UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2001
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 ____________
BRIAZZ, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1672311
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
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 [ ] No [X]
The number of outstanding shares of common stock, no par value, of the
Registrant at May 7, 2001 was 5,820,965.
BRIAZZ, INC.
INDEX TO THE FORM 10-Q
FOR THE 13-WEEK PERIOD ENDED APRIL 1, 2001
PAGE
------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS................................................................... 2
BALANCE SHEETS....... ............................................................... 2
STATEMENTS OF OPERATIONS............................................................. 3
STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY......... 4
STATEMENTS OF CASH FLOWS............................................................. 5
NOTES TO FINANCIAL STATEMENTS........................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................. 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.............................. 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................................... 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................. 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................................ 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................... 14
ITEM 5. OTHER INFORMATION...................................................................... 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................................... 14
SIGNATURES............................................................................................ 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRIAZZ, INC.
BALANCE SHEETS
(in thousands, except share data)
December 31, April 1,
2000 2001
------------ ------------
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents......................................................................... $ 555 $ 613
Accounts receivable, net of allowance of $63 and $112............................................. 547 651
Inventory......................................................................................... 508 516
Prepaid expenses and other current assets......................................................... 490 280
Current portion of restricted certificates of deposit............................................. 149 134
-------- --------
Total current assets.......................................................................... 2,249 2,194
Property and equipment, net....................................................................... 11,632 11,130
Restricted certificates of deposit, net of current portion........................................ 328 342
Deposits and other assets......................................................................... 200 578
-------- --------
$14,409 $14,244
======== ========
Liabilities, Mandatorily Redeemable Convertible Preferred Stock, and
Stockholders' Equity (Deficit)
Current Liabilities
Line of credit borrowings, current................................................................ $ 160 $ 210
Accounts payable.................................................................................. 3,008 1,238
Accrued compensation.............................................................................. 904 827
Accrued and other liabilities..................................................................... 653 576
Current portion of long-term debt................................................................. 144 122
-------- --------
Total current liabilities..................................................................... 4,869 2,973
-------- --------
Line of credit borrowings, net of current portion................................................. 1,840 1,780
Long-term debt, net of current portion............................................................ 48 33
-------- --------
Commitments and contingencies
Mandatorily redeemable convertible preferred stock, no par; 50,000,000 shares authorized
Series A, 33,000 designated; 2,061 (2000) and 1,815 (2001) shares issued and outstanding;
liquidation value of $11,058 and $11,222 at December 31, 2000 and April 1, 2001................ 10,984 11,148
Series B, 34,450 designated; 3,211 (2000) and 3,185 (2001) shares issued and outstanding;
liquidation value of $23,239 and $23,598 at December 31, 2000 and April 1, 2001................ 23,104 23,463
Series C, 30,000,000 designated; 3,120,788 (2000) and 3,628,489 (2001) shares issued and
outstanding; liquidation value of $19,605 and $23,098 at December 31, 2000 and April 1, 2001... 19,521 20,052
-------- --------
Total mandatorily redeemable convertible preferred stock...................................... 53,609 54,663
-------- --------
Stockholders' equity (deficit)
Common stock, no par; 100,000,000 shares authorized; 920 (2000) and
5,114 (2001) shares issued and outstanding....................................................... 2,076 2,081
Additional paid-in capital........................................................................ -- 1,980
Deferred stock compensation....................................................................... (1,060) (1,165)
Accumulated deficit............................................................................... (46,973) (48,101)
-------- --------
Total stockholder equity (deficit)............................................................ (45,957) (45,205)
-------- --------
Total liabilities and stockholders' equity.................................................... $ 14,409 $ 14,244
======== ========
The accompanying notes are an integral part of these financial statements.
2
BRIAZZ, INC.
STATEMENTS OF OPERATIONS
(in thousands, except share data)
Thirteen weeks ended
------------------------------
March 26, April 1,
2000 2001
----------- -----------
(unaudited)
Sales:
Retail.................................................................... $ 6,565 $ 7,157
Wholesale and other....................................................... 942 1,106
----------- -----------
Total Sales..................................................... 7,507 8,263
Cost of food and packaging................................................ 3,068 3,165
Occupancy expenses........................................................ 945 932
Labor expenses (including amortization of deferred stock compensation
expense of $46 for 2001)................................................ 2,530 2,763
Depreciation and amortization............................................. 666 606
Other operating expenses.................................................. 387 435
General and administrative expenses (including amortization of deferred
stock compensation expense of $22 for 2001)............................. 1,588 1,651
Provision for asset impairment and store closure.......................... 8 -
----------- -----------
Total operating expenses........................................ 9,192 9,552
----------- -----------
Loss from operations...................................................... (1,685) (1,289)
Other (expense) income
Interest and other expense...................................... (55) (48)
Interest and other income....................................... 15 26
----------- -----------
(40) (22)
----------- -----------
Net loss.................................................................. (1,725) (1,311)
Accretion of dividends/amortization of discounts on preferred stocks...... 823 1,054
----------- -----------
Net loss attributable to common shareholders.............................. $ (2,548) $ (2,365)
=========== ===========
Basic and diluted net loss per share...................................... $ (720.57) $ (926.63)
=========== ===========
Weighted-average shares used in computing basic and diluted net loss
per share............................................................... 3,536 2,552
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
BRIAZZ, INC.
STATEMENT OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited)
Mandatorily redeemable convertible preferred stock
----------------------------------------------------------------------------------------
Series A Series B Series C
----------------------- ----------------------- -----------------------
Shares Amount Shares Amount Shares Amount Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
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 issue costs................... - - - - 507 3,034 3,034
Beneficial conversion feature on
preferred stock...................... - - - - - (3,034) (3,034)
Amortization of discount on preferred
stock................................ - - - - - 84 84
Accretion of mandatorily redeemable
preferred stock...................... - 164 - 359 - 447 970
Common stock issued upon exercise of
stock options........................ - - - - - - -
Change in unearned compensation........ - - - - - - -
Deferred compensation related to the
grant of stock options............... - - - - - - -
Amortization of deferred compensation.. - - - - - - -
Shares repurchased or redeemed......... - - - - - - -
Net loss............................... - - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at April 1, 2001............... 2 $11,148 3 $23,463 3,628 $20,052 $54,663
========== ========== ========== ========== ========== ========== ==========
Stockholders' equity (deficit)
Common stock Additional Deferred
------------------------ paid-in stock Accumulated
Shares Amount capital compensation deficit Total
---------- ---------- ---------- ------------ ----------- ---------
Balance at January 1, 2001............. 1 $2,076 $ - $(1,060) $(46,973) $(45,957)
Issuance of Series C preferred stock,
net of issue costs................... - - - - - -
Beneficial conversion feature on
preferred stock...................... - - 3,034 - - 3,034
Amortization of discount on preferred
stock................................ - - (84) - - (84)
Accretion of mandatorily redeemable
preferred stock...................... - - (970) - - (970)
Common stock issued upon exercise of
stock options........................ 4 5 - - - 5
Change in unearned compensation........ - - - - 10 10
Deferred compensation related to the
grant of stock options............... - - - (173) 173 -
Amortization of deferred compensation.. - - - 68 - 68
Shares repurchased or redeemed......... - - - - - -
Net loss............................... - - - - (1,311) (1,311)
---------- ---------- ---------- ------------ ----------- -----------
Balance at April 1, 2001............... 5 $2,081 $1,980 $(1,165) $(48,101) $(45,205)
========== ========== ========== ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
4
BRIAZZ, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
Thirteen weeks ended
--------------------
March 26, April 1,
2000 2001
(unaudited)
Cash flows from operating activities
Net loss................................................................................ $(1,725) $(1,311)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization of deferred compensation............................................... - 68
Depreciation and amortization....................................................... 666 606
Provision for asset impairment and store closure.................................... 8 -
Non-cash expense related to issuance of stock-based options....................... - 10
Changes in
Accounts receivable............................................................. (312) (104)
Inventory....................................................................... 78 (8)
Prepaid expenses and other current assets....................................... (13) 210
Accounts payable................................................................ 24 (1,770)
Accrued compensation............................................................ (587) (77)
Accrued and other liabilities................................................... 85 (77)
Deposits and other assets....................................................... (10) (378)
------- -------
Net cash used in operating activities......................................... (1,786) (2,831)
------- -------
Cash flows from investing activities
Purchases of property and equipment..................................................... (325) (104)
------ -------
Net cash used in investing activities......................................... (325) (104)
Cash flows from financing activities
Proceeds from sale of preferred stock, net of issuance costs............................ 1,243 3,034
Change in book overdraft................................................................ (579) -
Repayments of line-of-credit borrowings................................................. - (10)
Proceeds from stock options exercised................................................... - 5
Restricted certificate of deposit....................................................... - 1
Repayment of debt....................................................................... (70) (37)
------- -------
Net cash provided by financing activities..................................... 594 2,993
------- -------
Net (decrease) increase in cash and cash equivalents...................................... (1,517) 58
Cash and cash equivalents
Beginning of year....................................................................... 2,153 555
------- -------
End of year............................................................................. $ 636 $ 613
======= =======
Supplemental disclosure of non-cash investing and financing activities
Accretion and discount amortization of mandatorily redeemable preferred stock........... $ 823 $ 1,054
======= =======
The accompanying notes are an integral part of these financial statements.
5
BRIAZZ, INC.
NOTES TO FINANCIAL STATEMENTS
------------------------------
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
and kiosks, as well as special order box lunch delivery. The Company also
distributes its products through select strategic alliances. Each market
operates a central kitchen, which prepares meals daily.
Fiscal quarters
Through fiscal year 2000 we measured our operational results based on 13 four-
week periods. In fiscal year 2001 we converted to four 13-week periods with a
52-or 53-week fiscal year. Reclassifications were made to 2000 quarterly results
to express such results in four 13-week periods comparable to the quarter ended
April 1, 2001.
Interim financial information
The financial information at April 1, 2001, and for the thirteen-week periods
ended April 1, 2001 and March 26, 2000 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. Results for the thirteen-week periods ended April 1, 2001 and
March 26, 2000 are not necessarily indicative of results for the entire fiscal
year or future periods.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS No. 133"), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS No. 133 was amended by SFAS 137,
deferring the effective date to fiscal years beginning after June 15, 2000. In
June 2000, SFAS 138 was issued, which amends provisions of SFAS 133. The
adoption of these standards as of January 1, 2001 did not have a material impact
on the Company's results of operations or financial condition as the Company
holds no derivative financial instruments and does not currently engage in
hedging activities.
2. Net loss per share
Basic and diluted net loss per share has been computed using the weighted-
average number of shares of common stock outstanding during the period. The
Company has excluded all outstanding options and warrants to purchase common
stock from the calculation of diluted net loss per share, as such securities are
anti dilutive for all periods presented.
The following table presents the calculation of basic and diluted net loss per
share (in thousands, except share and per share data):
13-week period ended
March 26, 2000 April 01, 2001
Net loss attributable to common stockholders......................................... $ (2,548) $ (2,365)
Weighted-average shares used in computing basic and diluted net loss per share....... 3,536 2,552
Basic and diluted net loss per share................................................. $ (720.57) $ (926.63)
Antidilutive securities not included in diluted net loss per share calculation
Options to purchase common stock..................................................... 401,649 537,818
Redeemable convertible preferred stock............................................... 3,125,741 3,633,486
Warrants to purchase redeemable convertible preferred stock.......................... 907,240 907,240
6
3. Mandatorily redeemable convertible preferred stock and stockholders' equity
(deficit)
At various times throughout fiscal year 2000 and 2001, 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 conversion rates
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 convertible
preferred stock, the Company has deemed the fair value of its common stock to
exceed the issue price of the convertible preferred stock. As a result, the
Company will record a beneficial conversion feature in accordance with the 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 is 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 is convertible
(intrinsic value). The Company has recorded a beneficial conversion feature at
approximately $3 million in the thirteen-week period ending April 1, 2001. The
beneficial conversion feature is analogous to a dividend and will be 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 April 1, 2001, the remaining unamortized beneficial conversion feature was
$2,951,193. Upon conversion of preferred stock to common stock (Note 7 and 8),
the remaining unamortized beneficial conversion feature will be recognized as a
dividend, increasing net loss attributable to common shareholders.
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.
5. Segment information
The Company operates in two reportable segments: retail and wholesale and other.
Retail store operations consist of sales generated through the Company's cafes
and kiosks, box lunches and catering. Wholesale and other consists of sales
through wholesale and grocery accounts, which are aggregated as they have
similar economic characteristics. Management evaluates segment performance
primarily based on sales and segment gross margins, which excludes costs of
occupancy, labor, depreciation and amortization.
The following table presents certain financial information for each segment
(amounts in thousands).
Wholesale
Retail and Other Total
-------- --------- -------
13-week period ended March 26, 2000
Net sales............................................................................ $ 6,565 $ 942 $ 7,507
Costs of products and packaging............... ...................................... (2,562) (506) (3,068)
-------- ------ --------
Subtotal............................................................................. $ 4,003 $ 436 4,439
======== ======
Other operating expenses not allocated by segment.................................... (6,124)
--------
Loss from operations................................................................. $ (1,685)
========
13-week period ended April 1, 2001
Net sales............................................................................ $ 7,157 $1,106 $ 8,263
Costs of products and packaging...................................................... (2,631) (534) (3,165)
-------- ------ --------
Subtotal............................................................................. $ 4,526 $ 572 5,098
======== ======
Other operating expenses not allocated by segment.................................... (6,387)
--------
Loss from operations................................................................. $ (1,289)
========
7
6. Stock options
During the thirteen-week period ended April 1, 2001, the Company issued
approximately 27,000 stock options to employees with exercise prices of $6.00.
The grant of these options resulted in a deferred stock compensation charge of
approximately $173,000 in the first quarter of fiscal year 2001. The deferred
stock compensation will be expensed in future periods beginning in fiscal year
2001, generally over a four-year vesting period.
In January 2001, the board of directors approved an amendment to the Company's
1996 stock option plan to increase the number of shares of common stock reserved
for issuance under the plan to one million shares. The amendment was approved by
the Company's shareholders in March 2001.
7. Proforma stockholders' equity and proforma net loss per share
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 rate (Note 3). The
proforma effects of these transactions are unaudited and will result in a
decrease of redeemable preferred stock to $0. The proforma shareholders' equity
at April 1, 2001 would therefore be $9.5 million.
Proforma net loss per share for the thirteen weeks ended April 1, 2001 of $0.39
is computed using the weighted-average number of common shares outstanding
including the proforma effects of the automatic conversion of the Company's
redeemable convertible preferred stock into shares of the Company's common stock
effective upon the closing of the Company's initial public offering (Note 8) as
if such conversion occurred at the beginning of the most recent fiscal year
(January 1, 2001), or at the date of original issue, if later. The resulting
proforma adjustments include an increase to 3,621,745 in the weighted-average
shares used to compute basic net loss per share for the thirteen weeks ended
April 1, 2001 and excludes the deemed and accreted dividends related to the
preferred stock. The calculation of pro forma diluted net loss per share
excludes incremental common stock issuable upon the exercise of stock options
and warrants, as the effect would be anti-dilutive.
8. Subsequent events
In April 2001, we issued 18,917 shares of Series C preferred stock to two
consultants for services to be rendered in connection with leasehold
improvements and food development at an approximate fair value of $155,000.
The Company's registration statement with respect to its initial public offering
was declared effective by the Securities and Exchange Commission on May 1, 2001.
The offering closed on May 7, 2001. 2,000,000 shares of common stock were
offered in this initial public offering at a price to the public of $8.00 per
share. Net proceeds after deduction of expenses from the initial public offering
totaled $13.9 million.
8
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 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 40 cafes in Seattle, San Francisco, Chicago and Los
Angeles. 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.
Through fiscal year 2000 we measured our operational results based on 13
four-week periods. In fiscal year 2001 we converted to four 13-week periods with
a 52- or 53-week fiscal year. Adjustments were made to 2000 results to express
the results in four 13-week periods comparable to 2001.
RESULTS OF OPERATIONS
Our net loss was $1.31 million for the 13-week period ended April 1, 2001,
compared to a net loss of $1.73 million for the 13-week period ended March 26,
2000. This represents a decrease in the net loss of $0.42 million, or 24.3%.
This decrease was primarily due to increased sales and improved operational
efficiency.
13-Week Period Ended April 1, 2001 Compared with 13-Week Period Ended March 26,
2000
Sales
Total sales increased by $0.75 million, or 10.0%, from $7.51 million to
$8.26 million.
Retail sales increased by $0.59 million, or 9.0%, from $6.57 million to
$7.16 million. Of this increase, $.15 million was attributable to the four new
cafes which were opened in late 2000 or early 2001. The remainder of this
increase was primarily due to our new food introduction program, in which we
update our product offerings approximately every six to eight weeks, and our new
inventory system, which enhanced same-store sales growth by allowing us to
manage the availability of items for sale in our cafes in a more efficient
manner. In addition, as our brand awareness has matured in each geographic
region, we have been able to grow our box lunch and catering sales. Same-store
sales increased by $0.44 million, or 8.4%, from $5.22 million to $5.66 million.
Same-store sales
9
consist only of sales from cafes, and do not include sales from box lunches or
catered meals. The increase in same-store sales was primarily due to our new
food introduction program and our new inventory system.
Wholesale and other sales increased by $0.17 million, or 18.1%, from $0.94
million to $1.11 million. This increase was primarily attributable to new
relationships with two customers, Charles Schwab Inc. and Tully's Coffee.
Charles Schwab Inc. became a wholesale customer in May 2000. In June 2000, we
began providing Tully's Coffee with food products for selected retail cafes
located in Seattle and San Francisco. One of our major wholesale account
relationships was with Kozmo.com, an internet-based consumer delivery service
which ceased operations in April 2001. Kozmo.com accounted for 12.6% and 7.9% of
wholesale and other sales in fiscal 2000 and the period ended April 1, 2001,
respectively. We do not expect the closing of Kozmo.com to have a material
adverse impact on wholesales and other sales in the future.
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 $0.36 million, or 3.9%, from $9.19 million to
$9.55 million. As a percentage of sales, our operating expenses decreased from
122.4% to 115.6%. This decrease was primarily due to increased sales. We expect
operating expenses to continue to increase as energy costs in three of the four
geographic markets in which we operate our cafes and central kitchens continue
to increase.
Cost of food and packaging increased by $0.10 million, or 3.3%, from $3.07
million to $3.17 million. Cost of food and packaging decreased as a percentage
of sales from 40.9% to 38.3%.
Cost of food and packaging for retail sales increased by $0.07 million, or
2.7%, from $2.56 million to $2.63 million. This increase was primarily due to
increased retail sales.
Cost of food and packaging for wholesale and other sales increased by $0.02
million, or 3.9%, from $0.51 million to $0.53 million. This increase was
primarily due to increased wholesale and other sales.
Cost of food and packaging as a percentage of total sales for each of
retail sales and wholesale and other sales decreased primarily due to
implementation of an improved purchasing process, which improved our ability to
source low cost ingredients. As part of the new purchasing process, we entered
into a relationship with Marriott Distribution Services, under which they
procure and deliver to our central kitchens approximately 40% of our ingredients
and packaging products.
Occupancy expense consists of costs related to the leasing of retail space
for our cafes and our central kitchens. Occupancy expense decreased by $0.02
million, or 2.1%, from $0.95 million to $0.93 million. This decrease was due to
the closure of a Seattle cafe in mid-2000 offset by the opening of four
additional cafes. As a percentage of sales, occupancy expense decreased from
12.6% to 11.3%, primarily due to increased sales. Our rents are fixed or
variable determined as a percentage of sales, or a combination of both.
Labor expense consists of wages and salaries paid to employees. Labor
expense increased by $0.23 million, or 9.1%, from $2.53 million to $2.76
million. This increase was primarily due to increased wage rates, to the opening
of four additional cafes since the first period of fiscal 2000 and to the
amortization of deferred compensation of $46,000 in the thirteen week period
ended April 1, 2001. There was no amortization of deferred compensation in the
comparable period in fiscal year 2000. As a percentage of sales, labor expense
decreased from 33.7% to 33.4%. This decrease was primarily due to increased
sales. This decrease was also due to the introduction of a software program to
enable us to more efficiently schedule personnel, both in the central kitchens
as well as our cafes. In addition, we implemented a just-in-time inventory and
order guide which helped us to further increase labor efficiency.
Depreciation and amortization consists of the periodic expensing of
leasehold improvements, equipment and vehicles. Depreciation and amortization
expense decreased by $0.06 million or 9.0% from $0.67 million to $0.61 million.
As a percentage of sales, depreciation and amortization decreased from 8.9% to
7.3%. This decrease was primarily due to increased sales and aged fixed assets.
10
Other operating expense consists of direct operating, marketing, repair and
maintenance expense. Other operating expense increased by $0.05 million, or
12.8%, from $0.39 million to $0.44 million. As a percentage of sales, other
operating expense increased from 5.2% to 5.3%.
General and administrative expense relates 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 offices lease and related office expenses. General and administrative
expense increased by $0.06 million, or 3.8%, from $1.59 million to $1.65
million, primarily due to wage and salary increases and deferred compensation
charges offset by increased efficiencies at the corporate level. As a percentage
of sales, general and administrative expense decreased from 21.2% to 20.0%,
primarily due to increased sales.
Provision for asset impairment and store closure relates to the writedown
of leasehold improvements at some cafe locations. Provision for asset impairment
and store closure decreased by $8,000, or 100%, from $8,000 to zero. Based on
the facts surrounding an asset's impairment, we recorded either a loss in the
amount of the remaining book value or of the excess of the remaining net book
value over discounted projected cash flows.
Other (Expense) Income
Other (expense) income includes interest and other expense and interest and
other income. Other (expense) income decreased as a net expense by $0.02
million, or 50%, from ($0.04) million to ($0.02) million. This increase was
primarily due to the interest income generated from the proceeds associated with
our Series C financing which closed February 1, 2001. As a percentage of sales,
other (expense) income decreased as a net expense from 0.5% to 0.3%.
Net Loss
Net loss decreased by $0.42 million, or 24.3%, from $1.73 million to $1.31
million. This decrease was primarily due to increased sales and improved
operational efficiency. As a percentage of sales, net loss decreased from 23.0%
to 15.9%. Net loss attributable to common shareholders decreased by $0.18
million, or 7.1% from $2.55 million to $2.37 million, as a percentage of sales,
net loss attributable to common shareholders decreased from 33.9% to 28.6%.
LIQUIDITY AND CAPITAL RESOURCES
Since inception we have financed our operations primarily through the
issuance of capital stock and debt, and through April 1, 2001 have raised cash
of approximately $47.9 million from sales of mandatorily redeemable convertible
preferred stock, convertible debt and common stock. In addition to funding
capital expenditures, which through April 1, 2001 have totaled approximately
$21.9 million since inception, net cash provided by financing activities has
funded our investments in business and market development and related operating
losses.
During the period from inception through April 1, 2001, we reported net
losses of approximately $42.57 million. In the near term, operating losses may
continue despite actions taken to reduce negative cash flow from operations.
Net cash used in operating activities during the 13-week periods ended
April 1, 2001 and March 26, 2000 was $2.83 million and $1.79 million,
respectively. Net cash used in operating activities in each period resulted
primarily from net loss before non-cash charges in addition to decreases in
accounts payable or accrued expenses and increases in accounts receivable.
Net cash used in investing activities for the 13-week periods ended April
1, 2001 and March 26, 2000 was approximately $0.10 million and $0.33 million,
respectively. Net cash used in investing activities resulted from capital
additions primarily related to opening additional cafes and central kitchens.
Net cash provided by financing activities for the 13-week periods ended
April 1, 2001 and March 26, 2000 was $2.99 million and $0.6 million,
respectively. Net cash provided by financing activities resulted primarily from
the issuance of capital stock, which was partially offset by financing costs,
changes in book overdraft and scheduled principal repayments primarily
11
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. The issuance in January and February 2001 resulted in a beneficial
conversion feature of approximately $3.0 million in the thirteen-week period
ending April 1, 2001, of which approximately $84,000 was amortized in the that
period. Upon conversion of preferred stock to common stock, which occurs in May
2001, the remaining unamortized beneficial conversion feature will be recognized
as a dividend, increasing net loss attributable to common shareholders. In May
2001, net cash provided from our initial public offering was approximately
$13.90 million.
EBITDA represents earnings (loss) before interest expense, income taxes,
and depreciation and amortization. EBITDA for the 13-week periods ended April 1,
2001 and March 26, 2000 was ($0.68) million and ($1.02) million, respectively.
At April 1, 2001, we had cash and cash equivalents of $0.61 million,
working capital of ($0.78) million and shareholders' deficit of $45.2 million.
We also had a $2.0 million bank line of credit with an interest rate of either
the bank's prime lending rate plus 0.75% or LIBOR plus 3.5% (at our option), of
which $1.99 million was outstanding. As of April 1, 2001, the weighted interest
rate of the advances was 9.39%. Historically, our annual financial statements
have contained an explanatory paragraph relating to our ability to continue as a
going concern. During the 13-week period ended April 1, 2001, we sold additional
shares of Series C preferred stock for an aggregate price of $3.0 million and
renegotiated our line of credit to be due in April 2002. In May we received net
proceeds of $13.9 million from our initial public offering. We intend to use a
portion of such proceeds to repay all advances under our line of credit. As a
result, we believe that our current resources, together with the net proceeds
from our initial public offering, provide us with sufficient resources to
operate our business and meet our obligations as they come due, notwithstanding
the existence of a net working capital deficit at April 1, 2001.
We have opened two cafes in 2001 and plan to open several additional cafes
during 2001. These cafes will require approximately $3.0 million in leasehold
improvements and equipment.
We believe our current cash and cash equivalents, including the net
proceeds from our initial public offering, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at least
the next 24 months. Thereafter, we may need to raise additional capital to
finance our operations, as well as to enhance our operations, fund our expansion
and respond to competitive pressures. We may be unable to obtain financing on
terms favorable to us, if at all. Poor financial results, unanticipated expenses
or unanticipated opportunities that require financial commitments could give
rise to additional financing requirements sooner than we expect. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our existing shareholders would be reduced, and
these securities may have rights, preferences or privileges senior to those of
our common stock. If adequate funds are not available or are not available on
acceptable terms, our ability to enhance our services, fund our expansion,
respond to competitive pressures or take advantage of business opportunities
would be significantly limited, and we might need to significantly restrict our
operations.
EQUITY-BASED COMPENSATION
During fiscal 2000 we granted stock options to employees and directors at
exercise prices deemed to be below the fair value of the underlying stock on the
date of grant. As a result of these grants we recorded deferred compensation of
approximately $1.2 million during fiscal year 2000, of which $122,000 was
amortized in 2000. The remaining $1.1 million as of December 31, 2000 will be
amortized in future periods, generally over a four-year vesting period. During
the thirteen-week period ending April 1, 2001, the Company issued approximately
27,000 stock options to employees with exercise prices of $6.00. The grant of
these options resulted in a deferred stock compensation charge of approximately
$173,000 in the first quarter of fiscal year 2001. Deferred stock compensation
will be amortized in future periods beginning in the year of the grant,
generally over a four-year vesting period. During the thirteen-week period ended
April 1, 2001, $68,000 of deferred stock compensation was amortized.
On April 18, 2001, we issued 18,917 shares of Series C preferred stock to
two consultants for services to be rendered in connection with leasehold
improvements and food development at an approximate fair value of $155,000,
which will be expensed or amortized over future periods.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 invested the net
proceeds from our initial public offering in similar investment grade and highly
liquid investments pending their use. We do not believe these investments are
subject to significant market risk.
Under our revolving credit facility, we will be exposed to market risk from
changes in interest rates on borrowings which bear interest at the lending
bank's prime rate plus a fixed percentage or LIBOR plus a fixed
12
percentage. Because we intend to use a portion of the net proceeds of our
initial public offering to repay our borrowings under the revolving line of
credit and we do not anticipate that our subsequent borrowings will be material
to our operations, we do not believe this risk will be material. 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 and other factors that are outside our control.
We believe that substantially all of our food and supplies are available from
numerous sources, which helps to control food commodity risk. We believe we have
the ability to increase menu prices, or vary the menu items offered, if needed
in response to a food product price increase.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
BRIAZZ is not currently a party to any material legal proceeding.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Changes in Securities
There have been no changes in our registered securities.
(b) Use of proceeds
On May 1, 2001, the Security and Exchange Commission declared effective our
registration statement on Form S-1 (No. 333-54922). On May 7, 2001 we closed our
initial public offering of 2,000,000 shares of our common stock at an initial
public offering price of $8.00 per share. The managing underwriter in the
initial public offering was WR Hambrecht+Co, LLC. Net proceeds to BRIAZZ, after
deduction of $2.1 million in underwriting discounts, commissions and other
expenses from the initial public offering totaled $13.9 million. Our estimated
expenses for the offering consist of approximately $0.96 million in underwriting
discounts and commissions and $1.14 million in other expenses. None of the
expenses incurred in the offering were direct or indirect payments to
affiliates, directors, officers or persons owning ten percent or more of any
class of our equity securities. As of April 1, 2001, the offering had not
closed, and consequently, no proceeds had been used.
(c) Sales of Unregistered Securities
In January 2001, we granted options to purchase an aggregate of 26,585
shares of common stock, at an exercise price of $6.00, to employees under our
stock option plan. All of these options are outstanding. The sale and issuance
of such securities was exempt from Securities Act registration pursuant to Rule
701 under the Securities Act, on the basis that these options were offered and
sold in accordance with a written compensatory benefit plan or contract.
In January and February 2001, we issued 507,701 shares of Series C
preferred stock to 29 investors at $6.00 per share, or net proceeds of
$3,034,384, after deduction of issuance costs. The sale and issuance of such
securities were exempt from Securities Act registration pursuant to Rule 506 of
Regulation D under the Securities Act, as all investors were "accredited
investors" as defined in Rule 501(a) of Regulation D. In April 2001, we issued
18,917 shares of Series C preferred stock to two consultants for services
rendered at an aggregate fair value of $155,000. The sale and issuance of such
securities were exempt from Securities Act registration pursuant to Rule 701
under the Securities Act, on the basis that these securities were offered and
sold in accordance with a written compensatory contract. All investors received
historical and projected financial data and had the opportunity to ask questions
of our officers. No underwriters were used in connection with these sales and
issuances.
On May 7, 2001, immediately prior to the closing of our initial public
offering, all shares of our preferred stock converted into an aggregate of
3,815,852 shares of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In January and March 2001, in preparation for our initial public offering,
we submitted several matters to our shareholders for action by written consent.
The matters submitted for shareholder action in January 2001 were as
follows:
1. Approval of an amendment to the Articles of Incorporation to change the
"Series B Conversion Rate" and the "Series B Conversion Price" as set forth in
Section 2.4.3 of the Articles to equal $3.00 each (post-reverse split).
2. Approval of the designation of all Series C preferred stock as excluded
from the definition of "Additional Stock" under Sections 2.3.3(d)(iii),
2.4.3(d)(iii) and 2.5.3(d)(iii) of the Articles of Incorporation.
These actions were approved as of January 30, 2001 by the holders of 84.72%
of our Series A preferred stock, 83.85% of our Series B preferred stock; 86.67%
of our Series C preferred stock and 88.94% or our preferred stock and common
stock voting together. The matters submitted for shareholder action in March
2001 were as follows:
1. Approval of an amendment to Article 2 of the Amended and Restated
Articles of Incorporation to effect a one-for-six reverse stock split. This
action was approved as of March 16, 2001 by the holders of 79.7% of our Series A
preferred stock, 89.0% of our Series B preferred stock, 81.9% of our Series C
preferred stock and 64.0% of our preferred stock and common stock, voting
together as a group. Holders against: 0.0% of our Series A preferred stock, 0.0%
of our Series B preferred stock, 0.0% of our Series C stock and 0.0% of our
preferred and common stock, voting together as group. Holders abstaining: 20.3%
of our Series A preferred stock, 11.0% of our Series B preferred stock, 18.1% of
our Series C stock and 36.0% of our preferred and common stock, voting together
as group.
2. Approval of an amendment to Article 3 of the Amended and Restated
Articles of Incorporation so that shareholders may remove directors only for
cause. This action was approved as of March 16, 2001 by the holders of 79.7% of
our Series A preferred stock, 89.0% of our Series B preferred stock, 81.9% of
our Series C preferred stock and 64.0% of our preferred stock and common stock,
voting together as a group. Holders against: 0.0% of our Series A preferred
stock, 0.0% of our Series B preferred stock, 0.0% of our Series C stock and 0.0%
of our preferred and common stock, voting together as group. Holders abstaining:
20.3% of our Series A preferred stock, 11.0% of our Series B preferred stock,
18.1% of our Series C stock and 36.0% of our preferred and common stock, voting
together as group.
3. Approval of an amendment to Article 4 of the Amended and Restated
Articles of Incorporation to increase the percentage of outstanding shares of
capital stock entitled to vote which must be held by a shareholder from 10% to
25% in order for that shareholder to have the right to call a special meeting of
shareholders. This action was approved as of March 16, 2001 by the holders of
79.7% of our Series A preferred stock, 89.0% of our Series B preferred stock,
81.9% of our Series C preferred stock and 64.0% of our preferred stock and
common stock, voting together as a group. Holders against: 0.0% of our Series A
preferred stock, 0.0% of our Series B preferred stock, 0.0% of our Series C
stock and 0.0% of our preferred and common stock, voting together as group.
Holders abstaining: 20.3% of our Series A preferred stock, 11.0% of our Series B
preferred stock, 18.1% of our Series C stock and 36.0% of our preferred and
common stock, voting together as group.
4. Approval of an amendment to Article 5 of the Amended and Restated
Articles of Incorporation to establish shareholder voting requirements for
approval of certain actions. This action was approved as of March 16, 2001 by
the holders of 79.7% of our Series A preferred stock, 89.0% of our Series B
preferred stock, 79.5% of our Series C preferred stock and 64.0% of our
preferred stock and common stock, voting together as a group. Holders against:
0.0% of our Series A preferred stock, 0.0% of our Series B preferred stock, 0.0%
of our Series C stock and 0.0% of our preferred and common stock, voting
together as group. Holders abstaining: 20.3% of our Series A preferred stock,
11.0% of our Series B preferred stock, 20.5% of our Series C stock and 36.0% of
our preferred and common stock, voting together as group.
5. Approval and ratification of amendments to our stock option plan,
including an increase in the number of shares of common stock reserved for
issuance thereunder to 1,000,000 shares. This action was approved as of March
16, 2001 by the holders of 72.9% of our Series A preferred stock, 85.8% of our
Series B preferred stock, 78.0% of our Series C preferred stock and 64.0% of our
preferred stock and common stock, voting together as a group. Holders against:
6.8% of our Series A preferred stock, 3.2% of our Series B preferred stock, 3.9%
of our Series C stock and 0.0% of our preferred and common stock, voting
together as group. Holders abstaining: 20.3% of our Series A preferred stock,
11.0% of our Series B preferred stock, 18.1% of our Series C stock and 36.0% of
our preferred and common stock, voting together as group.
6. Approval of our 2001 Employee Stock Purchase Plan. This action was
approved as of March 16, 2001 by the holders of 72.9% of our Series A preferred
stock, 87.0% of our Series B preferred stock, 78.2% of our Series C preferred
stock and 64.0% of our preferred stock and common stock, voting together as a
group. Holders against: 6.8% of our Series A preferred stock, 2.0% of our Series
B preferred stock, 3.7% of our Series C stock and 0.0% of our preferred and
common stock, voting together as group. Holders abstaining: 20.3% of our Series
A preferred stock, 11.0% of our Series B preferred stock, 18.1% of our Series C
stock and 36.0% of our preferred and common stock, voting together as group.
Our articles of incorporation, as amended, our stock option plan, as
amended and our employee stock purchase plan were filed as exhibits to our
Registration Statement on Form S-1 (333-54922).
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
Exhibit
Number Description
------- -----------
3.1+ Amended and Restated Articles of Incorporation.
3.2+ Bylaws.
4.1+ Specimen Stock Certificate.
*10.1+ 1996 Amended Stock Option Plan.
*10.2+ Form of Option Agreement (Fresh Options prior to February 2001).
*10.3+ Form of Option Agreement (other options prior to February 2001).
*10.4+ 2001 Employee Stock Purchase Plan.
10.5+ Form of Warrant.
*10.6+ Employment Agreement between BRIAZZ and Charles William Vivian dated
July 14, 1999.
10.7+ Retail Lease between BRIAZZ and Benaroya Capital Company regarding
1100 Olive Way, Seattle, WA dated November 6, 1998.
10.8+ Form of Registration Rights Agreement among BRIAZZ and certain of our
shareholders dated August 15, 1997, as amended.
10.9+ Agreement between BRIAZZ and Stusser Realty Group Limited Partnership
dated January 1998.
10.10+ Sublease between BRIAZZ and Stusser Electric Company regarding 3901
7th Avenue South, Seattle, WA dated February 6, 1998.
10.11+ Sublease Amendment between BRIAZZ and Stusser Electric Company
regarding 3901 7th Avenue South, Seattle, WA dated August 28, 2000.
10.12+ Lease between BRIAZZ and Mission-Taylor Properties regarding 225
Mendell St., San Francisco, CA dated June 28, 1996.
10.13+ Amendment to Lease between BRIAZZ and Mission-Taylor Properties
regarding 225 Mendell St., San Francisco, CA dated May 25, 2000.
10.14+ Lease between BRIAZZ and Time Realty Investments, Inc. regarding 200
Center St., El Segundo, CA dated December 15, 1997.
10.15+ Industrial Building Lease between BRIAZZ and Walnut Street Properties,
Inc. regarding 1642 Lake Street, Chicago, IL dated April 7, 1997.
10.16+ Promissory Note made by BRIAZZ and Victor Alhadeff in favor of U.S.
Bank National Association in the principal amount of $2,000,000 dated
December 30, 1999.
10.17+ Commercial Security Agreement among BRIAZZ, Victor Alhadeff and U.S.
Bank National Association dated December 30, 1999.
10.18+ Noncompetition Agreement between BRIAZZ and Victor D. Alhadeff dated
October 18, 1996.
*10.19+ Form of Option Agreement (all options since February 2001).
10.20+ Extension or Revision Agreement between BRIAZZ and Victor Alhadeff and
U.S. Bank National Association dated March 26, 2001.
99.1 Risk Factors
- --------
* Indicates management contract
+ Incorporated by reference to the Company's registration statement on Form S-1
(No. 333-54922)
(b) Reports on Form 8-K:
None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRIAZZ, INC.
Date: May 22, 2001 By: /s/ Victor D. Alhadeff
-------------------------------------
Name: Victor D. Alhadeff
Title: Chief Executive Officer and
Chairman of the Board of Directors
15
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.2+ Bylaws.
4.1+ Specimen Stock Certificate.
*10.1+ 1996 Amended Stock Option Plan.
*10.2+ Form of Option Agreement (Fresh Options prior to February 2001).
*10.3+ Form of Option Agreement (other options prior to February 2001).
*10.4+ 2001 Employee Stock Purchase Plan.
10.5+ Form of Warrant.
*10.6+ Employment Agreement between BRIAZZ and Charles William Vivian dated
July 14, 1999.
10.7+ Retail Lease between BRIAZZ and Benaroya Capital Company regarding
1100 Olive Way, Seattle, WA dated November 6, 1998.
10.8+ Form of Registration Rights Agreement among BRIAZZ and certain of our
shareholders dated August 15, 1997, as amended.
10.9+ Agreement between BRIAZZ and Stusser Realty Group Limited Partnership
dated January 1998.
10.10+ Sublease between BRIAZZ and Stusser Electric Company regarding 3901
7th Avenue South, Seattle, WA dated February 6, 1998.
10.11+ Sublease Amendment between BRIAZZ and Stusser Electric Company
regarding 3901 7th Avenue South, Seattle, WA dated August 28, 2000.
10.12+ Lease between BRIAZZ and Mission-Taylor Properties regarding 225
Mendell St., San Francisco, CA dated June 28, 1996.
10.13+ Amendment to Lease between BRIAZZ and Mission-Taylor Properties
regarding 225 Mendell St., San Francisco, CA dated May 25, 2000.
10.14+ Lease between BRIAZZ and Time Realty Investments, Inc. regarding 200
Center St., El Segundo, CA dated December 15, 1997.
10.15+ Industrial Building Lease between BRIAZZ and Walnut Street Properties,
Inc. regarding 1642 Lake Street, Chicago, IL dated April 7, 1997.
10.16+ Promissory Note made by BRIAZZ and Victor Alhadeff in favor of U.S.
Bank National Association in the principal amount of $2,000,000 dated
December 30, 1999.
10.17+ Commercial Security Agreement among BRIAZZ, Victor Alhadeff and U.S.
Bank National Association dated December 30, 1999.
10.18+ Noncompetition Agreement between BRIAZZ and Victor D. Alhadeff dated
October 18, 1996.
*10.19+ Form of Option Agreement (all options since February 2001).
10.20+ Extension or Revision Agreement between BRIAZZ and Victor Alhadeff and
U.S. Bank National Association dated March 26, 2001.
Exhibit
Number Description
------- -----------
99.1 Risk Factors.
- --------
* Indicates management contract
+ Incorporated by reference to the Company's registration statement on Form S-1
(No. 333-54922)