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 March 29, 2004

    [_] 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 000-50052

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

             Delaware                                          06-1393745
   (State or other jurisdiction                             (I.R.S. Employer
of incorporation or organization)                          Identification No.)

        242 West 36th St,
           New York, NY                                           10018
      (Address of principal                                    (Zip code)
        executive offices)

                                 (212) 653-1600
              (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 [ ]

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

As of May 7, 2004, 30,514,954 shares of the registrant's Common Stock, $.01 par
value, were outstanding.


<PAGE>


                                   COSI, INC.

TABLE OF CONTENTS

PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)

Consolidated Balance Sheets as of March 29, 2004 and December 29, 2003
(unaudited)

Consolidated Statements of Operations for the three months ended March 29, 2004,
and March 31, 2003 (unaudited)

Consolidated Statements of Cash Flows for the three months ended March 29, 2004,
and March 31, 2003 (unaudited)

Consolidated Statement of Stockholders' Equity for the three months ended March
29, 2004 (unaudited)

Notes to Consolidated Financial Statements (unaudited)

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4.     CONTROLS AND PROCEDURES

PART II     OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

ITEM 2.     CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
            EQUITY SECURITIES

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

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

ITEM 5.     OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K


                                       2
<PAGE>


PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

                                   COSI, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
                    (in thousands, except share information)
<TABLE>
<CAPTION>

                                                                                                        MARCH 29,       DECEMBER 29,
                                                                                                          2004              2003
                                                                                                     --------------    -------------
                                            ASSETS
<S>                                                                                                      <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents ........................................................................     $  3,151.7      $  7,957.0
  Accounts receivable, net of allowances of $294.5 and $393.1, respectively ........................          506.3           608.4
  Inventory ........................................................................................          933.2           982.9
  Prepaid expenses and other current assets ........................................................        1,507.4         1,436.0
                                                                                                         ----------      ----------
         Total current assets ......................................................................        6,098.6        10,984.4
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net ................................................       32,019.5        33,574.0
 INTANGIBLES, SECURITY DEPOSITS AND OTHER ASSETS, net ..............................................        1,914.7         1,943.9
                                                                                                         ----------      ----------
         Total assets ..............................................................................     $ 40,032.8      $ 46,502.4
                                                                                                         ==========      ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable .................................................................................     $  4,675.7      $  6,933.6
  Accrued liabilities ..............................................................................        6,562.7         7,158.4
  Current portion of other liabilities .............................................................          489.1           484.5
  Current portion of capital lease obligations .....................................................            2.2
                                                                                                                                2.9
  Current portion of long-term debt ................................................................          151.2           160.7
                                                                                                         ----------      ----------
         Total current liabilities .................................................................       11,880.9        14,740.0
OTHER LIABILITIES, net of current portion ..........................................................        5,411.2         6,525.5
LONG-TERM DEBT, net of current portion .............................................................          240.1           227.6
                                                                                                         ----------      ----------
         Total liabilities .........................................................................     $ 17,532.2      $ 21,493.1
                                                                                                         ==========      ==========

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
  Common stock -- $.01 par value: 100,000,000 shares authorized,
    26,964,954 and 26,259,109 shares issued and outstanding, respectively ..........................          269.6           262.6
  Additional paid-in capital .......................................................................      206,613.9       203,075.4
  Deferred stock compensation ......................................................................       (1,436.5)       (1,835.8)
  Notes receivable from stockholders ...............................................................       (2,724.8)       (2,724.8)
  Accumulated deficit ..............................................................................     (180,221.6)     (173,768.2)
                                                                                                         ----------      ----------
         Total stockholders' equity ................................................................       22,500.6        25,009.2
                                                                                                         ----------      ----------
         Total liabilities, and stockholders' equity ...............................................     $ 40,032.8      $ 46,502.4
                                                                                                         ==========      ==========
</TABLE>


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


                                       3
<PAGE>


                                   COSI, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                                           THREE MONTHS ENDED
                                                                                                     -------------------------------
                                                                                                      MARCH 29,           MARCH 31,
                                                                                                        2004               2003
                                                                                                     -----------       -------------

<S>                                                                                                   <C>                <C>
NET SALES ....................................................................................        $ 24,917.2         $ 25,654.4
COST OF SALES:
  Cost of goods sold .........................................................................           6,495.6            7,316.5
  Restaurant operating expenses ..............................................................          16,112.8           16,801.2
                                                                                                      ----------         ----------
        TOTAL COST OF SALES ..................................................................          22,608.4           24,117.7
GENERAL AND ADMINISTRATIVE EXPENSE ...........................................................           4,263.5            7,925.2
STOCK COMPENSATION EXPENSES (1) ..............................................................           2,981.1               --
DEPRECIATION AND AMORTIZATION ................................................................           1,701.3            1,958.6
RESTAURANT PRE-OPENING EXPENSES ..............................................................              59.4              349.1
PROVISION FOR LOSSES ON ASSET IMPAIRMENTS
   AND DISPOSALS .............................................................................             474.4            2,568.0
LEASE TERMINATION COSTS ......................................................................            (702.3)             257.1
                                                                                                      ----------         ----------

        Operating loss .......................................................................          (6,468.6)         (11,521.3)
INTEREST INCOME ..............................................................................              14.7               25.2
INTEREST EXPENSE .............................................................................              (3.1)             (47.0)
OTHER INCOME (EXPENSE) .......................................................................               3.6              (25.0)
                                                                                                      ----------         ----------
        NET LOSS .............................................................................        $ (6,453.4)        $(11,568.1)
                                                                                                      ==========         ==========
PER SHARE DATA:
  Net Loss Per Share:
    Basic and diluted ........................................................................        $    (0.24)        $    (0.70)
  Weighted Average Common Shares Outstanding: (in
    thousands) ...............................................................................          26,949.2           16,573.8
</TABLE>


(1) Allocation of stock compensation expenses:


<TABLE>
<CAPTION>
                                                                                                           THREE MONTHS ENDED
                                                                                                     -------------------------------
                                                                                                      MARCH 29,           MARCH 31,
                                                                                                        2004               2003
                                                                                                     -----------       -------------
<S>                                                                                                   <C>                <C>
RESTAURANT OPERATING EXPENSES ................................................................        $    334.1         $     --
GENERAL AND ADMINISTRATIVE EXPENSES ..........................................................           2,647.0               --
                                                                                                      ----------         ----------
STOCK COMPENSATION EXPENSE ...................................................................        $  2,981.1         $     --
</TABLE>



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


                                       4
<PAGE>


                                   COSI, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                              THREE MONTHS ENDED
                                                                                                           MARCH 29,      MARCH 31,
                                                                                                             2004            2003
                                                                                                          -----------    -----------
<S>                                                                                                        <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ...........................................................................................     $(6,453.4)    $(11,568.1)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization ....................................................................       1,701.3        1,958.6
    Amortization of deferred financing costs .........................................................          --             25.0
    Non-cash portion of asset impairments and disposals ..............................................         360.5        2,051.9
    (Recovery) Provision for bad debts ...............................................................          66.8            9.0
    Stock compensation expense .......................................................................       2,981.1           --
    Non-cash employee severance cost .................................................................          --             43.1
    Changes in operating assets and liabilities:
      Accounts receivable ............................................................................         169.0           21.0
      Inventory ......................................................................................          49.6           26.8
      Other assets ...................................................................................          29.4         (245.8)
      Accounts payable ...............................................................................      (2,257.9)      (2,535.3)
      Accrued liabilities ............................................................................        (911.5)       3,692.1
      Accrued contractual lease increases ............................................................         113.5          123.4
      Prepaid expenses and other current assets ......................................................         (71.3)         279.7
      Lease termination accrual ......................................................................        (895.0)           0.2
                                                                                                           ---------      ---------
        Net cash used in operating activities ........................................................      (5,251.5)      (6,118.4)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, equipment and leasehold improvements ........................................        (507.3)      (3,172.4)
  Return of security deposits ........................................................................          --            109.2
                                                                                                                          ---------
        Net cash used in investing activities ........................................................        (507.3)      (3,063.2)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of common stock .............................................................         963.7           --
  Principal payments on capital lease obligations ....................................................          (0.7)         (55.4)
  Principal payments on long-term debt ...............................................................          (9.5)        (184.4)
                                                                                                           ---------      ---------
        Net cash provided by (used in) financing activities ..........................................         953.5         (239.8)
                                                                                                           ---------      ---------
Net increase (decrease) in cash ......................................................................      (4,805.3)      (9,421.4)
CASH AND CASH EQUIVALENTS, beginning of year .........................................................       7,957.0       13,032.3
                                                                                                           ---------      ---------
CASH AND CASH EQUIVALENTS, end of period .............................................................     $ 3,151.7      $ 3,610.9
                                                                                                           =========      =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest .........................................................................................     $    14.5      $    47.0
    Corporate franchise and income taxes .............................................................         128.1           40.8
</TABLE>

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


                                       5
<PAGE>


                                   COSI, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      For Three Months Ended March 29, 2004
                                   (unaudited)
                    (in thousands, except share information)
<TABLE>
<CAPTION>
                                                 Common Stock
                                       ------------------------------------
                                                                                              Notes
                                                                 Additional                 Receivable
                                       Number of                  Paid In       Deferred       from      Accumulated
                                        Shares        Amount      Capital    Compensation  Stockholders    Deficit         Total
                                       ----------   ----------   ----------- ------------  ------------   ----------    ----------
<S>                                    <C>          <C>          <C>          <C>           <C>          <C>            <C>
BALANCE, December 29, 2003 .........   26,259,109   $    262.6   $203,075.4   $ (1,835.8)   $ (2,724.8)  $(173,768.2)   $ 25,009.2
Stock Compensation .................         --           --        2,581.8        399.3          --            --         2,981.1
Exercise of Warrants ...............        1,083         --           --           --            --            --            --
Issuance of Common Stock ...........      704,762          7.0        956.7         --            --            --           963.7
Net Loss ...........................         --           --           --           --            --        (6,453.4)     (6,453.4)
                                       ----------   ----------   ----------   ----------    ----------    ----------    ----------
BALANCE, March 29, 2004 ............   26,964,954   $    269.6   $206,613.9   $ (1,436.5)   $ (2,724.8)  $(180,221.6)   $ 22,500.6
                                       ==========   ==========   ==========   ==========    ==========    ==========    ==========
</TABLE>


                                       6
<PAGE>


Notes to Consolidated Financial Statements (unaudited)

March 29, 2004

NOTE A -- BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Cosi,
Inc. and its subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information, and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly
they do not include all of the information and footnotes required by generally
accepted accounting principles in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the thirteen-week period ended March 29, 2004
are not necessarily indicative of the results that may be expected for the
fiscal year ending January 3, 2005.

The balance sheet at December 29, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles in the United
States for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 29, 2003.

NOTE B -- STOCK-BASED COMPENSATION

The Company complies with the disclosure only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation". This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
The provisions of SFAS 123 encourage entities to adopt a fair value based method
of accounting for stock compensation plans; however, these provisions also
permit the Company to continue to measure compensation costs under pre-existing
accounting pronouncements. Pursuant to SFAS 123, the Company has elected to
continue the accounting set forth in Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" and to provide the necessary
pro forma disclosures.


The following table illustrates the effect on net loss attributable to common
stock and net loss per common share as if the Company had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation.
<TABLE>
<CAPTION>
                                                                                                           THREE MONTHS ENDED
                                                                                                       -----------------------------
(IN 000'S, EXCEPT PER SHARE DATA)                                                                       MARCH 29,         MARCH 31,
                                                                                                          2004              2003
                                                                                                       -----------       -----------
<S>                                                                                                    <C>               <C>
  Net loss attributable to common stock - as reported ..........................................       $ (6,453.4)       $(11,568.1)
    Stock based compensation included in the
     determination of net loss, as reported ....................................................          2,581.8              43.1
    Stock based compensation determined under SFAS 123 .........................................           (527.3)           (450.7)
                                                                                                       ----------
  Net loss attributable to common stock - Pro forma ............................................       $ (4,398.9)       $(11,975.7)
Net loss per common share -- Basic and Diluted:
  As reported ..................................................................................       $    (0.24)       $    (0.70)
                                                                                                       ==========        ==========
  Pro forma ....................................................................................       $    (0.16)       $    (0.72)
                                                                                                       ==========        ==========
</TABLE>

Pursuant to a stock option repricing approved by shareholders, on December 29,
2003, 1,246,164 options with exercise prices ranging from $2.37 to $12.25 were
repriced at $2.26 per share. In accordance with ABP 25, the Company has recorded
an expense in the amount of approximately $2.6 million resulting from repriced
options as of March 29, 2004. This expense is the result of an increase in the
Company's stock price from $2.26, as of the date of the repricing, to a stock
price of $5.87, as of the close of business on March 29, 2004. The Company may
be required to record additional charges in the future, which may be material,
depending upon the movement of the Company's stock price.


                                       7
<PAGE>


NOTE C -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
                                                                                                        MARCH 29,       DECEMBER 29,
(IN 000'S)                                                                                                2004               2003
                                                                                                        ---------       ------------
<S>                                                                                                     <C>               <C>
Leasehold improvements .........................................................................        $33,064.8         $32,978.8
Furniture and fixtures .........................................................................          9,201.1           9,139.6
Restaurant equipment ...........................................................................         13,048.8          13,172.9
Computer and telephone equipment ...............................................................          8,061.3           7,862.5
Construction in progress .......................................................................             50.7             126.1
                                                                                                        ---------         ---------
                                                                                                         63,426.7          63,279.9
Less: accumulated depreciation and amortization ................................................        (31,407.2)        (29,705.8)
                                                                                                        ---------         ---------
                                                                                                        $32,019.5         $33,574.0
                                                                                                        =========         =========
</TABLE>


RESTAURANT IMPAIRMENT CHARGES

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets." SFAS 144 supercedes SFAS No. 121, "Accounting
for the Impairment of Long Lived Assets and for Long Lived Assets to be disposed
of", and APB Opinion No. 30, "Reporting Results of Operations Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS 144 retains the
fundamental provisions of SFAS 121 for recognition and measurement of
impairment, but amends the accounting and reporting standards for segments of a
business to be disposed of. In accordance with SFAS 144 and previously under
SFAS 121, impairment losses are recorded on long-lived assets on a restaurant by
restaurant basis whenever impairment factors are determined to be present.
The Company considers a history of restaurant operating losses to be the primary
indicator of potential impairment for individual restaurant locations. The
Company determines whether a restaurant location is impaired based on expected
undiscounted cash flows, generally for the remainder of the lease term, and then
determines the impairment charge based on discounted cash flows for the same
period. In the first quarter of 2004, the Company identified one unit that has
been impaired and recorded a charge of approximately $0.4 million. In the first
quarter of 2003, the Company recorded an asset impairment charge of
approximately $0.7 million related to two restaurants. In addition, the company
recorded a charge of $0.1 million related to the write-down on the disposal of
fixed assets in the first quarter of fiscal 2004. In the first quarter of fiscal
2003, the Company recorded a charge of $0.6 million to reflect the write-down of
fixed assets associated with the closure of three underperforming restaurants,
and also recorded a write-down of approximately $1.3 million to reflect the
write-off of construction in progress on 25 restaurants, which were in the
development pipeline, but had been cancelled.

NOTE D -- ACCRUED LIABILITIES

Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
                                                                                                          MARCH 29,     DECEMBER 29,
(IN 000'S)                                                                                                  2004            2003
                                                                                                          ---------     ------------
<S>                                                                                                        <C>              <C>
Payroll and related benefits and taxes ...........................................................         $1,429.0         $1,756.2
Professional and legal costs .....................................................................            405.3            407.3
Taxes payable ....................................................................................            542.5            816.2
Severance payable - current portion ..............................................................          1,238.6          1,485.4
Other ............................................................................................          2,947.3          2,693.3
                                                                                                           --------         --------
                                                                                                           $6,562.7         $7,158.4
                                                                                                           ========         ========
</TABLE>


NOTE E - LONG-TERM DEBT

NOTES PAYABLE

The Company maintains a credit facility in the original amount of $3 million
under a Master Loan and Security Agreement dated October 28, 1999 (the
"Equipment Loan Credit Facility"). The proceeds are required to be used for the
purchases of equipment. Borrowings are secured by the equipment purchased. Each
borrowing under the Equipment Loan Credit Facility is payable over 36 months and
the interest rate is determined at the time of the borrowing. Warrants to
purchase shares of common stock were issued in connection with the Equipment
Loan Credit Facility. The warrants entitle the holder to acquire 8,068 shares of
the Company's


                                       8
<PAGE>


common stock for $14.875 per share. One note with the remaining principal amount
of $113,738 was satisfied in full on September 1, 2003 according to the terms of
the note. As of March 29, 2004, $91,849 still remains outstanding under the
facility.

The Company has an outstanding note payable of approximately $98,000. The note
is due March 2007 and requires monthly payments of $3,097, which commenced in
May 1998, and accrues interest at a rate of 10% per year.

In 2001, the Company entered into a settlement agreement involving a trademark
dispute. Under that agreement, the Company is obligated to make annual payments
of $25,000 per year through 2011. The present value of those future payments is
included in Notes Payable on the accompanying balance sheets.


NOTE F - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share for the periods indicated (in thousands, except for per share data):
<TABLE>
<CAPTION>
                                                                                                           THREE MONTHS ENDED
                                                                                                      ------------------------------
                                                                                                       MARCH 29,          MARCH 31,
(IN 000'S, EXCEPT PER SHARE DATA)                                                                        2004               2003
                                                                                                      -----------        -----------
<S>                                                                                                   <C>                <C>
Basic and Diluted:
Net loss attributable to common stock ........................................................        $ (6,453.4)        $(11,568.1)
Weighted average common shares outstanding ...................................................          26,949.2           16,573.8
Net loss per share ...........................................................................        $    (0.24)        $    (0.70)
                                                                                                      ==========         ==========
</TABLE>


Basic and diluted loss per common share is calculated by dividing net loss by
the weighted average common shares outstanding during the period. In-the-money
stock options and warrants to purchase and aggregate of 3,424,263 and 273,842
shares of common stock were outstanding at March 29, 2004 and March 31, 2003,
respectively. These stock options and warrants outstanding were not included in
the computation of diluted earnings per share because the Company incurred a net
loss in all periods presented and hence, the impact would be anti-dilutive.

NOTE G- LEASE TERMINATION CHARGES

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities," which addresses accounting for restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
146 requires companies to recognize costs associated with exit or disposal
activities when they are incurred, rather than at the date of a commitment to an
exit or disposal plan. SFAS 146 has been applied prospectively to exit or
disposal activities initiated after December 31, 2002. In the first quarter of
2004, the Company recognized $0.8 million of lease termination income related to
the reversal of certain lease termination accruals deemed no longer required,
which was partially offset by charges of $0.1 million resulting in a net
reversal of approximately $0.7 million. In addition, payments of $0.1 million
were made during the quarter.

The Company announced previously that the Board of Directors had concluded that
the Company's financial performance would be strengthened by closing in an
orderly fashion as many as thirteen of the Company's restaurants, three of which
were closed in the first quarter of fiscal 2003, three of which were closed in
the third quarter of fiscal 2003, two of which were closed in the fourth quarter
of fiscal 2003 and one of which closed in the first quarter of fiscal 2004.
Another store has shown dramatic improvement in sales and has been taken off the
disposition list, leaving three stores on the list. Future closings are
dependent on the Company's ability to improve operations in those stores and if
unsuccessful to negotiate acceptable terms with its landlords to terminate the
leases for those units, and on its ability to locate acceptable sub-tenants or
assignees for the leases at those locations. Moreover, future closings may
result in additional lease termination costs. There can be no assurances that
the Company will be successful in negotiating terms that will enable it to close
additional underperforming units.

NOTE H - CONTINGENCIES

From time to time, Cosi is a defendant in litigation arising in the ordinary
course of our business, including claims resulting from "slip and fall"
accidents, claims under federal and state laws governing access to public
accommodations, employment related claims and claims from guests alleging
illness, injury or other food quality, health or operational concerns. To date,
none of such litigation, some of which is covered by insurance, has had a
material adverse effect on Cosi's consolidated financial position, results of
operations or cash flows.

On February 5, 2003, a purported shareholder class action complaint was filed in
the United States District Court for the Southern District of New York (the
"Court"), alleging that Cosi and various of our officers and directors and the
underwriter of our IPO violated Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933, as amended, by misstating, and by failing to disclose, certain


                                       9
<PAGE>


financial and other business information (Sheel Mohnot v. Cosi, Inc., et al.,
No. 03 CV 812). At least eight additional class action complaints with
substantially similar allegations were later filed. These actions have been
consolidated in In re Cosi, Inc. Securities Litigation (collectively, the
"Securities Act Litigation"). On July 7, 2003, lead plaintiffs filed a
Consolidated Amended Complaint, alleging on behalf of a purported class of
purchasers of Cosi's stock allegedly traceable to the Company's November 22,
2002 IPO, that at the time of the IPO, the Company's offering materials failed
to disclose that the funds raised through the IPO would be insufficient to
implement Cosi's expansion plan; that it was improbable that the Company would
be able to open 53 to 59 new restaurants in 2003; that at the time of the IPO,
Cosi had negative working capital and therefore did not have available working
capital to repay certain debts; and that the principal purpose for going forward
with the IPO was to repay certain existing shareholders and members of the Board
of Directors for certain debts and to operate the Company's existing
restaurants.

The plaintiffs in the Securities Act Litigation generally seek to recover
recessionary damages, expert fees, attorneys' fees, costs of Court and pre and
post judgment interest. The underwriter is seeking indemnification from the
Company for any damages assessed against it in the Securities Act Litigation. On
August 22, 2003, lead plaintiffs filed a Second Consolidated Amended Complaint,
which was substantially similar to the Consolidated Amended Complaint. The
Securities Act Litigation is at a preliminary stage, and the Company believes
that it has meritorious defenses to these claims, and intend to vigorously
defend against them.

On September 22, 2003, defendants filed motions to dismiss the Second
Consolidated Amended Complaint in the Securities Act Litigation. Plaintiffs
filed their opposition to defendants' motions to dismiss on October 23, 2003.
Defendants filed reply briefs on November 12, 2003.

Cosi cannot predict what the outcome of these lawsuits will be. It is possible
that the Company may be required to pay substantial damages or settlement costs
in excess of the Company's insurance coverage, which could have a material
adverse effect on Cosi's financial condition or results of operations. Cosi
could also incur substantial legal costs, and management's attention and
resources could be diverted from the business.

NOTE I - RESTRICTED STOCK

On June 26, 2003, the Company entered into an employment agreement with William
D. Forrest. Pursuant to the agreement, Mr. Forrest will serve as Executive
Chairman for three years ending on March 31, 2006. In consideration for Mr.
Forrest's service as the Company's Executive Chairman, on June 26, 2003, the
Company issued to Mr. Forrest 1,156,407 shares of its authorized but unissued
common stock, representing 5% of its outstanding common stock on a fully diluted
basis (assuming all outstanding options and warrants are exercised). Pursuant to
the December 29, 2003 completion of the rights offering, the Company issued an
additional 522,064 shares to Mr. Forrest such that Mr. Forrest's ownership of
Cosi, on a fully diluted basis, remained at 5%. Mr. Forrest's rights in the
shares vest as follows: (i) 25% of the shares vested upon issuance; (ii) 25% of
the shares vested on April 1, 2004,; and (iii) on the last day of each month,
commencing with April 2004, and ending on March 2006, 2.08% of the shares will
vest, and an additional .08% of the shares will vest on March 31, 2006, provided
that at the end of each month the agreement is still in effect. All shares not
vested will fully vest upon the termination of this agreement by Cosi without
cause (as defined in the agreement), or upon a change of control (as defined in
the agreement). If Mr. Forrest is terminated by the Company for cause (as
defined in the agreement), all unvested shares will be forfeited. Mr. Forrest
agreed that, during the term of the agreement and for a period of 12 months
thereafter, he will not compete with the Company or solicit its employees. The
value of Mr. Forrest's shares, based on the closing price of the Company's
common stock on the dates of the grants, was $2,729,439, which was recorded as
deferred stock compensation within stockholder's equity. Amortization of
deferred stock compensation expense of approximately $399,300 for the quarter
ending March 29, 2004 is included in stock compensation expense in the
accompanying consolidated statements of operations. The remaining balance is
being amortized as stock compensation expense evenly over the remaining life of
Mr. Forrest's employment.

NOTE J - RIGHTS OFFERING

On December 29, 2003, the Company consummated a rights offering. Cosi raised an
aggregate of approximately $7.5 million in new cash from the sale of common
stock in connection with the rights offering and pursuant to an investment
agreement among the Company and certain investors that was approved by the
Company's stockholders at our 2003 Annual Meeting. The Company issued
approximately 3.6 million shares of common stock pursuant to the rights
offering. In addition, the Company issued approximately 1.4 million shares of
common stock pursuant to the investment agreement and approximately 3.0 million
shares of common stock pursuant to the conversion of $4.5 million of senior
secured notes held by certain of the parties to the investment agreement in
connection with the rights offering. In January 2004, pursuant to the investment
agreement, LJCB Nominees Pty, Ltd. purchased an additional 693,963 shares for
approximately $1.0 million.


                                       10
<PAGE>


NOTE K - MANAGEMENT

Effective February 9, 2004, Mr. William D. Forrest joined Cosi as its full-time
Executive Chairman. In connection with his employment, Mr. Forrest was granted
options to purchase 350,000 shares of the Company's common stock at a price of
$2.85, the closing market price on February 9, 2004. Mr. Forrest's options vest
at a rate of 87,500 shares at the date of the agreement, an additional 87,500
shares on February 9, 2005, and monthly vesting of 7,292 shares from February
2005 to January 2007.

NOTE L - SUBSEQUENT EVENTS

On April 30, 2004, the Company issued 3,550,000 shares of common stock pursuant
to a private placement to a limited number of institutional investors at a price
of $5.65 per share. This issuance provided the Company with gross proceeds of
approximately $20.0 million. The cash proceeds from this private placement will
be used for general corporate purposes including, the construction of new Cosi
stores within select Federated locations, additional new store construction in
2005, and working capital.

On March 30, 2004, the Company announced a foodservice partnership with
Federated Department Stores. In the initial phase of the agreement, Cosi plans
to open 10 restaurants this summer and fall at some of the largest Macy's
stores, including locations in Seattle, Atlanta, Miami and Memphis.

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

         OVERVIEW

         We own and operate 88 fast casual restaurants in eleven states and the
District of Columbia. Cosi restaurants are all day cafes that feature signature
bread and coffee products in an environment we adjust appropriately throughout
the day. The majority of our restaurants offer breakfast, lunch, afternoon
coffee, dinner and dessert menus.

         We operate our restaurants in two formats: Cosi and Cosi Downtown. The
majority of our restaurants offer breakfast, lunch and afternoon coffee in a
counter service format. Cosi Downtown restaurants, which are located in non
residential central business districts, close for the day in the early evening,
while Cosi restaurants offer dinner and dessert in a casual dining atmosphere.
The atmosphere of Cosi is appropriately managed for each daypart by changing the
music and lighting throughout the day. All of our restaurants are designed to be
welcoming and comfortable, featuring oversized sofas, chairs and tables, and
faux painted walls. The atmosphere of Cosi is appropriately managed for each
daypart by changing the music, both style and volume, and lighting throughout
the day. The design scheme of our counters and bars, menu boards as well as
condiment counters and server stations incorporate warm colors and geometric
patterns, intended to create a visual vocabulary that can be easily identified
by our customers.

          Our restaurants are located in a wide range of markets and trade
areas, including business districts and residential communities in both urban
and suburban locations. We believe that we have created significant brand equity
in our markets and that we have demonstrated the appeal of our concept to a wide
variety of customers. In 2003, we announced our intention to incorporate a
franchising and area developer model into our business strategy. We expect that
restaurants we own will always be an important part of our new restaurant
growth, and we believe that incorporating a franchising and area developer model
into our strategy will position us to maximize the market potential for the Cosi
brand and concept consistent with our available capital and thus maximize
stockholder value.

          In 2004, we launched our franchise sales program and are now eligible
to offer franchises in 41 states. Alongside the franchising program, we recently
designed, built and opened its next generation restaurant in Avon, CT. The new
restaurant design constitutes the building block of Cosi's franchising efforts.


                                       11
<PAGE>


          Additionally, we announced a foodservice partnership with Federated
Department Stores. In the initial phase of the agreement, Cosi plans to open 10
restaurants this summer and fall at some of the largest Macy's stores, including
locations in Seattle, Atlanta, Miami and Memphis.

          We opened no new restaurants in the three months ended March 29, 2004.
6 new restaurants were opened in the three months ended March 31, 2003. We
closed one underperforming restaurant in the first quarter of fiscal 2004 and
six underperforming restaurants in the first three months of fiscal 2003. As of
May 7, 2004 we operate 88 restaurants.

                                                      MARCH 29,   MARCH 31,
                THREE MONTHS ENDED                      2004        2003
                                                     -----------  ---------
        Restaurants open at beginning of period          89          91
        Restaurants opened                                0           6
        Restaurants closed                                1           3
        Restaurants open at end of period                88          94

RECENT DEVELOPMENTS

      On April 30, 2004, we issued 3,550,000 shares of common stock pursuant to
a private placement to a limited number of institutional investors at a price of
$5.65 per share. This issuance provided the Company with gross proceeds of
approximately $20.0 million. The cash proceeds from this private placement will
be used for general corporate purposes including, the construction of new Cosi
stores within select Federated locations, additional new store construction in
2005, and working capital.

      In connection with the private placement, we filed a Current Report on
Form 8-K on April 28, 2004, disclosing the transaction and certain other
information pursuant to Regulation FD, including certain preliminary operating
information for the first fiscal quarter of 2004. In the Current Report, we
disclosed that restaurant operating expenses for the fiscal quarter ended March
29, 2004 were expected to be approximately $15.9 million. Restaurant operating
expenses for the fiscal quarter ended March 29, 2004 were actually $16.1
million. This difference in restaurant operating expenses is due to the
inclusion of certain discretionary bonuses paid to operations personnel that
were not included in the calculation of the preliminary numbers.

      On March 30, 2004, we announced a foodservice partnership with Federated
Department Stores. In the initial phase of the agreement, Cosi plans to open 10
restaurants this summer and fall at some of the largest Macy's stores, including
locations in Seattle, Atlanta, Miami and Memphis.

CRITICAL ACCOUNTING POLICIES

    Our consolidated financial statements and the notes to our consolidated
financial statements contain information that is pertinent to management's
discussion and analysis of financial conditions and results of operations. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities. We believe the following
critical accounting policies involve additional management judgment due to the
sensitivity of the methods, assumptions and estimates necessary in determining
the related asset and liability amounts.

    Statement of Financial Accounting Standards ("SFAS") 144, "Accounting for
the Impairment or Disposal of Long Lived Assets," supercedes SFAS 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be Disposed of," and APB Opinion No. 30, "Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." SFAS 144 retains
the fundamental provisions of SFAS 121 for recognition and measurement of
impairment, but amends the accounting and reporting standards for segments of a
business to be disposed of. SFAS 144 requires management judgments regarding the
future operating and disposition plans for marginally performing assets, and
estimates of expected realizable values for assets to be sold. Actual results
may differ from those estimates. The application of SFAS 144, and previously
SFAS 121, has affected the amount and timing of charges to operating results
that have been significant in recent years. We evaluate possible impairment at
the individual restaurant level and record an impairment loss whenever we
determine impairment factors are present. We have developed and implemented an
operational improvement plan, and we undertake impairment reviews periodically.
We consider a history of restaurant operating losses to be the primary indicator
of potential impairment for individual restaurant locations. A lack of
improvement at the restaurants we are monitoring, or deteriorating results at
other restaurants, could result in additional impairment charges. Historically,
we have not recorded material additional impairment charges subsequent to the
initial determination of impairment. In the first quarter of fiscal 2004, we
recognized $0.4 million of asset impairment charges and $0.1 million related to
the write-down on the disposal of fixed assets.

    For all exit activities prior to December 31, 2002, we estimated our likely
liability under contractual leases for restaurants that have been, or will be,
closed. Such estimates have affected the amount and timing of charges to
operating results that have been significant in recent years and are impacted by
management's judgments about the time it may take to find a suitable subtenant
or assignee, or the terms under which a termination of the lease agreement may
be negotiated with the landlord.

    In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses accounting for restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
146 requires companies to recognize costs associated with exit or disposal
activities when they are incurred, rather than at the date of a commitment to an
exit or disposal plan. SFAS 146 has been applied prospectively to exit or
disposal activities initiated after December 31, 2002. In the first quarter of
2004, we have recognized $0.8 million of lease termination income related to the
reversal of certain lease termination accruals deemed no longer required, which
was partially offset by charges of $0.1 million resulting in a net reversal of
approximately $0.7 million.

    In December 2002, the FASB issued SFAS 148, "Accounting for Stock Based
Compensation -- Transition and Disclosure." SFAS 148 amends SFAS 123,
"Accounting for Stock Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require more prominent disclosures in
both annual and interim financial


                                       12
<PAGE>


statements about the method of accounting for stock based employee compensation
and the effect of the method used on reported results. The additional disclosure
requirements of SFAS 148 are effective for fiscal years ending after December
15, 2002, and have been incorporated into the accompanying financial statements
and footnotes. We have elected to continue to follow the intrinsic value method
of accounting as prescribed by APB 25 to account for employee stock options.
Pursuant to a stock option repricing approved by shareholders, on December 29,
2003, 1,246,164 options with exercise prices ranging from $2.37 to $12.25 were
repriced at $2.26 per share. In accordance with APB 25, these options are
subject to variable accounting, which resulted in a charge in the amount of
approximately $2.6 million for the first quarter of fiscal 2004. Charges in the
future may be material depending upon the movement in the stock price.

    We have recorded a full valuation allowance to reduce our deferred tax
assets related to net operating loss carry forwards. A positive adjustment to
income will be required in future years if we determine that we could realize
these deferred tax assets.

    NET SALES

    Our sales are composed almost entirely of food and beverage sales.

    COMPARABLE RESTAURANT SALES

    In calculating comparable restaurant sales, we include a restaurant in the
comparable restaurant base after it has been in operation for 15 full months. At
March 29, 2004 and March 31, 2003 there were 78 and 61 restaurants in our
comparable restaurant base, respectively.

COSTS AND EXPENSES

    Cost of goods sold. Cost of goods sold is composed of food and beverage
costs. Food and beverage costs are variable, and increase with sales volume.

    Restaurant operating expenses. Restaurant operating expenses include direct
hourly and management wages, bonuses, taxes and benefits for restaurant
employees, and other direct restaurant level operating expenses including the
cost of supplies, restaurant repairs and maintenance, utilities, rents and
related occupancy costs.

    General and administrative expenses. General and administrative expenses
include all corporate and administrative functions that support our restaurants
and provide an infrastructure to operate our business. Components of these
expenses include executive management; supervisory and staff salaries, bonuses
and related taxes and employee benefits; travel; information systems; training;
support center rent and related occupancy costs and professional and consulting
fees. The salaries, bonus and employee benefits costs included as general and
administrative expenses are generally more fixed in nature and do not vary
directly with the number of restaurants we operate.

    Stock compensation expense. Stock compensation expense includes the charge
related to stock option repricing as well as the amortization of deferred
compensation of restricted stock.

    Depreciation and amortization. Depreciation and amortization principally
includes depreciation on restaurant assets.

    Restaurant pre opening expenses. Restaurant pre opening expenses, which are
expensed as incurred, include the costs of recruiting, hiring and training the
initial restaurant work force, travel, the cost of food and labor used during
the period before opening, the cost of initial quantities of supplies and other
direct costs related to the opening of, or remodeling of, a restaurant.

    Our fiscal year ends on the Monday falling nearest to December 31. Fiscal
years 2000, 2001 and 2002 each included 52 weeks. The three-month periods ended
March 29, 2004 and March 31, 2003 each contained 13 weeks.

RESULTS OF OPERATIONS

    Our operating results for the three months ended March 29, 2004 and March
31, 2003, expressed as a percentage of sales, were as follows:


                                       13
<PAGE>


<TABLE>
<CAPTION>
                                                                                                               THREE MONTHS ENDED
                                                                                                            ------------------------
                                                                                                             MARCH           MARCH
                                                                                                            --------        --------
                                                                                                            29, 2004        31, 2003
                                                                                                            --------        --------
<S>                                                                                                          <C>             <C>
Net sales ..........................................................................................         100.0%          100.0%
Costs and Expenses:
  Cost of goods sold ...............................................................................          26.0%           28.5%
  Restaurant operating expenses ....................................................................          64.7%           65.5%
                                                                                                            --------        --------
  Total costs of sales .............................................................................          90.7%           94.0%
  General and administrative expenses ..............................................................          17.1%           30.9%
  Stock compensation expenses ......................................................................          12.0%             --
  Depreciation and amortization ....................................................................           6.8%            7.6%
  Restaurant pre-opening expenses ..................................................................           0.3%            1.4%
  Provision for losses on asset impairments and disposals ..........................................           1.9%           10.0%
  Lease termination costs ..........................................................................          (2.8)%           1.0%
                                                                                                            --------        --------
Operating loss .....................................................................................         (26.0)%         (44.9)%
Other income (expense):
  Interest income ..................................................................................           0.1%            0.1%
  Interest expense .................................................................................          (0.0)%          (0.2)%
  Other Income .....................................................................................           0.0%           (0.1)%
                                                                                                            --------        --------
Net income (loss) ..................................................................................         (25.9)%         (45.1)%
</TABLE>

THREE MONTHS ENDED MARCH 29, 2004 VS. THREE MONTHS ENDED MARCH 31, 2003

NET SALES

    Sales decreased $0.8 million, or (2.9)%, to $24.9 million in the first
quarter of fiscal 2004, from $25.7 million in the first quarter of fiscal 2003.
This decrease was primarily due to six fewer restaurants open during the first
quarter of fiscal 2004 than were open during the first quarter of fiscal 2003.
One restaurant was closed during the first quarter of 2004, having minimal
impact on sales compared to the same period last year.

    In the first quarter of fiscal 2004, comparable restaurant sales increased
3.7%. In comparable restaurants, for the first quarter of fiscal 2004, our
transaction count increased 3.0% and our average check increased 0.8% compared
to the same period last year.

    During the third quarter of 2003, we identified 22 restaurants that had
insufficient profit contribution from the breakfast daypart. As a result, we
closed those restaurants during the breakfast daypart. While these breakfast
closures will have a negative impact on our sales growth going forward, we
believe that the closures will improve our future profitability. However, there
can be no assurances that this action will have a positive impact on our
profitability. The breakfast daypart closure was part of an overall Company
initiative to optimize its labor costs and contributed to the decrease, as a
percentage of sales, in restaurant operating expenses in the first quarter of
2004.

COSTS AND EXPENSES

    Cost of goods sold. In the first quarter of fiscal 2004, cost of goods sold
decreased $0.8 million or (11.2)%, to $6.5 million, from $7.3 million in the
first quarter of fiscal 2003. As a percentage of sales, cost of goods sold
decreased to 26.1% of sales in the first quarter of fiscal 2004, from 28.5% in
the first quarter of fiscal 2003. The decrease in cost of goods sold as a
percentage of sales was primarily due to a refinement of our purchasing process.
The Company cut cost of goods by becoming a primary source buyer and by reducing
distribution charges. Moreover, to stabilize these savings and eliminate the
risk of sudden movements in food prices, the Company has entered into longer
term arrangements with its suppliers. These contracts adequately insulate the
Company from increases in commodities prices. Any movement in food prices has a
minimal effect, in the short term, on the Company's cost of goods sold as the
majority of the Company's purchases are covered by these longer term contracts.

    During the first quarter of fiscal 2004, food sales increased to 77.4% of
total sales, from 75.4% in last year's quarter, with an offsetting reduction in
our beverage sales, which were 22.6% of total sales in this year's quarter,
compared to 24.6% in last year's quarter. Our food sales have a higher cost of
sales when compared to our beverage sales.

    Restaurant operating expenses. Restaurant operating expenses decreased by
$0.7 million, or (4.1)%, to $16.1 million in the first quarter of fiscal 2004,
from $16.8 million in the first quarter of fiscal 2003. This decrease is
primarily due to the decrease in the number of restaurants in operation this
year compared to last year. As a percentage of sales, restaurant operating
expenses decreased to


                                       14
<PAGE>


64.7% of sales in the first quarter of fiscal 2004, from 65.5% in the first
quarter of fiscal 2003. This decrease, as a percentage of sales was primarily
the result of improved labor scheduling and optimizing the deployment of
employees during peak and non-peak hours.

    General and administrative costs. General and administrative costs decreased
by $3.6 million, or (46.2)%, to $4.3 million in the first quarter of fiscal
2004, from $7.9 million in the first quarter of fiscal 2003. This decrease is
primarily due to a one time employee severance charge of $3.7 million that was
partially offset by $0.4 million in cost reductions associated with reductions
in our executive, general and administrative staff during the first quarter of
2003. Excluding the employee severance charge, general and administrative costs
decreased to 17.1% of sales in the first quarter of fiscal 2004, from 18.0% of
sales in the first quarter of fiscal 2003 primarily due to the aforementioned
staff reductions in the first quarter of 2003.

    Depreciation and amortization. Depreciation and amortization decreased $0.3
million, or (13.1)%, to $1.7 million in the first quarter of fiscal 2004, from
$2.0 million in the first quarter of fiscal 2003. This decrease was primarily
due the closure of six restaurants since the end of the first quarter of 2003
and impairment charges taken in 2003. As a percentage of restaurant sales,
depreciation and amortization decreased to 6.8% of sales in the first quarter of
fiscal 2004, compared to 7.6% of sales in the first quarter of fiscal 2003. This
decrease, as a percentage of sales, is primarily due to an increase in
comparable store sales, the closure of six under-performing restaurants with low
sales bases and increased sales resulting from stores opened in 2003.

    Restaurant pre-opening expenses. Restaurant pre-opening expenses were less
than $0.1 million in the first quarter of fiscal 2004, down 83.0% from $0.3
million recorded in the first quarter of fiscal 2003. This decrease is due to
one remodeled restaurant in the first quarter of fiscal 2004 compared to six new
restaurants opened in the first quarter of fiscal 2003.

    Loss on impairment of property and equipment and restaurant disposals.
During the first quarter of fiscal 2004, we recognized $0.5 million of asset
impairment and store disposal costs, of which, approximately $0.4 million of
which represents impairment charges taken on one underperforming restaurant and
$0.1 million represents charges related to the closure of one under-performing
restaurant during the quarter.

    Lease termination costs. In the first quarter of 2004, we recognized $0.8
million of lease termination income related to the reversal of certain lease
termination accruals deemed no longer required, which was partially offset by
charges of $0.1 million resulting in a net reversal of approximately $0.7
million. Lease termination costs of $0.3 million were recorded in the first
quarter of 2003.

    We announced previously that our Board of Directors had concluded that the
Company's financial performance would be strengthened by closing in an orderly
fashion as many as thirteen of the Company's restaurants, three of which were
closed in the first quarter of fiscal 2003, three of which were closed in the
third quarter of fiscal 2003, two of which were closed in the fourth quarter of
fiscal 2003 and one of which closed in the first quarter of fiscal 2004. Another
store has shown dramatic improvement in sales and has been taken off the
disposition list, leaving three stores on the list. Future closings are
dependent on our ability to improve operations in those stores and if
unsuccessful to negotiate acceptable terms with our landlords to terminate the
leases for those units, and on our ability to locate acceptable sub-tenants or
assignees for the leases at those locations. Moreover, future closings may
result in additional lease termination costs. There can be no assurances that we
will be successful in negotiating terms that will enable us to close additional
under-performing units.

    Interest income and expense. During the first quarter of fiscal 2004 and the
first of fiscal 2003, interest income was less than $0.1 million. Interest
expenses was less than $0.1 million in the first quarter of fiscal 2004 and the
first quarter of fiscal 2003.

LIQUIDITY AND CAPITAL RESOURCES

    Cash and cash equivalents were $3.2 million on March 29, 2004, compared with
$8.0 million on December 29, 2003. Our working capital was a deficit of $5.8
million on March 29, 2004, compared with working capital deficit of $3.8 million
as of December 29, 2003. Our principal requirements for cash are funding
operations, maintaining or remodeling existing restaurants, funding the
incorporation of a franchising and area developer model into our business
strategy, financing construction of new Cosi stores within select Macy's
locations this year under the previously announced foodservice partnership with
Federated Department Stores, Inc., and supporting Cosi's plans for new store
construction in 2005. During the first three months of fiscal 2004, we financed
our requirements for capital with the proceeds from our rights offering, which
was completed in December of 2003.

    Net cash used in operating activities for the three months ended March 29,
2004 was $5.3 million, compared to $6.1 million for the three months ended March
31, 2003. Funds used in operating activities in the first three months of 2004
decreased primarily as a result


                                       15
<PAGE>


of a decrease in our net loss compared to the first three months of 2003 of $6.1
million offset by the payment of accrued liabilities in the current quarter.

    Total capital expenditures for the three months ended March 29, 2004 were
$0.5 million, compared to expenditures of $3.2 million for the three months
ended March 31, 2003. The company expects that it will use up to $6.0 million in
working capital associated with the opening of up to 12 restaurants in
conjunction with its foodservice partnership with Federated Department Stores.

    On December 29, 2003, we consummated a rights offering. We raised an
aggregate of approximately $7.5 million ($6.8 million net cash proceeds) in new
cash from the sale of common stock in connection with the rights offering and
pursuant to an investment agreement among us and certain investors that was
approved by our stockholders at our 2003 Annual Meeting. We issued approximately
3.6 million shares of common stock pursuant to the rights offering. In addition,
we issued approximately 1.4 million shares of common stock pursuant to the
investment agreement and approximately 3 million shares of common stock pursuant
to the conversion of $4.5 million of senior secured notes held by certain of the
parties to the investment agreement in connection with the rights offering. In
January 2004, pursuant to the investment agreement, a shareholder purchased an
additional 693,963 shares for approximately $1.0 million.

    This was the primary financing activity for the three months ended March 29,
2004.

    On April 30, 2004, the Company issued 3,550,000 shares of common stock
pursuant to a private placement to a limited number of institutional investors
at a price of $5.65 per share. This issuance provided the Company with gross
proceeds of approximately $20.0 million. The cash proceeds from this private
placement will be used for general corporate purposes including but not limited
to, the construction of new Cosi stores within select Federated locations,
additional new store construction in 2005, and working capital.

    We plan to fund the operations, maintenance and growth of our restaurants
primarily through cash provided by the rights offering completed in December
2003, our private placement completed in April 2004 and expected internally
generated cash flows produced by our existing restaurants. Our cash resources,
and therefore our liquidity, are highly dependent upon the level of internally
generated cash from operations and upon future financing transactions. If cash
flows from our existing restaurants or cash flow from new restaurants that we
may open do not meet our expectations or are otherwise insufficient to satisfy
our cash needs or expansion plans, we may have to seek additional financing from
external sources to continue funding our operations, close underperforming
restaurants or reduce or cease our plans to open or franchise new restaurants.
We cannot predict whether such financing will be available on terms acceptable
to us, or at all. We anticipate that our current cash balances and expected
internally generated cash flows will be sufficient to fund our cash requirements
for the next twelve months.

    Contractual Obligations

AS OF MARCH 29, 2004
<TABLE>
<CAPTION>
                                                 TOTAL            DUE APRIL -       DUE IN 2005       DUE IN 2007         DUE AFTER
CONTRACTUAL OBLIGATIONS                     (IN THOUSANDS)       DECEMBER 2004        AND 2006          AND 2008             2008
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                 <C>               <C>                <C>                <C>
Notes payable                                    $391.2             $163.6             $115.7              $47.5              $64.4
Employee severance obligations                  1,305.3            1,238.6               66.7
Capital lease obligations                           2.2                2.2
Operating lease obligations (a) (b)            92,933.7            9,221.5           24,962.8           24,058.2           34,691.2
</TABLE>

(a) Amounts shown are net of $2.1 million of sublease rental income due under
    non-cancelable subleases.

(b) Includes approximately $3.2 million of obligations on leases for restaurants
    that have either been closed or are planned to be closed.

    We are obligated under non-cancelable operating leases for our restaurants
and our administrative offices. Lease terms are generally for ten years with
renewal options and generally require us to pay a proportionate share of real
estate taxes, insurance, common area and other operating costs. Some restaurant
leases provide for contingent rental payments.

PURCHASE COMMITMENT

    During fiscal year 1999, the Company entered into an exclusive coffee supply
agreement with an unrelated third party ("Supplier"). The agreement calls for
minimum purchases, in terms of both quantity and price, to be made by the
Company of coffee


                                       16
<PAGE>


beans and related products. In 2004, the Company renewed the purchase agreement
with the Supplier and is obligated to purchase approximately 75,000 pounds per
quarter of coffee beans and related products, worth approximately $290,000, for
the next six quarters but the agreement may be terminated by the Company or the
Supplier provided 180 days notice is given in advance of such termination.

    During fiscal year 2002, the Company entered into a long term beverage
marketing agreement with the Coca Cola Company. Under the agreement, the Company
is obligated to purchase approximately 2.0 million gallons of fountain syrups at
the then current annually published national chain account prices.

    Currently, except for the aforementioned coffee contract which can be
terminated with 180 days notice, the company does not have any long term
contracts with its suppliers. However, the Company does have a contract with
Maines Paper and Food Service as the broadline distributor that expires in
January 2005.

                           FORWARD-LOOKING STATEMENTS

    Matters discussed in this report, which relate to events or developments
which are expected to occur in the future, including any discussion, expressed
or implied, of anticipated growth, operating results or earnings constitute
forward-looking statements. Forward-looking statements are based on management's
beliefs, assumptions and expectations of our future economic performance, taking
into account the information currently available to management. These statements
are not statements of historical fact. Forward-looking statements involve risks
and uncertainties that may cause our actual results, performance or financial
condition to differ materially from the expectations of future results,
performance or financial condition we express or imply in any forward-looking
statements. Factors that could contribute to these differences include, but are
not limited to:

    o   the cost of our principal food products;

    o   labor shortages or increased labor costs;

    o   changes in consumer preferences and demographic trends;

    o   increasing competition in the fast casual dining segment of the
        restaurant industry;

    o   expansion into new markets;

    o   our ability to effectively manage our business with a reduced general
        and administrative staff;

    o   our ability to incorporate a franchising and area development model into
        our strategy;

    o   the availability and cost of additional financing, both to fund our
        existing operations and to grow and open new restaurants;

    o   fluctuations in our quarterly results due to seasonality;

    o   the rate of our internal growth, and our ability to generate increased
        revenue from our existing restaurants;

    o   our ability to generate positive cash flow from operations;

    o   increased government regulation;

    o   supply and delivery shortages or interruptions;

    o   market saturation due to new restaurant openings;

    o   inadequate protection of our intellectual property;

    o   adverse weather conditions which impact customer traffic at our
        restaurants; and

    o   adverse economic conditions.


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<PAGE>


    The words "believe," "may," "will," "should," "anticipate," "estimate,"
"expect," "intend," "objective," "seek," "plan," "strive" or similar words, or
the negatives of these words, identify forward-looking statements. We qualify
any forward-looking statements entirely by these cautionary factors.

    ITEM 3. Quantitative And Qualitative Disclosures About Market Risk

    The Company's market risk exposures are related to its cash, cash
equivalents, investments and interest that it pays on its debt. The Company has
no derivative financial instruments or derivative commodity instruments in its
cash, cash equivalents and investments. The Company invests its excess cash in
investment grade highly liquid short-term investments. These investments are not
held for trading or other speculative purposes. Changes in interest rates affect
the investment income the Company earns on its investments and, therefore,
impacts it cash flows and results of operations.

    All of the Company's transactions are conducted, and its accounts are
denominated, in United States dollars. Accordingly, the Company is not exposed
to foreign currency risk.

    ITEM 4. Controls and Procedures

    The Company's management, with the participation of the Company's chief
executive officer and chief financial officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act") as of the end of the period covered by this report.
Based on such evaluation, the Company's chief executive officer and chief
financial officer have concluded that, as of the end of such period, the Company
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.

    There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the first fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    From time to time, Cosi is a defendant in litigation arising in the ordinary
course of our business, including claims resulting from "slip and fall"
accidents, claims under federal and state laws governing access to public
accommodations, employment related claims and claims from guests alleging
illness, injury or other food quality, health or operational concerns. To date,
none of such litigation, some of which is covered by insurance, has had a
material adverse effect on Cosi's consolidated financial position, results of
operations or cash flows.

    On February 5, 2003, a purported shareholder class action complaint was
filed in the United States District Court for the Southern District of New York
(the "Court"), alleging that Cosi and various of our officers and directors and
the underwriter of our IPO violated Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933, as amended, by misstating, and by failing to disclose,
certain financial and other business information (Sheel Mohnot v. Cosi, Inc., et
al., No. 03 CV 812). At least eight additional class action complaints with
substantially similar allegations were later filed. These actions have been
consolidated in In re Cosi, Inc. Securities Litigation (collectively, the
"Securities Act Litigation"). On July 7, 2003, lead plaintiffs filed a
Consolidated Amended Complaint, alleging on behalf of a purported class of
purchasers of Cosi's stock allegedly traceable to the Company's November 22,
2002 IPO, that at the time of the IPO, the Company's offering materials failed
to disclose that the funds raised through the IPO would be insufficient to
implement Cosi's expansion plan; that it was improbable that the Company would
be able to open 53 to 59 new restaurants in 2003; that at the time of the IPO,
Cosi had negative working capital and therefore did not have available working
capital to repay certain debts; and that the principal purpose for going forward
with the IPO was to repay certain existing shareholders and members of the Board
of Directors for certain debts and to operate the Company's existing
restaurants.

    The plaintiffs in the Securities Act Litigation generally seek to recover
recessionary damages, expert fees, attorneys' fees, costs of Court and pre and
post judgment interest. The underwriter is seeking indemnification from the
Company for any damages assessed against it in the Securities Act Litigation. On
August 22, 2003, lead plaintiffs filed a Second Consolidated Amended Complaint,
which


                                       18
<PAGE>


was substantially similar to the Consolidated Amended Complaint. The Securities
Act Litigation is at a preliminary stage, and the Company believes that it has
meritorious defenses to these claims, and intend to vigorously defend against
them.

    On September 22, 2003, defendants filed motions to dismiss the Second
Consolidated Amended Complaint in the Securities Act Litigation. Plaintiffs
filed their opposition to defendants' motions to dismiss on October 23, 2003.
Defendants filed reply briefs on November 12, 2003.

    Cosi cannot predict what the outcome of these lawsuits will be. It is
possible that the Company may be required to pay substantial damages or
settlement costs in excess of the Company's insurance coverage, which could have
a material adverse effect on Cosi's financial condition or results of
operations. Cosi could also incur substantial legal costs, and management's
attention and resources could be diverted from the business.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. Exhibits and Reports on Form 8-K

(a)     Exhibits

10.1 Addendum to the employment agreement of William D. Forrest, dated February
     9, 2004.

31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
     Sarbanes-Oxley Act of 2002.

31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
     Sarbanes-Oxley Act of 2002.

32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002.

32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the
     Sarbanes-Oxley Act of 2002.

(b)     Reports on Form 8-K

      The Company filed a Current Report on Form 8-K on March 18, 2004 that
announced the date of the Company's 2004 Annual Meeting and the deadlines for
stockholders to submit (i) proposals to be included in the Company's proxy
materials and (ii) advance written notice of proposals for action at the 2004
Annual Meeting.


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<PAGE>


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.

                                           Cosi, Inc.

Dated: May 12, 2004                        By: /s/ William D. Forrest
                                               ---------------------------------
                                               William D. Forrest
                                               Executive Chairman

Dated: May 12, 2004                        By: /s/ Kevin Armstrong
                                               ---------------------------------
                                               Kevin Armstrong
                                               Chief Executive Officer

Dated: May 12, 2004                        By: /s/ Mark Stickney
                                               ---------------------------------
                                               Mark Stickney
                                               Chief Financial Officer
                                               (Chief Accounting Officer)
                                               Treasurer and Secretary


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