 4 | 
|                               |                                                                                               | Statements of Cash Flows                    |    |      | 5 | 
|                               |                                                                                               | Notes to Financial Statements               |    |      | 6 | 
|                               | ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                             |    | 13   |  
|                               | ITEM 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                             |    | 21   |  
|                               | ITEM 4. Controls and Procedures                                                               |                                             |    | 22   |  
|PART II  OTHER INFORMATION    |                                                                                               |                                             |    |     
|                               | ITEM 1. Legal Proceedings                                                                     |                                             |    | 22   |  
|                               | ITEM 2. Changes in Securities and Use of Proceeds                                             |                                             |    | 22   |  
|                               | ITEM 3. Defaults Upon Senior Securities                                                       |                                             |    | 22   |  
|                               | ITEM 4. Submission of Matters to a Vote of Security Holders                                   |                                             |    | 23   |  
|                               | ITEM 5. Other Information                                                                     |                                             |    | 24   |  
|                               | ITEM 6. Exhibits and Reports on Form 8-K                                                      |                                             |    | 25   |  
|SIGNATURES                     |                                                                                               |                                             | 28 |     





---



##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




BRIAZZ, INC.
BALANCE SHEETS
(in thousands, except share data)
(unaudited)

|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |        | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----- | -------- | ------ | ------------ | ----- | ------- | ------ | 
|                                                           |                                                                                                                                                               |                                                      |       | June 29, |        | December 29,
|                                                           |                                                                                                                                                               |                                                      |       | 2003     |        | 2002        
|                                                           |                                                                                                                                                               |                                                      |       |          |        |             
|Assets                                                     |                                                                                                                                                               |                                                      |       |          |        |              |       |        
|Current assets                                             |                                                                                                                                                               |                                                      |       |          |        |              |       |        
|                                                           | Cash and cash equivalents                                                                                                                                     |                                                      | $     | 516      |        |              | $     | 491     |       
|                                                           | Current portion of restricted certificates of deposit                                                                                                         |                                                      |       | 31       |        |              |       | 40      |       
|                                                           | Accounts receivable, net of allowance of $125 (2003) and $135 (2002)                                                                                          |                                                      |       | 253      |        |              |       | 428     |       
|                                                           | Inventory                                                                                                                                                     |                                                      |       | 298      |        |              |       | 409     |       
|                                                           | Prepaid expenses                                                                                                                                              |                                                      |       | 215      |        |              |       | 611     |       
|                                                           | Other current assets                                                                                                                                          |                                                      |       | 95       |        |              |       | 154     |       
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       
|                                                           |                                                                                                                                                               | Total current assets                                 |       |          | 1,408  |              |       |         | 2,133  | 
|Property and equipment, net                                |                                                                                                                                                               |                                                      | 5,381 |          |        |              | 7,897 |        
|Restricted certificates of deposit, net of current portion |                                                                                                                                                               |                                                      | 398   |          |        |              | 423   |        
|Deferred debt issue cost, deposits and other assets        |                                                                                                                                                               |                                                      | 967   |          |        |              | 252   |        
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       
|                                                           |                                                                                                                                                               | Total assets                                         |       | $        | 8,154  |              |       | $       | 10,705 | 
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       
|Liabilities and Stockholders Equity                       |                                                                                                                                                               |                                                      |       |          |        |              |       |        
|Current liabilities                                        |                                                                                                                                                               |                                                      |       |          |        |              |       |        
|                                                           | Line of credit borrowings                                                                                                                                     |                                                      | $     |         |        |              | $     | 129     |       
|                                                           | Accounts payable, including amounts due to related
party                                                                                                      |                                                      |       | 3,789    |        |              |       | 2,737   |       
|                                                           | Accrued compensation                                                                                                                                          |                                                      |       | 611      |        |              |       | 758     |       
|                                                           | Other accrued liabilities                                                                                                                                     |                                                      |       | 1,997    |        |              |       | 894     |       
|                                                           | Notes payable                                                                                                                                                 |                                                      |       | 1,426    |        |              |       | 1,390   |       
|                                                           | Notes payable to related parties (Note 3)                                                                                                                     |                                                      |       | 2,427    |        |              |       | 1,025   |       
|                                                           | Current portion of capital lease obligations                                                                                                                  |                                                      |       | 97       |        |              |       | 109     |       
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       
|                                                           |                                                                                                                                                               | Total current liabilities                            |       |          | 10,347 |              |       |         | 7,042  | 
|Capital lease obligations, net of current portion          |                                                                                                                                                               |                                                      | 194   |          |        |              | 234   |        
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       
|                                                           |                                                                                                                                                               | Total liabilities                                    |       |          | 10,541 |              |       |         | 7,276  | 
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       
|Commitments and contingencies (Notes 2 and 8)              |                                                                                                                                                               |                                                      |       |          |        |              |       |        
|Stockholders equity (deficit)                             |                                                                                                                                                               |                                                      |       |          |        |              |       |        
|                                                           | Series D preferred stock, no par value; 100 shares authorized, issued and outstanding (2003)                                                                  |                                                      |       |         |        |              |       |        |       
|                                                           | Series E preferred stock, no par value; 25 shares authorized, issued and outstanding (2003)                                                                   |                                                      |       |         |        |              |       |        |       
|                                                           | Common stock and additional paid in capital, no par value; 100,000,000 shares
authorized; 5,990,916 (2003) and 5,880,173 (2002) shares issued and outstanding |                                                      |       | 73,989   |        |              |       | 73,819  |       
|                                                           | Deferred stock compensation                                                                                                                                   |                                                      |       |         |        |              |       | (203    | )     
|                                                           | Accumulated deficit                                                                                                                                           |                                                      |       | (76,376  | )      |              |       | (70,187 | )     
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       
|                                                           |                                                                                                                                                               | Total stockholders equity (deficit)                 |       |          | (2,387 | )            |       |         | 3,429  | 
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       
|                                                           |                                                                                                                                                               | Total liabilities and stockholders equity (deficit) |       | $        | 8,154  |              |       | $       | 10,705 | 
|                                                           |                                                                                                                                                               |                                                      |       |          |        |              |       |         |       

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

2



---



##### Table of Contents






BRIAZZ, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)

|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |        |        | 
|------------------------------------------------------------------------------ | ------------------------------------------------ | ----------- | ------------------------ | ----- | -------------------- | ------ | ---------------------- | ----- | -------- | ------ | --------- | ------ | ------ | ------ | --------- | ------ | ------ | ------ | 
|                                                                               |                                                  |             |                          |       | Thirteen weeks ended |        | Twenty-six weeks ended
|                                                                               |                                                  |             |                          |       |                      |        |                       
|                                                                               |                                                  |             |                          |       | June 29,             |        | June 30,               |       | June 29, |        | June 30, 
|                                                                               |                                                  |             |                          |       | 2003                 |        | 2002                   |       | 2003     |        | 2002     
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |          
|Sales                                                                          |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |       
|                                                                               | Retail                                           |             | $                        | 5,123 |                      |        | $                      | 5,690 |          |        | $         | 10,239 |        |        | $         | 10,984 |       
|                                                                               | Branded Sales                                    |             |                          | 1,542 |                      |        |                        | 2,095 |          |        |           | 3,218  |        |        |           | 4,157  |       
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|                                                                               |                                                  | Total Sales |                          |       | 6,665                |        |                        |       | 7,785    |        |           |        | 13,457 |        |           |        | 15,141 |       
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|Operating Expenses                                                             |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |       
|                                                                               | Cost of food and packaging                       |             |                          | 3,660 |                      |        |                        | 3,003 |          |        |           | 6,855  |        |        |           | 5,816  |       
|                                                                               | Occupancy expenses                               |             |                          | 971   |                      |        |                        | 1,034 |          |        |           | 2,085  |        |        |           | 2,030  |       
|                                                                               | Labor expenses                                   |             |                          | 1,671 |                      |        |                        | 2,894 |          |        |           | 3,691  |        |        |           | 5,619  |       
|                                                                               | Depreciation and amortization                    |             |                          | 714   |                      |        |                        | 885   |          |        |           | 1,507  |        |        |           | 1,673  |       
|                                                                               | Other operating expenses                         |             |                          | 268   |                      |        |                        | 479   |          |        |           | 557    |        |        |           | 850    |       
|                                                                               | General and administrative expenses              |             |                          | 1,635 |                      |        |                        | 1,894 |          |        |           | 3,244  |        |        |           | 3,745  |       
|                                                                               | Loss on disposal of
assets                       |             |                          | 42    |                      |        |                        |      |          |        |           | 206    |        |        |           | 2      |       
|                                                                               | Provision for asset impairment and store closure |             |                          | 1,059 |                      |        |                        | 6     |          |        |           | 1,059  |        |        |           | 22     |       
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|                                                                               |                                                  |             | Total operating expenses |       |                      | 10,020 |                        |       |          | 10,195 |           |        |        | 19,204 |           |        |        | 19,757 | 
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|Loss from operations                                                           |                                                  |             | (3,355                   | )     |                      |        | (2,410                 | )     |          |        | (5,747    | )      |        |        | (4,616    | )     
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|Other (expense) income                                                         |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |       
|                                                                               | Interest and other expense                       |             |                          | (295  | )                    |        |                        | (127  | )        |        |           | (449   | )      |        |           | (137   | )     
|                                                                               | Interest and other income                        |             |                          | 4     |                      |        |                        | 10    |          |        |           | 7      |        |        |           | 41     |       
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|                                                                               |                                                  |             | (291                     | )     |                      |        | (117                   | )     |          |        | (442      | )      |        |        | (96       | )     
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|Net loss                                                                       |                                                  | $           | (3,646                   | )     |                      | $      | (2,527                 | )     |          | $      | (6,189    | )      |        | $      | (4,712    | )     
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|Basic and diluted net loss per share                                           |                                                  | $           | (0.61                    | )     |                      | $      | (0.43                  | )     |          | $      | (1.03     | )      |        | $      | (0.81     | )     
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       
|Weighted-average shares used in computing basic
and diluted net loss per share |                                                  |             | 5,990,916                |       |                      |        | 5,847,310              |       |          |        | 5,984,104 |        |        |        | 5,839,340 |       
|                                                                               |                                                  |             |                          |       |                      |        |                        |       |          |        |           |        |        |        |           |        |       

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

3



---



##### Table of Contents






BRIAZZ, INC.
Statement of Stockholders Equity (Deficit)
(in thousands)
(unaudited)

|                                                                                                                              |  |              |       |          |  |              |        |         |  |       |      |   |  |   |         |   |  |   |        |   |  |  |  | 
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----- | -------- |  | ------------ | ------ | ------- |  | ----- | ---- | - |  | - | ------- | - |  | - | ------ | - |  |  |  | 
|                                                                                                                              |  | Common Stock |       | Deferred |  |              |        |         |  |       |      |   |  |   |         |  
|                                                                                                                              |  |              |       | stock    |  | Accumulated  |        |         |  |       |      |   |  |  
|                                                                                                                              |  | Shares       |       | Amount   |  | compensation |        | deficit |  | Total |      |   |  |  
|                                                                                                                              |  |              |       |          |  |              |        |         |  |       |      |   |  |  
|Balance at December 29,
2002                                                                                                  |  |              | 5,880 |          |  | $            | 73,819 |         |  | $     | (203 | ) |  | $ | (70,187 | ) |  | $ | 3,429  |  
|Issuance of shares for convertible
debt                                                                                       |  |              | 40    |          |  |              | 8      |         |  |       |     |   |  |   |        |   |  |   | 8      |  
|Issuances of stock warrants and modifications of stock warrants
and convertible notes to reduce exercise and conversion
price |  |              |      |          |  |              | 145    |         |  |       |     |   |  |   |        |   |  |   | 145    |  
|Amortization of deferred
compensation                                                                                         |  |              |      |          |  |              |       |         |  |       | 203  |   |  |   |        |   |  |   | 203    |  
|Employee stock purchase
plan                                                                                                  |  |              | 71    |          |  |              | 17     |         |  |       |     |   |  |   |        |   |  |   | 17     |  
|Net
loss                                                                                                                      |  |              |      |          |  |              |       |         |  |       |     |   |  |   | (6,189  | ) |  |   | (6,189 | )
|                                                                                                                              |  |              |       |          |  |              |        |         |  |       |      |   |  |   |         |   |  |   |        |  
|Balance at June 29,
2003                                                                                                      |  |              | 5,991 |          |  | $            | 73,989 |         |  | $     |     |   |  | $ | (76,376 | ) |  | $ | (2,387 | )
|                                                                                                                              |  |              |       |          |  |              |        |         |  |       |      |   |  |   |         |   |  |   |        |  

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

4



---



##### Table of Contents






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

|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |      |        |  
|---------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------ | -------------------------------------------------------- | ----------------------------------------- | ----- | ---------------------- | ------ | -------- | ----- | ---- | ------ | -
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       | Twenty-six weeks ended
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                       
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       | June 29,               |        | June 30,
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       | 2003                   |        | 2002    
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |         
|Cash flows from operating activities                                   |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |         
|                                                                       | Net loss                                                                                                                                                           |                                                  | $                                                        | (6,189                                    | )     |                        | $      | (4,712   | )    
|                                                                       | Adjustments to reconcile net loss to net cash used in operating activities                                                                                         |                                                  |                                                          |                                           |       |                        |        |          |      
|                                                                       |                                                                                                                                                                    | Deferred stock compensation
expense              |                                                          |                                           | 203   |                        |        |          | 174   |     
|                                                                       |                                                                                                                                                                    | Non-cash interest expense                        |                                                          |                                           | 200   |                        |        |          | 115   |     
|                                                                       |                                                                                                                                                                    | Depreciation and amortization                    |                                                          |                                           | 1,507 |                        |        |          | 1,673 |     
|                                                                       |                                                                                                                                                                    | Loss on disposal of assets                       |                                                          |                                           | 206   |                        |        |          | 2     |     
|                                                                       |                                                                                                                                                                    | Provision for asset impairment and store closure |                                                          |                                           | 1,059 |                        |        |          | 22    |     
|                                                                       |                                                                                                                                                                    | Changes in operating assets and liabilities:     |                                                          |                                           |       |                        |        |          |       |     
|                                                                       |                                                                                                                                                                    |                                                  | Accounts receivable                                      |                                           |       | 175                    |        |          |       | (271 | )     
|                                                                       |                                                                                                                                                                    |                                                  | Inventory                                                |                                           |       | 111                    |        |          |       | (60  | )     
|                                                                       |                                                                                                                                                                    |                                                  | Prepaid expenses and other current assets                |                                           |       | 455                    |        |          |       | (429 | )     
|                                                                       |                                                                                                                                                                    |                                                  | Accounts
payable, including amounts due to related party |                                           |       | 890                    |        |          |       | 259  |       
|                                                                       |                                                                                                                                                                    |                                                  | Accrued compensation                                     |                                           |       | (147                   | )      |          |       | 100  |       
|                                                                       |                                                                                                                                                                    |                                                  | Other accrued liabilities                                |                                           |       | 803                    |        |          |       | 7    |       
|                                                                       |                                                                                                                                                                    | Other                                            |                                                          |                                           | (270  | )                      |        |          | (3    | )   
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|                                                                       |                                                                                                                                                                    |                                                  |                                                          | Net cash used in operating
activities     |       |                        | (997   | )        |       |      | (3,123 | )
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|Cash flows from investing activities                                   |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |         
|                                                                       | Purchases of property and equipment                                                                                                                                |                                                  |                                                          | (16                                       | )     |                        |        | (1,851   | )    
|                                                                       | Other                                                                                                                                                              |                                                  |                                                          |                                          |       |                        |        | 8        |      
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|                                                                       |                                                                                                                                                                    |                                                  |                                                          | Net cash used in investing activities     |       |                        | (16    | )        |       |      | (1,843 | )
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|Cash flows from financing activities                                   |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |         
|                                                                       | Change in checks issued in excess of bank
deposits                                                                                                                 |                                                  |                                                          | 162                                       |       |                        |        | (754     | )    
|                                                                       | Repayment of line-of-credit borrowings                                                                                                                             |                                                  |                                                          | (129                                      | )     |                        |        |         |      
|                                                                       | Repayment of notes payable                                                                                                                                         |                                                  |                                                          |                                          |       |                        |        | (75      | )    
|                                                                       | Proceeds from notes payable, preferred stock and warrants                                                                                                          |                                                  |                                                          | 1,525                                     |       |                        |        | 1,250    |      
|                                                                       | Debt and preferred stock issuance costs                                                                                                                            |                                                  |                                                          | (502                                      | )     |                        |        | (108     | )    
|                                                                       | Decrease in restricted certificates of deposit                                                                                                                     |                                                  |                                                          | 34                                        |       |                        |        | 115      |      
|                                                                       | Proceeds from employee stock purchase
plan                                                                                                                         |                                                  |                                                          |                                          |       |                        |        | 19       |      
|                                                                       | Repayment of capital lease obligation                                                                                                                              |                                                  |                                                          | (52                                       | )     |                        |        |         |      
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|                                                                       |                                                                                                                                                                    |                                                  |                                                          | Net cash provided by financing activities |       |                        | 1,038  |          |       |      | 447    |  
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|Net increase (decrease) in cash and cash equivalents                   |                                                                                                                                                                    |                                                  | 25                                                       |                                           |       |                        | (4,519 | )       
|Cash and cash equivalents                                              |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |         
|                                                                       | Beginning of period                                                                                                                                                |                                                  |                                                          | 491                                       |       |                        |        | 6,193    |      
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|                                                                       | End of period                                                                                                                                                      |                                                  | $                                                        | 516                                       |       |                        | $      | 1,674    |      
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|Supplemental disclosure of cash flow information                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |         
|                                                                       | Cash paid for interest                                                                                                                                             |                                                  | $                                                        | 145                                       |       |                        | $      | (22      | )    
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|Supplemental disclosure of non-cash investing and financing activities |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |         
|                                                                       | Addition to additional paid-in-capital relating to issuance of warrants and
modification of warrants and convertible notes to reduce exercise and
conversion
price |                                                  | $                                                        | 145                                       |       |                        | $      |         |      
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|                                                                       | Accrued debt issuance
costs                                                                                                                                        |                                                  | $                                                        | 366                                       |       |                        | $      | 65       |      
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     
|                                                                       | Notes payable converted to common
stock                                                                                                                            |                                                  | $                                                        | 8                                         |       |                        | $      |         |      
|                                                                       |                                                                                                                                                                    |                                                  |                                                          |                                           |       |                        |        |          |       |     

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

5



---



##### Table of Contents






BRIAZZ, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)

Note 1. Summary of operations and significant accounting policies

Operations BRIAZZ, INC. (BRIAZZ or the Company) 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 its current markets and
as funding becomes available, build BRIAZZ into a national brand by expanding
in major metropolitan areas across the United States. The Companys retail
distribution network includes BRIAZZ cafés, as well as box lunch and catered
platter delivery. The Company also distributes its products through select
wholesale accounts. Each market obtains products from a central kitchen, which
prepares meals daily. Until December 2002 the Company operated a central
kitchen in each market. The Companys Chicago and Los Angeles central kitchens
were closed in late 2002 and the Seattle central kitchen was closed in February
2003. It is expected the San Francisco central kitchen will also close. Upon
closure of the central kitchens, the Company has contracted for the production
of its products.

At June 29, 2003, the Company operated 12 cafés in Seattle, 14 cafés in San
Francisco, 8 cafés in Chicago and 9 cafés in Los Angeles. In July, the company
closed a café in San Francisco.

Interim financial information The financial information at June 29, 2003, and
for the 13 and 26-week periods ended June 29, 2003 and June 30, 2002 is
unaudited, but includes all adjustments, consisting only of 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 operations
for the periods ended June 29, 2003 are not necessarily indicative of results
to be expected for the entire fiscal year or future periods.

Use of estimates The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

Impairment of long-lived assets The Company reviews its long-lived assets for
impairment, 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
projected undiscounted 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 estimated fair value, which is determined based either on discounted
projected cash flows or appraised values, depending on the nature of the asset.
During the fiscal quarter ended June 29, 2003, the Company recorded an
impairment write-down of approximately $1.06 million related to certain café
locations. These write-downs consisted primarily of leasehold improvements
and, to a lesser extent, equipment.

Accounts Payable The Companys banking system provides for the daily
replenishment of disbursement bank accounts as checks are presented. Included
in accounts payable at June 29, 2003 and December 29, 2002 is $319,000 and
$157,000, respectively, representing the excess of outstanding checks over cash
on deposit at the bank on which the checks were drawn.

Stock-based compensation The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25 (APB No. 25), Accounting for Stock Issued to
Employees and complies with the disclosure provisions of Statement of
Financial Accounting Standards (SFAS) No. 123 (SFAS No. 123), Accounting
for Stock-Based Compensation. As amended by SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure. Under APB No. 25,
compensation expense is based on the difference, if any, on the date of grant,
between the deemed fair value of the Companys stock and the exercise price of
the option. Unearned compensation is amortized on a straight-line basis over
the vesting period of the individual options. Certain warrants owned by
employees contain provisions which result in the application of variable plan
accounting in accordance with the provisions of FASB Interpretation No. 44
(FIN No. 44). For those warrants, compensation expense is adjusted quarterly
as the market price of the Companys common stock changes at prices in excess
of the exercise price.

Had the Company applied the provisions of SFAS No. 123 to all stock option
grants, the Companys net loss would have been increased to the pro forma
amounts indicated below (in thousands except share and per share data):

6



---



##### Table of Contents



|                                                          |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |       |  
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | - | -------------------- | ----- | ---------------------- | - | -------- | ----- | -------- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                          |                                                                                                         |   | Thirteen-weeks ended |       | Twenty-six weeks ended
|                                                          |                                                                                                         |   |                      |       |                       
|                                                          |                                                                                                         |   | June 29,             |       | June 30,               |   | June 29, |       | June 30,
|                                                          |                                                                                                         |   | 2003                 |       | 2002                   |   | 2003     |       | 2002    
|                                                          |                                                                                                         |   |                      |       |                        |   |          |       |         
|Net loss attributable to common stockholders, as reported |                                                                                                         | $ | (3,646               | )     |                        | $ | (2,527   | )     |          | $ | (6,189 | )     |   | $ | (4,712 | )    
|Add:                                                      |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |      
|                                                          | Total compensation cost included in net loss                                                            |   |                      |      |                        |   |          | 87    |          |   |        | 203   |   |   |        | 174   |  
|Deduct:                                                   |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |      
|                                                          | Total stock-based employee compensation expense determined
under fair value based method for all
awards |   |                      |      |                        |   |          | (175  | )        |   |        | (603  | ) |   |        | (350  | )
|                                                          |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |      
|Proforma net loss                                         |                                                                                                         | $ | (3,646               | )     |                        | $ | (2,615   | )     |          | $ | (6,589 | )     |   | $ | (4,888 | )    
|                                                          |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |      
|Net loss per share:                                       |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |      
|                                                          |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |      
|                                                          | Basic and diluted - as reported                                                                         |   | $                    | (0.61 | )                      |   | $        | (0.43 | )        |   | $      | (1.03 | ) |   | $      | (0.81 | )
|                                                          |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |      
|                                                          | Basic and diluted - pro forma                                                                           |   | $                    | (0.61 | )                      |   | $        | (0.45 | )        |   | $      | (1.10 | ) |   | $      | (0.84 | )
|                                                          |                                                                                                         |   |                      |       |                        |   |          |       |          |   |        |       |   |   |        |      

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, and excludes 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 |           | 26-week period ended
|                                                                                 |                                   |                       |           |                      |           |                     
|                                                                                 |                                   |                       |           | June 29, 2003        |           | June 30, 2002        |           | June 29, 2003 |           | June 30, 2002
|                                                                                 |                                   |                       |           |                      |           |                      |           |               |           |              
|Net loss                                                                         |                                   | $                     | (3,646    | )                    |           | $                    | (2,527    | )             |           | $             | (6,189    | )         |           | $ | (4,712    | )        
|                                                                                 |                                   |                       |           |                      |           |                      |           |               |           |               |           |           |           |   |           |          
|Weighted  average shares used in computing basic
and diluted net loss per share |                                   |                       | 5,990,916 |                      |           |                      | 5,847,310 |               |           |               | 5,984,104 |           |           |   | 5,839,340 |          
|                                                                                 |                                   |                       |           |                      |           |                      |           |               |           |               |           |           |           |   |           |          
|Basic and diluted net loss per share                                             |                                   | $                     | (0.61     | )                    |           | $                    | (0.43     | )             |           | $             | (1.03     | )         |           | $ | (0.81     | )        
|                                                                                 |                                   |                       |           |                      |           |                      |           |               |           |               |           |           |           |   |           |          
|Shares excluded from loss per share calculation:                                 |                                   |                       |           |                      |           |                      |           |               |           |               |           |           |           |   |           |          
|                                                                                 | Options to purchase common stock  |                       |           | 687,541              |           |                      |           | 983,735       |           |               |           | 687,541   |           |   |           | 983,735   |          
|                                                                                 | Convertible debt                  |                       |           | 1,113,414            |           |                      |           | 1,041,667     |           |               |           | 1,113,414 |           |   |           | 1,041,667 |          
|                                                                                 | Warrants to purchase common stock |                       |           | 3,717,496            |           |                      |           | 1,180,404     |           |               |           | 3,717,496 |           |   |           | 1,180,404 |          
|                                                                                 |                                   |                       |           |                      |           |                      |           |               |           |               |           |           |           |   |           |          
|                                                                                 |                                   | Total shares excluded |           |                      | 5,518,451 |                      |           |               | 3,205,806 |               |           |           | 5,518,451 |   |           |           | 3,205,806 | 
|                                                                                 |                                   |                       |           |                      |           |                      |           |               |           |               |           |           |           |   |           |          

Reclassifications Certain components of prior year revenues and expenses have
been reclassified to conform to current year classifications. The
reclassifications have no effect on stockholders equity or net loss.

Recent accounting
pronouncements  In July 2001, the Financial Accounting
Standards Board (FASB) 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. At adoption
of SFAS No. 143 the Company did not have any material asset retirement
obligations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities (SFAS No. 146). SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The adoption of SFAS No 146 did not have a material impact on
the Companys results of operations, financial position or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (SFAS 149), which amends and
clarifies financial accounting and reporting for derivative instruments
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS 133. The Company does not own any derivative
instruments and is not engaged in hedging activities, and does not believe the
adoption of SFAS 149 will have a significant impact on its results of
operations, financial position or cash flows.

7



---



##### Table of Contents



In May 2003, the FASB issued SFAS no. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS 150),
which clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of these financial instruments were classified as equity.
SFAS 150 is effective for all financial instruments entered into or modified
after May 2003 and is otherwise effective at the beginning of the first interim
period after June 15, 2003. The Company does not believe the adoption of SFAS
150 will have a significant impact on its results of operations, financial
position or cash flows.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements of Guarantees, Including Guarantees of
Indebtedness of Others  an Interpretation of FASB Statements 5, 57, and 107
and Rescission of FASB Interpretation No. 34 (Interpretation No. 45). This
interpretation expands on the existing accounting guidance and disclosure
requirements for most guarantees. The Company has not guaranteed indebtedness
of others. The adoption of FIN 45 did not have a significant impact on the
Companys results of operations, financial position or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46)
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity under certain conditions. The Company does
not have any involvement in variable interest entities, and does not believe
FIN 46 will have a significant impact on its results of operations, financial
position or cash flows.

Note 2. Financial condition and basis of presentation

The Company has incurred substantial operating losses and negative cash flows
from operations since inception and had an accumulated deficit of $76.4 million
and a working capital deficit of $8.9 million at June 29, 2003. These matters
raise substantial doubt about the Companys ability to continue as a going
concern. The Company has financed its operations principally through the net
proceeds from debt and equity offerings. The Companys ability to continue as
a going concern is dependant upon numerous factors, including its ability to
obtain additional financing, its ability to increase its level of future
revenues and its ability to reduce operating expenses. The accompanying
financial statements have been prepared on the basis that the Company 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.

At June 29, 2003, the Company had cash and cash equivalents of approximately
$0.5 million. As described in Note 8, subsequent to June 29, 2003, the Company
has raised additional cash from the sale of its debt and equity securities,
substantially all of which has been or will be used to repay existing
indebtedness and accounts payable. The Company has used a combination of cash
and cash equivalents, operating revenues and proceeds of additional borrowings
to meet its immediate cash needs; however, it is anticipated that additional
cash may be needed by the end of 2003 in order to continue operating. The
Company is attempting to conserve cash by reducing expenses and by delaying or
deferring payments to some of the Companys suppliers and on some of the
Companys leases. Poor financial results, inability to comply with the terms
of borrowings, unanticipated expenses or unanticipated opportunities that
require financial commitments could give rise to additional financing
requirements sooner than expected. The Company will need to raise additional
cash to finance its operations, as well as to enhance operations, fund any
expansion, respond to competitive pressures and repay borrowings when they
become due. If the Company raises additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of existing
shareholders would be reduced, and these securities may have rights,
preferences or privileges senior to those of the Companys common stock. There
can be no assurance that the Company will be able to obtain additional
financing at terms favorable to the Company, or at all, reduce expenses or
successfully complete other steps to continue as a going concern. If the
Company is unable to obtain sufficient funds to satisfy its cash requirements
within the required timeframe on acceptable terms, the Company may be forced to
curtail operations, dispose of assets, or seek extended payment terms. Such
events would materially and adversely affect the Companys financial position
and results of operations. In the event that such steps are not sufficient, or
that Company directors and management believe that such actions will not be
sufficient, the Company may be required to discontinue its operations

Note 3. Notes payable and other borrowings

In June 2002, the Company entered into a Securities Purchase Agreement with
Laurus Master Fund, Ltd. (Laurus) in connection with the issuance of a $1.25
million 14% convertible note (the 14% convertible note) to Laurus and a
warrant to purchase 250,000 shares of common stock. The 14% convertible note
is collateralized by all of the Companys assets. During the twenty-six weeks
ended June 29, 2003, convertible notes of approximately $8,000 were converted
into 40,200 shares of company stock. During the fiscal quarter ended March 30,
2003, the 14% convertible note was amended to among other things, change the
fixed conversion price to $0.10 per share and defer principal payments, under
certain conditions, to July 2003.

8



---



##### Table of Contents



Additionally, in March 2003, terms of the 250,000 warrants issued in June 2002
were amended to, among other things, change the exercise price to $0.10 per
share and suspend the right of Laurus to exercise the warrant until the earlier
of June 30, 2003 or the closing on an investment by Deutsche Bank or any of its
affiliates. As a result of the amended conversion price for the notes and
exercise price for the warrants being less than the market price of the common
stock on the amendment date, the Company recorded the related beneficial
conversion features estimated fair value of $107,000 as original issue discount
and an increase in common stock and additional paid-in capital during the
fiscal quarter ended March 30, 2003. As described in Note 8, the terms of the
14% convertible note were further amended in connection with a financing
completed in August 2003.

In March 2003, the Company issued $2 million of promissory notes, 100 shares of
series D convertible preferred stock (Series D Preferred Stock), and warrants
to purchase 1,193,546 shares of the Companys common stock at a price per share
of $0.50 to Briazz Venture L.L.C. (BV) an affiliate of Flying Food Group,
L.L.C. (FFG), in consideration for approximately $550,000 cash and conversion
of $1.45 million of outstanding demand notes. Proceeds from the sale of these
securities were used for working capital. The Company recorded a debt discount
of approximately $21,000 relating to the issuance of warrants. All Company
assets are pledged as collateral for the notes. The notes bear interest at 10%
per year, payable monthly, and are due March 6, 2004, subject to earlier
maturity under certain conditions. Terms of the notes include certain
covenants, including, among others, restrictions on the payment of dividends,
limitation on additional indebtedness, and compliance with financial covenants,
including minimum future EBITDA and maximum accounts payable. The warrants are
immediately exercisable and have a five year term, subject to shareholder
approval of conversion of Series D Preferred Stock into common stock at which
time the warrants are cancelled. Subject to shareholder approval, Series D
Preferred Stock would be convertible, for a term of five years, at the option
of the holder, into approximately 66.7% of the Companys outstanding common
stock on a fully-diluted post-conversion basis, such percentage being
adjustable under certain conditions. Upon the occurrence of any event of
default under this note, the amount due and owing under the note shall be
increased to 130% of the then outstanding aggregate principal amount of the
note together with any accrued and unpaid interest and fees. While any event
of default is continuing, a default rate of 14% will apply and BV may declare
all amounts owing under the note immediately due and payable.

In April 2003, the Company issued a $550,000 secured promissory note, 25 shares
of series E convertible preferred stock (Series E Preferred Stock), and
warrants to purchase 1,193,546 shares of the Companys common stock at a price
per share of $0.50 to Spinnaker Investment Partners, L.P. (Spinnaker), a fund
managed by Spinnaker Capital Partners, LLC (Spinnaker Capital), in
consideration for $550,000 cash. One of the Companys directors is a director
of Spinnaker Capital. The terms of the note, warrant and Series E Preferred
Stock are substantially similar to the terms of the note, warrant and Series D
Preferred Stock issued to BV in March 2003. Proceeds of the financing were
used for working capital, after deduction of expenses and a $50,000 fee paid to
Spinnaker Capital. In connection with the financing, Spinnaker, Laurus and FFG
and its affiliates, including BV, entered into an inter-creditor agreement in
which they agreed that their respective security interests in the Companys
assets would rank equally in priority.

If shareholders approved the conversion of Series D and Series E Preferred
Stock, the Series E Preferred Stock would be convertible at the option of the
holder, for an aggregate conversion price of up to $500,000 for a period of
five years, into approximately one quarter (1/4) of the number of shares of
common stock into which the Series D Preferred Stock is convertible. The number
of shares of common stock into which Series E Preferred Stock may be converted
and the conversion price per share of common stock would initially be fixed on
the date that the Series E Preferred Stock first becomes convertible. If the
Companys shareholders approved the conversion of preferred stock, then based
upon outstanding securities as of April 10, 2003, assuming that the Company did
not issue, cancel or modify any of its securities prior to the date of
shareholder approval and assuming that BV and Spinnaker did not exercise their
warrants prior to the date of shareholder approval, the Series D Preferred
Stock would initially have been convertible into a total of approximately 33.2
million shares of common stock at a conversion price of approximately $0.06 per
share of common stock, and the Series E Preferred Stock would initially have
been convertible into a total of approximately 8.3 million shares of common
stock at a conversion price of approximately $0.06 per share. The exact number
of shares of common stock that would have been issued on conversion of the
Series D and Series E Preferred Stock and the exact conversion price of the
Series D and Series E Preferred Stock could not be determined until the date
shareholder approval is received.

As described in Note 8, in July 2003 the Company obtained shareholder approval
of the conversion of Series D and Series E Preferred Stock, which caused the
preferred stock to become convertible and the warrants to terminate; in August
2003, the Company completed a financing in which the promissory notes and
Series D and Series E Preferred Stock issued to BV and Spinnaker were cancelled
in exchange for new promissory notes and series F convertible preferred stock.
No shares of Series D or Series E Preferred Stock were converted prior to such
time.

9



---



##### Table of Contents



Note 4. Stock Options

The Company maintains the BRIAZZ 1996 Stock Option Plan (the Plan) to provide
for granting of incentive stock options and nonqualified stock options to
employees, directors, consultants and certain other non-employees as determined
by the Plan Administrator. The Company has authorized 1,165,000 shares of
common stock for issuance under the Plan. The date of grant, option price,
vesting period and other terms specific to options granted under the Plan are
determined by the Plan Administrator. Options granted under the Plan generally
expire ten years from date of grant and vest over periods ranging from date of
grant to five years. In March 2003, the Company Board of Directors accelerated
vesting on stock options such that all outstanding options became fully vested.
The following summarizes stock option activity from December 29, 2002 to June
29, 2003 (shares in thousands, except exercise price):

|                                       |                   |  |        |      |                |   |           |      | 
|-------------------------------------- | ----------------- |  | ------ | ---- | -------------- | - | --------- | ---- | 
|                                       |                   |  |        |      |                |   | Weighted-
|                                       |                   |  |        |      |                |   | average  
|                                       |                   |  | Shares |      | exercise price
|                                       |                   |  |        |      |               
|Options outstanding, December 29, 2002 |                   |  | 1,050  |      |                | $ | 5.96      |     
|                                       | Options granted   |  |        |     |                |   |           | N/A  | 
|                                       | Options forfeited |  |        | (362 | )              |   | $         | 3.62 | 
|                                       |                   |  |        |      |                |   |           |     
|Options outstanding, June 29, 2003     |                   |  | 688    |      |                | $ | 7.19      |     
|                                       |                   |  |        |      |                |   |           |     

Prior to 2002, the Company granted stock options to employees (which vested
over four years) and directors at exercise prices deemed to be below the fair
value of the underlying stock on the date of grant. Related deferred stock
compensation is being amortized generally over a four-year vesting period. As
a result of these grants and acceleration of vesting in March 2003, the Company
recorded deferred stock compensation of approximately $203,000 and $174,000 in
twenty-six week periods ended June 29, 2003 and June 30, 2002, respectively.

As disclosed in Note 8, the Company adopted a new stock incentive plan in the
third quarter of 2003.

Note 5. Segment information

The Company manages its business through four reportable segments: Retail,
Branded Sales, Kitchens and General and Administrative. Retail consists of
sales generated through the Companys cafés. 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 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). Information regarding the Companys assets is not disaggregated by
segment or otherwise. The following table presents certain financial
information for each segment (amounts in thousands):

10



---



##### Table of Contents



|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |        |  
|------------------------------------------------------------------ | ------------------------------- | - | -------------------- | ----- | ---------------------- | - | -------- | ------ | -------- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                   |                                 |   | Thirteen weeks ended |       | Twenty-six weeks ended
|                                                                   |                                 |   |                      |       |                       
|                                                                   |                                 |   | June 29,             |       | June 30,               |   | June 29, |        | June 30,
|                                                                   |                                 |   | 2003                 |       | 2002                   |   | 2003     |        | 2002    
|                                                                   |                                 |   |                      |       |                        |   |          |        |         
|Retail                                                             |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Net Sales                                                          |                                 | $ | 5,123                |       |                        | $ | 5,690    |        |          | $ | 10,239  |        |   | $ | 10,984  |       
|Cost of food and packaging                                         |                                 |   | (2,543               | )     |                        |   | (2,166   | )      |          |   | (4,842  | )      |   |   | (4,119  | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   |                                 |   | 2,580                |       |                        |   | 3,524    |        |          |   | 5,397   |        |   |   | 6,865   |       
|Cost of operations                                                 |                                 |   | (3,034               | )     |                        |   | (3,836   | )      |          |   | (6,252  | )      |   |   | (6,865  | )     
|Provision for asset impairment, store closure and loss on disposal |                                 |   | (1,075               | )     |                        |   | (4       | )      |          |   | (1,076  | )      |   |   | (21     | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Income (loss) from operations                                      |                                 | $ | (1,529               | )     |                        | $ | (316     | )      |          | $ | (1,931  | )      |   | $ | (21     | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|EBITDA                                                             |                                 | $ | 47                   |       |                        | $ | 672      |        |          | $ | 210     |        |   | $ | 1,436   |       
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Branded Sales                                                      |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   | Box Lunch, Catering and Vending |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |        |  
|                                                                   | Net Sales                       |   | $                    | 911   |                        |   | $        | 1,333  |          |   | $       | 1,878  |   |   | $       | 2,670  |  
|                                                                   | Cost of food and packaging      |   |                      | (458  | )                      |   |          | (400   | )        |   |         | (824   | ) |   |         | (805   | )
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   |                                 |   | 453                  |       |                        |   | 933      |        |          |   | 1,054   |        |   |   | 1,865   |       
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   | Wholesale and Grocery           |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |        |  
|                                                                   | Net Sales                       |   |                      | 631   |                        |   |          | 762    |          |   |         | 1,340  |   |   |         | 1,487  |  
|                                                                   | Cost of food and packaging      |   |                      | (527  | )                      |   |          | (398   | )        |   |         | (970   | ) |   |         | (794   | )
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   |                                 |   | 104                  |       |                        |   | 364      |        |          |   | 370     |        |   |   | 693     |       
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   | Total Branded Sales             |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |        |  
|                                                                   | Net Sales                       |   |                      | 1,542 |                        |   |          | 2,095  |          |   |         | 3,218  |   |   |         | 4,157  |  
|                                                                   | Cost of food and packaging      |   |                      | (985  | )                      |   |          | (798   | )        |   |         | (1,794 | ) |   |         | (1,599 | )
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   |                                 |   | 557                  |       |                        |   | 1,297    |        |          |   | 1,424   |        |   |   | 2,558   |       
|                                                                   | Cost of operations              |   |                      | (583  | )                      |   |          | (1,086 | )        |   |         | (1,327 | ) |   |         | (2,140 | )
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   | Income (Loss) from operations   |   | $                    | (28   | )                      |   | $        | 211    |          |   | $       | 97     |   |   | $       | 418    |  
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   | EBITDA                          |   | $                    | 51    |                        |   | $        | 278    |          |   | $       | 247    |   |   | $       | 547    |  
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Kitchens                                                           |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Unallocated cost of food and packaging                             |                                 | $ | (132                 | )     |                        | $ | (39      | )      |          | $ | (218    | )      |   | $ | (98     | )     
|Unallocated cost of operations                                     |                                 |   | (215                 | )     |                        |   | (896     | )      |          |   | (643    | )      |   |   | (1,752  | )     
|Provision for asset impairment, store closure and loss on disposal |                                 |   | (26                  | )     |                        |   |         |        |          |   | (189    | )      |   |   | (1      | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Income (Loss) from operations                                      |                                 | $ | (373                 | )     |                        | $ | (935     | )      |          | $ | (1,050  | )      |   | $ | (1,851  | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|EBITDA                                                             |                                 | $ | (333                 | )     |                        | $ | (766     | )      |          | $ | (815    | )      |   | $ | (1,525  | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|General and Administrative                                         |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Income (Loss) from operations                                      |                                 | $ | (1,425               | )     |                        | $ | (1,370   | )      |          | $ | (2,863  | )      |   | $ | (3,162  | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|EBITDA                                                             |                                 | $ | (1,305               | )     |                        | $ | (1,703   | )      |          | $ | (2,617  | )      |   | $ | (3,377  | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Total                                                              |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Net Sales                                                          |                                 | $ | 6,665                |       |                        | $ | 7,785    |        |          | $ | 13,457  |        |   | $ | 15,141  |       
|Cost of food and packaging                                         |                                 |   | (3,660               | )     |                        |   | (3,003   | )      |          |   | (6,854  | )      |   |   | (5,816  | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|                                                                   |                                 |   | 3,005                |       |                        |   | 4,782    |        |          |   | 6,603   |        |   |   | 9,325   |       
|Cost of operations                                                 |                                 |   | (5,259               | )     |                        |   | (7,186   | )      |          |   | (11,085 | )      |   |   | (13,917 | )     
|Provision for asset impairment, store closure and loss on disposal |                                 |   | (1,101               | )     |                        |   | (6       | )      |          |   | (1,265  | )      |   |   | (24     | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|Income (Loss) from operations                                      |                                 | $ | (3,355               | )     |                        | $ | (2,410   | )      |          | $ | (5,747  | )      |   | $ | (4,616  | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       
|EBITDA                                                             |                                 | $ | (1,540               | )     |                        | $ | (1,519   | )      |          | $ | (2,975  | )      |   | $ | (2,920  | )     
|                                                                   |                                 |   |                      |       |                        |   |          |        |          |   |         |        |   |   |         |       

In the table above, EBITDA represents earnings before interest expense,
interest income, income taxes, depreciation, amortization loss on disposal of
assets, and provision for asset impairment and store closure. EBITDA data is
included because management understands that such information is considered by
certain investors as an additional basis on which to evaluate a companys
ability to pay interest, repay debt and make capital expenditures. Because all
companies do not calculate EBITDA identically, the above presentation of EBITDA
is not necessarily comparable to similarly entitled measures of other
companies. EBITDA is not intended to represent and should not be considered
more meaningful than, or an alternative to, measures of operating performance
as determined in accordance with generally accepted accounting principles. A
reconciliation of net loss to EBITDA is as follows (amounts in thousands):

11



---



##### Table of Contents



|          |                                                  |   |                        |       |                      |   |          |     |          |   |        |       |   |   |        |       |  
|--------- | ------------------------------------------------ | - | ---------------------- | ----- | -------------------- | - | -------- | --- | -------- | - | ------ | ----- | - | - | ------ | ----- | -
|          |                                                  |   | Twenty-six weeks ended |       | Thirteen weeks ended
|          |                                                  |   |                        |       |                     
|          |                                                  |   | June 29,               |       | June 30,             |   | June 29, |     | June 30,
|          |                                                  |   | 2003                   |       | 2002                 |   | 2003     |     | 2002    
|          |                                                  |   |                        |       |                      |   |          |     |         
|Net loss  |                                                  | $ | (3,646                 | )     |                      | $ | (2,527   | )   |          | $ | (6,189 | )     |   | $ | (4,712 | )    
|Add back: |                                                  |   |                        |       |                      |   |          |     |          |   |        |       |   |   |        |      
|          | Depreciation and amortization                    |   |                        | 714   |                      |   |          | 885 |          |   |        | 1,507 |   |   |        | 1,673 |  
|          | Loss on disposal of assets                       |   |                        | 42    |                      |   |          |    |          |   |        | 206   |   |   |        | 2     |  
|          | Provision for asset impairment and store closure |   |                        | 1,059 |                      |   |          | 6   |          |   |        | 1,059 |   |   |        | 22    |  
|          | Interest and other expense                       |   |                        | 295   |                      |   |          | 127 |          |   |        | 449   |   |   |        | 137   |  
|          | Interest and other income                        |   |                        | (4    | )                    |   |          | (10 | )        |   |        | (7    | ) |   |        | (42   | )
|          |                                                  |   |                        |       |                      |   |          |     |          |   |        |       |   |   |        |      
|EBITDA    |                                                  | $ | (1,540                 | )     |                      | $ | (1,519   | )   |          | $ | (2,975 | )     |   | $ | (2,920 | )    
|          |                                                  |   |                        |       |                      |   |          |     |          |   |        |       |   |   |        |      

Note 6. Commitments and contingencies

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

The Company is party to an agreement entered into in 2002 with an investment
banking firm to become the Companys exclusive financial advisor with respect
to raising capital or otherwise assisting with financing transactions.
Pursuant to the agreement, among other things, the Company owes the financial
advisor a financing fee of 7% of gross financing proceeds, or 5% in certain
financings. In addition, upon closing of the Companys April 2003 financing,
pursuant to the agreements change of control provision, the investment advisor
was owed a change of control fee, which has been recorded as deferred debt
issue cost in the amount of $300,000 and included in accrued other liabilities
at June 29, 2003. As described in Note 8, in August 2003 the
Company will issue cash and new securities to the financial advisor in full satisfaction of the
change of control fee owed.

Note 7. Related Parties

The Companys $500,000 note payable to a bank is collateralized by the pledge
of a certificate of deposit in such amount owned by the Companys founder.

As further described in Note 3, in March and April 2003, the Company issued
securities to BV and Spinnaker, such that, subject to shareholder approval, FFG
and Spinnaker could own approximately 66.7% and 16.7%
respectively of the Companys common stock on a fully-diluted, post conversion
basis.

In December 2002, the Company entered into a Food Production Agreement,
pursuant to which the Company now purchases its food products from FFG in the
Chicago, Los Angeles and Seattle markets. The agreement has a term of ten years
subject to earlier termination (i) by FFG upon 180-days notice if the Company
fails to obtain shareholder approval for the issuance of common stock upon the
conversion of shares of Series D Preferred Stock held by FFGs affiliate or
(ii) by either party if the other party becomes insolvent. Purchases from FFG
approximated $2.6 million and $4.1 million during the fiscal quarter and year
to date periods ended June 29, 2003, respectively. Included in accounts
payable at June 29, 2003 and December 29, 2002 is $765,000 and $200,000,
respectively due to FFG.

On May 28, 2003, the Company entered into an agreement with Deutsche Bank
London Ag (DB), BV, Spinnaker (collectively, the Investors) and Delafield
Hambrecht, Inc. (Delafield) providing for the issuance of an aggregate of
$6.0 million of senior secured non-convertible promissory notes (New Notes)
and shares of Series F Preferred Stock to the Investors and Delafield
(See Note 8).

Note 8. Subsequent Events

On July 29, 2003, the
Companys shareholders approved both the conversion of the
Series D and Series E Preferred Stock held by BV and
Spinnaker and the proposed financing with the Investors.  As a result
of this approval, the Series D and Series E Preferred Stock
became convertible into shares of the Companys common stock and
warrants issued to BV and Spinnaker were terminated.

On August 1, 2003, the Company issued $5.9 million of senior secured
non-convertible promissory notes (New Notes) and shares of Series F
Convertible Preferred Stock (Series F Preferred Stock) to the Investors in
exchange for (i) $3.4 million of cash from DB, (ii) $2 million of a previously
issued promissory note held by BV and all of the outstanding Series D Preferred
Stock held by BV, and (iii) $0.55 million of a
previously issued promissory note held by Spinnaker and all of the outstanding
Series E Preferred Stock held by Spinnaker. The
Investors also have the right to designate up to five of the Companys
directors. The Series F Preferred Stock is convertible at the option of the
holder, at a

12



---



##### Table of Contents



conversion price of $0.10 per share of the Companys common stock, into
approximately 90% of the Companys outstanding common stock on a fully-diluted,
post-conversion basis (approximately 81 million shares). Of this amount
approximately 84% were issued to the Investors and approximately 6% will be
issued to the Companys new and existing management. The New Notes are due two
years from issuance, bear interest, payable quarterly, at one-month LIBOR plus
1% per annum, and are collateralized by a security interest in all of the
Companys assets. The New Notes are not convertible, but the conversion price
of the Series F Preferred Stock may be satisfied by the holder surrendering a
portion of the notes for cancellation. Additionally, in connection with this
financing, the Company issued $100,000 of New Notes, shares of Series F
Preferred Stock convertible into 850,000 shares of the Companys common stock,
paid cash of $100,000 and will pay an additional $100,000 by the end of the
Companys third fiscal quarter to a financial advisor is full satisfaction of a
change of control fee previously owed by the Company to the financial advisor.
Substantially all of the net proceeds of the financing have been or will be used to repay existing indebtedness and accounts payable.

In addition, in connection with the financing transaction, the Companys
articles of incorporation were amended to increase the authorized shares of
common stock to 250 million shares, a new stock incentive
plan was adopted that authorizes the issuance of 12 million shares of
common stock upon exercise of stock options or upon the grant of restricted
stock and the Company agreed to issue to certain new and existing
members of the Company management share of Series F Preferred Stock
convertible into approximately 5.3 million shares of Company
common stock and stock options exercisable for approximately
5.4 million shares of Company common stock.




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

This report contains statements that may constitute forward-looking
statements within the meaning of the Securities Act of 1933 and the Securities
Exchange Act of 1934, as amended by the Private Securities Litigation Reform
Act of 1995. Our actual results and the timing of certain events could differ
materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results
to differ materially from those in forward-looking statements include, without
limitation, fluctuation of our operating results, our ability to obtain
additional financing on terms favorable to us, or at all, our ability to
compete successfully, our ability to successfully transition food production to
third parties, our reliance upon FFG and HEMA, our ability to meet our
obligations, actions of our debt holders, landlords and suppliers, our ability
to maintain current cafe locations and secure new ones, food and labor costs,
and operation in only four geographic areas. For additional factors that may
cause actual results to differ materially from those contemplated by such
forward-looking statements, please see the risk factors set forth in exhibit
99.1 and in other filings on file with the SEC, which risk factors are
incorporated herein as though fully set forth.

Forward-looking statements can be identified by 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.

As of July 31, 2003, we operate a total of 42 cafés in Seattle (12), San
Francisco (13), Chicago (8) and Los Angeles (9). The four café decrease since
year end is due to the closure of under-performing locations, one in the first
quarter, two in the second quarter, and one in the third quarter of 2003. We
expect to close two additional cafes in the near future, one following the
expiration of our lease and one due to poor performance. Due to, among other
things, capital restrictions, we do not currently plan to open any cafés in
2003 and may close more existing cafés.

In December 2002, we contracted with FFG to assemble and package substantially
all of our prepared food products used at our

13



---



##### Table of Contents



café locations and in our branded sales. Pursuant to this agreement we closed
our central kitchens and transferred our food production to FFG in the Chicago
market in December 2002 and in the Seattle market at the end of February 2003.
In Los Angeles, we closed our central kitchen in December 2002. Pursuant to
our agreement with FFG, FFG subcontracted our food production to Hema Food
Services, Inc. (Hema). We intend to outsource our food production in San
Francisco and pursuant to our agreement with FFG, we are working together to
find another company and to close that central kitchen. We believe that these
efforts should allow us to reduce our overhead in our existing markets. There
can be no assurance that the transition to third-party central kitchens for
food preparation will be successful or that the Company will be able to realize
anticipated cost savings.

As a result of central kitchen and café closures and reductions in corporate
personnel due to our restructuring efforts, there was a decrease of 68
employees from the beginning of the year, or 18%, to 303 employees at August 3,
2003, 52 full-time salaried and 251 hourly. These employee reductions have
resulted in and will result in future decreases in labor expenses in 2003.

We are continuing to respond to changing economic conditions, which have
included in increased office vacancies, declining employment in areas where we
operate cafes, and resulted in declining same store sales. Actions taken to
reduce negative cash flow from operations, include reducing costs through
closing central kitchens and outsourcing prepared food production, which result
in personnel reductions, closing under-performing cafes, eliminating
unprofitable wholesale accounts, internal reorganization and other workforce
reductions. We are continuing to focus on these actions to reduce costs as
well as on efforts to improve our economic performance by securing additional
revenue sources through our existing business segments and geographic markets,
and through agreements to license or franchise. We are seeking to increase
revenues in our existing cafes through, among other things, improving our menu
offerings and mix, increasing our guest check average through add-on sales,
such as chips, cookies and beverages, and by improving levels of service to our
guests.

As a result of not meeting listing requirements, our common stock is no longer
listed by the Nasdaq SmallCap Market, and commencing in June 2003 is quoted on
the Over-the-Counter Bulletin Board.

Geographic Markets We currently operate in four markets: Seattle, San
Francisco, Chicago and Los Angeles. We have presented our sales results here
by geographic market to help you understand our business, but we do not operate
our business in geographic segments. We manage our business through four
reportable segments: Retail, Branded Sales, Kitchens, and General &
Administrative. Retail consists of sales generated through the Companys cafés.
Branded Sales consists of two subgroups: 1) box lunch, catering and vending
and 2), wholesale and grocery. Branded Sales consists 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 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).

Below is a comparison of sales in each market for the thirteen and twenty-six
weeks ended June 29, 2003 and June 30, 2002. Market pre-tax profit (loss)
consists of sales less expenses related to each market other than corporate
general and administrative expense. Sales include sales from cafés, box
lunches, catering, vending, wholesale, grocery and other accounts. Expenses for
each market consist of occupancy expense, labor expense, general and
administrative expense, other operating expense, depreciation and amortization
and provision for asset impairment and store closure. Each of these items are
described in more detail in Results of Operations. Because corporate general
and administrative included depreciation and amortization related to corporate
assets corporate general and administrative totals will differ from the General
and Administrative segment financial information.

14



---



##### Table of Contents



|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |        |  
|------------------ | ------------------------------------------------------ | ------------------------------------------ | -------------------------------- | ------ | ---------------------- | ------ | ---------------------- | ------ | -------- | ------ | -------- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                   |                                                        |                                            |                                  |        | Thirteen weeks ended   |        | Twenty-six weeks ended
|                   |                                                        |                                            |                                  |        |                        |        |                       
|                   |                                                        |                                            |                                  |        | June 29,               |        | June 30,               |        | June 29, |        | June 30,
|Geographic Markets |                                                        | 2003                                       |                                  | 2002   |                        | 2003   |                        | 2002  
|                   |                                                        |                                            |                                  |        |                        |        |                        |       
|                   |                                                        |                                            |                                  |        | (dollars in thousands)
|Seattle            |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |       
|                   | Sales:                                                 |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | 1,374                  |        |                        | $      | 1,479    |        |          | $      | 2,694  |        |   | $      | 2,909  |       
|                   |                                                        | Branded Sales                              |                                  |        | 729                    |        |                        |        | 1,159    |        |          |        | 1,514  |        |   |        | 2,310  |       
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total sales                      |        | $                      | 2,103  |                        |        | $        | 2,638  |          |        | $      | 4,208  |   |        | $      | 5,219  |  
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cost of food and packaging:                            |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | (814                   | )      |                        | $      | (575     | )      |          | $      | (1,400 | )      |   | $      | (1,104 | )     
|                   |                                                        | Branded Sales                              |                                  |        | (551                   | )      |                        |        | (494     | )      |          |        | (900   | )      |   |        | (992   | )     
|                   |                                                        | Unallocated cost of products and packaging |                                  |        |                       |        |                        |        | (27      | )      |          |        | (40    | )      |   |        | (28    | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total cost of food and packaging |        | $                      | (1,366 | )                      |        | $        | (1,096 | )        |        | $      | (2,341 | ) |        | $      | (2,124 | )
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Income (loss) from operations                          |                                            | $                                | (305   | )                      |        | $                      | (117   | )        |        | $        | (485   | )      |        | $ | (131   | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cafes                                                  |                                            |                                  | 12     |                        |        |                        | 13     |          |        |          | 12     |        |        |   | 13     |       
|San Francisco      |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |       
|                   | Sales:                                                 |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | 1,761                  |        |                        | $      | 1,939    |        |          | $      | 3,534  |        |   | $      | 3,719  |       
|                   |                                                        | Branded Sales                              |                                  |        | 294                    |        |                        |        | 322      |        |          |        | 590    |        |   |        | 651    |       
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total sales                      |        | $                      | 2,055  |                        |        | $        | 2,261  |          |        | $      | 4,124  |   |        | $      | 4,370  |  
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cost of food and packaging:                            |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | (647                   | )      |                        | $      | (713     | )      |          | $      | (1,309 | )      |   | $      | (1,357 | )     
|                   |                                                        | Branded Sales                              |                                  |        | (106                   | )      |                        |        | (95      | )      |          |        | (200   | )      |   |        | (199   | )     
|                   |                                                        | Unallocated cost of products and packaging |                                  |        | (131                   | )      |                        |        | (14      | )      |          |        | (178   | )      |   |        | (59    | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total cost of food and packaging |        | $                      | (884   | )                      |        | $        | (822   | )        |        | $      | (1,687 | ) |        | $      | (1,615 | )
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Income (loss) from operations                          |                                            | $                                | (446   | )                      |        | $                      | (332   | )        |        | $        | (773   | )      |        | $ | (463   | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cafes                                                  |                                            |                                  | 14     |                        |        |                        | 15     |          |        |          | 14     |        |        |   | 15     |       
|Chicago            |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |       
|                   | Sales:                                                 |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | 900                    |        |                        | $      | 1,127    |        |          | $      | 1,815  |        |   | $      | 2,220  |       
|                   |                                                        | Branded Sales                              |                                  |        | 220                    |        |                        |        | 305      |        |          |        | 533    |        |   |        | 586    |       
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total sales                      |        | $                      | 1,120  |                        |        | $        | 1,432  |          |        | $      | 2,347  |   |        | $      | 2,806  |  
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cost of food and packaging:                            |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | (510                   | )      |                        | $      | (444     | )      |          | $      | (990   | )      |   | $      | (857   | )     
|                   |                                                        | Branded Sales                              |                                  |        | (136                   | )      |                        |        | (103     | )      |          |        | (341   | )      |   |        | (195   | )     
|                   |                                                        | Unallocated cost of products and packaging |                                  |        |                       |        |                        |        | (6       | )      |          |        |       |        |   |        | (4     | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total cost of food and packaging |        | $                      | (645   | )                      |        | $        | (553   | )        |        | $      | (1,331 | ) |        | $      | (1,056 | )
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Income (loss) from operations                          |                                            | $                                | (632   | )                      |        | $                      | (322   | )        |        | $        | (943   | )      |        | $ | (468   | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cafes                                                  |                                            |                                  | 8      |                        |        |                        | 10     |          |        |          | 8      |        |        |   | 10     |       
|Los Angeles        |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |       
|                   | Sales:                                                 |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | 1,088                  |        |                        | $      | 1,145    |        |          | $      | 2,197  |        |   | $      | 2,136  |       
|                   |                                                        | Branded Sales                              |                                  |        | 299                    |        |                        |        | 309      |        |          |        | 581    |        |   |        | 610    |       
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total sales                      |        | $                      | 1,387  |                        |        | $        | 1,454  |          |        | $      | 2,778  |   |        | $      | 2,746  |  
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cost of food and packaging:                            |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | (573                   | )      |                        | $      | (434     | )      |          | $      | (1,143 | )      |   | $      | (801   | )     
|                   |                                                        | Branded Sales                              |                                  |        | (192                   | )      |                        |        | (106     | )      |          |        | (352   | )      |   |        | (213   | )     
|                   |                                                        | Unallocated cost of products and packaging |                                  |        |                       |        |                        |        | 8        |        |          |        |       |        |   |        | (7     | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total cost of food and packaging |        | $                      | (765   | )                      |        | $        | (532   | )        |        | $      | (1,495 | ) |        | $      | (1,021 | )
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Income (loss) from operations                          |                                            | $                                | (546   | )                      |        | $                      | (269   | )        |        | $        | (682   | )      |        | $ | (392   | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cafes                                                  |                                            |                                  | 9      |                        |        |                        | 10     |          |        |          | 9      |        |        |   | 10     |       
|All Markets        |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |       
|                   | Sales:                                                 |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  | $      | 5,123                  |        |                        | $      | 5,690    |        |          | $      | 10,239 |        |   | $      | 10,984 |       
|                   |                                                        | Branded Sales                              |                                  |        | 1,542                  |        |                        |        | 2,095    |        |          |        | 3,218  |        |   |        | 4,157  |       
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total sales                      |        | $                      | 6,665  |                        |        | $        | 7,785  |          |        | $      | 13,457 |   |        | $      | 15,141 |  
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Cost of food and packaging:                            |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |       
|                   |                                                        | Retail                                     |                                  |        | (2,543                 | )      |                        |        | (2,166   | )      |          |        | (4,842 | )      |   |        | (4,119 | )     
|                   |                                                        | Branded Sales                              |                                  |        | (985                   | )      |                        |        | (798     | )      |          |        | (1,794 | )      |   |        | (1,599 | )     
|                   |                                                        | Unallocated cost of products and packaging |                                  |        | (132                   | )      |                        |        | (39      | )      |          |        | (218   | )      |   |        | (98    | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   |                                                        |                                            | Total cost of food and packaging |        | $                      | (3,660 | )                      |        | $        | (3,003 | )        |        | $      | (6,854 | ) |        | $      | (5,816 | )
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Loss from operations before general and administrative |                                            | $                                | (1,930 | )                      |        | $                      | (1,040 | )        |        | $        | (2,884 | )      |        | $ | (1,454 | )     
|                   | Corporate general and administrative                   |                                            |                                  | (1,425 | )                      |        |                        | (1,370 | )        |        |          | (2,863 | )      |        |   | (3,162 | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Loss from operations                                   |                                            | $                                | (3,355 | )                      |        | $                      | (2,410 | )        |        | $        | (5,747 | )      |        | $ | (4,616 | )     
|                   |                                                        |                                            |                                  |        |                        |        |                        |        |          |        |          |        |        |        |   |        |        |       
|                   | Total cafes                                            |                                            |                                  | 43     |                        |        |                        | 48     |          |        |          | 43     |        |        |   | 48     |       

15



---



##### Table of Contents



The following table sets forth statement of operations data for the periods
indicated as a percentage of net sales:

|                                   |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |      |       |  
|---------------------------------- | ------------------------------------------------ | ------------------------ | ----- | -------------------------- | ----- | ---------------------- | ----- | -------- | ----- | -------- | ----- | ---- | ----- | - | ----- | ---- | ----- | -
|                                   |                                                  |                          |       | Thirteen weeks ended       |       | Twenty-six weeks ended
|                                   |                                                  |                          |       |                            |       |                       
|                                   |                                                  |                          |       | June 29,                   |       | June 30,               |       | June 29, |       | June 30,
|                                   |                                                  |                          |       | 2003                       |       | 2002                   |       | 2003     |       | 2002    
|                                   |                                                  |                          |       |                            |       |                        |       |          |       |         
|                                   |                                                  |                          |       | (As a percentage of sales)
|Statement of Operations Data       |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |     
|Sales:                             |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |     
|                                   | Retail                                           |                          |       | 76.9                       | %     |                        |       | 73.1     | %     |          |       | 76.1 | %     |   |       | 72.5 | %    
|                                   | Branded Sales                                    |                          |       | 23.1                       | %     |                        |       | 26.9     | %     |          |       | 23.9 | %     |   |       | 27.5 | %    
|                                   |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |      |      
|                                   |                                                  | Total Sales              |       |                            | 100.0 | %                      |       |          | 100.0 | %        |       |      | 100.0 | % |       |      | 100.0 | %
|                                   |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |      |      
|Operating Expenses:                |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |     
|                                   | Cost of food and packaging                       |                          |       | 54.9                       | %     |                        |       | 38.6     | %     |          |       | 50.9 | %     |   |       | 38.4 | %    
|                                   | Occupancy expenses                               |                          |       | 14.6                       | %     |                        |       | 13.3     | %     |          |       | 15.5 | %     |   |       | 13.4 | %    
|                                   | Labor expenses                                   |                          |       | 25.1                       | %     |                        |       | 37.2     | %     |          |       | 27.4 | %     |   |       | 37.1 | %    
|                                   | Depreciation and amortization                    |                          |       | 10.7                       | %     |                        |       | 11.4     | %     |          |       | 11.2 | %     |   |       | 11.0 | %    
|                                   | Other operating expenses                         |                          |       | 4.0                        | %     |                        |       | 6.2      | %     |          |       | 4.1  | %     |   |       | 5.6  | %    
|                                   | General and administrative expenses              |                          |       | 24.5                       | %     |                        |       | 24.3     | %     |          |       | 24.1 | %     |   |       | 24.7 | %    
|                                   | (Gain)/Loss on Sale of Assets                    |                          |       | 0.6                        | %     |                        |       | 0.0      | %     |          |       | 1.5  | %     |   |       | 0.0  | %    
|                                   | Provision for asset impairment and store closure |                          |       | 15.9                       | %     |                        |       | 0.1      | %     |          |       | 7.9  | %     |   |       | 0.1  | %    
|                                   |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |      |      
|                                   |                                                  | Total operating expenses |       |                            | 150.3 | %                      |       |          | 131.0 | %        |       |      | 142.7 | % |       |      | 130.5 | %
|                                   |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |      |      
|Loss from operations               |                                                  |                          | (50.3 | )%                         |       |                        | (31.0 | )%       |       |          | (42.7 | )%   |       |   | (30.5 | )%  
|Other (expense) income             |                                                  |                          | (4.4  | )%                         |       |                        | (1.5  | )%       |       |          | (3.3  | )%   |       |   | (0.6  | )%  
|                                   |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |      |      
|Net loss                           |                                                  |                          | (54.7 | )%                         |       |                        | (32.5 | )%       |       |          | (46.0 | )%   |       |   | (31.1 | )%  
|                                   |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |      |      
|Selected Operations Data           |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |     
|Number of locations at period end: |                                                  |                          |       |                            |       |                        |       |          |       |          |       |      |       |   |       |     
|                                   | Central kitchens                                 |                          |       | 1                          |       |                        |       | 4        |       |          |       | 1    |       |   |       | 4    |      
|                                   | Cafes                                            |                          |       | 43                         |       |                        |       | 48       |       |          |       | 43   |       |   |       | 48   |      

RESULTS OF OPERATIONS 13-WEEK PERIOD ENDED JUNE 29, 2003 COMPARED WITH 13-WEEK
PERIOD ENDED JUNE 30, 2002

Sales Total sales decreased by $1.12 million, or 14.4%, from $7.79 million to
$6.67 million.

Retail sales decreased by $0.57 million, or 10.0%, from $5.69 million to $5.12
million. Same-store sales decreased by $0.66 million, or 11.9%, from $5.56
million to $4.90 million. The number of stores decreased by five, or
10.4%, from 48 to 43. The decrease in sales was primarily due to the continued
decrease in occupancy rates of many of the buildings in which we are located
and, to a lesser extent, due to having closed three under performing stores
during 2003 and five stores since June 30, 2002.

Branded sales decreased by $0.55 million, or 26.4%, from $2.10 million to $1.54
million. This decrease was primarily due to a continued decrease in Tullys
sales and the discontinuation of sales to Quality Food Centers. The wholesale
and grocery subgroup of Branded sales, which generally has lower margins than
our other distribution channels, had provided us with an opportunity to more
fully utilize the excess capacity of our since closed central kitchens. The
Company has evaluated the grocery segment of our wholesale business and decided
to withdraw from this distribution channel.

Operating expenses  Operating expenses consist of costs of food and packaging,
occupancy, labor, depreciation and amortization, other operating, general and
administrative, loss on disposal of assets, and provision for asset impairment
and store closure. Total operating expenses decreased by $0.18 million, or
1.8%, from $10.20 million to $10.02 million. As a percentage of sales, our
operating expenses increased from 131.0% to 150.3%. The increase in percentage
of sales was primarily due to the decrease in sales and the increase in
provision for asset impairment.

Cost of food and packaging increased by $0.66 million, or 21.9%, from $3.0
million to $3.66 million and as a percentage of sales from 38.6% to 54.9%.
Cost of food and packaging for retail sales increased by $0.37 million, or
17.1%, from $2.17 million to $2.54 million. Cost of food and packaging for
branded sales increased by $0.19 million, from $0.80 million to $0.99 million.
Cost of food and packaging increased due to our food production being
outsourced. These increases were partially offset by decreases in labor,
occupancy and depreciation and amortization.

Occupancy expenses consists of costs related to the leasing of retail space for
our cafes and our central kitchens. Occupancy expense decreased by $0.63
million, or 6.1%, from $1.03 million to $0.97 million, primarily due to central
kitchen closures and the closure of five cafés. As a percentage of sales,
occupancy expense increased from 13.3% to 14.6%, 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 $1.22 million, or 42.3%, from $2.89 million to $1.67 million. As
a percentage of sales, labor expenses decreased from 37.2% to 25.1%. These
decreases

16



---



##### Table of Contents



were primarily due to decreased labor expenses from outsourcing food
production and thus eliminating central kitchen labor.

Depreciation and amortization relates to leasehold improvements, equipment and
vehicles. Depreciation and amortization expense decreased by $0.17 million, or
19.3%, from $0.89 million to $0.71 million. As a percentage of sales,
depreciation and amortization decreased from 11.4% to 10.7%. These decreases
were due primarily to having closed 3 of 4 central kitchens.

Other operating expenses consist of direct operating, marketing, repair and
maintenance expense. Other operating expenses decreased by $0.21 million, or
43.8%, from $0.48 million to $0.27 million. As a percentage of sales, other
operating expenses decreased from 6.2% to 4.0%. These decreases were primarily
due to realization of certain cost control actions and efficiencies.

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. These expenses primarily consist of
salaries of senior management and staff, and our corporate office lease and
related office expenses. General and administrative expenses decreased by
$0.25 million, or 13.7%, from $1.89 million to $1.64 million. Primarily the
decrease was due to a reduction in our corporate workforce. As a percentage of
sales, general and administrative expenses increased from 24.3% to 24.5% due
primarily to decreased sales.

Pursuant to a plan to close our four company owned central kitchens and
outsource production of the our branded food products, the Los Angeles and
Chicago central kitchens were closed in late 2002 and the Seattle central
kitchen was closed at the end of February 2003. During the fiscal quarter
ended June 29, 2003, we recorded a net loss on disposal of assets of $42,000,
primarily related to adjustments to previously recorded losses on the closed
central kitchens and the closure of cafes. Also during the fiscal quarter
ended June 29, 2003, the Company recorded an impairment write-down of
approximately $1.06 million related to certain café locations. These
write-downs consisted primarily of leasehold improvements and, to a lesser
extent, equipment.

Other (Expense) Income  Other (expense) income includes interest and other
expense and interest and other income. Other expense increased by $0.17
million, or 141.7%, from $0.12 million to $0.29 million. As a percentage of
sales, other expense increased from 1.5% to 4.4%. These increases were due to
the interest expense from the new notes payable.

Net Loss  Net loss increased by $1.12 million, or 44.3%, from $2.53 million to
$3.65 million and as a percentage of sales, net loss increased from 32.5% to
54.4%, primarily due to decreased sales and the increase in provision for asset
impairment.

EBITDA represents earnings before interest expense, interest income, income
taxes, depreciation, amortization, loss on disposal of assets, and provision
for asset impairment and store closure. EBITDA data is included because
management understands that such information is considered by certain investors
as an additional basis on which to evaluate a companys ability to pay
interest, repay debt and make capital expenditures. Because all companies do
not calculate EBITDA identically, the presentation of EBITDA in this Quarterly
Report is not necessarily comparable to similarly entitled measures of other
companies. EBITDA is not intended to represent and should not be considered
more meaningful than, or an alternative to, measures of operating performance
as determined in accordance with generally accepted accounting principles.
EBITDA for the thirteen-week period ended June 29, 2003 decreased slightly to
($1.54) million from ($1.52) million for the comparative prior year period.

RESULTS OF OPERATIONS 26-WEEK PERIOD ENDED JUNE 29, 2003 COMPARED WITH 26-WEEK
PERIOD ENDED JUNE 30, 2002

Sales  Total sales decreased by $1.68 million, or 11.1%, from $15.14 million
to $13.58 million.

Retail sales decreased by $0.74 million, or 6.8%, from $10.98 million to $10.24
million. Same-store sales decreased by $1.30 million, or 12.0%, from $10.80
million to $9.51 million. The number of stores decreased by five, or 10.4%,
from 48 to 43. The decrease in sales was primarily due to the continued
decrease in occupancy rates of many of the buildings in which we are located
and, to a lesser extent, due to having closed three under performing stores
during 2003 and five stores since June 30, 2002.

Branded sales decreased by $0.94 million, or 22.6%, from $4.16 million to $3.22
million. This decrease was primarily due to a continued decrease in Tullys
sales and the discontinuation of sales to Quality Food Centers. The wholesale
and grocery subgroup of Branded sales, which generally has lower margins than
our other distribution channels, had provided us with an opportunity to more
fully utilize the excess capacity of our since closed central kitchens. The
Company has evaluated the grocery segment of our wholesale business and decided
to withdraw from this distribution channel.

17



---



##### Table of Contents



Operating expenses  Operating expenses consist of costs of food and packaging,
occupancy, labor, depreciation and amortization, other operating, general and
administrative, loss on disposal of assets, and provision for asset impairment
and store closure. Total operating expenses decreased by $0.56 million, or
2.8%, from $19.76 million to $19.20 million. As a percentage of sales, our
operating expenses increased from 130.5% to 142.7%. The increase in percentage
of sales was primarily due to the decrease in sales and the increase in
provision for asset impairment.

Cost of food and packaging increased by $1.03 million, or 17.7%, from $5.82
million to $6.85 million and as a percentage of sales from 38.4% to 50.9%.
Cost of food and packaging for retail sales increased by $0.72 million, or
17.5%, from $4.12 million to $4.84 million. Cost of food and packaging for
branded sales increased by $.19 million, from $1.60 million to $1.79 million.
Cost of food and packaging increased due to our food production being
outsourced. These increases were partially offset by decreases in labor,
occupancy and depreciation and amortization.

Occupancy expenses consists of costs related to the leasing of retail space for
our cafes and our central kitchens. Occupancy expense increased by $0.05 million,
or 3.0%, from $2.03 million to $2.09 million, the decreases from
central kitchen closures being more than offset by rents for cafés opened in
2002 after the first quarter. As a percentage of sales, occupancy expenses
increased from 13.4% to 15.5%, 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 $1.93 million, or 34.3%, from $5.62 million to $3.69 million. As
a percentage of sales, labor expenses decreased from 37.1% to 27.4%. These
decreases were primarily due to decreased labor expenses from outsourcing food
production and thus eliminating central kitchen labor.

Depreciation and amortization relates to leasehold improvements, equipment and
vehicles. Depreciation and amortization expense decreased by $0.16 million, or
10.6%, from $1.67 million to $1.51 million primarily due to having closed 3 of
4 central kitchens. As a percentage of sales, depreciation and amortization
increased from 11.0% to 11.2% primarily due to decreased sales.

Other operating expenses consist of direct operating, marketing, repair and
maintenance expense. Other operating expenses decreased by $0.29 million, or
34.1%, from $0.85 million to $0.56 million. As a percentage of sales, other
operating expenses decreased from 5.6% to 4.1%. These decreases were primarily
due to realization of certain cost control actions and efficiencies.

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 senior management and staff, and our corporate office lease and
related office expenses. General and administrative expenses decreased by
$0.51 million, or 13.6%, from $3.75 million to $3.24 million. As a percentage
of sales, general and administrative expenses decreased from 24.7% to 24.1%.
Primarily the decreases were due to layoffs.

Pursuant to a plan to close our four company owned central kitchens and
outsource production of the our branded food products, the Los Angeles and
Chicago central kitchens were closed in late 2002 and the Seattle central
kitchen was closed at the end of February 2003. We recorded a net loss on
disposal of assets of $206,000 primarily relating to the Seattle central
kitchen closure and adjustments to previously recorded losses on the Chicago
and Los Angeles central kitchens. Also during the fiscal quarter ended June
29, 2003, the Company recorded an impairment write-down of approximately $1.06
million related to certain café locations. These write-downs consisted
primarily of leasehold improvements and, to a lesser extent, equipment.

Other (Expense) Income  Other (expense) income includes interest and other
expense and interest and other income. Other expense increased by $0.34
million, or 340.0%, from $0.10 million to $0.44 million. As a percentage of
sales, other expense increased from 0.6% to 3.3%. These increases were due to
the interest expense from the new notes payable.

Net Loss Net loss increased by $1.48 million, or 31.4%, from $4.71 million to
$6.19 million. This increase was primarily due to decreased sales and the
increase in provision for asset impairment. As a percentage of sales, net loss
increased from 31.1% to 46.0%.

EBITDA represents earnings before interest expense, interest income, income
taxes, depreciation, amortization, loss on disposal of assets, and provision
for asset impairment and store closure. EBITDA data is included because
management understands that such information is considered by certain investors
as an additional basis on which to evaluate a companys ability to pay
interest, repay debt and make capital expenditures. Because all companies do
not calculate EBITDA identically, the

18



---



##### Table of Contents



presentation of EBITDA in this Quarterly
Report is not necessarily comparable to similarly entitled measures of other
companies. EBITDA is not intended to represent and should not be considered
more meaningful than, or an alternative to, measures of operating performance
as determined in accordance with generally accepted accounting principles.
EBITDA for the twenty-six week period ended June 29, 2003 decreased slightly to
($2.98) million from ($2.92) million for the comparative year period.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities during the 26-weeks ended June 29, 2003
and June 30, 2002 was approximately $1.0 million and $3.12 million,
respectively. Net cash used in operating activities in each period resulted
primarily from net loss before non-cash charges and changes in working capital.

Net cash used in investing activities for the 26-weeks ended June 29, 2003 and
June 30, 2002 was approximately $16,000 and $1.84 million, respectively. Net
cash used in investing activities resulted from capital additions primarily
related to opening additional cafés during the 2002 period.

Net cash provided by financing activities for the 26-weeks ended June 29, 2003
and June 30, 2002 was approximately $1.04 million and $0.45 million,
respectively. The financing activities during 2003 consisted primarily of cash
received from the net proceeds of $1.53 million in debt financing from FFG, BV,
and Spinnaker, which were reduced by debt issue costs.

Since inception we have financed our operations primarily through the issuance
of capital stock and debt. Since inception through June 29, 2003, we have
raised cash of approximately $68 million from sales of debt and equity
securities. In addition to funding capital expenditures, which have
approximated $28 million since inception, cash provided by financing activities
has funded our initiatives in business and market development and related
operating losses. Since inception through June 29, 2003, we have incurred net
losses of approximately $69 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, workforce reductions and
closing of certain under-performing cafés, continued during 2003.

In March 2003, certain terms of the note with Laurus Master Fund, Ltd.
(Laurus) were amended to, among other things, change the fixed conversion
price to $0.10 per share. The amendment to the note suspended our obligation
to make monthly payments of principal until the first business day of the month
following the earlier of June 30, 2003 or the closing on an investment by
Deutsche Bank or any of its affiliates, suspends the right of Laurus to demand
conversion under the note until the earlier of June 30, 2003 or the closing on
an investment by Deutsche Bank or any of its affiliates which occurred on
August 1, 2003, and restructures the repayment schedule for the remaining
payments over a seven month period following the resumption of principal
payments. Additionally, in March 2003, terms of the 250,000 warrants issued in
June 2002 were amended to, among other things, change the exercise price to
$0.10 per share and suspend the right of Laurus to exercise the warrant until
the earlier of June 30, 2003 or the closing on an investment by Deutsche Bank
or any of its affiliates. As a result of the amended conversion price for the
note and exercise price for the warrants being less than the market price of
the common stock on the amendment date, the Company recorded the estimated fair
value of $107,000 feature as original issue discount and an increase in common
stock and additional paid-in capital. In July 2003, the terms of the note were
further amended to provide that, upon completion of the financing with Deutsche
Bank London Ag (DB), an affiliate of Deutsche Bank, we would make a $300,000
principal payment, and pay the remaining principal amount, plus a $75,000 fee
relating to the $300,000 prepayment, in 12 equal installments on the first
business day of each calendar month beginning September 1, 2003. Accrued and
unpaid interest must also be paid monthly; however Laurus has waived its right
to receive any interest payments until October 1, 2003.

In August 2002, we entered into a one-year $1.0 million revolving credit line
based upon and collateralized by our accounts receivable. We pay daily fees of
0.0667% computed on the outstanding daily balance. As of June 29, 2003,
approximately $150,000 was available for borrowing, none of which had been
drawn. As a result of lock box deposits being swept to the lender exceeding
Company draw-down on the line, at June 29, 2003, the Company had a receivable
balance due from the lender of approximately $76,000, most of which was
subsequently drawn. We expect that accounts receivable and the amounts
available under this facility will be reduced during 2003 as compared to 2002,
primarily due a reduction in sales to wholesale accounts.

In September 2002, we entered into a $500,000 note payable borrowing from U.S.
Bank. The note is secured by a certificate of deposit owned by the Companys
Chief Executive Officer and bears interest, payable monthly, at an annual rate
of 3.59%. The note was initially due June 30, 2003, which has since been
extended to June 30, 2004.

19



---



##### Table of Contents



In March 2003, we completed the offer and sale of $2.0 million in secured
promissory notes, Series D Preferred Stock and warrants to purchase common
stock to BV pursuant to which we issued a $2.0 million secured promissory note
in consideration for approximately $0.55 million in cash and conversion of the
$1.45 million principal amount of outstanding demand notes issued to FFG and
its affiliates, $450,000 of which was borrowed by the Company during January
and February 2003. Proceeds from the offering were used for working capital.
We also issued a five-year warrant exercisable for 1,193,546 shares of our
common stock at a price per share of $0.50, and 100 shares of Series D
Preferred Stock, and granted registration rights covering the shares of common
stock issuable upon conversion of the preferred stock and exercise of the
warrant. The Company agreed to cause up to one person designated by FFG to be
appointed to the Companys Board of Directors, subject to increase upon
receiving shareholder approval. We agreed that, if we receive shareholder
approval, we would cause up to five persons designated by BV to be appointed to
our Board of Directors, in accordance with the rules and regulations of Nasdaq
or any exchange on which our common stock is listed. The promissory note was
secured by all of our assets and bore interest at 10% per year. Interest was
payable monthly in arrears, in cash. The note was to mature, and all principal
and accrued and unpaid interest was to become due, on March 6, 2004. The note
may have,
however, become due prior to March 6, 2004 if we fail to meet financial
covenants set forth in the note. The terms of the notes included certain
covenants, including, among others, restrictions on the payment of dividends,
limitation on additional indebtedness, and compliance with financial covenants,
including minimum future EBITDA and maximum accounts payable.

On April 10, 2003, the Company completed the offer and sale of $550,000 in
secured promissory notes, warrants, and Series E Preferred Stock to Spinnaker.
In consideration for $550,000 in cash, Spinnaker was issued a $550,000 secured
promissory note, a five-year warrant exercisable for 1,193,546 shares of the
Companys common stock at a price per share of $0.50, and 25 shares of Series E
Preferred Stock. The terms of the note, warrant and Series E Preferred Stock
are substantially similar to the terms of the note, warrant and Series D
Preferred Stock issued to BV on March 6, 2003. The Company also agreed to cause
up to one person designated by Spinnaker to be appointed to the Companys Board
of Directors. Proceeds of the financing were used for working capital, after
deduction of expenses and a $50,000 management fee payable to Spinnaker Capital
Partners, LLC. In connection with the financing, Spinnaker, Laurus, BV and FFG,
entered into an inter-creditor agreement in which they agreed that their
respective security interests in the Companys assets would rank equally in
priority.

On May 28, 2003, the Company entered into an agreement with DB, BV, Spinnaker
(collectively, the Investors), and Delafield Hambrecht, Inc. (Delafield)
providing for the issuance of an aggregate of $6.0 million of senior secured
non-convertible promissory notes (New Notes) and shares of Series F Preferred
Stock to the Investors.

On July 29, 2003, the Companys shareholders approved both the conversion of
the Series D and Series E Preferred Stock held by BV and Spinnaker and the
proposed financing with the Investors. As a result of this approval, the
Series D and Series E Preferred Stock became convertible into shares of the
Companys common stock and the warrants issued to BV and Spinnaker were
terminated.

On August 1, 2003, the Company issued $6.0 million of senior secured
non-convertible promissory notes (New Notes) to DB ($3.4 million), BV ($2.0
million), Spinnaker, and Delafield ($0.1 million). The New Notes are due two
years from issuance, bear interest, payable quarterly, at LIBOR plus 1%, and
are collateralized by a security interest in all of the Companys assets. The
New Notes are not convertible, but the conversion price of the Series F
Preferred Stock may be satisfied by the holder surrendering a portion of the
notes for cancellation. The Company issued to the Investors and
Delafield an aggregate of
7,643,841 shares of Series F Preferred Stock that are initially convertible
into 76,438,410 shares of common stock at an initial conversion price $0.10 per
share of common stock. In the event that the fair market price of the common
stock exceeds the conversion price, the Series F Preferred Stock may also be
converted pursuant to a cashless exercise feature. The Company also granted
the Investors and Delafield registration rights covering the shares of common stock issuable
upon conversion of the Series F Preferred Stock and the right to name new
executive officers to be appointed by the Company, and granted the right to
designate up to five of the Companys directors to DB (2), BV (2) and Spinnaker
(1).

The securities issued to DB, BV, and Spinnaker were issued in consideration of
(i) $3.4 million of cash from DB, (ii) cancellation of the Series D Preferred
Stock and $2 million of the note held by BV, and (iii) cancellation of the
Series E Preferred Stock and $0.55 million of the note held by Spinnaker,
respectively. The Company issued the securities to Delafield, made a cash
payment to Delafield of $100,000 and has agreed to pay Delafield an additional
$100,000 by the end of the Companys third fiscal quarter in full satisfaction
of a change of control fee previously owed by the company to
Delafield. Substantially all of the net proceeds
of the financing have been or will be used to repay existing
indebtedness and accounts payable.

20



---



##### Table of Contents



In addition, in connection with the financing transaction, the Companys
articles of incorporation were amended to increase the authorized shares of
common stock to 250 million shares, a new stock incentive plan was adopted that
authorizes the issuance of 12 million shares of common stock upon exercise of
stock options or upon the grant of restricted stock, and the Company agreed to
issue to certain new and existing members of the Company management shares of
Series F Preferred Stock convertible into approximately 5.3 million shares of
Company common stock and stock options exercisable for approximately 5.4
million shares of Company common stock.

The appointment of the directors and executive officers designated by the
Investors and Delafield and the issuance of Series F Preferred Stock and stock options to the
Companys management are subject to completion. See Part II, Item 5.

The Company is currently being audited
with respect to payment of sales and use tax and
has accrued approximately $380,000 with respect to any potential tax payment.
We are reviewing our internal procedures and records to determine if such
accrual is appropriate or if we will require further adjustment.

The Company has incurred substantial operating losses and negative cash flows
from operations since inception and had an accumulated deficit of $76.4 million
and a working capital deficit of $8.9 million at June 29, 2003. As disclosed
in the report of independent auditors on our annual financial statements and
included in our Annual Report on Form 10-K, these matters raise substantial
doubt about the Companys ability to continue as a going concern. We have
financed our operations principally through the net proceeds from debt and
equity offerings. 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 and our ability to reduce
operating expenses. The accompanying financial statements have been prepared
on the basis that the Company 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.

At June 29, 2003, the Company had cash and cash equivalents of approximately
$0.5 million. As described in Note 8, subsequent to June 29, 2003, we have
raised additional cash from the sale of our debt and equity securities,
substantially all of which has been or will be used to repay existing
indebtedness and accounts payable. We have used a combination of cash and cash
equivalents, operating revenues and proceeds of additional borrowings to meet
our immediate cash needs; however, it is anticipated that additional
cash will
be needed by the end of 2003 in order to continue operating. The Company is
attempting to conserve cash by reducing expenses and by delaying or deferring
payments to some of our suppliers and on some of the our leases. Poor
financial results, inability to comply with the terms of borrowings,
unanticipated expenses or unanticipated opportunities that require financial
commitments could give rise to additional financing requirements sooner than
expected. We will need to raise additional cash to finance our operations, as
well as to enhance operations, fund any expansion, respond to competitive
pressures and repay borrowings when they become due. If we raise additional
funds through the issuance of equity or convertible debt securities, the
percentage ownership of existing shareholders would be reduced, and these
securities may have rights, preferences or privileges senior to those of the
our common stock. 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 the
Company is unable to obtain sufficient funds to satisfy our cash requirements
within the required timeframe on acceptable terms, we may be forced to curtail
operations, dispose of assets, or seek extended payment terms. Such events
would materially and adversely affect our financial position and results of
operations. In the event that such steps are not sufficient, or that Company
directors and management believe that such actions will not be sufficient, we
may be required to discontinue its operations

Critical Accounting Policies and
Recent Accounting Pronouncements  For a
detailed discussion on the application of critical accounting policies, recent
accounting pronouncements and other accounting policies, see Note 1 in the
Notes to the Financial Statements included in our December 29, 2002 Annual
Report on Form 10-K and in this Quarterly Report on Form 10-Q.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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.

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

21



---



##### Table of Contents



believe that substantially all of our food and
supplies are available from numerous sources, which helps to control food
commodity risk; however we are reliant upon FFG to control food commodity risk
for those products we purchase from FFG. 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.




ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of the Companys management,
including the Companys Chief Executive Officer and Chief Financial Officer,
the Company evaluated the effectiveness of the Companys disclosure controls
and procedures (as defined in Rule 13a-14(c) under the Exchange Act as of June
29, 2003 (the Evaluation). Based upon that Evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that, the Companys disclosure
controls and procedures were effective in timely alerting him to the material
information relating to the Company required to be included in the reports that
the Company files or submits under the Exchange Act. During the fourth quarter
of fiscal 2002, the Companys chief financial officer resigned. During the
first quarter of fiscal 2003, the Companys controller and president resigned.
Due to the impact of these resignations, the Company hired consultants to
assist with the preparation of its financial statements and Exchange Act
reports. The Company will continue to utilize consultants until it has hired a
full-time chief financial officer. Other than these changes, there were no
significant changes made in the Companys internal controls during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, the Companys internal controls.




PART II  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On April 14, 2003, the Company received a summons and complaint in an action
filed by Walnut Street Properties, Inc. against the Company in the Circuit
Court of Cook County, Illinois, relating to space leased by the Company at 1642
Lake Street, Chicago, Illinois, for its Chicago central kitchen. The Company
closed the central kitchen in December 2002. Walnut Street is seeking the sum
of $131,644 for unpaid rent and expenses for reletting allocable to the
remainder of the lease term together with interest and with costs of the action
and reasonable attorneys fees. The Company has retained an attorney in
Chicago, Illinois for purposes of resolving this matter.

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.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Changes in Constituent Instruments
and Rights  Information regarding the
Companys Series E Preferred Stock, and the terms thereof, has been previously
reported by the Company in Companys Form 8-K dated April 10, 2003.
Information regarding the cancellation of the Companys Series D and Series E
Preferred Stock, the increase in the Companys authorized share capital and the
designation and issuance of Series F Preferred Stock is included in this report
under Managements Discussion and Analysis of Financial Condition and Results
of Operations. In addition, the Articles of Amendment increasing the Companys
authorized share capital and designating the Series F Preferred Stock are
attached as an exhibit to this report.

Recent Sales We issued $0.55 million principal amount of senior secured
promissory notes, 25 shares of Series E Preferred Stock and a warrant to
purchase 1,193,546 shares of common stock at an exercise price of $0.50 per
share to Spinnaker on April 10, 2003, for $0.55 million in cash. We issued
$6.0 million principal amount of New Notes and 7,643,841 shares of Series F
Preferred Stock to DB, BV, Spinnaker, and Delafield on August 1, 2003 for the
consideration described in this report under Managements Discussion and
Analysis of Financial Condition and Results of Operations. The securities were
issued to accredited investors in reliance upon Section 4(2) and Rule 506 of
Regulation D under the Securities Act. The terms of the securities are more
fully described elsewhere in this report.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

22



---



##### Table of Contents






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

The Companys 2002 Annual Meeting of Shareholders (the Annual Meeting) was
held at 10:00 a.m. on Tuesday, July 29, 2003 at Briazz Headquarters, 3901
Seventh Ave. S., Seattle, Washington 98108. At the Annual Meeting, the
shareholders were asked to:



| | 1. |  | Elect two directors to the board of directors: Victor D. Alhadeff;
and Charles C. Matteson, Jr.;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | To approve a proposed financing and related actions, including (i)
the issuance of up to $5.9 million worth of promissory notes and shares
of Series F Convertible Preferred Stock, (ii) the issuance of shares of
Series F Convertible Preferred Stock and common stock options to new
and existing members of management, (iii) an amendment to the articles
of incorporation to increase the number of authorized shares of common
stock to 250 million shares, (iv) the adoption of a new stock incentive
plan, (v) the right of investors to designate up to five directors, and
(vi) the issuance of promissory notes and shares of Series F
Convertible Preferred Stock to Delafield Hambrecht, Inc.;
|
| | 3. |  | In the event shareholders do not approve Proposal No. 2, or if the
financing with DB is not completed, to approve (i) the issuance of
shares of common stock of the Company upon conversion of shares of
Series D Convertible Preferred Stock and a warrant issued to Briazz
Venture, L.L.C. (BV) and shares of Series E Convertible Preferred
Stock and a warrant issued to Spinnaker Investment Partners, L.P. and
(ii) the right of BV to designate five of our directors pursuant to the
financings completed in March and April 2003;                                                                                                                                                                
|
| | 4. |  | To approve the 2003 Stock Plan; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | 5. |  | To approve an amendment to the articles of incorporation to
eliminate any series of preferred stock where no shares of such series
remain outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

The number of votes cast for, against and withheld, as well as the number
of abstentions and broker non-votes, as to each such matter, including a
separate tabulation with respect to each nominee for office are as follows:

23



---



##### Table of Contents



|                                                                                |  |           |           |               |  |                |  |             |         |       |  |         |  |            
|------------------------------------------------------------------------------- |  | --------- | --------- | ------------- |  | -------------- |  | ----------- | ------- | ----- |  | ------- |  | -----------
|                                                                                |  |           |           |               |  |                |  |             |         |       |  |         |  | Broker Non-
|Matter or Nominee                                                               |  | Votes For |           | Votes Against |  | Votes Withheld |  | Abstentions |         | Votes
|                                                                                |  |           |           |               |  |                |  |             |         |      
|Victor D. Alhadeff                                                              |  |           | 5,100,174 |               |  |               |  |             | 107,381 |       |  |        |  |           
|Charles C. Matteson, Jr.                                                        |  |           | 5,179,079 |               |  |               |  |             | 28,076  |       |  |        |  |           
|Approval of issuance of
securities as described
in 2(i), (ii) and (vi)
above    |  |           | 3,367,160 |               |  | 113,141        |  |             |        |       |  | 2,990   |  | 2,507,625  
|Approval of amendment
of articles of
incorporation as
described in 2(iii)
above |  |           | 3,354,501 |               |  | 126,350        |  |             |        |       |  | 2,440   |  | 2,507,625  
|Adoption of Stock
Incentive Plan as
described in 2(iv)
above                    |  |           | 3,346,990 |               |  | 133,011        |  |             |        |       |  | 3,290   |  | 2,507,625  
|Approval of up to five
directors as described
in 2(v) above                     |  |           | 3,374,550 |               |  | 105,841        |  |             |        |       |  | 2,900   |  | 2,507,625  
|Approval of proposal 3
as described above                                       |  |           | 3,334,636 |               |  | 41,875         |  |             |        |       |  | 106,780 |  | 2,507,625  
|Approval of the 2003
Stock Plan                                                 |  |           | 3,248,920 |               |  | 136,491        |  |             |        |       |  | 97,880  |  | 2,507,625  
|Approval of proposal 5
as described above                                       |  |           | 3,279,710 |               |  | 16,475         |  |             |        |       |  | 187,106 |  | 2,507,625  




ITEM 5. OTHER INFORMATION

Milt Liu joined the Company on May 10, 2003 as Director of Operations. Joel
Sjostrom, Vice President Retail Operations, left the Company effective June 20,
2003.

The Company will file a Schedule 14f-1 with the Securities and
Exchange Commission in order to disclose information regarding the five persons
designated by DB, BV, and Spinnaker to serve as directors of the Company.
Charles C. Matteson, Jr., the designee of Spinnaker, is currently serving as a
director of the Company. Pursuant to Rule 14f-1 under the Exchange Act, the
Company anticipates appointing the four designees of DB and BV to fill
vacancies on the Board of Directors effective ten days after the
Schedule 14f-1 is transmitted to record holders of the
Companys common stock.

24



---



##### Table of Contents






ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits.

| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  | ------- | ----------- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit |             |  |            
| |  | Number  |             |  | Description
| |  |         |             |  |            
| |  |         | 3.1(2)      |  |             | Amended and Restated Articles of Incorporation.                                                                                                                                                                   
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 3.1.1(5)    |  |             | Articles of Amendment filed March 5, 2003 (including designation of Series D
Convertible Preferred Stock).                                                                                                        
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 3.1.2(6)    |  |             | Articles of Amendment filed April 10, 2003 (including designation of Series E
Convertible Preferred Stock).                                                                                                       
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 3.1.3       |  |             | Articles of Amendment filed July 30, 2003 (including designation of Series F
Convertible Preferred Stock).                                                                                                        
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 3.2(5)      |  |             | Amended and Restated Bylaws.                                                                                                                                                                                      
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 4.1(2)      |  |             | Specimen Stock Certificate for Common Stock.                                                                                                                                                                      
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 4.2         |  |             | Specimen Stock Certificate for Series F Convertible Preferred Stock.                                                                                                                                              
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.1(1)(2)  |  |             | 1996 Amended Stock Option Plan.                                                                                                                                                                                   
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.2(1)(2)  |  |             | Form of Option
Agreement (1996 Plan  Fresh Options prior to February 2001).                                                                                                                                      
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.3(1)(2)  |  |             | Form of Option
Agreement (1996 Plan  other options prior to February 2001).                                                                                                                                      
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.4(1)(2)  |  |             | 2001 Employee Stock Purchase Plan.                                                                                                                                                                                
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.5(2)     |  |             | Form of Warrant (Series C Convertible Preferred Stock financing).                                                                                                                                                 
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.6(1)(2)  |  |             | Employment Agreement between BRIAZZ and Charles William Vivian dated July 14,
1999.                                                                                                                               
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.7(2)     |  |             | Form of Registration lefts Agreement among BRIAZZ and certain of our
shareholders dated August 15, 1997, as amended.                                                                                              
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.8(2)     |  |             | Agreement between BRIAZZ and Stusser Realty Group Limited Partnership dated
January 1998.                                                                                                                         
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.9(2)     |  |             | Sublease between BRIAZZ and Stusser Electric Company regarding 3901 7th Avenue
South, Seattle, WA dated February 6, 1998.                                                                                         
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.10(2)    |  |             | Sublease Amendment between BRIAZZ and Stusser Electric Company regarding 3901 7th
Avenue South, Seattle, WA dated August 28, 2000.                                                                                
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.11       |  |             | Sublease Agreement between BRIAZZ and Norstar Specialty Foods Inc. regarding 3901
7th Avenue South, Seattle, WA effective as of March 1, 2003.                                                                    
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 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(5)    |  |             | Surrender of Possession and Termination of Lease Agreement dated December, 2002
regarding lease between BRIAZZ and Time Realty Investments, Inc. regarding 200
Center St., El Segundo, CA dated December 15, 1997.
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.16(2)    |  |             | Industrial Building Lease between BRIAZZ and Walnut Street Properties, Inc.
regarding 1642 Lake Street, Chicago, IL dated April 7, 1997.                                                                          
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.17(1)(2) |  |             | Form of Option
Agreement (1996 Plan  all options since February 2001).                                                                                                                                           
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.18(2)    |  |             | Noncompetition Agreement between BRIAZZ and Victor D. Alhadeff dated October 18,
1996.                                                                                                                            
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.19(3)    |  |             | Convertible Note made by BRIAZZ in favor of Laurus Master Fund, Ltd. dated June
18, 2002 in the principal amount of $1,250,000.                                                                                   
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.20(3)    |  |             | Common Stock Purchase Warrant issued by BRIAZZ to Laurus Master Fund, Ltd. dated
June 18, 2002.                                                                                                                   
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.21(3)    |  |             | Security Agreement made by BRIAZZ in favor of Laurus Master Fund, Ltd. dated June
18, 2002.                                                                                                                       
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.22(5)    |  |             | Allonge dated December 2, 2002 to the Convertible Note issued by the Company to
Laurus Master Fund, Ltd. on June 18, 2002.                                                                                        
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.24(5)    |  |             | Common Stock Purchase Warrant issued by BRIAZZ to Laurus Master Fund, Ltd. dated
December 2, 2002.                                                                                                                
| |  |         |             |  |             |                                                                                                                                                                                                                   
| |  |         | 10.25(5)    |  |             | Allonge dated January, 2003 to the Convertible Note issued by BRIAZZ to Laurus Master                                                                                                                             

25



---



##### Table of Contents



| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | ---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |            |  | Fund, Ltd. on June 18, 2002.                                                                                                                                                                                                                                         
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.26(5)   |  | Allonge dated as of February 26, 2003 to the Convertible Note issued by BRIAZZ to
Laurus Master Fund, Ltd. on June 18, 2002.                                                                                                                                         
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.27(5)   |  | Allonge dated as of February 26, 2003 to the Warrant issued by BRIAZZ to Laurus
Master Fund, Ltd. on June 18, 2002.                                                                                                                                                  
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.28      |  | Letter Agreement dated as of July 31, 2003 between BRIAZZ and Laurus Master Fund,
Ltd.                                                                                                                                                                               
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.29      |  | Amendment dated as of July 31, 2003 to the Convertible Note issued by BRIAZZ to
Laurus Master Fund, Ltd. on June 18, 2002.                                                                                                                                           
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.30(4)   |  | Form of Secured Convertible Demand Note used in October 2002.                                                                                                                                                                                                        
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.31(5)   |  | Form of Secured Convertible Demand Note used in December 2002 and January 2003.                                                                                                                                                                                      
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.32(5)   |  | Food Production Agreement between BRIAZZ and Flying Food Group, L.L.C. dated
December 1, 2002                                                                                                                                                                        
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.33(5)   |  | Amended Security Agreement between BRIAZZ, Flying Food Group, L.L.C. and New
Management, Ltd., dated December 3, 2002.                                                                                                                                               
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.34(5)   |  | Amended and Restated Purchase Agreement between BRIAZZ and Briazz Venture,
L.L.C., dated March 5, 2003.                                                                                                                                                              
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.35(5)   |  | $2,000,000 Senior Secured Note issued by BRIAZZ in favor of Briazz Venture,
L.L.C., dated March 6, 2003.                                                                                                                                                             
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.36(5)   |  | Warrant to purchase 1,193,546 shares of Common Stock issued by BRIAZZ to Briazz
Venture, L.L.C. dated March 6, 2003.                                                                                                                                                 
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.37(5)   |  | Amendment dated March 6, 2003 between BRIAZZ and Briazz Venture, L.L.C. to
Security Agreement dated December 3, 2002.                                                                                                                                                
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.38(5)   |  | Voting Agreement between Briazz Venture, L.L.C. and Victor D. Alhadeff, dated as
of March 6, 2003.                                                                                                                                                                   
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.39(5)   |  | Registration Rights Agreement between BRIAZZ and Briazz Venture, L.L.C., dated
March 6, 2003.                                                                                                                                                                        
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.40(6)   |  | Purchase agreement between BRIAZZ and Spinnaker Investment Partners, L.P., dated
April 10, 2003                                                                                                                                                                      
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.41(6)   |  | $550,000 Senior Secured Note issued by BRIAZZ in favor of Spinnaker Investment,
L.P., dated April 10, 2003                                                                                                                                                           
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.42(6)   |  | Warrant to purchase 1,193,546 shares of Common Stock issued by BRIAZZ to
Spinnaker Investment Partners, L.P., dated April 10, 2003                                                                                                                                   
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.43(6)   |  | Amended and Restated Security Agreement by and among BRIAZZ, Briazz Venture,
L.L.C. and Spinnaker Investment Partners, L.P., dated April 10, 2003                                                                                                                    
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.44(6)   |  | Amended and Restated Agreement Between Creditors by and among BRIAZZ, Laurus
Master Fund, Ltd., Spinnaker Investment Partners, L.P. and Flying Food Group
L.L.C. and any of its affiliates, including but not limited to Briazz Venture,
L.L.C., dated April 10, 2003
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.45(6)   |  | Amended and Restated Registration Rights Agreement by and among BRIAZZ, Spinnaker
Investment Partners, L.P. and Flying Food Group L.L.C. and any of its affiliates,
including but not limited to Briazz Venture, L.L.C., dated April 10, 2003                        
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.46.1(7) |  | Securities Purchase Agreement by and among BRIAZZ, Deutsche Bank London Ag,
Briazz Venture, L.L.C., Spinnaker Investment Partners, L.P. and Delafield
Hambrecht, Inc. dated May 28, 2003.                                                                            
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.46.2(8) |  | Amendment date August 1, 2003 to Securities Purchase Agreement by and among
BRIAZZ, Deutsche Bank London Ag, Briazz Venture, L.L.C., Spinnaker Investment
Partners, L.P. and Delafield Hambrecht, Inc., dated May 28, 2003                                           
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.47(8)   |  | Form of Note issued on August 1, 2003 to each of Deutsche Bank London, Ag, Briazz
Venture, L.L.C., Spinnaker Investment Partners, L.P. and Delafield Hambrecht,
Inc.                                                                                                 
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.48(8)   |  | Security Agreement dated August 1, 2003 among BRIAZZ, Deutsche Bank London Ag and
Flying Food Group, L.L.C.                                                                                                                                                          
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.49(8)   |  | Intercreditor Agreement dated August 1, 2003, among BRIAZZ, Laurus Master Fund,
Ltd., Deutsche Bank London Ag, Flying Food Group, L.L.C., Briazz Venture, L.L.C.,
Spinnaker                                                                                          
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.50(8)   |  | Registration Right Agreement dated August 1, 2003 among BRIAZZ, Laurus Master
Fund, Ltd., Deutsche Bank London Ag, Briazz Venture, L.L.C., Spinnaker Investment
Partners, L.P., and Delafield Hambrecht, Inc.                                                        
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.51(8)   |  | Letter Agreement dated August 1, 2003 between BRIAZZ and Delafield Hambrecht, Inc.                                                                                                                                                                                   
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 10.52      |  | 2003 Stock Plan                                                                                                                                                                                                                                                      
| |  |            |  |                                                                                                                                                                                                                                                                      
| |  | 31.1       |  | Exhibit 31.1 Certification required by Rule 13a-14(a) or Rule 15d-14(a)                                                                                                                                                                                              

26



---



##### Table of Contents



| |  |      |  |                                                                                                                                                                                            
| |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 32.1 |  | Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
| |  |      |  |                                                                                                                                                                                            
| |  | 99.1 |  | 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 our Form 8-K filed on July 20, 2002.                   
|   
|(4) |  | Incorporated by reference to our Form 10-Q for the quarter ended September 29, 2002.
|   
|(5) |  | Incorporated by reference to our Form 10-K for the year ended December 29, 2002.    
|   
|(6) |  | Incorporated by reference to our Form 8-K filed on April 14, 2003.                  
|   
|(7) |  | Incorporated by reference to our Schedule 14A filed on June 26, 2003.               
|   
|(8) |  | Incorporated by reference to out
Form 8-K filed on August 11, 2003.                 

(b)  Reports on Form 8-K

The Company filed a Form 8-K on April 14, 2003 to report under Item 5 the
closing of the Spinnaker $550,000 financing transaction.

The Company furnished a Form 8-K on May 22, 2003 to report under Item 9 hiring
Milt Liu to assist the company with operations.

The Company furnished a Form 8-K on May 29, 2003 enclosing under Item 9 a press
release regarding the execution of a securities purchase agreement to sell
securities to DB and other investors.

The Company furnished a Form 8-K on June 2, 2003 enclosing under Item 9 a press
release disclosing that the Companys common stock would no longer be listed by
the Nasdaq SmallCap Market.

The information in a Form 8-K furnished pursuant to Item 9 shall not be deemed
to be filed under the Exchange Act.

27



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: August 13, 2003. |  | By: |  | /s/ Victor D. Alhadeff                                                                                  
|                       |  |     |  |                                                                                                         
|                       |  |     |  | Victor D. Alhadeff
Chief Executive Officer, Chief Financial Officer,
Secretary and Chairman of the Board

28