##### 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 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
|  
|OR
|  
| ̈  |  | 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  ̈

The number of outstanding shares of common stock, no par value, of the
Registrant at July 24, 2002 was 5,847,310.



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TABLE OF CONTENTS



|                               |                                                                                               |                                   |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | --------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                               |                                                                                               | BALANCE SHEETS                   
|                               |                                                                                               | STATEMENTS OF OPERATIONS         
|                               |                                                                                               | Statement of Stockholders Equity
|                               |                                                                                               | STATEMENTS OF CASH FLOWS         
|                               |                                                                                               | NOTES TO FINANCIAL STATEMENTS    
|                               | ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                               | ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II  OTHER INFORMATION   
|                               | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                               | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                               | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                               | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                               | ITEM 5. OTHER INFORMATION                                                                    
|                               | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                    
|EXHIBIT 99.1                  
|EXHIBIT 99.2                  
|EXHIBIT 99.3                  



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##### Table of Contents



BRIAZZ, INC.

INDEX TO THE FORM 10-Q
FOR THE 26-WEEK PERIOD ENDED JUNE 30, 2002

|                               |  |                                                                                       |  |                                   |    |      |   | 
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | --------------------------------- | -- | ---- | - | 
|                               |  |                                                                                       |  |                                   |    | PAGE
|                               |  |                                                                                       |  |                                   |    |     
|PART I  FINANCIAL INFORMATION |  |                                                                                      
|                              
|ITEM 1.                        |  | FINANCIAL STATEMENTS                                                                  |  |                                   | 2  |     
|                              
|                               |  |                                                                                       |  | BALANCE SHEETS                    |    |      | 2 | 
|                              
|                               |  |                                                                                       |  | STATEMENTS OF OPERATIONS          |    |      | 3 | 
|                              
|                               |  |                                                                                       |  | STATEMENT OF STOCKHOLDERS EQUITY |    |      | 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 |  |                                   | 10 |     
|                              
|ITEM 3.                        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             |  |                                   | 16 |     
|                              
|PART II  OTHER INFORMATION    |  |                                                                                      
|                              
|ITEM 1.                        |  | LEGAL PROCEEDINGS                                                                     |  |                                   | 16 |     
|                              
|ITEM 2.                        |  | CHANGES IN SECURITIES AND USE OF PROCEEDS                                             |  |                                   | 16 |     
|                              
|ITEM 3.                        |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  |                                   | 18 |     
|                              
|ITEM 4.                        |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  |                                   | 18 |     
|                              
|ITEM 5.                        |  | OTHER INFORMATION                                                                     |  |                                   | 19 |     
|                              
|ITEM 6.                        |  | EXHIBITS AND REPORTS ON FORM 8-K                                                      |  |                                   | 20 |     
|                              
|SIGNATURES                     |  |                                                                                       |  |                                   | 21 |     





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##### Table of Contents






PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




BRIAZZ, INC.

BALANCE SHEETS
(in thousands, except share data)

|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |         |       |        | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------- | ------ | ------------ | ------- | ----- | ------ | 
|                                                           |                                                                                                                                |                                                                     |                                            |         | June 30,    |        | December 30,
|                                                           |                                                                                                                                |                                                                     |                                            |         | 2002        |        | 2001        
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |             
|                                                           |                                                                                                                                |                                                                     |                                            |         | (unaudited) |        |              |         |      
|Assets                                                     |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Current assets                                             |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                | Cash and cash equivalents                                           |                                            | $       | 1,674       |        |              | $       | 6,193 |       
|                                                           |                                                                                                                                | Accounts receivable, net of allowance of $29 (2002) and $104 (2001) |                                            |         | 743         |        |              |         | 472   |       
|                                                           |                                                                                                                                | Inventory                                                           |                                            |         | 567         |        |              |         | 507   |       
|                                                           |                                                                                                                                | Prepaid expenses and other current assets                           |                                            |         | 876         |        |              |         | 447   |       
|                                                           |                                                                                                                                | Current portion of restricted certificates of deposit               |                                            |         | 96          |        |              |         | 149   |       
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total current assets                       |         |             | 3,956  |              |         |       | 7,768  | 
|Property and equipment, net                                |                                                                                                                                |                                                                     | 13,507                                     |         |             |        | 13,555       |        
|Restricted certificates of deposit, net of current portion |                                                                                                                                |                                                                     | 391                                        |         |             |        | 453          |        
|Deposits and other assets                                  |                                                                                                                                |                                                                     | 352                                        |         |             |        | 177          |        
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total assets                               |         | $           | 18,206 |              |         | $     | 21,953 | 
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Liabilities and Stockholders Equity                       |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Current liabilities                                        |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                | Book overdraft                                                      |                                            | $       |            |        |              | $       | 754   |       
|                                                           |                                                                                                                                | Current portion of long-term debt                                   |                                            |         | 821         |        |              |         | 138   |       
|                                                           |                                                                                                                                | Accounts payable                                                    |                                            |         | 1,452       |        |              |         | 1,322 |       
|                                                           |                                                                                                                                | Accrued compensation                                                |                                            |         | 1,096       |        |              |         | 996   |       
|                                                           |                                                                                                                                | Accrued and other liabilities                                       |                                            |         | 499         |        |              |         | 492   |       
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total current liabilities                  |         |             | 3,868  |              |         |       | 3,702  | 
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Long-term debt, net of current portion                     |                                                                                                                                |                                                                     | 716                                        |         |             |        | 335          |        
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Commitments and contingencies                              |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|Stockholders equity                                       |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           | Common stock, no par value; 100,000,000 shares authorized; 5,847,310 (2002)
and 5,824,993 (2001) shares issued and outstanding |                                                                     |                                            | 73,765  |             |        |              | 73,746  |      
|                                                           | Additional paid-in capital                                                                                                     |                                                                     |                                            | 434     |             |        |              | 209     |      
|                                                           | Deferred stock compensation                                                                                                    |                                                                     |                                            | (807    | )           |        |              | (981    | )    
|                                                           | Accumulated deficit                                                                                                            |                                                                     |                                            | (59,770 | )           |        |              | (55,058 | )    
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total stockholder equity                  |         |             | 13,622 |              |         |       | 17,916 | 
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        
|                                                           |                                                                                                                                |                                                                     | Total liabilities and stockholders equity |         | $           | 18,206 |              |         | $     | 21,953 | 
|                                                           |                                                                                                                                |                                                                     |                                            |         |             |        |              |        

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

2



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BRIAZZ, INC.

STATEMENTS OF OPERATIONS
(in thousands, except share data)

|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |        |        | 
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | --------- | -------------------- | ------ | ---------------------- | --------- | -------- | ----- | ------- | --------- | ------ | ------ | - | --------- | ------ | ------ | 
|                                                                               |                                                                                                                                                                                      |                          |           | Thirteen weeks ended |        | Twenty-six weeks ended
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                       
|                                                                               |                                                                                                                                                                                      |                          |           | June 30,             |        | July 1,                |           | June 30, |       | July 1,
|                                                                               |                                                                                                                                                                                      |                          |           | 2002                 |        | 2001                   |           | 2002     |       | 2001   
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |        
|                                                                               |                                                                                                                                                                                      |                          |           | (unaudited)          |        | (unaudited)           
|Sales                                                                          |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|                                                                               | Retail                                                                                                                                                                               |                          | $         | 6,014                |        |                        | $         | 5,932    |       |         | $         | 11,390 |        |   | $         | 11,785 |       
|                                                                               | Branded sales                                                                                                                                                                        |                          |           | 2,095                |        |                        |           | 2,461    |       |         |           | 4,157  |        |   |           | 4,871  |       
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|                                                                               |                                                                                                                                                                                      | Total Sales              |           |                      | 8,109  |                        |           |          | 8,393 |         |           |        | 15,547 |   |           |        | 16,656 | 
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|Operating expenses                                                             |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|                                                                               | Cost of food and packaging                                                                                                                                                           |                          |           | 3,003                |        |                        |           | 3,206    |       |         |           | 5,816  |        |   |           | 6,370  |       
|                                                                               | Occupancy expenses                                                                                                                                                                   |                          |           | 1,034                |        |                        |           | 936      |       |         |           | 2,030  |        |   |           | 1,867  |       
|                                                                               | Labor expenses (including amortization of deferred stock
compensation for the 13 and 26 weeks of $0 and $0
for 2002 and $46 and $92 for 2001)                                        |                          |           | 2,894                |        |                        |           | 2,828    |       |         |           | 5,620  |        |   |           | 5,591  |       
|                                                                               | Depreciation and amortization                                                                                                                                                        |                          |           | 885                  |        |                        |           | 644      |       |         |           | 1,673  |        |   |           | 1,250  |       
|                                                                               | Other operating expenses                                                                                                                                                             |                          |           | 803                  |        |                        |           | 549      |       |         |           | 1,256  |        |   |           | 985    |       
|                                                                               | General and administrative expenses (including amortization of deferred
stock compensation for the 13 and 26 weeks,
respectively, of $87 and $174 for 2002 and $22 and $44 for 2001) |                          |           | 1,894                |        |                        |           | 1,394    |       |         |           | 3,745  |        |   |           | 3,045  |       
|                                                                               | Loss on sale of assets                                                                                                                                                               |                          |           |                     |        |                        |           |         |       |         |           | 2      |        |   |           |       |       
|                                                                               | Provision for asset impairment and store closure                                                                                                                                     |                          |           | 6                    |        |                        |           |         |       |         |           | 22     |        |   |           |       |       
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|                                                                               |                                                                                                                                                                                      | Total operating expenses |           |                      | 10,519 |                        |           |          | 9,557 |         |           |        | 20,164 |   |           |        | 19,108 | 
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|Loss from operations                                                           |                                                                                                                                                                                      |                          | (2,410    | )                    |        |                        | (1,164    | )        |       |         | (4,617    | )      |        |   | (2,452    | )     
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|Other (expense) income                                                         |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|                                                                               | Interest and other expense                                                                                                                                                           |                          |           | (127                 | )      |                        |           | (14      | )     |         |           | (137   | )      |   |           | (62    | )     
|                                                                               | Interest and other income                                                                                                                                                            |                          |           | 10                   |        |                        |           | 126      |       |         |           | 42     |        |   |           | 151    |       
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|                                                                               |                                                                                                                                                                                      |                          | (117      | )                    |        |                        | 112       |          |       |         | (95       | )      |        |   | 89        |       
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|Net loss                                                                       |                                                                                                                                                                                      |                          | (2,527    | )                    |        |                        | (1,052    | )        |       |         | (4,712    | )      |        |   | (2,363    | )     
|Accretion of dividends/amortization of discount on preferred stock             |                                                                                                                                                                                      |                          |          |                      |        |                        | 3,264     |          |       |         |           |        |        |   | 4,317     |       
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|Net loss attributable to common stockholders                                   |                                                                                                                                                                                      | $                        | (2,527    | )                    |        | $                      | (4,316    | )        |       | $       | (4,712    | )      |        | $ | (6,680    | )     
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|Basic and diluted net loss per share                                           |                                                                                                                                                                                      | $                        | (0.43     | )                    |        | $                      | (1.11     | )        |       | $       | (0.81     | )      |        | $ | (3.40     | )     
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       
|Weighted-average shares used in computing basic and diluted
net loss per share |                                                                                                                                                                                      |                          | 5,847,310 |                      |        |                        | 3,905,373 |          |       |         | 5,839,340 |        |        |   | 1,964,744 |       
|                                                                               |                                                                                                                                                                                      |                          |           |                      |        |                        |           |          |       |         |           |        |        |   |           |       

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

3



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Briazz, Inc.
Statement of Stockholders Equity
(in thousands)
(unaudited)

|                                                  |  |                      |       |            |  |          |        |              |  |         |     |       |  |   |      |   |  |   |         |   |  |   |        |  
|------------------------------------------------- |  | -------------------- | ----- | ---------- |  | -------- | ------ | ------------ |  | ------- | --- | ----- |  | - | ---- | - |  | - | ------- | - |  | - | ------ | -
|                                                  |  | Stockholders' equity
|                                                  |  |                     
|                                                  |  | Common Stock         |       | Additional |  | Deferred |        |              |  |         |     |       |  |  
|                                                  |  |                      |       | paid-in    |  | stock    |        | Accumulated  |  |         |     |      
|                                                  |  | Shares               |       | Amount     |  | capital  |        | compensation |  | deficit |     | Total
|                                                  |  |                      |       |            |  |          |        |              |  |         |     |      
|Balance at December 30, 2001                      |  |                      | 5,825 |            |  | $        | 73,746 |              |  | $       | 209 |       |  | $ | (981 | ) |  | $ | (55,058 | ) |  | $ | 17,916 |  
|Amortization of deferred compensation             |  |                      |      |            |  |          |       |              |  |         |    |       |  |   | 174  |   |  |   |        |   |  |   | 174    |  
|Employee stock purchase plan                      |  |                      | 22    |            |  |          | 19     |              |  |         |    |       |  |   |     |   |  |   |        |   |  |   | 19     |  
|Issuance of stock warrants                        |  |                      |      |            |  |          |       |              |  |         | 113 |       |  |   |     |   |  |   |        |   |  |   | 113    |  
|Beneficial conversion feature of convertible debt |  |                      |      |            |  |          |       |              |  |         | 112 |       |  |   |     |   |  |   |        |   |  |   | 112    |  
|Net loss                                          |  |                      |      |            |  |          |       |              |  |         |    |       |  |   |     |   |  |   | (4,712  | ) |  |   | (4,712 | )
|                                                  |  |                      |       |            |  |          |        |              |  |         |     |       |  |   |      |   |  |   |         |   |  |   |        |  
|Balance at June 30, 2002                          |  |                      | 5,847 |            |  | $        | 73,765 |              |  | $       | 434 |       |  | $ | (807 | ) |  | $ | (59,770 | ) |  | $ | 13,622 |  
|                                                  |  |                      |       |            |  |          |        |              |  |         |     |       |  |   |      |   |  |   |         |   |  |   |        |  

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

4



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BRIAZZ, INC.

STATEMENTS OF CASH FLOWS
(in thousands)

|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |         |       |        |        |  
|---------------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----- | ---------------------- | ------ | ------- | ----- | ------ | ------ | -
|                                                                       |                                                                            |                                                                  |                                           |                                           |       | Twenty-six weeks ended
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                       
|                                                                       |                                                                            |                                                                  |                                           |                                           |       | June 30,               |        | July 1,
|                                                                       |                                                                            |                                                                  |                                           |                                           |       | 2002                   |        | 2001   
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       |                                                                            |                                                                  |                                           |                                           |       | (unaudited)           
|Cash flows from operating activities                                   |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       | Net loss                                                                   |                                                                  | $                                         | (4,712                                    | )     |                        | $      | (2,363  | )    
|                                                                       | Adjustments to reconcile net loss to net cash used in operating activities |                                                                  |                                           |                                           |       |                        |        |         |      
|                                                                       |                                                                            | Amortization of deferred stock compensation                      |                                           |                                           | 174   |                        |        |         | 136   |       
|                                                                       |                                                                            | Non cash interest expense                                        |                                           |                                           | 115   |                        |        |         |      |       
|                                                                       |                                                                            | Depreciation and amortization                                    |                                           |                                           | 1,673 |                        |        |         | 1,250 |       
|                                                                       |                                                                            | Loss on disposal of assets                                       |                                           |                                           | 2     |                        |        |         |      |       
|                                                                       |                                                                            | Provision for asset impairment and store closure                 |                                           |                                           | 22    |                        |        |         |      |       
|                                                                       |                                                                            | Non-cash expense related to issuance of common stock and options |                                           |                                           |      |                        |        |         | 20    |       
|                                                                       |                                                                            | Changes in operating assets and liabilities:                     |                                           |                                           |       |                        |        |         |       |       
|                                                                       |                                                                            |                                                                  | Accounts receivable                       |                                           |       | (271                   | )      |         |       | (117   | )     
|                                                                       |                                                                            |                                                                  | Inventory                                 |                                           |       | (60                    | )      |         |       | (27    | )     
|                                                                       |                                                                            |                                                                  | Prepaid expenses and other current assets |                                           |       | (429                   | )      |         |       | (79    | )     
|                                                                       |                                                                            |                                                                  | Deposits and other assets                 |                                           |       | (3                     | )      |         |       | 14     |       
|                                                                       |                                                                            |                                                                  | Accounts payable                          |                                           |       | 259                    |        |         |       | (2,277 | )     
|                                                                       |                                                                            |                                                                  | Accrued compensation                      |                                           |       | 100                    |        |         |       | 19     |       
|                                                                       |                                                                            |                                                                  | Accrued and other liabilities             |                                           |       | 7                      |        |         |       | (200   | )     
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       |                                                                            |                                                                  |                                           | Net cash used in operating activities     |       |                        | (3,123 | )       |       |        | (3,624 | )
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|Cash flows from investing activities                                   |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       | Purchases of property and equipment                                        |                                                                  |                                           | (1,851                                    | )     |                        |        | (917    | )    
|                                                                       | Proceeds from asset disposal                                               |                                                                  |                                           | 8                                         |       |                        |        |        |      
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       |                                                                            |                                                                  |                                           | Net cash used in investing activities     |       |                        | (1,843 | )       |       |        | (917   | )
|Cash flows from financing activities                                   |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       | Change in book overdraft                                                   |                                                                  |                                           | (754                                      | )     |                        |        |        |      
|                                                                       | Repayment of line-of-credit borrowings                                     |                                                                  |                                           |                                          |       |                        |        | (2,000  | )    
|                                                                       | Repayment of long-term debt                                                |                                                                  |                                           | (75                                       | )     |                        |        | (120    | )    
|                                                                       | Proceeds from long-term debt and warrants                                  |                                                                  |                                           | 1,250                                     |       |                        |        |        |      
|                                                                       | Debt issue costs                                                           |                                                                  |                                           | (108                                      | )     |                        |        |        |      
|                                                                       | Decrease in restricted certificates of deposit                             |                                                                  |                                           | 115                                       |       |                        |        | 94      |      
|                                                                       | Proceeds from sale of preferred stock, net of issuance costs               |                                                                  |                                           |                                          |       |                        |        | 3,034   |      
|                                                                       | Proceeds from initial public offering, net of issuance costs               |                                                                  |                                           |                                          |       |                        |        | 13,659  |      
|                                                                       | Proceeds from exercise of stock options                                    |                                                                  |                                           |                                          |       |                        |        | 6       |      
|                                                                       | Employee stock purchase plan                                               |                                                                  |                                           | 19                                        |       |                        |        |        |      
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       |                                                                            |                                                                  |                                           | Net cash provided by financing activities |       |                        | 447    |         |       |        | 14,673 |  
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|Net (decrease) increase in cash and cash equivalents                   |                                                                            |                                                                  | (4,519                                    | )                                         |       |                        | 10,132 |        
|Cash and cash equivalents                                              |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       | Beginning of period                                                        |                                                                  |                                           | 6,193                                     |       |                        |        | 555     |      
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       | End of period                                                              |                                                                  | $                                         | 1,674                                     |       |                        | $      | 10,687  |      
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|Supplemental disclosure of cash flow information                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       | Cash paid for interest                                                     |                                                                  | $                                         | (22                                       | )     |                        | $      | 62      |      
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|Supplemental disclosure of non-cash investing and financing activities |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       | Accretion of dividends / amortization of discount on preferred stock       |                                                                  | $                                         |                                          |       |                        | $      | 4,317   |      
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        
|                                                                       | Accrued debt issuance cost                                                 |                                                                  | $                                         | 65                                        |       |                        | $      |        |      
|                                                                       |                                                                            |                                                                  |                                           |                                           |       |                        |        |        

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

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BRIAZZ, INC.




NOTES TO FINANCIAL STATEMENTS
(unaudited)

1. Summary of operations and significant accounting policies

Operations

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

Interim financial information

The financial information at June 30, 2002, and for the 13-week and
26-week periods ended June 30, 2002 and July 1, 2001 is unaudited but includes
all adjustments, consisting of only normal recurring adjustments, that the
Company considers necessary for a fair presentation, in all material respects,
of its financial position, operating results and cash flows for the interim
dates and periods presented. The results of operation for the 13-week and
26-week periods ended June 30, 2002 and July 1, 2001 are not necessarily
indicative of results for the entire fiscal year or future periods.

Recent accounting pronouncements

In May 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, Rescission of FAS Nos. 4, 44, and 64,
Amendment of FAS 13, and Technical Corrections as of April 2002 (SFAS No.
145). This Statement rescinds FASB Statement No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that Statement, FASB
Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Statement also rescinds FASB Statement No. 44, Accounting
for Intangible Assets of Motor Carriers. This Statement amends FASB Statement
No. 13, Accounting for Leases, to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement shall be effective for financial statements issued
on or after May 15, 2002, with early application encouraged. The Company is
currently assessing the impact of SFAS No. 145 on our financial statements.

In June 2002, the Financial Accounting Standards Board 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 provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. The Company is currently evaluating
the implications of adoption of SFAS No. 146.

2. Net loss per share

The computation of basic and diluted net loss per share is based on the
weighted-average number of shares of common stock outstanding during the
period. The Company has excluded all outstanding convertible debt, 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):

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|                                                                               |  |                      |           |                      |  |               |           |              |  |   |           |   |  |   |           |  
|------------------------------------------------------------------------------ |  | -------------------- | --------- | -------------------- |  | ------------- | --------- | ------------ |  | - | --------- | - |  | - | --------- | -
|                                                                               |  | 13-week period ended |           | 26-week period ended
|                                                                               |  |                      |           |                     
|                                                                               |  | June 30, 2002        |           | July 1, 2001         |  | June 30, 2002 |           | July 1, 2001
|                                                                               |  |                      |           |                      |  |               |           |             
|Net loss attributable to common stockholders                                   |  | $                    | (2,527    | )                    |  | $             | (4,316    | )            |  | $ | (4,712    | ) |  | $ | (6,680    | )
|Weighted-average shares used in computing basic
and diluted net loss per share |  |                      | 5,847,310 |                      |  |               | 3,905,373 |              |  |   | 5,839,340 |   |  |   | 1,964,744 |  
|Basic and diluted net loss per share                                           |  | $                    | (0.43     | )                    |  | $             | (1.11     | )            |  | $ | (0.81     | ) |  | $ | (3.40     | )
|Antidilutive securities not included in diluted net loss
per share calculation |  |                      |           |                      |  |               |           |              |  |   |           |   |  |   |           |  
|Options to purchase common stock                                               |  |                      | 983,735   |                      |  |               | 874,844   |              |  |   | 983,735   |   |  |   | 874,844   |  
|Convertible debt                                                               |  |                      | 1,041,667 |                      |  |               |          |              |  |   | 1,041,667 |   |  |   |          |  
|Warrants to purchase common stock                                              |  |                      | 1,180,404 |                      |  |               | 930,404   |              |  |   | 1,180,404 |   |  |   | 930,404   |  

3. Convertible debt, mandatorily redeemable convertible preferred stock and
stockholders equity

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

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

The warrants outstanding to purchase 907,240 (947,817 as adjusted for
anti-dilution) shares of Series C preferred stock were converted into warrants
to purchase common stock on May 7, 2001. In February 2001, the Company
modified the warrants to remove the automatic expiration date upon an initial
public offering, thereby allowing the warrant holders the ability to exercise
the warrants through the original expiration date. This modification initially
resulted in a non-cash charge to expense of approximately $635,000 at the time
of the initial public offering, related to approximately 100,000 warrants held
by an officer of the Company. This charge to expense was reversed as of July
1, 2001 when the market price of the Companys common stock dropped to a level
below the exercise price.

On June 18, 2002, the Company entered into a Securities Purchase Agreement
with Laurus Master Fund, Ltd. in connection with the issuance of a 14%
convertible note to the Laurus Master Fund, Ltd. in the amount of $1.25 million
and a warrant to purchase 250,000 shares of common stock at exercise prices
ranging from $1.43 to $1.95. The note matures on December 18, 2003, and is
collateralized by all of the Companys assets. The note is initially
convertible into 1,041,667 shares of common stock. Net proceeds to the Company
after paying escrow fees, legal fees of Laurus and a fee to Laurus fund
manager were $1.14 million. The Company recorded a debt discount of
approximately $0.22 million related to the issuance of the warrants and the
beneficial conversion feature. The note was convertible into common stock from
the date of issuance at $1.20 per share. Accordingly, the Company fully recognized the beneficial
conversion feature of approximately $0.11 million as interest expense during
the period.

4. Commitments and contingencies

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

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5. Segment information

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

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

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

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Briazz, Inc.
Segment Report (in thousands)
(unaudited)

|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |        |  
|-------------------------------------- | ------------------------------- | - | -------------------- | ------ | ---------------------- | - | -------- | ------ | ------- | - | ------- | ------ | - | - | ------- | ------ | -
|                                       |                                 |   | Thirteen weeks ended |        | Twenty-six weeks ended
|                                       |                                 |   |                      |        |                       
|                                       |                                 |   | June 30,             |        | July 1,                |   | June 30, |        | July 1,
|                                       |                                 |   | 2002                 |        | 2001                   |   | 2002     |        | 2001   
|                                       |                                 |   |                      |        |                        |   |          |        |        
|Retail                                 |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Net Sales                              |                                 | $ | 6,013                |        |                        | $ | 5,931    |        |         | $ | 11,390  |        |   | $ | 11,785  |       
|Cost of food and packaging             |                                 |   | (2,166               | )      |                        |   | (2,157   | )      |         |   | (4,119  | )      |   |   | (4,214  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       |                                 |   | 3,847                |        |                        |   | 3,774    |        |         |   | 7,271   |        |   |   | 7,571   |       
|Cost of operations                     |                                 |   | (3,701               | )      |                        |   | (3,104   | )      |         |   | (6,831  | )      |   |   | (6,007  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Income from operations                 |                                 | $ | 146                  |        |                        | $ | 670      |        |         | $ | 440     |        |   | $ | 1,564   |       
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|EBITDA                                 |                                 | $ | 666                  |        |                        | $ | 1,078    |        |         | $ | 1,413   |        |   | $ | 2,355   |       
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Branded Sales                          |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       | Box Lunch, Catering and Vending |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |        |  
|                                       | Net Sales                       |   | $                    | 1,333  |                        |   | $        | 1,495  |         |   | $       | 2,670  |   |   | $       | 2,798  |  
|                                       | Cost of food and packaging      |   |                      | (394   | )                      |   |          | (501   | )       |   |         | (799   | ) |   |         | (987   | )
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       |                                 |   | 939                  |        |                        |   | 994      |        |         |   | 1,871   |        |   |   | 1,811   |       
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       | Wholesale and Grocery           |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |        |  
|                                       | Net Sales                       |   |                      | 762    |                        |   |          | 966    |         |   |         | 1,487  |   |   |         | 2,073  |  
|                                       | Cost of food and packaging      |   |                      | (404   | )                      |   |          | (472   | )       |   |         | (800   | ) |   |         | (1,006 | )
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       |                                 |   | 358                  |        |                        |   | 494      |        |         |   | 687     |        |   |   | 1,067   |       
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       | Total Branded Sales             |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |        |  
|                                       | Net Sales                       |   |                      | 2,095  |                        |   |          | 2,461  |         |   |         | 4,157  |   |   |         | 4,871  |  
|                                       | Cost of food and packaging      |   |                      | (798   | )                      |   |          | (973   | )       |   |         | (1,599 | ) |   |         | (1,993 | )
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       |                                 |   | 1,297                |        |                        |   | 1,488    |        |         |   | 2,558   |        |   |   | 2,878   |       
|                                       | Cost of operations              |   |                      | (1,086 | )                      |   |          | (1,223 | )       |   |         | (2,140 | ) |   |         | (2,309 | )
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       | Income from operations          |   | $                    | 211    |                        |   | $        | 265    |         |   | $       | 418    |   |   | $       | 569    |  
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       | EBITDA                          |   | $                    | 280    |                        |   | $        | 321    |         |   | $       | 549    |   |   | $       | 670    |  
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Kitchens                               |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Unallocated cost of food and packaging |                                 | $ | (39                  | )      |                        | $ | (76      | )      |         | $ | (98     | )      |   | $ | (163    | )     
|Unallocated cost of operations         |                                 |   | (896                 | )      |                        |   | (847     | )      |         |   | (1,753  | )      |   |   | (1,724  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Loss from operations                   |                                 | $ | (935                 | )      |                        | $ | (923     | )      |         | $ | (1,851  | )      |   | $ | (1,887  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|EBITDA                                 |                                 | $ | (766                 | )      |                        | $ | (778     | )      |         | $ | (1,527  | )      |   | $ | (1,600  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|General and Administrative             |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Cost of operations                     |                                 | $ | (1,832               | )      |                        | $ | (1,176   | )      |         | $ | (3,624  | )      |   | $ | (2,698  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|EBITDA                                 |                                 | $ | (1,704               | )      |                        | $ | (1,141   | )      |         | $ | (3,379  | )      |   | $ | (2,628  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Total                                  |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Net Sales                              |                                 | $ | 8,108                |        |                        | $ | 8,392    |        |         | $ | 15,547  |        |   | $ | 16,656  |       
|Cost of food and packaging             |                                 |   | (3,003               | )      |                        |   | (3,206   | )      |         |   | (5,816  | )      |   |   | (6,370  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|                                       |                                 |   | 5,105                |        |                        |   | 5,186    |        |         |   | 9,731   |        |   |   | 10,286  |       
|Cost of operations                     |                                 |   | (7,515               | )      |                        |   | (6,350   | )      |         |   | (14,348 | )      |   |   | (12,738 | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|Loss from operations                   |                                 | $ | (2,410               | )      |                        | $ | (1,164   | )      |         | $ | (4,617  | )      |   | $ | (2,452  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |   |         |       
|EBITDA                                 |                                 | $ | (1,524               | )      |                        | $ | (520     | )      |         | $ | (2,944  | )      |   | $ | (1,203  | )     
|                                       |                                 |   |                      |        |                        |   |          |        |         |   |         |        |   |  

7. Equity-based
compensation


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to employees with exercise prices of $1.66 per share. Since the exercise
price was equal to the fair value at the date of grant, no deferred
compensation was recognized.

In June 2002, the board of directors approved a grant of options of
approximately 81,000 shares of common stock to employees with exercise prices
of $1.26 per share. Since the exercise price was equal to the fair value at
the date of grant, no deferred compensation was recognized.




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

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

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

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

OVERVIEW

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

We currently operate 47 cafes in the Seattle, San Francisco, Chicago and
Los Angeles metropolitan areas, an increase of four cafes since December 30,
2001. The four cafe increase in 2002 is due to the opening of one cafe in the
first quarter and four cafes in the second quarter of 2002 and the closure of
one location in the first quarter of 2002. This closure resulted from
decreased sales as the cafes building occupancy shifted from normal office
occupancy to a data-center. We discontinued plans to open one more additional
cafe (which would have been the sixth cafe opened during 2002) following the
change of the development site to a less desirable location. Due to the
discontinuation of this planned opening and due to capital restrictions, we do
not currently plan to open any additional cafes during 2002. Our growth
strategy is to open new cafes in our existing markets and, when appropriate,
enter into new markets by concurrently opening a central kitchen and at least
four to six cafes and initiating delivery of box lunch and catering services.

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

On May 20, 2002, we began testing our new frozen panini products in eight
Target stores (four in Seattle, four in Chicago), and we began testing our
fresh food products in 18 Albertsons stores in southern California on July 16,
2002.

On June 18, 2002, we entered into a Securities Purchase Agreement with
Laurus Master Fund, Ltd. in connection with the issuance of a 14% convertible
note to the Laurus Master Fund, Ltd. in the amount of $1.25 million and a
warrant to purchase 250,000 shares of common stock at exercise prices ranging
from $1.43 to $1.95. The note matures on December 18, 2003, and is
collateralized by all of by our assets. The note is initially convertible into
1,041,667 shares of our common stock. Net proceeds to us after paying escrow
fees, legal fees of Laurus and a fee to Laurus fund manager were $1.14
million. The Company recorded a debt discount of approximately $0.22 million
related to the issuance of the warrants and the beneficial conversion features.
The note was convertible into common stock from the date of issuance.
Accordingly, the Company fully

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recognized the beneficial conversion feature of approximately $0.11 million as
interest expense during the period. For a more detailed description of the
financing, see Sales of Unregistered Securities, and for its impact on our
financial position, see Liquidity and Capital Resources. For certain risks
related to this financing, see the risk factors set forth in Exhibit 99.1 to
this report.

RESULTS OF OPERATIONS 13-WEEK PERIOD ENDED JUNE 30, 2002 COMPARED WITH 13-WEEK
PERIOD ENDED JULY 1, 2001

Sales

Total sales decreased by $0.28 million, or 3.4%, from $8.39 million to
$8.11 million.

Retail sales increased by $0.08 million, or 1.4%, from $5.93 million to
$6.01 million. This increase was due to the opening of five additional cafés
during the fiscal year 2001 and five cafés opening in the first half of 2002,
offset by the closure of one café during February 2002. Same-store sales
decreased by $0.63 million, or 10.8%, from $5.82 million to $5.19 million.
Same-store sales consist only of sales from cafes, and do not include Branded
Sales. The decrease in same-store sales was primarily due to the decrease in
occupancy rates of many of the buildings in which we are located.

Branded sales decreased by $0.36 million, or 14.9%, from $2.46 million to
$2.10 million. This decrease was primarily due to a decrease in Tullys and
QFCs sales.

Operating expenses

Operating expenses consist of costs of food and packaging, occupancy,
labor, depreciation and amortization, other operating, general and
administrative and provision for asset impairment and store closure. Total
operating expenses increased by $0.96 million, or 10.0%, from $9.56 million to
$10.52 million. As a percentage of sales, our operating expenses increased
from 113.9% to 129.7%. The increase in operating expense as a percentage of
sales was primarily due to the costs related to being a public company,
occupancy expenses for new retail locations and decreased sales.

Cost of food and packaging decreased by $0.21 million, or 6.3%, from $3.21
million to $3.00 million due primarily to lower sales volume. Cost of food and
packaging decreased as a percentage of sales from 38.2% to 37.0%.

Cost of food and packaging for retail sales increased by $0.01 million, or
0.4%, from $2.16 million to $2.17 million. This increase was due to the
opening of five additional cafés during the fiscal year 2001 and five cafés in
the first half of 2002, offset by the closure of one café during February 2002.
Cost of food and packaging for branded sales decreased by $0.17 million, or
18.0%, from $0.97 million to $0.80 million. The decrease for branded sales was
due to the lower sales volumes. Unallocated cost of food and packaging for
kitchens decreased by $0.04 million, or 48.7%, from $0.08 million to $0.04
million. This decrease was due to implementing a series of changes in the
management and operations of our central kitchens to reduce our operating
costs, particularly with respect to unit labor costs.

Occupancy expense consists of costs related to the leasing of retail space
for our cafes and our central kitchens. Occupancy expense increased by $0.09
million, or 10.4%, from $0.94 million to $1.03 million. This increase was due
to the opening of five additional cafés during the fiscal year 2001 and five
cafés in the first half of 2002, offset by the closure of one café during
February 2002. As a percentage of sales, occupancy expenses increased from
11.2% to 12.7%, 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 increased by $0.07 million, or 2.4%, from $2.83 million to $2.90
million. This increase was due to the opening of five additional cafés during
the fiscal year 2001 and five cafés in the first half of 2002, offset by the
closure of one café during February 2002. As a percentage of sales, labor
expenses increased from 33.7% to 35.7%. This increase was primarily due to
decreased sales.

Depreciation and amortization relates to leasehold improvements, equipment
and vehicles. Depreciation and amortization expense increased by $0.24
million, or 37.5%, from $0.64 million to $0.88 million. As a percentage of
sales, depreciation and amortization increased from 7.7% to 10.9%. This
increase was primarily due to decreased sales.

Other operating expenses consist of direct operating, marketing, repair
and maintenance expense. Other operating

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expenses increased by $0.25 million, or 46.0%, from $0.55 million to $0.80
million. As a percentage of sales, other operating expenses increased from
6.5% to 9.9%. This increase was primarily due to decreased sales.

General and administrative expenses relate to the support functions
performed by our corporate office, such as finance, human resources, marketing,
food development and information systems. This expense primarily consists of
salaries of our corporate executives, senior management and staff, and our
corporate office lease and related office expenses. General and administrative
expenses increased by $0.50 million, or 35.8%, from $1.39 million to $1.89
million. The increase was primarily due to expenses relating to being a public
company such as additional legal and accounting expenses. As a percentage of
sales, general and administrative expenses increased from 16.6% to 23.4%,
primarily due to decreased sales.

Provision for asset impairment and store closure relates to the write-down
of leasehold improvements at some cafe locations. Provision for asset
impairment and store closure increased by $6,000 in the thirteen weeks ended
June 30, 2002, due to the closure of the Westin store located in Seattle in the
first quarter of 2002. No other store closures are planned in fiscal 2002.

Other (Expense) Income

Other (expense) income includes interest and other expense and interest
and other income. Other (expense) income decreased by $.23 million, or 204.7%,
from $.11 million to ($.12) million. This decrease was due to the interest
expense associated with the new note payable obtained in the second quarter of
2002 and lower interest income in 2002 resulting from lower cash and cash
equivalents.

Net Loss

Net loss increased by $1.48 million, or 140.1%, from $1.05 million to
$2.53 million. This increase was primarily due to decreased sales and
increased occupancy, and general and administrative expenses. As a percentage
of sales, net loss increased from 12.5% to 31.2%. The Company recognized no
tax benefit from its losses in 2002 and 2001.

EBITDA represents earnings before interest income and expense, income
taxes and depreciation and amortization. EBITDA for the 13-week periods ended
June 30, 2002 and July 1, 2001 was ($1.52) million and ($0.52) million,
respectively.

RESULTS OF OPERATIONS 26-WEEK PERIOD ENDED JUNE 30, 2002 COMPARED WITH 26-WEEK
PERIOD ENDED JULY 1, 2001

Sales

Total sales decreased by $1.11 million, or 6.7%, from $16.66 million to
$15.55 million.

Retail sales decreased by $0.40 million, or 3.4%, from $11.79 million to
$11.39 million. This decrease was primarily due to reduced same store sales
which more than offset the sales from cafés opened in 2001 and 2002.
Same-store sales decreased by $1.47 million, or 12.7%, from $11.57 million to
$10.10 million. Same-store sales consist only of sales from cafes, and do not
include Branded Sales. The decrease in same-store sales was primarily due to
the decrease in occupancy rates of many of the buildings in which we are
located.

Branded sales decreased by $0.71 million, or 14.7%, from $4.87 million to
$4.16 million. This decrease was primarily due to a decrease in Tullys and
QFCs sales and the discontinuation of sales to Kozmo.com. Sales to Kozmo.com
were eliminated due to discontinuance of that company.

Operating expenses

Operating expenses consist of costs of food and packaging, occupancy,
labor, depreciation and amortization, other operating, general and
administrative and provision for asset impairment and store closure. Total
operating expenses increased by $1.05 million, or 5.5%, from $19.11 million to
$20.16 million. As a percentage of sales, our operating expenses increased
from 114.7% to 129.7%. The increase in operating expense as a percentage of
sales was primarily due to the costs related to

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being a public company, occupancy expenses for new retail locations and
decreased sales.

Cost of food and packaging decreased by $0.55 million, or 8.7%, from $6.37
million to $5.82 million due to lower sales volume. Cost of food and packaging
decreased as a percentage of sales from 38.2% to 37.4%.

Cost of food and packaging for retail sales decreased by $0.09 million, or
2.3%, from $4.21 million to $4.12 million. Cost of food and packaging for
branded sales decreased by $0.39 million, or 19.8%, from $1.99 million to $1.60
million. The decrease for both retail sales and branded sales was due to the
lower sales volumes. Unallocated cost of food and packaging for kitchens
decreased by $0.06 million, or 39.4%, from $0.16 million to $0.10 million.
This decrease was due to implementing a series of changes in the management and
operations of our central kitchens to reduce our operating costs, particularly
with respect to unit labor costs.

Occupancy expense consists of costs related to the leasing of retail space
for our cafes and our central kitchens. Occupancy expense increased by $0.16
million, or 8.7%, from $1.87 million to $2.03 million. This increase was due
to the opening of five additional cafés during the fiscal year 2001 and five
cafés in the first half of 2002, offset by the closure of one café during
February 2002. As a percentage of sales, occupancy expense increased from
11.2% to 13.1%, 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 increased by $0.03 million, or 0.5%, from $5.59 million to $5.62
million. This increase was due to the opening of five additional cafés during
the fiscal year 2001 and five cafés in the first half of 2002, offset by the
closure of one café during February 2002. As a percentage of sales, labor
expenses increased from 33.6% to 36.1%. This increase was primarily due to
decreased sales.

Depreciation and amortization relates to leasehold improvements, equipment
and vehicles. Depreciation and amortization expense increased by $0.42
million, or 33.8%, from $1.25 million to $1.67 million. As a percentage of
sales, depreciation and amortization increased from 7.5% to 10.8%. This
increase was primarily due to decreased sales.

Other operating expenses consist of direct operating, marketing, repair
and maintenance expense. Other operating expenses increased by $0.28 million,
or 27.6%, from $0.98 million to $1.26 million. As a percentage of sales, other
operating expenses increased from 5.9% to 8.1%. This increase was primarily
due to decreased sales.

General and administrative expenses relate to the support functions
performed by our corporate office, such as finance, human resources, marketing,
food development and information systems. This expense primarily consists of
salaries of our corporate executives, senior management and staff, and our
corporate office lease and related office expenses. General and administrative
expenses increased by $0.70 million, or 23.0%, from $3.05 million to $3.75
million. The increase was primarily due to expenses relating to being a public
company such as additional legal and accounting expenses. As a percentage of
sales, general and administrative expenses increased from 18.3% to 24.1%,
primarily due to decreased sales.

Provision for asset impairment and store closure relates to the write-down
of leasehold improvements at some café locations. Provision for asset
impairment and store closure increased by $22,000 in the twenty-six weeks ended
June 30, 2002, due to the closure of the Westin store located in Seattle in the
first quarter of 2002. No other store closures are planned in fiscal 2002.

Other (Expense) Income

Other (expense) income includes interest and other expense and interest
and other income. Other (expense) income decreased by $.19 million, or 207.4%,
from $0.09 million to ($0.10) million. This decrease was due to the interest
expense associated with the new note payable obtained in the second quarter of
2002 and lower interest income in 2002 resulting from lower cash and cash
equivalents. As a percentage of sales, other (expense) income increased from
0.5% to (0.6%).

Net Loss

Net loss increased by $2.35 million, or 99.4%, from $2.36 million to $4.71
million. This increase was primarily due to decreased sales and increased
occupancy, and general and administrative expenses. As a percentage of sales,
net loss increased from 14.2% to 30.3%. The Company recognized no tax benefit
from its losses in 2002 and 2001.

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EBITDA for the 26-week periods ended June 30, 2002 and July 1, 2001 was
($2.94) million and ($1.20) million.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities during the 26 weeks ending June 30,
2002 and July 1, 2001 was $3.12 million and $3.62 million, respectively. Net
cash used in operating activities resulted primarily from net loss before
non-cash charges.

Net cash used in investing activities for the 26 weeks ending June 30,
2002 and July 1, 2001 was approximately $1.84 million and $0.92 million,
respectively. Net cash used in investing activities resulted from capital
additions primarily related to cafés opened in 2001 and 2002. During the 26
weeks ended June 30, 2002 we opened five additional cafés.

Net cash provided by financing activities for the 26 weeks ending June 30,
2002 was approximately $0.45 million. The financing activities consisted
primarily of cash received from the net proceeds of the $1.25 million
convertible debt financing, and a $0.75 million decrease in the book overdraft.
Net cash provided by financing activities for the 26 week ending July 1, 2001
was $14.67 million. Net cash provided by financing activities in the first
half of 2001 from resulted primarily from the issuance of capital stock, which
was partially offset by financing costs, the repayment of the line of credit of
$2.0 million in May 2001 and scheduled principal repayments primarily relating
to delivery vehicle financing. In January and February 2001, net cash provided
from the issuance of additional shares of Series C preferred stock was $3.0
million. In May 2001, net cash provided from our initial public offering was
approximately $13.7 million.

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

At December 30, 2001, we had the contractual cash obligations as set forth
in the table below. The $1.25 million convertible debt is not is not included
in the table. For a description of the $1.25 million convertible debt
financing, see Sales of Unregistered Securities below:

|                                   |  |       |        |           |  |       |       |                |  |         |       |  |  |   |       |  |  |   |       | 
|---------------------------------- |  | ----- | ------ | --------- |  | ----- | ----- | -------------- |  | ------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                   |  |       |        | Less than |  | 1  3 |       | 4  5          |  | After 5
|Contractual Obligations            |  | Total |        | 1 year    |  | years |       | years          |  | years  
|                                   |  |       |        |           |  |       |       |                |  |         |       | 
|                                   |  |       |        |           |  |       |       | (in thousands) |  |         |       | 
|Capital Lease Obligations          |  | $     | 612    |           |  | $     | 139   |                |  | $       | 278   |  |  | $ | 166   |  |  | $ | 29    | 
|Operating Leases                   |  |       | 14,838 |           |  |       | 2,792 |                |  |         | 5,513 |  |  |   | 4,253 |  |  |   | 2,480 | 
|Other Long-Term Obligations        |  |       | 38     |           |  |       | 38    |                |  |         |      |  |  |   |      |  |  |   |      | 
|                                   |  |       |        |           |  |       |       |                |  |         |       |  |  |   |       |  |  |   |       | 
|Total Contractual Cash
Obligations |  | $     | 15,488 |           |  | $     | 2,969 |                |  | $       | 5,591 |  |  | $ | 4,419 |  |  | $ | 2,509 | 
|                                   |  |       |        |           |  |       |       |                |  |         |       |  |  |   |       |  |  |   |       | 

Since inception we have financed our operations primarily through the
issuance of capital stock and debt. Since inception, we have raised cash of
approximately $64.2 million from sales of preferred stock, convertible debt and
common stock. In addition to funding capital expenditures, which have
approximated $28.0 million since inception, cash provided by financing
activities has funded our initiatives in business and market development and
related operating losses. Since inception through the 26 weeks ending June 30,
2002, we have incurred net losses of approximately $52.8 million. In the near
term, operating losses may continue despite actions taken to reduce negative
cash flow from operations. Actions taken to reduce negative cash flow from
operations, including improving operational efficiencies, cost controls and
cutbacks and closing of certain unprofitable operating properties, continued
during 2002.

The accompanying financial statements have been prepared assuming that we
will continue as a going concern and do not include any adjustments to reflect
the possible future effects on the recoverability of assets and liquidation of
liabilities that may result from this uncertainty. We have incurred
substantial operating losses and negative cash flows from operations since
inception and had an accumulated deficit of $59.8 million at June 30, 2002.
These matters raise substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent upon numerous
factors, including our ability to obtain additional financing, our ability to
increase our level of future revenues or our ability to reduce operating
expenses.

On June 18, 2002, we entered into a Securities Purchase Agreement with
Laurus Master Fund, Ltd. in connection with the issuance of a 14% convertible
note to the Laurus Master Fund, Ltd. in the amount of $1.25 million and a
warrant to

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purchase 250,000 shares of common stock at exercise prices ranging from
$1.43 to $1.95. The note matures on December 18, 2003, and is collateralized
by all of our assets. The note is initially convertible into 1,041,667 shares
of out common stock. Net proceeds to us after paying escrow fees, legal fees
of Laurus and a fee to Laurus fund manager were $1.14 million. The Company
recorded a debt discount of approximately $0.22 million related to the issuance
of the warrants and the beneficial conversion features. The note was
convertible into common stock from the date of issuance. Accordingly, the
Company fully recognized the beneficial conversion feature of approximately
$0.11 million as interest expense during the period. For a more detailed
description of the financing, see Sales of Unregistered Securities. For
certain risks related to this financing, see the risk factors set forth in
Exhibit 99.1 to this report.

At June 30, 2002, we had cash and cash equivalents of approximately $1.7
million. We believe our current cash and cash equivalents, will be sufficient
to meet our anticipated cash needs for working capital and capital expenditures
for approximately the next two to five months, depending upon the success of
our initiatives with current and potential wholesale customers, including
Target and Albertsons. Thereafter, we may need to raise additional capital to
finance our operations, as well as to enhance our operations, fund our
expansion and respond to competitive pressures. There can be no assurance that
we will be able to obtain additional financing at terms favorable to us, or at
all, reduce expenses or successfully complete other steps to continue as a
going concern. If we are unable to obtain sufficient funds to satisfy our cash
requirements, we may be forced to curtail operations, dispose of assets, or
seek extended payment terms from our vendors. Such events would materially and
adversely affect our financial position and results of operations.

As we reported on June 5, 2002 in a Form 8-K, our capital plan has at
least two phases. The $1.25 million convertible debt financing represents the
completion of the first phase. In the near future, we will begin working on a
$5 million to $10 million equity financing. We believe that such additional
financing would fulfill our cash requirements for the next 12 to 24 months,
depending on the amount raised and the success of our initiatives. We may also
seek additional debt financing prior to the $5 to $10 million financing.

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

EQUITY-BASED COMPENSATION

Stock options

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

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

In June 2002, the board of directors approved a grant of options of
approximately 81,000 shares of common stock to employees with exercise prices
of $1.26 per share. Since the exercise price was equal to the fair value at
the date of grant, no deferred compensation was recognized.

The 1996 Amended Stock Option Plan was initially adopted by our board of
directors and approved by our shareholders in December 1995 and was last
amended on June 5, 2002. The plan currently provides for the issuance of up to
1,165,000 shares of common stock upon the exercise of options granted
thereunder, subject to adjustment for stock dividends, stock splits, reverse
stock splits and other similar changes in our capitalization.

Preferred stock

In April 2001, 18,917 shares of Series C preferred stock (which converted
automatically into shares of common stock upon the completion of our initial
public offering in May 2001), with an approximate fair value of $155,000, were
issued to two consultants for services to be rendered in connection with
leasehold improvements and food development. This amount will be

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depreciated as a leasehold improvement over 5 years.




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.

Our 14% convertible note is not subject to market risk from changes in
interest rate; however, we will not receive any benefit if interest rates
decline.

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

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




PART II  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

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




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(a) Changes in Securities

There have been no changes in our registered securities.

(b) Sales of Unregistered Securities

On June 18, 2002, we entered into a Securities Purchase Agreement with
Laurus Master Fund, Ltd. in connection with the issuance of a 14% convertible
note to the Laurus Master Fund, Ltd. in the amount of $1.25 million and a
warrant to purchase 250,000 shares of common stock at exercise prices ranging
from $1.43 to $1.95. The issuance of the note and warrant was exempt from
Securities Act registration pursuant to Rule 506 of Regulation D under the
Securities Act, as Laurus was an accredited investor as defined in Rule
501(a) of Regulation D. The note matures on December 18, 2003 and is
collateralized by all of our assets. The note is convertible into 1,041,667
shares of our common stock. Net proceeds to us after paying escrow fees, legal
fees of Laurus and a fee to Laurus fund manager were $1.14 million. The
Company recorded a debt discount of approximately $0.22 million related to the
issuance of the warrants and the beneficial conversion features. The note was
convertible into common stock from the date of issuance. Accordingly, the
Company fully recognized the beneficial conversion feature of approximately
$0.11 million as interest expense during the period. Additional terms of the
financing are as follows:

14% Convertible Secured Note

We begin making monthly principal and interest payments on the note on
September 1, 2002. Interest only monthly payments are payable prior to that
date. We may repay the note in cash or stock; however, we are not permitted to
make payments in shares and are required to make payments in cash if any of the
following events occurs: (i) there fails to exist an effective resale
registration statement with respect to the shares; (ii) such conversion of the
note would result in the issuance pursuant to the note and associated warrants
of more than 1,163,614 shares of common stock, or 19.9% of the number of shares
of common stock outstanding on June 18, 2002, unless the issuance of the shares
is approved by our shareholders; or (iii) there occurs any event of default.
The events of default under the note are similar to those customary for
convertible debt securities, including breaches of material terms, failure to
pay amounts owed, delisting of our common stock from the Nasdaq Stock Market
(unless our common stock is subsequently listed on the Nasdaq SmallCap Market,
the OTC Bulletin Board or a national securities exchange), or failure to comply
with the reporting, filing or other obligations of listing on such market. If
we choose

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to repay the note in common stock and if the average daily volume weighted
average price of our common stock as reported by Bloomberg, L.P. on the
principal trading market for our common stock for the 11 trading days preceding
a repayment date is less than 125% of the conversion price (initially set at
$1.20), Laurus is permitted to convert the repayment amount into our common
stock at a conversion price of 85% of the average of the five lowest closing
prices during the 30 trading days immediately preceding the conversion date.

Laurus may also convert, from time to time, all or any portion of the
principal portion of the note and/or fees due and payable into shares of our
common stock at the conversion price then in effect by providing us with a
notice of conversion. The initial conversion price is $1.20 per share. If an
event of default occurs, the conversion price shall be equal to the lower of
$1.20 or 70% of the average of the three lowest closing prices for the common
stock as repost on the principal trading exchange of our common stock for the
prior thirty trading days. The conversion price of the note may also be
adjusted in certain circumstances such as if we pay a stock dividend, subdivide
or combine outstanding shares of common stock into a greater or lesser number
of shares, or take such other actions as would otherwise result in dilution of
the selling stockholders position. If an event of default occurs, Laurus may
make all unpaid amounts under the note immediately due and payable without
demand, presentment or notice, or grace period. In the event of such an
acceleration, the amount due and owing to Laurus shall be 130% of the unpaid
amounts under the note. If we are unable to issue shares of common stock
within five business days of receiving a valid notice of conversion from
Laurus, we must pay to Laurus 130% of the amount of principal requested to be
converted, together with accrued and unpaid interest on such principal.

We have the ability to redeem the note at any time by paying to Laurus (i)
the principal amount of the note multiplied by a percentage which increases
over time from 102% to 125% (ii) plus accrued and unpaid interest.

Laurus has contractually agreed to restrict its ability to convert the
note and receive shares of our common stock such that the number of shares of
common stock beneficially owned by it and its affiliates after such conversion
does not exceed 4.99% of the then issued and outstanding shares of common
stock; provided, however, that such restrictions on conversion may be revoked
by Laurus upon 75 days prior notice to us, and are automatically null and void
upon an event of default under the note. Unless we receive shareholder
approval, we cannot issue to Laurus, pursuant to either the convertible note or
the warrants, more than 1,163,614 shares of common stock, or 19.9% of the
number of shares of common stock outstanding on June 18, 2002.

Warrants

On June 18, 2002, we issued to Laurus as part of the $1.25 million
convertible debt financing a five-year warrant to purchase 250,000 shares of
common stock to Laurus. Of the 250,000 shares, 125,000 shares were exercisable
at $1.43, 75,000 shares were exercisable at $1.69 and 50,000 were exercisable
at $1.95. The exercise prices of the warrant may be adjusted in certain
circumstances such as if we pay a stock dividend, subdivide or combine
outstanding shares of common stock into a greater or lesser number of shares,
or take such other actions as would otherwise result in dilution of the selling
stockholders position. Laurus has contractually agreed to restrict its
ability to exercise the warrants and receive shares of our common stock such
that the number of shares of common stock beneficially owned by it and its
affiliates after such exercise does not exceed 4.99% of the then issued and
outstanding shares of common stock; provided, however, that such restrictions
on exercise may be revoked by Laurus upon 75 days prior notice to us, and are
automatically null and void upon an event of default under the note.

Registration Rights

In connection with the $1.25 million convertible debt financing with
Laurus, we granted to Laurus registration rights. These rights, which are
assignable, are outlined in the Securities Purchase Agreement with Laurus dated
June 18, 2002. We have filed a resale registration statement with respect to
the 250,000 shares of common stock issuable upon exercise of the warrant and
200% of the shares that may be issuable upon conversion of the convertible
note. The registration statement went effective on August 8, 2002. We have
agreed to keep the registration statement effective for a period of one year
from the date of effectiveness. Commencing ninety days after June 18, 2002,
Laurus is entitled to demand on up to two occasions that we use our best
efforts to register for public resale all of the shares of common stock it
requests be registered unless such shares are otherwise covered by an effective
registration statement. In addition, Laurus is entitled to piggyback
registration rights in connection with any registration by us of our securities
in connection with a public offering solely for cash, for our own account or
for the account of other security holders (other than in any registration of
securities in which the shares of common stock would not be permitted to be
registered, such as securities to be issued to participants in a stock-based
incentive plan). If we propose to register any shares of common stock under
the Securities Act, Laurus is entitled to receive notice of the registration
and to include its shares in the registration statement, subject to certain
limitations. These registration rights terminate if such shares may be sold
pursuant to Rule 144(k) under the Securities Act of 1933 or if Laurus holds
less than 1% of our issued and

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outstanding common stock and can offer and sell all of its securities pursuant
to Rule 144. All registration rights otherwise terminate on the date on which
the registerable securities have been outstanding for five years.

All registration rights are subject to conditions and limitations, among
them the right of the underwriters of any offering to limit the number of
shares of common stock held by the security holders to be included in the
registration. We are generally required to bear all of the expenses of all
registrations, except underwriting discounts and selling commissions.
Registration of the shares of common stock held by security holders with
registration rights would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon effectiveness of
the registration statement.

(c) Use of proceeds

On May 1, 2001, the Securities and Exchange Commission declared effective
our registration statement on Form S-1 (Commission File No. 333-54922). Net
proceeds to BRIAZZ, after deduction of $2.4 million in underwriting discounts,
commissions and other expenses from the initial public offering totaled $13.6
million. In 2001, we spent $3.8 million on capital purchases and the 52.0
million for the repayment of line-of-credit borrowings and scheduled principal
repayments primarily relating to delivery vehicle financing. In 2002, as of
June 30, 2002, of the total $1.85 million spent on capital purchases we spent
$1.65 million on the build-out of new cafés and $0.17 million on our new point
of sale system, order entry system and our internet web sit. The remainder was
for working capital requirements. Until the remaining net proceeds are used,
they are invested in short-term commercial paper.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.




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

The Companys 2002 Annual Meeting of Shareholders (the Annual Meeting)
was held at 1:00 p.m. on Wednesday, June 5, 2002 at US Bank Centre, 1420 Fifth
Avenue, Fourth Floor, Seattle, Washington 98101. At the Annual Meeting, the
shareholders were asked to:



| | 1. |  | Elect five directors to the board of directors: Victor D.
Alhadeff; C. William Vivian, Richard Fersch, Dan Kourkoumelis and
Charles C. Matteson, Jr.;                          
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Vote on a proposal to amend the Companys 1996 amended stock
option plan to increase the number of shares eligible for issuance
under the plan from 1,000,000 to 1,165,000; and
|
| | 3. |  | Vote for ratification of the selection of
PricewaterhouseCoopers LLP as independent accountants for the
Company.                                                               

At the Annual Meeting, the shareholders approved the amendment to the
Companys 1996 amended stock option plan, ratified the selection of
PricewaterhouseCoopers LLP as independent accountants for the Company, and
elected each of the nominees for director.

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:

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|                                            |  |               |           |         |  |                |        |             |  |           |        |  |  |  |       |        |  |  |   | 
|------------------------------------------- |  | ------------- | --------- | ------- |  | -------------- | ------ | ----------- |  | --------- | ------ |  |  |  | ----- | ------ |  |  | - | 
|                                            |  |               |           |         |  | Votes Cast     |        |             |  |           |        |  |  |  |       | Broker
|Matter or Nominee                           |  | Vote Cast For |           | Against |  | Votes Withheld |        | Abstentions |  | Non-Votes
|                                            |  |               |           |         |  |                |        |             |  |          
|Victor D. Alhadeff                          |  |               | 4,576,851 |         |  |                |       |             |  |           | 38,265 |  |  |  |      |        |  |  |  | 
|C. William Vivian                           |  |               | 4,576,851 |         |  |                |       |             |  |           | 38,265 |  |  |  |      |        |  |  |  | 
|Richard Fersch                              |  |               | 4,597,851 |         |  |                |       |             |  |           | 17,265 |  |  |  |      |        |  |  |  | 
|Dan Kourkoumelis                            |  |               | 4,597,851 |         |  |                |       |             |  |           | 17,265 |  |  |  |      |        |  |  |  | 
|Charles C. Matteson, Jr.                    |  |               | 4,594,951 |         |  |                |       |             |  |           | 20,165 |  |  |  |      |        |  |  |  | 
|Amendment to 1996 amended stock option plan |  |               | 4,508,412 |         |  |                | 98,714 |             |  |           |       |  |  |  | 7,990 |        |  |  |  | 
|Ratification of PricewaterhouseCoopers LLP  |  |               | 4,597,001 |         |  |                | 17,740 |             |  |           |       |  |  |  | 375   |        |  |  |  | 




ITEM 5. OTHER INFORMATION

On August 6, 2002, we were notified by Nasdaq that we are out of
compliance with the Nasdaq National Market rule that requires a Nasdaq National
Market listed company maintain a $5.0 million minimum aggregate value for its
shares held in public float. If we are unable to regain compliance with the
rule for a minimum of 10 consecutive trading days prior to November 5, 2002,
Nasdaq has informed us that unless we have applied and are accepted for listing
on the Nasdaq Small Cap Market, we will be provided with written notification
that our shares will be delisted.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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

|            |  |                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit     |  |                                                                                                                                                                                       
|Number      |  | Description                                                                                                                                                                           
|            |  |                                                                                                                                                                                       
|3.1(2)      |  | Amended and Restated Articles of Incorporation.                                                                                                                                       
|3.2(2)      |  | Bylaws.                                                                                                                                                                               
|4.1(2)      |  | Specimen Stock Certificate.                                                                                                                                                           
|10.1(1)(2)  |  | 1996 Amended Stock Option Plan.                                                                                                                                                       
|10.2(1)(2)  |  | Form of Option Agreement (Fresh Options prior to February 2001)                                                                                                                       
|10.3(1)(2)  |  | Form of Option Agreement (other options prior to February 2001)                                                                                                                       
|10.4(1)(2)  |  | 2001 Employee Stock Purchase Plan.                                                                                                                                                    
|10.5(2)     |  | Form of Warrant.                                                                                                                                                                      
|10.6(1)(2)  |  | Employment Agreement between BRIAZZ and Charles William Vivian dated July 14, 1999.                                                                                                   
|10.7(2)     |  | Retail Lease between BRIAZZ and Benaroya Capital Company regarding 1100 Olive Way, Seattle, WA dated November 6, 1998.                                                                
|10.8(2)     |  | Form of Registration Rights Agreement among BRIAZZ and certain of our shareholders dated August 15, 1997, as amended.                                                                 
|10.9(2)     |  | Agreement between BRIAZZ and Stusser Realty Group Limited Partnership dated January 1998.                                                                                             
|10.10(2)    |  | Sublease between BRIAZZ and Stusser Electric Company regarding 3901 7th Avenue South, Seattle, WA dated February 6, 1998.                                                             
|10.11(2)    |  | Sublease Amendment between BRIAZZ and Stusser Electric Company
regarding 3901 7th Avenue South, Seattle, WA dated August 28, 2000.                                                    
|10.12(2)    |  | Lease between BRIAZZ and Mission-Taylor Properties regarding 225 Mendell St., San Francisco, CA dated June 28 1996.                                                                   
|10.13(2)    |  | Amendment to Lease between BRIAZZ and Mission-Taylor
Properties regarding 225 Mendell St., San Francisco, CA dated May 25, 2000.                                                      
|10.14(2)    |  | Lease between BRIAZZ and Time Realty Investments, Inc. regarding 200 Center St., El Segundo, CA dated December 15, 1997.                                                              
|10.15(2)    |  | Industrial Building Lease between BRIAZZ and Walnut Street
Properties, Inc. regarding 1642 Lake Street, Chicago, IL dated April 7, 1997.                                              
|10.16(2)    |  | Promissory Note made by BRIAZZ and Victor Alhadeff in favor of
U.S. Bank National Association in the principal amount of $2,000,000 dated December 30, 1999.                          
|10.17(2)    |  | Commercial Security Agreement among BRIAZZ, Victor Alhadeff
and U.S.Bank National Association dated December 30, 1999.                                                                
|10.18(2)    |  | Noncompetition Agreement between BRIAZZ and Victor D. Alhadeff dated October 18, 1996.                                                                                                
|10.19(1)(2) |  | Form of Option Agreement (all options since February 2001)
Extension or Revision Agreement between BRIAZZ and Victor
Alhadeff and U.S. Bank National Association dated March 26, 2001.
|10.21(3)    |  | Securities Purchase Agreement dated June 18, 2002 between
BRIAZZ and Laurus Master Fund, Ltd.                                                                                         
|10.22(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                                                        
|10.23(3)    |  | Common Stock Purchase Warrant issued by BRIAZZ to Laurus
Master Fund, Ltd. dated June 18, 2002                                                                                        
|10.24(3)    |  | Security Agreement made by BRIAZZ in favor of Laurus Master Fund, Ltd. dated June 18, 2002                                                                                            
|99.1        |  | Risk Factors                                                                                                                                                                          
|99.2        |  | Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.                                    
|99.3        |  | Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.                                    



---

|(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 18, 2002                   

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(b) Form 8-K

The Company filed a Form 8-K on June 5, 2002 to report on its financing
plans. The Company also provided disclosure, pursuant to Regulation FD,
regarding statements to be made by Mr. Alhadeff at the Annual Meeting relating
to current and planned product tests and potential relationships with Target,
Albertsons and other retailers.

The Company filed a Form 8-K on June 20, 2002 to report the completion of
the $1.25 million convertible debt and warrant financing.




SIGNATURES

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

|                      |  |              |                                                               
|--------------------- |  | ------------ | --------------------------------------------------------------
|                      |  | BRIAZZ, INC.
|                     
|Date: August 13, 2002 |  | By:          | /s/ Tracy L. Warner                                           
|                      |  |              |                                                               
|                      |  | Name:        | Tracy L. Warner                                               
|                      |  | Title:       | Chief Financial Officer                                       
|                     
|Date: August 13, 2002 |  | By:          | /s/ Victor D. Alhadeff                                        
|                      |  |              |                                                               
|                      |  | Name:        | Victor D. Alhadeff                                            
|                      |  | Title:       | Chief Executive Officer and
Chairman of the Board of Directors

21