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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | for the fiscal year ended January 3, 2005                                                   
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | for the transition period
    from           to                                             

Commission File No. 000-50052


Cosi, Inc.


(Exact name of registrant as specified in its charter)


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

1751 Lake Cook Road, Deerfield, Illinois 60015


Telephone Number (847) 597-8800


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


None


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


Title of class






þ o


o


þ o






DOCUMENTS INCORPORATED BY REFERENCE












---










TABLE OF CONTENTS


|                                             |  |                                                                                           |             |  |      |  |  | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------- | ----------- |  | ---- |  |  | 
|Item                                         |  |                                                                                           | Description |  | Page | 
|                                             |  |                                                                                           |             |  |      | 
|PART I                                      
|1.                                           |  | Business                                                                                  |             |  | 3    | 
|2.                                           |  | Properties                                                                                |             |  | 7    | 
|3.                                           |  | Legal Proceedings                                                                         |             |  | 9    | 
|4.                                           |  | Submission of Matters to a Vote of Security
    Holders                                   |             |  | 10   | 
|                                            
|PART II                                     
|5.                                           |  | Market for Registrants Common Stock
    and Related Stockholder Matters                  |             |  | 10   | 
|6.                                           |  | Selected Financial Data                                                                   |             |  | 12   | 
|7.                                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |             |  | 13   | 
|7A.                                          |  | Quantitative and Qualitative Disclosures
    about Market Risk                            |             |  | 33   | 
|8.                                           |  | Financial Statements and Supplementary
    Data                                           |             |  | 33   | 
|9.                                           |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure  |             |  | 33   | 
|9A.                                          |  | Controls and Procedures                                                                   |             |  | 33   | 
|9B.                                          |  | Other Information                                                                         |             |  | 36   | 
|                                            
|PART III                                    
|10.                                          |  | Directors and Executive Officers of the
    Registrant                                    |             |  | 36   | 
|11.                                          |  | Executive Compensation                                                                    |             |  | 36   | 
|12.                                          |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Matters    |             |  | 36   | 
|13.                                          |  | Certain Relationships and Related
    Transactions                                        |             |  | 36   | 
|14.                                          |  | Principal Accounting Fees and Services                                                    |             |  | 36   | 
|                                            
|PART IV                                     
|15.                                          |  | Exhibits and Financial Statement
    Schedules                                            |             |  | 36   | 
|Consent of Registered Public Accounting Firm
|Consent of Registered Public Accounting Firm
|302 Certification of Chief Executive Officer
|302 Certification of Chief Financial Officer
|906 Certification of Chief Executive Officer



2



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PART I


Forward-Looking Statements









|        |         
|------- | --------
|Item 1. | BUSINESS

General






www.getcosi.com


Business Strategy




3



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Cosi Product Offerings


tm




People




Restaurant Operations


Management Structure.


Sales Forecasting.


Product Quality.


Food and Labor Cost Controls.






4



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Management Information Systems








Purchasing












Competition




5



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Intellectual Property






Governmental Regulation










6



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|        |           
|------- | ----------
|Item 2. | PROPERTIES









|                           |  |                  |  |                |  |              
|-------------------------- |  | ---------------- |  | -------------- |  | -------------
|Street Address             |  | City             |  | Date Opened    |  | Format       
|                           |  |                  |  |                |  |              
|NORTHEAST                  |  |                  |  |                |  |              
|338 Elm Street             |  | New Haven, CT    |  | March 1996     |  | Cosi         
|38 East 45th Street        |  | New York, NY     |  | February 1997  |  | Cosi Downtown
|2160 Broadway              |  | New York, NY     |  | May 1997       |  | Cosi         
|11 West 42nd Street        |  | New York, NY     |  | June 1997      |  | Cosi Downtown
|60 East 56th Street        |  | New York, NY     |  | September 1997 |  | Cosi Downtown
|3 World Financial Center   |  | New York, NY     |  | January 1998   |  | Cosi Downtown
|504 Avenue of the Americas |  | New York, NY     |  | March 1998     |  | Cosi         
|55 Broad Street            |  | New York, NY     |  | March 1998     |  | Cosi Downtown
|54 Pine Street             |  | New York, NY     |  | May 1998       |  | Cosi Downtown
|1633 Broadway              |  | New York, NY     |  | July 1998      |  | Cosi Downtown
|61 West 48th Street        |  | New York, NY     |  | August 1998    |  | Cosi Downtown
|133 Federal Street         |  | Boston, MA       |  | October 1998   |  | Cosi Downtown
|257 Park Avenue South      |  | New York, NY     |  | February 1999  |  | Cosi         
|685 Third Avenue           |  | New York, NY     |  | June 1999      |  | Cosi Downtown
|53 State Street            |  | Boston, MA       |  | May 1999       |  | Cosi Downtown
|14 Milk Street             |  | Boston, MA       |  | July 1999      |  | Cosi Downtown
|970 Farmington Avenue      |  | W. Hartford, CT  |  | August 1999    |  | Cosi         
|461 Park Avenue South      |  | New York, NY     |  | January 2000   |  | Cosi         
|50 Purchase Street         |  | Rye, NY          |  | March 2000     |  | Cosi         
|841 Broadway               |  | New York, NY     |  | September 2000 |  | Cosi         
|15 S. Moger Avenue         |  | Mt. Kisco, NY    |  | December 2000  |  | Cosi         
|545 Washington Boulevard   |  | Jersey City, NJ  |  | May 2001       |  | Cosi Downtown
|77 Quaker Ridge Road       |  | New Rochelle, NY |  | November 2001  |  | Cosi         
|1298 Boston Post Road      |  | Larchmont, NY    |  | December 2001  |  | Cosi         
|471 Mount Pleasant Road    |  | Livingston, NJ   |  | September 2002 |  | Cosi         
|29 Washington Street       |  | Morristown, NJ   |  | December 2002  |  | Cosi         
|498 7th Avenue             |  | New York, NY     |  | December 2002  |  | Cosi         
|385 West Main Street       |  | Avon, CT         |  | December 2002  |  | Cosi         
|51 East Pallisade          |  | Englewood, NJ    |  | February 2003  |  | Cosi         
|700 6th Avenue             |  | New York, NY     |  | February 2003  |  | Cosi         

7



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|                              |  |                      |  |                |  |              
|----------------------------- |  | -------------------- |  | -------------- |  | -------------
|Street Address                |  | City                 |  | Date Opened    |  | Format       
|                              |  |                      |  |                |  |              
|MID-ATLANTIC                  |  |                      |  |                |  |              
|234 South 15th Street         |  | Philadelphia, PA     |  | September 1996 |  | Cosi         
|325 Chestnut Street           |  | Philadelphia, PA     |  | April 1997     |  | Cosi         
|1350 Connecticut Avenue       |  | Washington, DC       |  | September 1997 |  | Cosi         
|1128 Walnut Street            |  | Philadelphia, PA     |  | December 1997  |  | Cosi         
|140 South 36th Street         |  | Philadelphia, PA     |  | August 1998    |  | Cosi         
|1647 20th Street NW           |  | Washington, DC       |  | August 1998    |  | Cosi         
|761 Lancaster Avenue          |  | Bryn Mawr, PA        |  | September 1998 |  | Cosi         
|3003 N. Charles Street        |  | Baltimore, MD        |  | December 1998  |  | Cosi(a)      
|301 Pennsylvania Avenue SE    |  | Washington, DC       |  | March 1999     |  | Cosi         
|2050 Wilson Boulevard         |  | Arlington, VA        |  | April 1999     |  | Cosi         
|215 Lombard Street            |  | Philadelphia, PA     |  | May 1999       |  | Cosi         
|1700 Pennsylvania Avenue      |  | Washington, DC       |  | August 1999    |  | Cosi Downtown
|1700 Market Street            |  | Philadelphia, PA     |  | September 1999 |  | Cosi Downtown
|700 King Street               |  | Alexandria, VA       |  | May 2000       |  | Cosi         
|700 11th Street               |  | Washington, DC       |  | May 2000       |  | Cosi         
|4250 Fairfax Drive            |  | Arlington, VA        |  | June 2000      |  | Cosi         
|1919 M Street                 |  | Washington, DC       |  | September 2000 |  | Cosi         
|1001 Pennsylvania Avenue NW   |  | Washington, DC       |  | October 2000   |  | Cosi Downtown
|201 South 18th Street         |  | Philadelphia, PA     |  | October 2000   |  | Cosi         
|7251 Woodmont Avenue          |  | Bethesda, MD         |  | December 2000  |  | Cosi         
|11909 Democracy Drive         |  | Reston, VA           |  | May 2001       |  | Cosi         
|1501 K Street NW              |  | Washington, DC       |  | December 2001  |  | Cosi Downtown
|1875 K Street                 |  | Washington, DC       |  | July 2002      |  | Cosi Downtown
|601 Pennsylvania Ave. NW      |  | Washington, DC       |  | September 2002 |  | Cosi         
|1275 K Street                 |  | Washington, DC       |  | September 2002 |  | Cosi         
|295 Main Street               |  | Exton, PA            |  | November 2002  |  | Cosi         
|5252 Wisconsin Ave, NW        |  | Washington, DC       |  | December 2002  |  | Cosi         
|177 Kentlands Blvd            |  | Gaithersburg, MD     |  | January 2003   |  | Cosi         
|1333 H Street, NW             |  | Washington DC        |  | January 2003   |  | Cosi Downtown
|MID-WEST                      |  |                      |  |                |  |              
|116 S. Michigan Avenue        |  | Chicago, IL          |  | September 2000 |  | Cosi         
|55 E. Grand Street            |  | Chicago, IL          |  | October 2000   |  | Cosi         
|230 W. Washington Street      |  | Chicago, IL          |  | November 2000  |  | Cosi Downtown
|203 North LaSalle Street      |  | Chicago, IL          |  | May 2001       |  | Cosi Downtown
|301 South State Street        |  | Ann Arbor, MI        |  | May 2001       |  | Cosi         
|1101 Lake Street              |  | Oak Park, IL         |  | June 2001      |  | Cosi         
|101 North Old Woodward Avenue |  | Birmingham, MI       |  | August 2001    |  | Cosi         
|4074 The Strand West          |  | Columbus, OH         |  | October 2001   |  | Cosi         
|25 E. Hinsdale                |  | Hinsdale, IL         |  | December 2001  |  | Cosi         
|8775 N. Port Washington Road  |  | Fox Point, WI        |  | December 2001  |  | Cosi         
|230 West Monroe Street        |  | Chicago, IL          |  | May 2002       |  | Cosi Downtown
|301 East Grand River Avenue   |  | East Lansing, MI     |  | May 2002       |  | Cosi         
|30995 Orchard Lake Road       |  | Farmington Hills, MI |  | July 2002      |  | Cosi         

8



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|                              |  |                      |  |                |  |              
|----------------------------- |  | -------------------- |  | -------------- |  | -------------
|Street Address                |  | City                 |  | Date Opened    |  | Format       
|                              |  |                      |  |                |  |              
|84 W. Adams Road              |  | Rochester Hills, MI  |  | September 2002 |  | Cosi         
|6390 Sawmill Road             |  | Columbus, OH         |  | September 2002 |  | Cosi         
|2212 East Main Street         |  | Bexley, OH           |  | September 2002 |  | Cosi         
|28674 Telegraph Road          |  | Southfield, MI       |  | November 2002  |  | Cosi         
|1478 Bethel Road              |  | Columbus, OH         |  | November 2002  |  | Cosi         
|233 North Michigan Avenue     |  | Chicago, IL          |  | December 2002  |  | Cosi Downtown
|37652 Twelve Mile Road        |  | Farmington Hills, MI |  | December 2002  |  | Cosi         
|15131 LaGrange Road           |  | Orland Park, IL      |  | December 2002  |  | Cosi         
|7166 N. High Street           |  | Worthington, OH      |  | December 2002  |  | Cosi         
|28 East Jackson Blvd          |  | Chicago, IL          |  | January 2003   |  | Cosi Downtown
|1310 Polaris Parkway          |  | Columbus, OH         |  | February 2003  |  | Cosi         
|FEDERATED                     |  |                      |  |                |  |              
|7303 Southwest 88th Street    |  | Miami, FL.           |  | October 2004   |  | Cosi         
|400 Ernest G. Barrett Parkway |  | Kennesaw, GA.        |  | October 2004   |  | Cosi         
|19535 Biscayne Blvd.          |  | Aventura, FL.        |  | October 2004   |  | Cosi         
|9100 Southwest 136th Street   |  | Miami, FL.           |  | November 2004  |  | Cosi         
|3333 Buford Drive             |  | Buford, GA.          |  | November 2004  |  | Cosi         
|1601 Third Avenue             |  | Seattle, WA.         |  | November 2004  |  | Cosi         
|4545 Poplar                   |  | Memphis, TN.         |  | November 2004  |  | Cosi         
|2801 Stevens Creek Blvd.      |  | Santa Clara, CA.     |  | November 2004  |  | Cosi         
|333 North University Drive    |  | Plantation, FL.      |  | December 2004  |  | Cosi         






|    |                                                        
|--- | -------------------------------------------------------
|(a) | Currently operating as a Xando Coffee and Bar location.






|        |                  
|------- | -----------------
|Item 3. | LEGAL PROCEEDINGS



Sheel Mohnot v. Cosi, Inc.,
et al., In
re Cosi, Inc. Securities Litigation




9



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|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS






PART II







|        |                                                                         
|------- | ------------------------------------------------------------------------
|Item 5. | MARKET FOR REGISTRANTS COMMON STOCK AND RELATED
    STOCKHOLDER MATTERS



Stock Price Information




|                |  |             |      |  |             |   |      |      |  |   |      |  |  |   |      | 
|--------------- |  | ----------- | ---- |  | ----------- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|                |  | Fiscal 2004 |      |  | Fiscal 2003 |  
|                |  |             |      |  |             |  
|Fiscal Quarter: |  | High        |      |  | Low         |   |      | High |  |   | Low  | 
|                |  |             |      |  |             |   |      |      |  |   |      | 
|First Quarter   |  | $           | 5.87 |  |             | $ | 2.70 |      |  | $ | 6.08 |  |  | $ | 1.66 | 
|Second Quarter  |  | $           | 7.04 |  |             | $ | 5.17 |      |  | $ | 2.22 |  |  | $ | 0.95 | 
|Third Quarter   |  | $           | 6.31 |  |             | $ | 4.53 |      |  | $ | 3.79 |  |  | $ | 1.30 | 
|Fourth Quarter  |  | $           | 6.63 |  |             | $ | 4.90 |      |  | $ | 3.31 |  |  | $ | 1.70 | 

10



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Stockholders




Dividend Policy




Securities Authorized for Issuance Under Equity Compensation
Plans




Recent Sales of Unregistered Securities


Issuances of Shares of Common Stock.




Issuances and Exercises of Warrants.














11



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|        |                        
|------- | -----------------------
|Item 6. | SELECTED FINANCIAL DATA



|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |           |          |   |   |           |          |  
|------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------- | --------- | ---------- | ------- | - | ---------- | -------- | - | ---------- | --------- | -------- | ---------- | ------- | --------- | -------- | - | - | --------- | -------- | -
|                                                                                            |                                                         | Fiscal Year                           |          
|                                                                                            |                                                         |                                       |          
|                                                                                            |                                                         | 2004                                  |           |            | 2003(1) |   |            | 2002(1)  |   |            | 2001(1)   |          |            | 2000(1) |          
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|                                                                                            |                                                         |                                       |           | (Restated) |         |   | (Restated) |          |   | (Restated) |           |          | (Restated) |        
|                                                                                            |                                                         | (In thousands, except per share data) |          
|Consolidated Statement of Operations Data:                                                  |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |           |          |   |   |           |         
|Net sales                                                                                   |                                                         | $                                     | 110,630.6 |            |         | $ | 107,257.4  |          |   | $          | 84,424.2  |          |            | $       | 70,184.1  |          |   | $ | 51,222.8  |         
|Costs and expenses:                                                                         |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |           |          |   |   |           |         
|                                                                                            | Cost of goods sold                                      |                                       |           | 28,012.8   |         |   |            | 29,713.9 |   |            |           | 22,697.5 |            |         |           | 18,791.7 |   |   |           | 13,844.0 |  
|                                                                                            | Restaurant expenses                                     |                                       |           | 66,611.9   |         |   |            | 67,321.8 |   |            |           | 51,244.9 |            |         |           | 45,396.3 |   |   |           | 32,751.9 |  
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|                                                                                            | Total cost of sales                                     |                                       |           | 94,624.7   |         |   |            | 97,035.7 |   |            |           | 73,942.4 |            |         |           | 64,188.0 |   |   |           | 46,595.9 |  
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|                                                                                            | General and administrative expenses                     |                                       |           | 20,624.7   |         |   |            | 22,274.4 |   |            |           | 17,811.7 |            |         |           | 18,361.5 |   |   |           | 14,774.2 |  
|                                                                                            | Corporate office relocation                             |                                       |           | 1,093.7    |         |   |            |         |   |            |           |         |            |         |           |         |   |   |           |         |  
|                                                                                            | Stock compensation expense                              |                                       |           | 3,219.1    |         |   |            | 893.7    |   |            |           |         |            |         |           |         |   |   |           |         |  
|                                                                                            | Depreciation and amortization                           |                                       |           | 6,947.8    |         |   |            | 7,852.5  |   |            |           | 5,951.2  |            |         |           | 6,749.3  |   |   |           | 6,193.0  |  
|                                                                                            | Restaurant pre-opening expenses                         |                                       |           | 405.4      |         |   |            | 389.8    |   |            |           | 1,845.1  |            |         |           | 1,438.8  |   |   |           | 1,409.5  |  
|                                                                                            | Provision for losses on asset impairments and disposals |                                       |           | 1,405.5    |         |   |            | 8,531.8  |   |            |           | 1,056.5  |            |         |           | 8,486.3  |   |   |           | 5,847.5  |  
|                                                                                            | Lease termination costs                                 |                                       |           | (588.8     | )       |   |            | (3,391.2 | ) |            |           | (1,165.0 | )          |         |           | 6,410.7  |   |   |           | 477.3    |  
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|Operating loss                                                                              |                                                         |                                       | (17,101.5 | )          |         |   | (26,329.3  | )        |   |            | (15,017.7 | )        |            |         | (35,450.5 | )        |   |   | (24,074.6 | )       
|Other income (expense):                                                                     |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |           |          |   |   |           |         
|                                                                                            | Interest income                                         |                                       |           | 159.0      |         |   |            | 40.5     |   |            |           | 98.3     |            |         |           | 340.5    |   |   |           | 441.4    |  
|                                                                                            | Interest expense                                        |                                       |           | (62.4      | )       |   |            | (226.3   | ) |            |           | (1,192.6 | )          |         |           | (527.5   | ) |   |           | (210.7   | )
|                                                                                            | Reserve for notes receivable from stockholders          |                                       |           | (1,266.0   | )       |   |            |         |   |            |           |         |            |         |           |         |   |   |           |         |  
|                                                                                            | Amortization of deferred financing costs                |                                       |           |           |         |   |            | (90.5    | ) |            |           | (549.0   | )          |         |           | (126.9   | ) |   |           |         |  
|                                                                                            | Loss on early extinguishment of debt                    |                                       |           |           |         |   |            |         |   |            |           | (5,083.2 | )          |         |           |         |   |   |           |         |  
|                                                                                            | Other income (expense)                                  |                                       |           | (102.5     | )       |   |            | 112.0    |   |            |           | 380.9    |            |         |           |         |   |   |           |         |  
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|                                                                                            | Total other income (expense)                            |                                       |           | (1,271.9   | )       |   |            | (164.3   | ) |            |           | (6,345.6 | )          |         |           | (313.9   | ) |   |           | 230.7    |  
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|Net loss                                                                                    |                                                         |                                       | (18,373.4 | )          |         |   | (26,493.6  | )        |   |            | (21,363.3 | )        |            |         | (35,764.4 | )        |   |   | (23,843.9 | )       
|                                                                                            | Preferred stock dividends                               |                                       |           |           |         |   |            |         |   |            |           | (8,193.6 | )          |         |           | (6,678.1 | ) |   |           | (4,219.7 | )
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|Net loss attributable to common stockholders                                                |                                                         | $                                     | (18,373.4 | )          |         | $ | (26,493.6  | )        |   | $          | (29,556.9 | )        |            | $       | (42,442.5 | )        |   | $ | (28,063.6 | )       
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|Net loss per common share  basic and diluted                                               |                                                         | $                                     | (0.62     | )          |         | $ | (1.53      | )        |   | $          | (5.13     | )        |            | $       | (9.42     | )        |   | $ | (6.23     | )       
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          
|Weighted average shares used in computing net loss per common
    share  basic and diluted |                                                         |                                       | 29,432    |            |         |   | 17,304     |          |   |            | 5,763     |          |            |         | 4,507     |          |   |   | 4,504     |         
|                                                                                            |                                                         |                                       |           |            |         |   |            |          |   |            |           |          |            |         |          

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|                                                 |  |                                       |           |            |         |   |            |         |  |            |           |   |            |         |           |   |  |   |           |  
|------------------------------------------------ |  | ------------------------------------- | --------- | ---------- | ------- | - | ---------- | ------- |  | ---------- | --------- | - | ---------- | ------- | --------- | - |  | - | --------- | -
|                                                 |  | Fiscal Year                           |          
|                                                 |  |                                       |          
|                                                 |  | 2004                                  |           |            | 2003(1) |   |            | 2002(1) |  |            | 2001(1)   |   |            | 2000(1) |          
|                                                 |  |                                       |           |            |         |   |            |         |  |            |           |   |            |         |          
|                                                 |  |                                       |           | (Restated) |         |   | (Restated) |         |  | (Restated) |           |   | (Restated) |        
|                                                 |  | (In thousands, except per share data) |          
|Selected Balance Sheet Data:                     |  |                                       |           |            |         |   |            |         |  |            |           |   |            |         |           |   |  |   |           |  
|Cash and cash equivalents                        |  | $                                     | 1,089.7   |            |         | $ | 7,957.0    |         |  | $          | 13,032.3  |   |            | $       | 4,469.6   |   |  | $ | 5,062.9   |  
|Investments                                      |  |                                       | 9,961.6   |            |         |   |           |         |  |            |          |   |            |         |          |   |  |   |          |  
|Total assets                                     |  |                                       | 51,138.3  |            |         |   | 47,946.6   |         |  |            | 67,872.7  |   |            |         | 36,207.6  |   |  |   | 32,589.3  |  
|Total debt and capital lease obligations         |  |                                       | 358.3     |            |         |   | 391.2      |         |  |            | 1,648.5   |   |            |         | 11,180.0  |   |  |   | 4,435.8   |  
|Mandatorily redeemable preferred stock           |  |                                       |          |            |         |   |           |         |  |            |          |   |            |         | 92,289.3  |   |  |   | 61,695.3  |  
|Total stockholders equity (deficit)             |  |                                       | 29,152.4  |            |         |   | 22,834.1   |         |  |            | 36,996.3  |   |            |         | (90,818.5 | ) |  |   | (49,772.7 | )
|Selected Statement of Cash Flow Data:            |  |                                       |           |            |         |   |            |         |  |            |           |   |            |         |           |   |  |   |           |  
|Cash flow used in operating activities           |  |                                       | (9,631.1  | )          |         |   | (11,387.7  | )       |  |            | (4,902.4  | ) |            |         | (12,027.2 | ) |  |   | (8,271.4  | )
|Cash flow used in investing activities           |  |                                       | (17,267.9 | )          |         |   | (3,754.8   | )       |  |            | (28,374.5 | ) |            |         | (20,622.9 | ) |  |   | (18,615.4 | )
|Cash flow provided by financing activities       |  | $                                     | 20,031.7  |            |         | $ | 10,067.2   |         |  | $          | 41,839.7  |   |            | $       | 32,056.8  |   |  | $ | 24,964.0  |  
|Selected Operating Data:                         |  |                                       |           |            |         |   |            |         |  |            |           |   |            |         |           |   |  |   |           |  
|Restaurants opened at the end of the fiscal year |  |                                       | 92        |            |         |   | 89         |         |  |            | 91        |   |            |         | 67        |   |  |   | 52        |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Fiscal years 2000 through 2003 have been restated from amounts
    previously reported to reflect certain adjustments as discussed
    in Item 7  Restatement of Financial
    Statements and Note 2 to the Consolidated Financial
    Statements. The fiscal year 2000 total assets and total
    stockholders deficit reflect a cummulative impact of
    $0.5 million and $1.5 million, respectively, resulting
    from the restatement.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial
condition and results of operations for the fiscal years ended
January 3, 2005, December 29, 2003 and
December 30, 2002 should be read in conjunction with
Selected Consolidated Financial Data and our audited
consolidated financial statements and the notes to those
statements that are included elsewhere in this Report. Our
discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such
as our plans, objectives, expectations and intentions. Actual
results and the timing of events could differ materially from
those anticipated in these forward-looking statements as a
result of a number of factors, including those set forth under
Cautionary Note Regarding Forward-Looking
Statements below and elsewhere in this report.


Business Overview






13



---



##### Table of Contents













Restatement of Financial Statements




14



---



##### Table of Contents











Critical Accounting Policies






Long lived assets: Accounting for the
Impairment or Disposal of Long Lived Assets Accounting for the Impairment of Long Lived
Assets and for Long Lived Assets to be Disposed of Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions.


15



---



##### Table of Contents





Lease termination costs:


Accounting for
Costs Associated with Exit or Disposal Activities,


Stock options: Accounting for Stock Based
Compensation  Transition and Disclosure. Accounting for Stock
Based Compensation


Share-Based Payment, which is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation. Accounting for Stock Issued to Employees , Statement of Cash
Flows.


Property and Equipment:


Income taxes:


16



---



##### Table of Contents



Net Sales




Comparable Restaurant Sales




Costs and Expenses


Cost of goods sold.


Restaurant operating expenses.


General and administrative expenses.


Stock compensation expense.


Depreciation and amortization.


Restaurant pre-opening expenses.


17



---



##### Table of Contents



Results of Operations




|                                                        |  |             |       |    |      |  |       |      |  |  |       |   
|------------------------------------------------------- |  | ----------- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | --
|                                                        |  | Fiscal Year |      
|                                                        |  |             |      
|                                                        |  | 2004        |       |    | 2003 |  |       | 2002 | 
|                                                        |  |             |       |    |      |  |       |      | 
|Net sales                                               |  |             | 100.0 | %  |      |  | 100.0 | %    |  |  | 100.0 | % 
|Cost and expenses:                                      |  |             |       |    |      |  |       |      |  |  |       |   
|Cost of goods sold                                      |  |             | 25.3  |    |      |  | 27.7  |      |  |  | 26.9  |   
|Restaurant expenses                                     |  |             | 60.2  |    |      |  | 62.8  |      |  |  | 60.7  |   
|                                                        |  |             |       |    |      |  |       |      | 
|Total cost of sales                                     |  |             | 85.5  |    |      |  | 90.5  |      |  |  | 87.6  |   
|General and administrative expenses                     |  |             | 18.6  |    |      |  | 20.8  |      |  |  | 21.1  |   
|Corporate office relocation                             |  |             | 1.0   |    |      |  |      |      |  |  |      |   
|Stock compensation expense                              |  |             | 2.9   |    |      |  | 0.8   |      |  |  |      |   
|Depreciation and amortization                           |  |             | 6.3   |    |      |  | 7.3   |      |  |  | 7.0   |   
|Restaurant pre-opening expenses                         |  |             | 0.4   |    |      |  | 0.4   |      |  |  | 2.2   |   
|Provision for losses on asset impairments and disposals |  |             | 1.3   |    |      |  | 8.0   |      |  |  | 1.3   |   
|Lease termination benefits, net                         |  |             | (0.5  | )  |      |  | (3.2  | )    |  |  | (1.4  | ) 
|                                                        |  |             |       |    |      |  |       |      | 
|Operating loss                                          |  |             | (15.5 | )  |      |  | (24.5 | )    |  |  | (17.8 | ) 
|Other income (expense):                                 |  |             |       |    |      |  |       |      |  |  |       |   
|Interest income                                         |  |             | 0.1   |    |      |  |      |      |  |  | 0.1   |   
|Interest expense                                        |  |             | (0.1  | )  |      |  | (0.2  | )    |  |  | (1.4  | ) 
|Reserve for notes receivable from stockholders          |  |             | (1.0  | )  |      |  |      |      |  |  |      |   
|Amortization of deferred financing costs                |  |             |      |    |      |  | (0.1  | )    |  |  | (0.7  | ) 
|Loss on early extinguishment of debt                    |  |             |      |    |      |  |      |      |  |  | (6.0  | ) 
|Other (expense) income                                  |  |             | (0.1  | )  |      |  | 0.1   |      |  |  | 0.5   |   
|                                                        |  |             |       |    |      |  |       |      | 
|Total other income (expense)                            |  |             | (1.1  | )  |      |  | (0.2  | )    |  |  | (7.5  | ) 
|Net loss                                                |  |             | (16.6 | )% |      |  | (24.7 | )%   |  |  | (25.3 | )%
|                                                        |  |             |       |    |      |  |       |      | 

Fiscal Year 2004 (53 weeks) compared to Fiscal Year 2003
(52 weeks)


Net Sales






18



---



##### Table of Contents



Costs and Expenses


Cost of goods sold.


Restaurant operating expenses.


General and administrative costs.


Corporate office relocation.


Stock compensation expense. Accounting for Stock Issued to
Employees,


Depreciation and amortization.


Restaurant pre-opening expenses.


Loss on impairment of property and equipment and restaurant
disposals.


19



---



##### Table of Contents





Lease termination costs.




Interest income and expense.


Reserve for notes receivable from stockholders.


Amortization of deferred financing costs.


Other income (expense).


Fiscal Year 2003 (52 weeks) compared to Fiscal Year 2002
(52 weeks)


Net sales








Costs and Expenses


Cost of goods sold.


20



---



##### Table of Contents







Restaurant operating expenses.


General and administrative costs.


Stock compensation expense.


Depreciation and amortization.


Restaurant pre-opening expenses.


Loss on impairment of property and equipment and restaurant
disposals.


Lease termination costs.


21



---



##### Table of Contents







Interest income and expense.


Amortization of deferred financing costs.


Other income.


Liquidity and Capital Resources














22



---



##### Table of Contents













Contractual Obligations:


|                                   |  |                |          |                        |           |  |          |             |  |  |            |  |  |            |          |  |  |  |          | 
|---------------------------------- |  | -------------- | -------- | ---------------------- | --------- |  | -------- | ----------- |  |  | ---------- |  |  | ---------- | -------- |  |  |  | -------- | 
|                                   |  |                |          | Payments Due by Period |          
|                                   |  |                |          |                        |          
|                                   |  | Total          |          |                        | Less Than |  |          | One to      |  |  | Three to   |  |  | After      |         
|Description                        |  | Obligations    |          |                        | One Year  |  |          | Three Years |  |  | Five Years |  |  | Five Years |         
|                                   |  |                |          |                        |           |  |          |             |  |  |            |  |  |            |         
|                                   |  | (In thousands) |         
|Long-term debt                     |  |                | 358.3    |                        |           |  | 74.9     |             |  |  | 109.0      |  |  |            | 69.2     |  |  |  | 105.2    | 
|Operating leases(1)(2)             |  |                | 77,299.0 |                        |           |  | 12,241.7 |             |  |  | 23,798.0   |  |  |            | 20,271.1 |  |  |  | 20,988.2 | 
|Employee severance                 |  |                | 380.7    |                        |           |  | 380.7    |             |  |  |           |  |  |            |         |  |  |  |         | 
|                                   |  |                |          |                        |           |  |          |             |  |  |            |  |  |            |         
|Total contractual cash obligations |  |                | 78,038.0 |                        |           |  | 12,697.3 |             |  |  | 23,907.0   |  |  |            | 20,340.3 |  |  |  | 21,093.4 | 
|                                   |  |                |          |                        |           |  |          |             |  |  |            |  |  |            |         






|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts shown are net of $1.8 million of sublease rental
    income due under non-cancelable subleases.                          
|   
|(2) | Includes approximately $2.6 million of obligations on
    leases for restaurants that have been closed as of
    January 3, 2005.

Off-Balance Sheet Arrangements




23



---



##### Table of Contents



Selected Quarterly Financial Data










|                                  |  |                                               |          |   |            |   |          |            |  |   |          |   |  |   |          |  
|--------------------------------- |  | --------------------------------------------- | -------- | - | ---------- | - | -------- | ---------- |  | - | -------- | - |  | - | -------- | -
|                                  |  | (Dollars in thousands, except per share data) |         
|                                  |  |                                               |         
|                                  |  | First                                         |          |   | Second     |   |          | Third      |  |   | Fourth   |  
|Fiscal 2004                       |  | Quarter                                       |          |   | Quarter    |   |          | Quarter    |  |   | Quarter  |  
|                                  |  |                                               |          |   |            |   |          |            |  |   |          |  
|                                  |  | (Restated)                                    |          |   | (Restated) |   |          | (Restated) |  |   |         
|Net sales                         |  | $                                             | 24,917.2 |   |            | $ | 29,008.5 |            |  | $ | 28,170.0 |   |  | $ | 28,534.8 |  
|Cost of sales                     |  |                                               | 22,608.4 |   |            |   | 24,219.6 |            |  |   | 23,546.2 |   |  |   | 24,682.3 |  
|Net loss                          |  | $                                             | (6,378.1 | ) |            | $ | (1,597.9 | )          |  | $ | (3,815.4 | ) |  | $ | (6,582.1 | )
|                                  |  |                                               |          |   |            |   |          |            |  |   |          |  
|Basic and diluted loss per share: |  | $                                             | (0.24    | ) |            | $ | (0.05    | )          |  | $ | (0.12    | ) |  | $ | (0.21    | )
|                                  |  |                                               |          |   |            |   |          |            |  |   |          |  

|                                  |  |            |           |   |            |   |          |            |  |   |            |   |  |   |          |  
|--------------------------------- |  | ---------- | --------- | - | ---------- | - | -------- | ---------- |  | - | ---------- | - |  | - | -------- | -
|                                  |  | First      |           |   | Second     |   |          | Third      |  |   | Fourth     |  
|Fiscal 2003                       |  | Quarter    |           |   | Quarter    |   |          | Quarter    |  |   | Quarter    |  
|                                  |  |            |           |   |            |   |          |            |  |   |            |  
|                                  |  | (Restated) |           |   | (Restated) |   |          | (Restated) |  |   | (Restated) |  
|Net sales                         |  | $          | 25,654.4  |   |            | $ | 28,936.4 |            |  | $ | 27,539.3   |   |  | $ | 25,127.3 |  
|Cost of sales                     |  |            | 24,130.4  |   |            |   | 25,824.1 |            |  |   | 24,784.7   |   |  |   | 22,296.5 |  
|Net loss                          |  | $          | (11,628.0 | ) |            | $ | (6,229.2 | )          |  | $ | (2,412.9   | ) |  | $ | (6,223.5 | )
|                                  |  |            |           |   |            |   |          |            |  |   |            |  
|Basic and diluted loss per share: |  | $          | (0.70     | ) |            | $ | (0.37    | )          |  | $ | (0.14      | ) |  | $ | (0.34    | )
|                                  |  |            |           |   |            |   |          |            |  |   |            |  

New Accounting Pronouncements


Accounting for Stock-Based Compensation 
Transition and Disclosure. Accounting for Stock-Based
Compensation,


Share-Based Payment, which is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees Statement of Cash
Flows


24



---



##### Table of Contents







Inventory Costs: an amendment of ARB No. 43,
Chapter 4,


CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS






| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | the cost of our principal food products;                                                                                
|
| |  | labor shortages or increased labor costs;                                                                               
|
| |  | changes in consumer preferences and demographic trends;                                                                 
|
| |  | increasing competition in the fast casual dining segment of the
    restaurant industry;                                
|
| |  | expansion into new markets;                                                                                             
|
| |  | our ability to incorporate a franchising and area development
    model into our strategy;                              
|
| |  | the availability and cost of additional financing, both to fund
    our existing operations and to open new restaurants;
|
| |  | the rate of our internal growth, and our ability to generate
    increased revenue from our existing restaurants;       
|
| |  | our ability to generate positive cash flow from operations;                                                             
|
| |  | fluctuations in our quarterly results due to seasonality;                                                               
|
| |  | increased government regulation;                                                                                        
|
| |  | supply and delivery shortages or interruptions;                                                                         
|
| |  | market saturation due to new restaurant openings;                                                                       
|
| |  | inadequate protection of our intellectual property;                                                                     
|
| |  | adverse weather conditions which impact customer traffic at our
    restaurants; and                                    
|
| |  | adverse economic conditions.                                                                                            

25



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##### Table of Contents





RISK FACTORS




Risks Particular to Cosi




| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | If we are unable to execute our business strategy, we
    could be materially adversely affected.





| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to generate positive cash flow from operations;                                                                                                                    
|
| |  | identification and availability of suitable restaurant sites;                                                                                                                  
|
| |  | competition for restaurant sites and customers;                                                                                                                                
|
| |  | negotiation of favorable leases;                                                                                                                                               
|
| |  | identification of under-performing restaurants and our ability
    to efficiently close under-performing restaurants, including
    securing favorable lease termination terms;
|
| |  | management of construction and development costs of new
    restaurants;                                                                                                       
|
| |  | securing required governmental approvals and permits;                                                                                                                          
|
| |  | the rate of our internal growth, and our ability to generate
    increased revenue from existing restaurants;                                                                  
|
| |  | recruitment and retention of qualified operating and support
    personnel;                                                                                                    
|
| |  | successful operating execution in new markets;                                                                                                                                 
|
| |  | our ability to incorporate a franchising and area developer
    model into our strategy;                                                                                       
|
| |  | competition in new and existing markets;                                                                                                                                       
|
| |  | the cost of our principal food products and supply and delivery
    shortages or interruptions; and                                                                            
|
| |  | general economic conditions.                                                                                                                                                   





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | We have a limited operating history and we may be unable
    to achieve profitability.



26



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##### Table of Contents







| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If internally generated cash flow from our restaurants
    does not meet our expectations, our business, results of
    operations and financial condition could be materially adversely
    affected.





| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We may need additional capital in the future and it may
    not be available on acceptable terms.





| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | We may not be able to successfully incorporate a
    franchising and area developer model into our strategy.





| |                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our franchisees cannot develop or finance new
    restaurants, build them on suitable sites or open them on
    schedule, our growth and success may be impeded. In addition,
    our franchisees could take actions that could harm our
    business.





27



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##### Table of Contents







| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | If our strategic alliance with Federated Department Stores
    is unsuccessful, our operating results may be negatively
    impacted.





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Our expansion into new markets may present increased risks
    due to our unfamiliarity with the area.





| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Any inability to manage our growth effectively could
    materially adversely affect our operating results.





| |                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our restaurants are currently concentrated in the
    Northeastern and Mid-Atlantic regions of the United States,
    particularly in the New York City area. Accordingly, we are
    highly vulnerable to negative occurrences in these
    regions.



28



---



##### Table of Contents





| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | You should not rely on past increases in our average unit
    volumes as an indication of our future results of operations
    because they may fluctuate significantly.





| |   |                                                                        
| | - | -----------------------------------------------------------------------
| |  | introduction of new menu items;                                        
|
| |  | unusually strong initial sales performance by some new
    restaurants;
|
| |  | competition;                                                           
|
| |  | general regional and national economic conditions;                     
|
| |  | weather conditions;                                                    
|
| |  | consumer trends; and                                                   
|
| |  | our ability to execute our business strategy effectively.              





| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our restaurant expansion strategy focuses primarily on
    further penetrating existing markets. This strategy can cause
    sales in some of our existing restaurants to decline, which
    could result in restaurant closures.





| |                                                                                
| | -------------------------------------------------------------------------------
| | Inclement weather may adversely affect our sales and
    results of operations.





| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly results may fluctuate and could fall below
    expectations of securities analysts and investors due to
    seasonality and other factors, resulting in a decline in our
    stock price.





| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Our operations depend on governmental licenses and we may
    face liability under dram shop statutes.



29



---



##### Table of Contents







| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure or inability to enforce our trademarks or
    other proprietary rights could adversely affect our competitive
    position or the value of our brand.







| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | We hold significant amounts of relatively illiquid assets
    and may have to dispose of them on unfavorable terms.





| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | We face litigation that could have a material adverse
    effect on our business, financial condition and results of
    operations.

Sheel Mohnot v. Cosi, Inc.,
et al., In
re Cosi, Inc. Securities Litigation




30



---



##### Table of Contents















| |                                                                                      
| | -------------------------------------------------------------------------------------
| | We have a new management team that does not have proven
    success with the Company.





| |                                                                          
| | -------------------------------------------------------------------------
| | We may experience volatility in the market price of our
    common stock.



Risks Relating to the Food Service Industry




| |                                                                 
| | ----------------------------------------------------------------
| | Our business is affected by changes in consumer
    preferences.



31



---



##### Table of Contents







| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | General economic conditions and the effects of the war on
    terrorism may cause a decline in discretionary spending, which
    would negatively affect our business.





| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Our success depends on our ability to compete with many
    food service businesses.







| |                                                                                
| | -------------------------------------------------------------------------------
| | Fluctuations in coffee prices could adversely affect our
    operating results.





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Changes in food and supply costs could adversely affect
    our results of operations.





| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The food service industry is affected by litigation and
    publicity concerning food quality, health and other issues,
    which can cause customers to avoid our products and result in
    liabilities.



32



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##### Table of Contents







| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Our business could be adversely affected by increased
    labor costs or labor shortages.








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK

Interest Rate Risk




Foreign Currency Risk




Inflation









|        |                                            
|------- | -------------------------------------------
|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
    ACCOUNTING AND FINANCIAL DISCLOSURE








|         |                        
|-------- | -----------------------
|Item 9A. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures




33



---



##### Table of Contents





Managements Report on Internal Control Over Financial
Reporting










Internal
Control-Integrated Framework.




34



---



##### Table of Contents



Changes in Internal Control Over Financial Reporting




Report of Independent Registered Public Accounting Firm on


Internal Control over Financial Reporting
















35



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##### Table of Contents







| |                     
| | --------------------
| | /s/ BDO Seidman, LLP










|         |                  
|-------- | -----------------
|Item 9B. | OTHER INFORMATION






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT








|         |                       
|-------- | ----------------------
|Item 11. | EXECUTIVE COMPENSATION








|         |                                                                                       
|-------- | --------------------------------------------------------------------------------------
|Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
    MANAGEMENT AND RELATED MATTERS








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








|         |                                       
|-------- | --------------------------------------
|Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | 1. The Financial Statements required to be filed hereunder
    are listed in the Index to Financial Statements on page 39
    of this Report

36



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##### Table of Contents





|        |    |      |                        |                                                                                                                                                                                                                                                                                        
|------- | -- | ---- | ---------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |                       
|Number  |    |      | Description of Exhibit
|        |    |      |                       
|        | 2  | .1   |                        | Merger Agreement by and among Xando, Incorporated, Xando Merger
    Corp. and Cosi Sandwich Bar, Inc. dated as of October 4,
    1999 (Filed as Exhibit 2.1 to the Companys
    Registration Statement on Form S-1, file #333-86390).                                                 
|       
|        | 3  | .1   |                        | Amended and Restated Certificate of Incorporation of Cosi, Inc.
    (Filed as Exhibit 3.1 to the Companys Annual Report
    on Form 10-K for the period ended December 30, 2002).                                                                                                     
|       
|        | 3  | .2   |                        | Amended and Restated By-Laws of Cosi, Inc. (Filed as
    Exhibit 3.2 to the Companys Annual Report on Form
    10-K for the period ended December 30, 2002).                                                                                                                          
|       
|        | 4  | .1   |                        | Form of Certificate of Common Stock (Filed as Exhibit 4.1
    to the Companys Registration Statement on Form S-1,
    file #333-86390).                                                                                                                                               
|       
|        | 4  | .2   |                        | Rights Agreement between Cosi, Inc. and American Stock Transfer
    and Trust Company as Rights Agent dated November 21, 2002
    (Filed as Exhibit 4.2 to the Companys Annual Report
    on Form 10-K for the period ended December 30, 2002).                                       
|       
|        | 4  | .3   |                        | Amended and Restated Registration Agreement, dated as of
    March 30, 1999 (Filed as Exhibit 4.3 to the
    Companys Registration Statement on Form S-1,
    file #333-86390).                                                                                                       
|       
|        | 4  | .4   |                        | Supplemental Registration Rights Agreement, dated as of
    August 5, 2003 by and among the Company and the parties
    thereto (Filed as Exhibit 4.4.2 to the Companys
    Registration Statement on Form S-1, file #333-107689).                                                    
|       
|        | 4  | .5   |                        | Amendment No. 1 to Rights Agreement dated as of
    November 21, 2002, between Cosi, Inc. and American Stock
    Transfer and Trust Company, as rights agent (Filed as
    Exhibit 4.3 to the Companys Quarterly Report on Form
    10-Q for the fiscal quarter ended March 31, 2003).
|       
|        | 4  | .6   |                        | Investment Agreement, dated as of August 5, 2003, among the
    Company, Eric J. Gleacher, Charles G. Phillips, LJCB Nominees
    Pty Ltd, and ZAM Holdings, L.P. (Filed as Exhibit 4.9 to
    the Companys Registration Statement on Form S-1/A,
    file #333-107689).              
|       
|        | 4  | .7   |                        | Letter Agreement, dated as of August 5, 2003, among the
    Company, Eric J. Gleacher, Charles G. Phillips, LJCB Nominees
    Pty Ltd, and ZAM Holdings, L.P. (Filed as Exhibit 4.10 to
    the Companys Registration Statement on Form S-1/A,
    file #333-107689).                 
|       
|        | 10 | .1   |                        | Amended and Restated Cosi Stock Incentive Plan (Filed as
    Exhibit E to the Companys Proxy Statement on Schedule
    14A filed on November 3, 2003, file #000-50052).                                                                                                               
|       
|        | 10 | .2   |                        | Cosi Employee Stock Purchase Plan. (Filed as Exhibit 10.2
    to the Companys Registration Statement on Form S-1,
    file #333-86390)                                                                                                                                                
|       
|        | 10 | .3   |                        | Cosi Non-Employee Director Stock Incentive Plan. (Filed as
    Exhibit 10.3 to the Companys Registration Statement
    on Form S-1, file #333-86390)                                                                                                                                  
|       
|        | 10 | .4   |                        | Cosi Sandwich Bar, Inc. Incentive Stock Option Plan. (Filed as
    Exhibit 10.4 to the Companys Registration Statement
    on Form S-1, file #333-86390)                                                                                                                              
|       
|        | 10 | .5.1 |                        | Employment Agreement between Cosi, Inc. and Kevin Armstrong
    dated as of July 3, 2003. (Filed as Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the fiscal
    quarter ended September 29, 2003).                                                              
|       
|        | 10 | .5.2 |                        | Employment Agreement between Cosi, Inc. and Mark Stickney, dated
    as of August 18, 2003. (Filed as Exhibit 10.2 to the
    Companys Quarterly Report on Form 10-Q for the fiscal
    quarter ended September 29, 2003).                                                            
|       
|        | 10 | .5.3 |                        | Employment Agreement between Cosi, Inc. and Jonathan M.
    Wainwright, Jr., dated as of August 20, 2003. (Filed
    as Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended September 29, 2003).                                              
|       
|        | 10 | .5.4 |                        | Employment Agreement between Cosi, Inc. and William D. Forrest,
    dated June 26, 2003 (Filed as Exhibit 10.4.3 to the
    Companys Registration Statement on Form S-1/A, file
    #333-107689).                                                                                     
|       
|        | 10 | .5.5 |                        | Settlement Agreement between Cosi, Inc. and Andy Stenzler,
    effective January 31, 2003 (Filed as Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the fiscal
    quarter ended March 31, 2003).                                                                  

37



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##### Table of Contents



|        |    |       |                        |                                                                                                                                                                                                                                                                                                      
|------- | -- | ----- | ---------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |                       
|Number  |    |       | Description of Exhibit
|        |    |       |                       
|       
|        | 10 | .5.6  |                        | Separation and Release Agreement between Cosi, Inc. and Nicholas
    Marsh, effective April 30, 2003. (Filed as
    Exhibit 10.4 to the Companys Quarterly Report on Form
    10-Q for the fiscal quarter ended September 29, 2003).                                                                
|       
|        | 10 | .5.7  |                        | Separation Agreement between Cosi, Inc. and Kenneth S. Betuker,
    dated as of September 17, 2003. (Filed as Exhibit 10.5
    to the Companys Quarterly Report on Form 10-Q for the
    fiscal quarter ended September 29, 2003).                                                                  
|       
|        | 10 | .5.8  |                        | Employment Agreement between Cosi, Inc. and Cynthia Jamison,
    dated as of July 7, 2004. (Filed as Exhibit 10.2 to
    the Companys Quarterly Report on Form 10-Q for the fiscal
    quarter ended June 28, 2004).                                                                                
|       
|        | 10 | .5.9  |                        | Addendum to the employment agreement between Cosi, Inc. and
    William D. Forrest, dated February 9, 2004. (Filed as
    Exhibit 10.1 to the Companys Quarterly Report on Form
    10-Q for the fiscal quarter ended March 29, 2004).                                                              
|       
|        | 10 | .5.10 |                        | Separation and Release Agreement between Cosi, Inc. and Jonathan
    M. Wainwright, Jr., dated January 3, 2005. (Filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K, dated January 6, 2005).                                                                                  
|       
|        | 10 | .6.1  |                        | Amended and Restated Distributor Service Agreement between Cosi
    and Maines Paper & Food Service, Inc., dated as of
    June 18, 2002. (1). (Filed as Exhibit 10.6 to the
    Companys Registration Statement on Form S-1,
    file #333-86390)                                                  
|       
|        | 10 | .6.2  |                        | Second Amendment to Amended and Restated Distributor Service
    Agreement between Cosi, Inc. and Maines Paper & Food
    Service, Inc. (Filed as Exhibit 10.1 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2003).                                          
|       
|        | 10 | .7.1  |                        | Form of Senior Secured Note and Warrant Purchase Agreement.
    (Filed as Exhibit 10.7 to the Companys Registration
    on Form S-1, file #333-86390)                                                                                                                                               
|       
|        | 10 | .7.2  |                        | Securities Purchase Agreement dated as of April 27, 2004
    (Filed as Exhibit 10.1 to the Companys Current Report
    on Form 8-K, dated April 28, 2004).                                                                                                                                          
|       
|        | 16 |       |                        | Letter from Ernst & Young LLP to the Securities and
    Exchange Commission, dated as of August 13, 2004,
    acknowledging its agreement with the statements made in Current
    Report on Form 8-K (Filed as Exhibit 16 to the
    Companys Current Report on Form 8-K, dated August 13,
    2004.
|       
|        | 21 | .1    |                        | Subsidiaries of Cosi, Inc. (Filed as Exhibit 21.1 to the
    Companys Registration Statement on Form S-1, file
    #333-86390)                                                                                                                                                                      
|       
|        | 23 | .1    |                        | Consent of Registered Public Accounting Firm                                                                                                                                                                                                                                                         
|       
|        | 23 | .2    |                        | Consent of Registered Public Accounting Firm                                                                                                                                                                                                                                                         
|       
|        | 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 Executive 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.                                                                                                                                                                                          






|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Portions of Exhibit 10.6 have been omitted and filed
    separately with the Securities and Exchange Commission pursuant
    to a request for confidential treatment.



38



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                                                                                                                          |  |      |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | 
|                                                                                                                                                                          |  | Page |      
|                                                                                                                                                                          |  |      |      
|Reports of Independent Registered Public
    Accounting Firms                                                                                                             |  |      | 40-41 | 
|Consolidated Balance Sheets as of
    January 3, 2005 and December 29, 2003                                                                                               |  |      | 42    | 
|Consolidated Statements of Operations for
    the Fiscal Years Ended January 3, 2005, December 29,
    2003 and December 30, 2002                                         |  |      | 43    | 
|Consolidated Statements of Redeemable
    Securities and Stockholders Equity for the Fiscal Years
    Ended January 3, 2005, December 29, 2003 and
    December 30, 2002 |  |      | 44-45 | 
|Consolidated Statements of Cash Flows for
    the Fiscal Years Ended January 3, 2005, December 29,
    2003 and December 30, 2002                                         |  |      | 46    | 
|Notes to Consolidated Financial Statements
    for the Fiscal Years Ended January 3, 2005,
    December 29, 2003 and December 30, 2002                                    |  |      | 47-66 | 
|Consolidated Financial Statement Schedule
    for the Fiscal Years Ended January 3, 2005,
    December 29, 2003 and December 30, 2002                                     |  |      | 67    | 

39



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Report of Independent Registered Public Accounting Firm

















Internal Control 
Integrated Framework




| |                     
| | --------------------
| | /s/ BDO Seidman, LLP





40



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##### Table of Contents



Report of Independent Registered Public Accounting Firm


















| |                      
| | ---------------------
| | /s/ Ernst & Young LLP







41



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##### Table of Contents



Cosi, Inc.





Consolidated Balance Sheets


As of January 3, 2005 and December 29, 2003


|                                                     |                                                                                                                                             |                                            |            |              |                   |  |            |              |            | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | ----------------- |  | ---------- | ------------ | ---------- | 
|                                                     |                                                                                                                                             | January 3, 2005                            |            |              | December 29, 2003 | 
|                                                     |                                                                                                                                             |                                            |            |              |                   | 
|                                                     |                                                                                                                                             |                                            |            | (Restated)   |                  
|ASSETS                                              
|Current assets:                                      |                                                                                                                                             |                                            |            |              |                   |  |            |             
|                                                     | Cash and cash equivalents                                                                                                                   |                                            | $          | 1,089,691    |                   |  | $          | 7,957,042    |           
|                                                     | Investments                                                                                                                                 |                                            |            | 9,961,624    |                   |  |            |             |           
|                                                     | Accounts receivable, net of allowances of $152.4 and $393.1,
    respectively                                                               |                                            |            | 613,226      |                   |  |            | 608,445      |           
|                                                     | Inventories                                                                                                                                 |                                            |            | 890,511      |                   |  |            | 982,855      |           
|                                                     | Prepaid expenses and other current assets                                                                                                   |                                            |            | 2,315,098    |                   |  |            | 1,436,048    |           
|                                                     |                                                                                                                                             |                                            |            |              |                   | 
|                                                     |                                                                                                                                             | Total current assets                       |            |              | 14,870,150        |  |            |              | 10,984,390 | 
|Property, equipment and leasehold improvements, net  |                                                                                                                                             |                                            | 34,074,491 |              |                   |  | 35,018,277 |             
|Intangibles, security deposits and other assets, net |                                                                                                                                             |                                            | 2,193,701  |              |                   |  | 1,943,945  |             
|                                                     |                                                                                                                                             |                                            |            |              |                   | 
|                                                     |                                                                                                                                             | Total assets                               |            | $            | 51,138,342        |  |            | $            | 47,946,612 | 
|                                                     |                                                                                                                                             |                                            |            |              |                   | 
|                                                    
|LIABILITIES AND STOCKHOLDERS EQUITY                
|Current liabilities:                                 |                                                                                                                                             |                                            |            |              |                   |  |            |             
|                                                     | Accounts payable                                                                                                                            |                                            | $          | 3,972,952    |                   |  | $          | 6,933,606    |           
|                                                     | Accrued expenses                                                                                                                            |                                            |            | 9,677,544    |                   |  |            | 7,158,362    |           
|                                                     | Current portion of other liabilities                                                                                                        |                                            |            | 363,000      |                   |  |            | 487,408      |           
|                                                     | Current portion of long-term debt                                                                                                           |                                            |            | 74,904       |                   |  |            | 160,673      |           
|                                                     |                                                                                                                                             |                                            |            |              |                   | 
|                                                     |                                                                                                                                             | Total current liabilities                  |            |              | 14,088,400        |  |            |              | 14,740,049 | 
|                                                     | Other long-term liabilities, net of current portion                                                                                         |                                            |            | 7,614,195    |                   |  |            | 10,144,858   |           
|                                                     | Long-term debt, net of current portion                                                                                                      |                                            |            | 283,367      |                   |  |            | 227,584      |           
|                                                     |                                                                                                                                             |                                            |            |              |                   | 
|                                                     |                                                                                                                                             | Total liabilities                          |            |              | 21,985,962        |  |            |              | 25,112,491 | 
|Commitments and contingencies                        |                                                                                                                                             |                                            |            |              |                   |  |            |             
|Stockholders equity:                                |                                                                                                                                             |                                            |            |              |                   |  |            |             
|                                                     | Common stock  $.01 par value;
    100,000,000 shares authorized, 30,819,716 and
    26,259,109 shares issued and outstanding, respectively |                                            |            | 308,197      |                   |  |            | 262,592      |           
|                                                     | Additional paid-in capital                                                                                                                  |                                            |            | 225,519,747  |                   |  |            | 203,075,409  |           
|                                                     | Deferred stock compensation                                                                                                                 |                                            |            | (899,986     | )                 |  |            | (1,835,780   | )         
|                                                     | Notes receivable from stockholders                                                                                                          |                                            |            | (1,458,817   | )                 |  |            | (2,724,801   | )         
|                                                     | Accumulated deficit                                                                                                                         |                                            |            | (194,316,761 | )                 |  |            | (175,943,299 | )         
|                                                     |                                                                                                                                             |                                            |            |              |                   | 
|                                                     |                                                                                                                                             | Total stockholders equity                 |            |              | 29,152,380        |  |            |              | 22,834,121 | 
|                                                     |                                                                                                                                             |                                            |            |              |                   | 
|                                                     |                                                                                                                                             | Total liabilities and stockholders equity |            | $            | 51,138,342        |  |            | $            | 47,946,612 | 
|                                                     |                                                                                                                                             |                                            |            |              |                   | 



42



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Cosi, Inc.





Consolidated Statements of Operations


For the Fiscal Years Ended January 3, 2005,
December 29, 2003 and December 30, 2002


|                                                        |                                              |                                     |             |             |                   |   |             |                   |            |   |             |             |            | 
|------------------------------------------------------- | -------------------------------------------- | ----------------------------------- | ----------- | ----------- | ----------------- | - | ----------- | ----------------- | ---------- | - | ----------- | ----------- | ---------- | 
|                                                        |                                              | January 3, 2005                     |             |             | December 29, 2003 |   |             | December 30, 2002 |           
|                                                        |                                              |                                     |             |             |                   |   |             |                   |           
|                                                        |                                              |                                     |             | (Restated)  |                   |   | (Restated)  |                  
|Net sales                                               |                                              | $                                   | 110,630,624 |             |                   | $ | 107,257,385 |                   |            | $ | 84,424,247  |            
|Cost of sales:                                          |                                              |                                     |             |             |                   |   |             |                   |            |   |             |            
|                                                        | Cost of goods sold                           |                                     |             | 28,012,806  |                   |   |             | 29,713,910        |            |   |             | 22,697,549  |           
|                                                        | Restaurant expenses                          |                                     |             | 66,611,849  |                   |   |             | 67,321,817        |            |   |             | 51,244,888  |           
|                                                        |                                              |                                     |             |             |                   |   |             |                   |           
|                                                        |                                              | Total cost of sales                 |             |             | 94,624,655        |   |             |                   | 97,035,727 |   |             |             | 73,942,437 | 
|General and administrative expenses                     |                                              |                                     | 20,624,741  |             |                   |   | 22,274,382  |                   |            |   | 17,811,712  |            
|Corporate office relocation                             |                                              |                                     | 1,093,699   |             |                   |   |            |                   |            |   |            |            
|Stock compensation expense(1)                           |                                              |                                     | 3,219,112   |             |                   |   | 893,659     |                   |            |   |            |            
|Depreciation and amortization                           |                                              |                                     | 6,947,756   |             |                   |   | 7,852,511   |                   |            |   | 5,951,162   |            
|Restaurant pre-opening expenses                         |                                              |                                     | 405,392     |             |                   |   | 389,805     |                   |            |   | 1,845,120   |            
|Provision for losses on asset impairments and disposals |                                              |                                     | 1,405,512   |             |                   |   | 8,531,841   |                   |            |   | 1,056,471   |            
|Lease termination benefits, net                         |                                              |                                     | (588,786    | )           |                   |   | (3,391,252  | )                 |            |   | (1,164,984  | )          
|                                                        |                                              |                                     |             |             |                   |   |             |                   |           
|                                                        | Operating loss                               |                                     |             | (17,101,457 | )                 |   |             | (26,329,288       | )          |   |             | (15,017,671 | )         
|Interest income                                         |                                              |                                     | 158,918     |             |                   |   | 40,501      |                   |            |   | 98,334      |            
|Interest expense                                        |                                              |                                     | (62,439     | )           |                   |   | (226,301    | )                 |            |   | (1,192,598  | )          
|Reserve for notes receivable from stockholders          |                                              |                                     | (1,265,984  | )           |                   |   |            |                   |            |   |            |            
|Amortization of deferred financing costs                |                                              |                                     |            |             |                   |   | (90,490     | )                 |            |   | (548,972    | )          
|Loss on early extinguishment of debt                    |                                              |                                     |            |             |                   |   |            |                   |            |   | (5,083,188  | )          
|Other (expense) income                                  |                                              |                                     | (102,500    | )           |                   |   | 111,985     |                   |            |   | 380,871     |            
|                                                        |                                              |                                     |             |             |                   |   |             |                   |           
|                                                        | Net loss                                     |                                     |             | (18,373,462 | )                 |   |             | (26,493,593       | )          |   |             | (21,363,224 | )         
|Preferred stock dividends                               |                                              |                                     |            |             |                   |   |            |                   |            |   | (8,193,640  | )          
|                                                        |                                              |                                     |             |             |                   |   |             |                   |           
|Net loss attributable to common stockholders            |                                              | $                                   | (18,373,462 | )           |                   | $ | (26,493,593 | )                 |            | $ | (29,556,864 | )          
|                                                        |                                              |                                     |             |             |                   |   |             |                   |           
|Per Share Data:                                         |                                              |                                     |             |             |                   |   |             |                   |            |   |             |            
|                                                        | Basic and diluted loss per share             |                                     | $           | (0.62       | )                 |   | $           | (1.53             | )          |   | $           | (5.13       | )         
|                                                        | Weighted average common shares outstanding   |                                     |             | 29,432,050  |                   |   |             | 17,304,480        |            |   |             | 5,762,818   |           
|                                                        | (1) Allocation of stock compensation expense |                                     |             |             |                   |   |             |                   |            |   |             |             |           
|                                                        |                                              | Restaurant operating expenses       |             | $           | 363,829           |   |             | $                 |           |   |             | $           |           | 
|                                                        |                                              | General and administrative expenses |             |             | 2,855,283         |   |             |                   | 893,659    |   |             |             |           | 
|                                                        |                                              |                                     |             |             |                   |   |             |                   |           
|                                                        |                                              | Stock compensation expense          |             | $           | 3,219,112         |   |             | $                 | 893,659    |   |             | $           |           | 
|                                                        |                                              |                                     |             |             |                   |   |             |                   |           



43



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Cosi, Inc.





Consolidated Statement of Redeemable Securities and
Stockholders Equity


For the Fiscal Years Ended January 3, 2005,
December 29, 2003 and December 30, 2002


|                                                                                               |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|---------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | --------------------------- | - | ----------- | ------ |  |  | ---------- | - |  | ----- | ----------- | - |  | - | ------------ | -
|                                                                                               |  | Series A                    |            |   | Series C                    |   |             |       
|                                                                                               |  | Convertible Preferred Stock |            |   | Convertible Preferred Stock |   |             |       
|                                                                                               |  |                             |            |   |                             |   |             |       
|                                                                                               |  | Number of                   |            |   |                             |   | Number of   |        |  |  |            |  
|                                                                                               |  | Shares                      |            |   | Amount                      |   |             | Shares |  |  | Amount     |   |  | Total |            
|                                                                                               |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |            
|Balance, December 31, 2001                                                                     |  |                             | 1,146,206  |   |                             | $ | 18,318,205  |        |  |  | 4,161,589  |   |  | $     | 73,971,056  |   |  | $ | 92,289,261   |  
|Issuance of Series C Convertible Preferred stock, net of
    issuance costs                    |  |                             |            |   |                             |   |             |        |  |  | 942,629    |   |  |       | 15,626,611  |   |  |   | 15,626,611   |  
|Issuance of warrants                                                                           |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Issuance of warrants in connection with premium stock financing                                |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Accrued preferred stock dividend                                                               |  |                             |            |   |                             |   | 1,376,383   |        |  |  |            |   |  |       | 6,473,731   |   |  |   | 7,850,114    |  
|Accretion of preferred stock to liquidation value                                              |  |                             |            |   |                             |   | 200,836     |        |  |  |            |   |  |       | 142,690     |   |  |   | 343,526      |  
|Exchange of senior subordinated debt and warrants for
    Series C Convertible Preferred Stock |  |                             |            |   |                             |   |             |        |  |  | 217,327    |   |  |       | 3,613,075   |   |  |   | 3,613,075    |  
|Issuance of common stock                                                                       |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Conversion of comon stock                                                                      |  |                             | (1,146,206 | ) |                             |   | (19,895,424 | )      |  |  | (5,321,545 | ) |  |       | (99,827,163 | ) |  |   | (119,722,587 | )
|Net loss                                                                                       |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|                                                                                               |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |            
|Balance, December 30, 2002                                                                     |  |                             |           |   |                             |   |            |        |  |  |           |   |  |       |            |   |  |   |             |  
|Issuance of restricted stock                                                                   |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Amortization of deferred stock compensation                                                    |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Return of shares for note                                                                      |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Exercise of warrants                                                                           |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Issuance of common stock                                                                       |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Conversion to common stock                                                                     |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Stock compensation                                                                             |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Net loss                                                                                       |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|                                                                                               |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |            
|Balance, December 29, 2003                                                                     |  |                             |           |   |                             |   |            |        |  |  |           |   |  |       |            |   |  |   |             |  
|Issuance of common stock                                                                       |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Issuance of restricted stock                                                                   |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Stock compensation                                                                             |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Exercise of warrants                                                                           |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Exercise of stock options                                                                      |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Reserve for notes receivable from stockholders                                                 |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|Net loss                                                                                       |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |             |   |  |   |              |  
|                                                                                               |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |            
|Balance, January 3, 2005                                                                       |  |                             |           |   |                             | $ |            |        |  |  |           |   |  | $     |            |   |  | $ |             |  
|                                                                                               |  |                             |            |   |                             |   |             |        |  |  |            |   |  |       |            



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Cosi, Inc.


Common Stock and Treasury Stock


|                                                                |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   |             |          |  
|--------------------------------------------------------------- | --------------------------- | ------------ | ---------- |  | -------- | - | ---------- | --------------- |  | ----- | ------------ | -------- | -------- | ---------- | ---------- | -------- | ----- |  | ------- | ------------ |  | ----------- | -------- | - |  | ----- | ---------- | - |  | - | ------------ | - |  | - | ----------- | -------- | -
|                                                                |                             | Common Stock |            |  |          |   | Number of  |                 |  |       |              | Notes    |          |            |            |          |      
|                                                                |                             |              |            |  | Deferred |   |            | Shares          |  |       | Amount       |          |          | Receivable |            |          |       |  |        
|                                                                |                             | Number of    |            |  |          |   | Additional |                 |  | Stock |              |          | Treasury |            |            | Treasury |       |  | from    |              |  | Accumulated |          |   | 
|                                                                |                             | Shares       |            |  | Amount   |   |            | Paid in Capital |  |       | Compensation |          |          | Stock      |            |          | Stock |  |         | Stockholders |  |             | Deficit  |   |  | Total |           
|                                                                |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |           
|Balance, December 31, 2001, as previously reported              |                             |              | 4,511,494  |  |          | $ | 45,115     |                 |  | $     | 32,004,032   |          |          | $          |           |          |       |  |        |              |  | $           |         |   |  | $     | (2,974,804 | ) |  | $ | (118,054,289 | ) |  | $ | (88,979,946 | )       
|Cummulative efect on prior years of restatement                 |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  | $ | (1,838,553   | ) |  |   | (1,838,553  | )       
|                                                                |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |           
|Balance, December 31, 2001, (as restated)                       |                             |              | 4,511,494  |  |          |   | 45,115     |                 |  |       | 32,004,032   |          |          |            |           |          |       |  |        |              |  |             |         |   |  |       | (2,974,804 | ) |  |   | (119,892,842 | ) |  |   | (90,818,499 | )       
|Issuance of warrants                                            |                             |              |            |  |          |   |            |                 |  |       | 4,901,874    |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 4,901,874   |         
|Issuance of warrants in connection with premium stock financing |                             |              |            |  |          |   |            |                 |  |       | 43,900       |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 43,900      |         
|Accrued preferred stock dividend                                |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   | (7,850,114   | ) |  |   | (7,850,114  | )       
|Accretion of preferred stock to liquidation value               |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   | (343,526     | ) |  |   | (343,526    | )       
|                                                                | Convertible Preferred Stock |              |            |  |          |   |            |                 |  |       |              | (429,865 | )        |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   |             | (429,865 | )
|Issuance of common stock                                        |                             |              | 5,594,409  |  |          |   | 55,944     |                 |  |       | 33,077,182   |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 33,133,126  |         
|Conversion of comon stock                                       |                             |              | 6,467,611  |  |          |   | 64,676     |                 |  |       | 119,657,911  |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 119,722,587 |         
|Net loss                                                        |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   | (21,363,224  | ) |  |   | (21,363,224 | )       
|                                                                |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |           
|Balance, December 30, 2002, (as restated)                       |                             |              | 16,573,514 |  |          |   | 165,735    |                 |  |       | 189,255,034  |          |          |            |           |          |       |  |        |              |  |             |         |   |  |       | (2,974,804 | ) |  |   | (149,449,706 | ) |  |   | 36,996,259  |         
|Issuance of restricted stock                                    |                             |              | 1,678,471  |  |          |   | 16,785     |                 |  |       | 2,712,654    |          |          |            | (2,729,439 | )        |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   |            |         
|Amortization of deferred stock compensation                     |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            | 893,659    |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 893,659     |         
|Return of shares for note                                       |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  | (21,978 | )            |  |             | (250,003 | ) |  |       | 250,003    |   |  |   |              |   |  |   |            |         
|Exercise of warrants                                            |                             |              | 3,036      |  |          |   | 30         |                 |  |       | (249,783     | )        |          |            |            |          |       |  | 21,978  |              |  |             | 250,003  |   |  |       |            |   |  |   |              |   |  |   | 250         |         
|Issuance of common stock                                        |                             |              | 4,990,752  |  |          |   | 49,909     |                 |  |       | 6,774,387    |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 6,824,296   |         
|Conversion to common stock                                      |                             |              | 3,013,336  |  |          |   | 30,133     |                 |  |       | 4,489,871    |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 4,520,004   |         
|Stock compensation                                              |                             |              |            |  |          |   |            |                 |  |       | 93,246       |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 93,246      |         
|Net loss                                                        |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   | (26,493,593  | ) |  |   | (26,493,593 | )       
|                                                                |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |           
|Balance, December 29, 2003, (as restated)                       |                             |              | 26,259,109 |  |          |   | 262,592    |                 |  |       | 203,075,409  |          |          |            | (1,835,780 | )        |       |  |        |              |  |             |         |   |  |       | (2,724,801 | ) |  |   | (175,943,299 | ) |  |   | 22,834,121  |         
|Issuance of common stock                                        |                             |              | 4,284,403  |  |          |   | 42,844     |                 |  |       | 19,566,282   |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 19,609,126  |         
|Issuance of restricted stock                                    |                             |              | 1,482      |  |          |   | 15         |                 |  |       | 7,009        |          |          |            | (7,024     | )        |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   |            |         
|Stock compensation                                              |                             |              | 22,240     |  |          |   | 222        |                 |  |       | 2,276,072    |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 2,276,294   |         
|Amortization of deferred stock compensation                     |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            | 942,818    |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 942,818     |         
|Exercise of warrants                                            |                             |              | 3,424      |  |          |   | 34         |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 34          |         
|Exercise of stock options                                       |                             |              | 249,058    |  |          |   | 2,490      |                 |  |       | 594,975      |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   |              |   |  |   | 597,465     |         
|Reserve for notes receivable from stockholders                  |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       | 1,265,984  |   |  |   |              |   |  |   | 1,265,984   |         
|Net loss                                                        |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |            |   |  |   | (18,373,462  | ) |  |   | (18,373,462 | )       
|                                                                |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |           
|Balance, January 3, 2005                                        |                             |              | 30,819,716 |  |          | $ | 308,197    |                 |  | $     | 225,519,747  |          |          | $          | (899,986   | )        |       |  |        |              |  | $           |         |   |  | $     | (1,458,817 | ) |  | $ | (194,316,761 | ) |  | $ | 29,152,380  |         
|                                                                |                             |              |            |  |          |   |            |                 |  |       |              |          |          |            |            |          |       |  |         |              |  |             |          |   |  |       |           



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Cosi, Inc.





Consolidated Statements of Cash Flows


For the Fiscal Years Ended January 3, 2005,
December 29, 2003 and December 30, 2002


|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |           |            |             |             |           |            |             |  
|---------------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------------- | ---------- | ----------- | ----------------- | --------- | ---------- | ----------- | ----------- | --------- | ---------- | ----------- | -
|                                                     |                                                                                | January 3, 2005                                     |                                           |                                           | December 29, 2003 |            |             | December 30, 2002 |          
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          
|                                                     |                                                                                |                                                     |                                           | (Restated)                                |                   |            | (Restated)  |                  
|Cash flows from operating activities:                |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |           |            |             |            
|                                                     | Net loss                                                                       |                                                     | $                                         | (18,373,462                               | )                 |            | $           | (26,493,593       | )         |            | $           | (21,363,224 | )        
|                                                     | Adjustments to reconcile net loss to net cash used in operating
    activities |                                                     |                                           |                                           |                   |            |             |                   |           |            |             |             |          
|                                                     |                                                                                | Depreciation and amortization                       |                                           |                                           | 6,947,756         |            |             |                   | 7,852,511 |            |             |             | 5,951,162 |           
|                                                     |                                                                                | Amortization of deferred financing costs            |                                           |                                           |                  |            |             |                   | 90,490    |            |             |             | 548,972   |           
|                                                     |                                                                                | Loss on early extinguishment of debt                |                                           |                                           |                  |            |             |                   |          |            |             |             | 5,083,188 |           
|                                                     |                                                                                | Non-cash portion of asset impairments and disposals |                                           |                                           | 1,393,828         |            |             |                   | 8,232,284 |            |             |             | 1,056,471 |           
|                                                     |                                                                                | (Recovery) provision for bad debts                  |                                           |                                           | (39,206           | )          |             |                   | 202,710   |            |             |             | 27,000    |           
|                                                     |                                                                                | Impairment of intangible assets                     |                                           |                                           |                  |            |             |                   | 607,900   |            |             |             |          |           
|                                                     |                                                                                | Stock compensation expense                          |                                           |                                           | 2,276,294         |            |             |                   | 93,246    |            |             |             |          |           
|                                                     |                                                                                | Amortization of deferred compensation               |                                           |                                           | 942,818           |            |             |                   | 893,658   |            |             |             |          |           
|                                                     |                                                                                | Non-cash portion of interest expense                |                                           |                                           |                  |            |             |                   | 20,004    |            |             |             |          |           
|                                                     |                                                                                | Reserve on notes receivable from stockholders       |                                           |                                           | 1,265,984         |            |             |                   |          |            |             |             |          |           
|                                                     |                                                                                | Changes in operating assets and liabilities:        |                                           |                                           |                   |            |             |                   |           |            |             |             |           |           
|                                                     |                                                                                |                                                     | Accounts receivable                       |                                           |                   | 34,425     |             |                   |           | 700,371    |             |             |           | (339,740   | )          
|                                                     |                                                                                |                                                     | Inventories                               |                                           |                   | 92,344     |             |                   |           | 482,875    |             |             |           | (61,924    | )          
|                                                     |                                                                                |                                                     | Prepaid expenses and other current assets |                                           |                   | (856,580   | )           |                   |           | 240,232    |             |             |           | (1,107,926 | )          
|                                                     |                                                                                |                                                     | Other assets                              |                                           |                   | (335,649   | )           |                   |           | (155,538   | )           |             |           | (367,352   | )          
|                                                     |                                                                                |                                                     | Accounts payable                          |                                           |                   | (2,060,572 | )           |                   |           | (1,991,639 | )           |             |           | 4,188,124  |            
|                                                     |                                                                                |                                                     | Accrued expenses                          |                                           |                   | 620,281    |             |                   |           | 1,630,929  |             |             |           | 970,599    |            
|                                                     |                                                                                |                                                     | Other liabilities                         |                                           |                   | (251,386   | )           |                   |           | 606,503    |             |             |           | 2,088,337  |            
|                                                     |                                                                                |                                                     | Lease termination accrual                 |                                           |                   | (1,287,977 | )           |                   |           | (4,400,629 | )           |             |           | (1,576,103 | )          
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          
|                                                     |                                                                                |                                                     |                                           | Net cash used in operating activities     |                   |            | (9,631,102  | )                 |           |            | (11,387,686 | )           |           |            | (4,902,416  | )
|Cash flows used in investing activities:             |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |           |            |             |            
|                                                     | Capital expenditures                                                           |                                                     |                                           | (7,392,224                                | )                 |            |             | (4,069,913        | )         |            |             | (28,066,125 | )        
|                                                     | Purchases of investments, net                                                  |                                                     |                                           | (9,961,624                                | )                 |            |             |                  |           |            |             |            |          
|                                                     | Return (payment) of security deposits                                          |                                                     |                                           | 85,893                                    |                   |            |             | 315,122           |           |            |             | (308,404    | )        
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          
|                                                     |                                                                                |                                                     |                                           | Net cash used in investing activities     |                   |            | (17,267,955 | )                 |           |            | (3,754,791  | )           |           |            | (28,374,529 | )
|Cash flows provided by financing activities:         |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |           |            |             |            
|                                                     | Proceeds from issuance of common stock                                         |                                                     |                                           | 20,206,591                                |                   |            |             | 6,824,296         |           |            |             | 33,133,126  |          
|                                                     | Net proceeds from issuance of preferred stock                                  |                                                     |                                           |                                          |                   |            |             |                  |           |            |             | 15,670,511  |          
|                                                     | Retirement of Sr. Subordinated & Sr. Secured notes                             |                                                     |                                           |                                          |                   |            |             |                  |           |            |             | (16,320,692 | )        
|                                                     | Exercise of warrants                                                           |                                                     |                                           | 34                                        |                   |            |             | 250               |           |            |             |            |          
|                                                     | Principal payments on capital lease obligations                                |                                                     |                                           | (2,917                                    | )                 |            |             | (116,509          | )         |            |             | (457,673    | )        
|                                                     | Proceeds from long-term debt plus related warrants and accrued
    interest    |                                                     |                                           |                                          |                   |            |             | 4,500,000         |           |            |             | 10,980,647  |          
|                                                     | Principal payments on long-term debt                                           |                                                     |                                           | (172,002                                  | )                 |            |             | (1,140,825        | )         |            |             | (1,166,238  | )        
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          
|                                                     |                                                                                |                                                     |                                           | Net cash provided by financing activities |                   |            | 20,031,706  |                   |           |            | 10,067,212  |             |           |            | 41,839,681  |  
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          
|Net (decrease) increase in cash and cash equivalents |                                                                                |                                                     | (6,867,351                                | )                                         |                   |            | (5,075,265  | )                 |           |            | 8,562,736   |            
|Cash and cash equivalents, beginning of period       |                                                                                |                                                     | 7,957,042                                 |                                           |                   |            | 13,032,307  |                   |           |            | 4,469,571   |            
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          
|Cash and cash equivalents, end of period             |                                                                                | $                                                   | 1,089,691                                 |                                           |                   | $          | 7,957,042   |                   |           | $          | 13,032,307  |            
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          
|Supplemental disclosures of cash flow information:   |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |           |            |             |            
|Cash paid for:                                       |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |           |            |             |            
|                                                     | Interest                                                                       |                                                     | $                                         | 74,324                                    |                   |            | $           | 315,833           |           |            | $           | 1,323,459   |          
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          
|                                                     | Corporate franchise and income taxes                                           |                                                     | $                                         | 288,165                                   |                   |            | $           | 220,800           |           |            | $           | 118,690     |          
|                                                     |                                                                                |                                                     |                                           |                                           |                   |            |             |                   |          



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COSI, INC.





Notes to Consolidated Financial Statements


For the Fiscal Years Ended January 3, 2005,
December 29, 2003 and December 30, 2002




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant Accounting
    Policies

Organization










Fiscal Year




Basis of Presentation




Cash and Cash Equivalents




Investments




Accounting for Certain
Investments in Debt and Equity Securities,


47



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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)


Concentration of Credit Risks






Accounts Receivable




Inventories




Property, Equipment and Leasehold Improvements




Restaurant Impairment Charges






Lease Termination Costs


Accounting for Costs
Associated with Exit or Disposal Activities


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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)






Intangibles, Security Deposits and Other Assets






Other Liabilities




Income Taxes




Revenue Recognition




Cost of Sales




Advertising Costs




49



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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)


Restaurant Pre-Opening Costs




Net Loss Per Share




Stock-Based Compensation




Pro Forma:


|                                             |                                                                                                                         |                                               |             |            |      |   |             |            |   |   |             |            |  
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ----------- | ---------- | ---- | - | ----------- | ---------- | - | - | ----------- | ---------- | -
|                                             |                                                                                                                         | Fiscal Year                                   |            
|                                             |                                                                                                                         |                                               |            
|                                             |                                                                                                                         | 2004                                          |             |            | 2003 |   |             | 2002       |  
|                                             |                                                                                                                         |                                               |             |            |      |   |             |            |  
|                                             |                                                                                                                         | (Dollars in thousands, except per share data) |            
|Net loss as reported                         |                                                                                                                         | $                                             | (18,373,462 | )          |      | $ | (26,493,593 | )          |   | $ | (29,556,864 | )         
|                                             | Add: Stock-based compensation expense included in reported net
    loss                                                 |                                               |             | 2,151,295  |      |   |             | 93,246     |   |   |             |           |  
|                                             | Deduct: Total stock-based employee compensation expense
    determined under the fair value based method for all awards |                                               |             | (2,623,242 | )    |   |             | (1,229,491 | ) |   |             | (1,952,266 | )
|                                             |                                                                                                                         |                                               |             |            |      |   |             |            |  
|Pro forma net loss                           |                                                                                                                         | $                                             | (18,845,409 | )          |      | $ | (27,629,838 | )          |   | $ | (31,509,130 | )         
|                                             |                                                                                                                         |                                               |             |            |      |   |             |            |  
|Net loss per common share: basic and diluted |                                                                                                                         |                                               |             |            |      |   |             |            |   |   |             |           
|                                             | As reported                                                                                                             |                                               | $           | (0.62      | )    |   | $           | (1.53      | ) |   | $           | (5.13      | )
|                                             |                                                                                                                         |                                               |             |            |      |   |             |            |  
|                                             | Pro forma                                                                                                               |                                               | $           | (0.64      | )    |   | $           | (1.60      | ) |   | $           | (5.47      | )
|                                             |                                                                                                                         |                                               |             |            |      |   |             |            |  





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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)




|                                 |  |             |      |   |      |  |      |      |  |  |      |     
|-------------------------------- |  | ----------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | ----
|                                 |  | Fiscal Year |     
|                                 |  |             |     
|                                 |  | 2004        |      |   | 2003 |  |      | 2002 | 
|                                 |  |             |      |   |      |  |      |      | 
|Expected dividend yield          |  |             | 0    | % |      |  | 0    | %    |  |  | 0    | %   
|Expected stock price volatility  |  |             | 68   | % |      |  | 40   | %    |  |  | 40   | %(a)
|Average risk-free interest rate  |  |             | 3.47 | % |      |  | 4.01 | %    |  |  | 4.11 | %   
|Average expected life of options |  |             | 5    |   |      |  | 5    |      |  |  | 5    |     






|    |                                                              
|--- | -------------------------------------------------------------
|(a) | For options issued subsequent to our initial public offering.

Fair Value of Financial Instruments




Segment Information




Accounting Estimates




Reclassifications




New Accounting Pronouncements


Accounting for Stock-Based Compensation 
Transition and Disclosure. Accounting for Stock-Based
Compensation,


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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)


Share-Based Payment, which is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation. Accounting for Stock Issued to Employees , Statement of Cash
Flows.




Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity.


Inventory Costs: an amendment of ARB No. 43,
Chapter 4,




|   |                                    
|-- | -----------------------------------
|2. | Restatement of Financial Statements





52



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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)










|                                             |  |                                      |             |   |             |   |          |             |  |   |             |  
|-------------------------------------------- |  | ------------------------------------ | ----------- | - | ----------- | - | -------- | ----------- |  | - | ----------- | -
|                                             |  | Consolidated Statement of Operations |            
|                                             |  |                                      |            
|                                             |  | As Previously                        |             |   |            
|                                             |  | Reported                             |             |   | Adjustments |   |          | As Restated | 
|                                             |  |                                      |             |   |             |   |          |             | 
|Fiscal year ended December 29, 2003          |  |                                      |             |   |             |   |          |             |  |   |             |  
|Restaurant expenses                          |  | $                                    | 67,673,282  |   |             |   | (351,465 | )           |  | $ | 67,321,817  |  
|Depreciation and amortization                |  |                                      | 7,656,651   |   |             |   | 195,860  |             |  |   | 7,852,511   |  
|Operating loss                               |  |                                      | (26,484,893 | ) |             |   | 155,605  |             |  |   | (26,329,288 | )
|Net loss                                     |  |                                      | (26,649,198 | ) |             |   | 155,605  |             |  |   | (26,493,593 | )
|Net loss attributable to common stockholders |  |                                      | (26,649,198 | ) |             |   | 155,605  |             |  |   | (26,493,593 | )
|Basic and diluted loss per share             |  | $                                    | (1.54       | ) |             | $ | 0.01     |             |  | $ | (1.53       | )
|                                            
|Fiscal year ended December 30, 2002          |  |                                      |             |   |             |   |          |             |  |   |             |  
|Restaurant expenses                          |  | $                                    | 50,852,670  |   |             | $ | 392,218  |             |  | $ | 51,244,888  |  
|Depreciation and amortization                |  |                                      | 5,851,207   |   |             |   | 99,955   |             |  |   | 5,951,162   |  
|Operating loss                               |  |                                      | (14,525,498 | ) |             |   | (492,173 | )           |  |   | (15,017,671 | )
|Net loss                                     |  |                                      | (20,871,051 | ) |             |   | (492,173 | )           |  |   | (21,363,224 | )
|Net loss attributable to common stockholders |  |                                      | (29,064,691 | ) |             |   | (492,173 | )           |  |   | (29,556,864 | )
|Basic and diluted loss per share             |  | $                                    | (5.04       | ) |             | $ | (0.09    | )           |  | $ | (5.13       | )

53



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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)


|                                                    |  |                            |            |  |             |   |            |             |  |   |            | 
|--------------------------------------------------- |  | -------------------------- | ---------- |  | ----------- | - | ---------- | ----------- |  | - | ---------- | 
|                                                    |  | Consolidated Balance Sheet |           
|                                                    |  |                            |           
|                                                    |  | As Previously              |            |  |            
|                                                    |  | Reported                   |            |  | Adjustments |   |            | As Restated | 
|                                                    |  |                            |            |  |             |   |            |             | 
|December 29, 2003                                   |  |                            |            |  |             |   |            |             |  |   |            | 
|Property, equipment and leasehold improvements, net |  | $                          | 33,574,045 |  |             | $ | 1,444,232  |             |  | $ | 35,018,277 | 
|Total assets                                        |  |                            | 46,502,380 |  |             |   | 1,444,232  |             |  |   | 47,946,612 | 
|Other long-term liabilities                         |  |                            | 6,525,505  |  |             |   | 3,619,353  |             |  |   | 10,144,858 | 
|Total liabilities                                   |  |                            | 21,493,138 |  |             |   | 3,619,353  |             |  |   | 25,112,491 | 
|Total stockholders equity                          |  |                            | 25,009,242 |  |             |   | (2,175,121 | )           |  |   | 22,834,121 | 
|Total liabilities and stockholders equity          |  | $                          | 46,502,380 |  |             | $ | 1,444,232  |             |  | $ | 47,946,612 | 

|                                      |  |                                       |             |   |             |   |          |             |  |   |             |  
|------------------------------------- |  | ------------------------------------- | ----------- | - | ----------- | - | -------- | ----------- |  | - | ----------- | -
|                                      |  | Consolidated Statements of Cash Flows |            
|                                      |  |                                       |            
|                                      |  | As Previously                         |             |   |            
|                                      |  | Reported                              |             |   | Adjustments |   |          | As Restated | 
|                                      |  |                                       |             |   |             |   |          |             | 
|December 29, 2003                     |  |                                       |             |   |             |   |          |             |  |   |             |  
|Net cash used in operating activities |  | $                                     | (11,749,938 | ) |             | $ | 362,252  |             |  | $ | (11,387,686 | )
|Net cash used in investing activities |  |                                       | (3,392,539  | ) |             |   | (362,252 | )           |  |   | (3,754,791  | )
|December 30, 2002                     |  |                                       |             |   |             |   |          |             |  |   |             |  
|Net cash used in operating activities |  | $                                     | (5,812,741  | ) |             | $ | 910,325  |             |  | $ | (4,902,416  | )
|Net cash used in investing activities |  |                                       | (27,464,204 | ) |             |   | (910,325 | )           |  |   | (28,374,529 | )



|   |                    
|-- | -------------------
|3. | Accounts Receivable



|                                     |  |             |          |   |      |   |           |  
|------------------------------------ |  | ----------- | -------- | - | ---- | - | --------- | -
|                                     |  | Fiscal Year |         
|                                     |  |             |         
|                                     |  | 2004        |          |   | 2003 |  
|                                     |  |             |          |   |      |  
|Accounts receivable, trade           |  | $           | 530,745  |   |      | $ | 605,103   |  
|Reimbursements due from landlords    |  |             |         |   |      |   | 189,715   |  
|Other                                |  |             | 234,836  |   |      |   | 206,683   |  
|                                     |  |             |          |   |      |  
|Total receivables                    |  |             | 765,581  |   |      |   | 1,001,501 |  
|Less allowance for doubtful accounts |  |             | (152,355 | ) |      |   | (393,056  | )
|                                     |  |             |          |   |      |  
|Accounts receivable, net             |  | $           | 613,226  |   |      | $ | 608,445   |  
|                                     |  |             |          |   |      |  



|   |                                          
|-- | -----------------------------------------
|4. | Prepaid Expenses and Other Current Assets

:


|                                          |  |             |           |  |      |  |           | 
|----------------------------------------- |  | ----------- | --------- |  | ---- |  | --------- | 
|                                          |  | Fiscal Year |          
|                                          |  |             |          
|                                          |  | 2004        |           |  | 2003 | 
|                                          |  |             |           |  |      | 
|Prepaid insurance                         |  |             | 2,102,120 |  |      |  | 1,337,240 | 
|Prepaid rent                              |  |             | 51,983    |  |      |  | 37,047    | 
|Other                                     |  |             | 160,995   |  |      |  | 61,761    | 
|                                          |  |             |           |  |      | 
|Prepaid expenses and other current assets |  |             | 2,315,098 |  |      |  | 1,436,048 | 
|                                          |  |             |           |  |      | 

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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)




|   |                                               
|-- | ----------------------------------------------
|5. | Property, Equipment and Leasehold Improvements



|                                                     |  |             |             |   |      |   |             |  
|---------------------------------------------------- |  | ----------- | ----------- | - | ---- | - | ----------- | -
|                                                     |  | Fiscal Year |            
|                                                     |  |             |            
|                                                     |  | 2004        |             |   | 2003 |  
|                                                     |  |             |             |   |      |  
|Leasehold improvements                               |  | $           | 36,694,608  |   |      | $ | 34,820,316  |  
|Furniture and fixtures                               |  |             | 8,856,755   |   |      |   | 9,139,599   |  
|Restaurant equipment                                 |  |             | 12,885,967  |   |      |   | 13,172,940  |  
|Computer and telephone equipment                     |  |             | 8,253,972   |   |      |   | 7,862,454   |  
|Construction in progress                             |  |             | 530,104     |   |      |   | 126,092     |  
|                                                     |  |             |             |   |      |  
|Total property, equipment and leasehold improvements |  |             | 67,221,406  |   |      |   | 65,121,401  |  
|Less accumulated depreciation and amortization       |  |             | (33,146,915 | ) |      |   | (30,103,124 | )
|                                                     |  |             |             |   |      |  
|Property and equipment, net                          |  | $           | 34,074,491  |   |      | $ | 35,018,277  |  
|                                                     |  |             |             |   |      |  





|   |                                                
|-- | -----------------------------------------------
|6. | Intangibles, Security Deposits and Other Assets

Goodwill and Other Intangible
Assets.




|                        |  |             |           |  |      |   |           | 
|----------------------- |  | ----------- | --------- |  | ---- | - | --------- | 
|                        |  | Fiscal Year |          
|                        |  |             |          
|                        |  | 2004        |           |  | 2003 |  
|                        |  |             |           |  |      |  
|Liquor licenses         |  | $           | 785,598   |  |      | $ | 749,918   | 
|Trademarks              |  |             | 195,000   |  |      |   | 195,865   | 
|Security deposits       |  |             | 1,191,398 |  |      |   | 958,731   | 
|Other                   |  |             | 21,705    |  |      |   | 39,431    | 
|                        |  |             |           |  |      |  
|Total other assets, net |  | $           | 2,193,701 |  |      | $ | 1,943,945 | 
|                        |  |             |           |  |      |  

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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)




|   |                 
|-- | ----------------
|7. | Accrued Expenses



|                                       |                        |             |           |           |      |   |           |           | 
|-------------------------------------- | ---------------------- | ----------- | --------- | --------- | ---- | - | --------- | --------- | 
|                                       |                        | Fiscal Year |          
|                                       |                        |             |          
|                                       |                        | 2004        |           |           | 2003 |  
|                                       |                        |             |           |           |      |  
|Payroll and related benefits and taxes |                        | $           | 2,304,144 |           |      | $ | 1,756,185 |          
|Taxes payable                          |                        |             | 762,305   |           |      |   | 816,184   |          
|Professional and legal                 |                        |             | 553,044   |           |      |   | 407,273   |          
|Rent                                   |                        |             | 417,418   |           |      |   | 562,242   |          
|Gift cards/certificates                |                        |             | 334,731   |           |      |   | 252,198   |          
|Severance                              |                        |             | 380,741   |           |      |   | 1,485,377 |          
|Insurance                              |                        |             | 2,216,698 |           |      |   | 397,682   |          
|Other                                  |                        |             | 2,708,463 |           |      |   | 1,481,221 |          
|                                       |                        |             |           |           |      |  
|                                       | Total accrued expenses |             | $         | 9,677,544 |      |   | $         | 7,158,362 | 
|                                       |                        |             |           |           |      |  



|   |               
|-- | --------------
|8. | Long-Term Debt













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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)






Senior Subordinated Debt




Senior Secured Debt






57



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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)




|                        |  |   |         |  
|----------------------- |  | - | ------- | -
|Fiscal Year             |  |  
|                        |  |  
|2005                    |  | $ | 74,904  |  
|2006                    |  |   | 65,874  |  
|2007                    |  |   | 43,092  |  
|2008                    |  |   | 33,338  |  
|2009                    |  |   | 35,889  |  
|2010 and thereafter     |  |   | 105,174 |  
|                        |  |   |        
|                        |  |   | 358,271 |  
|Less current maturities |  |   | (74,904 | )
|                        |  |   |        
|Long-term debt, net     |  | $ | 283,367 |  
|                        |  |   |        



|   |                          
|-- | -------------------------
|9. | Capital Lease Obligations





|    |             
|--- | ------------
|10. | Income Taxes



|                     |                                                          |                           |             |            |            |  |             |            |            | 
|-------------------- | -------------------------------------------------------- | ------------------------- | ----------- | ---------- | ---------- |  | ----------- | ---------- | ---------- | 
|                     |                                                          | Fiscal Year               |            
|                     |                                                          |                           |            
|                     |                                                          | 2004                      |             |            | 2003       | 
|                     |                                                          |                           |             |            |            | 
|Deferred tax assets: |                                                          |                           |             |            |            |  |             |           
|                     | Net operating loss carryforward                          |                           | $           | 47,673,687 |            |  | $           | 39,731,194 |           
|                     | Deferred compensation                                    |                           |             | 341,995    |            |  |             | 2,018,848  |           
|                     | Depreciation expense and impairment of long-lived assets |                           |             | 11,417,515 |            |  |             | 11,117,205 |           
|                     | Lease termination accrual                                |                           |             | 356,046    |            |  |             | 823,228    |           
|                     | Allowance for doubtful accounts                          |                           |             | 57,895     |            |  |             | 145,431    |           
|                     | Contractual lease increases                              |                           |             | 1,578,249  |            |  |             | 1,624,329  |           
|                     | Accrued expenses                                         |                           |             | 130,788    |            |  |             | 147,142    |           
|                     |                                                          |                           |             |            |            | 
|                     |                                                          | Total deferred tax assets |             |            | 61,556,175 |  |             |            | 55,607,377 | 
|Valuation allowance  |                                                          |                           | (61,556,175 | )          |            |  | (55,607,377 | )         
|                     |                                                          |                           |             |            |            | 
|                     |                                                          | Net deferred taxes        |             | $          |           |  |             | $          |           | 
|                     |                                                          |                           |             |            |            | 



58



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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)




|    |                     
|--- | --------------------
|11. | Stockholders Equity

Change in Authorized Number of Shares






Common Stock Purchase Rights










59



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##### Table of Contents



COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)




Stock Purchase Warrants




Restricted Stock




60



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##### Table of Contents



COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)






|    |                        
|--- | -----------------------
|12. | Initial Public Offering





|    |                
|--- | ---------------
|13. | Rights Offering





|    |                  
|--- | -----------------
|14. | Private Placement







|    |              
|--- | -------------
|15. | Stock Options





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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)




|                                |                    |           |           |            |                |   |             |                  |  |   |       |       | 
|------------------------------- | ------------------ | --------- | --------- | ---------- | -------------- | - | ----------- | ---------------- |  | - | ----- | ----- | 
|                                |                    | Number of |           |            | Range of       |   |             | Average Exercise | 
|                                |                    | Options   |           |            | Exercise Price |   |             | Price            | 
|                                |                    |           |           |            |                |   |             |                  | 
|Balance as of December 31, 2001 |                    |           | 3,265,605 |            |                | $ | 1.56-$18.81 |                  |  | $ | 10.59 |      
|                                | Granted            |           |           | 501,518    |                |   | $           | 6.00-$12.25      |  |   | $     | 10.40 | 
|                                | Exercised          |           |           | (32,142    | )              |   | $           | 10.94            |  |   | $     | 10.94 | 
|                                | Cancelled/ Expired |           |           | (328,649   | )              |   | $           | 6.11-$12.25      |  |   | $     | 12.09 | 
|                                |                    |           |           |            |                |   |             |                  | 
|Balance as of December 30, 2002 |                    |           | 3,406,332 |            |                | $ | 1.56-$18.81 |                  |  | $ | 10.41 |      
|                                | Granted            |           |           | 2,845,689  |                |   | $           | 1.36-$ 7.00      |  |   | $     | 2.13  | 
|                                | Cancelled/ Expired |           |           | (1,841,182 | )              |   | $           | 1.36-$12.25      |  |   | $     | 8.72  | 
|                                |                    |           |           |            |                |   |             |                  | 
|Balance as of December 29, 2003 |                    |           | 4,410,839 |            |                | $ | 1.36-$12.25 |                  |  | $ | 5.68  |      
|                                | Granted            |           |           | 1,514,291  |                |   | $           | 2.85-$ 6.53      |  |   | $     | 4.59  | 
|                                | Exercised          |           |           | (249,058   | )              |   | $           | 1.56-$ 5.30      |  |   | $     | 2.40  | 
|                                | Cancelled/ Expired |           |           | (419,122   | )              |   | $           | 1.63-$ 12.3      |  |   | $     | 8.90  | 
|                                |                    |           |           |            |                |   |             |                  | 
|Balance as of January 3, 2005   |                    |           | 5,256,950 |            |                | $ | 1.36-$12.25 |                  |  | $ | 5.26  |      
|                                |                    |           |           |            |                |   |             |                  | 

|                                         |  |         |           |          |                |   |      | 
|---------------------------------------- |  | ------- | --------- | -------- | -------------- | - | ---- | 
|                                         |  |         |           | Weighted |               
|                                         |  |         |           | Average  |               
|Total Exercisable at the End of the Year |  | Options |           |          | Exercise Price |  
|                                         |  |         |           |          |                |  
|As of January 3, 2005                    |  |         | 2,763,986 |          |                | $ | 6.35 | 
|                                         |  |         |           |          |                |  
|As of December 29, 2003                  |  |         | 1,853,950 |          |                | $ | 7.63 | 
|                                         |  |         |           |          |                |  
|As of December 30, 2002                  |  |         | 1,815,903 |          |                | $ | 9.28 | 
|                                         |  |         |           |          |                |  



|                         |  |                     |           |          |                     |  |          |          |  |   |             |          |  |          |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | -------- | ------------------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | --------- |  |  | - | ----- | 
|                         |  | Options Outstanding |           |          | Options Exercisable | 
|                         |  |                     |           |          |                     | 
|                         |  |                     |           | Weighted |                     |  |          |          | 
|                         |  |                     |           | Average  |                     |  | Weighted |          |  |   |             | Weighted | 
|                         |  | Number of           |           |          | Remaining           |  |          | Average  |  |   | Number of   |          |  | Average  |          
|                         |  | Options             |           |          | Contractual         |  |          | Exercise |  |   | Options     |          |  | Exercise |          
|Range of Exercise Prices |  | Outstanding         |           |          | Life in Years       |  |          | Price    |  |   | Exercisable |          |  | Price    |          
|                         |  |                     |           |          |                     |  |          |          |  |   |             |          |  |          |          
|$1.36 - $ 2.02           |  |                     | 1,168,854 |          |                     |  | 7.6      |          |  | $ | 1.76        |          |  |          | 633,794   |  |  | $ | 1.72  | 
|$2.09 - $ 2.99           |  |                     | 1,401,329 |          |                     |  | 6.3      |          |  |   | 2.40        |          |  |          | 699,541   |  |  |   | 2.33  | 
|$3.30 - $ 4.76           |  |                     | 558,668   |          |                     |  | 9.6      |          |  |   | 4.64        |          |  |          | 55        |  |  |   | 3.30  | 
|$5.08 - $ 7.00           |  |                     | 835,479   |          |                     |  | 8        |          |  |   | 5.56        |          |  |          | 279,809   |  |  |   | 5.54  | 
|$8.93 - $12.25           |  |                     | 1,292,620 |          |                     |  | 5.3      |          |  |   | 11.62       |          |  |          | 1,150,787 |  |  |   | 11.54 | 
|                         |  |                     |           |          |                     |  |          |          |  |   |             |          |  |          |          
|                         |  |                     | 5,256,950 |          |                     |  | 6.9      |          |  | $ | 5.26        |          |  |          | 2,763,986 |  |  | $ | 6.35  | 
|                         |  |                     |           |          |                     |  |          |          |  |   |             |          |  |          |          



|    |                          
|--- | -------------------------
|16. | Defined Contribution Plan



62



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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)




|    |                           
|--- | --------------------------
|17. | Related Party Transactions





|    |                              
|--- | -----------------------------
|18. | Commitments and Contingencies

Commitments




|           |  |   |            | 
|---------- |  | - | ---------- | 
|2005       |  | $ | 12,241,665 | 
|2006       |  |   | 12,092,349 | 
|2007       |  |   | 11,705,672 | 
|2008       |  |   | 10,674,854 | 
|2009       |  |   | 9,596,199  | 
|Thereafter |  | $ | 20,988,238 | 











63



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##### Table of Contents



COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)








Purchase Commitment








Self-Insurance




Litigation






|    |                                           
|--- | ------------------------------------------
|19. | Effect of the Events of September 11, 2001



64



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COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)






|    |                          
|--- | -------------------------
|20. | Employee Severance Charge





|    |                  
|--- | -----------------
|21. | Legal Proceedings



Sheel Mohnot v. Cosi, Inc.,
et al., In
re Cosi, Inc. Securities Litigation








65



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##### Table of Contents



COSI, INC.


Notes to Consolidated Financial
Statements  (Continued)








Supplemental Disclosure of Cash Flow Information




66



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##### Table of Contents






Consolidated Financial Statement Schedule


Schedule II  Valuation and Qualifying
Accounts and Reserves


For the Fiscal Years Ended January 3, 2005,
December 29, 2003 and December 30, 2001


|                                           |  |            |         |                        |            |   |          |            |  |            |          |      |  |   |         | 
|------------------------------------------ |  | ---------- | ------- | ---------------------- | ---------- | - | -------- | ---------- |  | ---------- | -------- | ---- |  | - | ------- | 
|                                           |  | Balance at |         |                        | Charged to |   |          |            |  | Balance at |         
|                                           |  | Beginning  |         |                        | Costs and  |   |          |            |  | End of     |         
|                                           |  | of Period  |         |                        | Expenses   |   |          | Deductions |  |            | Period   |     
|                                           |  |            |         |                        |            |   |          |            |  |            |          |     
|                                           |  |            |         | (Dollars in thousands) |            |   |         
|Fiscal 2002                                |  |            |         |                        |            |   |          |            |  |            |          |      |  |   |         | 
|Allowance for doubtful accounts receivable |  | $          | 219.8   |                        |            | $ | 27.0     |            |  | $          | (14.7    | )(a) |  | $ | 232.1   | 
|Lease termination reserve                  |  |            | 8,201.7 |                        |            |   | (1,165.0 | )          |  |            | (411.1   | )(b) |  |   | 6,625.6 | 
|                                           |  |            |         |                        |            |   |          |            |  |            |          |     
|Fiscal 2003                                |  |            |         |                        |            |   |          |            |  |            |          |      |  |   |         | 
|Allowance for doubtful accounts receivable |  | $          | 232.1   |                        |            | $ | 202.4    |            |  | $          | (41.4    | )(a) |  | $ | 393.1   | 
|Lease termination reserve                  |  |            | 6,625.6 |                        |            |   | (3,391.3 | )          |  |            | (1,009.4 | )(b) |  |   | 2,224.9 | 
|                                           |  |            |         |                        |            |   |          |            |  |            |          |     
|Fiscal 2004                                |  |            |         |                        |            |   |          |            |  |            |          |      |  |   |         | 
|Allowance for doubtful accounts receivable |  | $          | 393.1   |                        |            | $ | (39.2    | )          |  | $          | (201.5   | )(a) |  | $ | 152.4   | 
|Lease termination reserve                  |  |            | 2,224.9 |                        |            |   | (588.8   | )          |  |            | (699.1   | )(b) |  |   | 937.0   | 
|                                           |  |            |         |                        |            |   |          |            |  |            |          |     






|    |                                     
|--- | ------------------------------------
|(a) | Write-off of uncollectable accounts.



|    |  |                                                              
|--- |  | -------------------------------------------------------------
|(b) |  | Payments to landlords and others for leases on closed stores.

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EXHIBIT INDEX


|        |    |       |                        |                                                                                                                                                                                                                                                                                        
|------- | -- | ----- | ---------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |                       
|Number  |    |       | Description of Exhibit
|        |    |       |                       
|        | 2  | .1    |                        | Merger Agreement by and among Xando, Incorporated, Xando Merger
    Corp. and Cosi Sandwich Bar, Inc. dated as of October 4,
    1999 (Filed as Exhibit 2.1 to the Companys
    Registration Statement on Form S-1, file #333-86390).                                                 
|        | 3  | .1    |                        | Amended and Restated Certificate of Incorporation of Cosi, Inc.
    (Filed as Exhibit 3.1 to the Companys Annual Report
    on Form 10-K for the period ended December 30, 2002).                                                                                                     
|       
|        | 3  | .2    |                        | Amended and Restated By-Laws of Cosi, Inc. (Filed as
    Exhibit 3.2 to the Companys Annual Report on
    Form 10-K for the period ended December 30, 2002).                                                                                                                          
|       
|        | 4  | .1    |                        | Form of Certificate of Common Stock (Filed as Exhibit 4.1
    to the Companys Registration Statement on Form S-1,
    file #333-86390).                                                                                                                                               
|       
|        | 4  | .2    |                        | Rights Agreement between Cosi, Inc. and American Stock Transfer
    and Trust Company as Rights Agent dated November 21, 2002
    (Filed as Exhibit 4.2 to the Companys Annual Report
    on Form 10-K for the period ended December 30, 2002).                                       
|       
|        | 4  | .3    |                        | Amended and Restated Registration Agreement, dated as of
    March 30, 1999 (Filed as Exhibit 4.3 to the
    Companys Registration Statement on Form S-1,
    file #333-86390).                                                                                                       
|       
|        | 4  | .4    |                        | Supplemental Registration Rights Agreement, dated as of
    August 5, 2003 by and among the Company and the parties
    thereto (Filed as Exhibit 4.4.2 to the Companys
    Registration Statement on Form S-1, file #333-107689).                                                    
|       
|        | 4  | .5    |                        | Amendment No. 1 to Rights Agreement dated as of
    November 21, 2002, between Cosi, Inc. and American Stock
    Transfer and Trust Company, as rights agent (Filed as
    Exhibit 4.3 to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended March 31, 2003).
|       
|        | 4  | .6    |                        | Investment Agreement, dated as of August 5, 2003, among the
    Company, Eric J. Gleacher, Charles G. Phillips, LJCB Nominees
    Pty Ltd, and ZAM Holdings, L.P. (Filed as Exhibit 4.9 to
    the Companys Registration Statement on Form S-1/ A,
    file #333-107689).             
|       
|        | 4  | .7    |                        | Letter Agreement, dated as of August 5, 2003, among the
    Company, Eric J. Gleacher, Charles G. Phillips, LJCB Nominees
    Pty Ltd, and ZAM Holdings, L.P. (Filed as Exhibit 4.10 to
    the Companys Registration Statement on Form S-1/ A,
    file #333-107689).                
|       
|        | 10 | .1    |                        | Amended and Restated Cosi Stock Incentive Plan (Filed as
    Exhibit E to the Companys Proxy Statement on
    Schedule 14A filed on November 3, 2003, file
    #000-50052).                                                                                                           
|       
|        | 10 | .2    |                        | Cosi Employee Stock Purchase Plan. (Filed as Exhibit 10.2
    to the Companys Registration Statement on Form S-1,
    file #333-86390)                                                                                                                                                
|       
|        | 10 | .3    |                        | Cosi Non-Employee Director Stock Incentive Plan. (Filed as
    Exhibit 10.3 to the Companys Registration Statement
    on Form S-1, file #333-86390)                                                                                                                                  
|       
|        | 10 | .4    |                        | Cosi Sandwich Bar, Inc. Incentive Stock Option Plan. (Filed as
    Exhibit 10.4 to the Companys Registration Statement
    on Form S-1, file #333-86390)                                                                                                                              
|       
|        | 10 | .5.1  |                        | Employment Agreement between Cosi, Inc. and Kevin Armstrong
    dated as of July 3, 2003. (Filed as Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the
    fiscal quarter ended September 29, 2003).                                                              
|       
|        | 10 | .5.2  |                        | Employment Agreement between Cosi, Inc. and Mark Stickney, dated
    as of August 18, 2003. (Filed as Exhibit 10.2 to the
    Companys Quarterly Report on Form 10-Q for the fiscal
    quarter ended September 29, 2003).                                                            
|       
|        | 10 | .5.3  |                        | Employment Agreement between Cosi, Inc. and Jonathan M.
    Wainwright, Jr., dated as of August 20, 2003. (Filed
    as Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended September 29,
    2003).                                          
|       
|        | 10 | .5.4  |                        | Employment Agreement between Cosi, Inc. and William D. Forrest,
    dated June 26, 2003 (Filed as Exhibit 10.4.3 to the
    Companys Registration Statement on Form S-1/ A,
    file #333-107689).                                                                                    
|       
|        | 10 | .5.50 |                        | Settlement Agreement between Cosi, Inc. and Andy Stenzler,
    effective January 31, 2003 (Filed as Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the
    fiscal quarter ended March 31, 2003).                                                                  

68



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##### Table of Contents



|        |    |       |                        |                                                                                                                                                                                                                                                                                                      
|------- | -- | ----- | ---------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |       |                       
|Number  |    |       | Description of Exhibit
|        |    |       |                       
|       
|        | 10 | .5.6  |                        | Separation and Release Agreement between Cosi, Inc. and Nicholas
    Marsh, effective April 30, 2003. (Filed as
    Exhibit 10.4 to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended September 29,
    2003).                                                            
|       
|        | 10 | .5.7  |                        | Separation Agreement between Cosi, Inc. and Kenneth S. Betuker,
    dated as of September 17, 2003. (Filed as Exhibit 10.5
    to the Companys Quarterly Report on Form 10-Q for the
    fiscal quarter ended September 29, 2003).                                                                  
|       
|        | 10 | .5.8  |                        | Employment Agreement between Cosi, Inc. and Cynthia Jamison,
    dated as of July 7, 2004. (Filed as Exhibit 10.2 to
    the Companys Quarterly Report on Form 10-Q for the
    fiscal quarter ended June 28, 2004).                                                                                
|       
|        | 10 | .5.9  |                        | Addendum to the employment agreement between Cosi, Inc. and
    William D. Forrest, dated February 9, 2004. (Filed as
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended March 29, 2004).                                                              
|       
|        | 10 | .5.10 |                        | Separation and Release Agreement between Cosi, Inc. and Jonathan
    M. Wainwright, Jr., dated January 3, 2005. (Filed as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K, dated January 6, 2005).                                                                                  
|       
|        | 10 | .6.1  |                        | Amended and Restated Distributor Service Agreement between Cosi
    and Maines Paper & Food Service, Inc., dated as of
    June 18, 2002.(1). (Filed as Exhibit 10.6 to the
    Companys Registration Statement on Form S-1,
    file #333-86390)                                                   
|       
|        | 10 | .6.2  |                        | Second Amendment to Amended and Restated Distributor Service
    Agreement between Cosi, Inc. and Maines Paper & Food
    Service, Inc. (Filed as Exhibit 10.1 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2003).                                          
|       
|        | 10 | .7.1  |                        | Form of Senior Secured Note and Warrant Purchase Agreement.
    (Filed as Exhibit 10.7 to the Companys Registration
    on Form S-1, file #333-86390)                                                                                                                                               
|       
|        | 10 | .7.2  |                        | Securities Purchase Agreement dated as of April 27, 2004
    (Filed as Exhibit 10.1 to the Companys Current Report
    on Form 8-K, dated April 28, 2004).                                                                                                                                          
|       
|        | 16 |       |                        | Letter from Ernst & Young LLP to the Securities and
    Exchange Commission, dated as of August 13, 2004,
    acknowledging its agreement with the statements made in Current
    Report on Form 8-K (Filed as Exhibit 16 to the
    Companys Current Report on Form 8-K, dated
    August 13, 2004.
|       
|        | 21 | .1    |                        | Subsidiaries of Cosi, Inc. (Filed as Exhibit 21.1 to the
    Companys Registration Statement on Form S-1,
    file #333-86390)                                                                                                                                                                      
|       
|        | 23 | .1    |                        | Consent of Registered Public Accounting Firm                                                                                                                                                                                                                                                         
|       
|        | 23 | .2    |                        | Consent of Registered Public Accounting Firm                                                                                                                                                                                                                                                         
|       
|        | 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 Executive 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.                                                                                                                                                                                          






|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Portions of Exhibit 10.6 have been omitted and filed
    separately with the Securities and Exchange Commission pursuant
    to a request for confidential treatment.

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##### Table of Contents



SIGNATURES






| |           
| | ----------
| | COSI, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ CYNTHIA JAMISON

| |                                                 
| | ------------------------------------------------
| |                                                 
| | Cynthia Jamison                                 
| | Chief Financial Officer, Secretary and Treasurer
| | (Principal Financial Officer and                
| | Principal Accounting Officer)                   





|                                               |  |                                                                                                                        |  |                |  | 
|---------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Signature                                      |  | Title                                                                                                                  |  | Date          
|                                               |  |                                                                                                                        |  |               
|                                              
|/s/ WILLIAM D. FORRESTWilliam
    D. Forrest   |  | Chairman of the Board                                                                                                  |  | March 16, 2005
|                                              
|/s/ KEVIN ARMSTRONGKevin
    Armstrong         |  | Chief Executive Officer, President
    and Director(Principal Executive Officer)                                       |  | March 16, 2005
|                                              
|/s/ CYNTHIA JAMISONCynthia
    Jamison         |  | Chief Financial Officer, Secretary
    and Treasurer(Principal Financial Officer and Principal Accounting
    Officer) |  | March 16, 2005
|                                              
|/s/ ELI COHENEli
    Cohen                     |  | Director                                                                                                               |  | March 16, 2005
|                                              
|/s/ CREED L.
    FORD IIICreed
    L. Ford III |  | Director                                                                                                               |  | March 16, 2005
|                                              
|/s/ TERRY DIAMONDTerry
    Diamond             |  | Director                                                                                                               |  | March 16, 2005
|                                              
|/s/ EDNA MORRISEdna
    Morris                 |  | Director                                                                                                               |  | March 16, 2005
|                                              
|/s/ MARK DEMILIOMark
    Demilio               |  | Director                                                                                                               |  | March 16, 2005
|                                              
|/s/ GARY STOCKGary
    Stock                   |  | Director                                                                                                               |  | March 16, 2005

70