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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ________________

                                    FORM 10-K

                                ________________

[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934

                   For the fiscal year ended December 28, 2003

                                       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.
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             (Exact name of registrant as specified in its charter)


                Washington                              91-1672311
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    (Jurisdiction of incorporation)        (I.R.S. Employer Identification No.)


                        3901 7th Avenue South, Suite 200
                            Seattle, Washington 98108
                    (Address of principal executive offices)

                  Registrant's telephone number: (206) 467-0994

           Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of each exchange
                Title of each class                      on which registered
                        None                                    None

           Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, no par value

                                (Title of Class)

    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 [ ]

    Indicate by check mark if disclosure of delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

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

    The aggregate  market value of the voting and non-voting  common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last  sold on the OTC  Bulletin  Board as of the  last  business  day of the
registrant's most recently  completed second fiscal quarter,  which was June 29,
2003 was $1,078,365

    The number of shares of the  registrant's  Common  Stock  outstanding  as of
March 1, 2004 was 5,990,916.

                       DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the definitive  Proxy  Statement to be delivered to shareholders
in connection  with the Annual  Meeting of  Shareholders  to be held in 2004 are
incorporated by reference into Part III.

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<PAGE>


                                  BRIAZZ, INC.

                                  ____________

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                         Page
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                                     PART I.
<S>                                                                                        <C>
ITEM 1.  Business .....................................................................    4
ITEM 2.  Properties ...................................................................   20
ITEM 3.  Legal Proceedings ............................................................   21
ITEM 4.  Submission of Matters to a Vote of Security Holders ..........................   21

                                     PART II

ITEM 5.  Market for Registrant's Common Equity and Related Shareholder Matters ........   21
ITEM 6.  Selected Financial Data ......................................................   21
ITEM 7.  Management's Discussion and Analysis of Financial Condition
            and Results of Operations .................................................   23
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ...................   35
ITEM 8.  Financial Statements and Supplementary Data ..................................   35
ITEM 9.  Changes in and Disagreements With Accountants on Accounting
            and Financial Disclosure ..................................................   55
ITEM 9A. Control and Procedures .......................................................   55

                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant ...........................   56
ITEM 11. Executive Compensation .......................................................   56
ITEM 12. Security Ownership of Certain Beneficial Owners and Management ...............   56
ITEM 13. Certain Relationships and Related Transactions and Related Shareholder Matters   56
ITEM 14. Principal Acccountant Fees and Services ......................................   56

                                     PART IV

ITEM 15. Exhibits, Financial Statements and Reports on Form 8-K .......................   57

SIGNATURES ............................................................................   60
</TABLE>

Unless  the  context  indicates  otherwise,  the terms  "we,"  "us,"  "our," the
"Company," or "BRIAZZ" refer to BRIAZZ, INC., a Washington corporation.



                                       2
<PAGE>


                           FORWARD LOOKING STATEMENTS

Certain  statements  in this Annual  Report  ("Annual  Report" or the  "Report")
constitute  forward-looking  statements within the meaning of Section 21E of the
Securities  Exchange  Act of  1934.  Forward-looking  statements  can  often  be
identified by  terminology  such as may, will,  should,  expect,  plan,  intend,
anticipate,  believe, estimate,  predict, potential or continue, the negative of
such terms or other  comparable  terminology.  Such  forward-looking  statements
involve known and unknown risks,  uncertainties and other factors that may cause
the actual results, performance or achievements of BRIAZZ, INC., or developments
in our industry, to differ materially from the anticipated results,  performance
or achievements  expressed or implied by such  forward-looking  statements.  Any
such  forward-looking  statements  are  not  guarantees  of  future  results  or
performance and involve risks and  uncertainties,  and actual results may differ
materially from those contemplated by such forward-looking statements. Important
factors  currently known to management that could cause actual results to differ
materially from those in forward-looking statements include, without limitation,
fluctuation of our operating results, our ability to obtain additional financing
on terms  favorable to us, or at all, our ability to compete  successfully,  our
ability to  successfully  transition  food production to third parties and/or to
our cafes, our reliance upon Flying Food Group, L.L.C.  ("FFG"),  our ability to
achieve profitable  operations in the test stores within the Borders Bookstores,
our ability to meet our obligations,  actions of our debt holders, landlords and
suppliers,  office occupancy, our ability to maintain current cafe locations and
secure new ones,  our ability to  retrofit  existing  locations,  food and labor
costs,  operation  in only  four  geographic  areas  and  the  other  risks  and
uncertainties described under "Business--Risk  Factors" in Part I of this Annual
Report. We undertake no obligation to update these forward-looking statements to
reflect events or circumstances occurring after the date of this Annual Report



                                       3
<PAGE>

                                     PART I

Item 1.  Business.

Overview - BRIAZZ 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.
At March 22,  2004,  we operate a total of 38 cafes in Seattle,  San  Francisco,
Chicago and Los Angeles. In addition,  we operate four cafes inside four Borders
Bookstores in the Chicago  market  pursuant to an agreement  with Borders.  This
agreement  is in effect  through  June 2004,  and can be  extended or renewed if
certain  objectives  are  achieved.   We  are  currently  focused  on  achieving
profitable  operations  in our  core  cafes  in 2004  and  have no plans to open
additional cafes during the current fiscal year.

Our target  customers are office  workers.  Our cafes are  conveniently  located
either in city center  locations  with a high  density of office  buildings  and
retail foot traffic or within  individual  office buildings where we serve as an
amenity for  building  tenants.  To satisfy the demands of our  time-constrained
customers for lunch,  breakfast and between-meal snacks, we design our cafes for
quick service. Refrigerated display cases offer easy access to pre-packaged food
items.

We currently  contract with a third party to assemble and package  substantially
all of our food  products  used at our cafe  locations  and in our branded sales
operations in Chicago, Los Angeles and Seattle. In Seattle, we have transitioned
our food production from the Flying Food Group,  L.L.C.  ("FFG") central kitchen
to  another  third  party  supplier.  We intend to close our  remaining  central
kitchen in San  Francisco by the end of our second  fiscal  quarter.  During the
first half of 2004, we intend to move the majority of the assembly and packaging
of our food  products  into our cafes and move out of the  central  kitchens  in
Chicago, Los Angeles, and San Francisco. As of March 26, 2004, we have completed
the transition to in-cafe  production in Chicago and Los Angeles.  Bringing food
production  into our cafes allows us to reduce food costs,  reduces our reliance
on a third  party  manufacturer,  and allows us to lower the costs of entry into
new markets.  We have entered into an agreement  with FFG whereby FFG has agreed
to release us from our  obligations  to have our food  exclusively  produced  in
their kitchens.  We anticipate we will terminate the Food  Production  Agreement
with  FFG in its  entirety  once  we have  successfully  transitioned  our  food
production from their central kitchens to our cafes. We currently are working to
bring  substantially  all of our food preparation into individual cafes. See the
Section entitled "Central Kitchens; Flying Food Group Production Agreement."

Competitive  Strengths - Subject to the availability of additional  funding,  we
intend to expand  product  offerings in our existing  cafes.  The  following are
central factors in our business  strategy and to achieve our goals, we intend to
leverage the following strengths:

Well-defined  business  concept - Over the past seven years, we have refined our
menu  selections and cafe layout,  while  reducing unit  production  costs,  and
changed  the way that we will be  supplying  our  cafes  with  food and  related
supplies to respond to customer demands and business environment.

Diverse,  high-quality product offerings. We offer a diverse range of menu items
designed for broad appeal to our target customers. We also offer varying portion
sizes for  selected  salads and  sandwiches.  We believe our product  selection,
ranging from  traditional  foods,  such as Cobb salads and tuna  sandwiches,  to
gourmet  foods  and a large  selection  of hot  foods  and  soups  attracts  new
customers and increases  the  frequency of visits by repeat  customers.  We have
placed increased  emphasis on hot menu items with significant focus on a line of
Hot Panini  Sandwiches,  and began offering a selection of  made-to-order  (MTO)
food items during the first fiscal quarter of 2004.

Frequent  menu  changes.  Our goal is to introduce  new food  selections  to our
customers  approximately  quarterly.  We also  adjust our menu  seasonally,  for
instance,  by offering a larger variety of hot soups and hot  sandwiches  during
the winter months and a larger  variety of salads during the summer  months.  We
began   preparing  more  of  our  product   offerings  in  our  cafes  including
made-to-order salads and sandwiches during the first fiscal quarter of 2004.

Speed and quality of service. We have designed our cafes to serve a large number
of customers in a very short  period of time and to allow easy  movement  within
the cafe from entry to exit.  In  addition,  our cafe  employees  are trained to
focus their  attention on customer  service.  All  employees  receive  extensive
in-cafe training under the direction of a store manager in areas such as quality
food  preparation,  speed of customer service,  health  standards,  and customer
satisfaction.



                                       4
<PAGE>

Range of prices.  Our entrees  range in price from $3.49 to $6.95.  In addition,
our  multiple  price point  strategy  allows  customers to select their own meal
combinations, such as a soup and salad or a soup and sandwich, providing further
flexibility in offering meals to fit differing budgets.

Multiple distribution  channels. For the convenience of our corporate customers,
in some markets we deliver box lunches and catered  platters for office meetings
through trucks and vans. We also deliver to selected wholesale customers.

Strategic  cafe  locations.  We locate  our cafes  primarily  in areas with many
office buildings or within individual buildings where we serve as an amenity for
building  tenants.  Amenity locations are typically sites on the ground floor or
in the  plaza of an office  building  and are often  leased at  favorable  rates
because they offer conveniences to building tenants.  In addition,  for cafes in
amenity locations,  very little marketing is required due to the high visibility
of the cafe within the building and the  comparatively  low level of competition
within the building.

Experienced  management.  Our management team has significant  experience in the
retail and food industries. We believe our management team is well-positioned to
manage  our  existing  operations  and the  anticipated  revenue  growth  in our
business.

Growth  Strategy - We believe that measured  growth  opportunities  exist for us
both in our current  markets and in new  markets.  Our key  strategies  to drive
growth are:

Increase our penetration in existing  markets.  Subject to available funding and
general  economic  conditions in the downtown  corridors we serve, our expansion
plans in our  current  markets  call for the  establishment  of new cafes and an
increase in our distribution  capabilities to expand our sales from box lunches,
catering platters and wholesale accounts. We believe that the opportunity exists
to add  several  cafes in our  existing  geographic  markets  over the next five
years, however we have no plans to add any additional new cafes this year.

Expand into new geographic  markets.  In the next few years, we intend to expand
into new geographic  markets.  Although we have not yet identified  specific new
markets,  we  believe  many of the 25 largest  metropolitan  areas in the United
States are suitable for potential expansion of BRIAZZ operations and brand. When
appropriate,  and  subject  to  available  funding,  we intend to enter into new
markets by concurrently  opening cafes and initiating  delivery of box lunch and
catering  services.  It typically takes eight months to open a new cafe from the
date of signing the lease.

Build  brand  awareness.  We believe  that sales of our  branded  food  products
through  our cafes  and other  distribution  channels  reinforce  our image as a
provider  of fresh,  high-quality  lunch and  breakfast  foods and  between-meal
snacks.  We currently build brand  awareness  through cafe  visibility,  branded
delivery  vans and trucks and product  packaging.  We are engaged in a number of
marketing initiatives designed to further build brand awareness, such as in-cafe
promotions and redesigned signage for our cafes.

History - Victor D.  Alhadeff  founded  BRIAZZ in 1995,  after  recognizing  the
convergence of two consumer trends:  (i) decreasing time for lunch and breakfast
and (ii) an  increasing  desire for  high-quality,  healthy  food at  affordable
prices.  Mr.  Alhadeff  founded  BRIAZZ on the belief that  demand for  healthy,
premium foods served quickly and  conveniently  could be met through the sale of
pre-packaged food items from open,  self-serve  refrigerated cases. In September
1995, the first BRIAZZ cafe in Seattle,  Washington was opened.  We expanded our
operations  into San Francisco in 1996,  Chicago in 1997 and Los Angeles in 1998
and now operate 38 cafes.  In November 2003, we opened four cafes inside Borders
Bookstores in the Chicago area on a test basis

Our Menu - We offer hot and cold  sandwiches,  salads  and  soups,  as well as a
variety of fresh baked goods,  juices,  gourmet coffees and fresh fruit.  Within
each basic product category, such as sandwiches,  salads, soups and baked goods,
we strive to offer a large number of choices. On average, we offer approximately
300 different items in our cafes.

Our food products are made with  high-quality,  fresh ingredients and are served
in our cafes, in box lunches or on our catered  platters within a short time. We
develop  our menu and recipes to provide  flavorful  choices,  ranging  from the
traditional  to  the  gourmet.  Our  sandwiches  are  made  with  a  variety  of
traditional and artisan breads.

We  are  committed  to  an  ongoing   process  of  introducing  new  food  items
approximately  quarterly.  New  food  items  are  introduced  based  on  factors
including food trends,  customer input and test marketing in a limited number of
cafes. In response to customer requests, we now offer hot panini sandwiches such
as tuscan turkey and chicken mozzarella, and hot breakfast items such as omelets
in each of our  geographic  markets.  Cafes designed to produce and sell our hot
offerings  generate  more of hot  food  sales  compared  to an  overall  company
average.  We now have hot  sandwiches in most of our  locations.  We are testing
rapid cook  technology  that,  if  successful,  will enable us to offer hot menu
items in all  locations.  The  ability to expand with rapid cook  technology  is
dependent upon successfully  obtaining  additional financing to provide adequate
capital to purchase or lease this  equipment.  In addition,  to keep our product
offering current,  we adjust our menu on a seasonal basis. For example, we offer
a larger  variety of hot soups and sandwiches  during the winter  months,  and a
larger  variety of salads  during the summer  months.  We are also  beginning to
offer a selection of  made-to-order  salads and sandwiches in selected cafes and
will have these  products  available  in the majority of our cafes by the end of
the second fiscal quarter of 2004.



                                       5
<PAGE>

We derive the majority of our cafe sales from sandwiches,  salads and soups. Our
sandwiches and salads are currently  prepared in central  kitchens and our soups
are prepared by Stockpot Soups, a division of the Campbell Soup Co. Our beverage
selection  includes   Starbucks  coffee,   fresh  juices  and  other  brand-name
beverages.  Our baked goods include  bagels,  muffins,  pound cakes,  scones and
cookies.  We have recently  completed a program of new in-cafe signage  bringing
greater  Starbucks  brand  awareness  within Briazz cafes.  Cookies are baked in
ovens in our cafes,  providing  fresh  cookies to our  customers and filling the
cafes with the aroma of baking  cookies.  In the  morning and after  lunch,  the
majority of cafe sales  consist of beverages  and fresh baked goods.  During the
breakfast  hours,  we offer a  selection  of hot egg  sandwiches  on an  English
muffin,  as well  as hot  oatmeal,  along  with  other  pre-packaged  items  for
takeaway.

Most of our products are  pre-packaged for convenience and labeled with our logo
and a list of ingredients,  which, in combination with clear packaging material,
allows for easy product and ingredient identification and additional branding.

Our  Distribution  Channels - Our food  products  are  distributed  through  our
company-operated  cafes,  through  delivery of box lunches and catered  platters
directly to corporate customers,  and through selected wholesale accounts. These
distribution  channels are designed to increase market  penetration  within each
geographic market.

Cafes - Our cafes are typically open from early morning to late afternoon. These
hours of operation  are designed to capture the  breakfast,  lunch and afternoon
traffic.  Typically,  our cafes have a manager supported by senior hourly "lead"
employees.  Each hourly  employee is trained to facilitate  speed and quality of
service, performing such functions as cashiering,  food preparation,  coffee and
other drink preparation, greeting customers and bussing tables. As we transition
to in-cafe production of food, our employees will receive additional training on
food  safety and  preparation.  We believe  that the impact to cafes in terms of
hours of operation and number of employees  will be minimal,  as we will believe
we will be able to better utilize our existing employees.  As of March 26, 2004,
we have  completed  the  transition  to in-cafe  production  in Chicago  and Los
Angeles.

Under the guidance of a district manager,  each cafe manager or lead employee is
responsible  for  ordering the  appropriate  products  and  quantities  from the
central kitchens and other suppliers.  A central  purchasing manager sources our
products.  This manager  then  provides  our  district  and cafe  managers  with
guidelines  for  placing  orders  with the  central  kitchens  and  third  party
suppliers.  This practice will continue as we transition to in-cafe  production.
To aid in this process,  we have  developed  extensive  cafe-level  reports that
provide  managers with trend and  product-volume  information.  The use of these
reports helps ensure  adequate  inventory  levels and helps reduce the amount of
unsold products.

Of our 38 company-owned  cafes,  approximately half are amenity  locations.  The
size of our cafes  ranges  from  approximately  170 square  feet in the  Wrigley
Building  in Chicago to 3,800  square  feet in the 525  Market  building  in San
Francisco.  Our cafes sell a diverse selection of BRIAZZ branded and third-party
products and  incorporate a distinctive  decor that is  instrumental in building
the BRIAZZ brand.

We believe  our target  customers  place a high  priority  on speed of  service.
Accordingly,  we strive to make the entire  process of selecting and  purchasing
products  require a very short amount of time inside our cafes,  even during the
lunch hour rush. We have designed our cafes to serve a large number of customers
in a very short period of time and to allow easy movement  within the cafes from
entry to exit.  Most food items are clearly labeled and selected from self-serve
refrigerated cases, requiring minimal employee assistance.  The hot items on our
menu, such as soups, hot subs and paninis, can be served quickly.  This focus on
speed and convenience caters to the time-constrained individual and, we believe,
builds a loyal customer base.

The  preparation  of food  products  at  central  kitchens  minimizes  the space
required for food  preparation in our cafes.  Generally,  our customers  consume
their purchases  elsewhere;  we do, however,  provide a limited number of tables
and chairs at some cafes for customers  who wish to eat on the  premises.  As we
transition  to  in-cafe  production,   we  will  require  more  space  for  food
preparation,  however  we  believe  we  have  adequate  space  in  our  existing
locations.

Box Lunches and Catered  Platters - We deliver box lunches and catered  platters
in our Seattle and San Francisco markets. We provide service to customers in the
vicinities  of our cafes  and to  customers  whose  business  sites are  located
outside  these  vicinities.  Our box  lunches  come in a BRIAZZ  branded box and
include a BRIAZZ  branded  sandwich or salad  entree,  complemented  by a bag of
chips, a beverage, a fruit cup and a cookie or brownie. Catering choices include
breakfast trays, sandwich platters,  salad bowls, party platters,  dessert trays
and cold beverages.  Box lunches and catered platters are delivered by employees
wearing  BRIAZZ  uniforms  driving  BRIAZZ  branded  trucks or vans.  Our target
customers  are  companies  that order food items for  participants  of  in-house
business meetings.



                                       6
<PAGE>

We receive box lunch or catering  orders on a daily basis by telephone,  fax and
through  our web site.  Substantially  all of our orders are filled at a central
kitchen and delivered  directly to the customers.  We have  consolidated the box
lunch  ordering  into a call  center in Seattle to  improve  service  and reduce
costs.  We anticipate  an  increasing  portion of this business will be serviced
directly from our cafes as we complete our  transition to in-cafe  production in
2004. In addition, we may not be able to provide as wide a variety of product as
we  currently  do and we may not be able to service  the same number and size of
accounts  that we  currently  service as the  transition  to in-cafe  production
occurs.

Wholesale  Accounts - We remain  committed to maintaining  profitable  wholesale
accounts.  Accounts such as Tully's and Seattle's Best Coffee remain  attractive
since they do not  require  the same level of  discount  that is required by the
grocery  segment.  We also have established a successful  business  relationship
with the University of Washington in Seattle and the University of California in
San Francisco.

Currently, BRIAZZ is supporting FFG under an informal agreement to sell, service
and  support  Starbucks.  Prior to  establishing  a business  relationship  with
BRIAZZ,  FFG was and is a supplier to  Starbucks  in  Chicago,  New York and Los
Angeles.  It is anticipated we will expand this arrangement to the San Francisco
market in the second quarter 2004. BRIAZZ and FFG are currently working together
to supply Starbucks branded sandwiches and salads to multiple Starbucks cafes in
the  Chicago,  New  York,  and other  markets.  We are  negotiating  with FFG to
finalize a formal agreement in the second quarter of 2004.

Borders  Agreement - In November 2003,  the Company  entered into a Food Service
Concession  Agreement  ("Borders  Agreement")  with Borders,  Inc. to manage and
operate  the cafe  portion  of eight  stores on a test basis for a period of six
months after the last test cafe is opened. We will retain all receipts generated
from these cafes and be responsible for substantially all of the costs resulting
from the operations of these cafes. In exchange, the Company will pay Borders an
amount equal to $60,000 for each cafe opened, or a total amount of $480,000, for
improvements  made to the cafes. In addition,  we will pay a base rent of $8,073
per month for each cafe  operated.  To date,  the  Company  has opened four test
cafes in the Chicago market and has no plans to open  additional  cafes prior to
the end of the test period.  We have paid Borders  $240,000 for  improvements to
these cafes as provided for in the agreement.

To  date,  we have  only  opened  4 of the 8  stores  provided  for in the  test
agreement.  In January  2004,  we have agreed with  Borders to limit the test to
only these stores.  Borders has incurred costs  associated  with the anticipated
opening  of the four  remaining  stores  provided  for in the  agreement.  It is
anticipated  that the Company will be required to reimburse  Borders for some or
all of these  costs  in the  first  half of  2004.  It is  estimated  that  this
reimbursement may be between $50,000 and $125,000.

Distribution  Logistics - During  2003,  most of our  products  originated  at a
central kitchen and were transferred to various distribution points by our fleet
of delivery  trucks and vans,  many of which are  refrigerated.  We deliver food
products at different times of the day,  allowing us to use our fleet throughout
the day.  For example,  our trucks and vans deliver each day's food  products to
our cafes very early in the morning.  Our fleet  delivers  food  products to our
wholesale accounts  mid-morning and delivers box lunches and catered platters at
lunchtime.  We pick up leftover  food products from our cafes at the end of each
day. Most unsold food is donated to charity.

Central Kitchens;  Flying Food Group Production Agreement - Until December 2002,
we operated a central  kitchen in each of our  geographic  markets.  Our central
kitchens  prepared,  assembled  and  distributed  substantially  all of our food
products. Establishing a central kitchen in each of our geographic locations was
intended to enable us to deliver consistently  high-quality,  affordable food at
an attractive  unit cost.  During 2002, we recognized that the costs of carrying
excess  capacity at our central  kitchen  facilities  outweighed the benefits of
potential rapid expansion in food output and that our current  utilization rates
did not achieve the economies of scale that we had envisioned.  As a result,  we
entered  into an  agreement  wherein we agreed to purchase our branded food from
FFG. FFG maintains central kitchens in our existing markets and, therefore,  was
in an ideal  position  to  support  our  operations.  Accordingly,  we have been
gradually  phasing out our central  kitchens.  As of December 29,  2002,  we had
completed our  transition  to  purchasing  food products from FFG and closed our
central kitchens in Chicago and Los Angeles.  By the end of February 2003 we had
also closed our Seattle central kitchen and begun  purchasing food products from
FFG in that market.  Under our food product agreement,  FFG has a right of first
refusal to provide us with our food products in additional markets we may enter;
however, FFG is under no obligation to do so. The Company and FFG have agreed to
eliminate the  exclusivity  provisions of the Food Production  Agreement,  which
will allow us to commence  in-cafe  production in 2004. As of March 26, 2004, we
have completed the transition to in-cafe  production in Chicago and Los Angeles.
It is anticipated that once the transition to in-cafe  production is complete in
all markets, the Food Production Agreement will be terminated.



                                       7
<PAGE>

Under the food production  agreement,  FFG has agreed to manufacture and package
all food products we sell in our existing markets for the term of the agreement.
We will pay FFG for its actual  cost  incurred in  production  of the food items
plus a profit factor to be  negotiated.  The  agreement  allows us to change our
menu items provided we give reasonable  notice to FFG and the number of items on
our menu remains  relatively  constant.  In addition,  the  agreement  generally
prohibits FFG from using our trademarks for its own purposes.  However,  it does
not forbid FFG from using the same food formulations, recipes or ingredients for
products that it sells to the food service industry.

As part of the agreement,  we agreed to transfer production of our food products
over to FFG in a  multi-staged  process.  We also  agreed  to  transfer  to FFG,
without charge,  any of our central  kitchen  equipment that may be requested by
FFG.  Since the  production  agreement  was not  terminated  within  one year of
commencement of production FFG will retain all  transferred  equipment under the
terms of the agreement.

The agreement provides that our rights and remedies for any breach by FFG of its
representations, warranties and covenants under the agreement are limited to (i)
actual damages of up to $50,000 if FFG's failure to assume food  production in a
particular  market  results in us being unable to take advantage of a subleasing
opportunity for our central  kitchen in that market,  (ii) our ability to reject
nonconforming  products or recover the actual costs of  nonconforming  products,
(iii)  indemnification  by FFG for any claims or other liabilities  arising from
any personal injury resulting from the use of nonconforming  products,  and (iv)
our ability to terminate  the  agreement as to a specific  geographic  market in
which a breach has occurred.  The agreement provides that we are not entitled to
any  additional  damages  in the event of a breach by FFG,  including  actual or
consequential damages resulting from lost sales or lost profits. In addition, we
are not  entitled to  terminate  the  agreement in the event of a breach by FFG,
except by  terminating  the  agreement as to the specific  geographic  market in
which the breach occurred.

The agreement has a term of ten years subject to earlier  termination  by either
party if the other party becomes  insolvent.  In addition,  the agreement may be
terminated in specific markets (i) by the non-defaulting party in the event of a
default in a specific market by the other party or (ii) by us if FFG is not able
to resume  production  within 60 days of a Force  Majeure  event,  until FFG can
resume  production in the specific market.  After the initial ten-year term, the
agreement renews  automatically for successive  one-year terms unless terminated
by either party on one-year's  notice.  It is anticipated  that the parties will
mutually  agree to terminate  this  agreement  after the Company  completes  its
transition to in-cafe production.

Our remaining central kitchen in San Francisco  functions as a food preparation,
assembly and distribution  hub.  Central kitchen  functions  include  ingredient
preparation,  baking,  and assembly and packaging of food products.  The central
kitchens are designed to benefit from the  economies of scale  generated by high
unit-production  volumes.  However,  our central kitchens have traditionally run
significantly below capacity diminishing the actual economies of scale.

A key element of our brand-building  strategy is to maintain  consistent product
quality through our  comprehensive  quality assurance  programs.  As part of our
food production agreement with FFG, FFG must ensure that all products sold to us
meet state and federal  standards and must maintain a Hazard  Analysis  Critical
Control Point (HACCP) program similar to the program maintained at our remaining
central  kitchen.  FFG must also  indemnify  us for damages  arising  from their
failure  to provide  us with food  meeting  these  standards.  In our  remaining
central kitchen, the manager compiles and analyzes daily reports that detail key
central kitchen statistics,  including total production,  production by business
unit,  labor as a  percentage  of sales and labor  cost per unit  produced.  Our
quality  assurance  programs  include  the HACCP  program for use in our central
kitchens  and the  ServSafe  Training  Program  for use in our cafes and central
kitchens,  which training program was created by the Education Foundation of the
National Restaurant Association. In addition to our quality assurance and safety
programs at our cafes and central kitchen, all delivery vehicles used to deliver
food requiring refrigeration are refrigerated for food safety.

In the first  quarter  of 2004,  we have made the  decision  to  transition  our
business from the central kitchen production concept to in-cafe  production.  We
anticipate that we will complete this transition by the end of 2004. As of March
26, 2004, we have completed the transition to in-cafe  production in Chicago and
Los Angeles.  As we retrofit our cafes for this  transition,  we are  installing
food safety and  food-handling  equipment as required.  We are subject to health
inspections  by  appropriate  local  health  agencies  and  expect  to pass each
inspection  without  incident.  We are also expanding our food safety program to
include all requirements for in-cafe production.



                                       8
<PAGE>

In January  2004,  pursuant to an agreement  with FFG, we contracted to have our
food  production  done by a  non-affiliated  third party  kitchen in the Seattle
market and have ceased buying product from FFG. We believe that this arrangement
will result in a lower cost of food in that market  while  maintaining  the same
level of quality.

Employee Training and Development - We have developed a comprehensive program to
train employees in customer  service,  operations,  and product  preparation and
knowledge.  We provide product and customer  service  training to all employees.
Our retail employees are exposed to a high level of product training. We believe
that our personnel must be able to provide  customers with information about the
food products we offer. In addition,  we believe that customer  service training
and  awareness  is critical to our  success.  We  reinforce  the  importance  of
training  on a daily  basis in our  retail  locations.  In  addition  to product
training, we train our cafe employees in general store operations to achieve and
maintain a high level of quality and customer service.

Purchasing - In the markets where we have switched food  production  over to FFG
central  kitchens,  FFG  procures  most of our food  ingredients,  products  and
supplies.  We pay FFG a handling fee for acquiring products and supplies for our
use from third parties.  In San  Francisco,  where we still maintain our central
kitchen, our purchasing staff procures all of our food ingredients, products and
supplies. We seek to obtain high quality ingredients, products and supplies from
reliable sources at competitive prices. To that end, we continually research and
evaluate  various food  ingredients,  products and supplies for  consistency and
compare them to our specifications.

As a result of our initiative to transition to in-cafe  production by the end of
2004, we will assume the  responsibility  for  procuring  our food  ingredients,
products, and supplies we use.

Competition - The quick-service segment within the restaurant industry is highly
competitive.  We  compete  on the  basis  of many  factors,  including  service,
convenience,  taste, quality,  value and price. We believe our menu, the quality
of our food,  our  convenient  cafe locations and our prices allow us to compete
with and  differentiate  ourselves  from our  competitors.  Competitors  include
sandwich shops, company cafeterias,  delicatessens,  pushcart vendors, fast food
chains,  catering companies and other providers that offer quick and inexpensive
lunch and breakfast meals and between-meal  snacks. Many of our competitors have
significantly   more   capital,   research   and   development,    distribution,
manufacturing,  marketing,  human and other  resources  than we do. As a result,
they  may be able to  adapt  more  quickly  to  market  trends,  devote  greater
resources to the promotion or sale of their  products,  receive  greater support
and better pricing terms from  independent  distributors,  initiate or withstand
substantial  price  competition  or  take  advantage  of  acquisition  or  other
opportunities more readily than we can.

Intellectual  Property  - We  regard  our  trademarks  and  service  marks as an
important factor in the marketing and branding of our products and services. Our
registered trademarks and service marks include, among others, the text "BRIAZZ"
and our stylized  logo.  We have  registered  all of these marks with the United
States  Patent and Trademark  Office.  We have  registered  our ownership of the
Internet  domain  name   "www.BRIAZZ.com."   We  also  own  a  Washington  state
registration  for "JAVA JUMBLES." We believe that our trademarks,  service marks
and other  proprietary  rights have  significant  value and are important to our
brand-building efforts.

An individual in Mexico City,  Mexico has opened a restaurant called cafe Briazz
and has registered the Internet domain name  "www.cafeBRIAZZ.com."  In the past,
we attempted to have  ownership of the domain name  terminated or transferred to
us. However, we have put these efforts on hold indefinitely. We are not aware of
any other  infringing uses that could  materially  affect our business,  nor any
prior claim to  BRIAZZ(R),  our stylized logo or JAVA JUMBLES that would prevent
us from using these marks.

We have  certain  copyrights  such as the  design of our  menus,  brochures  and
designs used in connection  with our  trademarks  and service  marks,  and trade
secrets  such as  recipes,  methods and  processes,  marketing  and  promotional
strategies and  proprietary  customer lists. We have not recorded any copyrights
with the United States Copyright Office.

In addition to  registered  trademarks,  we consider our food product  packaging
(typically consisting of a clear plastic container with a bold label and product
description),  our box lunch  packaging  (consisting  of a brown  cardboard  box
printed with our logo) and the design of the  interior of our cafes  (consisting
of bright  lighting,  walls lined with well-lit  refrigerated  cases,  and metal
designwork)  to be strong  identifiers  of our brand.  Although we consider  our
packaging  and store design to be essential to our brand  identity,  we have not
applied to register trademarks and trade dress for these features, and therefore
cannot rely on the legal protections provided by trademark registration.

We intend to  vigorously  protect our  proprietary  rights.  We cannot  predict,
however,  whether  steps taken by us to protect our  proprietary  rights will be
adequate  to prevent  misappropriation  of these  rights or the use by others of
cafe or retail features based upon, or otherwise similar to, our concept. We may
be unable to prevent others, including FFG, from copying elements of our concept
and any  litigation  to enforce  our rights will likely be costly and may divert
resources away from our day-to-day operations.



                                       9
<PAGE>

Employees - As of December  28,  2003,  BRIAZZ  employed 45  full-time  salaried
employees and 281 hourly employees. Of these employees, 10% were involved in our
central  kitchens,  7% were  involved in our box lunch,  catering and  wholesale
operations,  75% were  involved  in cafe  operations,  and 8% were  involved  in
administrative/corporate  functions,  including  senior  management.  This was a
decrease  from 69 full-time  salaried  employees and an increase from 276 hourly
employees at December 29, 2002. Hourly employees increased in 2003 primarily due
to the opening of the Borders test cafes. We believe our  relationship  with our
employees is good.  None of our employees is a party to a collective  bargaining
agreement or represented by a labor union.

Financial  Information  About Segments and Geographic Areas - We operate through
four  reportable  segments:  Retail,  Branded  Sales,  Kitchens  and  General  &
Administrative.  Retail consists of sales generated  through our cafes.  Branded
Sales consists of two  subgroups:  (1) box lunch and catering and (2) wholesale.
Branded Sales subgroups consist of sales which are aggregated  because they have
similar  economic  characteristics.  Kitchens  consists of unallocated  costs of
products and  packaging,  along with  unallocated  costs of kitchen  operations.
General & Administrative  consists of all costs incurred by the corporate office
as well as those administrative costs incurred by retail,  branded sales and the
kitchens.  All sales have been  attributed to the United States,  and all of our
long-lived assets are located in the United States.  Segment results for each of
our past three fiscal years are provided in the financial statements included in
this Annual Report.

Government  Regulation - We must comply with local, state and federal government
regulations,  standards and other  requirements  for food  storage,  preparation
facilities,  food  handling  procedures,   other  good  manufacturing  practices
requirements, and product labeling. The U.S. Department of Agriculture has broad
jurisdiction  over all meat and poultry  products,  and separate  authority over
non-meat and poultry products is exercised by the Food and Drug  Administration.
State and local  jurisdictions  also have separate,  distinct authority over our
food-related  operations.  Advertising and promotional activities are subject to
the jurisdiction of the Federal Trade  Commission,  which has jurisdiction  over
all consumer advertising with respect to unfair or deceptive business practices.
State and local  jurisdictions  typically  enforce similar  consumer  protection
statutes.

Our  facilities  are  subject to  licensing  and  regulation  by state and local
health, sanitation, safety, fire and other authorities,  including licensing and
regulation  requirements  for the sale of food. To date, we have not experienced
an inability to obtain or maintain any necessary licenses, permits or approvals,
including  restaurant and retail licensing.  The development and construction of
additional  cafes  must  also  comply  with  applicable  zoning,  land  use  and
environmental  regulations.  Various  federal  and state  labor laws  govern our
relationship  with our  employees  and affect our  operating  costs.  These laws
include minimum wage requirements,  overtime,  unemployment tax rates,  workers'
compensation rates,  citizenship  requirements and sales taxes. In addition, the
federal Americans with Disabilities Act prohibits discrimination on the basis of
disability in public accommodations and employment.

Available  Information  - BRIAZZ  files  regular  disclosures  with the SEC. The
public may read and copy any  materials  BRIAZZ  files with the SEC at the SEC's
Public  Reference  Room at 450  Fifth  Street,  N.W.,  Washington,  D.C.  20549.
Information   about  the  SEC's  Public   Reference  Room  may  be  obtained  at
1-800-SEC-0330. BRIAZZ files its reports electronically and the SEC maintains an
Internet site that contains reports,  proxy and information statements and other
information  regarding  issuers at  http://www.sec.gov.  Our Internet address is
http://www.BRIAZZ.com.  The  information  on our Internet  site is not a part of
this filing.

                                  RISK FACTORS

                          Risks Related To Our Business

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

Since inception,  we had accumulated net losses of  approximately  $72.8 million
through  December  28,  2003 and  have  experienced  negative  cash  flows  from
operations.  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  and our  ability to reduce
operating expenses. Failure to achieve profitability,  or maintain profitability
if achieved,  may have a material adverse effect on our business, our ability to
implement  our business  strategy and our stock price.  It is  anticipated  that
additional cash will be needed in order to continue operating.



                                       10
<PAGE>

There can be no assurance that we will be able to obtain  additional  financing,
increase  revenues,  reduce  expenses or  successfully  complete  other steps to
continue as a going concern.  Due to the  substantial  number of shares issuable
upon  conversion  of our  Convertible  Preferred  Stock,  we may  be  unable  to
negotiate  subsequent  equity financings on terms favorable to us, or at all. In
addition,  our existing debt  represents a  substantial  percentage of our asset
value.  As a result of this high level of leverage,  we may find it difficult to
incur additional debt, either in the form of an operating line of credit or debt
financing.  If we are  unable to obtain  sufficient  funds to  satisfy  our cash
requirements in the near future, we may be forced to substantially reduce and/or
curtail  operations.  Such events  would  materially  and  adversely  affect our
financial position and results of operations.

Our  Business  Strategy  Is To Focus Our  Efforts  On  Improving  Our  Financial
Performance  Through A  Combination  of Cost Cutting  Measures and New Corporate
Development Initiatives.  Our Inability to Implement Our Business Strategy Would
Have A Material Adverse Effect on Our Operating Results And Prospects.

Our business strategy is to focus our efforts on achieving profitability through
a  combination   of  cost  cutting   measures  and  new  corporate   development
initiatives,  which may include  licensing or franchising  our products to third
parties and securing additional wholesale accounts.  The success of our business
strategy  will  depend in part upon our  ability  to  conclude  agreements  with
retailers, wholesalers or others who may license, resell or purchase a franchise
for our  products.  We have also  recently  begun to  implement  a  strategy  to
transition to in-cafe production from central kitchens.

If we enter into agreements with third party  distributors of our products,  our
existing  cafe  management  systems,   financial  and  management  controls  and
information  systems may not be adequate to support our planned  expansion.  Our
ability to manage our growth  effectively  will require us to continue to expend
funds to improve these systems,  procedures  and controls,  which we expect will
increase our operating expenses and capital  requirements.  In addition, we must
effectively  expand,  train and manage our work force. We cannot assure you that
we will be able to respond on a timely basis to all of the changing demands that
our planned  expansion  will impose on management  and on our existing  systems,
procedures and controls.  In addition, we cannot assure you that we will be able
to continue  to improve our  information  systems and  financial  controls or to
manage other factors necessary for us to achieve our growth strategy. For any of
these reasons,  we could lose  opportunities or overextend our resources,  which
could adversely affect our operating results.

In  addition,   agreements  with  third  party  distributors  may  prove  to  be
unsuccessful.  In the past, we  distributed  our products  through  Quality Food
Centers, Albertson's, Safeway, Ralph's and Dominick's grocery stores and through
Target  stores.  We  also  developed  a line  of  dinner  foods  for  home  meal
replacement  that was tested  through one of our Seattle  cafes.  These attempts
were unsuccessful and have been discontinued.  Following the  discontinuation of
these relationships,  we evaluated the grocery segment of our wholesale business
and decided to withdraw from this distribution channel.

As part of our strategy to improve our financial performance,  we are continuing
to review our cost structure and to make cost reductions where possible.  In the
last  year,  we have  taken  significant  steps  designed  to reduce  our costs,
including  personnel  reductions,   reductions  in  general  and  administrative
expenses, reorganization of certain business operations,  elimination of certain
wholesale accounts,  discontinuation of branded sales in the Los Angeles market,
and closure of certain cafes, in addition to the closure of our Seattle, Chicago
and Los Angeles  central  kitchens and the outsourcing of our food production in
those markets to third party  suppliers.  We will continue to seek to reduce our
general and  administration  and other  expenses in order to improve our margins
and help us achieve profitability.  We cannot assure you that we will be able to
achieve  the  desired  level of cost  reductions  or that  such  reductions,  if
achieved, will not have an adverse impact on our revenues. If we are not able to
sufficiently  reduce our costs or implement new  distribution  relationships  on
terms  favorable to us, we will continue to experience  losses which will have a
material adverse affect on our business.

We Have Entered Into a Test Agreement  With Borders,  Inc. to Operate and Manage
Cafes in Eight Borders Locations.  Even if the Test is Successful,  the Test May
Not Be Extended.

We have signed an agreement  with  Borders,  Inc. to manage and operate the cafe
portion of 8 stores on a test  basis for a period of six  months  after the last
test store is opened. We will retain all the receipts generated from these cafes
and be  responsible  for  substantially  all of the  costs  resulting  from  the
operations of these cafes.  In exchange,  the Company will pay Borders an amount
equal to  $60,000  for each cafe  opened,  or a total  amount of  $480,000,  for
improvements  made to the cafes.  In addition,  we will pay a base rent. Even if
the test proves to be successful, there can be no assurance that upon the end of
the test period the agreement will be extended.



                                       11
<PAGE>

To  date,  we have  only  opened  4 of the 8  stores  provided  for in the  test
agreement.  In January,  2004,  we have agreed with Borders to limit the test to
only these stores.  Borders has incurred costs  associated  with the anticipated
opening  of the four  remaining  stores  provided  for in the  agreement.  It is
anticipated  that the Company will be required to reimburse  Borders for some or
all of these  costs  in the  first  half of  2004.  It is  estimated  that  this
reimbursement may be between $50,000 and $125,000.

We Have Not Made Rent  Payments on Certain of Our Leases and Payments to Certain
of Our Suppliers.  If We Are Unable to Meet Our Obligations to Third Parties, We
May Be Required to Discontinue Our Operations.

We have deferred  payments to certain of our landlords and suppliers,  including
FFG.  If our  landlords  or our  suppliers  require  payments  in  excess of our
available cash, we may be required to close cafes, discontinue use of suppliers,
limit our product offerings or cease operations  altogether.  Any such action by
our landlords or suppliers may also cause an event of default under the terms of
our debt financings or our other contractual relationships,  or adversely affect
our relationships with other third parties,  all of which would adversely affect
our operations.

We Have  Become  Increasingly  Dependent  Upon  Third  Parties  for the  Supply,
Quality, Safety and Cost of Our Food Products.

Although we have  transitioned our food production to in-cafe  production in Los
Angeles and Chicago,  we are dependent on third parties for the  production  and
assembly of our food products.  Any failure or delay by them to manufacture  and
assemble our food  products,  even for a short period of time,  would impair our
ability to supply our cafes and would harm our  business.  We cannot  assure you
that we will be able to  maintain  satisfactory  relationships  with these third
parties on  acceptable  commercial  terms.  Nor can we assure you that they will
continue to provide food products that meet our quality standards In Seattle, we
are  dependent  upon SK Foods for our food  production.  If our food  production
relationship was to terminate  unexpectedly,  we may have difficulty  obtaining,
manufacturing and assembling our food products, or obtaining adequate quantities
of products,  at the same  quality at  competitive  prices in a timely  fashion,
which could limit our ability to adequately supply our cafes and could adversely
affect our operating  results.  If we were unable to find another third party to
produce  our  food  products  on  acceptable  terms,  we might  be  required  to
reestablish  central  kitchens,  to move more rapidly than expected into in-cafe
production, or to discontinue our operations.

We Have Transferred  Most of Our Central Kitchen  Equipment to FFG, Which Limits
Our Ability to Establish New Central  Kitchens Should It Become  Necessary to Do
So.

As part of the food production  agreement with FFG, we agreed to transfer to FFG
without  charge any of our central  kitchen  equipment  that may be requested by
FFG.  Pursuant to this  agreement,  we have  transferred  certain of our central
kitchen  equipment to FFG in the Chicago and Seattle and certain other equipment
to HEMA in Los Angeles. As a result of the equipment transfers,  we will find it
necessary  to acquire  new  equipment  should we cease to use FFG in an existing
market.  Due to the high cost of  equipment,  any future  need to  acquire  such
equipment will have a material  adverse effect on our results.  In addition,  we
may not have adequate capital to procure the required equipment. Further, we may
not be able to acquire necessary  equipment in a timely manner and, as a result,
may not be able to meet food  production  requirements.  Any  failure to acquire
necessary  equipment  could have a material  adverse  effect on our business and
results.

We May Face Competition From FFG or Its Customers  Providing Similar Products to
Those We Market.

While the food production  agreement with FFG generally prohibits FFG from using
our trademarks for its own purposes,  it does not forbid FFG from using the same
food formulations, recipes or ingredients for products that it sells to the food
service  industry.  FFG may thus compete with us directly by selling the same or
similar products to wholesalers that we target for wholesale  accounts.  In such
event, we will not be able to offer products at a competitive  price compared to
FFG. FFG may also sell such products to  wholesalers  or retailers  with whom we
compete.  In the event of such sales,  we may not be able to offer products at a
competitive price compared to wholesalers or retailers who purchased the similar
products from FFG because these retailers and  wholesalers  were not required to
invest  the  large  amounts  we spend  in  product  development,  and may not be
required  to provide  FFG with the same  profit  factor as we are under the food
production agreement. In any such case, we may lose customers to FFG or to these
wholesalers and retailers, and our business and results may suffer materially.



                                       12
<PAGE>

If We Are Unable to Complete Our Announced San Francisco Central Kitchen Closure
and Transition to In-cafe  Production On Terms Favorable To Us, Our Business May
Be Harmed.

We intend to close our remaining central kitchen in the San Francisco market and
transition our food production in that market to in-cafe production.  The timing
and  benefits of this  transition  will  depend on a number of factors,  many of
which are outside our control,  including maintaining product quality,  ensuring
adequate product quantities, the closing of our remaining central kitchen in San
Francisco, including the transfer or sale of equipment,  termination or transfer
of staff and  termination or sublease of the space,  and transfer of the central
kitchen functions to in-cafe production,  including hiring, training, production
and assembly and coordination of functions.

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

In August  2003,  we made a  $300,000  principal  payment  on our $1.25  million
convertible note, reducing the principal amount to $626,400. In October 2003, we
made an  additional  principal  payment  of  $52,000  reducing  the  balance  to
$574,400.  This unpaid principal amount, together with a $75,000 fee relating to
the  $300,000  prepayment,  is  payable  in 12 equal  installments  on the first
business day of each calendar month,  beginning  September 1, 2003.  Accrued and
unpaid interest must also be paid monthly;  however, Laurus has waived its right
to receive any interest  payments  until October 1, 2003.  The amounts due under
the note are  secured  by a blanket  security  interest  in all our  assets.  On
October 1, 2003,  the  Company  was in arrears  on its  interest  and  principal
payments to Laurus. Subsequently,  in October 2003 the Company received a waiver
from Laurus in which Laurus agreed to waive any defaults resulting from the late
payment  of the  monthly  amount  due  October  1,  2003 and  agreed to make all
payments  due and payable  under the note from  October 1, 2003 to November  15,
2003 due and payable on November 16, 2003 and waived any defaults and  penalties
resulting from the postponement of payments.  The current  principal  balance of
this  note  is  approximately  $547,400,  the  amount  currently  due in fees is
approximately  $68,750  and the past due  interest  as of  December  28, 2003 is
approximately  $92,000.  We have not made any  payments due under the note since
October 24, 2003 and as a result we are currently in default under the note with
Laurus.  Laurus  may  accelerate  the  payment  due under the note or take other
action to enforce  their rights with  respect to the amounts  due.  Such actions
could  include  foreclosure  on our assets or causing  the Company to enter into
involuntarily reorganization.

In some circumstances,  the note is convertible into shares of our common stock.
The  conversion  price under the note is $0.10 per share for the first  $350,700
converted  into  shares of our common  stock  after July 31,  2003 and $0.30 per
share for any  additional  amounts  converted  into shares of our common  stock.
Although  the  convertible  note  provides us with the option of making  monthly
payments by issuing shares,  the number of shares that we can issue with respect
to any  payment is  limited  to 25% of the number of shares of our common  stock
traded on our  principal  trading  market  during  the 30  calendar  day  period
preceding  the date on which we provide  notice of repayment  in shares,  unless
waived  by  Laurus.  Any  additional  amounts  must be paid in cash.  Due to the
limited  trading  volume of our  shares in recent  periods,  we expect  that our
ability to issue shares in  satisfaction  of the monthly  payments  will be very
limited.  In addition,  we are not permitted to make such payments in shares and
are  required  to make  such  payments  in cash if any of the  following  events
occurs: (i) the average daily volume weighted average price of our shares on our
principal  trading  market for the 11 trading  days  preceding a payment date is
less than 115% of the applicable  conversion price, (ii) there fails to exist an
effective  resale  registration  statement with respect to the shares;  or (iii)
there occurs any event of default.  The events of default under the  convertible
note are similar to those customary for convertible debt  securities,  including
breaches of material terms, failure to pay amounts owed, delisting of our common
stock from the OTC Bulletin Board or a national securities exchange,  or failure
to comply with the  reporting,  filing or other  obligations  of listing on such
market. In the event that a payment default occurs and is continuing, Laurus may
convert all or part of any monthly  payment  into shares of our common  stock at
the lower of the applicable  fixed conversion price or 70% of the average of the
three lowest closing prices for our common stock on our principal trading market
for the 30 trading days prior to the conversion date.

If we default on our obligations  under the  convertible  note, or if we fail to
have a resale  registration  statement declared and maintained as effective with
respect to the shares,  we may be required to immediately  repay the outstanding
principal amount of the convertible note and any accrued and unpaid interest. We
do not  currently  have cash or cash  equivalents  or  available  debt or equity
financing  sufficient  to repay such  amounts  if such  repayment  is  required.
Accordingly,  we anticipate that additional financing would be required to repay
such amounts.  We cannot  guarantee  that such  financing  would be available on
terms  favorable to us, or at all. If we could not arrange for such financing on
favorable  terms,  our  business  and  financial  results  would  be  materially
adversely  affected.  In the event of any sale or  liquidation  of our assets to
repay such debt, the note holder,  as a secured party,  would have priority over
other  creditors and over our  shareholders  with respect to such assets and the
proceeds of such assets.



                                       13
<PAGE>

Any Unwaived  Default in the  Repayment  of Our $7.0  Million In Senior  Secured
Notes Could Have a Material Adverse Affect on Our Business,  Prospects,  Results
of Operations and Financial Condition.

The  principal  and accrued and unpaid  interest on the $6.0  million  principal
amount of senior secured notes we issued to DB Advisors,  L.L.C. ("DB"),  Briazz
Venture, L.L.C. ("BV"),  Spinnaker Investment Partners, L.P. ("Spinnaker"),  and
Delafield Hambrecht, Inc, ("Delafield") are due on August 1, 2005. The principal
and accrued and unpaid interest on the $1.0 million  principal  amount of senior
secured notes we issued to DB, and Victor D.  Alhadeff,  the Company's  founder,
are due on December 8, 2005. The senior secured notes will accelerate and become
due if we (i) fail to pay any amount when due, (ii) fail to cure defaults  under
the notes  within  ten days of notice  or (iii)  are  forced to seek  bankruptcy
protection or otherwise  become  insolvent.  The amounts due under the notes are
secured by a blanket  security  interest in all our assets.  If we are unable to
pay any amount when due,  DB, BV, and  Spinnaker  may  foreclose  on our assets,
which could  substantially  adversely  impact our ability to continue as a going
concern.  We do not currently have cash or cash equivalents or available debt or
equity financing  sufficient to repay the principal amounts if such repayment is
required. Accordingly, we anticipate that additional financing would be required
to repay  such  amounts.  We  cannot  guarantee  that  such  financing  would be
available  on terms  favorable  to us, or at all. If we cannot  arrange for such
financing  on favorable  terms,  our business  and  financial  results  would be
materially  adversely  affected.  In the event of any sale or liquidation of our
assets to repay such debt,  the note  holders,  as secured  parties,  would have
priority  over other  creditors and over our  shareholders  with respect to such
assets and the proceeds of such assets. Subsequently,  in March 2004 the Company
received a waiver from DB, BV, Spinnaker,  Delafield,  and Victor D. Alhadeff in
which they agreed to waive any defaults with respect to  non-payment of interest
until June 30,  2004 and  agreed to delay  payment  of any and all  accrued  but
unpaid interest to July 5, 2004, and waived any defaults and penalties resulting
from the postponement of payments.

We Continue  To  Experience  A Decline In Our Same Store Sales When  Compared To
Prior Periods. If This Trend Continues We May Have To Close Additional Cafes.

In the past,  we have closed  cafes  because  they did not  generate  sufficient
revenues and we cannot assure you that additional cafes will not be closed.  For
the years ended December 29, 2002 and December 28, 2003,  our  same-store  sales
decreased  compared to the prior fiscal years. If our same-store  sales continue
to  decline  or  fail to  sufficiently  improve,  we may be  required  to  close
additional cafes. The closing of a significant number of cafes or the failure to
increase  same-store  sales  could  have an  adverse  impact on our  reputation,
operations  and financial  results.  During the year ended  December 28, 2003 we
closed a total of 6 cafes.  We have closed two  additional  cafes in the Seattle
market in the first  fiscal  quarter of 2004  pursuant  to the  expiration  of a
license agreement.

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

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

Our Third Party Distribution  Strategy Could Result In Increased  Competition In
Our Existing  Markets.  This Strategy  Could Cause Sales In Some Of Our Existing
Cafes To Decline.

In accordance  with our expansion  strategy,  we may enter into  agreements with
third parties to distribute our products  through new  distribution  channels in
our  existing  markets.  The  presence of  additional  distribution  channels in
existing markets may result in diminished sales  performance and customer counts
for cafes near the area in which third parties  distribute our products,  due to
sales cannibalization.

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

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



                                       14
<PAGE>

If Production at SK Foods Central  Kitchen or Our San Francisco  Central Kitchen
Is Interrupted,  We May Be Unable To Supply Our Cafes In That Geographic  Market
And Our Business Will Suffer.

SK Foods'  central  kitchen and our San  Francisco  central  kitchen  produce or
distribute  substantially  all of our food  products for the cafes and wholesale
accounts  in their  geographic  regions,  as well as all of the box  lunches and
catered platters in each region.  If any of these central kitchens were to close
for any  reason,  such as fire,  natural  disaster  or  failure  to comply  with
government  regulations,  we would be unable to provide our food products in the
areas  served by the  affected  central  kitchen.  These  central  kitchens  are
geographically  dispersed and none could cost effectively  supply another market
if a central  kitchen  were to close.  As a result,  the  closure of any central
kitchen even for a short period of time would have a material  adverse effect on
our operating results. We may have no control over any such closures.

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

We are  substantially  dependent on a small number of suppliers and distributors
for our products,  including SK Foods,  suppliers of meat, breads and soups, and
Sysco  Distribution  Services,  which during the Fiscal year ended  December 28,
2003  procured  from our  suppliers  and  delivered  to us the  majority  of our
ingredients and packaging products.  Most of our packaging products come through
Bunzl, a national distributor.  Such packaging products represent roughly 15% of
our purchases.  During the year ended December 29, 2002, Stockpot, Inc. provided
approximately 20% of our cost of food and packaging. Any failure or delay by any
of these suppliers or  distributors to deliver  products to or our San Francisco
central  kitchen,  even for a short period of time,  would impair our ability to
supply our cafes and could harm our business. We have limited control over these
third  parties,  and we  cannot  assure  you  that we  will be able to  maintain
satisfactory  relationships with any of them on acceptable commercial terms. Nor
can we assure you that they will continue to provide food products that meet our
quality  standards.  Our relationships with our suppliers are generally governed
by  short-term  contracts.  If any of  these  relationships  were  to  terminate
unexpectedly,  we may have difficulty  obtaining adequate quantities of products
of the same quality at competitive prices in a timely fashion, which could limit
our product  offerings or our ability to  adequately  supply our cafes and could
adversely affect our operating results.

Our  transition  to in-cafe  production  in Los  Angeles and Chicago in 2004 has
significantly  increased  the number of suppliers we are  dependent  upon. If we
experience  a disruption  of supply from these  suppliers,  it could  materially
impact our ability to produce products for our customers which could result in a
loss of customers which could materially disrupt our operations.

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

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

Our success in promoting  and enhancing the BRIAZZ brand will also depend on our
ability to provide  customers  with  high-quality  products,  which is, in part,
dependent  on the  performance  of FFG,  SK  Foods,  HEMA and our San  Francisco
central kitchen,  and customer service. We cannot assure you that consumers will
perceive our products as being of high quality. If they do not, the value of our
brand may be diminished and, consequently, our ability to implement our business
strategy may be adversely affected.

We May Be Unable to Successfully Transition to In-cafe Production.

We are  currently in the process of  transitioning  our food  production  from a
central kitchen to in-cafe production. This transition will require us to source
the ingredients and supplies for food production,  retrain many of the employees
currently in the cafes,  institute  new quality and health  standards,  and make
modifications  to our existing cafes. If we are unable to successfully  complete
any or all of these tasks,  it may disrupt the service and products we supply to
our  customers,  which could result in a loss of  customers  and have a material
adverse change on our business.

If Our Customers Do Not Perceive Pre-Packaged Sandwiches And Salads As Fresh And
Desirable, Our Operating Results Will Suffer.

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



                                       15
<PAGE>

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

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

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

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

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

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

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

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

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

We are  dependent to a large  degree on the  services of Victor D.  Alhadeff and
Milton Liu. Our  operations  may suffer if we were to lose the services of these
individuals,  who could leave BRIAZZ at any time. In addition,  competition  for
qualified  management  in our industry is intense.  Many of the  companies  with
which we compete for experienced management personnel have greater financial and
other resources than we do.



                                       16
<PAGE>

Risks Related To Our Industry

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

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

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

Labor is a  primary  component  in the cost of  operating  our  business.  As of
December 28, 2003, we employed 45 full time  salaried and 282 hourly  employees.
We expend  significant  resources  in  recruiting  and training our managers and
employees.  If we face increased labor costs because of increases in competition
for  employees,  the minimum wage or employee  benefits costs  (including  costs
associated with health  insurance  coverage),  or unionization of our employees,
our  operating  expenses  will likely  increase  and our growth may be adversely
affected.  Additionally,  any increases in employee turnover rates are likely to
lead to additional recruiting and training costs.

Our  success  depends  upon  our  ability  to  attract,  motivate  and  retain a
sufficient number of qualified employees,  including cafe managers, to keep pace
with our growth strategy. Any inability to recruit and retain sufficient numbers
of employees may delay or prevent the anticipated openings of new cafes.

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

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

Many  businesses  provide  services  similar to ours.  Our  competitors  include
sandwich shops, company cafeterias,  delicatessens,  pushcart vendors, fast food
chains and catering  companies.  Many of our competitors have significantly more
capital, research and development, manufacturing, distribution, marketing, human
and other  resources  than we do. As a  result,  they may be able to adapt  more
quickly to market trends,  devote greater  resources to the promotion or sale of
their   products,   receive  greater  support  and  better  pricing  terms  from
independent  distributors,  initiate or withstand substantial price competition,
or take  advantage of acquisition  or other  opportunities  more readily than we
can.

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

We may be held  liable or incur costs to settle  liability  claims if any of the
food  products  we, or SK Foods  prepare  or we sell  cause  injury or are found
unsuitable during preparation, sale or use. While SK Foods must indemnify us for
damages  arising  from its  failure to provide  us with food  meeting  state and
federal standards, we may not receive payment pursuant to this right in a timely
manner.  As a result,  we may be  required  to make  substantial  payments  with
respect to any claims well in advance of any  collection  we may realize from SK
Foods.  Although  we  currently  maintain  product  liability  insurance,  where
appropriate,  we cannot assure you that this insurance is adequate,  and, at any
time, it is possible that such  insurance  coverage may cease to be available on
commercially reasonable terms, or at all. A product liability claim could result
in  liability  to us  greater  than our  total  assets  or  insurance  coverage.
Moreover,  product liability claims could have an adverse impact on our business
even if we have insurance coverage.

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

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



                                       17
<PAGE>

Inability To Obtain Regulatory Approvals, Or To Comply With Ongoing And Changing
Regulatory Requirements, For Our Remaining Central Kitchen, SK Foods' or Central
Kitchens Or Our Cafes Could Restrict Our Business And Operations.

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

         o        existing  cafes  or  central  kitchens,  whether  operated  by
                  ourselves  or a  supplier,  could  be  closed  temporarily  or
                  permanently; or

         o        our product offerings could be limited.

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

Risks Relating To Our Securities

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

Our  directors,  executive  officers  and  current  holders of 5% or more of our
outstanding common stock hold a substantial  portion of our stock.  Laurus holds
rights to purchase a  substantial  portion of our stock and debt with  covenants
relating to corporate governance.  In addition,  DB, BV, Spinnaker and Delafield
hold shares of our Series F  Convertible  Preferred  Stock that are  convertible
into  76,438,410  shares of our common stock and Series G Convertible  Preferred
Stock that are  convertible  into  7,090,970  shares of our  common  stock at an
initial  conversion  price of $0.10 per  share,  and hold  debt  with  covenants
relating to corporate governance.  We have also agreed to issue new and existing
management  shares of Series F  Convertible  Preferred  Stock that are initially
convertible  into  approximately  5.3  million  shares of our common  stock at a
conversion price of $0.10 per share (shares  convertible into 4.5 million common
shares  have  been  issued),   and  stock  options  that  are   exercisable  for
approximately  5.4 million shares of our common stock at an exercise price equal
to fair market  value on the date of grant  (options  for 5.4 million  have been
granted).  Such persons, acting together, and each acting alone, will be able to
significantly  influence all matters requiring shareholder  approval,  including
the  election of  directors  and  significant  corporate  transactions,  such as
mergers or other business combinations.

As part of the transaction in which DB, BV, and Spinnaker purchased the Series F
Convertible Preferred Stock, they were granted the right to select new executive
officers to be appointed by the Company and DB, BV, and  Spinnaker  were granted
the  right,  which has  since  been  utilized,  to  designate  up to five of our
directors,  with two directors  designated by DB, two directors designated by BV
and one director  designated  by  Spinnaker.  As a result,  DB, BV and Spinnaker
exercise  substantial control over our business.  We believe that these entities
will  continue  to  exert  a large  degree  of  control  on the  affairs  of our
corporation.  The  control  exercised  by DB,  BV,  Spinnaker  and  other  major
shareholders  and  debtholders  may delay,  deter or prevent a third  party from
acquiring or merging with us, which in turn could reduce the market price of our
common stock.

Conversion of Our Outstanding  Convertible Securities Could Substantially Dilute
Common Stock Prices Because the Conversion Prices Of Those Securities and/or the
Number of Shares of Common Stock  Issuable Upon  Conversion of Those  Securities
Are Below Our Current Market Price or Subject to Adjustment.

We have  issued  and plan to issue in the  future  various  securities  that are
convertible  or  exercisable  at prices that are lower than the  current  market
price of our  common  stock or are  subject  to  adjustment  due to a variety of
factors,  including fluctuations in the market price of our common stock and the
issuance  of  securities  at an  exercise  or  conversion  price  less  than the
then-current exercise or conversion price of those securities.  For example, DB,
BV, Spinnaker and Delafield collectively hold shares of our Series F Convertible
Preferred Stock that are initially  convertible  into  76,438,410  shares of our
common  stock and DB,  and  Victor D.  Alhadeff  hold  shares of our of Series G
Preferred Stock initially convertible into 12,594,460 shares of our common stock
at an initial conversion price of $0.10 per share.  Pursuant to the terms of our
agreement with DB, BV, Spinnaker and Delafield, we have also agreed to issue new
and existing management shares of Series F Convertible Preferred Stock that will
be initially  convertible  into  approximately  5.3 million shares of our common
stock at an initial conversion price of $0.10 per share (shares convertible into
4.5 million  common  shares have been  issued),  and stock  options that will be
initially  exercisable for  approximately 5.4 million shares of our common stock
at an  exercise  price  equal  to the  fair  market  value  at the time of grant
(options  for 5.4 million  have been  granted).  As of December  28,  2003,  the
closing  price of a share of our  common  stock on the OTC  Bulletin  Board  was
$0.10. If we issue any additional  shares of common stock or shares  convertible
into shares of common stock  (subject to customary  exclusions)  at an effective
price per share that is less than the Series F and G Convertible Preferred Stock
conversion  price  then in  effect,  the  conversion  price will be reduced on a
"weighted  average"  basis to eliminate the dilutive  effect of such issuance on
the  Series  F and  G  Convertible  Preferred  Stock.  Any  adjustments  to  the
conversion  price  of  the  Series  F  and G  Convertible  Preferred  Stock  are
cumulative.  The terms of the Series F and G  Convertible  Preferred  Stock also
permit the holders thereof to convert their shares of Series F and G Convertible
Preferred  Stock into shares of our common stock on a "cashless  exercise" basis
in the  event  that the  fair  market  value of the  common  stock  exceeds  the
conversion  price on the date of conversion.  In addition to the  foregoing,  we
have issued a note to Laurus that is convertible into shares of our common stock
at conversion prices of $0.10 or $0.30 per share, or in an event of default,  at
a discount to market.  Depending  upon the market price in effect at the time of
any conversion of the note, such conversions could cause significant dilution to
existing  shareholders.  See the  risk  factor,  "Any  Unwaived  Default  in the
Repayment of the  Convertible  Note Held By Laurus  Master Fund,  Ltd.  (Laurus)
Could Have a Material  Adverse  Affect on Our  Business,  Prospects,  Results of
Operations or Financial Condition".



                                       18
<PAGE>

The value of our common stock could, therefore,  experience substantial dilution
as a  result  of  the  conversion  or  exercise  of our  outstanding  derivative
securities  or as a result of any issuance of  additional  securities  at prices
lower  than the  conversion  prices  of such  securities.  Also,  as a result of
conversions  of the  principal or interest  portion of our  convertible  note or
conversion  of the Series F and G  Convertible  Preferred  Stock and any related
sales of our common stock by the  holders,  the market price of our common stock
could be depressed.

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

Selling  short is a technique  used by a  shareholder  to take  advantage  of an
anticipated  decline in the price of a security.  A significant  number of short
sales or a large volume of other sales within a relatively  short period of time
can create downward  pressure on the market price of a security.  In an event of
default  under the Laurus note,  the decrease in market price would allow Laurus
to convert its debt securities into or for an increased  number of shares of our
common stock. Further sales of common stock issued upon conversion of the Laurus
note or the Series F or G Convertible  Preferred  Stock could cause even greater
declines in the price of our common stock due to the number of additional shares
available in the market,  which could  encourage  short sales that could further
undermine  the value of our common  stock.  The common stock  could,  therefore,
experience a decline in value as a result of short sales of our common stock.

We are  traded on the  Over-the-Counter  Bulletin  Board  And As A  Result,  Our
Shareholders May Experience Limited

Liquidity.

Our common stock was  transferred to the OTC Bulletin Board in June 2003 because
we failed to meet the  requirements  for listing on the Nasdaq SmallCap  Market.
Trading on the OTC Bulletin  Board is  generally  less robust than on the Nasdaq
National  or  SmallCap  Markets.  As a  result,  an  investor  may  find it more
difficult to sell our common stock or to obtain  accurate  quotations  as to the
market value of our common stock.

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

Nasdaq and other principal markets require that, to be eligible for inclusion in
the stock market,  a company's  common stock have a specified  minimum bid price
per share.  Convertible  debt and preferred stock  financings,  especially those
with   variable   conversion   prices   with   low  or  no   low-price   limits,
characteristically  exert downward pressure on the market for a company's common
stock.  Should we be listed again on Nasdaq or another  principal market or seek
listing,  this pressure, if applied against the market for our common stock, may
cause our common stock to be delisted on Nasdaq or other  principal  markets due
to low stock price or rejected for initial listing.

Our Stock Price May Be Volatile Because Of Factors Beyond Our Control.



                                       19
<PAGE>

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

         o        changes in securities  analysts'  recommendations or estimates
                  of our financial performance;

         o        changes in market valuations of similar companies; and

         o        announcements   by  us  or  our   competitors  of  significant
                  contracts,    new    products,    acquisitions,     commercial
                  relationships, joint ventures or capital commitments.

In the past,  companies that have experienced  volatility in the market price of
their  stock  have  been  subject  to  securities  class  action  litigation.  A
securities  class action  lawsuit  against us,  regardless  of its merit,  could
result in  substantial  costs and divert the  attention of our  management  from
other business concerns, which in turn could have a materially adverse impact on
our financial results.

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

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

         o        authorizing the issuance of "blank check" preferred stock that
                  could be issued by our board of directors, without shareholder
                  approval,  to  increase  the number of  outstanding  shares or
                  change  the  balance of voting  control  and thwart a takeover
                  attempt;

         o        prohibiting  cumulative  voting in the election of  directors,
                  which   would   otherwise   allow  less  than  a  majority  of
                  shareholders to elect directors;

         o        limiting the ability of shareholders to call special  meetings
                  of shareholders; and

         o        prohibiting   shareholder  action  by  non-unanimous   written
                  consent and requiring all shareholder actions to be taken at a
                  meeting of our shareholders.

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

Item 2.  Properties.

Cafes - At December  28,  2003,  there were 40 BRIAZZ  cafes  operating  in four
metropolitan  areas.  Of  these  cafes,   approximately  half  were  in  amenity
locations.  We had eleven  cafes in Seattle,  thirteen  cafes in San  Francisco,
eight cafes in Los  Angeles  and eight  cafes in Chicago.  We operate all of our
cafes in leased locations under terms of operating leases, which typically cover
five years some of which have options for an additional  five-year  term.  Rents
are either fixed base amounts,  variable  amounts  determined as a percentage of
sales,  or a combination of base and  percentage of sales.  We also operate four
cafes  inside  Borders  cafes in the Chicago  area  pursuant to a six month Food
Concession  Agreement  that will expire in June 2004  unless  extended by mutual
agreement of both parties. Pursuant to an agreement with the landlord, we intend
to close 2 cafes in the Seattle market in March 2004.

Central  kitchens and  corporate  headquarters  - We currently  have one central
kitchen in San  Francisco.  Our San Francisco  central  kitchen  occupies  7,940
square feet under a lease that  terminates  on July 31, 2012. We intend to phase
out the San Francisco central kitchen in 2004.

Our Seattle location,  including our corporate  headquarters,  together occupies
35,665 square feet under a lease that terminates on October 30, 2006.  Following
the  closure  of our  Seattle  central  kitchen  in  February  2003,  we  sublet
approximately  70% of this space for the  remainder of the lease.  We retained a
portion  of the  warehouse  space  and  the  space  occupied  by  the  corporate
headquarters.

We expect the facilities we are retaining will be adequate for our needs for the
foreseeable future.



                                       20
<PAGE>

Item 3.  Legal Proceedings.

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

Item 4.  Submission of Matters to a Vote of Security Holders.


None.

                                     PART II

Item 5:  Market for Registrant's Common Equity, Related Shareholder Matters, and
         Issuer Purchases of Equity Securities.

Price Range of Common  Stock - Our Common  Stock was first  quoted on the Nasdaq
National  Market  under the symbol  "BRZZ" on May 2, 2001.  Our Common Stock was
transferred  from the  Nasdaq  National  Market to the  Nasdaq  SmallCap  Market
effective  January 27, 2003,  and was  transferred  to the OTC Bulletin Board on
June 2, 2003. The following table shows the high and low closing sale prices for
our common stock as reported on the applicable Market for the periods indicated:

                                                     HIGH     LOW
                                                     ----     ---
  Year ended December 29, 2002
     First quarter................................   $1.94   $0.84
     Second quarter...............................   $1.80   $0.97
     Third quarter................................   $1.09   $0.30
     Fourth quarter...............................   $0.91   $0.25

  Year ending December 28, 2003
     First quarter................................   $0.35   $0.10
     Second quarter...............................   $0.39   $0.12
     Third quarter................................   $0.20   $0.15
     Fourth quarter...............................   $0.20   $0.10




As of March 1,  2004,  there  were  approximately  108  holders of record of the
Common Stock of BRIAZZ and 5,990,916 shares of the Common Stock outstanding.

Dividends - The Company has never paid  dividends  on the Common  Stock and does
not intend to pay dividends on the Common Stock in the foreseeable future. Terms
of certain of the Company's  borrowing  agreements  restrict and/or prohibit the
payment of  dividends.  The Company's  board of directors  intends to retain any
earnings to provide  funds for the  operation  and  expansion  of the  Company's
business.

Recent Sales of Unregistered  Securities - During the fourth quarter of 2003, we
issued $1.0 million  principal  amount of Senior Notes and  1,259,446  shares of
Series G Preferred Stock to DB, and Victor D. Alhadeff,  the Company's  founder,
on  December  8,  2003 for the  consideration  described  in this  report  under
Financial  Statements  and  Management's  Discussion  and  Analysis of Financial
Condition and Results of Operations.  The  securities  were issued to accredited
investors in reliance  upon Section 4(2) and Rule 506 of  Regulation D under the
Securities Act. The terms of the securities are more fully  described  elsewhere
in this report.

Item 6:  Selected Financial Data.

The  following  selected  financial  data are  qualified  in their  entirety  by
reference to, and you should read them in conjunction with,  BRIAZZ's  financial
statements  and the notes thereto and  "Management's  Discussion and Analysis of
Financial  Condition  and Results of  Operations"  appearing  elsewhere  in this
Annual Report.  The statement of operations  data presented  below for the years
ended  December  28,  2003,  December  29,  2002,  and December 30, 2001 and the
selected  balance  sheet data at  December  28, 2003 and  December  29, 2002 are
derived from BRIAZZ's financial  statements  included in this Annual Report. The
statement of operations  data  presented  below for the years ended December 31,
2000 and December 26, 1999, and the selected  balance sheet data at December 29,
2001, December 30, 2000 and December 26, 1999, are derived from BRIAZZ's audited
financial statements that are not included in the Annual Report. Segment results
for each of the past three fiscal years are provided in the financial statements
included in this Annual Report.



                                       21
<PAGE>


<TABLE>
<CAPTION>
                                                                          Fiscal Year Ended
                                               December 26,   December 31,   December 30,   December 29,   December 28,
                                                  1999           2000           2001           2002           2003
                                               -----------    -----------    -----------    -----------    -----------
                                                           (in thousands, except share and per share data)

Statement of Operations Data
Sales
<S>                                            <C>            <C>            <C>            <C>            <C>
Retail .....................................   $    19,428    $    23,624    $    22,737    $    22,327    $    20,839
Branded Sales ..............................         6,170         10,068          9,292          8,266          6,100
                                               -----------    -----------    -----------    -----------    -----------
Total Sales ................................        25,598         33,692         32,029         30,593         26,939
                                               -----------    -----------    -----------    -----------    -----------
Operating expenses

Cost of food and packaging .................        11,520         13,597         12,480         11,850         13,614
Occupancy expenses .........................         3,602          3,818          4,010          4,602          4,201
Labor expenses .............................         9,506         11,186         11,098         10,925          6,661
Depreciation and amortization ..............         2,628          2,657          2,686          4,352          2,561
Other operating expenses ...................         2,419          1,921          1,849          2,434          1,809
General and  administrative expenses .......         6,033          6,581          6,837          7,546          5,309
Loss (gain) in loss on
disposal of assets .........................          --             --             --            1,172           (111)
Provision for asset impairment
and store closure ..........................           779             63             26          2,256          1,169
                                               -----------    -----------    -----------    -----------    -----------
Total operating expenses ...................        36,487         39,823         38,986         45,137         35,213
                                               -----------    -----------    -----------    -----------    -----------
Loss from operations .......................       (10,889)        (6,131)        (6,957)       (14,544)        (8,274)
Other (expense) income .....................        (4,492)          (156)           155            585         (1,326)
                                               -----------    -----------    -----------    -----------    -----------
Net loss ...................................       (15,381)        (6,287)        (6,802)       (15,129)        (9,600)
Accretion of dividends, amortization of
discount and beneficial conversion feature
on preferred stock .........................         2,421          3,319          4,318           --            1,746
                                               -----------    -----------    -----------    -----------    -----------

Net loss attributable to common stockholders   $   (17,802)   $    (9,606)   $   (11,120)   $   (15,129)   $   (11,346)
                                               ===========    ===========    ===========    ===========    ===========
Basic and diluted net loss per share .......   $ (5,148.14)   $ (2,455.68)   $     (2.86)   $     (2.59)   $     (1.89)
                                               ===========    ===========    ===========    ===========    ===========
Weighted average shares used in
computing net loss per share ...............         3,458          3,912      3,889,472      5,852,362      5,987,510
                                               ===========    ===========    ===========    ===========    ===========

Other Financial Data:
Cash provided by (used in):
Operating activities .......................   $    (8,438)   $    (2,233)   $    (5,609)   $    (5,279)   $    (3,998)
Investing activities .......................        (1,591)          (772)        (3,755)        (2,263)          (198)
Financing activities .......................         9,974          1,407         15,002          1,840          4,016

Balance Sheet Data:

Cash and cash equivalents ..................   $     2,153    $       555    $     6,193    $       491    $       311
Working capital (deficit) ..................        (2,414)        (2,620)         4,066         (4,909)        (4,060)
Total assets ...............................        17,676         14,409         21,953         10,705          6,963
Current liabilities ........................         5,955          4,869          3,702          7,042          5,437
Long-term liabilities ......................           213          1,888            335            234          5,701
Mandatorily redeemable convertible
preferred stock ............................        48,025         53,609           --             --             --
Total shareholders' equity (deficit) .......   $   (36,517)   $   (45,957)   $    17,916    $     3,429    $    (4,175)
</TABLE>


                                       22
<PAGE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.


The following management's discussion and analysis should be read in conjunction
with "Selected Financial Data," the financial  statements and accompanying notes
and the other financial data included elsewhere in this Annual Report.

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

As of December 28, 2003, we operate a total of 40 cafes;  in Seattle  (11),  San
Francisco  (13),  Chicago (8) and Los Angeles (8). During the year we closed six
under-performing  locations,  two each in San Francisco and Los Angeles, and one
each in Chicago and Seattle.  We have closed two cafes in the Seattle  market in
the  first  fiscal  quarter  of 2004  pursuant  to the  expiration  of a license
agreement.  At December  29,  2002,  we operated  46 cafes in the  Seattle,  San
Francisco,  Chicago and Los Angeles  metropolitan areas, a net increase of three
cafes  since  December  30,  2001.  During the  fourth  quarter of 2003 we began
operating  four cafes on a test basis  inside  Borders  Bookstores  under a Food
Concession Agreement for a period of six months. This test agreement will expire
June 2004 unless extended with the mutual agreement of both parties.

In December 2002, we contracted  with FFG to assemble and package  substantially
all of our food  products used at our cafe  locations and in our branded  sales.
Pursuant to this agreement we closed our central  kitchens and  transferred  our
food production to FFG in the Chicago market in December 2002 and in the Seattle
market at the end of  February  2003.  In Los  Angeles,  we closed  our  central
kitchen in December 2002.  Pursuant to an agreement with FFG, FFG  subcontracted
food production in the Los Angeles market to HEMA. Additionally, in January 2004
in the Seattle  market,  pursuant  to an  agreement  with FFG,  we  discontinued
purchasing our product from FFG and completed an agreement with SK Foods whereby
SK  Foods  currently  does  substantially  all of the food  production  for that
market.  We believe that these efforts have allowed us to reduce our overhead in
our existing  markets.  During 2002, the Company  recorded a loss on disposition
relating  to  the  Los  Angeles  and  Chicago   central   kitchen   closures  of
approximately  $1.2  million,  which  includes the value of leasehold  interests
transferred  to landlords  and of  equipment  transferred  to FFG.  There was no
significant  loss recorded upon closure of the Seattle central kitchen and it is
not anticipated  that there will be a significant  loss recorded upon closure of
the San Francisco  central kitchen,  due to the relatively low net book value of
the related assets at the closure dates.

Currently,  we are supporting FFG under an informal  agreement to sell,  service
and support  Starbucks.  Prior to establishing a business  relationship with us,
FFG was and is a supplier to Starbucks in Chicago,  New York and Los Angeles. It
is  anticipated we will expand this  arrangement to the San Francisco  market in
the second quarter 2004. We are currently  working  together to supply Starbucks
branded  sandwiches and salads to multiple  Starbucks cafes in the Chicago,  New
York, and other markets. We are negotiating definitive terms and conditions with
FFG and  anticipate  entering into a formal  agreement in the second  quarter of
2004.

In November  2003,  we  discontinued  our branded  sales  operations  in the Los
Angeles  market  in an effort to reduce  costs  and  improve  efficiencies.  The
branded sales  segment in the Los Angeles  market was  under-performing  due to,
among other things, the large geographic size of the market.

As a result of central kitchen and cafe closures and reductions in corporate and
branded  sales  personnel,  there  was a  decrease  of 105  employees  from  the
beginning of 2002,  or 23%, to 345  employees at December 29, 2002, 69 full-time
salaried and 276 hourly. At December 28, 2003, after the Seattle central kitchen
closure,   cafe  changes  and  other   corporate  and  branded  sales  personnel
reductions,  the number of employees had declined  further to 327 employees;  45
full-time  salaried and 282 hourly.  This represents a decrease of 18 employees,
or 5%, from the beginning of 2003. Hourly employees  increased in 2003 primarily
due to the opening of the Borders test cafes.  These  employee  reductions  have
resulted in 2003,  and will  continue to result in the future,  in  decreases in
labor expenses as compared to prior periods.

Geographic  Markets  - We  currently  operate  in  four  markets:  Seattle,  San
Francisco,  Chicago and Los Angeles. We have presented our sales results here by
geographic  market to help you  understand  our  business,  although we have not
operated our business in geographic  segments.  We have historically managed our
business through four reportable segments:  Retail, Branded Sales, Kitchens, and
General  &  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.  Branded  Sales  consists  of sales  which  are
aggregated because they have similar economic characteristics.  Kitchens consist
of unallocated cost of products and packaging,  along with unallocated  costs of
kitchen operations. General and Administrative consists of costs incurred by the
corporate  office as well as those  administrative  costs  incurred  by  Retail.
Management  evaluates segment  performance  primarily based on sales and segment
operating income (loss).



                                       23
<PAGE>

Below is a comparison  of sales in each market for fiscal  years 2001,  2002 and
2003.  Market pre-tax profit (loss)  consists of sales less expenses  related to
each market  other than  corporate  general and  administrative  expense.  Sales
include sales from cafes, box lunches,  catering,  wholesale and other accounts.
Expenses for each market consist of occupancy  expense,  labor expense,  general
and  administrative  expense,  including  general  and  administrative  overhead
specifically  identified to a market, other operating expense,  depreciation and
amortization and provision for asset impairment and store closure. Each of these
items are described in more detail in "Results of Operations." Because corporate
general and  administrative  includes  depreciation and amortization  related to
corporate assets,  corporate general and administrative  totals will differ from
the General and Administrative segment financial information.



                                       24
<PAGE>
                               Geographic Markets

<TABLE>
<CAPTION>
                                                           Fiscal Years Ended
                                                ------------------------------------------
                                                December 28,    December 29,  December 30,
                                                    2003           2002           2001
                                                ------------    ------------  ------------
                                                   (in thousands, except cafe numbers)
<S>                                               <C>            <C>            <C>
Seattle
   Sales:
      Retail ...............................      $  5,494       $  5,756       $  5,997
      Branded Sales ........................         2,982          4,441          5,686
                                                  --------       --------       --------
         Total sales .......................      $  8,476       $ 10,197       $ 11,683
                                                  ========       ========       ========
   Cost of food and packaging:
      Retail ...............................      $ (2,803)      $ (2,099)      $ (2,211)
      Branded Sales ........................        (1,938)        (1,917)        (2,565)
      Unallocated cost of food and packaging           (41)          (100)          (109)
                                                  --------       --------       --------
         Total cost of food and packaging ..      $ (4,782)      $ (4,116)      $ (4,885)
                                                  ========       ========       ========
   Income (loss) from operations ...........      $   (471)      $ (1,377)      $     88
                                                  ========       ========       ========
   Cafes ...................................            11             12             13
San Francisco
   Sales:
      Retail ...............................      $  7,120       $  7,581       $  8,051
      Branded Sales ........................         1,324          1,248          1,426
                                                  --------       --------       --------
         Total sales .......................      $  8,444       $  8,829       $  9,477
                                                  ========       ========       ========
   Cost of food and packaging:
      Retail ...............................      $ (2,852)      $ (2,716)      $ (2,822)
      Branded Sales ........................          (518)          (377)          (462)
      Unallocated cost of food and packaging          (268)          (177)          (165)
                                                  --------       --------       --------
         Total cost of food and packaging ..      $ (3,638)      $ (3,270)      $ (3,449)
                                                  ========       ========       ========
   Income (loss) from operations ...........      $ (1,252)      $ (3,095)      $    (11)
                                                  ========       ========       ========
   Cafes ...................................            13             15             12
Chicago
   Sales:
      Retail ...............................      $  3,948       $  4,387       $  4,812
      Branded Sales ........................           857          1,237          1,153
                                                  --------       --------       --------
         Total sales .......................      $  4,805       $  5,624       $  5,965
                                                  ========       ========       ========
   Cost of food and packaging:
      Retail ...............................      $ (1,961)      $ (1,650)      $ (1,835)
      Branded Sales ........................          (534)          (473)          (411)
      Unallocated cost of food and packaging            --            (86)           (64)
                                                  --------       --------       --------
         Total cost of food and packaging ..      $ (2,495)      $ (2,209)      $ (2,310)
                                                  ========       ========       ========
   Income (loss) from operations ...........      $ (1,102)      $ (2,005)      $   (836)
                                                  ========       ========       ========
   Cafes ...................................            12              9             10
Los Angeles
   Sales:
      Retail ...............................      $  4,277       $  4,603       $  3,877
      Branded Sales ........................           937          1,340          1,027
                                                  --------       --------       --------
         Total sales .......................      $  5,214       $  5,943       $  4,904
                                                  ========       ========       ========
   Cost of food and packaging:
      Retail ...............................      $ (2,127)      $ (1,671)      $ (1,398)
      Branded Sales ........................          (572)          (522)          (354)
      Unallocated cost of food and packaging            --            (62)           (84)
                                                  --------       --------       --------
         Total cost of food and packaging ..      $ (2,699)      $ (2,255)      $ (1,836)
                                                  ========       ========       ========
   Income (loss) from operations ...........      $   (871)      $ (1,652)      $   (652)
                                                  ========       ========       ========
   Cafes ...................................             8             10              8
All Markets
   Sales:
      Retail ...............................      $ 20,839       $ 22,327       $ 22,737
      Branded Sales ........................         6,100          8,266          9,292
                                                  --------       --------       --------
         Total sales .......................      $ 26,939       $ 30,593       $ 32,029
                                                  ========       ========       ========
   Cost of food and packaging:
      Retail ...............................      $ (9,594)      $ (8,136)      $ (8,266)
      Branded Sales ........................        (3,562)        (3,289)        (3,792)
      Unallocated cost of food and packaging          (458)          (425)          (422)
                                                  --------       --------       --------
         Total cost of food and packaging ..      $(13,614)      $(11,850)      $(12,480)
                                                  ========       ========       ========
   Income (loss) from operations ...........      $ (3,696)      $ (8,129)      $ (1,411)
    Corporate general and administrative ...        (4,578)        (6,415)        (5,546)
                                                  --------       --------       --------
    Loss from operations ...................      $ (8,274)      $(14,544)      $ (6,957)
                                                  ========       ========       ========
</TABLE>



                                       25


<PAGE>

Results of  Operations - Our fiscal year ends on the last Sunday in December and
is based on a 52- or  53-week  fiscal  year.  The  following  table  sets  forth
statement of  operations  data for the periods  indicated as a percentage of net
revenues:


<TABLE>
<CAPTION>
                                                                  Fiscal Years ended
                                                        ---------------------------------------
                                                        December 28,  December 29, December 30,
                                                            2003        2002        2001
                                                            -----       -----       -----
                                                         (As a percentage of sales, except
                                                            number of locations data)
Statement of Operations Data
Sales:
<S>                                                          <C>       <C>       <C>
         Retail .........................................    77.4%     73.0%     71.0%
         Branded Sales ..................................    22.6%     27.0%     29.0%
                                                            -----     -----     -----
                      Total Sales .......................   100.0%    100.0%    100.0%
Operating Expenses:

         Cost of food and packaging .....................    50.5%     38.7%     39.0%
         Occupancy expenses .............................    15.6%     15.0%     12.5%
         Labor expenses .................................    24.7%     35.7%     34.6%
         Depreciation and amortization ..................     9.5%     14.2%      8.4%
         Other operating expenses .......................     6.7%      8.0%      5.8%
         General and administrative expenses ............    19.7%     24.7%     21.3%
         Loss/(gain) on disposal of assets ..............   -0.4%       3.8%      0.0%
         Provision for asset impairment and store closure     4.3%      7.4%      0.1%
                                                            -----     -----     -----
                      Total operating expenses ..........   130.7%    147.5%    121.7%
                                                            -----     -----     -----
Loss from operations ....................................   (30.7)%   (47.5)%   (21.7)%
Other (expense) income ..................................    (4.9)%    (1.9)%     0.5%
                                                            -----     -----     -----
Net loss ................................................   (35.6)%   (49.5)%   (21.2)%
                                                            =====     =====     =====

Selected Operations Data

Number of locations at period end:

         Central kitchens ...............................       1         2         4
         Cafes ..........................................      40        46        43
         Borders test cafes .............................       4         0         0
</TABLE>


52-Week  period ended  December  29, 2002  compared  with  52-Week  period ended
December 28, 2003

Sales - Total sales decreased by $3.65 million, or 11.9%, from $30.59 million to
$26.94 million.

Retail sales decreased by $1.49 million,  or 6.7%, from $22.33 million to $20.84
million.  Same-store  sales  decreased by $1.78  million,  or 8.4%,  from $21.07
million  to $19.29  million.  The  number of cafes at the end of the  respective
fifty-two week periods  decreased by six, or 13.0%,  from 46 to 40. The decrease
in sales  was  primarily  due to  lower  office  occupancy  rates in many of the
buildings in which we are located and, to a lesser extent,  due to having closed
six under-performing cafes during 2003 and seven cafes since September 29, 2002,
partially  offset by the  opening of four new test  cafes in  Borders  stores in
November of 2003.

Branded sales decreased by $2.17 million,  or 26.2%, from $8.27 million to $6.10
million.  This decrease was primarily due to our reorganization  efforts and the
focus on more profitable  accounts and the  discontinuation  of sales to grocery
customers.  The wholesale and grocery subgroup of branded sales, which generally
has lower margins than our other distribution  channels, had provided us with an
opportunity  to more fully  utilize  the  excess  capacity  of our since  closed
central kitchens. The Company has evaluated the grocery segment of our wholesale
business and decided to withdraw from this distribution channel. In addition, we
decided to consolidate and shrink delivery areas and thus discontinued  sales to
some accounts.

Operating  expenses - Operating expenses consist of costs of food and packaging,
occupancy,  labor, depreciation and amortization,  other operating,  general and
administrative,  loss on disposal of assets,  and provision for asset impairment
and store closure.  Total  operating  expenses  decreased by $9.93  million,  or
22.0%,  from $45.14  million to $35.21  million.  As a percentage of sales,  our
operating  expenses  decreased from 147.5% to 130.7%. The decrease in percentage
of sales was  primarily  due to the  decrease  in overall  operating  costs from
kitchen and store  closures,  reorganization  and cost control  measures and the
decrease in provision for asset impairment.



                                       26
<PAGE>

Cost of food and packaging  increased by $1.76  million,  or 14.9%,  from $11.85
million to $13.61 million and as a percentage of sales from 38.7% to 50.5%. Cost
of food and packaging  for retail sales  increased by $1.45  million,  or 17.8%,
from $8.14  million to $9.59  million.  Cost of food and  packaging  for branded
sales increased by $0.27 million,  from $3.29 million to $3.56 million.  Cost of
food and packaging increased due to our food production being outsourced.  These
increases   were  partially   offset  by  decreases  in  labor,   occupancy  and
depreciation and amortization.

Occupancy  expense  consists of costs related to the leasing of retail space for
our  cafes  and our  central  kitchens.  Occupancy  expense  decreased  by $0.40
million, or 8.7%, from $4.60 million to $4.20 million. As a percentage of sales,
occupancy  expenses  increased  from 15.0% to 15.6%,  primarily due to decreased
sales offset in part by the closure of some cafes and the reduction of some base
rents.  Our rents are primarily  fixed in nature with some rents being  variable
determined as a percentage of sales.

Labor expenses  consist of wages and salaries paid to employees.  Labor expenses
decreased by $4.27 million, or 39.1%, from $10.93 million to $6.66 million. As a
percentage  of sales,  labor  expenses  decreased  from  35.7% to  24.7%.  These
decreases were primarily due to decreased labor expenses from  outsourcing  food
production in three markets and thus eliminating  central kitchen labor in those
markets,  and, to a lesser extent,  realization of certain cost control  actions
and efficiencies.

Depreciation and amortization relates to leasehold  improvements,  equipment and
vehicles.  Depreciation and amortization  expense decreased by $1.79 million, or
41.1%,  from  $4.35  million  to  $2.56  million.  As  a  percentage  of  sales,
depreciation and amortization decreased from 14.2% to 9.5%. These decreases were
due  primarily to having  closed 3 central  kitchens and to a lesser  extent the
impact of asset impairment provisions previously recorded.

Other operating  expenses  consist of direct  operating,  marketing,  repair and
maintenance  expense.  Other operating expenses  decreased by $0.62 million,  or
25.5%,  from $2.43 million to $1.81  million.  As a percentage  of sales,  other
operating  expenses  decreased from 8.0% to 6.7%. These decreases were primarily
due to realization of certain cost control actions and efficiencies.

General and administrative expenses relate to the support functions performed by
our  corporate  office,  such  as  finance,  human  resources,  marketing,  food
development  and  information  systems.  These  expenses  primarily  consist  of
salaries of senior  management  and staff,  and our  corporate  office lease and
related office expenses.  General and administrative expenses decreased by $2.24
million,  or 29.7%,  from $7.55  million to $5.31  million.  As a percentage  of
sales,  general  and  administrative  expenses  decreased  from  24.7% to 19.7%.
Primarily the decrease was due to a reduction in our corporate workforce and the
reduction in corporate operating expenses.

Pursuant to a plan to close our  company-owned  central  kitchens and  outsource
production of the our branded food products, the Los Angeles and Chicago central
kitchens were closed in late 2002 and the Seattle  central kitchen was closed at
the end of February  2003.  During the 52-weeks  ended  December  28,  2003,  we
recorded a net gain on  disposal  of assets of  $111,000  primarily  relating to
sales of equipment from the Seattle central kitchen, closure of one of our cafes
in which we received a payment from the landlord,  and adjustments to previously
recorded losses on the Chicago and Los Angeles central  kitchens.  Additionally,
the Company  recorded an impairment  write-down of  approximately  $1.17 million
related to certain cafe  locations.  These  write-downs  consisted  primarily of
leasehold improvements and, to a lesser extent, equipment.

Other  (Expense)  Income - Other (expense)  income  includes  interest and other
expense and interest and other income. Other (expense) income increased by $0.74
million,  or 125.4%, from ($0.59) million to ($1.33) million. As a percentage of
sales,  other expense increased from (1.9%) to (4.9%).  These increases were due
to the  interest  expense,  including  amortization  of  debt  issue  costs  and
discounts, from increased borrowings.

Net Loss - Net loss decreased by $5.53 million, or 36.5%, from $15.13 million to
$9.60 million and as a percentage  of sales,  net loss  decreased  from 49.5% to
35.6%,  primarily due to decreased costs and the decrease in provision for asset
impairment.  The Company  recognized  no tax benefit  from its losses in 2002 or
2003.



                                       27
<PAGE>

Year ended December 29, 2002 Compared to Year Ended December 30, 2001

Sales - Total sales  decreased by $1.4 million,  or 4.5%,  from $32.0 million to
$30.6 million.

Retail sales  decreased by $0.4  million,  or 1.8%,  from $22.7 million to $22.3
million.  This decrease was primarily due to reduced same store sales which more
than  offset  the sales  from cafes  opened in 2001 and 2002.  Same-store  sales
decreased  by $2.7  million,  or 12.2%,  from $21.8  million  to $19.1  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 $1.0 million,  or 11.0%,  from $9.3 million to $8.3
million.  This  decrease was primarily due to a decrease in sales to Tully's and
QFC.

The wholesale and grocery  subgroup of Branded sales,  which generally has lower
margins  than  our  other  distribution   channels,  has  provided  us  with  an
opportunity to more fully utilize the excess  capacity of our central  kitchens.
The Company has  evaluated  the grocery  segment of our  wholesale  business and
decided  to  withdraw  from  this  distribution  channel.  The  Company  remains
committed to growing profitable wholesale accounts. Additionally, the Company is
working  with FFG in Chicago and New York  markets to supply  Starbucks  branded
sandwiches and salads to Starbucks stores.

Operating  expenses - Operating  expenses consist of cost of food and packaging,
occupancy,  labor, depreciation and amortization,  other operating,  general and
administrative,  loss on disposal of assets,  and provision for asset impairment
and store closure. Total operating expenses increased by $6.1 million, or 15.8%,
from $39.0 million to $45.1  million.  As a percentage  of sales,  our operating
expenses increased from 121.7% to 147.5%. Included in total operating expense in
2002 is $3.4  million  of loss on  disposal  of assets and  provision  for asset
impairment.  Excluding  these losses,  as a percentage  of sales,  our operating
expenses were 136.3%. 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 $0.6  million,  or 5.0%,  from  $12.5
million to $11.9 million due to lower sales  volume.  Cost of food and packaging
decreased as a percentage  of sales from 39.0% to 38.7%.  We expect that cost of
food and  packaging  will increase in future  periods as our food  production is
outsourced.

Cost of food and packaging for retail sales decreased by $0.2 million,  or 1.6%,
from $8.3 million to $8.1 million.  Cost of food and packaging for branded sales
decreased by $0.5  million,  or 13.3%,  from $3.8 million to $3.3  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  remained the same
at $0.4 million.

Occupancy  expense  consists of costs related to the leasing of retail space for
our cafes and our central kitchens. Occupancy expense increased by $0.6 million,
or 14.8%,  from $4.0  million  to $4.6  million.  This  increase  was due to the
opening of five  additional  cafes during the fiscal year 2001 and five cafes in
the  first  half of 2002,  offset  by the  closure  of two  cafes in 2002.  As a
percentage of sales,  occupancy expense increased from 12.5% to 15.0%, primarily
due to  decreased  sales.  Our  rents  are  fixed or  variable  determined  as a
percentage of sales, or a combination of both. We expect that occupancy  expense
will  decrease in 2003 as our central  kitchens  are closed and those leases are
either terminated or sublet.

Labor expenses  consist of wages and salaries paid to employees.  Labor expenses
decreased by $0.2 million,  or 1.6%, from $11.1 million to $10.9.  This decrease
was  primarily  due  to  the  workforce  reductions  undertaken  in  2002.  As a
percentage of sales, labor expenses increased from 34.6% to 35.7%. This increase
was primarily due to decreased  sales. In the future,  as products are purchased
from outside suppliers,  such as FFG, labor expense will decrease as a result of
our central kitchen labor decreasing.

Depreciation and amortization relates to leasehold  improvements,  equipment and
vehicles.  Depreciation and amortization  expense increased by $1.7 million,  or
62.0%,  from $2.7 million to $4.4 million,  primarily as a result of opening new
cafes.  Depreciation in 2002 also includes an additional $0.9 million in expense
due to  shortening  the lives of the Seattle and San  Francisco  kitchens.  As a
percentage of sales, depreciation and amortization increased from 8.4% to 14.2%.

Other operating  expenses  consist of direct  operating,  marketing,  repair and
maintenance  expense.  Other operating  expenses  increased by $0.6 million,  or
31.6%,  from $1.8 million to $2.4 million,  primarily as a result of opening new
cafes. As a percentage of sales, other operating expenses increased from 5.8% to
8.0%. This increase was primarily due to decreased sales.



                                       28
<PAGE>

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 $0.7  million,  or 10.4%,  from $6.8 million to $7.5  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 21.3% to 24.7%,  primarily due to
decreased sales. As a result of reductions in corporate  personnel,  general and
administrative expenses are expected to decrease in 2003.

Pursuant  to a plan  to  close  its  four  company-owned  central  kitchens  and
outsource production of the Company's branded food products, the Los Angeles and
Chicago central  kitchens were closed in late 2002. The Company  recorded a loss
on disposition for these facilities of approximately $1.2 million.  During 2002,
the  Company  recorded  an  impairment   write-down  of  long-lived   assets  of
approximately $2.3 million,  primarily related to certain cafe locations.  These
write-downs  consisted  primarily  of  leasehold  improvements  and, to a lesser
extent, equipment. We performed an impairment analysis of our cafe locations and
remaining  kitchens by comparing the carrying amount of the long-term  assets to
their associated  undiscounted cash flows.  Because the carrying amount exceeded
the associated  undiscounted  cash flows we recorded an impairment  charge.  The
impairment  charge  reflects  the fair value of the cafes based upon  discounted
cash flows versus the next book value of the assets.

Other  (Expense)  Income - Other (expense)  income  includes  interest and other
expense and interest and other income.  Other (expense) income decreased by $0.8
million from $0.2 million of income to $0.6  million of expense.  This  decrease
was due to interest expense associated with new borrowings  obtained during 2002
and  lower  interest   income  in  2002  resulting  from  lower  cash  and  cash
equivalents.  As a percentage of sales,  other (expense)  income  decreased from
0.5% to (1.9%).

Net Loss - Net loss increased by $8.3 million,  or 122.4%,  from $6.8 million to
$15.1 million.  This increase was primarily due to decreased sales and increased
operating expenses,  including increased  depreciation expense, loss of disposal
of assets and impairment provision. As a percentage of sales, net loss increased
from 21.2% to 49.5%.  The Company  recognized  no tax benefit from its losses in
2002 or 2001.

Liquidity And Capital Resources

Net cash used in operating activities during the fiscal years ended December 28,
2003 and December 29, 2002 was $4.0 million and $5.3 million  respectively.  Net
cash used in operating  activities in each period  resulted  primarily  from net
loss before non-cash charges and changes in working capital.

Net cash used in investing  activities  for the fiscal years ended  December 28,
2003 and December 29, 2002 was $0.2 million and $2.3 million  respectively.  Net
cash used in investing  activities  resulted  from capital  additions  primarily
related to opening additional cafes during the 2002 period.

Net cash provided by financing  activities  for the fiscal years ended  December
28, 2003 and December 29, 2002 was $4.0 million and $1.8 million.  The financing
activities  during  2003  consisted  primarily  of cash  received  from  the net
proceeds  of $7.0  million in debt  financing  from DB, BV,  Spinnaker,  and the
Company's founder,  which were offset by debt issue costs and repayment of other
borrowings.  The financing  activities  during 2002 consisted  primarily of cash
received from the net proceeds of $2.8 million in debt  financing  ($1.0 million
from FFG, $1.2 million from Laurus, $0.5 million from bank borrowings,  and $0.1
million  from a revolving  line of credit),  which was offset by $0.4 million in
repayment of notes,  $0.6 million from the change in checks  issued in excess of
bank deposits, and $0.2 million from debt issue costs.

Net cash used in operating activities during the fiscal years ended December 29,
2002 and December 30, 2001 was $5.3 million and $5.6 million,  respectively. Net
cash used in operating  activities in each year resulted primarily from net loss
before non-cash charges.

Net cash used in investing  activities  for the fiscal years ended  December 29,
2002 and December  30, 2001 was  approximately  $2.3  million and $3.8  million,
respectively.  Net cash  used in  investing  activities  resulted  from  capital
additions   primarily  related  to  opening   additional  cafes  and,  in  2001,
improvements to the central kitchens.

Net cash provided by financing  activities  for the fiscal years ended  December
30, 2001 and December 29, 2002 was $15.0 million and $1.8 million, respectively.
The financing  activities during 2002 consisted  primarily of cash received from
the net proceeds of $2.8 million in debt financing  ($1.0 million from FFG, $1.2
million from Laurus, $0.5 million from bank borrowings,  and $0.1 million from a
revolving  line of credit),  which was offset by $0.4  million in  repayment  of
notes, $0.6 million from the change in checks issued in excess of bank deposits,
and $0.2  million  from  debt  issue  costs.  Net  cash  provided  by  financing
activities  for the year ended  December  30, 2001 was $15.0  million  resulting
primarily  from the issuance of capital  stock,  which was  partially  offset by
financing  costs,  and the  repayment  of a line of credit of $2.0  million.  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 $13.6 million.



                                       29
<PAGE>

The Company has no material  contractual  commitments for capital  expenditures.
The  Company  has no  other  material  contractual  commitments  except  for its
agreements  with FFG and SK Foods.  The Company is subject to various  legal and
regulatory  proceedings,  audits and claims that arise in the ordinary course of
business. At December 28, 2003, we had contractual cash obligations as set forth
in the table below (in thousands):


<TABLE>
<CAPTION>
                                                  Less than 1
        Contractual Obligations           Total        year     1-3 years   4-5 years
                                        -------      -------      -------      -------
<S>                                     <C>          <C>          <C>          <C>
Line of Credit Borrowings ........      $    --      $    --      $    --      $    --
Notes Payable ....................        7,643      $   643        7,000           --
Operating Leases .................        7,439        2,008      $ 3,583      $ 1,848
Capital Lease Obligations ........          334          139          166           29
                                        -------      -------      -------      -------
Total Contractual Cash Obligations      $15,416      $ 2,790      $10,749      $ 1,877
                                        =======      =======      =======      =======
</TABLE>


Since inception we have financed our operations  primarily  through the issuance
of capital  stock and debt. In the near term,  operating  losses are expected to
continue  despite  actions taken to reduce  negative cash flow from  operations.
Actions taken to reduce negative cash flow from operations,  including improving
operational efficiencies,  cost controls and cutbacks,  workforce reductions and
closing of certain under-performing cafes, continued during 2003.

In March 2003,  certain  terms of the note with Laurus  were  amended to,  among
other  things,  change  the  fixed  conversion  price to $0.10  per  share.  The
amendment to the note  suspended  our  obligation  to make  monthly  payments of
principal  until the first  business day of the month  following  the earlier of
June 30, 2003 or the closing on an  investment  by DB or any of its  affiliates,
suspended  the right of Laurus to  demand  conversion  under the note  until the
earlier of June 30,  2003 or the  closing on an  investment  by DB or any of its
affiliates  which  occurred on August 1, 2003,  and  restructured  the repayment
schedule.  Additionally,  in March 2003, terms of the 250,000 warrants issued in
June 2002 were amended to,  among other  things,  change the  exercise  price to
$0.10 per share and suspend the right of Laurus to  exercise  the warrant  until
the  earlier of June 30,  2003 or the  closing on an  investment  by DB. In July
2003,  the terms of the note were further  amended to provide that,  among other
things,  upon  completion  of the  financing  with DB, we would  make a $300,000
principal payment,  and pay the remaining principal amount and accrued interest,
plus a $75,000 fee, in 12 equal installments beginning in September 2003, and to
revise  conversion  terms. On October 1, 2003, the Company was in arrears on its
interest and  principal  payments to Laurus.  Subsequently,  in October 2003 the
Company  received  a waiver  from  Laurus  in which  Laurus  agreed to waive any
defaults  resulting  from the late payment of the monthly  amount due October 1,
2003. In addition, Laurus agreed to postpone all payments that would have become
due and payable under the note between  October 1, 2003 and November 15, 2003 to
November  16, 2003 and waived any  defaults and  penalties  resulting  from such
postponement  of  payments.  The  current  principal  balance  of  this  note is
approximately  $574,400,  the  amount  currently  due in fees  is  approximately
$68,750  and the past due  interest as of  December  28,  2003 is  approximately
$92,000. We have not made any payments due under the note since October 24, 2003
and as a result we are currently in default  under the note with Laurus.  Laurus
may  accelerate  the payment due under the note or take other  action to enforce
their  rights with  respect to the  amounts  due.  Such  actions  could  include
foreclosure  on our assets or causing the  Company to enter in to  involuntarily
reorganization.  In some  circumstances,  the note is convertible into shares of
our common stock. The conversion price is $0.10 per share for the first $350,700
converted into shares and $0.30 per share for any additional amounts converted.

In September  2002, we entered into a $500,000 note payable  borrowing from U.S.
Bank.  The note was secured by a  certificate  of deposit owned by the Company's
founder.  The note was initially  due June 30, 2003,  which was extended to June
30, 2004. In December 2003, the note was paid by the Company's  founder,  and in
connection  therewith,  the  Company  issued  a  $500,000  note  payable  to the
Company's founder and 630,000 shares of Series G Preferred Stock.

In March  2003,  we  completed  the offer and sale of $2.0  million  in  secured
promissory notes, Series D Preferred Stock and warrants to purchase common stock
to BV  pursuant to which we issued a $2.0  million  secured  promissory  note in
consideration  for  approximately  $0.55  million in cash and  conversion of the
$1.45 million principal amount of outstanding demand notes issued to FFG and its
affiliates,  $450,000 of which was  borrowed by the Company  during  January and
February  2003.  BV is  controlled  by a  principal  executive  officer  of FFG.


                                       30
<PAGE>

Proceeds  from the  offering  were used for  working  capital.  We also issued a
five-year  warrant  exercisable  for  1,193,546  shares of our common stock at a
price per share of $0.50,  and 100  shares  of  Series D  Preferred  Stock,  and
granted  registration  rights  covering the shares of common stock issuable upon
conversion  of the  preferred  stock and  exercise of the  warrant.  The Company
agreed  to cause  up to one  person  designated  by FFG to be  appointed  to the
Company's  Board of Directors,  subject to increase upon  receiving  shareholder
approval. We agreed that, if we received shareholder approval, we would cause up
to five persons  designated by BV to be appointed to our Board of Directors,  in
accordance with the rules and regulations of Nasdaq or any exchange on which our
common stock is listed. The promissory note was secured by all of our assets and
bore interest at 10% per year. Interest was payable monthly in arrears, in cash.
The note was to mature, and all principal and accrued and unpaid interest was to
become due, on March 6, 2004. The terms of the notes included certain covenants,
including, among others, restrictions on the payment of dividends, limitation on
additional  indebtedness,  and compliance  with financial  covenants,  including
minimum future EBITDA and maximum accounts payable.

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

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

In  August   2003,   the  Company   issued  $6.0   million  of  senior   secured
non-convertible promissory notes ("Senior Notes") to DB ($3.4 million), BV ($2.0
million),  Spinnaker  ($0.5 million),  and Delafield ($0.1 million).  The Senior
Notes are due two years from issuance,  bear  interest,  payable  quarterly,  at
LIBOR  plus 1%, and are  collateralized  by a  security  interest  in all of the
Company's assets pursuant to an inter-creditor  agreement among the note holders
and Laurus.  The Senior Notes are not  convertible,  but the conversion price of
the Series F  Preferred  Stock may be  satisfied  by the holder  surrendering  a
portion of the notes for  cancellation.  The Company issued to the Investors and
Delafield an aggregate of 7,643,841  shares of Series F Preferred Stock that are
initially  convertible  into  76,438,410  shares of common  stock at an  initial
conversion  price  $0.10 per share of common  stock.  In the event that the fair
market  price of the common stock  exceeds the  conversion  price,  the Series F
Preferred Stock may also be converted  pursuant to a cashless  exercise feature.
The Company also granted registration rights covering the shares of common stock
issuable upon  conversion of the Series F Preferred  Stock and the right to name
new  executive  officers  to be  appointed  by the  Company,  and the  right  to
designate up to five of the Company's  directors to DB (2), BV (2) and Spinnaker
(1).

The Company recorded a debt discount of  approximately  $1.5 million relating to
the issuance of the Series F Preferred  Stock. The market price of the Company's
common stock  exceeded the conversion  price of the Series F Preferred  Stock on
the date of  issuance.  As a result,  the  Company  also  recorded a  beneficial
conversion  feature in accordance with EITF 00- 27 "Application of Issue 98-5 to
Certain  Convertible  Instruments" upon issuance of the Series F Preferred Stock
at its estimated fair value of $1.5 million.  The beneficial  conversion feature
is analogous to a non-cash  dividend and was immediately  recognized as a return
to the preferred shareholders.  This beneficial conversion feature increased the
net loss to common shareholders.

The securities  issued to DB, BV, and Spinnaker were issued in  consideration of
(i) $3.4  million of cash from DB, (ii)  cancellation  of the Series D Preferred
Stock and $2  million  of the note held by BV,  and  (iii)  cancellation  of the
Series E  Preferred  Stock and  $0.55  million  of the note  held by  Spinnaker,
respectively.  The  Company  issued the  securities  to  Delafield,  made a cash
payment to  Delafield of $100,000 at closing,  and in October paid  Delafield an
additional  $100,000 in full  satisfaction of a change of control fee previously
owed by the Company to Delafield. The Company used a portion of the $3.4 million
of new funds raised, to repay certain existing indebtedness,  including $300,000
of  the  amounts  due to  Laurus  pursuant  to its  14%  convertible  note,  the
aforementioned payments of $200,000 to Delafield, $530,000 of professional fees,
including fees related to this transaction,  and payment of $1.0 million owed to
FFG pursuant to the food production agreement.



                                       31
<PAGE>

In  addition,  in  connection  with the  financing  transaction,  the  Company's
articles of  incorporation  were  amended to increase the  authorized  shares of
common stock to 250 million shares,  a new stock incentive plan was adopted that
authorizes  the issuance of 12 million  shares of common stock upon  exercise of
stock options or upon the grant of restricted  stock,  and the Company agreed to
issue to certain new and existing  members of the Company  management  shares of
Series F Preferred Stock  convertible into  approximately  5.3 million shares of
Company common stock and stock options exercisable for approximately 5.4 million
shares of Company common stock. In November 2003, 4.5 million shares of Series F
Preferred Stock were approved for issuance to members of Company management.

In November 2003, the Company entered into a Food Service  Concession  Agreement
("Borders  Agreement") with Borders, Inc. to manage and operate the cafe portion
of eight  cafes on a test basis for a period of six  months  after the last test
store is opened.  We will retain all receipts  generated from these cafes and be
responsible for  substantially all of the costs resulting from the operations of
these  cafes.  In  exchange,  the Company  will pay  Borders an amount  equal to
$60,000 for each cafe opened,  or a total amount of $480,000,  for  improvements
made to the cafes. In addition,  we will pay a base rent of $8,073 per month for
each store  operated.  To date,  the  Company  has opened four test cafes in the
Chicago market and has no plans to open additional cafes prior to the end of the
test period.  We have paid Borders  $240,000 for  improvements to these cafes as
provided for in the agreement.

To  date,  we have  only  opened  4 of the 8  stores  provided  for in the  test
agreement.  In January,  2004,  we have agreed with Borders to limit the test to
only these stores.  Borders has incurred costs  associated  with the anticipated
opening  of the four  remaining  stores  provided  for in the  agreement.  It is
anticipated  that the Company will be required to reimburse  Borders for some or
all of these  costs  in the  first  half of  2004.  It is  estimated  that  this
reimbursement may be between $50,000 and $125,000.

In  December  2003,  the Company  issued $1 million of Senior  Notes to DB ($0.5
million),  and the  Company's  founder  ($0.5  million).  The Company  issued an
aggregate of  1,259,446  shares of Series G Preferred  Stock that are  initially
convertible  into  12,594,460  shares of common  stock at an initial  conversion
price $0.10 per share of common stock. In addition, the Senior Notes are due two
years from issuance, bear interest, payable quarterly, at LIBOR plus 1%, and are
collateralized by a security interest in all of the Company's assets pursuant to
an inter-creditor  agreement among note holders and Laurus. The Senior Notes are
not convertible, but the conversion price of the Series G Preferred Stock may be
satisfied by the holder surrendering a portion of the notes for cancellation. In
the event that the fair market price of the common stock exceeds the  conversion
price, the Series G Preferred Stock may also be converted pursuant to a cashless
exercise  feature.  The Company also granted  registration  rights  covering the
shares of common stock issuable upon conversion of the Series G Preferred Stock.
The  securities   issued  to  DB  and  the  Company's  founder  were  issued  in
consideration of (i) $500,000 of cash from DB and (ii) $500,000 repayment by the
Company's founder of amounts owed by the Company pursuant to its note payable to
US Bank.

The Company recorded a debt discount of approximately  $246,000  relating to the
issuance  of the Series G Preferred  Stock.  The market  price of the  Company's
common stock  exceeded the conversion  price of the Series G Preferred  Stock on
the date of  issuance.  As a result,  the  Company  also  recorded a  beneficial
conversion  feature in accordance with EITF 00- 27 "Application of Issue 98-5 to
Certain  Convertible  Instruments" upon issuance of the Series G Preferred Stock
at its estimated fair value of $246,000.  The beneficial  conversion  feature is
analogous to a non-cash  dividend and was immediately  recognized as a return to
the preferred shareholders. This beneficial conversion feature increased the net
loss to common shareholders.

Subsequently,  in March 2004 the  Company  received a waiver  from DB, BV,  FFG,
Spinnaker,  Delafield,  and Victor D. Alhadeff in which they agreed to waive any
defaults with respect to  non-payment of interest until June 30, 2004 and agreed
to delay payment of any and all accrued but unpaid interest to July 5, 2004, and
waived any defaults and penalties resulting from the postponement of payments.

On  January  15,  2004,  Briazz,  Inc.  entered  into an  Amended  and  Restated
Securities  Purchase  Agreement (the  "Securities  Purchase  Agreement") with DB
Advisors,  LLC,  Flying  Food  Group,  LLC,  Dorsey & Whitney,  LLP,  and Victor
Alhadeff,  the  Company's  Chairman,   (collectively,  the  "Investors")  for  a
financing totaling $1.73 million,  which includes $1.1 million of cash and $0.63
million  conversion of accounts  payable.  Pursuant to the  Securities  Purchase
Agreement,  the Company has agreed to sell a senior secured  non-convertible two
year notes in the amount of $365,000 and 467,464  shares of Series G convertible
preferred stock to DB Advisors, LLC for cash proceeds of approximately $365,000.
Additionally the Company's  Chairman Victor Alhadeff purchased a $235,000 senior
secured non-convertible two year note and 301,088 shares of Series G convertible
preferred  stock  for cash  proceeds  of  approximately  $235,000.  In this same
offering,  Dorsey & Whitney LLP, the Company's  legal counsel  agreed to convert
$130,000 of its  accounts  receivable  for legal  services to a $130,000  senior
secured  non-convertible two year note and 23,964 shares of Series G convertible
preferred stock. These notes have a maturity date of January 15, 2006.  Pursuant
to the same  Securities  Purchase  Agreement,  the  Company  sold to Flying Food
Group, LLC and DB Advisors,  LLC each a $500,000 senior secured  non-convertible
note that  matures on March 31,  2004 unless  extended by either  party at their
option and 612 shares of Series G  convertible  preferred  stock.  Either party,
upon mutual agreement with the Company,  has the right to extend the maturity of
such  parties  note to January  15,  2006.  If and when either of these notes is
extended  the  Company  will  issue an  additional  640,000  shares  of Series G
convertible  preferred stock for each note converted.  All notes discussed above
will  bear  interest  at one month  LIBOR  rate plus 1%,  and are  secured  by a
security  interest in the Company's assets.  The Series G convertible  preferred
stock is  convertible  into shares of common stock at an exercise price of $0.10
per common share.



                                       32
<PAGE>

The Company has incurred  substantial  operating  losses and negative cash flows
from operations since inception, had an accumulated deficit of $81.5 million and
a working  capital  deficit of $4.1  million at  December  28,  2003,  and is in
default on its current and long term note payable. We have received waivers from
all of our note holders with the exception of Laurus. As disclosed in the report
of independent  accountants on our annual financial  statements included in this
annual report, these matters raise substantial doubt about the Company's ability
to continue as a going  concern.  We have  financed our  operations  principally
through the net proceeds from debt and equity offerings. Our ability to continue
as a going concern is dependent upon numerous factors,  including our ability to
obtain  additional  financing,  our  ability  to  increase  our  level of future
revenues  and  our  ability  to  reduce  operating  expenses.  The  accompanying
financial  statements  have been  prepared  on the basis that the  Company  will
continue as a going  concern and do not include any  adjustments  to reflect the
possible  future  effects on the  recoverability  of assets and  liquidation  of
liabilities that may result from this uncertainty.

At December 28, 2003, the Company had cash and cash equivalents of approximately
$0.3 million. We have used a combination of cash and cash equivalents, operating
revenues and proceeds of additional  financing to meet our immediate cash needs;
however,  additional cash will be needed by the end of the first quarter of 2004
in order to continue  operating.  The Company is  attempting to conserve cash by
reducing expenses and by delaying or deferring payments to some of our suppliers
and on some of the our leases. Poor financial results,  inability to comply with
the terms of borrowings,  unanticipated expenses or unanticipated  opportunities
that  require  financial  commitments  could give rise to  additional  financing
requirements  sooner than  expected.  In addition to the $1.73 million raised in
the first quarter of 2004, we will need to raise  additional cash to finance our
operations,  respond to  competitive  pressures and repay  borrowings  when they
become  due. If we raise  additional  funds  through  the  issuance of equity or
convertible debt securities,  the percentage ownership of existing  shareholders
would  be  reduced,  and  these  securities  may  have  rights,  preferences  or
privileges  senior to those of our common stock.  There can be no assurance that
we will be able to obtain  additional  financing at terms favorable to us, or at
all, reduce expenses or successfully complete other steps to continue as a going
concern. If the Company is unable to obtain sufficient funds to satisfy our cash
requirements within the required timeframe on acceptable terms, we may be forced
to curtail  operations,  dispose of assets, or seek extended payment terms. Such
events would materially and adversely affect our financial  position and results
of operations.  In the event that such steps are not sufficient, or that Company
directors and management  believe that such actions will not be  sufficient,  we
may be required to discontinue our operations.

Recent Accounting Pronouncements

In July 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
143,  "Accounting for Asset Retirement  Obligations"  ("SFAS No. 143"). SFAS No.
143 addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs.  It  applies  to legal  obligations  associated  with the  retirement  of
long-lived assets that result from the acquisition,  construction,  development,
and  (or) the  normal  operation  of a  long-lived  asset,  except  for  certain
obligations of lessees.  The provisions of SFAS No. 143 are effective for fiscal
years  beginning  after June 15, 2002,  with early  application  permitted.  The
adoption of SFAS No. 143 did not have a material impact on the Company's results
of operations, financial position or cash flows.

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

In November 2002, the FASB issued  Interpretation No. 45, Guarantors  Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness
of Others an  Interpretation  of FASB Statement No. 5, 57 and 107 and Rescission
of FASB  Interpretation  No. 34 ("FIN 45"). This  interpretation  expands on the
existing accounting guidance and disclosure requirements for most guarantees. It
requires  that at the  time a  company  issues a  guarantee,  the  company  must
disclose that  information in its interim and annual financial  statements.  The
provisions  for initial  recognition  and  measurement  of the liability will be
applied on a prospective  basis to guarantees  issued or modified after December
31, 2002. The Company has not guaranteed indebtedness of others. The adoption of
FIN 45 did not have a material  impact on the Company's  results of  operations,
financial position or cash flows.



                                       33
<PAGE>

In December  2002,  the FASB issued SFAS No.  148,  Accounting  for  Stock-Based
Compensation-Transition  and  Disclosure.  SFAS No.  148  amends  SFAS No.  123,
Accounting for Stock-Based Compensation. SFAS No. 148 requires accounting policy
note disclosures to provide the method of stock option  accounting for each year
presented  in the  financial  statements  and,  for each  year  until  all years
presented in the financial  statements  recognize the fair value of  stock-based
compensation.   The  transition   provisions  and  annual  statement  disclosure
requirements  of SFAS No. 148 are  effective  for the fiscal  years ending after
December 15, 2002. The adoption of SFAS No. 148 did not have significant  impact
on the Company's results of operations, financial position, or cash flows.

In January 2003, the FASB issued FASB  Interpretation  No. 46  "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." ("FIN 46"). FIN 46
requires  certain variable  interest  entities to be consolidated by the primary
beneficiary  of the entity under certain  conditions.  The Company does not have
any involvement in variable interest entities. The FASB has published a revision
to  interpretation 46 ("46R") to clarify some of the provisions of FIN 46 and to
exempt some entities from its requirements.  The adoption of FIN 46 did not have
a material impact on the Company's results of operations,  financial position or
cash flows.

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

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

Critical Accounting Policies

We have identified the policies below as critical to our business operations and
the  understanding of our results of operations.  For further  disclosure on the
application of these and other accounting  policies,  see Note 1 in the Notes to
Financial  Statements  included in this annual report.  Our  preparation of this
annual  report  requires us to make  estimates and  assumptions  that affect the
reported amount of assets and liabilities,  disclosure of contingent  assets and
liabilities at the date of our financial statements, and the reported amounts of
revenue and expenses  during the  reporting  periods.  There can be no assurance
that actual results will not differ from those estimates.

Revenue  Recognition - The Company  recognizes  revenue in  accordance  with SEC
Staff Accounting Bulletin No. 101, Revenue  Recognition in Financial  Statements
("SAB 101"),  as amended.  SAB 101 requires that four basic criteria must be met
before  revenue can be  recognized:  (1)  persuasive  evidence of an arrangement
exists; (2) delivery has occurred or services provided; (3) the fee is fixed and
determinable;  and (4)  collectibility is reasonably  assured.  Determination of
criteria (3) and (4) are based on  management's  judgments  regarding  the fixed
nature of the fee charged for services  provided and products  delivered and the
collectibility  of those fees.  Should changes in conditions cause management to
determine  these criteria are not met for certain future  transactions,  revenue
recognized for any reporting period could be adversely affected. The Company has
concluded that its revenue  recognition  policy is appropriate and in accordance
with generally accepted accounting principles and SAB No. 101.

Valuation of Long-Lived  Assets - We  periodically  review the carrying value of
our  long-lived  assets for possible  impairment.  This review is based upon our
projections of anticipated  future cash flows.  We record  impairment  losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired  and the  undiscounted  cash flows  estimated to be
generated by those assets are less than the carrying amount of those items.  Our
cash flow estimates are based on historical results adjusted to reflect our best
estimate of future  market and operating  conditions.  While we believe that our
estimates of future cash flows are reasonable,  different  assumptions regarding
such cash flows could materially affect our evaluations.  The net carrying value
of assets  not  recoverable  are  reduced to their  estimated  fair  value.  Our
estimates of fair value  represent our best estimate based on either  discounted
cash flows or appraised values, depending on the nature of the asset.



                                       34
<PAGE>

Item 7A.  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.

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, energy 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;
however we are  reliant  upon our  central  kitchen  producers  to control  food
commodity  risk for those products we purchase from them. We believe we have the
ability to increase menu prices,  or vary the menu items  offered,  if needed in
response to a food product price increase.

Item 8.  Financial Statements and Supplementary Data.

                                  BRIAZZ, INC.

                          INDEX TO FINANCIAL STATEMENTS


                                                                     Page
                                                                    ------
Report of Independent Accountants                                     36
Balance Sheets as of December 28, 2003 and December 29, 2002          38
Statements of Operations for the years ended December 28, 2003,
      December 29, 2002 and December 30, 2001                         39
Statement of Stockholders' Equity (Deficit) for the years ended
      December 28, 2003, December 29, 2002 and December 30, 2001      40
Statements of Cash Flows for the years ended December 28, 2003,
      December 29, 2002 and December 30, 2001                         41
Notes to Financial Statements                                         42



                                       35
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
BRIAZZ, Inc.

We have audited the accompanying balance sheet of BRIAZZ, Inc as of December 28,
2003, and the related statements of operations,  stockholders'  equity (deficit)
and cash  flows for the year then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of BRIAZZ, Inc. as of December 28,
2003,  and the  results of its  operations  and its cash flows for the year then
ended in conformity with accounting  principles generally accepted in the United
States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 of the
financial statements, the Company has suffered recurring losses from operations,
which raise  substantial doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 2. The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

/s/GRANT THORNTON LLP

Seattle, Washington
March 5, 2004



                                       36
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of BRIAZZ, Inc.:

      In our opinion,  the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of BRIAZZ, Inc.
at December  29, 2002 and the results of its  operations  and its cash flows for
each of the two years in the period ended  December 29, 2002 in conformity  with
accounting principles generally accepted in the United States of America.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

      The accompanying financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial  statements,  the Company has reported  operating  losses and negative
cash flows from  operations  since  inception.  These are conditions  that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these  matters are also  described  in Note 2. The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

PricewaterhouseCoopers LLP

Seattle, Washington

March 11, 2003



                                       37
<PAGE>

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

<TABLE>
<CAPTION>
                                                                              December 28,   December 29,
                                                                                 2003           2002
                                                                               --------       --------

Assets

Current assets
<S>                                                                            <C>            <C>
    Cash and cash equivalents ...........................................      $    311       $    491
    Accounts receivable, net of allowance of $38 (2003) and $136 (2002) .           211            428
    Inventory ...........................................................           294            409
    Prepaid expenses ....................................................           468            611
    Other current assets ................................................            49            154
    Current portion of restricted certificates of deposit ...............            44             40
                                                                               --------       --------
                Total current assets ....................................         1,377          2,133
Property and equipment, net .............................................         4,476          7,897
Restricted certificates of deposit, net of current portion ..............           423            423
Deferred debt issue cost, deposits and other assets .....................           687            252
                                                                               --------       --------
                Total assets ............................................      $  6,963       $ 10,705
                                                                               ========       ========

Liabilities and Stockholders' Equity (Deficit)

Current liabilities
    Line of credit borrowings ...........................................      $     --       $    129
    Accounts payable ....................................................         1,761          2,537
    Due to realted party ................................................           999            200
    Accrued compensation ................................................           337            758
    Accrued rents .......................................................           648            515
    Accrued interest ....................................................           258             --
    Accrued taxes and other liabilities .................................           691            379
    Notes payable .......................................................           643          1,390
    Demand notes payable to related party ...............................            --          1,025
    Current portion of capital lease obligations ........................           100            109
                                                                               --------       --------
                Total current liabilities ...............................         5,437          7,042
Notes payable to related parties ........................................         5,563             --
Capital lease obligations, net of current portion .......................           138            234
                                                                               --------       --------
                Total liabilities .......................................        11,138          7,276
                                                                               --------       --------

Stockholders' equity (deficit)

    Series F Convertible Preferred Stock, no par value; 10,000,000 shares
     authorized, 8,093,841 (2003) shares issued and outstanding .........         2,911             --
    Series G Convertible Preferred Stock, no par value; 3,600,000 shares
     authorized, 1,259,446 (2003) shares issued and outstanding .........           509             --
    Common stock and additional paid-in capital, no par value; 250,000,000
     shares authorized; 5,990,916 (2003), and 5,880,173 (2002)
     shares issued and  outstanding .....................................        74,103         73,819
    Deferred stock-based compensation ...................................          (116)          (203)
    Accumulated deficit .................................................       (81,582)
                                                                               --------       --------
    Total stockholders' equity (deficit) ................................        (4,175)         3,429
                                                                               --------       --------

    Total liabilities and stockholders' equity (deficit) ................      $  6,963       $ 10,705
                                                                               ========       ========
</TABLE>


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


                                       38
<PAGE>

                                  BRIAZZ, INC.

                            STATEMENTS OF OPERATIONS
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                Fiscal Years ended
                                                                 -----------------------------------------------
                                                                  December 28,     December 29,      December 30,
                                                                     2003             2002             2001
                                                                 -----------       -----------       -----------
Sales
<S>                                                              <C>               <C>               <C>
      Retail ..............................................      $    20,839       $    22,327       $    22,737
      Branded sales .......................................            6,100             8,266             9,292
                                                                 -----------       -----------       -----------
           Total sales ....................................           26,939            30,593            32,029
                                                                 -----------       -----------       -----------
Operating expenses

      Cost of food and packaging ..........................           13,614            11,850            12,480
      Occupancy expenses ..................................            4,201             4,602             4,010
      Labor expenses ......................................            6,661            10,925            11,098
      Depreciation and amortization .......................            2,561             4,352             2,686
      Other operating expenses ............................            1,809             2,434             1,849
      General and administrative expenses .................            5,309             7,546             6,837
      Loss (gain) on disposal of assets ...................             (111)            1,172                --
      Provision for asset impairment and store closure ....            1,169             2,256                26
                                                                 -----------       -----------       -----------
           Total operating expenses .......................           35,213            45,137            38,986
                                                                 -----------       -----------       -----------
Loss from operations ......................................           (8,274)          (14,544)           (6,957)
                                                                 -----------       -----------       -----------

Other (expense) income

      Interest expense ....................................           (1,335)             (637)             (125)
      Interest and other income ...........................                9                52               280
                                                                 -----------       -----------       -----------
                                                                      (1,326)             (585)              155
                                                                 -----------       -----------       -----------
Net loss ..................................................           (9,600)          (15,129)           (6,802)
Accretion of dividends/amortization of discount and
 beneficial conversion feature on preferred stock .........            1,746                --             4,318
                                                                 -----------       -----------       -----------

Net loss attributable to common stockholders ..............      $   (11,346)      $   (15,129)      $   (11,120)
                                                                 ===========       ===========       ===========

Basic and diluted net loss per share ......................      $     (1.89)      $     (2.59)      $     (2.86)
                                                                 ===========       ===========       ===========
Weighted-average shares used in computing basic and diluted
    net loss per share ....................................        5,987,510         5,852,362         3,889,472
                                                                 ===========       ===========       ===========
</TABLE>

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




                                       39
<PAGE>


                                  BRIAZZ, INC.
                   STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         COMMON STOCK AND
                                                   SERIES F AND G           ADDITIONAL         DEFERRED
                                                  PREFERRED STOCK        PAID-IN CAPITAL      STOCK-BASED  ACCUMULATED
                                                 -------------------    --------------------  COMPENSATION    DEFICIT       TOTAL
                                                  SHARES      AMOUNT     SHARES      AMOUNT       AMOUNT       AMOUNT       AMOUNT
                                                 ----------------------------------------------------------------------------------
<S>                                                <C>      <C>            <C>      <C>          <C>          <C>          <C>
Balance at December 31, 2000 ....................     --    $     --           1    $  2,076     $ (1,060)    $(46,973)    $(45,957)
Issuance of common stock, net of issuance cost ..     --          --       2,000      13,583           --           --       13,583
Accretion of mandatorily redeemable .............     --
 preferred stock ................................     --          --          --          --           --       (1,283)      (1,283)
Conversion of preferred stock to common stock ...  3,816      58,081          --          --       58,081
Beneficial conversion feature on preferred stock      --       3,034          --          --        3,034
Amortization of discount on preferred stock .....     --          --          --      (3,034)          --           --       (3,034)
Common stock issued upon exercise of stock
 options ........................................     --          --           4           6           --           --            6
Common stock issued upon exercise of stock
 warrants .......................................     --          --           4          --           --           --           --
Deferred compensation related to the grant of
 stock options ..................................     --          --          --         209         (209)          --           --
Amortization of deferred compensation ...........     --          --          --          --          288           --          288
Net loss ........................................     --          --          --          --           --       (6,802)      (6,802)
                                                 ----------------------------------------------------------------------------------
Balance at December 30, 2001 ....................     --          --       5,825      73,955         (981)     (55,058)      17,916
Amortization of deferred compensation ...........     --          --          --          --          356           --          356
Reversal of deferred compensation for options
 forfeited ......................................     --          --          --        (422)         422           --           --
Employee stock purchase plan ....................     --          --          45          38           --           --           38
Issuance of stock warrants ......................     --          --          --         132           --           --          132
Beneficial conversion feature on convertible debt     --          --          --         113           --           --          113
Issuance of shares for convertible debt .........     --          --          10           3           --           --            3
Net loss ........................................     --          --          --          --           --      (15,129)     (15,129)
                                                 ----------------------------------------------------------------------------------
Balance at December 29, 2002 ....................     --          --       5,880      73,819         (203)     (70,187)       3,429
Issuance of shares for convertible debt .........     --          --          40           8           --           --            8
Issuances of stock warrants and modifications of
 stock warrants and convertible notes to reduce
 exercise and conversion price ..................     --          --          --         145           --           --          145
Deferred compensation related to grant of stock
 options ........................................     --          --          --         114         (114)          --           --
Amortization of deferred compensation ...........     --          --          --          --          201           --          201
Employee stock purchase plan ....................     --          --          71          17           --           --           17
Issuance of preferred stock, net of issue costs .  9,353       1,625          --          --           --           --        1,625
Beneficial conversion feature on preferred stock      --       1,795          --          --           --       (1,795)          --
Net loss ........................................     --          --          --          --           --       (9,600)      (9,600)
                                                 ----------------------------------------------------------------------------------
Balance at December 28, 2003 ....................  9,353    $  3,420       5,991    $ 74,103     $   (116)    $(81,582)    $ (4,175)
                                                 ==================================================================================
</TABLE>


    The accompanying notes are an integral part of this financial statement.


                                       40
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                  December 28,      December 29,     December 30,
                                                                                     2003              2002               2001
                                                                                   --------          --------          --------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                <C>               <C>               <C>
Net loss .................................................................         $ (9,600)         $(15,129)         $ (6,802)
Adjustments to reconcile net loss to net cash used in operating activities
  Deferred compensation expense ..........................................              201               356               288
  Depreciation and amortization ..........................................            2,561             4,352             2,686
  Loss (gain) on disposal of assets ......................................             (111)            1,172                --
  Provision for asset impairment and store closure .......................            1,169             2,256                26
  Non-cash interest expense ..............................................            1,174               304                --
  Changes in operating assets and liabilities:
   Accounts receivable ...................................................              217                44                75
   Inventory .............................................................              115                98                 1
   Prepaid expenses and other current  assets ............................              254              (318)               43
   Accounts payable including amounts due to related party ...............               23             1,460            (1,880)
   Accrued compensation ..................................................             (421)             (238)               92
   Accrued and other liabilities .........................................              445               402              (161)
   Other .................................................................               --               (38)               23
                                                                                   --------          --------          --------
    Net cash used in operating activities ................................           (3,973)           (5,279)           (5,609)
                                                                                   --------          --------          --------
CASH FLOWS FROM INVESTING ACTIVITIES

 Purchases of property and equipment .....................................             (331)           (2,322)           (3,755)
 Other ...................................................................              133                59                --
                                                                                                                       --------
   Net cash used in investing activities .................................             (198)           (2,263)           (3,755)
                                                                                   --------          --------          --------
CASH FLOWS FROM FINANCING ACTIVITIES

 Proceeds from sale of preferred stock, net of issuance costs ............               --                --             3,034
 Proceeds from sale of common stock, net of issuance costs ...............               --                --            13,583
 Proceeds from (repayment of) line-of-credit borrowings ..................             (129)              129            (2,000)
 Proceeds from notes payable and warrants, net of issuance costs .........            6,103             2,574                --
 Payments for debt transaction costs .....................................           (1,015)               --                --
 Proceeds from exercise of stock options .................................               --                --                 6
 Employee stock purchase plan ............................................               17                38                --
 (Increase) decrease in restricted certificate of deposit ................               (4)              139              (126)
 Change in checks in excess of bank deposits .............................               --              (597)              754
 Repayment of capital lease obligation ...................................             (105)              (93)              (95)
 Repayment of notes payable ..............................................             (876)             (350)             (154)
                                                                                   --------          --------          --------
   Net cash provided by financing activities .............................            3,991             1,840            15,002
                                                                                   --------          --------          --------
Net (decrease) increase in cash and cash  equivalents ....................             (180)           (5,702)            5,638
Cash and cash equivalents
  Beginning of period ....................................................              491             6,193               555
                                                                                   --------          --------          --------
  End of period ..........................................................         $    311          $     91          $  6,193
                                                                                   ========          ========          ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

  Cash paid for interest .................................................         $     84          $     05          $    114
                                                                                   ========          ========          ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
 INVESTING  AND FINANCING ACTIVITIES

Conversion of mandatorily redeemable preferred stock to common stock .....         $     --          $     --          $ 58,081
                                                                                   ========          ========          ========
Additions to property and equipment  financed with capital
 lease obligations .......................................................         $     --          $     --          $    530
                                                                                   ========          ========          ========
Debt converted to common stock ...........................................         $      8                --                --
                                                                                   ========          ========          ========
Accretion of dividends, amortization  of discount and
 beneficial conversion feature on preferred stock ........................          $ 1,625          $     --             4,318
                                                                                   ========          ========          ========
</TABLE>

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



                                       41
<PAGE>

                                  BRIAZZ, INC.

                          NOTES TO FINANCIAL STATEMENTS

Note 1.   Summary of operations and significant accounting policies

Operations - BRIAZZ,  INC.  ("BRIAZZ" or the "Company")  sells branded lunch and
breakfast  foods through  multiple  points of distribution in urban and suburban
locations.  The Company  commenced  operations in 1995 in Seattle and opened new
markets in San Francisco in 1996,  Chicago in 1997 and Los Angeles in 1998.  The
Company's  business  strategy is to solidify its current  markets and as funding
becomes  available,  build  BRIAZZ into a national  brand by  expanding in major
metropolitan areas across the United States.  The Company's retail  distribution
network  includes  BRIAZZ  cafes,  as  well as box  lunch  and  catered  platter
delivery.  The Company also  distributes its products  through select  wholesale
accounts.  Each market obtains products from a central  kitchen;  which prepares
meals daily.  Until December 2002 the Company operated a central kitchen in each
market.  The Company's  Chicago and Los Angeles central  kitchens were closed in
late 2002 and the Seattle  central  kitchen was closed in February  2003.  It is
expected the San Francisco  central kitchen will also close. Upon closure of the
central kitchens, the Company has contracted for the production of its products.
The  Company  is  currently  in  process  of  moving  substantially  all  of the
production  of its products  into its cafes and expects to complete this process
in the first quarter of 2004.

Fiscal  Years - The  Company's  fiscal year ends on the last Sunday of December,
and consists of 52-or  53-weeks.  There were fifty-two  weeks in 2003,  2002 and
2001.

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

Cash and cash equivalents - The Company considers all highly liquid  investments
purchased  with a  remaining  maturity  of  three  months  or  less  to be  cash
equivalents.  Restricted  cash  balances are not included as a component of cash
and cash equivalents.

Concentration  of credit risk - Cash,  cash  equivalents and restricted cash are
invested in deposits  with  financial  institutions  that may, at times,  exceed
federally  insured  limits.  The Company has been dependent on a small number of
suppliers and distributors for the Company's  products,  including  suppliers of
meat, produce, breads and soups. Additionally, the Company has been dependent on
a related-party  supplier for  substantially  all of its products in each of the
markets where the  Company's  central  kitchen has been closed.  During the year
ended December 28, 2003, this supplier provided approximately 61% of our cost of
food and packaging.

Fair value of financial  instruments - Carrying  amounts reported in the balance
sheet  for  cash  and  cash   equivalents,   accounts   receivable,   restricted
certificates of deposit,  accounts payable and accrued  liabilities  approximate
fair value because of their  immediate or short-term  nature.  The fair value of
long-term  borrowings is not considered to be  significantly  different than its
carrying  amount  because  the  stated  rates  for  substantially  all such debt
reflects current market rates and conditions.

Inventory - Inventory,  which consists primarily of food and packaging products,
is stated at the lower of cost or market.  Cost is  determined  by the first-in,
first-out method.

Accounts  receivable - The majority of the Company's accounts receivable are due
from wholesale accounts.  Credit is extended based on evaluation of a customers'
financial  condition  and,  generally,  collateral  is  not  required.  Accounts
receivable  are due within 15 days and are stated at amounts due from  customers
net of an allowance for doubtful accounts.  Accounts outstanding longer than the
contractual  payment terms are considered  past due. The Company  determines its
allowance by considering a number of factors, including the length of time trade
accounts  receivable are past due and the Company's  previous loss history.  The
Company  writes-off  accounts  receivable  when they become  uncollectible,  and
payments subsequently received on such receivables are credited to the allowance
for doubtful accounts.

Property and equipment - Property and equipment is stated at cost. Additions and
improvements  that  significantly  add to the productive  capacity or extend the
life of an asset are  capitalized.  Maintenance  and  repairs  are  expensed  as
incurred.  Upon  disposition  of  property  and  equipment,  gains or losses are
reflected in the statement of  operations.  Depreciation  is computed  using the
straight-line method over five to seven years for furniture, fixtures, equipment
and vehicles, and over three years for computer software and hardware. Leasehold
improvements  are  amortized  over the  shorter  of the lease  term or 10 years.
Depreciable  lives  for  specific  assets  are  adjusted  if  actual  lives  are
determined to be shorter.



                                       42
<PAGE>

Impairment of long-lived  assets - The Company reviews its long-lived assets for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset might not be recoverable. When such an event occurs,
management  determines  whether  there has been an  impairment  by comparing the
anticipated discounted future net cash flows at the lowest level for which there
are  identifiable  cash flows,  which is at the store,  to the  related  asset's
carrying value. If an asset is considered impaired, the asset is written down to
fair value,  which is determined based on undiscounted  anticipated  future cash
flows or appraised values, depending on the nature of the asset.

Accounts  payable  -  The  Company's  banking  system  provides  for  the  daily
replenishment of disbursement bank accounts as checks are presented. Included in
accounts  payable at December  28, 2003 and December 29, 2002 is $0 and $157,000
respectively, representing the excess of outstanding checks over cash on deposit
at the bank on which the checks were drawn.

Income taxes - Deferred tax liabilities  and assets are determined  based on the
differences  between  the  financial  statement  and tax  bases  of  assets  and
liabilities  using  enacted  tax  rates in  effect  for the  year in  which  the
differences are expected to reverse.  A valuation  allowance is established when
necessary to reduce deferred tax assets to the amounts expected to be realized.

Revenue  recognition  - Revenues are  recognized  at the point of sale at retail
locations or upon delivery of the product for box lunch,  catering and wholesale
sales.

Pre-operating  costs - Costs  associated with opening new locations are expensed
as incurred.

Financing costs - Direct costs  associated with obtaining  equity  financing are
recorded as a reduction of proceeds. Direct costs associated with obtaining debt
financing  are  deferred  and charged to interest  expense  using the  effective
interest rate method over the debt term.

Advertising  and  promotion - Advertising  and  promotion  costs are expensed as
incurred. Approximately $1.0 million, $1.2 million and $480,000 were expensed in
fiscal 2003, 2002 and 2001, respectively.

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

Because the determination of the fair value of the Company's options is based on
assumptions such as interest rates, volatility, life, dividend yield, additional
options  granted  will  likely  be made in future  periods,  and due to the full
acceleration  of  vested  and  outstanding  options  in  2003,  this  pro  forma
information  is not  likely to be  representative  of the pro forma  effects  on
reported  net income or loss for future  periods.  Had the  Company  applied the
provisions  of SFAS No. 123 to all stock option  grants,  the Company's net loss
would have been increased to the pro forma amounts indicated below (in thousands
except share data):



                                       43
<PAGE>


<TABLE>
<CAPTION>
                                                                                      Fiscal Years ended
                                                                        -----------------------------------------------
                                                                        December 28,      December 29,       December 30,
                                                                           2003               2002              2001
                                                                        ---------          ---------          ---------
<S>                                                                     <C>                <C>                <C>
Net loss attributable to common stockholders, as reported .....         $(11,346)         $(15,129)         $(11,120)
Add:

     Total compensation cost included in net loss .............              218               356               288
Deduct:

     Total stock-based employee compensation expense determined
         under fair value based method for all awards .........             (278)             (700)             (705)
                                                                        --------          --------          --------
Proforma Net Loss .............................................         $(11,406)         $(15,473)         $(11,537)
                                                                        --------          --------          --------
Loss per share:

     Basic and diluted - as reported ..........................         $  (1.89)         $  (2.59)         $  (2.86)
                                                                        ========          ========          ========
     Basic and diluted - pro forma ............................         $  (1.90)         $  (2.64)         $  (2.97)
                                                                        ========          ========          ========
</TABLE>



The  Company  accounts  for  equity   instruments  issued  to  non-employees  in
accordance  with the  provisions of SFAS No. 123 and Emerging  Issues Task Force
No.  96-18,  "Accounting  for Equity  Instruments  that are Issued to Other Than
Employees  for  Acquiring or in  Conjunction  with Selling  Goods or  Services."
Compensation  expense related to equity  instruments  issued to non-employees is
recognized as the equity  instruments  vest. At each reporting date, the Company
revalues the compensation. As a result, stock-based compensation expense related
to unvested equity  instruments  issued to non-employees  fluctuates as the fair
value of the Company's common stock fluctuates.

Stock  warrants  - Stock  warrants  issued  together  with debt  securities  are
recorded as original issue discount and additional  paid-in capital based on the
quoted  market value at the date of issuance.  The  original  issue  discount is
reported  as a  reduction  of the  related  debt  on the  balance  sheet  and is
amortized  utilizing the effective  interest method over the debt term. Series F
and G  preferred  stock  have  rights  similar  to that of stock  warrants  and,
accordingly, are accounted for in a similar manner.

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

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

<TABLE>
<CAPTION>
                                                                        Fiscal Years ended
                                                         -----------------------------------------------
                                                         December 28,      December 29,       December 30,
                                                            2003               2002               2001
                                                         ---------          ---------          ---------
<S>                                                      <C>                <C>                <C>
Net loss attributable to common stockholders ...         $ (11,346)         $ (15,129)         $ (11,120)
                                                         =========          =========          =========
Weighted-average shares used in computing basic
         and diluted net loss per share ........             5,987              5,852              3,889
                                                         =========          =========          =========
Basic and diluted net loss per share ...........         $   (1.89)         $   (2.59)         $   (2.86)
                                                         =========          =========          =========
Shares excluded from loss per share computation:

     Options to purchase common stock ..........             6,524              1,050                908
     Convertible preferred stock ...............            93,533                 --                 --
     Convertible debt ..........................             1,113              1,869                 --
     Warrants to purchase common stock .........               400              1,330                931
                                                         ---------          ---------          ---------
             Total shares excluded .............           101,570              4,249              1,839
                                                         =========          =========          =========
</TABLE>


Recent  accounting  pronouncements  - In July  2001,  the  Financial  Accounting
Standards Board ("FASB") issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 addresses  financial  accounting and
reporting for obligations  associated with the retirement of tangible long-lived
assets  and  the  associated  asset  retirement   costs.  It  applies  to  legal
obligations associated with the retirement of long-lived assets that result from
the acquisition,  construction,  development, and (or) the normal operation of a
long-lived  asset,  except for certain  obligations of lessees.  The adoption of
SFAS No.  143 did not have a  significant  effect on the  Company's  results  of
operations, financial position or cash flows.



                                       44
<PAGE>

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

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

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation-Transition  and  Disclosure."  SFAS No.  148 amends  SFAS No.  123,
"Accounting  for  Stock-Based  Compensation."  SFAS No. 148 requires  accounting
policy note  disclosures  to provide the method of stock option  accounting  for
each year  presented in the  financial  statements  and, for each year until all
years  presented  in the  financial  statements  recognize  the  fair  value  of
stock-based  compensation.   The  transition  provisions  and  annual  statement
disclosure  requirements  of SFAS No. 148 were effective for fiscal years ending
after December 15, 2002. The adoption of SFAS No. 148 did not have a significant
impact on the  Company's  results of  operations,  financial  position,  or cash
flows.

In January 2003, the FASB issued FASB  Interpretation  No. 46  "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." ("FIN 46"). FIN 46
requires  certain variable  interest  entities to be consolidated by the primary
beneficiary  of the entity under certain  conditions.  The Company does not have
any involvement in variable interest entities. The FASB has published a revision
to  interpretation 46 ("46R") to clarify some of the provisions of FIN 46 and to
exempt some entities from its requirements.  The adoption of FIN 46 did not have
a significant impact on the Company's results of operations,  financial position
or cash flows.

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

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

Note 2.   Financial condition and basis of presentation

The Company has incurred  substantial  operating  losses and negative cash flows
from operations since inception and had an accumulated  deficit of $81.6 million
and a working  capital  deficit of $4.1  million at December  28, 2003 and is in
default on its current  and long term notes  payable.  The Company has  received
waives from all of its note  holders with the  exception of Laurus.  The Company
must raise  additional  cash to continue to fund its  operations.  These matters
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  The Company has financed its  operations  principally  through the net
proceeds from debt and equity offerings.  The Company's ability to continue as a
going  concern is dependant  upon  numerous  factors,  including  its ability to
obtain  additional  financing,  its  ability  to  increase  its  level of future
revenues or its ability to reduce operating expenses. The accompanying financial
statements  have been  prepared on the basis that the Company will continue as a
going concern and do not include any  adjustments to reflect the possible future
effects on the  recoverability of assets and liquidation of liabilities that may
result from this uncertainty.

While the Company has raised $1.1 million additional cash subsequent to December
28,  2003  from the sale of its debt  and  equity  securities,  it is in need of
raising additional cash by the end of the first quarter of 2004. At December 28,
2003, the Company had cash and cash equivalents of  approximately  $0.3 million.
The  Company  has used a  combination  of cash and cash  equivalents,  operating
revenues  and  proceeds of  borrowings  to meet its  immediate  cash needs.  The
Company is attempting  to conserve cash by reducing  expenses and by delaying or
deferring  payments  to  some  of the  Company's  suppliers  and on  some of the
Company's leases. Poor financial results,  inability to comply with the terms of
borrowings,  unanticipated expenses or unanticipated  opportunities that require
financial  commitments  could  give rise to  additional  financing  requirements
sooner than expected.  The Company will need to raise additional cash to finance
its operations, as well as to enhance operations, fund any expansion, respond to
competitive  pressures and repay borrowings when they become due. If the Company
raises  additional  funds  through the  issuance of equity or  convertible  debt
securities,  the percentage ownership of existing shareholders would be reduced,
and these securities may have rights,  preferences or privileges senior to those
of the Company's  common stock.  There can be no assurance that the Company will
be able to obtain additional  financing at terms favorable to the Company, or at
all, reduce expenses or successfully complete other steps to continue as a going
concern. If the Company is unable to obtain sufficient funds to satisfy its cash
requirements  within the required timeframe on acceptable terms, the Company may
be forced to curtail  operations,  dispose of assets,  or seek extended  payment
terms. Such events would materially and adversely affect the Company's financial
position  and  results  of  operations.  In the event  that  such  steps are not
sufficient,  or that Company directors and management  believe that such actions
will  not  be  sufficient,  the  Company  may be  required  to  discontinue  its
operations.



                                       45
<PAGE>

Note 3.  Property and equipment

Property and equipment consist of the following (in thousands):

                                                December 28,      December 29,
                                                    2003              2002
                                                  --------          --------
Leasehold improvements ..................         $  9,202          $  9,953
Furniture, fixtures, and equipment ......            9,940            10,810
Vehicles ................................            1,698             1,885
                                                  --------          --------
     Total property and equipment .......           20,840            22,648
Accumulated depreciation and amortization          (16,364)          (14,751)
                                                  --------          --------
Property and equipment, net .............         $  4,476          $  7,897
                                                  ========          ========


Substantially  all of the  Company's  assets  have been  pledged  as  collateral
pursuant to terms of the Company's borrowing agreements.

Pursuant  to a plan to  close  its  four  company  owned  central  kitchens  and
outsource production of the Company's branded food products, the Los Angeles and
Chicago central  kitchens were closed in late 2002. The Company  recorded a loss
on disposition of these facilities of approximately  $1.2 million.  During 2003,
the  Company  recorded  an  impairment   write-down  of  long-lived   assets  of
approximately  $1.2 million primarily  related to certain cafe locations.  These
write-downs  consisted  primarily  of  leasehold  improvements  and, to a lesser
extent,  equipment.  As a result of shortening the estimated  remaining lives of
central  kitchens,  the  Company  recorded  additional  depreciation  expense of
approximately $0.9 million in 2002.

Note 4.   Notes payable to Laurus

In June 2002,  the Company  entered into a Securities  Purchase  Agreement  with
Laurus Master Fund,  Ltd.  ("Laurus") in connection with the issuance of a $1.25
million  14%  convertible  note (the  "14%  convertible  note") to Laurus  and a
warrant to purchase  250,000  shares of common stock at exercise  prices ranging
from $1.43 to $1.95.  The 14% convertible note is  collateralized  by all of the
Company's  assets and was initially  convertible into 1,041,667 shares of common
stock. In December 2002,  certain terms of the 14% convertible note were amended
to, among other things, change the Fixed Conversion Price to $0.50 per share and
defer principal payments until March 2003.  Additionally,  in December 2002, the
Company issued to Laurus a warrant to purchase 150,000 shares of common stock at
an exercise  price of $0.50 per share.  In January  2003,  convertible  notes of
approximately  $8,000 were converted into 40,200 shares of company stock. During
the fiscal quarter ended March 30, 2003, the 14% convertible note was amended to
among other  things,  change the fixed  conversion  price to $0.10 per share and
defer principal payments, under certain conditions,  to July 2003. Additionally,
in March 2003,  terms of the 250,000  warrants  issued in June 2002 were amended
to, among other things, change the exercise price to $0.10 per share and suspend
the right of Laurus to exercise  the warrant  until the earlier of June 30, 2003
or the closing on an investment by Deutsche Bank or any of its affiliates.  As a
result of the amended  conversion price for the notes and exercise price for the
warrants  being less than the market price of the common stock on the  amendment
date, the Company recorded the related beneficial  conversion features estimated
fair value of  $107,000  as original  issue  discount  and an increase in common
stock and additional  paid-in capital.  In July 2003, the terms of the note were
further amended to provide that,  upon completion of a financing  agreement with
Deutsche Bank London Ag ("DB"), an affiliate of Deutsche Bank, the Company would
make a $300,000  principal payment,  and pay the remaining  principal amount and
accrued interest, plus a $75,000 fee relating to the $300,000 prepayment,  in 12
equal installments beginning in September 2003. In August 2003, the DB financing
was completed and the Company made the $300,000 payment. On October 1, 2003, the
Company  was in  arrears  on its  interest  and  principal  payments  to Laurus.
Subsequently, in October 2003 the Company received a waiver from Laurus in which
Laurus  agreed to waive any  defaults  resulting  from the late  payment  of the
monthly  amount due October 1, 2003. In addition,  Laurus agreed to postpone all
payments that would have become due and payable  under the note between  October
1, 2003 and  November  15, 2003 to November 16, 2003 and waived any defaults and
penalties resulting from such postponement of payments. The Company has not made
any  payments  due under the note  since  October  24,  2003 and as a result the
Company  is  currently  in  default  under  the note  with  Laurus.  Laurus  may
accelerate  the payment due under the note or take other action to enforce their
rights with respect to the amounts due. Such actions  could include  foreclosure
on the  Company's  assets or causing  the  Company to enter in to  involuntarily
reorganization.



                                       46
<PAGE>

Note 5.   Notes payable to shareholders and Series F and G Preferred Stock


In March 2003, the Company sold $2.0 million in secured promissory notes, Series
D  Convertible  Preferred  Stock  ("Series D Preferred  Stock") and  warrants to
purchase  common stock to Briazz  Venture,  L.L.C.  ("BV") pursuant to which the
Company  issued a $2.0 million  secured  promissory  note in  consideration  for
approximately  $0.55  million  in  cash  and  conversion  of the  $1.45  million
principal amount of outstanding  demand notes issued to Flying Food Group L.L.C.
("FFG") and its affiliates, $450,000 of which was borrowed by the Company during
January and February 2003. BV is controlled by a principal  executive officer of
FFG. Proceeds from the offering were used for working capital.  The Company also
issued a five-year warrant  exercisable for 1,193,546 shares of its common stock
at a price per share of $0.50,  and 100 shares of Series D Preferred  Stock, and
granted  registration  rights  covering the shares of common stock issuable upon
conversion  of the  preferred  stock and  exercise of the  warrant.  The Company
recorded  the  estimated  fair  value of  warrants  issued,  which  approximated
$20,000,  as original  issue  discount to be amortized over the warrant term. In
August  2003,  upon  issuance of Series F preferred  stock,  the  warrants  were
cancelled and the unamortized balance was expensed.  The Company agreed to cause
up to one person  designated  by FFG to be appointed to the  Company's  Board of
Directors,  subject to increase upon receiving shareholder approval. The Company
agreed that, if the Company  received  shareholder  approval,  the Company would
cause  up to five  persons  designated  by BV to be  appointed  to its  Board of
Directors,  in  accordance  with the  rules  and  regulations  of  Nasdaq or any
exchange on which the Company's common stock is listed.  The promissory note was
secured  by all of the  Company's  assets  and bore  interest  at 10% per  year.
Interest was payable monthly in arrears,  in cash. The notes were to mature, and
all  principal  and accrued and unpaid  interest  was to become due, on March 6,
2004.  The terms of the  notes  included  certain  covenants,  including,  among
others,  restrictions  on the payment of  dividends,  limitation  on  additional
indebtedness, and compliance with financial covenants.

In April 2003, the Company sold $550,000 in secured  promissory notes,  Series E
Convertible  Preferred  Stock  ("Series E  Preferred  Stock")  and  warrants  to
purchase common stock to Spinnaker  Investment Partners L.P.  ("Spinnaker").  In
consideration  for  $550,000 in cash,  Spinnaker  was issued a $550,000  secured
promissory  note, a five-year  warrant  exercisable for 1,193,546  shares of the
Company's  common stock at a price per share of $0.50, and 25 shares of Series E
Preferred  Stock.  The terms of the note,  warrant and Series E Preferred  Stock
were  substantially  similar  to the terms of the  note,  warrant  and  Series D
Preferred Stock issued to BV in March 2003. . The Company recorded the estimated
fair value of warrants issued,  which  approximated  $17,000,  as original issue
discount to be amortized over the warrant term. In August 2003, upon issuance of
Series F preferred  stock,  the  warrants  were  cancelled  and the  unamortized
balance  was  expensed.  The  Company  also  agreed  to cause  up to one  person
designated  by Spinnaker to be appointed to the  Company's  Board of  Directors.
Proceeds of the  financing  were used for working  capital,  after  deduction of
expenses and a $50,000  management  fee payable to Spinnaker  Capital  Partners,
L.L.C. In connection with the financing,  Spinnaker, Laurus, BV and FFG, entered
into an  inter-creditor  agreement  in which they agreed  that their  respective
security interests in the Company's assets would rank equally in priority.

In May 2003,  the  Company  entered  into an  agreement  with DB, BV,  Spinnaker
(collectively,  the "Investors"),  and Delafield Hambrecht,  Inc.  ("Delafield")
providing  for the issuance of an  aggregate  of $6.0 million of senior  secured
non-convertible  promissory  notes  ("Senior  Notes")  and  shares  of  Series F
Convertible  Preferred Stock ("Series F Preferred  Stock") to the Investors.  In
July 2003, the Company's shareholders approved both the conversion of the Series
D and  Series  E  Preferred  Stock  held by BV and  Spinnaker  and the  proposed
financing  with the Investors.  As a result of this  approval,  the Series D and
Series E Preferred Stock became  convertible into shares of the Company's common
stock and the warrants issued to BV and Spinnaker were terminated.

In August  2003,  the Company  issued $6.0  million of Senior  Notes to DB ($3.4
million),  BV ($2.0  million),  Spinnaker  ($.5  million),  and Delafield  ($0.1
million). The Company also issued to the Investors and Delafield an aggregate of
7,643,841 shares of Series F Preferred Stock that are initially convertible into
76,438,410 shares of common stock at an initial conversion price $0.10 per share
of common stock.  The Series F preferred  stock has no dividends or  liquidation
preferences.  The Senior Notes are due two years from  issuance,  bear interest,
payable  quarterly,  at LIBOR  plus 1%,  and are  collateralized  by a  security
interest in all of the Company's assets pursuant to an inter-creditor  agreement
among note  holders and Laurus.  The Senior Notes are not  convertible,  but the
conversion  price of the Series F Preferred Stock may be satisfied by the holder
surrendering a portion of the notes for cancellation. In the event that the fair
market  price of the common stock  exceeds the  conversion  price,  the Series F
Preferred Stock may also be converted  pursuant to a cashless  exercise feature.
The Company also granted registration rights covering the shares of common stock
issuable upon conversion of the Series F Preferred  Stock, the right to name new
executive officers to be appointed by the Company, and the right to designate up
to five of the Company's directors to DB (2), BV (2) and Spinnaker (1).



                                       47
<PAGE>

The securities  issued to DB, BV, and Spinnaker were issued in  consideration of
(i) $3.4  million of cash from DB, (ii)  cancellation  of the Series D Preferred
Stock and $2  million  of the note held by BV,  and  (iii)  cancellation  of the
Series E  Preferred  Stock and  $0.55  million  of the note  held by  Spinnaker,
respectively.  The  Company  issued the  securities  to  Delafield,  made a cash
payment to  Delafield of $100,000 at closing,  and in October paid  Delafield an
additional  $100,000 in full  satisfaction of a change of control fee previously
owed by the Company to Delafield. The Company used a portion of the $3.4 million
of new funds raised to repay certain existing  indebtedness,  including $300,000
of  the  amounts  due to  Laurus  pursuant  to the  14%  convertible  note,  the
aforementioned payments of $200,000 to Delafield, $530,000 of professional fees,
including fees related to the  transaction,  and payment of $1.0 million owed to
FFG pursuant to the food production agreement.

The Company recorded a debt discount of  approximately  $1.5 million relating to
the issuance of the Series F Preferred Stock,  such value being determined based
upon the estimated relative fair value of the debt and Series F Preferred Stock.
The market price of the Company's  common stock exceeded the conversion price of
the Series F Preferred Stock on the date of issuance.  As a result,  the Company
also recorded a beneficial  conversion  feature in  accordance  with EITF 00- 27
"Application of Issue 98-5 to Certain Convertible  Instruments" upon issuance of
the Series F Preferred  Stock at its estimated  fair value of $1.5 million.  The
beneficial  conversion  feature  is  analogous  to a non-cash  dividend  and was
immediately  recognized  as  a  return  to  the  preferred  shareholders.   This
beneficial conversion feature increased the net loss to common shareholders.

In  December  2003,  the Company  issued $1 million of Senior  Notes to DB ($0.5
million),  and to the Company's founder ($0.5 million).  The Company also issued
an aggregate of 1,259,446  shares of Series G Preferred Stock that are initially
convertible  into  12,594,460  shares of common  stock at an initial  conversion
price $0.10 per share of common stock. Terms of the Series G preferred stock are
substantially  the same as Series  F. The  Senior  Notes are due two years  from
issuance,  bear  interest,   payable  quarterly,  at  LIBOR  plus  1%,  and  are
collateralized by a security interest in all of the Company's assets pursuant to
an inter-creditor  agreement among note holders and Laurus. The Senior Notes are
not convertible, but the conversion price of the Series G Preferred Stock may be
satisfied by the holder surrendering a portion of the notes for cancellation. In
the event that the fair market price of the common stock exceeds the  conversion
price, the Series G Preferred Stock may also be converted pursuant to a cashless
exercise  feature.  The Company also granted  registration  rights  covering the
shares of common stock issuable upon conversion of the Series G Preferred Stock.
The  securities   issued  to  DB  and  the  Company's  founder  were  issued  in
consideration of (i) $500,000 of cash from DB and (ii) $500,000 repayment by the
Company's  founder of amounts  owed by the  Company  pursuant to its former note
payable to US Bank.

The Company  recorded a debt discount of approximately  $246,000,  its estimated
relative fair value,  relating to the issuance of the Series G Preferred  Stock.
The market price of the Company's  common stock exceeded the conversion price of
the Series G Preferred Stock on the date of issuance.  As a result,  the Company
also recorded a beneficial  conversion  feature in  accordance  with EITF 00- 27
"Application of Issue 98-5 to Certain Convertible  Instruments" upon issuance of
the Series G Preferred  Stock at its estimated  relative fair value of $246,000.
The beneficial  conversion  feature is analogous to a non-cash  dividend and was
immediately  recognized  as  a  return  to  the  preferred  shareholders.   This
beneficial conversion feature increased the net loss to common shareholders.

Subsequently,  in March 2004 the  Company  received a waiver  from DB, BV,  FFG,
Spinnaker,  Delafield,  and Victor D. Alhadeff in which they agreed to waive any
defaults with respect to  non-payment of interest until June 30, 2004 and agreed
to delay payment of any and all accrued but unpaid interest to July 5, 2004, and
waived any defaults and penalties resulting from the postponement of payments.



                                       48
<PAGE>

Notes payable consist of the following (in thousands):

                                            December 28,    December 29,
                                                2003            2002
                                              --------       --------
Demand notes payable to related party .         $   --         $1,025
14% convertible notes .................            643            890
Senior notes payable to related parties          5,563             --
Note payable to bank ..................             --            500
                                              --------       --------
Total notes payble ....................         $6,206         $2,415
                                              ========       ========

The senior notes payable to related  parties is all due in the fiscal year ended
2005.

Note 6. Mandatorily  redeemable  convertible  preferred stock and  stockholders'
equity

The Company's  initial  public  offering of 2 million shares of common stock was
effective  May 1, 2001,  and the  offering  closed on May 7, 2001.  Net proceeds
after deduction of expenses totaled approximately $13.6 million.

Immediately prior to the closing date of the initial public offering, all of the
redeemable convertible preferred stock outstanding  automatically converted into
common stock at their respective  conversion  rates. The conversion  resulted in
the issuance of  approximately  3,816,000  shares of common  stock.  Mandatorily
redeemable convertible preferred stock activity from January 1, 2001 through May
7, 2001,  the closing  date of the  Company's  initial  public  offering  was as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                       Series A                   Series B           Series C
                                                             ----------------------------    -----------------   -------------------
                                                              Shares   Amount     Shares     Amount    Shares     Amount    Total
                                                             --------  --------  --------    -------- --------   --------  --------
<S>                                                                 <C>                 <C>  <C>         <C>     <C>       <C>
Balance at January 1, 2001 .................................        2  $ 10,984         3    $ 23,104    3,121   $ 19,521  $ 53,609
Issuance of Series C  preferred stock, net of issuance costs       --        --        --          --      508      3,034     3,034
Issuance of Series C  preferred stock for services .........       --        --        --          --       19        154       154
Accretion of mandatorily redeemable preferred stock ........       --       226        --         493       --        565     1,284
Conversion of preferred stock to common stock ..............       (2)  (11,210)       (3)    (23,597)  (3,648)   (23,274)  (58,081)
                                                             --------  --------  --------    -------- --------   --------  --------
Balance at December 30, 2001 ...............................       --  $     --        --    $     --       --   $     --  $     --
                                                             ========  ========  ========    ======== ========   ========  ========
</TABLE>


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 dates of such  issuances,  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"  upon issuance of the preferred
stock as the difference  between  conversion  price and the fair value of common
stock   multiplied  by  the  number  of  shares  into  which  the  security  was
convertible.  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  using the  effective  interest
method. As of May 1, 2001, the beneficial conversion feature of approximately $3
million was fully  amortized  upon  conversion  of Series C  preferred  stock to
common stock. This beneficial  conversion  feature was recognized as a dividend,
increasing the net loss attributable to common stockholders.

Warrants outstanding to purchase 907,240 shares of Series C preferred stock were
converted  into  warrants to purchase  947,817  shares of 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  later during 2001 when the market price of
the Company's common stock dropped to a level below the exercise price of $5.74.
Through  December 28, 2003,  the market price of Company's  stock remained below
the exercise price and no additional expense has been recorded. During 2003, all
of these outstanding warrants expired.



                                       49
<PAGE>

Note 7.  Stock Options

The Company  maintains the BRIAZZ 1996 Stock Option Plan (the "Plan") to provide
for  granting of  incentive  stock  options and  nonqualified  stock  options to
employees, directors,  consultants and certain other non-employees as determined
by the Plan Administrator. The Company has authorized 1,165,000 shares of common
stock for issuance  under the Plan.  The date of grant,  option  price,  vesting
period and other terms specific to options granted under the Plan are determined
by the Plan  Administrator.  Options granted under the Plan generally expire ten
years  from date of grant and vest over  periods  ranging  from date of grant to
five years.  Option  expiration  dates range from January 2006 to November 2012.
The following  summarizes stock option activity for the three fiscal years ended
December 28, 2003 (shares in thousands, except exercise price):


<TABLE>
<CAPTION>
                                                                       WEIGHTED-AVERAGE
                                                             SHARES    EXERCISE PRICE
                                                             ------    --------------
<S>                                                             <C>        <C>
Options outstanding, January 1, 2001 .................          521        $8.83
     Options granted .................................          465         4.13
     Options exercised ...............................           (4)        1.56
     Options forfeited ...............................          (74)        5.45
                                                             ------        -----
Options outstanding, December 30, 2001 ...............          908         7.00
     Options granted .................................          235         1.01
     Options forfeited ...............................          (93)        3.63
                                                             ------        -----
Options outstanding, December 29, 2002 ...............        1,050         5.96
     Options granted .................................        5,918          .16
     Options forfeited ...............................         (444)        1.46
                                                             ------        -----
Options outstanding, December 28, 2003 ...............        6,524        $ .86
</TABLE>

The fair value of options  granted were estimated  using an  option-price  model
with the following assumptions:


                                        2003             2002             2001
                                      -------         --------         --------
Risk-free interest rate ......            3.7%        4.0-5.2%         4.7-5.3%
Expected lives ...............        7 years         7 years          7 years
Expected volatility ..........             45%              45%              45%


Weighted-average  fair  value and  exercise  price of  options  granted  were as
follows during years ended December:

<TABLE>
<CAPTION>
                                                            WEIGHTED-AVERAGE
                            -------------------------------------------------------------------------------
                                          EXERCISE PRICE                              FAIR VALUE
                            -----------------------------------------  ------------------------------------
                               2003          2002          2001          2003          2002          2001
                             --------      --------      --------      --------      --------      --------
<S>                          <C>           <C>           <C>           <C>           <C>           <C>
Exercise price at grant
      Lower than market      $     --      $     --      $   4.67      $     --      $     --      $   7.42
      Equal to market        $   0.16      $   1.01      $   4.10      $   0.08      $   0.55      $   2.25
</TABLE>

The following table summarizes information about options outstanding at December
28, 2003 (shares in thousands):


                                       50
<PAGE>

<TABLE>
<CAPTION>
                                      Options outstanding                       Options exercisable
                   ---------------------------------------------  ------------------------------------
                                                   Weighted-                          Weighted-
                                  Remaining         average                            average
                                 contractual       exercise                           exercise
Exercise Price       Shares          life            price          Shares              price
-----------------  ------------  -------------  ----------------  ------------  ----------------------
<S>       <C>            <C>              <C>            <C>              <C>                  <C>
          $ 0.16         5,918            9.9            $ 0.16           708                  $ 0.16
            0.69            52            8.6              0.69            52                    0.69
     0.95 - 1.00             8            7.9              0.97             8                    0.97
            1.26            58            8.3              1.26            58                    1.26
     1.50 - 1.66           227            5.6              1.51           227                    1.51
            2.34             2            7.6              2.34             2                    2.34
     4.70 - 6.00           257            7.4              4.95           257                    4.95
   $600 - $3,900             2      2.6 - 5.1          1,819.95             2                1,819.95
                    -----------                                   ------------
                         6,524                                          1,314
                   ============                                   ============
</TABLE>

During  fiscal 2001 and 2000,  the Company  granted  stock  options to employees
(which  originally  vested over four  years) and  directors  at exercise  prices
deemed to be below the fair value of the underlying  stock on the date of grant.
Deferred  stock  compensation  is being  amortized  generally  over a  four-year
vesting period,  until March 2003,  when the Company  accelerated the vesting of
these  stock  options  and  the  remaining   deferred  stock   compensation  was
recognized.  As a result of these grants,  the Company  recorded  deferred stock
compensation of  approximately  $218,000,  $356,000 and $209,000 in fiscal 2003,
2002 and 2001, respectively.

In July 2003, the Company's  Articles of Incorporation  were amended to increase
the  authorized  shares  of  common  stock to 250  million  shares,  a new stock
incentive plan was adopted that  authorizes the issuance of 12 million shares of
common  stock upon  exercise  of stock  options or upon the grant of  restricted
stock,  and the Company  agreed to issue to certain new and existing  members of
Company   management  shares  of  Series  F  Preferred  Stock  convertible  into
approximately  5.3  million  shares of Company  common  stock and stock  options
exercisable for  approximately 5.4 million shares of Company common stock. As of
December 28, 2003, the Company had issued to certain new and existing members of
Company  management  shares of Series F  Preferred  Stock  convertible  into 4.5
million  shares  of  Company  common  stock and stock  options  exercisable  for
approximately 5.4 million shares of Company common stock.

Note 8.  Leases

The Company  leases cafes,  central  kitchens and office  facilities and certain
office  equipment  under terms of operating  leases,  which typically cover five
years,  some of which have options for an additional  five year term.  Rents are
either fixed base amounts, variable amounts determined as a percentage of sales,
or a combination of base and percentage of sales.  Lease provisions also require
additional  payments for maintenance  and other expenses.  Rent is expensed on a
straight-line  basis over the term of the lease.  Differences between the amount
paid and  expensed is  recorded  as a deferred  credit.  Accrued  rent  includes
$476,000  and  $391,000 of deferred  rent at December  28, 2003 and December 29,
2002,  respectively.  Rent expense  approximated $2.7 million,  $3.1 million and
$2.6 million,  during fiscal 2003 and 2002 and 2001,  respectively.  The Company
also leases certain of its vehicles  pursuant to capital leases.  Minimum annual
commitments for leases at December 28, 2003 are as follows (in thousands):

                                                Operating      Capital
                                              -------------- -------------
2004                                                 $ 2,008        $ 139
2005                                                   1,990          113
2006                                                   1,593           53
2007                                                   1,039           29
2008                                                     810            -
                                               ------------- -------------
                                                     $7,440           334
                                              ==============
     Less: amount representing interest                               (96)
     ---------------------------------------------------------------------
     Present value of future minimum lease payments                   238
     Current                                                         (100)
                                                             -------------
     Non-current                                                    $ 138
                                                             =============





                                       51
<PAGE>

Note 9.  Income taxes

No provision  for income taxes has been  recorded in fiscal 2003,  2002 and 2001
due to losses incurred. A valuation allowance has been recorded against deferred
tax assets as of December 28, 2003 and  December  29,  2002,  as it has not been
determined  that it is more likely than not that these  deferred tax assets will
be  realized.  As of December  28,  2003,  the Company  has net  operating  loss
carryforwards  of  approximately  $64 million for federal  income tax  purposes,
which expire beginning 2011 through 2023. As a result of ownership changes,  the
Company may be subject to annual limitations on the amount of net operating loss
which can be utilized in any tax year.

The income tax provision reconciled to the tax computed at the statutory federal
rate was as follows (in thousands):

<TABLE>
<CAPTION>
                                        December 28,    December 29,   December 30,
                                             2003            2002           2001
                                        -----------------------------------------------
<S>                                            <C>            <C>             <C>
Tax benefit at statutory rate                  $ (3,264)      $ (5,144)       $ (2,313)
State income tax benefit                           (288)          (472)           (204)
Non-deductible and other expenses                     2            250               0
Other                                               177              -            (569)
Increase in valuation allowance                   3,373          5,366           3,086
                                        -----------------------------------------------
                                                    $ -            $ -             $ -
                                        ===============================================
</TABLE>

Deferred income taxes consist of the following (in thousands):

<TABLE>
                                                             December 28,    December 29,
                                                                 2003            2002
                                                           -------------------------------
<S>                                                                <C>            <C>
Excess book depreciation and amortization over tax                 $ 1,656        $ 1,689
Impairment provision                                                 1,235            835
Stock compensation expense                                             462            381
Net operating loss carryforwards                                    23,068         20,077
Other                                                                  156            222
                                                           -------------------------------
                                                                    26,577         23,204
Less: Valuation allowance                                          (26,577)       (23,204)
                                                           -------------------------------
Net deferred tax assets                                                $ -            $ -
                                                           ===============================
</TABLE>

Note 9.   Segment information

The Company has managed its business through four reportable  segments:  Retail,
Branded Sales, Kitchens and General and Administrative. Retail consists of sales
generated through the Company's cafes.  Branded Sales consists of two subgroups:
1) box lunch,  catering and vending and 2) wholesale and grocery.  Branded Sales
subgroups  consist  of sales  which are  aggregated  because  they have  similar
economic  characteristics.  Kitchens consist of unallocated cost of products and
packaging,  along with  unallocated  costs of kitchen  operations.  General  and
Administrative  consists of costs  incurred by the  corporate  office as well as
those  administrative  costs incurred by Retail.  Management  evaluates  segment
performance  primarily  based on sales  and  segment  operating  income  (loss).
Information  regarding the Company's  assets is not  disaggregated by segment or
otherwise.  The following table presents certain financial  information for each
reportable segment (amounts in thousands):



                                       52
<PAGE>

<TABLE>
<CAPTION>
                                                                                         FISCAL YEARS ENDED
                                                                              ------------------------------------------
                                                                              DECEMBER 28,   DECEMBER 29,   DECEMBER 30,
                                                                                 2003           2002           2001
                                                                              ------------   ------------   ------------
<S>                                                                            <C>            <C>            <C>
Retail
Net Sales .................................................................    $ 20,839       $ 22,327       $ 22,737
Cost of food and packaging ................................................      (9,743)        (8,136)        (8,266)
                                                                               --------       --------       --------
                                                                                 11,096         14,191         14,471
Cost of operations ........................................................     (12,205)       (14,413)       (12,117)
Provision for asset impairment, store closure and loss on disposal ........      (1,102)        (2,342)           (26)
                                                                               --------       --------       --------
Income (loss) from operations .............................................    $ (2,211)      $ (2,564)      $  2,328
                                                                               ========       ========       ========
BRANDED SALES
         BOX LUNCH, CATERING AND VENDING
         Net Sales ........................................................    $  3,310       $  4,864       $  5,471
         Cost of food and packaging .......................................      (1,524)        (1,510)        (1,875)
                                                                               --------       --------       --------
                                                                                  1,786          3,354          3,596
                                                                               --------       --------       --------
         WHOLESALE AND GROCERY
         Net Sales ........................................................       2,790          3,402          3,821
         Cost of food and packaging .......................................      (2,037)        (1,779)        (1,917)
                                                                               --------       --------       --------
                                                                                    753          1,623          1,904
                                                                               --------       --------       --------
         TOTAL BRANDED SALES
         Net Sales ........................................................       6,100          8,266          9,292
         Cost of food and packaging .......................................      (3,561)        (3,289)        (3,792)
                                                                               --------       --------       --------
                                                                                  2,539          4,977          5,500
         Cost of operations ...............................................      (2,361)        (4,346)        (4,231)
         Provision for asset impairment, store closure and loss on disposal           2            (13)            --
                                                                               --------       --------       --------
         Income from operations ...........................................    $    155       $    618       $  1,269
                                                                               ========       ========       ========
KITCHENS
Unallocated cost of food and packaging ....................................    $   (310)      $   (425)      $   (422)
Unallocated cost of operations ............................................        (827)        (4,685)        (3,295)
Provision for asset impairment, store closure and loss on disposal ........          (7)        (1,073)            --
                                                                               --------       --------       --------
Loss from operations ......................................................    $ (1,144)      $ (6,183)      $ (3,717)
                                                                               ========       ========       ========
GENERAL AND ADMINISTRATIVE
Loss from operations ......................................................    $ (5,148)      $ (6,415)      $ (6,837)
                                                                               ========       ========       ========
TOTAL
Net Sales .................................................................    $ 26,939       $ 30,593       $ 32,029
Cost of food and packaging ................................................     (13,614)       (11,850)       (12,480)
                                                                               --------       --------       --------
                                                                                 13,325         18,743         19,549
Cost of operations ........................................................     (20,541)       (29,859)       (26,480)
Provision for asset impairment, store closure and loss on disposal ........      (1,058)        (3,428)           (26)
                                                                               --------       --------       --------
Loss from operations ......................................................    $ (8,274)      $(14,544)      $ (6,957)
                                                                               ========       ========       ========
</TABLE>

Note 11.   Commitments and contingencies

The Company is subject to various legal proceedings and claims that arise in the
ordinary  course of business.  Company  management  and legal counsel  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.

Note 12. Related Parties

As further  described  in Note 5, in March and April 2003,  the  Company  issued
securities to BV and Spinnaker,  such that, subject to shareholder approval, FFG
and  Spinnaker  could own  approximately  66.7% and  16.7%  respectively  of the
Company's common stock on a fully-diluted,  post conversion basis.  Further,  as
described in Note 5, in August 2003, the Company cancelled securities previously
issued to BV and Spinnaker and issued new  securities to DB, BV, and  Spinnaker.
Additionally,  in December  2003, as described in Note 5, the Company issued new
securities to DB such that DB, BV, and Spinnaker  could own  approximately  48%,
25%, and 6%,  respectively,  of the Company's  common stock on a  fully-diluted,
post conversion basis.



                                       53
<PAGE>

In December 2002, the Company entered into a Food Production Agreement, pursuant
to which the Company now  purchases  its food  products from FFG in the Chicago,
Los Angeles and Seattle  markets.  The agreement has a term of ten years subject
to earlier  termination  by either party if the other party  becomes  insolvent.
Purchases  from FFG  approximated  $8.30 million and $.45 million for the fiscal
years ended December 28, 2003 and December 29, 2002,  respectively.  Included in
accounts payable due to related party at December 28, 2003 and December 29, 2002
is $995,000 and $200,000, respectively due to FFG.

Note 13. Subsequent Events

On  January  15,  2004,  Briazz,  Inc.  entered  into an  Amended  and  Restated
Securities  Purchase  Agreement (the  "Securities  Purchase  Agreement") with DB
Advisors,  LLC,  Flying  Food  Group,  LLC,  Dorsey & Whitney,  LLP,  and Victor
Alhadeff,  the  Company's  Chairman,   (collectively,  the  "Investors")  for  a
financing totaling $1.73 million,  which includes $1.1 million of cash and $0.63
million  conversion of accounts  payable.  Pursuant to the  Securities  Purchase
Agreement,  the Company has agreed to sell a senior secured  non-convertible two
year notes in the amount of $365,000 and 467,464  shares of Series G convertible
preferred stock to DB Advisors, LLC for cash proceeds of approximately $365,000.
Additionally the Company's  Chairman Victor Alhadeff purchased a $235,000 senior
secured non-convertible two year note and 301,088 shares of Series G convertible
preferred  stock  for cash  proceeds  of  approximately  $235,000.  In this same
offering,  Dorsey & Whitney LLP, the Company's  legal counsel  agreed to convert
$130,000 of its  accounts  receivable  for legal  services to a $130,000  senior
secured  non-convertible two year note and 23,964 shares of Series G convertible
preferred stock. These notes have a maturity date of January 15, 2006.  Pursuant
to the same  Securities  Purchase  Agreement,  the  Company  sold to Flying Food
Group, LLC and DB Advisors,  LLC each a $500,000 senior secured  non-convertible
note that  matures on March 31, 2004,  unless  extended by either party at their
option,  and 612 shares of Series G convertible  preferred stock.  Either party,
upon mutual agreement with the Company,  has the right to extend the maturity of
such  party's  note to January  15,  2006.  If and when either of these notes is
extended  the  Company  will  issue an  additional  640,000  shares  of Series G
convertible  preferred stock for each note converted.  All notes discussed above
will  bear  interest  at one month  LIBOR  rate plus 1%,  and are  secured  by a
security  interest in the Company's assets.  The Series G convertible  preferred
stock is  convertible  into shares of common stock at an exercise price of $0.10
per common share.

On March 22,  2004,  pursuant  to the  expiration  of a license  agreement,  the
Company closed two cafes in the Seattle market.

Note 14.  Quarterly financial information (unaudited)

Summarized  quarterly financial  information in fiscal years 2003 and 2002 is as
follows (in thousands except per share data):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                 First              Second             Third            Fourth
------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>               <C>               <C>               <C>
2003
        Sales                                                   $ 6,961           $ 6,839           $ 6,645           $ 6,494
        Loss from operations (b)                                 (2,391)           (3,335)           (1,458)           (1,090)
        Net loss                                                 (2,543)           (3,646)           (1,954)           (1,455)
        Net loss per common share - basic and diluted           $ (0.43)          $ (0.61)          $ (0.58)          $ (0.27)

------------------------------------------------------------------------------------------------------------------------------

2002
        Sales                                                   $ 7,438           $ 8,109           $ 7,774           $ 7,272
        Loss from operations (a)                                 (2,207)           (2,410)           (4,650)           (5,278)
        Net loss                                                 (2,185)           (2,527)           (4,762)           (5,656)
        Net loss per common share - basic and diluted           $ (0.37)          $ (0.43)          $ (0.81)          $ (0.96)

------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(a)      The third quarter of 2002 includes a $2.2 million  provision  primarily
         for asset  impairment  relating  to cafes.  The fourth  quarter of 2002
         includes a $1.2 million loss on disposal for the closure of Los Angeles
         and Chicago central  kitchens,  as well as a $0.9 million  depreciation
         expense  as a  result  of  shortening  the  lives  of  Seattle  and San
         Francisco kitchens.

(b)      The second quarter of 2003 includes a $1.1 million provision, primarily
         for asset impairment relating to certain cafes.




                                       54
<PAGE>


Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure.


On   December   17,   2003,    Briazz,    Inc.   (the    "Company")    dismissed
PricewaterhouseCoopers  LLP  ("PwC")  as the  independent  accountants  for  the
Company,  advising  PwC that  the  Audit  Committee  of the  Company's  Board of
Directors  approved  the  selection  of Grant  Thornton  LLP as the  independent
accountants of the Company on December 17, 2003.

The reports of PwC on the  Company's  financial  statements  for the years ended
December  29,  2002 and  December  30,  2001  contained  no  adverse  opinion or
disclaimer  of opinion and were not  qualified  or  modified as to  uncertainty,
audit scope,  or accounting  principle,  except that the report issued by PwC in
connection with the Company's financial  statements for the these years included
an explanatory  paragraph that  contained a reference to the  substantial  doubt
that existed regarding the Company's ability to continue as a going concern.

In  connection  with its  audits of the  Company's  financial  statements  as of
December 29, 2002 and December 30, 2001 and for the years then ended and through
December 17, 2003,  there have been no  disagreements  with PwC on any matter of
accounting principles or practices,  financial statement disclosure, or auditing
scope or procedure,  which  disagreements if not resolved to the satisfaction of
PwC would have  caused  them to make  reference  thereto in their  report on the
Company's financial statements for such years.

Other than as noted in the next two paragraphs,  during the years ended December
29, 2002 and December 30, 2001 and through December 17, 2003, there have been no
reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).

On May  13,  2003,  PwC  advised  management  and  the  Audit  Committee  that a
reportable  condition  existed.  This  reportable  condition was the result of a
significant  deficiency  as defined in Statement on Auditing  Standards  No. 60,
Communication of Internal Control Related Matters Noted in an Audit.

The significant  deficiency is the result of an aggregation of factors including
the following:

o        The Company was  operating  without a full time CFO and an  experienced
         public company  controller,  which resulted in an accounting staff that
         did not have the level of experience  necessary  for a public  Company.
         The  Company  was  relying on third  party  contractors  to provide the
         necessary  expertise to prepare GAAP and SEC reports thus  resulting in
         no member of management  having adequate  skills for effective  control
         mechanisms.  In  addition,  the Company  internally  lacked an adequate
         number of  accounting  personnel  to allow for  better  segregation  of
         duties and to adequately review worked performed.

o        The routine financial closes were slower than most public companies and
         the timing for quarterly review and filing is tight.

o        The  Sarbanes-Oxley  302  compliance  process is not well  supported by
         sub-certifications or well documented policies and procedures.

o        The Company does not have an internal audit  function,  which increases
         the burden on management and the board of directors.

Management and the Audit Committee have considered this  communication and steps
are being taken to address the points raised. These steps include increasing the
amounts and  frequencies  of account  reconciliations,  the hiring of  qualified
external  financial  consultants to evaluate and recommend  enhancements  to the
Company's  internal  control  system and a closer  monitoring  of the  Company's
financial results by the Audit Committee of the Board of Directors. In addition,
the Company has implemented a more formal budgeting process that allows for more
effective  monitoring of the Company's operations and financial results. PwC has
informed  the Company  that the  existence  of the  reportable  condition  means
internal  controls  necessary to develop reliable  financial  statements did not
exist at that time.

The  Company  requested  that  PwC  furnish  it with a letter  addressed  to the
Securities  and Exchange  Commission  stating  whether or not it agrees with the
above  statements  and such  letter  of  agreement  was filed as  Exhibit  16 to
Amendment No. 1 to Form 8-K filed on January 8, 2004.


Item 9a.   Controls and Procedures

Evaluation of Disclosure  Controls and  Procedures - Under the  supervision  and
with the  participation  of the  Company's  management,  including the Company's
Chief Executive Officer and Chief Financial  Officer,  the Company evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rule 13a-14(c) under the Exchange Act) as of December 28, 2003 (the  "Evaluation
Date").  Based  upon that  evaluation,  the Chief  Executive  Officer  and Chief
Financial  Officer  concluded  that, as of the  Evaluation  Date,  the Company's
disclosure controls and procedures were effective in timely alerting them to the
material  information  relating  to the  Company  required to be included in the
reports  that the Company  files or submits  under the  exchange  act. A control
system, no matter how well designed,  cannot provide absolute assurance that the
objectives  of the control  system are met,  and no  evaluation  of controls can
provide  absolute  assurance that all control issues of fraud,  if any, within a
company have been detected.

Changes in Internal  Controls - There were no  significant  changes  made in the
Company's  internal controls during the fourth fiscal quarter of 2003 or, to the
Company's  knowledge,  in other  factors that could  significantly  affect these
controls subsequent to the Evaluation Date.


                                       55
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

Information  with  respect to our  directors  and  executive  officers is hereby
incorporated by reference from our proxy statement,  under the caption "Election
of  Directors  and  Management  Information,"  for our 2003  annual  meeting  of
shareholders  to  be  filed  pursuant  to  Regulation  14A  promulgated  by  the
Securities and Exchange  Commission  under the Securities  Exchange Act of 1934,
which proxy  statement is  anticipated  to be filed no later than 120 days after
the end of our fiscal year ended December 28, 2003.

In March of 2004, the Company  adopted a code of ethics for its Chief  Executive
and Senior  Financial  officers.  This code of ethics is  attached  hereto as an
exhibit.

Item 11.  Executive Compensation.

There is incorporated herein by reference the information  required by this Item
to be  included  in the  2003  Proxy  Statement  under  the  caption  "Executive
Compensation" which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended December 28, 2003.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

There is incorporated herein by reference the information  required by this Item
to be included in the 2003 Proxy Statement under the caption "Voting  Securities
and Principal Shareholders" which will be filed with the Securities and Exchange
Commission  no later  than 120 days  after the close of the  fiscal  year  ended
December 28, 2003.

Item 13. Certain  Relationships and Related Transactions and Related Shareholder
Matters.


There is incorporated herein by reference the information  required by this Item
to  be  included  in  the  2003  Proxy  Statement  under  the  caption  "Certain
Relationships and Related  Transactions" which will be filed with the Securities
and  Exchange  Commission  no later  than 120 days after the close of the fiscal
year ended December 28, 2003.

Item 14.   Principal Accountant Fees and Services

There is incorporated herein by reference the information  required by this Item
to be  included  in the  2003  Proxy  Statement  under  the  caption  "Principal
Accountant  Fees and  Services"  which  will be filed  with the  Securities  and
Exchange  Commission  no later than 120 days after the close of the fiscal  year
ended December 28, 2003.



                                       56
<PAGE>

                                     PART IV

Item 15.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)  Financial Statements.  The following financial statements of Registrant and
     the Report of Independent Accountants thereon are included herewith in Item
     8 above.


                                                                     Page
                                                                     ------
Report of Independent Accountants                                       36
Balance Sheets as of December 28, 2003 and December 29, 2002            38
Statements of Operations for the years ended December 28, 2003,
      December 29, 2002 and December 30, 2001                           39
Statement of Stockholders' Equity (Deficit) for the years ended
      December 28, 2003, December 29, 2002 and December 30, 2001        40
Statements of Cash Flows for the years ended December 28, 2003,
      December 29, 2002 and December 30, 2001                           41
Notes to the Financial Statements                                       42



(b)      Reports on Form 8-K

The Company filed a Form 8-K on December 11, 2003 to report  borrowings  from DB
and Victor D. Alhadeff.

The  Company  filed a Form 8-K on  December  24,  2003 to report a change in the
Company's Certified Public Accountants.

(c)      Exhibits


Exhibit
Number         Description
------         -----------

3.1(2)         Amended and Restated Articles of Incorporation.

3.1.1(5)       Articles of Amendment filed March 5, 2003 (including  designation
               of Series D Convertible Preferred Stock).

3.1.2(6)       Articles of Amendment filed April 10, 2003 (including designation
               of Series E Convertible Preferred Stock).

3.1.3(9)       Articles of Amendment filed July 30, 2003 (including  designation
               of Series F Convertible Preferred Stock).

3.1.4          Articles   of   Amendment  filed  December  10,  2003  (including
               designation of Series G Convertible Preferred Stock).

3.2(5)         Amended and Restated Bylaws.

4.1(2)         Specimen Stock Certificate for Common Stock.

4.2(9)         Specimen  Stock  Certificate  for Series F Convertible  Preferred
               Stock.

5.1            Opinion of counsel. 10.1(1)(2) 1996 Amended Stock Option Plan.

10.2(1)(2)     Form of Option  Agreement  (1996  Plan - Fresh  Options  prior to
               February 2001).

10.3(1)(2)     Form of Option  Agreement  (1996  Plan - other  options  prior to
               February 2001).

10.4(1)(2)     2001 Employee Stock Purchase Plan.

10.5(2)        Form of Warrant (Series C Convertible Preferred Stock financing).

10.6(1)(2)     Employment  Agreement  between BRIAZZ and Charles  William Vivian
               dated July 14, 1999.

10.8(2)        Form of Registration  Rights Agreement between BRIAZZ and certain
               of our  shareholders  dated 10.7(2)  August 15, 1997, as amended.
               Agreement   between  BRIAZZ  and  Stusser  Realty  Group  Limited
               Partnership dated January 1998.

10.9(2)        Sublease between BRIAZZ and Stusser  Electric  Company  regarding
               3901 7th Avenue South, Seattle, WA dated February 6, 1998.

10.10(2)       Sublease  Amendment  between BRIAZZ and Stusser  Electric Company
               regarding  3901 7th Avenue  South,  Seattle,  WA dated August 28,
               2000.

10.11(9)       Sublease  Agreement  between BRIAZZ and Norstar  Specialty  Foods
               Inc. regarding 3901 7th Avenue South,  Seattle, WA dated March 7,
               2003.

10.12(2)       Lease between BRIAZZ and Mission-Taylor  Properties regarding 225
               Mendell St., San Francisco, CA dated June 28 1996.

10.13(2)       Amendment to Lease between BRIAZZ and  Mission-Taylor  Properties
               regarding 225 Mendell St., San Francisco, CA dated May 25, 2000.

10.14(2)       Lease between BRIAZZ and Time Realty Investments,  Inc. regarding
               200 Center St., El Segundo, CA dated December 15, 1997.

10.15(5)       Surrender of Possession and  Termination of Lease Agreement dated
               December,  2002  regarding  lease between  BRIAZZ and Time Realty
               Investments,  Inc. regarding 200 Center St., El Segundo, CA dated
               December 15, 1997.

10.16(2)       Industrial  Building  Lease  between  BRIAZZ  and  Walnut  Street
               Properties,  Inc. regarding 1642 Lake Street,  Chicago,  IL dated
               April 7, 1997.

10.17(1)(2)    Form of Option  Agreement (1996 Plan - all options since February
               2001).

10.18(2)       Noncompetition  Agreement  between  BRIAZZ and Victor D. Alhadeff
               dated October 18, 1996.

10.19(3)       Convertible  Note made by BRIAZZ in favor of Laurus  Master Fund,
               Ltd. dated June 18, 2002 in the principal amount of $1,250,000.

10.20(3)       Common Stock  Purchase  Warrant issued by BRIAZZ to Laurus Master
               Fund, Ltd. dated June 18, 2002.

10.21(3)       Security Agreement made by BRIAZZ in favor of Laurus Master Fund,
               Ltd. dated June 18, 2002.

10.22(5)       Allonge dated December 2, 2002 to the Convertible  Note issued by
               the Company to Laurus Master Fund, Ltd. on June 18, 2002.

10.24(5)       Common Stock  Purchase  Warrant issued by BRIAZZ to Laurus Master
               Fund, Ltd. dated December 2, 2002.

10.25(5)       Allonge dated  January,  2003 to the  Convertible  Note issued by
               BRIAZZ to Laurus Master Fund, Ltd. on June 18, 2002.

10.26(5)       Allonge  dated as of February  26, 2003 to the  Convertible  Note
               issued by BRIAZZ to Laurus Master Fund, Ltd. on June 18, 2002.

10.27(5)       Allonge  dated as of February  26, 2003 to the Warrant  issued by
               BRIAZZ to Laurus Master Fund, Ltd. on June 18, 2002.

10.28(9)       Letter  Agreement  dated as of July 31, 2003  between  BRIAZZ and
               Laurus Master Fund,  Ltd.  Amendment dated as of July 31, 2003 to
               the Convertible Note issued by BRIAZZ to Laurus

10.29(9)       Master Fund, Ltd. on June 18, 2002.

10.30(4)       Form of Secured Convertible Demand Note used in October 2002.

10.31(5)       Form of Secured Convertible Demand Note used in December 2002 and
               January 2003.

10.32(5)       Food Production  Agreement  between BRIAZZ and Flying Food Group,
               L.L.C. dated December 1, 2002

10.33(5)       Amended  Security  Agreement  between BRIAZZ,  Flying Food Group,
               L.L.C. and New Management, Ltd., dated December 3, 2002.

10.34(5)       Amended and Restated Purchase Agreement between BRIAZZ and Briazz
               Venture, L.L.C., dated March 5, 2003.

10.35(5)       $2,000,000  Senior  Secured  Note  issued  by  BRIAZZ in favor of
               Briazz Venture, L.L.C., dated March 6, 2003.

10.36(5)       Warrant to purchase  1,193,546  shares of Common  Stock issued by
               BRIAZZ to Briazz Venture, L.L.C. dated March 6, 2003.

10.37(5)       Amendment  dated March 6, 2003 between BRIAZZ and Briazz Venture,
               L.L.C. to Security Agreement dated December 3, 2002.

10.38(5)       Voting  Agreement  between Briazz Venture,  L.L.C.  and Victor D.
               Alhadeff, dated as of March 6, 2003.

10.39(5)       Registration  Rights Agreement between BRIAZZ and Briazz Venture,
               L.L.C., dated March 6, 2003.

10.40(6)       Purchase  agreement  between  BRIAZZ  and  Spinnaker   Investment
               Partners, L.P., dated April 10, 2003

10.41(6)       $550,000  Senior  Secured  Note  issued  by  BRIAZZ  in  favor of
               Spinnaker Investment, L.P., dated April 10, 2003

10.42(6)       Warrant to purchase  1,193,546  shares of Common  Stock issued by
               BRIAZZ to Spinnaker  Investment  Partners,  L.P., dated April 10,
               2003



                                       57
<PAGE>

10.43(6)       Amended and  Restated  Security  Agreement  by and among  BRIAZZ,
               Briazz Venture,  L.L.C. and Spinnaker Investment Partners,  L.P.,
               dated April 10, 2003

10.44(6)       Amended and  Restated  Agreement  Between  Creditors by and among
               BRIAZZ,  Laurus Master Fund, Ltd., Spinnaker Investment Partners,
               L.P.  and Flying  Food Group  L.L.C.  and any of its  affiliates,
               including but not limited to Briazz Venture,  L.L.C., dated April
               10, 2003

10.45(6)       Amended and Restated  Registration  Rights Agreement by and among
               BRIAZZ, Spinnaker Investment Partners, L.P. and Flying Food Group
               L.L.C.  and any of its  affiliates,  including but not limited to
               Briazz Venture, L.L.C., dated April 10, 2003

10.46.1(7)     Securities Purchase Agreement by and among BRIAZZ,  Deutsche Bank
               London Ag, Briazz Venture, L.L.C., Spinnaker Investment Partners,
               L.P. and Delafield Hambrecht, Inc. dated May 28, 2003.

10.46.2(8)     Amendment date August 1, 2003 to Securities Purchase Agreement by
               and among  BRIAZZ,  Deutsche  Bank  London  Ag,  Briazz  Venture,
               L.L.C.,   Spinnaker  Investment  Partners,   L.P.  and  Delafield
               Hambrecht, Inc., dated May 28, 2003

10.47(8)       Form of Note  issued on August 1, 2003 to each of  Deutsche  Bank
               London,  Ag,  Briazz  Venture,   L.L.C.,   Spinnaker   Investment
               Partners, L.P. and Delafield Hambrecht, Inc.

10.48(8)       Security  Agreement  dated August 1, 2003 among BRIAZZ,  Deutsche
               Bank London Ag and Flying Food Group, L.L.C.

10.49(8)       Intercreditor  Agreement  dated  August 1,  2003,  among  BRIAZZ,
               Laurus  Master Fund,  Ltd.,  Deutsche Bank London Ag, Flying Food
               Group, L.L.C., Briazz Venture, L.L.C., Spinnaker

10.50(8)       Registration  Right  Agreement dated August 1, 2003 among BRIAZZ,
               Laurus  Master  Fund,  Ltd.,  Deutsche  Bank  London  Ag,  Briazz
               Venture,   L.L.C.,   Spinnaker  Investment  Partners,  L.P.,  and
               Delafield Hambrecht, Inc.

10.51(8)       Letter   Agreement  dated  August  1,  2003  between  BRIAZZ  and
               Delafield Hambrecht, Inc.

10.52(9)       2003 Stock Plan

10.53.1        Securities  Purchase  Agreement by and among BRIAZZ, DB Advisors,
               LLC, and Victor D. Alhadeff dated December 10, 2003.

10.53.2        Amendment date January 15, 2004 to Securities  Purchase Agreement
               by and among BRIAZZ,  DB Advisors,  LLC, Flying Food Group,  LLC,
               Victor D. Alhadeff, Dorsey & Whitney LLP dated December 10, 2003

10.54.1        Form of Note issued on December  10, 2003 to each of DB Advisors,
               LLC, and Victor D. Alhadeff and on January 15, 2004 to each of DB
               Advisors, LLC, Flying Food Group, LLC, Dorsey & Whitney LLP

10.54.2        Form of Note issued on January  15, 2004 to each of DB  Advisors,
               LLC, and Flying Food Group, LLC,

10.55          First  Amendment to Security  Agreement  dated August 1, 2003, by
               and between  BRIAZZ,  Deutsche  Bank London Ag,  Briazz  Venture,
               L.L.C., and Spinnaker  Investment  Partners,  L.P. dated December
               10, 2003.

10.56          First Amendment to Intercreditor  Agreement dated August 1, 2003,
               by and between BRIAZZ,  Laurus Master Fund,  Ltd.,  Deutsche Bank
               London Ag, Flying Food Group,  L.L.C.,  Briazz  Venture,  L.L.C.,
               Spinnaker dated December 10, 2003

10.57          First Amendment to  Registration  Right Agreement dated August 1,
               2003 by and between  BRIAZZ,  and Deutsche  Bank London Ag, dated
               December 10, 2003

14.1           Code of Conduct For Chief Executive and Senior Financial Officers

16.1(10)       Letter from certifying accountants dated February 12, 2004

23.1           Consent of Independent Accountants

23.2           Consent of Independent Accountants

31.1           Certification  of  Chief  Executive   Officer  required  by  Rule
               13a-14(a) or Rule 15d-14(a)

31.2           Certification  of  Chief  Financial   Officer  required  by  Rule
               13a-14(a) or Rule 15d-14(a)

32.1           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.

32.2           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



                                       58
<PAGE>

(1)      Indicates management contract.

(2)      Incorporated  by  reference to our  registration  statement on Form S-1
         (No. 333-54922).

(3)      Incorporated by reference to our Form 8-K filed on July 20, 2002.

(4)      Incorporated  by  reference  to our  Form  10-Q for the  quarter  ended
         September 29, 2002.

(5)      Incorporated  by reference to our Form 10-K for the year ended December
         29, 2002.

(6)      Incorporated by reference to our Form 8-K filed on April 14, 2003.

(7)      Incorporated by reference to our Schedule 14A filed on June 26, 2003.

(8)      Incorporated by reference to out Form 8-K filed on August 11, 2003.

(9)      Incorporated  by reference to our Form 10-Q for the quarter  ended June
         29, 2003.

(10)     Incorporated by reference to our Form 8-K filed on December 24, 2003.


                                       59
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, BRIAZZ, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                                BRIAZZ, INC.

Date:  March 29, 2004.                          By: /s/ Milton Liu
                                                    ---------------------------
                                                    Chief Executive Officer





                                       60
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed  by the  following  persons  on  behalf  of the  registrant  in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature                                     Title                                         Date
---------                                     -----                                         ----
<S>                                <C>                                                 <C>
/s/ Milton Liu                     Chief Executive Officer                              March 29, 2004
----------------------------
Milton Liu

/s/ Victor Alhadeff                Chairman of Board of Directors, Chief Financial      March 25, 2004
----------------------------       Officer and Secretary
Victor Alhadeff

/s/ Paul Bigler                    Director                                             March 29, 2004
----------------------------
Paul Bigler

/s/ David Cotton                   Director                                             March 29, 2004
----------------------------
David Cotton

/s/ Sue L. Gin                     Director                                             March 29, 2004
----------------------------
Sue L. Gin

/s/ Glenn MacMullin                Director                                             March 29, 2004
----------------------------
Glenn MacMullin

/s/ Charles C. Matteson Jr.        Director                                             March 29, 2004
----------------------------
Charles C. Matteson Jr.
</TABLE>