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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

(MARK ONE)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE TRANSITION PERIOD FROM ________________ TO ________________.

COMMISSION FILE NUMBER 000-32527

BRIAZZ, INC.

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No ¨

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

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BRIAZZ, INC.

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

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BRIAZZ, INC.

BALANCE SHEETS
(in thousands, except share data)

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

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BRIAZZ, INC.

STATEMENTS OF OPERATIONS
(in thousands, except share data)

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

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

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

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BRIAZZ, INC.

STATEMENTS OF CASH FLOWS
(in thousands)

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

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BRIAZZ, INC.

NOTES TO FINANCIAL STATEMENTS
(unaudited)

1. Summary of operations and significant accounting policies

Operations

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

Interim financial information

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

Recent accounting pronouncements

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

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company is currently evaluating the implications of adoption of SFAS No. 146.

2. Net loss per share

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

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

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

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

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

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

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

4. Commitments and contingencies

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

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5. Segment information

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

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

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

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

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

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

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

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

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

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

OVERVIEW

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

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

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

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

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

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

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

Sales

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

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

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

Operating expenses

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

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

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

     Occupancy expense consists of costs related to the leasing of retail space for our cafes and our central kitchens. Occupancy expense increased by $0.09 million, or 10.4%, from $0.94 million to $1.03 million. This increase was due to the opening of five additional cafés during the fiscal year 2001 and five cafés in the first half of 2002, offset by the closure of one café during February 2002. As a percentage of sales, occupancy expenses increased from 11.2% to 12.7%, primarily due to decreased sales. Our rents are fixed or variable determined as a percentage of sales, or a combination of both.

     Labor expenses consist of wages and salaries paid to employees. Labor expenses increased by $0.07 million, or 2.4%, from $2.83 million to $2.90 million. This increase was due to the opening of five additional cafés during the fiscal year 2001 and five cafés in the first half of 2002, offset by the closure of one café during February 2002. As a percentage of sales, labor expenses increased from 33.7% to 35.7%. This increase was primarily due to decreased sales.

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

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

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

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

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

Other (Expense) Income

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

Net Loss

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

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

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

Sales

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

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

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

Operating expenses

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

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

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

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

     Occupancy expense consists of costs related to the leasing of retail space for our cafes and our central kitchens. Occupancy expense increased by $0.16 million, or 8.7%, from $1.87 million to $2.03 million. This increase was due to the opening of five additional cafés during the fiscal year 2001 and five cafés in the first half of 2002, offset by the closure of one café during February 2002. As a percentage of sales, occupancy expense increased from 11.2% to 13.1%, primarily due to decreased sales. Our rents are fixed or variable determined as a percentage of sales, or a combination of both.

     Labor expenses consist of wages and salaries paid to employees. Labor expenses increased by $0.03 million, or 0.5%, from $5.59 million to $5.62 million. This increase was due to the opening of five additional cafés during the fiscal year 2001 and five cafés in the first half of 2002, offset by the closure of one café during February 2002. As a percentage of sales, labor expenses increased from 33.6% to 36.1%. This increase was primarily due to decreased sales.

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

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

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

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

Other (Expense) Income

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

Net Loss

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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