As filed with the Securities and Exchange Commission on August 6, 2003
Registration No. ______

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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COSI, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 5812 06-1393745
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)

242 West 36th Street
New York, New York 10018
(212) 653-1600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)

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

Kevin Armstrong
Chief Executive Officer
242 West 36th Street
New York, New York 10018
(212) 693-1600
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent for Service)

Copies to:

Dennis J. Block, Esq.
William P. Mills, III, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
(212) 504-6000
(212) 504-6666 (FAX)

Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

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

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

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

If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, check the following box. [ ]

CALCULATION OF REGISTRATION FEE

================================================ ================ ============== ==============
Proposed
Maximum
Aggregate
Offering Amount of
Title of Each Class of Securities to Be Amount to Be Price Registration
Registered and Sold Registered (2) Fee
- ------------------------------------------------ ---------------- -------------- --------------

Common Stock, par value $0.01 per share (1) 19,140,892 $9,570,737 $774.27

Rights to Purchase Common Stock 19,140,892 --- (3)
================================================ ================ ============== ==============

(1) Includes associated rights to purchase a fraction of a share of Series D
Preferred Stock and shares that will be offered pursuant to subscription
rights. No separate consideration will be received for the rights.

(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) of the Securities Act of 1933.

(3) Pursuant to Rule 457(g) under the Securities Act of 1933, no separate
registration fee is required for the rights since they are being registered
in the same registration statement as the common stock underlying the
rights.

The Registrant hereby amends this Registration Statement on a date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on a date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.

EXPLANATORY NOTE:

THE RIGHTS OFFERING CONTEMPLATED BY THIS REGISTRATION STATEMENT IS SUBJECT
TO THE PRIOR APPROVAL OF (I) THE CONVERSION FEATURE OF CERTAIN SENIOR SECURED
PROMISSORY NOTES, (II) AN INVESTMENT AGREEMENT AMONG COSI AND CERTAIN OF ITS
STOCKHOLDERS AND (III) THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
RIGHTS OFFERING, BY THE HOLDERS OF THE REGISTRANT'S COMMON STOCK. A PROXY
STATEMENT HAS BEEN PREPARED AND FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION TO SOLICIT PROXIES FROM THE HOLDERS OF THE REGISTRANT'S COMMON STOCK
FOR USE AT AN ANNUAL MEETING OF STOCKHOLDERS OF THE REGISTRANT TO CONSIDER AND
VOTE UPON THE MATTERS DESCRIBED THEREIN.

THIS REGISTRATION STATEMENT HAS BEEN PREPARED ASSUMING THAT THE HOLDERS OF
COMMON STOCK OF THE REGISTRANT APPROVE THE CONVERSION FEATURE OF THE SENIOR
SECURED PROMISSORY NOTES, THE INVESTMENT AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE RIGHTS OFFERING. ACCORDINGLY, IF THE
CONVERSION FEATURE OF THE SENIOR SECURED PROMISSORY NOTES AND THE INVESTMENT
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE RIGHTS
OFFERING, ARE NOT APPROVED BY THE HOLDERS OF THE REGISTRANT'S COMMON STOCK, THE
RIGHTS OFFERING WILL NOT BE COMMENCED AND THIS REGISTRATION STATEMENT WILL BE
WITHDRAWN.

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell or a solicitation of an offer to buy nor shall there be any sale of
these securities in any state in which the offer or sale is not permitted.

PROSPECTUS

SUBJECT TO COMPLETION, DATED AUGUST 6, 2003

COSI, INC.

Up to 19,140,892 Shares
Common Stock
At a Maximum Aggregate Offering Price of
$9,570,737
Issuable Upon the Exercise of Subscription Rights

We are distributing to our stockholders non-transferable subscription
rights to purchase shares of our common stock, par value $0.01 per share. You
will receive one subscription right for each share of common stock that you
owned as of the record date, which is , 2003. We will not distribute or
pay fractional shares or cash in lieu thereof.

Each subscription right entitles you to purchase a number of shares of
common stock with a value equal to an aggregate of $0.6776, at a purchase price
per share equal to the lesser of (i) $1.50 and (ii) 85% of the weighted average
price per share of our common stock as reported on the Nasdaq National Market
for the 15-trading-day period ending three business days prior to , 2003.

If you exercise all of your subscription rights and our stockholders
subscribe for an aggregate of less than $7.5 million pursuant to the basic
subscription privilege, you also will have an over-subscription right to
subscribe, at the subscription price, to purchase additional shares of common
stock that are not otherwise purchased by other stockholders in this offering,
up to an aggregate offering of $7.5 million. If there are not enough shares
available to satisfy fully all subscriptions for additional shares, we will
allocate the available shares of common stock on a pro rata basis among holders
exercising their over-subscription rights.

We have entered into an investment agreement (the "Investment Agreement")
with Eric J. Gleacher, one of our stockholders and formerly one of our
directors, Charles G. Phillips, one of our stockholders, LJCB Nominees Pty Ltd
("LJCB"), one of our largest stockholders, and ZAM Holdings, L.P. ("ZAM
Holdings"), our largest stockholder (collectively the "Funding Parties").
Pursuant to the Investment Agreement, subject to certain conditions, the Funding
Parties have agreed to provide funding to the Company following consummation of
this rights offering in an aggregate amount up to $8.5 million reduced by the
amount outstanding under a $3 million senior secured promissory note (the $3
Million Note") and a $969,240.50 senior secured promissory note and a
$378,802.00 senior secured promissory note issued by us, and a $151,957.50
senior secured promissory note that we will issue (collectively, the "$1.5
Million Note"). At the option of the Funding Parties, the Funding Parties may
fund such greater amount permitted by the Investment Agreement to allow the
Funding Parties to maintain certain relative ownership levels. If our
stockholders (other than the Funding Parties) subscribe for at least $2.0
million worth of shares in this rights offering, the Funding Parties would,
subject to certain conditions, provide this funding in the form of an investment
in our common stock at the subscription price and the Funding Parties who hold
the senior secured promissory notes would convert the notes into shares of our
common stock. If our stockholders (other than the Funding Parties) do not
subscribe for at least $2.0 million worth of shares in this rights offering, we
will not consummate this offering and the Funding Parties will provide, subject
to certain conditions, this funding to the Company in the form of, at their
option, a purchase of shares of our common stock at the subscription price or
the purchase of a senior secured note which is convertible into shares of our
common stock. The Funding Parties have agreed not to exercise their basic
subscription privilege or over-subscription privilege in this rights offering.
The $8.5 million in funding described above is allocated as follows: (a) Mr.
Gleacher, $2,000,000; (b) Mr. Phillips, $750,000; (c) LJCB, $750,000 and (d) ZAM
Holdings, $5,000,000.

The shares are being offered directly by us without the services of an
underwriter or selling agent. A total of up to 19,140,892 shares of common stock
will be offered in the rights offering, for a maximum aggregate offering price
of $9,570,737; however, we will not consummate the rights offering if our
stockholders (other than the Funding Parties) do not subscribe for at least $2.0
million worth of shares in this rights offering pursuant to the basic
subscription privilege and over-subscription privilege. All of the shares of
common stock offered in this offering are being issued by us. The proceeds from
the sale of the shares of common stock will be immediately available to us for
the purposes set forth in this prospectus.

The rights will expire at 5:00 p.m., Eastern Daylight time, on ,
2003, unless extended at our sole discretion. You are encouraged to consider
carefully the exercise of the rights prior to their expiration. Your election to
exercise rights is irrevocable. We expect to make delivery of the common stock
as soon as practicable after you validly exercise the corresponding rights.

Our common stock is traded on the Nasdaq National Market under the symbol
"COSI." On August 1, 2003, the last reported sale price for our common stock was
$2.32 per share.

If you fully subscribe for your basic subscription amount and our
stockholders subscribe for an aggregate of more than $7.5 million pursuant to
their basic subscription amount, your percentage ownership of our equity will be
reduced. If you fully subscribe for your basic subscription amount and our
stockholders subscribe for an aggregate of less than $7.5 million but more than
$2 million, your percentage ownership of our equity will not be reduced,
however, your ownership percentage relative to certain of the Funding Parties
will be reduced.

Our current stockholders who do not participate in the rights offering
will suffer a substantial dilution in their relative percentage ownership in us
upon issuance of our common stock to holders exercising rights in the rights
offering and to the Funding Parties.

Investing in our common stock involves risk. Whether or not you intend to
invest in our common stock you should read "Risk Factors" beginning on page 9.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

The date of this prospectus is , 2003.

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING................................i
FORWARD-LOOKING STATEMENTS.....................................................1
PROSPECTUS SUMMARY.............................................................2
OUR COMPANY....................................................................2
THE OFFERING...................................................................3
SUMMARY FINANCIAL DATA.........................................................7
RISK FACTORS...................................................................9
USE OF PROCEEDS...............................................................17
PRICE RANGE OF COMMON STOCK...................................................17
DIVIDEND POLICY...............................................................17
CAPITALIZATION................................................................18
SELECTED FINANCIAL DATA.......................................................20
THE RIGHTS OFFERING...........................................................37
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.........................44
PLAN OF DISTRIBUTION..........................................................47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...............................................................23
BUSINESS......................................................................48
MANAGEMENT....................................................................55
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................65
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................67
DESCRIPTION OF CAPITAL STOCK..................................................70
SHARES ELIGIBLE FOR FUTURE SALE...............................................75
LEGAL MATTERS.................................................................76
EXPERTS.......................................................................76
WHERE YOU CAN FIND MORE INFORMATION...........................................76

CONSOLIDATED FINANCIAL STATEMENTS INDEX AND FINANCIAL STATEMENTS.............F-1

QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING

What is a rights offering?

A rights offering is a distribution to holders of our common stock, at no
charge, of non-transferable rights to purchase shares of our common stock at the
rate of one right for each share of our common stock owned as of , 2003, the
record date.

Why is Cosi engaging in a rights offering?

The rights offering is being made in connection with an Investment
Agreement among the Company and the Funding Parties to raise approximately $14
million. We want to give you the opportunity to participate in this fund raising
effort and to purchase additional shares of our common stock.

What is a subscription right?

Each subscription right enables you to purchase a number of shares of our
common stock with a value equal to an aggregate of $0.6776 at the subscription
price (which is discussed below). You will not receive any fractional shares or
cash in lieu thereof.

Your exercise of a right means that you agree to purchase from us $0.6776
worth of shares of our common stock. The actual number of shares you receive for
the exercise of each right will equal $0.6776 divided by the subscription price.
You may exercise any number of your rights, or you may choose not to exercise
any rights. Each right carries with it a basic subscription privilege and an
over-subscription privilege.

For example, if you own 1,000 shares of our common stock, your basic
subscription privilege will entitle you to purchase up to $677.60 worth of our
shares in this rights offering. If you choose to fully subscribe for your basic
subscription privilege, and the subscription price equals $1.50 per share, we
will deliver to you 451 shares, and we will return to you $1.10.

What is the basic subscription privilege?

The basic subscription privilege of each right entitles you to purchase a
number of shares of our common stock with a value equal to an aggregate of
$0.6776, at the subscription price.

What is the over-subscription privilege?

If you fully exercise your basic subscription privilege and our
stockholders subscribe for an aggregate of less than $7.5 million pursuant to
their basic subscription privilege, you also will have an over-subscription
right to subscribe, at the subscription price, to purchase additional shares of
common stock that are not otherwise purchased by other stockholders in this
offering, up to an aggregate offering of $7.5 million. By extending an
over-subscription privilege we are providing stockholders that exercise all of
their basic subscription privileges with the opportunity, subject to limitations
as described herein, to purchase those shares that are not purchased by other
stockholders through the exercise of their basic subscription privilege.

What is the subscription price?

The subscription price is the lesser of (i) $1.50 per share and (ii) 85%
of the weighted average price per share of our common stock as reported on the
Nasdaq National Market for the 15-trading-day period ending three business days
prior to , 2003. However, we will not consummate the rights offering if
we would be required to issue more than 19,140,892 shares.

How did we determine the subscription price?

How soon must I act?

You will be able to exercise your rights only during a limited period. If
you do not exercise your rights before 5:00 p.m., Eastern Daylight time, on
, 2003, your rights will automatically expire. In order to participate
in the offering, you must ensure that American Stock Transfer & Trust Company,
the subscription agent, actually receives all required documents and payments
from you before such date and time.

What if the stockholders do not exercise their basic and over-subscription
privileges in full?

We have entered into an investment agreement (the "Investment Agreement")
with Eric J. Gleacher, one of our stockholders and formerly one of our
directors, Charles G. Phillips, one of our stockholders, LJCB Nominees Pty Ltd
("LJCB"), one of our largest stockholders, and ZAM Holdings, L.P. ("ZAM
Holdings"), our largest stockholder (collectively the "Funding Parties").
Pursuant to the Investment Agreement, subject to certain conditions, the Funding
Parties have agreed to provide funding to the Company in an aggregate amount up
to $8.5 million reduced by the amount outstanding under a $3 million senior
secured promissory note (the "$3 Million Note") and a $969,240.50 senior secured
promissory note and a $378,802.00 senior secured promissory note we have issued
and a $151,957.50 senior secured promissory note we willl issue (collectively,
the "$1.5 Million Note"). At the option of the Funding Parties, the Funding
Parties may fund such greater amount permitted by the Investment Agreement to
allow the Funding Parties to maintain certain relative ownership levels. If our
stockholders (other than the Funding Parties) subscribe for at least $2.0
million worth of shares in this rights offering, the Funding Parties would,
subject to certain conditions, provide this funding in the form of an investment
in our common stock at the subscription price and the Funding Parties who hold
the senior secured promissory notes would convert the notes into shares of our
common stock. If our stockholders (other than the Funding Parties) do not
subscribe for at least $2.0 million worth of shares in this rights offering, we
will not consummate this offering and the Funding Parties will, subject to
certain conditions, provide this funding to the Company in the form of, at their
option, a purchase of shares of our common stock at the subscription price or
the purchase of a senior secured note which is convertible into shares of our
common stock. The Funding Parties have agreed not to exercise their basic
subscription privilege or over-subscription privilege in this rights offering.
The $8.5 million in funding described above is allocated as follows: (a) Mr.
Gleacher, $2,000,000; (b) Mr. Phillips, $750,000; (c) LJCB, $750,000 and (d) ZAM
Holdings, $5,000,000.

We will not consummate the rights offering unless our stockholders
subscribe for a minimum of $2.0 million pursuant to the basic subscription
privilege and the over-subscription privilege.

How many shares will be outstanding after the rights offering?

Assuming (i) a subscription price of $1.50, (ii) conversion of the $3
Million Note and the $1.5 Million Note at a conversion price of $1.50, and (iii)
our stockholders subscribe for the maximum amount in this rights offering,
27,090,594 shares of our common stock will be outstanding immediately after the
rights offering, based on the number of shares outstanding as of June 30, 2003.
If the subscription price is less than $1.50 we would be required to issue
additional shares. We will not consummate the rights offering if we would be
required to issue more than 19,140,892 shares.

How will the proceeds be used?

We intend to use the net proceeds from the rights offering for general
corporate purposes, including, but not limited to, funding our operating losses,
funding costs associated with the development, and incorporation into our growth
strategy, of a franchising and area developer model, and funding costs
associated with closing under-performing restaurants.

Has the board of directors made a recommendation regarding this offering?

No. Our board of directors makes no recommendation to you about whether
you should exercise your rights.

May I transfer my subscription rights?

No. The subscription rights are non-transferable.

To whom may I direct questions or send forms and payment?

If you have questions about the rights or would like to request additional
copies of offering documents, you may call American Stock Transfer & Trust
Company at .

You should return your subscription documents and payments to American
Stock Transfer & Trust Company at the address indicated in the instructions
forwarded with this prospectus.

Am I required to exercise my basic subscription rights? How are stockholders
affected if they do not exercise any rights?

You are not required to exercise any rights or otherwise take any action
in response to this rights offering. If you do not exercise all of your rights,
and this offering is consummated or the Funding Parties otherwise purchase
shares of our common stock pursuant to the Investment Agreement, the number of
shares that you own will not change, but your percentage ownership of our total
outstanding common stock will decline.

If our stockholders, other than the Funding Parties, do not subscribe for
a minimum number of shares with an aggregate value of $2 million, we will not
consummate the rights offering and the Funding Parties will not be required to
convert the outstanding principal amount of the $3 Million Note and the $1.5
Million Note into shares of our common stock. Furthermore, if the Funding
Parties, pursuant to the Investment Agreement, elect to provide funding in the
form of a senior secured convertible note, such note, along with the $3 Million
Note and the $1.5 Million Note, will be secured by all of our tangible and
intangible property (other than equipment pledged to secure our equipment loan
credit facility). Therefore, our stockholders' equity interest in Cosi will be
effectively subordinate to the senior secured position of the Funding Parties.

What forms and payment are required to purchase common stock?

If you were a record holder of our common stock on , 2003, you are
receiving with this prospectus a subscription warrant and instructions on how to
purchase shares. The subscription warrant must be properly filled out and
delivered before expiration of the rights with full payment for the aggregate
dollar amount for which you wish to subscribe.

iii

What if a broker, bank or other nominee is the record holder of my shares of
common stock?

If you hold your shares through a broker, bank or other nominee and you
wish to purchase shares in the rights offering, please promptly contact the
broker, bank or other entity holding your shares. Your broker or other nominee
holder is the record holder of the shares you own and must either exercise the
subscription warrant on your behalf for shares you wish to purchase or arrange
for a subscription warrant issued in your name. We have requested all known
brokers and banks to contact you for instructions on exercising your rights.

What should I do if I want to participate in the rights offering and I am a
stockholder in a foreign country or in the armed services?

The subscription agent will mail rights certificates to you if you are a
rights holder whose address is outside the United States or if you have an Army
Post Office or a Fleet Post Office address. To exercise your rights, you must
notify the subscription agent on or prior to 5:00 p.m., Eastern Daylight time,
on 2003, and take all other steps which are necessary to exercise your
rights, on or prior to that time. If you do not follow these procedures prior to
the expiration of the rights offering, your rights will expire.

Must I pay the subscription price in cash?

In order to participate in the rights offering, you must timely pay the
subscription price by wire transfer, certified or cashier's check drawn on a
U.S. bank or personal check that clears before expiration of the rights.

Will my money be returned if the rights offering is cancelled?

Yes, but without any payment of interest.

Is exercising the subscription rights risky?

Yes. The exercise of your rights involves risks. Exercising your rights
means buying additional shares of our common stock and should be considered as
carefully as you would consider any other equity investment. Whether or not you
intend to invest in our common stock, you should carefully consider, among other
things, the risks described under the heading "Risk Factors," beginning on page
9.

What fees or charges apply if I do choose to exercise my rights?

We are not charging any fee or sales commission to issue rights to you or
to issue shares to you if you exercise rights. If you exercise rights through a
broker or other holder of your shares, you are responsible for paying any fees
that person may charge.

May I change or cancel my exercise of rights after I send in the required forms?

No. Your election to exercise your rights is irrevocable.

What are the federal income tax consequences of exercising my subscription
rights as a holder of common stock?

A holder of common stock will not recognize income or loss for federal
income tax purposes in connection with the receipt or exercise of subscription
rights in the rights offering. However, you should consult with your own tax
advisor concerning the tax consequences applicable in light of your particular
circumstances. See "Certain United States Federal Income Tax Consequences" on
page 27.

Will the new shares be initially listed on Nasdaq and treated like other shares?

Yes. Our common stock is traded on the Nasdaq National Market under the
symbol "COSI." On August 4, 2003, the last trading day prior to the filing of
this registration statement relating to this rights offering, the closing price
of our common stock on Nasdaq was $2.23 per share. On, 2003, the last trading
day before the date of this prospectus, the closing price of our common stock on
Nasdaq was $ per share.

FORWARD-LOOKING STATEMENTS

This prospectus contains statements about future events and expectations that
constitute forward-looking statements. Forward-looking statements are based on
management's beliefs, assumptions and expectations of our future economic
performance, taking into account the information currently available to
management. These statements are not statements of historical fact.
Forward-looking statements involve risks and uncertainties that may cause our
actual results, performance or financial condition to differ materially from the
expectations of future results, performance or financial condition we express or
imply in any forward-looking statements. Factors that could contribute to these
differences include, but are not limited to:

o the cost of our principal food o market saturation due to new
products; restaurant openings;

o fluctuations in our quarterly o our ability to effectively manage
results; our business with a reduced
general and administrative staff;
o labor shortages or increased
labor costs; o our ability to incorporate a
franchising and area developer
o the rate of our internal growth, model into our strategy;
and our ability to generate
increased revenue from existing o inadequate protection of our
restaurants; intellectual property;

o changes in consumer preferences o adverse weather conditions which
and demographic trends; impact customer traffic at our
restaurants; and
o increased government regulation;
o the availability and cost of
o increasing competition in the additional financing, both to
fast casual dining segment of the fund our existing operations and
restaurant industry; to grow and open new restaurants;

o supply and delivery shortages or o adverse economic conditions;
interruptions;
o our ability to generate positive
o expansion into new markets; cash flow from operations.

The words "believe," "may," "will," "should," "anticipate," "estimate,"
"expect," "intend," "objective," "seek," "strive" or similar words, or the
negatives of these words, identify forward-looking statements. We qualify any
forward-looking statements entirely by these cautionary factors. We undertake no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.

PROSPECTUS SUMMARY

This summary does not contain all the information that you should consider
before deciding whether to invest in our common stock. Whether or not you intend
to invest in our common stock, you should read the entire prospectus carefully,
including the section entitled "Risk Factors" and our consolidated financial
statements and the accompanying notes included elsewhere in this prospectus. In
this prospectus, the terms "we," "us," "our," "the Company," and "Cosi" refer to
Cosi, Inc.

OUR COMPANY

General

We own and operate 94 fast casual restaurants in eleven states and the
District of Columbia. Cosi restaurants are all-day cafes that feature signature
bread and coffee products in an environment we adjust appropriately throughout
the day. The majority of our restaurants offer breakfast, lunch, afternoon
coffee, dinner and dessert menus.

We operate our restaurants in two formats: Cosi and Cosi Downtown. Cosi
Downtown restaurants, which are located in non-residential central business
districts, close for the day in the early evening, while Cosi restaurants offer
dinner and dessert in a casual dining atmosphere. The atmosphere of Cosi is
appropriately managed for each daypart by changing the music and lighting
throughout the day. Our restaurants are located in a wide range of markets and
trade areas, including business districts and residential communities in both
urban and suburban locations.

Cosi was created through the October 1999 merger of two restaurant
concepts, Cosi Sandwich Bar, Inc. and Xando, Incorporated. Each company served a
similar customer, but focused on different parts of the day. Since the merger,
we have added Cosi Sandwich Bar products to the Xando Coffee and Bar multiple
daypart platform.

Our principal executive offices are located at 242 West 36th Street, New
York, New York 10018, and our telephone number is (212) 653-1600. Our web site
address is http://www.getcosi.com. Information on our web site is not a part of
this prospectus.

Concept and Business Strategy

Our objective is to build a nationwide system of distinctive restaurants
that generate attractive unit economics by appealing to a broad range of
customers. In 2003, we announced our intention to incorporate a franchising and
area developer model into our business strategy. We expect that Company owned
restaurants will always be an important part of our new restaurant growth, and
we believe that incorporating a franchising and area developer model into our
strategy will position us to maximize the market potential for the Cosi brand
and concept consistent with our available capital and thus maximize shareholder
value.

Our strategy is to offer a differentiated menu featuring our signature
bread and coffee products in a comfortable, warm and inclusive atmosphere. We
believe that our menu offering of proprietary products distinguishes us from our
competition. Our menu items do not require extensive preparation on site. Our
restaurants are located in a wide range of markets and trade areas, which
include business districts and residential communities in both urban and
suburban locations. Additionally, a wide range of our products is available
outside of the four walls of our restaurants through our catering services.

THE OFFERING

The Rights................... We will issue to each holder of Cosi common stock,
at no cost, one non-transferable right to purchase
our common stock for each share of common stock
owned by that holder on the record date, which is
, 2003. We will not issue fractional
shares, but will round down any fractional shares
to the next whole number.

Basic Subscription Privilege. You are entitled to purchase, at the subscription
price, a number shares of common stock with a
value equal to the product of 0.6776 multiplied by
the total number of rights you hold.

Over-Subscription Privilege.. If you fully exercise your basic subscription
privilege and our stockholders subscribe for an
aggregate of less than $7.5 million pursuant to
their basic subscription privilege, you also will
have an over-subscription right to subscribe, at
the subscription price, to purchase additional
shares of common stock that are not otherwise
purchased by other stockholders in this offering,
up to an aggregate offering of $7.5 million.

Subscription Price........... The subscription price is the lesser of (i) $1.50
per share and (ii) 85% of the weighted average
price per share of our common stock as reported on
the Nasdaq National Market for the 15-trading-day
period ending three business days prior to
, 2003. However, we will not consummate
the rights offering if we would be required to
issue more than 19,140,892 shares.

Maximum Offering............. We expect to sell shares of our common stock with
a maximum aggregate offering price of $9,570,737.
However, we will not consummate the rights
offering unless our stockholders (other than the
Funding Parties) subscribe for a minimum of $2.0
million pursuant to the basic subscription
privilege and the over-subscription privilege. In
the event that we do not consummate the rights
offering we will promptly return any amount you
delivered to us as payment of the subscription
price.

Proration of
Over-Subscription Rights... The maximum number of shares for which you will be
able to subscribe pursuant to your
over-subscription privilege will equal your pro
rata share of the total amount of shares available
for over-subscription. The total value of shares
available for over-subscription will equal $7.5
million reduced by the total value of shares
subscribed for pursuant to all stockholders' basic
subscription privileges. Your pro rata share will
be based upon the total number of shares of our
common stock and warrants to purchase shares of
our common stock you own compared to the total
number of shares of our common stock and warrants
to purchase shares of our common stock owned by
all stockholders who exercised their
over-subscription privilege and the Funding
Parties. If there is an insufficient number of
shares of our common stock remaining unsold after
holders have exercised their basic subscription
rights to satisfy in full all subscriptions that
we receive for additional shares, we will allocate
the available shares among the holders who execute
their over-subscription privilege on a pro rata
basis according to their respective holdings, up
to the amount such holder has subscribed for
through the exercise of such holder's
over-subscription privilege.

Shares of Common Stock
Outstanding After
the Rights Offering........ As of June 30, 2003, we had 17,710,103 shares of
common stock outstanding. This does not include
5,237,829 shares that may be issued upon exercise
of outstanding options and warrants. Assuming a
subscription price of $1.50, an aggregate of up to
approximately 6,380,500 shares of common stock may
be issued pursuant to the basic subscription
privilege. If the subscription price is less than
$1.50 we would be required to issue additional
shares. If the rights offering is fully subscribed
pursuant to the basic subscription privilege,
assuming a subscription price and a conversion
price of $1.50, a total of up to 27,090,594 shares
of common stock will be outstanding after
consummation of the offering, based on the number
of shares outstanding on June 30, 2003. We will
not consummate the rights offering if we would be
required to issue more than 19,140,892 shares.

Record Date.................. , 2003.

Expiration Time.............. 5:00 p.m., Eastern Daylight time, , 2003,
unless otherwise extended by us to a later date.

Transferability of Rights.... Subscription rights are only being issued to
holders of our common stock on the record date and
are not transferable.

Procedure for Exercising
Rights..................... You may exercise your basic subscription privilege
and your over-subscription privilege by properly
completing the subscription warrant and forwarding
it to the subscription agent with payment of the
subscription price. The subscription agent must
actually receive the subscription warrant and
payment at or prior to the expiration time. If you
send subscription warrants by mail, you are urged
to use insured, registered mail.

You will be deemed to have exercised the basic
subscription privilege to purchase shares to the
full extent of the payment you tender. If the
aggregate subscription price you pay exceeds the
amount necessary to purchase the number of shares
you are entitled to purchase pursuant to your
basic subscription privilege, then you will be
deemed to have exercised the over-subscription
privilege to the full extent of the excess payment
tendered.

Once you have exercised your basic subscription
privilege or, if eligible, your over-subscription
privilege, you may not revoke your exercise.

Any rights you have not exercised prior to the
expiration time will expire.

Persons Holding Common
Stock or Wishing to
Exercise Rights
Through Others............. If you hold shares of common stock and are
receiving the rights through a broker, dealer
commercial bank, trust company or other nominee,
or if you hold certificates for common stock but
would prefer to have institutions effect
transactions relating to the rights on your
behalf, you should contact the appropriate
institution or nominee and request it to effect
those transactions for you. You will need to have
your broker, bank or other nominee act for you. To
indicate your decision, you should complete and
return to your broker, bank or other

nominee the form entitled "Beneficial Owner
Election Form," together with full payment of the
subscription price for each share subscribed for
under your subscription rights (including shares
subscribed for through the exercise of your
over-subscription right). You should receive this
form from your broker, bank or other nominee with
the other rights offering materials.

Issuance of Common Stock..... Certificates representing shares of common stock
you have purchased pursuant to the basic
subscription privilege will be delivered to you as
soon as practicable after the expiration date. If
you purchase shares pursuant to the
over-subscription privilege, delivery of
certificates will occur as soon as practicable
after we make all prorations and adjustments
contemplated by the terms of the rights offering.

Certain Federal Income
Tax Consequences........... You will not recognize taxable income upon the
receipt of the rights for United States federal
income tax purposes. Your basis in the rights with
respect to your common stock will be zero, unless
either:

(i) the fair market value of the rights on the
date of issuance is 15% or more of the fair market
value of the common stock with respect to which
they are received, or

(ii) you elect, on your federal income tax return
for the taxable year in which the rights are
received, to allocate part of the basis of the
stock to the rights.

In either case, upon exercise of the rights, your
basis in that common stock will be allocated
between the common stock and the rights in
proportion to their relative fair market values.

You will not recognize any gain or loss upon the
exercise of rights for common stock. Your basis in
the common stock acquired through exercise of the
rights will be equal to the sum of the exercise
price to acquire our stock and your basis in the
rights. If you allow the rights to expire
unexercised, you will not recognize any loss, and
the basis of your common stock will not be
reduced.

Subscription Agent........... The subscription agent is American Stock Transfer
& Trust Company. The subscription agent's
telephone number is .

Funding Commitment........... We have entered into an Investment Agreement with
Eric J. Gleacher, Charles G. Phillips, LJCB and
ZAM Holdings, L.P., collectively, the "Funding
Parties". Pursuant to the Investment Agreement,
subject to certain conditions, the Funding Parties
have agreed to provide funding to the Company in
an aggregate amount up to $8.5 million reduced by
the amount outstanding under the $3 Million Note
and the $1.5 Million Note. At the option of the
Funding Parties, the Funding Parties may fund such
greater amount permitted by the Investment
Agreement to allow the Funding Parties to maintain
certain relative ownership levels. If our
stockholders (other than the Funding Parties)
subscribe for at least $2.0 million worth of
shares in this rights offering, the Funding
Parties would, subject to certain conditions,
provide this funding in the form of an investment
in our common stock at the subscription price and
the Funding Parties who hold the senior secured
promissory notes would convert the notes into
shares of our common stock. If our stockholders
(other than the Funding Parties) do not subscribe
for at

least $2.0 million worth of shares in this rights
offering, we will not consummate this offering and
the Funding Parties will, subject to certain
conditions, provide this funding to the Company in
the form, at their option, a purchase of shares of
our common stock at the subscription price or the
purchase of a senior secured note which is
convertible into shares of our common stock. In
addition, the Funding Parties will not be required
to convert the outstanding principal amount of the
$3 Million Note and the $1.5 Million Note into
shares of our common stock. Furthermore, if the
Funding Parties, pursuant to the Investment
Agreement, elect to provide funding in the form of
a senior secured convertible note, such note,
along with the $3 Million Note and the $1.5
Million Note, will be secured by all of our
tangible and intangible property (other than
equipment pledged to secure our equipment loan
credit facility). Therefore, our stockholders'
equity interest in Cosi will be effectively
subordinate to the senior secured position of the
Funding Parties. The Funding Parties have agreed
not to exercise their basic subscription privilege
or over-subscription privilege in this rights
offering. The $8.5 million in funding is allocated
as follows: (a) Mr. Gleacher, $2,000,000; (b) Mr.
Phillips, $750,000; (c) LJCB, $750,000 and (d) ZAM
Holdings, $5,000,000.

See "The Rights Offering" for a description of
the Investment Agreement.

Use of Proceeds.............. Assuming full exercise of the basic subscription
privilege and a subscription price of $1.50 per
share, the net cash proceeds from the sale of the
shares of our common stock offered in this
offering will be $9 million. We expect that the
proceeds from the sale of the shares of common
stock will be used for general corporate purposes.

Risk Factors................. Investing in our common stock involves a number of
risks, which are described under "Risk Factors" in
this prospectus.

No Underwriter; No Board
Recommendation............. The subscription price for our common stock
has been determined through negotiations between
the Funding Parties and by a Special Committee of
our board of directors comprised solely of
disinterested directors. The offering is not the
subject of any underwriting agreement with any
investment bank. Accordingly, an investment in our
common stock must be made based on your evaluation
of your best interests. Neither our board of
directors nor any financial advisor makes any
recommendation to you regarding your decision
whether to exercise your subscription rights.

Nasdaq National Market Symbol
for Common Stock........... COSI.

SUMMARY FINANCIAL DATA

The following table shows our summary historical financial data as, at and
for the periods indicated. You should read this Summary Financial Data together
with "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our consolidated financial statements and
accompanying notes and the other financial data included elsewhere in this
prospectus. Our fiscal year ends on the Monday closest to December 31. Fiscal
years 2000, 2001 and 2002 ended on January 1, 2001, December 31, 2001, and
December 30, 2002, respectively. Fiscal years 2000, 2001 and 2002 each contained
52 weeks.

Fiscal Year Three Months Ended
---------------------------------------- --------------------------
April 1, March 31,
2000 2001 2002 2002 2003
------------ ------------ ------------ ------------ ------------
(Audited) (Unaudited)
---------------------------------------- --------------------------
Statement of Operations Data: (in thousands, except per share data)

Net sales .......................... $ 51,222.8 $ 70,184.1 $ 84,424.2 $ 18,052.1 $ 25,654.4
Costs and expenses:
Cost of goods sold .............. 13,844.0 18,791.7 22,697.5 4,853.4 7,316.5
Restaurant operating
expenses ...................... 32,172.9 45,114.5 50,852.7 11,127.0 16,801.2
------------ ------------ ------------ ------------ ------------
Total costs of sales ............ 46,016.9 63,906.2 73,550.2 15,980.4 24,117.7
------------ ------------ ------------ ------------ ------------
General and administrative
expenses ...................... 14,774.2 18,361.5 17,811.7 4,620.3 7,925.2
Depreciation and
amortization .................. 6,158.1 6,690.0 5,851.2 1,210.3 1,958.6
Restaurant pre-opening
expenses ...................... 1,409.5 1,438.8 1,845.1 111.4 349.1
Provision for losses on
asset impairments and
disposals ..................... 5,847.5 8,486.3 1,056.5 -- 2,568.0
Lease termination costs ......... 477.3 6,410.7 (1,165.0) -- 257.1
------------ ------------ ------------ ------------ ------------

Operating income (loss) ............ (23,460.7) (35,109.4) (14,525.5) (3,870.3) (11,521.3)
------------ ------------ ------------ ------------ ------------
Other income (expense):

Interest income .................... 441.4 340.5 98.3 29.9 25.2

Interest expense ................... (210.7) (527.5) (1,192.6) (301.4) (47.0)
Amortization of Deferred
Financing Costs ................. -- (126.9) (549.0) (86.4) (25.0)
Loss on Extinguishment of debt ..... -- -- (5,083.2) -- --
Other income (expense) ............. -- -- 380.9 -- --
------------ ------------ ------------ ------------ ------------
Total other income (expense), net .. 230.7 (313.9) (6,345.6) (357.9) (46.8)
------------ ------------ ------------ ------------ ------------
Net income (loss) .................. (23,230.0) (35,423.3) (20,871.1) (4,228.2) (11,568.1)
Preferred stock dividends ......... (4,219.7) (6,678.1) (8,193.6) (1,960.5) --
------------ ------------ ------------ ------------ ------------
Net income (loss) attributable
to common stockholders .......... $ (27,449.7) $ (42,101.4) $ (29,064.7) $ (6,188.7) $ (11,568.1)
============ ============ ============ ============ ============
Net income (loss) per common
share:

Basic and diluted .................. $ (6.09) $ (9.34) $ (5.04) $ (1.37) $ (0.70)
============ ============ ============ ============ ============
Shares used in computing net
income (loss) per common
share (in thousands) Basic
and diluted ..................... 4,504 4,507 5,763 4,528 16,574
============ ============ ============ ============ ============
Cash flow from operating activities $ (8,539.1) $ (12,382.2) $ (5,812.7) $ (5,285.5) $ (6,118.4)
Cash flow from investing activities (18,347.7) (20,267.9) (27,464.2) (2,744.2) (3,063.2)
Cash flow from financing activities 24,964.0 32,056.8 41,839.7 16,128.1 (239.8)

Selected Operating Data:
Restaurants open at end of
period .......................... 52 67 91 66 94

As of March 31, 2003
-----------------------------------------------
Actual Pro Forma (a) As Adjusted (b)
------------- --------------- -----------------
(Unaudited)
Selected Balance Sheet Data: (In thousands)

Cash and cash equivalents................ $3,610.9 $8,110.9 $17,181.6
Total assets............................. 55,758.7 60,258.7 69,329.4
Total debt and capital lease 1,408.8 5,908.8 1,408.8
obligations...........................
Total common stockholders' equity........ 27,802.0 27,802.0 41,372.7

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

(a) Reflects borrowings under the $3 Million Note and the $1.5 Million Note.

(b) Reflects this offering and conversion of the $3 Million Note and the $1.5
Million Note.

RISK FACTORS

You should carefully consider the following risks, as well as the other
information contained in this prospectus, before deciding whether to invest in
shares of our common stock. If any of the following risks actually occur, our
business could be harmed. In that case, the trading price of our common stock
could decline and you might lose all or part of your investment. You should
refer to the information set forth in this prospectus and our financial
statements and the related notes included elsewhere in this prospectus.

Risks Particular to Cosi

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

o our ability to generate positive cash flow from operations;

o identification and availability of suitable restaurant sites;

o competition for restaurant sites and customers;

o negotiation of favorable leases;

o identification of under-performing restaurants and our ability to
efficiently close under-performing restaurants, including securing
favorable lease termination terms;

o management of construction and development costs of new restaurants;

o securing required governmental approvals and permits;

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

o recruitment and retention of qualified operating personnel;

o successful operating execution in new markets;

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

o competition in new and existing markets;

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

o the cost of our principal food products and supply and delivery
shortages or interruptions; and

o general economic conditions.

In addition, we contemplate entering new markets in which we have no
operating experience. These new markets may have different demographic
characteristics, competitive conditions, consumer tastes and discretionary
spending patterns than our existing markets, which may cause our new restaurants
to be less successful in these new markets than in our existing markets.

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

The first Xando Coffee and Bar was opened in October 1994 and the first
Cosi Sandwich Bar was opened in February 1996. As of July 23, 2003, we are
operating 94 restaurants, 24 of which have been open for less than one year.
Accordingly, you have limited information with which to evaluate our business
and prospects. As a result, forecasts of our future revenues, expenses and
operating results may not be as accurate as they would be if we had a longer
history of operations and of combined operations. Since we were formed, we have
incurred net losses of approximately $124 million through the end of fiscal
2002, and million through the second fiscal quarter of 2003, primarily due
to the costs of hiring and employing senior management, funding operating
losses, new restaurant opening expenses, impairment charges, the cost of our
merger in 1999, and restructuring our senior management team. We intend to
continue to expend significant financial and management resources on the
development of additional restaurants, both company owned and franchised
restaurants. We cannot predict whether we will be able to achieve or sustain
revenue growth, profitability or positive cash flow in the future. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the financial statements included in this prospectus for
information on the history of our losses.

We may not generate sufficient cash flow to meet our needs.

We plan to fund the operations, maintenance and growth of our restaurants
primarily through this offering (including the senior secured notes) and
internally generated cash flow produced by our existing restaurants. If cash
flows from our existing restaurants or cash flow from new restaurants that we
open do not meet our expectations or are otherwise insufficient to satisfy our
cash needs or expansion plans, we may have to seek alternative financing from
external sources to continue funding our operations and growth, close
underperforming restaurants or alter or cease our plans to open or franchise new
restaurants. We cannot predict whether such financing will be available on terms
acceptable to us, or at all.

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

The development of our business may require significant additional capital
in the future to, among other things, fund our operations, increase the number
of company-owned or franchised restaurants, expand the range of services we
offer and finance future acquisitions and investments. There is no assurance
that financing will be available on terms favorable to us, or at all. Our
ability to obtain additional financing will be subject to a number of factors,
including market conditions, our operating performance and investor sentiment.
These factors may make the timing, amount, terms and conditions of additional
financings unattractive to us. If we are unable to raise additional capital, our
growth could be impeded.

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

We plan to incorporate a franchising and area developer model in to our
business strategy in certain selected markets. We have not used a franchising or
area developer model in the past and may not be successful in identifying
franchisees and developers that have the business abilities or access to
financial resources necessary to open our restaurants or to successfully develop
or operate our restaurants in a manner consistent with our standards.
Incorporating a franchising and area developer model into our strategy will also
require us to devote significant management and financial resources to support
the franchise of our restaurants. If we are not successful in incorporating a
franchising or area developer model into our strategy, we may experience delays
in our growth, or may not be able to expand and grow our business.

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

Failure to manage our growth effectively could harm our business. We have
grown significantly since our inception and intend to grow substantially in the
future both through a franchising strategy and opening new Company owned
restaurants. We have increased the number of our restaurants from 36 restaurants
as of December 31, 1999 to 94 restaurants as of June 30, 2003. Our existing
restaurant management systems, financial and management controls and information
systems may not be adequate to support our planned expansion. Our ability to
manage our growth effectively will require us to continue to enhance these
systems, procedures and controls and to locate, hire, train and retain operating
personnel. We cannot assure you that we will be able to respond on a

timely basis to all of the changing demands that our planned expansion will
impose on management and on our existing infrastructure. If we are unable to
manage our growth effectively, our business and operating results could be
materially adversely impacted.

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.

We currently operate 55 restaurants in Northeastern and Mid-Atlantic
states, of which 26 are located in the New York City area, 16 of which are
located in New York Central Business Districts. As a result, we are particularly
susceptible to adverse trends and economic conditions in these areas. In
addition, given our geographic concentration, negative publicity regarding any
of our restaurants could have a material adverse effect on our business and
operations, as could other regional occurrences impacting the local economies in
these markets.

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.

A number of factors have historically affected, and will continue to
affect, our average unit sales, including, among other factors:

o introduction of new menu items;

o unusually strong initial sales performance by some new restaurants;

o competition;

o general regional and national economic conditions;

o weather conditions;

o consumer trends; and

o our ability to execute our business strategy effectively.

It is not reasonable to expect our average unit volumes to increase at
rates achieved over the past several years. Furthermore, the under-performance
of units we opened in the latter part of 2002 and in 2003 will reduce our
average unit volumes. Changes in our average sales results could cause the price
of our common stock to fluctuate substantially.

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.

In accordance with our expansion strategy, we intend to open new
restaurants primarily in our existing markets. Since we typically draw customers
from a relatively small radius around each of our restaurants, the sales
performance and customer counts for restaurants near the area in which a new
restaurant opens may decline due to cannibalization, which could result in
restaurant closures.

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

Our business is subject to seasonal and weather influences on consumer
spending and dining out patterns. Inclement weather may result in reduced
frequency of dining at our restaurants. Customer counts (and consequently
revenues) are generally highest in spring and summer months and lowest during
the winter months because of the high proportion of our restaurants located in
the Northeast where inclement weather affects customer visits.

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 business is subject to significant seasonal fluctuations. Revenues in
our restaurants have historically been higher in the summer months of each year
and lower during the winter months. As a result, our quarterly and yearly
results have varied in the past, and we believe that our quarterly operating
results will vary in the future. Other factors such as inclement weather and
unanticipated increases in labor, commodity, energy, insurance or other
operating costs may cause our quarterly results to fluctuate. For this reason,
you should not rely upon our quarterly operating results as indications of
future performance.

Our operations depend on governmental licenses and we may face liability
under "dram shop" statutes.

We are subject to extensive federal, state and local government
regulations, including regulations relating to alcoholic beverage control, the
preparation and sale of food, public health and safety, sanitation, building,
zoning and fire codes. Our business depends on obtaining and maintaining
required food service and/or liquor licenses for each of our restaurants. If we
fail to hold all necessary licenses, we may be forced to delay or cancel new
restaurant openings and close or reduce operations at existing locations. In
addition, our sale of alcoholic beverages subjects us to "dram shop" statutes in
some states. These statutes allow an injured person to recover damages from an
establishment that served alcoholic beverages to an intoxicated person. Although
we take significant precautions to ensure that all employees are trained in the
responsible service of alcohol and maintain insurance policies in accordance
with all state regulations regarding the sale of alcoholic beverages, the misuse
of alcoholic beverages by customers may create considerable risks for us. If we
are the subject of a judgment substantially in excess of our insurance coverage,
or if we fail to maintain our insurance coverage, our business, financial
condition, operating results or cash flows could be materially and adversely
affected. See "Business--Government Regulation" for a discussion of the
regulations with which we must comply.

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 own certain common law trademark rights and a number of federal and
international trademark and service mark registrations, and proprietary rights
to certain of our core menu offerings. We believe that our trademarks and other
proprietary rights are important to our success and our competitive position.
We, therefore, devote appropriate resources to the protection of our trademarks
and proprietary rights. The protective actions that we take, however, may not be
enough to prevent unauthorized usage or imitation by others, which might cause
us to incur significant litigation costs and could harm our image or our brand
or competitive position.

We also cannot assure you that third parties will not claim that our
trademarks or offerings infringe the proprietary rights of third parties. Any
such claim, whether or not it has merit, could be time-consuming, result in
costly litigation, cause product delays or require us to enter into royalty or
licensing agreements. As a result, any such claim could have a material adverse
effect on our business, results of operations and financial condition.

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

A certain portion of our assets, such as leasehold improvements and
equipment, is relatively illiquid. These assets cannot be converted into cash
quickly and easily. We may be compelled to dispose of these illiquid assets on
unfavorable terms, which could have an adverse effect on our business.

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

We and some of our directors and executive officers have been named as
defendants in numerous private securities class action lawsuits. On February 5,
2003, a purported shareholder class action complaint was filed in the United
States District Court for the Southern District of New York (the "Court"),
alleging that the Company and various of its officers and directors and the
underwriter of the Company's IPO violated Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933, as amended, by misstating, and by failing to disclose,
certain financial and other business information (Sheel Mohnot v. Cosi, Inc., et
al., No. 03 CV 812). At least eight additional class action

complaints with substantially similar allegations were later filed. These
actions have been consolidated in In re Cosi, Inc. Securities Litigation
(collectively, the "Securities Act Litigation"). On July 7, 2003, lead
plaintiffs filed a Consolidated Amended Complaint, alleging on behalf of a
purported class of purchasers of the Company's stock allegedly traceable to its
November 22, 2002 IPO, that at the time of the IPO, the Company's offering
materials failed to disclose that the funds raised through the IPO would be
insufficient to implement the Company's expansion plan; that it was improbable
that the Company would be able to open 53 to 59 new restaurants in 2003; that at
the time of the IPO, the Company had negative working capital and therefore did
not have available working capital to repay certain debts; and that the
principal purpose for going forward with the IPO was to repay certain existing
shareholders and members of the Board of Directors for certain debts and to
operate the Company's existing restaurants.

The plaintiffs in the Securities Act Litigation generally seek to recover
recessionary damages, expert fees, attorneys' fees, costs of Court and pre- and
post-judgment interest. The underwriter is seeking indemnification from the
Company for any damages assessed against it in the Securities Act Litigation.
The Securities Act Litigation is at a preliminary stage, and the Company
believes that it has meritorious defenses to these claims, and intends to
vigorously defend against them.

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

We may be exposed to potential liability under the securities laws as a
result of having more than 500 optionholders.

We have sought to create a culture in which each employee has a shared
sense of ownership in our business. Part of this effort was the establishment of
an extensive employee option plan, in which each employee, including
hourly-level employees, is given the opportunity to participate. As our company
has grown, we have issued stock options to an increasing number of our
employees. When the number of our optionholders exceeded 500, we inadvertently
failed to register our options pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended, as required by Securities and Exchange
Commission regulations. Our failure to so register our options may expose us to
potential liability under the securities laws. However, we believe that any such
liability would not be material to our financial condition or results of
operations.

Risks Relating to the Food Service Industry

Our business is affected by changes in consumer preferences.

Our success depends, in part, upon the popularity of our food products and
our ability to develop new menu items that appeal to consumers. Shifts in
consumer preferences away from our restaurants or cuisine, our inability to
develop new menu items that appeal to consumers or changes in our menu that
eliminate items popular with some consumers could harm our business.

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 to a significant extent on discretionary consumer
spending, which is influenced by general economic conditions and the
availability of discretionary income. Accordingly, we may experience declines in
sales during economic downturns or during periods of uncertainty like that which
followed the September 11, 2001 terrorist attacks on the United States and the
possibility of further terrorist attacks. In addition, economic uncertainty due
to military action overseas, such as the war in Iraq and post-war military,
diplomatic or financial responses, may lead to further declines in sales. Any
material decline in the amount of discretionary spending could have a material
adverse effect on our sales, results of operations, business and financial
condition.

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

The restaurant industry is intensely competitive and we compete with many
well-established food service companies on the basis of taste, quality and price
of product offered, customer service, atmosphere, location and overall guest
experience. We compete with other sandwich retailers, specialty coffee
retailers, bagel shops, fast-food restaurants, delicatessens, cafes, bars,
take-out food service companies, supermarkets and convenience stores. Our
competitors change with each of the five dayparts (breakfast, lunch, afternoon
coffee, dinner and dessert), ranging from coffee bars and bakery cafes to casual
dining chains. Aggressive pricing by our competitors or the entrance of new
competitors into our markets could reduce our sales and profit margins.

Many of our competitors or potential competitors have substantially
greater financial and other resources than we do, which may allow them to react
to changes in pricing, marketing and the quick service restaurant industry
better than we can. As competitors expand their operations, we expect
competition to intensify. We also compete with other employers in our markets
for hourly workers and may be subject to higher labor costs.

Fluctuations in coffee prices could adversely affect our operating
results.

The price of coffee, one of our main products, can be highly volatile.
Although most coffee trades on the commodity markets, coffee of the quality we
seek tends to trade on a negotiated basis at a substantial premium above
commodity coffee pricing, depending on supply and demand at the time of the
purchase. Supplies and prices of green coffee can be affected by a variety of
factors, such as weather, politics and economics in the producing countries. Two
organizations, the Association of Coffee Producing Countries and the
International Coffee Organization, have sought with mixed success to coordinate
production and pricing of coffee among certain countries and to maintain pricing
quotas among coffee producers. An increase in pricing of specialty coffees could
have a significant adverse effect on our profitability. To mitigate the risks of
increasing coffee prices and to allow greater predictability in coffee pricing,
we typically enter into fixed price purchase commitments for a portion of our
green coffee requirements. We cannot assure you that these activities will be
successful or that they will not result in our paying substantially more for our
coffee supply than we would have been required to pay absent such activities.

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

Our profitability depends in part on our ability to anticipate and react
to changes in food and supply costs. We rely on a single primary distributor of
our food and paper goods. Although we believe that alternative distribution
sources are available, any increase in distribution prices or failure by our
distributor to perform could adversely affect our operating results. In
addition, we are susceptible to increases in food costs as a result of factors
beyond our control, such as weather conditions and government regulations.
Failure to anticipate and adjust our purchasing practices to these changes could
negatively impact our business.

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.

Food service businesses can be adversely affected by litigation and
complaints from customers or government authorities resulting from food quality,
illness, injury or other health concerns or operating issues stemming from one
restaurant or a limited number of restaurants. Adverse publicity about these
allegations may negatively affect us, regardless of whether the allegations are
true, by discouraging customers from buying our products. We could also incur
significant liabilities if a lawsuit or claim results in a decision against us
or litigation costs, regardless of the result.

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

Labor is a primary component in the cost of operating our business. We
devote significant resources to recruiting and training our managers and
employees. Increased labor costs, due to competition, increased minimum wage or
employee benefits costs or otherwise, would adversely impact our operating
expenses. In addition, our success depends on our ability to attract, motivate
and retain qualified employees, including restaurant managers and staff, to keep
pace with our needs. If we are unable to do so, our results of operations may be
adversely affected.

Risks Relating to the Offering

If our stockholders (other than the Funding Parties) do not subscribe for
$2 million in the Rights Offering, we may issue senior indebtedness.

If our stockholders (other than the Funding Parties) do not subscribe for
a minimum of $2 million pursuant to the basic subscription privilege and the
over-subscription privilege we will not consummate the rights offering and the
Funding Parties may elect, pursuant to the Investment Agreement, to provide
funding in the form of a senior secured note convertible into shares of our
common stock. Additionally, the Funding Parties will not be required to convert
the outstanding amount of the $3 Million Note and the $1.5 Million Note into
shares of our common stock. Such notes may remain outstanding and be payable
upon maturity in December 2004, which could have an adverse effect on our near
term working capital. In this event, the Company may need to secure additional
financing upon the maturity of the $3 Million Note and the $1.5 Million Note.
There can be no assurance that we will be able to obtain such financing on
favorable terms or at all. Furthermore, if the Funding Parties elect to provide
funding in the form of a purchase of a senior secured convertible note, such
note, along with the $3 Million Note and the $1.5 Million Note, will be secured
by all of the Company's tangible and intangible property (other than equipment
pledged to secure the Company's equipment loan credit facility). Therefore, the
Company's stockholders equity interest in the Company will be effectively
subordinate to the senior secured position of the Funding Parties.

Your percentage interest in our common stock could be reduced, even if you
fully subscribe for your basic subscription privilege.

Additionally, if you fully subscribe for your basic subscription
privilege, your percentage ownership of Cosi may be reduced if other
stockholders exercise their over-subscription privilege and you do not.

Once you exercise your subscription rights, you may not revoke the
exercise even if you no longer desire to invest in us.

Once you exercise your subscription rights, you may not revoke the
exercise. Therefore, even if circumstances arise after you have subscribed in
the offering that eliminate your interest in investing in our common stock, you
will be required to purchase the common stock for which you subscribed. The
public trading market price of our common stock may decline after the
subscription price has been determined. In such event, you may be committed to
purchase shares of common stock above the prevailing market price.

The subscription price was determined through negotiations between the
Funding Parties and a special committee of our board of directors comprised of
disinterested directors and represents a discount to the market price of our
common stock on the date the subscription price was determined. The subscription
price bears no direct relationship to the value of our assets, financial
condition or other established criteria for value. Our common stock may trade at
prices above or below the subscription price.

You may not be able to exercise your subscription rights if you do not act
promptly and follow the subscription instructions carefully.

If you wish to purchase shares in this offering, you must act promptly to
ensure that all required forms and payments are actually received by the
subscription agent prior to the expiration date. If you fail to properly
complete and sign the required subscription forms, send an insufficient payment
amount or otherwise fail to follow the subscription procedures that apply to
your intended purchase, the subscription agent may, at its discretion, reject

your subscription or accept it to the full extent of payment received. Neither
the subscription agent nor Cosi has any obligation to contact you concerning, or
to attempt to correct, an incomplete or incorrect subscription form.

Our Stock Price is Volatile, and You May Not Be Able to Resell Your Shares
At or Above the Price You Pay for Them.

The market price of our common stock has experienced, and may continue to
experience, substantial volatility. Between November 2002 and July 2003, the
closing price of our common stock has ranged from a low of $0.95 to a high of
$10.93 per share. The market price of our common stock may continue to fluctuate
significantly in response to a variety of factors, including quarterly
fluctuations in results of operations, and changes in or failure to meet
earnings estimates by securities analysts. The market price of our common stock
may also fluctuate significantly in response to factors over which we have no
control and that may not be directly related to us. The stock market has from
time to time experienced extreme price and volume fluctuations, which have often
been unrelated or disproportionate to the operating performance of particular
companies. Such fluctuations could have a material adverse effect on the market
price of our common stock, regardless of our financial condition or operating
results.

Fluctuations or decreases in the market price of our common stock may
adversely affect your ability to trade your shares. In addition, these
fluctuations could adversely affect our ability to raise capital through future
equity financings.

You may have to wait to resell the shares you purchase in the rights
offering.

Until certificates are delivered, you may not be able to sell the shares
of common stock that you have purchased in the rights offering. This means that
you may have to wait until you (or your broker or other nominee) have received a
stock certificate. We will endeavor to prepare and issue the appropriate
certificates as soon as practicable after the expiration of the offering. We
cannot assure you, however, that the market price of the common stock purchased
pursuant to the exercise of rights will not decline below the subscription price
you paid before we are able to deliver your certificates. For shares purchased
pursuant to the over-subscription privilege, delivery of certificates will occur
as soon as practicable after all prorations and adjustments contemplated by the
terms of the offering have been effected.

USE OF PROCEEDS

Assuming all of our stockholders, other than the Funding Parties, fully
subscribe for their basic subscription amount, and assuming a subscription price
of $1.50, we will receive approximately $9 million in proceeds, after payment of
offering expenses, from the sale of the shares of our common stock in the rights
offering. We intend to use the net proceeds from the rights offering for general
corporate purposes, including, but not limited to, funding our operating losses,
funding costs associated with the development, and incorporation into our growth
strategy, of a franchising and area developer model, and funding costs
associated with closing under-performing restaurants.

Although we do not contemplate any changes in our use of proceeds, we may
use some proceeds for other purposes in the event the specified uses require
less or more capital than expected.

Pending application of the net proceeds as described above, we will invest
the net proceeds in interest-bearing investment grade securities.

PRICE RANGE OF COMMON STOCK

Our common stock is listed on the Nasdaq National Market under the symbol
"COSI." The following table summarizes the high and low sales prices for our
common stock as reported by the Nasdaq National Market for the periods indicated
through August 1, 2003.

2003 2002
---------------------- ----------------------
High Low High Low
---------- ---------- ---------- ----------
First Quarter............... $6.08 $1.66 --- ---
Second Quarter.............. $2.22 $0.95 --- ---
Third Quarter............... $3.33(1) $1.30(1) --- ---
Fourth Quarter.............. --- --- $10.93(2) $5.47(2)

(1) Through August 4, 2003.

(2) Beginning November 22, 2002, the date of our initial public offering.

On August 4, 2003, the last reported sale price of our common stock on the
Nasdaq National Market was $2.23 per share. As of August 4, 2003, there were
approximately 228 holders of record (including holders who are nominees for an
undetermined number of beneficial owners) of our common stock.

DIVIDEND POLICY

We have not paid cash dividends in the past and do not anticipate paying
cash dividends in the foreseeable future. Any future determination regarding
cash dividend payments will be made by our board of directors and will depend
upon our earnings, capital requirements, financial condition, restrictions in
financing agreements and other factors deemed relevant by the board of
directors.

CAPITALIZATION

The following table shows, as of March 31, 2003, on a consolidated basis,
our cash and cash equivalents, short-term debt and capitalization, both actual
and as adjusted. The as adjusted amounts give effect to the sale of common stock
in the rights offering (assuming that all shares are subscribed for pursuant to
the basic subscription privilege, that the subscription price is $1.50 per share
and assuming conversion of each of the $3 Million Note and the $1.5 Million Note
at a conversion price equal to $1.50 per share).

You should read the following capitalization data in conjunction with "Use
of Proceeds," "Selected Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the consolidated financial
statements and accompanying notes and the other financial data included
elsewhere in this prospectus.

March 31, 2003
------------------------------------------------------
Actual Pro Forma (a) As Adjusted (b)
-------------- ------------------ ----------------
(in thousands, except share data) (Unaudited)

Cash and cash equivalents............................................. $3,610.9 $8,110.9 $17,181.6
Short-term debt....................................................... 1,168.0 1,168.0 1,168.0
Long-term debt
Senior Secured Promissory Note due December 31, 2004.............. -- 4,500.0 --
Other long term debt.............................................. 240.8 240.8 240.8

Stockholders' equity:.................................................
Common stock, $.01 par value; 100,000,000 shares
authorized; 16,580,031 shares issued and
outstanding....................................................... 165.7 165.7 --
Common stock, $.01 par value; 100,000,000 shares authorized;
24,580,031 shares issued and outstanding......................... 259.5
Additional paid-in capital............................................ 189,298.2 189,298.2 202,775.1
Stock subscriptions receivable........................................ (2,974.8) (2,974.8) (2,974.8)
Accumulated deficit................................................... (158,687.1) (158,687.1) (158,687.1)
Total common stockholders' equity (deficit)........................... 27,802.0 27,802.0 41,372.7
Total capitalization.................................................. $29,210.8 $32,210.8 $42,781.5

(a) Reflects borrowings under $3 Senior Secured Promissory Note and the $1.5
Million Senior Secured Promissory Note.

(b) Reflects this offering and conversion of the senior secured promissory
notes.

DILUTION

Our net tangible book value as of March 31, 2003 was $27,239,078, or $1.64
per share of common stock. Net tangible book value per share is the amount by
which total tangible assets exceeds total liabilities, divided by the total
number of shares of common stock outstanding. Our adjusted net tangible book
value as of March 31, 2003 would have been $40,809,815 or $1.59 per share, after
giving effect to the sale of 9,380,491 shares of common stock offered by this
prospectus and the Investment Agreement at an offering price of $1.50 per share,
and after deducting estimated offering expenses. This represents an immediate
decrease in the net tangible book value of $0.05 per share to existing
shareholders, and an immediate accretion of $0.09 per share to investors in this
offering, all of whom will be existing shareholders. Accretion per share
represents the difference between the price per share to be paid by investors in
this offering and the net tangible book value per share immediately after this
offering. The following table illustrates the per share accretion:

Actual Pro Forma
------ ---------
Assumed offering price.................................. $ 1.50
Net tangible book value per share as of March 31,
2003............................................... $ 1.64

Decrease attributable to the sale of shares offered
Hereby............................................. 0.05
Adjusted net tangible book value after this offering.... $ 1.59
Accretion in the net tangible book value to new
Investors.......................................... $ 0.09

The following table sets forth, as of March 30, 2003, the differences
between the total consideration paid and the average price per share paid by
existing investors and by investors purchasing shares in this offering:

Shares Purchased Total Consideration
---------------- -------------------
Average Price
Number Percent Amount Percent Per Share
------------ ------------ ------------- ------------ -------------

Existing Stockholders (a) 16,575,674 64% $132,782,909 90% $ 8.01
Conversion of $3 Million
Note and $1.5 Million
Note................... 3,000,000 12% 4,500,000 3% $ 1.50
Investors in this
Offering............... 6,380,491 25% 9,570,737 7% $ 1.50
Total............. 25,956,165 100% 146,853,646 100% $ 5.66

The foregoing table does not reflect (A) 3,201,583 shares of common stock
issuable upon the exercise of stock options outstanding under our stock option
plans as of March 31, 2003, of which 2,127,755 were then exercisable at a
weighted average exercise price of $9.59, (B) warrants to purchase (i) 104,702
shares of our common stock at an exercise price of $.01 per share, (ii)
2,070,004 shares of our common stock at an exercise price of $6.00 per share,
(iii) 33,279 shares of our common stock at an exercise price of $14.88 per
share; and (iv) 2,526 shares of our common stock at an exercise price of $16.63
per share and (C) 1,156,407 shares of restricted stock issued to William D.
Forrest on June 26, 2003.

SELECTED FINANCIAL DATA

The following selected consolidated financial data as of December 31,
2001, and December 30, 2002 and for each of the three years ended December 30,
2002 have been derived from, and are qualified by reference to, our Consolidated
Financial Statements audited by Ernst & Young LLP, independent auditors,
included elsewhere in this prospectus and should be read in conjunction with
those Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
selected consolidated financial data as of January 3, 2000, have been derived
from our Consolidated Financial Statements audited by Ernst & Young LLP,
independent auditors, not included herein. The selected consolidated financial
data as of and for the fiscal year ended December 28, 1998, have been derived
from our Consolidated Financial Statements audited by Ernst & Young LLP, and
other auditors, not included herein. The selected financial data presented below
as of April 1, 2002 and March 31, 2003 and for the fiscal three months ended
April 1, 2002 and March 31, 2003 have been derived from our unaudited financial
statements also appearing herein, which have been prepared on the same basis as
our audited consolidated financial statements and, in the opinion of management,
contain all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods.
The results of operations for the fiscal three months ended March 31, 2003 are
not necessarily indicative of results to be expected for any subsequent period.

Fiscal Year Three Months Ended
------------------------------------------------------------ -----------------------
April 1, March 31,
1998 1999 2000 2001 2002 2002 2003
--------- --------- --------- --------- --------- --------- ---------
(In thousands, except per share data)
Statement of
Operations
Data:

Net sales $20,686.7 $37,262.2 $51,222.8 $70,184.1 $84,424.2 $18,052.1 $25,654.4
Costs and expenses:
Cost of goods
sold 6,332.9 10,838.5 13,844.0 18,791.7 22,697.5 4,853.4 7,316.5
Restaurant
operating
expenses 11,386.5 22,236.2 32,172.9 45,114.5 50,852.7 11,127.0 16,801.2
--------- --------- --------- --------- --------- --------- ---------
Total costs of sales 17,719.4 33,074.7 46,016.9 63,906.2 73,550.2 15,980.4 24,117.7
--------- --------- --------- --------- --------- --------- ---------
General and
administrative
expenses 7,728.7 14,024.3 14,774.2 18,361.5 17,811.7 4,620.3 7,925.2
Depreciation
and
amortization 1,196.6 3,155.2 6,158.1 6,690.0 5,851.2 1,210.3 1,958.6
Restaurant
pre-opening
expenses 720.9 661.4 1,409.5 1,438.8 1,845.1 111.4 349.1
Provision for
losses on asset
impairments and
disposals -- 4,208.7 5,847.5 8,486.3 1,056.5 -- 2,568.0
Lease
termination costs -- 3,437.1 477.3 6,410.7 (1,165.0) -- 257.1
Merger costs and
related expenses -- 8,958.7 -- -- -- -- --
Stock
compensation -- 4,512.6 -- -- -- -- --
Operating income
(loss) (6,678.9) (34,770.5) (23,460.7) (35,109.4) (14,525.5) (3,870.3) (11,521.3)
--------- --------- --------- --------- --------- --------- ---------
Other income
(expense):
Interest income. 406.6 478.6 441.4 340.5 98.3 29.9 25.2
Interest expense (94.6) (206.1) (210.7) (527.5) (1,192.6) (301.4) (47.0)
Amortization of
Deferred
Financing Costs. -- -- -- (126.9) (549.0) (86.4) (25.0)
Loss on
Extinguishment
of debt......... -- -- -- -- (5,083.2) -- --
Other income
(expense)....... -- -- -- -- 380.9 -- --
--------- --------- --------- --------- --------- --------- ---------
Total other income
(expense), net.. 312.0 272.5 230.7 (313.9) (6,345.6) (357.9) (46.8)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss). (6,366.9) (34,498.0) (23,230.0) (35,423.3) (20,871.1) (4,228.2) (11,568.1)
Preferred stock
dividends....... (1,064.4) (2,561.3) (4,219.7) (6,678.1) (8,193.6) (1,960.5) --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)
attributable to
common
stockholders.... $(7,431.3) $(37,059.3) $(27,449.7) $(42,101.4) $(29,064.7) $(6,188.7) $(11,568.1)
========= ========= ========= ========= ========= ========= =========
Net income (loss)
per common share:
Basic and diluted $(2.18) $(8.79) $(6.09) $(9.34) $(5.04) $(1.37) $(0.70)
--------- --------- --------- --------- --------- --------- ---------
Shares used in
computing net
income (loss)
per common
share (in
thousands)
Basic and diluted 3,406 4,215 4,504 4,507 5,763 4,527.6 16,573.8
--------- --------- --------- --------- --------- --------- ---------

Cash and cash
equivalents..... 6,494.6 6,985.7 5,062.9 4,469.6 13,032.3 12,568.0 3,610.9
Total assets...... 24,982.8 25,856.6 32,065.8 35,388.4 66,243.1 44,987.4 55,758.7
Total debt and
capital lease
obligations..... 989.4 1,645.6 4,435.8 11,180.0 1,648.5 8,087.2 1,408.8
Manditorily
redeemable
preferred stock. 16,680.5 35,020.5 61,695.3 92,289.3 -- 113,532.7 --
Total common
stockholder's
equity (deficit) 3,378.7 (20,825.7) (48,275.3) (88,979.9) 39,327.0 (95,185.5) 27,802.0

Selected Statement
of Cash Flow
Data:
Cash flow from
operating
activities...... $(3,146.9) $(8,539.7) $(8,539.1) $(12,382.2) $(5,812.7) $(5,285.5) $(6,118.4)
Cash flow from
investing
activities...... (11,704.6) (14,742.3) (18,347.7) (20,267.9) (27,464.2) (2,744.2) (3,063.2)
Cash flow from
financing
activities...... 18,510.6 23,773.2 24,964.0 32,056.8 41,839.7 16,128.1 (239.8)

Selected Operating
Data:...........
Restaurants open
at end of period 25 36 52 67 91 66 94

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read in conjunction with our financial statements and their
notes appearing elsewhere in this prospectus.

Overview

We opened 17 new restaurants in fiscal 2000, 17 new restaurants in fiscal
2001, 25 new restaurants in fiscal 2002 and six new restaurants in fiscal 2003.
We closed one restaurant and our mini-training restaurant associated with the
Xando Coffee and Bar former headquarters in fiscal 2000 and closed one
restaurant in addition to our World Trade Center restaurant, our World Trade
Center kiosk and our World Financial Center restaurant, which were closed due to
the events of September 11th in fiscal 2001. We closed one restaurant in the
first quarter of fiscal 2002, which was not suited for remodeling to our current
prototype and we closed three under-performing restaurants in the first fiscal
quarter of 2003. Our World Financial Center restaurant re-opened on September 9,
2002.

- -------------------------------------------------- ----------------------------------- -------------
Fiscal Year Three
Months Ended
- -------------------------------------------------- ----------------------------------- -------------
March 31,
2000 2001 2002 2003
- -------------------------------------------------- ---------- ------------ ----------- -------------

Restaurants open at beginning of period 38 (a) 53 (a) 67 91
Restaurants opened 17 17 25 (b) 6
Restaurants closed 2 3 (a) (b) 1 3
Restaurants open at end of period 53 (a) 67 91 94
- -------------------------------------------------- ---------- ------------ ----------- -------------

(a) Includes Kiosk location formerly operated in World Trade Center Plaza.

(b) Excludes World Financial Center location, which closed September 11, 2001,
and re-opened September 9, 2002.

Our financial performance in fiscal 2001 and fiscal 2002 was adversely
affected by the results of the 16 restaurants that we operated in New York
Central Business District locations. These restaurants have high, market
specific, fixed expenses and were disproportionately impacted by the economic
recession in 2001 and 2002 and the events of September 11, 2001.

Critical Accounting Policies

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

due to the sensitivity of the methods, assumptions and estimates necessary in
determining the related asset and liability amounts.

Statement of Financial Accounting Standards ("SFAS") 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," and APB Opinion No. 30, "Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." This statement
retains the fundamental provisions of SFAS 121 for recognition and measurement
of impairment, but amends the accounting and reporting standards for segments of
a business to be disposed of. We adopted the provisions of this statement
beginning in fiscal 2002. This standard requires management judgments regarding
the future operating and disposition plans for marginally performing assets, and
estimates of expected realizable values for assets to be sold. Actual results
may differ from those estimates. The application of SFAS 144, and previously
SFAS 121, has affected the amount and timing of charges to operating results
that have been significant in recent years. We evaluate possible impairment at
the individual restaurant level and record an impairment loss whenever we
determine impairment factors are present. We consider a history of restaurant
operating losses to be the primary indicator of potential impairment for
individual restaurant locations. We have identified certain units that have been
impaired and recorded charges of approximately $0.7 million (related to two
restaurants) in the statement of operations for the three months ended March 31,
2003, and $1.1 million (related to two restaurants), $7.2 million (related to 14
restaurants, including one damaged in the events of September 11, 2001), and
$5.8 million (related to ten restaurants) in the statements of operations for
2002, 2001 and 2000, respectively. Historically, we have not recorded material
additional impairment charges subsequent to the initial determination of
impairment.

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

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses accounting for restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
146 requires companies to recognize costs associated with exit or disposal
activities when they are incurred, rather than at the date of a commitment to an
exit or disposal plan. SFAS 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS 148 amends SFAS 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require more prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
additional disclosure requirements of SFAS 148 are effective for fiscal years
ending after December 15, 2002, and have been incorporated into the accompanying
financial statements and footnotes. The Company has elected to continue to
follow the intrinsic value method of accounting as prescribed by APB 25 to
account for employee stock options.

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

Net Sales

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

..Comparable Restaurant Sales

In calculating comparable restaurant sales, we include a restaurant in the
comparable restaurant base after it has been in operation for 15 full months. At
fiscal year end 2000, there were 34 restaurants in the comparable

restaurant base. At fiscal year end 2001, there were 40 restaurants in the
comparable restaurant base. At fiscal year end 2002, there were 57 restaurants
in our comparable restaurant base. At March 31, 2003, there were 61 restaurants
in the comparable restaurant base.

Costs and Expenses

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

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

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

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

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

Our fiscal year ends on the Monday falling nearest to December 31st.
Fiscal years 2000, 2001 and 2002 each included 52 weeks.

Results of Operations

Our operating results for fiscal years 2000, 2001 and 2002, and for the
three months ended April 1, 2002 and March 31, 2003, expressed as a percentage
of sales, were as follows:

Fiscal Year Three Months Ended
----------------------------------- -----------------------
April 1, March 31,
2000 2001 2002 2002 2003

Net Sales 100.0% 100.0% 100.0% 100.0% 100.0%
---------

Costs and Expenses
------------------
Cost of goods sold 27.0% 26.8% 26.9% 26.9% 28.5%
Restaurant operating expenses 62.8% 64.3% 60.2% 61.6% 65.5%
Total costs of sales 89.8% 91.1% 87.1% 88.5% 94.0%
General and administrative expenses 28.8% 26.2% 21.1% 25.6% 30.9%
Depreciation and amortization 12.0% 9.5% 6.9% 6.7% 7.6%
Restaurant pre-opening expenses 2.8% 2.1% 2.2% 0.6% 1.4%
Provision for losses on
asset impairments and disposals 11.4% 12.1% 1.3% -- 10.0%
Lease termination costs 0.9% 9.1% (1.4)% -- 1.0%

Operating income (loss) (45.8)% (50.0)% (17.2)% (21.4)% (44.9)%
-----------------------

Fiscal Year Three Months Ended
----------------------------------- -----------------------
April 1, March 31,
2000 2001 2002 2002 2003

Other income (expense)
----------------------
Interest income 0.9% 0.5% 0.1% 0.2% 0.1%
Interest expense (0.4)% (0.9)% (1.4)% (1.7)% (0.2)%
Amortization of deferred financing costs --- (0.1)% (0.7)% (0.5)% (0.1)%
Loss on early extinguishment of debt --- --- (6.0)% --- ---
Other income (expense) --- --- 0.5% --- ---
Total other income (expense), net 0.5% (0.4)% (7.5)% (2.0)% (0.2)%

Net income (loss) (45.4)% (50.5)% (24.7)% (23.4)% (45.1)%
-----------------

Three Months ended March 31, 2003 vs. Three Months ended April 1, 2002

Net Sales

Sales increased $7.6 million, or 42.1%, to $25.7 million in the first
quarter of fiscal 2003, from $18.1 million in the first quarter of fiscal 2002.
This increase was primarily due to the full period contribution of sales from
the 25 restaurants opened during fiscal 2002, subsequent to the first quarter of
fiscal 2002, from sales of six restaurants opened during the first quarter of
fiscal 2003 and from an increase in comparable restaurant sales of 5%. In
comparable restaurants, our transaction count was up 2.2% compared to last year,
and our average check increased 2.8%. This increase in comparable restaurant
sales was achieved despite the extreme winter weather conditions that impacted
most of our trade areas during the quarter. Furthermore, we reduced selling
prices by approximately 4% late in last year's quarter. Our comparable
restaurant sales performance continues to be favorably impacted by the results
of the six restaurants that were remodeled in 2002, and the seven restaurants
that were remodeled in 2001. Three restaurants were closed late in the current
quarter, having minimal impact on sales comparisons to last year.

Costs and Expenses

Cost of goods sold. Cost of goods sold increased $2.5 million or 50.8% to
$7.3 million in the first quarter of fiscal 2003, from $4.9 million in the first
quarter of fiscal 2002. As a percentage of sales, cost of goods sold increased
to 28.5% of sales in the first quarter of fiscal 2003, from 26.9% in the first
quarter of fiscal 2002. The increase in cost of goods sold as a percentage of
sales was primarily due to the reduction in our menu pricing which took place
late in the first quarter of fiscal 2002, and to a shift in our sales mix due to
the expansion of our food offering in 2002. During the first quarter of fiscal
2003, food sales increased to 75.4% of total sales, from 68.8% in last year's
quarter, with an offsetting reduction in our beverage sales, which were 24.6% of
total sales in this year's quarter, compared to 31.2% in last year's quarter.
Our food sales have a higher cost of sales when compared to our beverage sales.
Also, within the food category, we have seen an increase in the percentage of
sales of salads this year. These items have a seasonally higher cost in the
winter months due to seasonally higher produce costs.

Restaurant operating expenses. Restaurant operating expenses increased by
$5.7 million, or 51.0%, to $16.8 million in the first quarter of fiscal 2003,
from $11.1 million in the first quarter of fiscal 2002. This increase is
primarily due to the increase in the number of restaurants in operation this
year. As a percentage of sales, restaurant operating expenses increased to 65.5%
of sales in the first quarter of fiscal 2003, from 61.6% in the first quarter of
fiscal 2002. This increase was primarily due to increases in our labor costs.

General and administrative costs. General and administrative costs
increased by $3.3 million, or 71.5%, to $7.9 million in the first quarter of
fiscal 2003, from $4.6 million in the first quarter of fiscal 2002. This
increase is primarily due to a $3.7 million employee severance charge in this
year's quarter. The increase due to this charge was partially offset by $0.4
million in cost reductions associated with reductions in our executive, general
and administrative staff during this year's quarter. As a percentage of sales,
general and administrative costs increased to 30.9% of sales in the first
quarter of fiscal 2003, from 25.6% of sales in the first quarter of fiscal 2002.
The increase as a percentage of sales was entirely due to the employee severance
cost in this year's quarter. Excluding the

employee severance charge, general and administrative costs decreased to 16.5%
of sales in this year's quarter, primarily due to sales leverage against these
costs.

Depreciation and amortization. Depreciation and amortization increased
$0.8 million, or 61.8%, to $2.0 million in the first quarter of fiscal 2003,
from $1.2 million in the first quarter of fiscal 2002. This increase was
primarily due to additional depreciation expense for restaurants opened
subsequent to the first quarter of fiscal 2002. As a percentage of restaurant
sales, depreciation and amortization increased to 7.6% of sales in the first
quarter of fiscal 2003, compared to 6.7% of sales in the first quarter of fiscal
2002. This increase, as a percentage of sales, is primarily due to the lower per
unit sales performance in restaurants opened since the first quarter of fiscal
2002. See Liquidity and Capital Resources below.

Restaurant pre-opening expenses. Restaurant pre-opening expenses increased
to $0.3 million in the first quarter of fiscal 2003, from $0.1 million in the
first quarter of fiscal 2002. As a percentage of restaurant sales, restaurant
pre-opening expenses increased to 1.4% of sales in the first quarter of fiscal
2003, from 0.6% of sales in the first quarter of fiscal 2002. This increase is
primarily due to the increase in the number of new restaurants opened in the
first quarter of 2003. Six new restaurants were opened in the first quarter of
fiscal 2003 compared to no new restaurants opened in the first quarter of fiscal
2002. Pre-opening expenses were recorded related to three restaurants that were
remodeled in the first quarter of fiscal 2002.

Loss on impairment of property and equipment and restaurant disposals.
During the first quarter of fiscal 2003, we recognized $2.6 million of asset
impairment and restaurant disposal costs. Of this, approximately $0.6 million
represents charges related to the closure of three under performing restaurants
during the quarter, approximately $1.3 million were charges taken on twenty-five
locations which were in our development pipeline but have been cancelled, and
approximately $0.7 million represents impairment charges taken on two
underperforming restaurants which have been identified for closure in the
future. No such charges were recognized during the first quarter of fiscal 2002.

Lease termination costs. During the first quarter of fiscal 2003, we
recognized $0.3 million of lease termination costs, related to the termination
of several leases on restaurants which were in the development pipeline, but for
which our plans were cancelled during the quarter. No such charges were
recognized during the first quarter of fiscal 2002.

Interest income and expense. During the first quarter of fiscal 2003 and
the first quarter of fiscal 2002 interest income was less than $0.1 million.
Interest expense decreased $0.3 million to less than $0.1 million in the first
quarter of fiscal 2003 from $0.3 million in the first quarter of fiscal 2002.
The decrease in interest expense is primarily due to the repayment of borrowings
under our 13% senior subordinated notes due 2006, which were outstanding during
the first quarter of fiscal 2002. Those notes were repaid in December 2002 with
proceeds from our initial public offering.

Amortization of deferred financing costs and debt discount. During the
first quarter of fiscal 2003, we recorded less than $0.1 million in amortization
of deferred financing costs related to our Equipment Loan Credit Facility. This
compares to $0.1 million recorded in the first quarter of fiscal 2002. The
reduction in 2003 is primarily related to the repayment of our senior
subordinated notes and elimination of the associated amortization of debt
discount related to those notes.

Fiscal Year 2002 vs. Fiscal Year 2001

Net Sales

Sales increased $14.2 million, or 20.3%, to $84.4 million in 2002, from
$70.2 million in fiscal 2001. This increase was primarily due to the full period
contribution of sales from restaurants opened in fiscal 2001, from sales of
restaurants opened in 2002 and from an increase in comparable restaurant sales
of 4%. This was partially offset by the loss of our World Trade Center
restaurant and the closure of our World Financial Center restaurant due to the
events of September 11, 2001. Our World Financial Center restaurant reopened in
September 2002. Additionally, one restaurant was not suited for remodeling to
our current prototype and was closed during the period. Comparable restaurant
sales were adversely affected by the effect of the economic downturn on our New
York City Central Business District restaurants, the effect of September 11,
2001, on all of our restaurants and the reduction of our

menu pricing during the first quarter of fiscal 2002. Excluding the New York
City Central Business District restaurants, comparable restaurant sales
increased 9% for the year. This increase was driven by the sales performance of
the six remodeled restaurants that were open for the full period and the eight
restaurants that were remodeled during the period, all of which were remodeled
to incorporate our full product line.

Costs and Expenses

Cost of goods sold. Cost of goods sold increased $3.9 million, or 20.8%,
to $22.7 million in fiscal 2002, from $18.8 million in fiscal 2001. As a
percentage of sales, cost of goods sold increased to 26.9% of sales in fiscal
2002, from 26.8% in fiscal 2001. The increase in cost of goods sold as a
percentage of sales was primarily due to the reduction in our menu pricing
during the first quarter of fiscal 2002 and to a shift in our sales mix due to
the expansion of our food offering in 2002. During the year, food sales
increased to 70.7% of total sales, from 66.2% last year, with an offsetting
reduction in our beverage sales, which were 29.3% of total sales, compared to
33.8% last year. Our food sales have a higher cost of sales when compared to our
beverage sales. These increases were partially offset by improvements in our
food costs, as a percentage of food sales, as we were able to reduce our
ingredient costs through better purchasing and through menu changes.

Restaurant operating expenses. Restaurant operating expenses increased by
$5.7 million, or 12.7%, to $50.8 million in fiscal 2002, from $45.1 million in
fiscal 2001. This increase is primarily due to the increase in the number of
restaurants in operation this year. As a percentage of sales, restaurant
operating expenses decreased to 60.2% of sales in fiscal 2002, from 64.3% in
fiscal 2001. This reduction was primarily due to reductions in our labor costs.

General and administrative costs. General and administrative costs
decreased by $0.6 million, or 3.0%, to $17.8 million in fiscal 2002, from $18.4
million in fiscal 2001. As a percentage of sales, general and administrative
costs decreased to 21.1% of sales in fiscal 2002, from 26.2% of sales in fiscal
2001. The decrease as a percentage of sales was primarily due to sales leverage
against these costs. General and administrative costs in 2001 included
approximately $0.8 million of one-time expenses, including severance payments
related to the continued enhancement of our management team. Excluding these
one-time costs from 2001, our general and administrative costs were essentially
held flat in 2002.

Depreciation and amortization. Depreciation and amortization decreased
$0.8 million, or 12.5%, to $5.9 million in fiscal 2002, from $6.7 million in
fiscal 2001. This decrease was primarily due to additional depreciation expense
in the first half of fiscal 2001 on assets to be disposed of in connection with
restaurant remodels, as well as reduced depreciation in fiscal 2002 on assets
for which impairment write-downs were taken in fiscal 2001. As a percentage of
restaurant sales, depreciation and amortization decreased to 6.9% of sales in
fiscal 2002, compared to 9.5% of sales in fiscal 2001. During 2002, our
restaurant opening program was weighted toward the latter part of the year, with
12 of the 25 new restaurants opening in the last quarter. Therefore, only a
limited amount of depreciation expense was recorded for these new restaurants in
2002.

Restaurant pre-opening expenses. Restaurant pre-opening expenses increased
to $1.8 million in fiscal 2002, from $1.4 million in fiscal 2001. As a
percentage of restaurant sales, restaurant pre-opening expenses increased to
2.2% of sales in fiscal 2002, from 2.1% of sales in fiscal 2001. This increase
as a percentage of sales is due to the limited amount of sales recorded by our
restaurants opened in 2002. As noted above, 12 of the 25 new restaurants were
opened in the last quarter. Including restaurants that were remodeled in each
year, restaurant pre-opening costs were reduced from approximately $63,000 per
restaurant in 2001 to $54,000 in 2002.

Loss on impairment of property and equipment and restaurant closures.
During fiscal 2002, we recognized $1.1 million of asset impairment costs
(related to two under performing restaurants) compared to $7.2 million (related
to 14 restaurants) in 2001. In 2001, we also recorded restaurant closure costs
of $1.3 million related to the loss of our World Trade Center restaurant.

Lease termination costs. During 2002, we recorded a credit of $1.2
million, as we revised our estimates of the expected cost to terminate leases on
locations that are closed, or are expected to close. Of this amount, $0.4
million was related to a reserve we had established last year for our restaurant
in the World Financial Center, which had been closed due to the terrorist
attacks on September 11, 2001. That restaurant was reopened in September of
2002, and has been performing satisfactorily since then. The remaining $0.8
million of adjustments to our lease

termination reserves represent revisions to our estimated liabilities related to
ten other locations that are closed, or are expected to close. During fiscal
2001, we recorded $6.4 million of these costs.

Interest income and expense. During fiscal 2002, interest income was $0.1
million, down from $0.3 million from the same period a year ago. This was due to
a decrease in the average investable cash balance during the period and lower
interest rates available on short-term investments. Interest expense increased
$0.6 million to $1.2 million from $0.6 million in fiscal 2001. The increase in
interest expense is due to borrowings under our 12% senior secured notes due
2004 and our 13% senior subordinated notes due 2006, neither of which were
outstanding during the first nine months of fiscal 2001. Those notes were repaid
in December 2002 with proceeds from our initial public offering.

Amortization of deferred financing costs and debt discount. During fiscal
2002, we recorded $0.5 million in amortization of deferred financing costs, and
accretion of debt discount on our senior secured credit facility, our senior
subordinated credit facility and on our equipment loan credit facility. This
compares to $0.1 million recorded in 2001, primarily related to our equipment
loan credit facility. The increase is due to amortization of debt discount
related to our senior subordinated credit facility, which was in place for 11
months of the year and due to amortization of deferred financing costs and debt
discount related to our senior secured credit facility, which was in place for a
portion of the third and fourth quarters in fiscal 2002.

Loss on early extinguishment of debt. In the fourth quarter of fiscal
2002, we repaid our senior subordinated and senior secured credit facilities. At
the time of repayment, we wrote off $5.1 million in unamortized deferred
financing costs and debt discount related to these credit facilities.

Other income. During fiscal 2002, we recorded $0.4 million of other
income, principally the receipt of business interruption insurance proceeds
related to our World Financial Center restaurant, which was closed from
September 11, 2001 until early September 2002.

Fiscal Year 2001 vs. Fiscal Year 2000

Net Sales

Sales increased $19.0 million, or 37.1%, to $70.2 million in fiscal 2001,
from $51.2 million in fiscal 2000. This increase was primarily due to sales from
the 17 new restaurants opened in fiscal 2001 and the full year contribution of
sales from restaurants opened in fiscal 2000. This increase was partially offset
by a 2% decrease in sales of the restaurants in our comparable restaurant base
at the end of the period, the closure of our World Financial Center restaurant
due to the events of September 11, 2001, the closure of the mini-training
restaurant associated with the Xando Coffee and Bar former headquarters and one
additional restaurant closure. The decrease in comparable restaurant sales was
primarily due to the especially acute effect of the economic downturn on our New
York Central Business District restaurants as well as the significant impact of
the events of September 11th. Excluding the New York Central Business District
restaurants, comparable restaurant sales increased 7% in fiscal 2001, including
an 11% increase in the fourth quarter of fiscal 2001. This increase was
partially due to comparable restaurant sales in six restaurants that were
remodeled during the year to incorporate our full product line.

Costs and Expenses

Cost of goods sold. Cost of goods sold increased $5.0 million, or 35.7%,
to $18.8 million in fiscal 2001, from $13.8 million in fiscal 2000. As a
percentage of sales, cost of goods sold decreased to 26.8% of sales in fiscal
2001, from 27.0% in fiscal 2000. The decrease in cost of goods sold was
primarily due to the full year benefit of the elimination of our commissary
during fiscal 2000.

Restaurant operating expenses. Restaurant operating expenses increased
$12.9 million, or 40.2%, to $45.1 million in fiscal 2001, from $32.2 million in
fiscal 2000. As a percentage of sales, restaurant operating expenses increased
to 64.3% of sales in fiscal 2001, from 62.8% in fiscal 2000. This increase,
which was primarily labor costs, was due to the development of the Cosi and Cosi
Downtown prototypes, and the related restaurant operating systems. These
prototypes are expected to be the basis for the future expansion of both the
Cosi and Cosi Downtown concepts. Additionally, sales were adversely affected by
the events of September 11, 2001, which resulted in the fixed components of
restaurant operating expenses increasing as a percentage of sales.

General and administrative expenses. General and administrative expenses
increased $3.6 million, or 24.3%, from $14.8 million in fiscal 2000 to $18.4
million in fiscal 2001. The increase was primarily due to the development of the
support systems associated with our growth strategy and $0.8 million of one-time
expenses, including severance payments related to the continued enhancement of
our management team. As a percentage of sales, general and administrative
expenses decreased to 26.2% of sales in fiscal 2001, from 28.8% of sales in
fiscal 2000, due to leveraging of our existing infrastructure.

Depreciation and amortization. Depreciation and amortization increased
$0.5 million, or 8.6%, to $6.7 million in fiscal 2001, from $6.2 million in
fiscal 2000. This increase was due to depreciation on restaurants opened in 2001
and a full year's depreciation on restaurants opened in 2000 of $1.4 million.
These increases were offset by a $0.9 million reduction from asset impairment
write-downs in connection with continued refinement of our restaurant prototype.

Restaurant pre-opening expenses. Restaurant pre-opening expenses remained
constant at $1.4 million in fiscal 2001, despite an increase in the number of
restaurants opened or remodeled. We opened or remodeled 23 restaurants in 2001
versus 18 in 2000. Both labor and travel costs were reduced in our average
pre-opening expenses per restaurant as we continued the refinement of our
training programs and penetrated existing markets.

Loss on impairment of property and equipment and restaurant closures. Loss
on impairment of property and equipment and restaurant closures increased $2.6
million to $8.5 million in fiscal 2001, from $5.8 million in fiscal 2000. These
costs were due to asset impairment write-downs, the loss of our World Trade
Center restaurant, World Trade Center kiosk and World Financial Center
restaurant and the closure of a restaurant.

Lease termination costs. Lease termination costs increased $5.9 million to
$6.4 million in fiscal 2001, compared to $0.5 million in fiscal 2000. These
costs were primarily due to lease terminations in connection with restaurants
closed or planned to close in connection with the continued refinement of our
restaurant prototype in fiscal 2001.

Interest income and expense. Interest income decreased $0.1 million to
$0.3 million in fiscal 2001, from $0.4 million in fiscal 2000. Interest expense
increased $0.4 million to $0.6 million in fiscal 2001, from $0.2 million in
fiscal 2000. The increase is due to interest on our term loans drawn down in
late fiscal 2000, which were outstanding for all of fiscal 2001, and interest on
our senior subordinated debt, which was issued in November 2001.

Amortization of Deferred Financing Costs and Debt Discount. During 2001,
we recorded $0.1 million in amortization of deferred financing costs and debt
discount primarily related to our Equipment Loan Credit Facility.

Potential Fluctuations in Quarterly Results and Seasonality

Our quarterly operating results may fluctuate significantly as a result of
a variety of factors, including the timing of new restaurant openings and
related expenses, profitability of new restaurants, increases or decreases in
comparable restaurant sales, general economic conditions, consumer confidence in
the economy, consumer preferences, competitive factors, unanticipated increases
in food, labor, commodity, energy, insurance and other operating costs, weather
conditions and seasonal fluctuations.

Liquidity and Capital Resources

Cash and cash equivalents were $3.6 million on March 31, 2003, compared
with $13.0 million on December 30, 2002, $4.5 million at December 31, 2001 and
$5.1 million at January 1, 2001. Our working capital was a deficit of $8.3
million on March 31, 2003, compared with working capital of $0.7 million as of
December 30, 2002, a deficit of $5.3 million at December 31, 2001 and a deficit
of $2.8 million at January 1, 2001. Our principal requirements for cash are
funding operations, capital expenditures for the development of new restaurants,
and for maintaining or remodeling existing restaurants. During the first quarter
of fiscal 2003, we financed our requirements for capital with the proceeds from
the initial public offering of our common stock that was completed in November
of 2002.

Net cash used in operating activities for the three months ended March 31,
2003 was $6.1 million, compared to $5.3 million for the three months ended April
1, 2002. Funds used in operating activities in the first

quarter of 2003 increased primarily as a result of an increase in our net loss
compared to the first quarter of 2002. Net cash used in operating activities for
the 52 weeks ended December 30, 2002, was $5.8 million, compared to $12.4
million for the 52 weeks ended December 31, 2001 and $8.5 million for the 52
weeks ended January 1, 2001. Funds used in operating activities in 2002
decreased primarily as a result of a reduction in our net loss compared to 2001,
and an increase in our accounts payable at year-end. Accounts payable were
unusually high at year-end due to the high level of purchases associated with
our new restaurants opened in the fourth quarter of 2002, and to be opened in
the first quarter of 2003.

Total capital expenditures for the three months ended March 31, 2003 were
$3.2 million, compared to expenditures of $2.7 million for the three months
ended April 1, 2002. These expenditures were primarily related to the opening of
six new restaurants during the three months ended March 31, 2003, and remodeling
three existing restaurants and constructing four new restaurants during the
first quarter of fiscal 2002. Total capital expenditures for the 52 weeks ended
December 30, 2002 were $27.2 million, compared to expenditures of $20.4 million
for the 52 weeks ended December 31, 2001. These expenditures were primarily
related to the opening of 25 new restaurants and remodeling of nine restaurants,
including the reopening of our World Financial Center restaurant, during the 52
weeks ended December 30, 2002, and the opening of 17 new restaurants and
remodeling of six existing restaurants in 2001. Total capital expenditures were
$18.2 million for fiscal 2000, and were primarily related to the opening of 17
new restaurants and for remodeling of one existing restaurant.

Net cash used in financing activities was $0.2 million for the three
months ended March 31, 2003. During the period, we made scheduled repayments of
$0.2 million and less than $0.1 million related to our outstanding long-term
debt and capital lease obligations, respectively. Net cash provided by financing
activities was $41.8 million for the 52 weeks ended December 30, 2002, $32.1
million for the 52 weeks ended December 31, 2001, and $25.0 million for the 52
weeks ended January 1, 2001. During fiscal 2002, we issued approximately 1.1
million shares of Series C preferred stock and received approximately $19.3
million, net of offering costs. Of this, approximately $3.6 million represented
the exchange of approximately $3.5 million face amount of our 13% Senior
Subordinated Notes and accrued interest. We also issued approximately 5.6
million shares of our common stock in our initial public offering and received
approximately $32.8 million, net of offering costs. Prior to our initial public
offering, we issued approximately $0.5 million of additional Senior Subordinated
Notes and accrued $0.8 million of interest on these notes, and issued
approximately $9.5 million face amount of our 12% Senior Secured notes and
accrued $0.2 million of interest on these notes. During the period, we made
scheduled repayments of $1.2 and $0.5 million related to our other outstanding
long-term debt and capital lease obligations, respectively. Approximately $6.6
million of the proceeds from our initial public offering were used to repay our
outstanding 13% Senior Subordinated notes, including accrued interest and
pre-payment premium, and approximately $7.5 million of proceeds and
approximately $2.1 million of available cash were used to repay our outstanding
12% Senior Secured notes, including accrued interest. In fiscal 2001, we sold
approximately 1.4 million shares of Series C Preferred Stock and received
approximately $24.1 million, net of offering costs. In November 2001, we entered
into Senior Subordinated Note and Warrant purchase agreements with a group of
investors, pursuant to which we received approximately $9.3 million in proceeds.
During 2001, we entered into other financing agreements totaling approximately
$0.4 million and repaid approximately $1.4 million on existing loans and capital
leases. There are two notes payable outstanding under our equipment loan credit
facility: a note payable due September 1, 2003, at an interest rate of 9.1%, and
a note payable due December 1, 2003 at an interest rate of 8.5%.

During the first half of fiscal 2003, we experienced lower sales and
operating profits than we had projected, mostly related to underperformance at
new restaurants opened in the second half of 2002 and in the first quarter of
2003 and severe winter weather in the Northeast. In addition, our cash position
has been adversely impacted by the payment of costs associated with restaurants
in our development pipeline that we determined not to open. Principally because
of these developments, we determined that it was prudent to seek additional
financing. Consequently, we obtained a $3 million line of credit from a bank to
be used for general corporate purposes and borrowed the full amount on April 1,
2003 (the "$3 Million Note"). In addition, we announced our intention to pursue
a rights offering to raise approximately $14 million. In connection therewith,
we announced that a group of our shareholders, including the Guarantors (defined
below), indicated that they will commit to provide funding in the amount of $8.5
million of the $14 million. This commitment is subject to, among other things,
our shareholders approving the conversion feature of the $3 Million Note and the
$1.5 Million Note. The $3 Million Note and the $1.5 Million Note bear interest
at 75 basis points over Bank of America's prime lending rate and the $3 Million
Note is secured by all of our tangible and intangible property, other than
equipment

pledged to secure our equipment loan credit facility. The $3 Million Note
matures in May, 2004. We paid the bank fees and expenses of approximately
$22,000 upon funding of the $3 Million Note. The $3 Million Note is guaranteed,
jointly and severally, by Eric J. Gleacher, one of our stockholders and one of
our former directors; Charles G. Phillips, one of our stockholders and Ziff
Investors Partnership, L.P. II, an entity related to ZAM Holdings, L.P., our
largest stockholder (together, "the Guarantors"). At any time during the term of
the $3 Million Note, the Guarantors have the right to require the bank to assign
the $3 Million Note to the Guarantors or their designees that are reasonably
acceptable to us. If the $3 Million Note has not been assigned by the bank to
the Guarantors or their designees, and has not been paid in full by August 15,
2003, then the bank is required to assign the $3 Million Note to the Guarantors
or their designees. On August 5, 2003, the Guarantors agreed, upon assignment of
the $3 Million Note, to extend the maturity of the note to December 31, 2004. If
our stockholders approve the conversion feature of the senior secured notes,
upon assignment of the $3 Million Note to the Guarantors or their designees, the
$3 Million Note will be convertible into shares of our common stock, at the
option of the Guarantors, at a conversion price equal to the lesser of $1.50 or
85% of the weighted average price per share of our common stock for the fifteen
trading day period ending three trading days before the conversion date. If our
stockholders approve the conversion feature of the senior secured notes and if
we consummate the rights offering the $3 Million Note will be converted by the
holders.

On August 5, 2003, we entered into an Investment Agreement with Eric J.
Gleacher, Charles G. Phillips, LJCB Nominees Pty Ltd, and ZAM Holdings, L.P..
Pursuant to the Investment Agreement, subject to certain conditions, the Funding
Parties have agreed to provide funding to us in an aggregate amount up to $8.5
million reduced by the amount outstanding under the $3 Million Note and the $1.5
Million Note (described below). At the option of the Funding Parties, the
Funding Parties may fund such greater amount permitted by the Investment
Agreement to allow the Funding Parties to maintain certain relative ownership
levels. If our stockholders (other than the Funding Parties) subscribe for at
least $2.0 million worth of shares in this rights offering, the Funding Parties
would, subject to certain conditions, provide this funding in the form of an
investment in our common stock at the subscription price. If our stockholders
(other than the Funding Parties) do not subscribe for at least $2.0 million
worth of shares in this rights offering, we will not consummate this offering
and the Funding Parties will, subject to certain conditions, provide this
funding in the form of, at their option, a purchase of shares of our common
stock at the subscription price or the purchase of a senior secured note which
is convertible into shares of our common stock. The Funding Parties agreed not
to exercise their basic subscription privilege or over-subscription privilege in
the rights offering. The $8.5 million in funding described above is allocated as
follows: (a) Mr. Gleacher, $2,000,000; (b) Mr. Phillips, $750,000; (c) LJCB,
$750,000 and (d) ZAM Holdings, L.P. $5,000,000.

In order to ensure that we would have sufficient cash resources pending
consummation of the rights offering, on August 5, 2003, Mr. Gleacher and ZAM
Holdings provided $1,348,042.50 of the Funding Parties' $8.5 Million commitment
in the form of two senior secured promissory notes, and the Company will issue a
senior secured promissory note to Mr. Phillips in the amount of $151,957.50 upon
receipt of such funds. All three notes equal an aggregate of $1.5 million (the
"$1.5 Million Note"). The terms of the $1.5 Million Note are substantially
similar to the terms of the $3 Million Note and the $1.5 Million Note matures on
December 31, 2004. If approved by our shareholders, the $1.5 Million Note will
be convertible into shares of our common stock, at the option of the holders
thereof, at a conversion price equal to the lesser of $1.50 or 85% of the
weighted average price per share of our common stock for the fifteen trading day
period ending three trading days before the conversion date. If our stockholders
approve the conversion feature of the senior secured notes and if we consummate
the rights offering, the $1.5 Million Note will be converted by the holders.

The Funding Parties funding commitment pursuant to the Investment
Agreement is subject to certain conditions, including our stockholders approving
the conversion feature of the $3 Million Note and the $1.5 Million Note and the
Investment Agreement and the transactions contemplated thereby, including the
rights offering. In order to provide the Company with sufficient liquidity and
cash resources in the event that the conditions to the Investment Agreement are
not satisfied, and consequently the Funding Parties are not obligated to provide
funding under the Investment Agreement, on August 5, 2003, the Company and Mr.
Gleacher, Mr. Phillips and ZAM Holdings, L.P. entered into an agreement pursuant
to which Messrs. Gleacher and Phillips and ZAM Holdings, L.P. agreed to provide
funding to the Company by purchasing senior secured promissory notes from the
Company in the aggregate principal amount of $3 million if (i) the Rights
Offering is abandoned by December 1, 2003, (ii) the Company's stockholders do
not approve (a) the conversion feature of the $3 Million Note and the $1.5
Million Note, and (b) the Investment Agreement, (iii) as a result, the Funding
Parties do not provide the funding contemplated by the Investment Agreement and
(iv) the Company the Company's "Cumulative Modified EBITDA" for the months of

July through October, 2003 is no less than a loss of $1,185,000. "Cumulative
Modified EBITDA" is defined in the agreement as (A) the Company's earnings
before interest, taxes, depreciation, amortization, asset impairment charges,
restaurant closing costs and other items customarily and properly classified by
the Company as one-time, extraordinary expenses for internal reporting purposes
less (B) capital expenditures.

The $3 million in additional funding would be provided in the form of a
non-convertible secured promissory note with terms which may be substantially
less favorable to the Company than the $3 Million Note and the $1.5 Million
Note. The note will mature on January 15, 2005. Messers. Gleacher and Phillips
and ZAM Holdings will only provide this funding if our stockholders do not
approve the conversion feature of the $3 Million Note and the $1.5 Million Note
and the Investment Agreement, and the Company does not consummate the rights
offering. In this event, the Funding Parties are only committed to provide an
aggregate of $7.5 million (the $3 Million Note, the $1.5 Million Note and the $3
million non-convertible note described above) as opposed to up to $8.5 million
pursuant to the Investment Agreement (the $3 Million Note, the $1.5 Million Note
and up to $4 million pursuant to the Investment Agreement).

We currently estimate that our current cash resources will be sufficient
until the completion of the rights offering, or until the abandonment of the
rights offering and funding of the remaining commitment by the Funding Parties.

We currently estimate that our capital expenditures during 2003 will be
approximately $3.8 million, principally for the opening of the six new
restaurants that have already been opened, and for maintaining and remodeling
existing restaurants. We anticipate that our capital expenditures for the
remainder of the year will be minimal.

We plan to fund the operations, maintenance and growth of our restaurants
primarily through this offering (including the senior secured notes) and
internally generated cash flow produced by our existing restaurants. Our cash
resources going forward will be highly dependant upon the level of internally
generated cash from operations and upon any potential future financing
transactions, including this rights offering. If cash flows from our existing
restaurants or cash flow from new restaurants that we open do not meet our
expectations or are otherwise insufficient to satisfy our cash needs or
expansion plans, we may have to seek alternative financing from external sources
to continue funding our operations and growth, close underperforming restaurants
or alter or cease our plans to open or franchise new restaurants. We cannot
predict whether such financing will be available on terms acceptable to us, or
at all.

In the event that our stockholders approve the conversion feature of the
notes and the Investment Agreement and our stockholders, other than the Funding
Parties, subscribe for at least $2 million in the rights offering, we will,
subject to certain conditions, secure a minimum of $10.5 million of funding in
the form of purchases of our common stock, including the conversion of the $3
Million Note and the $1.5 Million Note. We anticipate that this funding, our
current cash balances and internally generated cash flows will be sufficient to
fund our cash requirements for the next twelve months.

In the event that our stockholders approve the conversion feature of the
notes and the Investment Agreement, but our stockholders, other than the Funding
Parties, do not subscribe for a minimum of $2 million in the rights offering, we
will not consummate the rights offering and we will, subject to certain
conditions, obtain a maximum of $8.5 million in funding (including the $3
Million Note and the $1.5 Million Note) in the form of, at the option of the
Funding Parties, a purchase of shares of our common stock at the subscription
price or the purchase of a senior secured note which is convertible into shares
of our common stock. In addition, the $3 Million Note and the $1.5 Million Note
may remain outstanding and payable at maturity in December 2004, which could
have an adverse effect on our near term working capital. In this event, we
anticipate that this funding, our current cash balances and internally generated
cash flows will be sufficient to fund our cash requirements for the next twelve
months. However, we may need to secure additional financing upon the maturity of
the $3 Million Note and the $1.5 Million Note. There can be no assurance that
such financing will be available on terms acceptable to us, or at all.

In the event that our stockholders do not approve the conversion feature
of the notes and the Investment Agreement, and the Company satisfies the EBITDA
condition described above, we will not consummate the rights offering and we
will secure a maximum of $7.5 million in financing (including the $3 Million
Note and the $1.5 Million Note). The $3 million in additional funding would be
in the form of senior secured non convertible notes

due January 15, 2005. In addition, the $3 Million Note and the $1.5 Million Note
will remain outstanding and payable at maturity in December 2004, which could
have an adverse effect on our near term working capital. In this event, we
anticipate that this funding, our current cash balances and internally generated
cash flows will be sufficient to fund our cash requirements for the next twelve
months. However, we may need to secure additional financing upon the maturity of
the $3 Million Note and the $1.5 Million Note and the $3 million non-convertible
note. There can be no assurance that such financing will be available on terms
acceptable to us, or at all.

In the event that our stockholders do not approve the conversion feature
of the notes and the Investment Agreement, and the Company does not satisfy the
EBITDA condition described above, the Funding Parties will not be obligated to
provide any additional funding and we will need to secure additional financing
to execute our business plan in the near future. There can be no assurance that
we will be able to secure such financing on terms favorable to the Company or at
all. The failure to obtain such financing would likely have a material adverse
effect on the Company, our operations and growth plans, including our plans to
open or franchise new restaurants.

CONTRACTUAL OBLIGATIONS
As of March 31, 2003
--------------------

Due in
Total Due April - Due in 2004 2006 and Due after
Contractual Obligations (in thousands) December 2003 and 2005 2007 2007
- ---------------------------------------- -------------- ---------------- -------------- ------------ ----------

Notes payable....................... $ 1,344.7 $ 1,096.0 $ 86.9 $ 79.0 $ 82.8
Employee severance obligations...... 3,302.8 1,288.5 2,014.3
Employment agreement................ 606.4 256.5 349.9
Capital lease obligations........... 64.1 62.0 2.1
Operating lease obligations (a)(b).. 115,820.9 9,725.8 27,067.8 27,025.1 52,002.2

(a) Amounts shown are net of $2.5 million of sublease rental income due under
non-cancelable subleases.

(b) Includes approximately $11.6 million of obligations on leases for
restaurants that have either been closed or are planned to be closed.

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

Purchase Commitment

During fiscal year 1999, we entered into an exclusive coffee supply
agreement with an unrelated third party ("Supplier"). The agreement calls for
minimum purchases, in terms of both quantity and price, to be made by the
Company of coffee beans and related products. The agreement is in effect through
December 2003 but may be terminated by the Company or the Supplier provided 180
days notice is given in advance of such termination. The Company is obligated to
purchase approximately $0.7 million of roasted coffee between now and fiscal
year end 2003 under the terms of that agreement.

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

Recent Developments

On June 26, 2003, we entered into an employment agreement with Mr.
Forrest. Pursuant to the agreement, Mr. Forrest will serve as Executive Chairman
for three years ending on March 31, 2006. In consideration for Mr. Forrest
serving as our Executive Chairman, on June 26, 2003, we issued 1,156,407 shares
of our authorized but unissued common stock, representing 5% of our outstanding
common stock on a fully diluted basis (assuming all outstanding options and
warrants are exercised). Upon completion of this offering, we will issue a
number of additional shares to Mr. Forrest such that his percentage ownership of
Cosi on a fully diluted basis remains 5%,

provided, however, that if the subscription price is less than $1.25 per share,
we will issue Mr. Forrest a number of shares equal to the number of shares that
Mr. Forrest would have received in the offering based upon a subscription price
of $1.25 per share. Mr. Forrest's rights in the shares vest as follows: (i) 25%
of the shares vested upon issuance; (ii) 25% of the shares will vest on April 1,
2004, provided the agreement is still in effect, and (iii) on the last day of
each month, commencing with April 2004, and ending on March 2006, 2.08% of the
shares will vest, and an additional .08% of the shares will vest on March 31,
2006, provided that at the end of each month the agreement is still in effect.
All shares not vested will fully vest upon the termination of this agreement by
Cosi without cause (as defined in the agreement), or upon a change of control
(as defined in the agreement). If Mr. Forrest is terminated by Cosi for cause
(as defined in the agreement), all unvested shares will be forfeited. Mr.
Forrest agreed that, during the term of the agreement and for a period of 12
months thereafter, he will not compete with the Company or solicit its
employees.

On August 5, 2003, the Company issued senior secured promissory notes with
an aggregate principal amount of $1,348,042.50 to Mr. Gleacher and ZAM Holdings,
L.P. and will issue a promissory note to Mr. Phillips in the amount of
$151,957.50 upon receipt of such funds. Subject to stockholder approval of the
conversion feature of the senior secured notes, each of these persons will have
the right to convert, in whole or in part, their pro-rata share of the
outstanding principal amount of the $1.5 Million Note plus accrued and unpaid
interest into shares of common stock at a conversion price equal to the lesser
of (i) $1.50 per share and (ii) 85% of the weighted average price per share of
the Company's common stock as reported on the Nasdaq National Market for the
15-trading-day period ending three trading days before the conversion date.

In addition, the Company is seeking stockholder approval of an Investment
Agreement among the Company and Mr. Gleacher, Mr. Phillips, LJCB Nominees Pty
Ltd, and ZAM Holdings, L.P., as well as the transactions contemplated by such
agreement.

On August 5, 2003, the Company and Mr. Gleacher, Mr. Phillips and ZAM
Holdings, L.P. entered into an agreement pursuant to which Messrs. Gleacher and
Phillips and ZAM Holdings, L.P. agreed to provide funding to us by purchasing
senior secured promissory notes in the aggregate principal amount of $3 million
if (i) the rights offering is abandoned by December 1, 2003, (ii) our
stockholders do not approve (a) the conversion feature of the $3 Million Note
and the $1.5 Million Note, and (b) the Investment Agreement, (iii) as a result,
the Funding Parties do not provide the funding contemplated by the Investment
Agreement and (iv) our "Cumulative Modified EBITDA", as defined elsewhere in
this prospectus, for the months of July through October, 2003 is no less than a
loss of $1,185,000.

The $3 million in additional funding would be provided in the form of a
non-convertible secured promissory note with terms which may be substantially
less favorable to the Company that the $3 Million Note and the $1.5 Million
Note. The note will mature on January 15, 2005. Messers. Gleacher and Phillips
and ZAM Holdings, L.P. will only provide this funding if our stockholders do not
approve the conversion feature of the $3 Million Note and the $1.5 Million Note
and the Investment Agreement, and we do not consummate the rights offering and
the other conditions described above are met. In this event, the Funding Parties
are only committed to provide an aggregate of $7.5 million (the $3 Million Note,
the $1.5 Million Note and the $3 million non-convertible note described above)
as opposed to up to $8.5 million pursuant to the Investment Agreement (the $3
Million Note, the $1.5 Million Note and up to $4 million pursuant to the
Investment Agreement).

Recently Issued Accounting Pronouncements

In April 2002, the FASB approved SFAS 145, "Rescission of FASB Statements
No. 4, 44 and 54, Amendment of SFAS 13, and Technical Corrections." SFAS 145
rescinds previous accounting guidance, which required all gains and losses from
extinguishment of debt be classified as an extraordinary item. Under SFAS 145,
classification of debt extinguishment depends on the facts and circumstances of
the transaction. SFAS 145 is effective for fiscal years beginning after May 15,
2002. We do not expect SFAS 145 to have a material impact on our financial
position or results of our operations.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses accounting for restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
146 requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS 146 is to be applied

prospectively to exit or disposal activities initiated after December 31, 2002.
The adoption of SFAS 146 is not expected to have a significant impact on our
financial position or results of our operations.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS 148 amends SFAS 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure requirements
of SFAS 123 to require more prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
additional disclosure requirements of SFAS 148 are effective for fiscal years
ending after December 15, 2002 and have been incorporated into the accompanying
financial statements and footnotes. We have elected to continue to follow the
intrinsic value method of accounting as prescribed by APB 25 to account for
employee stock options.

Quantitative and Qualitative Disclosures About Market Risk

Our market risk exposures are related to our cash, cash equivalents,
investments and interest that we pay on our debt. We have no derivative
financial instruments or derivative commodity instruments in our cash, cash
equivalents and investments. We invest our excess cash in investment grade,
highly liquid, short-term investments. These investments are not held for
trading or other speculative purposes. Changes in interest rates affect the
investment income we earn on our investments and, therefore, impact our cash
flows and results of operations.

All of our transactions are conducted, and our accounts are denominated,
in U.S. dollars. Accordingly, we are not exposed to foreign currency risk.

Inflation

The primary inflationary factors affecting our business are food and labor
costs. A large number of our restaurant personnel are paid at rates based on the
applicable minimum wage, and increases in the minimum wage will directly affect
our labor costs. Many of our leases require us to pay taxes, maintenance,
repairs, insurance and utilities, all of which are generally subject to
inflationary increases. We believe that inflation has not had a material impact
on our results of operations in recent years.

THE RIGHTS OFFERING

The Rights

We are offering our stockholders the right to subscribe for and purchase a
number of shares of our common stock with an aggregate value equal to
$9,570,737, at the subscription price (as defined below). Only stockholders of
record as of the close of business on the record date of , 2003, will
receive from us, without charge, non-transferable subscription rights to
purchase common stock in this offering. You are a record holder for this purpose
only if your name is registered as a stockholder with our transfer agent,
American Stock Transfer and Trust Company. We will not consummate the rights
offering if our stockholders subscribe for a number of shares with a value less
than $2.0 million pursuant to the basic subscription privilege and
over-subscription privilege.

You will receive one right for each share of common stock that you owned
as of the close of business on , 2003. The total number of shares you
receive pursuant to the exercise of your rights will be rounded down to the
nearest whole number, so that you will not receive any fractional shares. You
will not receive rights with respect to any unexercised options or warrants that
you may hold to buy shares of our common stock.

Expiration Time

The rights will expire at 5:00 p.m., Eastern Daylight time, on ,
2003, unless we extend the expiration date. We do not currently intend to extend
the expiration time. Rights not exercised by the expiration time will
automatically expire and become null and void. We are not obligated to honor any
purported exercise of rights that the subscription agent receives after the
expiration of this offering, regardless of when you sent the documents relating
to that exercise.

Subscription Privileges

Your rights entitle you to the basic subscription privilege and the
over-subscription privilege.

Basic Subscription Privilege. Each right you hold will entitle you to
purchase a number of shares of our common stock with a value equal to an
aggregate of $0.6776, at the subscription price. You are entitled to subscribe
for all, or any portion of, the shares that may be acquired through the exercise
of your rights. We will deliver certificates representing shares of common stock
purchased pursuant to the basic subscription privilege as soon as practicable
after the expiration time.

Over-subscription Privilege. If you fully exercise your basic subscription
privilege and our stockholders subscribe for an aggregate of less than $7.5
million pursuant to their basic subscription privilege, you also will have an
over-subscription right to subscribe, at the subscription price, to purchase
additional shares of common stock that are not otherwise purchased by other
stockholders in this offering, up to an aggregate offering of $7.5 million. You
will only be entitled to the over-subscription privilege if you exercise your
basic subscription privilege in full.

Shares will be available for purchase pursuant to the over-subscription
privilege only to the extent that stockholders exercise their basic subscription
privileges in an aggregate amount of less than $7.5 million. The maximum number
of shares for which you will be able to subscribe pursuant to your
over-subscription privilege will equal your pro rata share of the total amount
of shares available for over-subscription. The total value of shares available
for over-subscription will equal $7.5 million reduced by the total value of
shares subscribed for pursuant to all stockholders' basic subscription
privileges. Your pro rata share will be based upon the total number of shares of
our common stock and warrants to purchase shares of our common stock you own
compared to the total number of shares of our common stock and warrants to
purchase shares of our common stock held by all stockholders who exercise their
over-subscription privilege and the Funding Parties. If the shares available are
not sufficient to satisfy all subscriptions pursuant to the over-subscription
privilege, those excess shares will be allocated on a pro rata basis among those
record date holders exercising the over-subscription privilege in proportion to
the number of shares of common stock and warrants to purchase shares of common
stock owned by each such holder on the record date relative to the number of
shares of common stock and warrants to purchase shares of common stock owned on
the record date by all holders exercising the over-subscription privilege and
the Funding Parties. If the pro rata allocation would result in your being
allocated a greater number of excess shares than you subscribed for pursuant to
your over-subscription privilege, then you will be allocated only the number of
excess shares for which you over-subscribed. The remaining excess shares will be
allocated among all other holders exercising the over-subscription privilege on
the same pro rata basis outlined above.

Payments for over-subscriptions will be deposited upon receipt by the
subscription agent and held in escrow pending a final determination of the
number of underlying shares to be issued pursuant to such over-subscription
privilege. If a proration of the excess shares results in your receiving excess
shares with a value less than you subscribed for pursuant to the
over-subscription privilege, then the excess funds you paid as the subscription
price for shares not issued will be returned to you without interest or
deduction. Certificates representing underlying shares purchased pursuant to the
over-subscription privilege will be delivered to subscribers as soon as
practicable after the expiration time and after we have completed all prorations
and adjustments contemplated by the terms of the rights offering.

Banks, brokers and other nominee record holders who exercise the
over-subscription privilege on behalf of beneficial owners of rights will be
required to certify to the subscription agent and to us the aggregate number of
rights as to which the over-subscription privilege has been exercised and the
aggregate value of underlying shares thereby subscribed for by each beneficial
owner of rights on whose behalf the nominee holder is acting.

Maximum Offering

We expect to sell shares of our common stock with a maximum aggregate
offering price of $9,570,737.

Subscription Price

The subscription price is the lesser of (i) $1.50 per share and (ii) 85%
of the weighted average price per share of our common stock as reported on the
Nasdaq National Market for the 15-trading-day period ending three business days
prior to the expiration time of the offering. We will not consummate the rights
offering if we would be required to issue more than 19,140,892 shares.

No Fractional Shares or Cash in Lieu Thereof

We will not issue fractional shares in this offering and we will not pay
cash for any fractional shares to which you might otherwise be entitled. We will
accept any subscription indicating a purchase of fractional shares by rounding
down to the nearest whole share and refunding as promptly as practicable,
without interest, any payment received for a fractional share.

Funding Parties

We have entered into an Investment Agreement with Eric J. Gleacher,
Charles G. Phillips, LJCB, and ZAM Holdings, L.P., collectively the "Funding
Parties". Pursuant to the Investment Agreement, subject to certain conditions,
the Funding Parties have agreed to provide funding to the Company in an
aggregate amount up to $8.5

million reduced by the amount outstanding under the $3 Million Note and the $1.5
Million Note. At the option of the Funding Parties, the Funding Parties may fund
such greater amount permitted by the Investment Agreement to allow the Funding
Parties to maintain certain relative ownership levels. If our stockholders
(other than the Funding Parties) subscribe for at least $2.0 million worth of
shares in this rights offering, the Funding Parties would, subject to certain
conditions, provide this funding in the form of an investment in our common
stock at the subscription price. Upon consummation of this rights offering the
Funding Parties who hold the senior secured promissory notes would convert the
notes into shares of our common stock. If our stockholders (other than the
Funding Parties) do not subscribe for at least $2.0 million worth of shares in
this rights offering, we will not consummate this offering and the Funding
Parties will, subject to certain conditions, provide this funding to the Company
in the form of, at their option, a purchase of shares of our common stock at the
subscription price or the purchase of a senior secured note which is convertible
into shares of our common stock. In addition, the Funding Parties will not be
required to convert the outstanding principal amount of the $3 Million Note and
the $1.5 Million Note into shares of our common stock. Furthermore, if the
Funding Parties, pursuant to the Investment Agreement, elect to provide funding
in the form of a senior secured convertible note, such note, along with the $3
Million Note and the $1.5 Million Note, will be secured by all of our tangible
and intangible property (other than equipment pledged to secure our equipment
loan credit facility). Therefore, our stockholders' equity interest in Cosi will
be effectively subordinate to the senior secured position of the Funding
Parties. The Funding Parties have agreed not to exercise their basic
subscription privilege or over-subscription privilege in this rights offering.
The $8.5 million in funding described above is allocated as follows: (a) Mr.
Gleacher, $2,000,000; (b) Mr. Phillips, $750,000; (c) LJCB, $750,000 and (d) ZAM
Holdings, $5,000,000.

The terms of the senior secured convertible note to be issued by the
Company if the Company's Stockholders, other than the Funding Parties, do not
subscribe for $2 million in the Rights Offering and the Funding Parties elect to
purchase a convertible note, will be substantially similar to those of the $3
Million Note and the $1.5 Million Note.

Representations and Warranties

Under the Investment Agreement we have made representations and warranties
to the Funding Parties relating to (among other things):

o Our organization, good standing, qualification to do business and
other corporate matters;

o Our power and authority to execute, deliver and perform our
obligations in connection with the Investment Agreement;

o Required consents and approvals, and absence of violations of laws;

o Our compliance with the reporting requirements of the SEC; and

o The due authorization of the issuance of shares of our common stock
pursuant to the Investment Agreement.

The Funding Parties have made representations and warranties to us,
relating to (among other things):

o Their organization, good standing, and other corporate, personal or
partnership matters;

o Their power and authority to execute, deliver and perform their
obligations in connection with the Investment Agreement;

o Required consents and approvals, and absence of violations of laws;
and

o The fact that each Funding Party is an accredited investor within
the meaning of Rule 501(a) promulgated under the Securities Act of
1933, as amended.

Conditions to Closing of the Transactions Contemplated by the Investment
Agreement. The obligations of the Funding Parties under the Investment Agreement
are subject to the fulfillment of the following conditions (among others):

o The accuracy of our representations and warranties;

o No legal or judicial barriers to the transactions contemplated by
the Investment Agreement;

o Receipt of required consents, approvals, authorizations, waivers and
amendments, including approval by our stockholders of the conversion
feature of the senior secured note;

o Execution of a supplemental Registration Rights Agreement;

o Approval of the common stock issuable under the Investment Agreement
for quotation on Nasdaq; and

o Receipt of the opinion of our outside counsel with respect to the
Investment Agreement and the transactions contemplated thereby.

Termination of the Investment Agreement. The Investment Agreement may
be terminated, and the transactions contemplated thereby abandoned, by a Funding
Party prior to the closing of the transactions contemplated thereby (among
others):

1. At any time after December 1, 2003, provided that if our
stockholders approve the conversion feature of the senior secured
notes, such date will be extended to December 31, 2003;

2. If a court or governmental entity has issued a final and
non-appealable order permanently enjoining or prohibiting the
transactions contemplated by the Investment Agreement;

3. If any of our representations, warranties, covenants or agreements
are breached or, if any of our representations or warranties fails
to be true and correct, in either case such that any condition to
closing can not be satisfied on or before the date specified in Item
1, above;

4. If there has occurred a material adverse change with respect to us;

5. If our stockholders do not approve the conversion feature of the
senior secured note, the Investment Agreement, or the transactions
contemplated thereby;

6. If we change our jurisdiction of incorporation, merge with another
entity, dispose of all or substantially all of our assets, file for
bankruptcy, or incur additional indebtedness in excess of $3
million; or

7. If we default on the $3 Million Note or the $1.5 Million Note.

Indemnification. We have agreed to indemnify each Funding Party and all of
its representatives from and against any liability and expenses incurred by each
Funding Party and all of its representatives in connection with or arising from
the Investment Agreement and any other transactions related thereto, except to
the extent of any willful misconduct or gross negligence of the Funding Parties.

The foregoing description of the Investment Agreement is qualified in its
entirety by the text of the Investment Agreement which is an exhibit to the
registration statement that includes this prospectus.

Non-Transferability of the Rights

Both the basic subscription privilege and over-subscription privileges are
non-transferable and non-assignable. Only the person to whom the rights are
issued may exercise those rights.

Procedure to Exercise Rights

You may exercise your subscription rights by delivering to the
subscription agent, American Stock Transfer & Trust Company, the properly
completed and executed subscription warrant(s) at or prior to the expiration
time, with any signatures guaranteed as required, together with payment in full
of the subscription price. You may make payment only by check or bank draft
drawn upon a U.S. bank, or postal, telegraphic or express money order. Make your
check, draft or money order payable to American Stock Transfer & Trust Company,
as Subscription Agent.

The subscription price will be deemed to have been received by the
subscription agent only upon (i) clearance of any uncertified check or (ii)
receipt by the subscription agent of any certified check or bank draft drawn
upon a U.S. bank or of any postal, telegraphic or express money order. Funds
paid by uncertified personal check may take at least seven business days to
clear. Accordingly, if you wish to pay the subscription price by means of
uncertified personal check, you are urged to make payment sufficiently in
advance of the expiration time to ensure that such payment is received and
clears by such time and are urged to consider in the alternative payment by
means of certified or cashier's check or money order.

All funds received in payment of the subscription price will be held by
the subscription agent and may be invested at our discretion in short-term
certificates of deposit, short-term obligations of the United States, any state
or agency thereof, or money market mutual funds investing in the foregoing
instruments. The account in which such funds will be held is not insured by the
Federal Deposit Insurance Corporation. We will retain any interest earned on
such funds.

The subscription agent's address, which is the address to which the
subscription warrants and payment of the subscription price should be delivered,
whether by mail, by hand, or by overnight courier, is:

The subscription agent's telephone number is . We will pay the fees
and expenses of the subscription agent. We also have agreed to indemnify the
subscription agent from certain liabilities that it may incur in connection with
the rights offering.

If you do not indicate the number of rights you are exercising, or do not
forward full payment of the aggregate subscription price for the number of
rights that you are exercising, then you will be deemed to have exercised the
basic subscription privilege with respect to the maximum number of rights that
may be exercised for the subscription price payment that you delivered. If you
are a record date holder, to the extent that the aggregate subscription price
payment you delivered exceeds the product of the subscription price multiplied
by the number of rights evidenced by the subscription warrant(s) you delivered,
you will be deemed to have exercised the over-subscription privilege to
purchase, to the extent available, that number of whole excess shares equal to
the quotient obtained by dividing the excess price paid by the subscription
price. Any amount remaining after application of these procedures will be
returned to you as soon as practicable by mail without interest or deduction.

Until we issue certificates representing shares of common stock, we will
hold any funds received in a segregated escrow account. If shares are not issued
pursuant to the basic subscription privilege, or if you are allocated less than
all of the shares for which you subscribed pursuant to the over-subscription
privilege, then the funds held in escrow you paid as the subscription price for
shares not issued or for excess shares not allocated to you will be returned by
mail without interest or deduction as soon as practicable after the expiration
time and after all prorations and adjustments contemplated by the terms of the
rights offering have been effected.

We will mail the certificates representing shares of our common stock
subscribed for and issued pursuant to the basic subscription privilege as soon
as practicable after the expiration time. We will mail the certificates
representing shares of common stock subscribed for and issued pursuant to the
over-subscription privilege as soon as practicable after all prorations and
adjustments contemplated by the terns of the rights offering have been effected.
Certificates for shares of common stock issued pursuant to the exercise of
rights will be registered in the name of the rights holder exercising such
rights.

If you hold shares of common stock for the account of others, such as in
your capacity as a broker, trustee or depository for securities, you should
contact the respective beneficial owners of such shares as soon as possible to
ascertain those beneficial owners' intentions and to obtain instructions with
respect to their rights. If a beneficial owner so instructs, you should complete
appropriate subscription warrants and submit them to the subscription agent with
the proper payment. In addition, beneficial owners of common stock or rights
held through such a nominee holder should contact the nominee holder and request
the nominee holder to effect transactions in accordance with the beneficial
owner's instructions.

The instructions accompanying the subscription warrants should be read
carefully and followed in detail. Subscription warrants should be sent with
payment to the subscription agent at the address provided above. Please do not
send subscription warrants or payment to us.

The method of payment of the subscription price to the subscription agent
will be at your own election and risk. If you send subscription warrants and
payments by mail, you are urged to send the materials by registered mail,
properly insured, with return receipt requested, and are urged to allow a
sufficient number of days to ensure delivery to the subscription agent and
clearance of payment prior to the expiration time.

We will determine all questions concerning the timeliness, validity, form
and eligibility of any exercise of rights and our determinations will be final
and binding. In our sole discretion, we may waive any defect or irregularity, or
permit a defect or irregularity to be corrected within such time as we may
determine, or reject the purported exercise of any right. Neither we nor the
subscription agent will be under any duty to give notification of any defect or
irregularity in connection with the payment of the subscription price or incur
any liability for failure to give such notification. We reserve the right to
reject any exercise if such exercise is not in accordance with the terms of the
rights offering or not in proper form or if the acceptance thereof or the
issuance of shares of common stock pursuant thereto could be deemed unlawful.

If you have any questions or requests for assistance concerning the
exercise of your rights or requests for additional copies of this prospectus,
you should contact the Department at American Stock Transfer & Trust
Company at .

No Revocation of Your Subscription Exercise

Once you have exercised your basic subscription privilege or
over-subscription privilege, you may not revoke that exercise. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of common stock.

Commissions and Fees

Except for the fees charged by the subscription agent (which we will pay),
all commissions, fees and other expenses (including brokerage commissions)
incurred in connection with the exercise of rights will be for the account of
the holder of the rights and none of such commissions, fees or expenses will be
paid by us or by the subscription agent.

No Board or Financial Advisor Recommendation

Our board of directors makes no recommendation to you about whether you
should exercise any or all of the rights that are being distributed to you. We
have not retained a financial advisor to make any recommendation to you about
whether you should exercise your rights. Whether or not you intend to invest in
our common stock, you should read, among other things, the risks that are
described in the section "Risk Factors" and make your decision based on your own
assessment of your best interests.

Termination of this Offering

If our stockholders (other than the Funding Parties) do not subscribe for
at least $2.0 million worth of shares in the rights offering, we will not
consummate this offering. We reserve the right to terminate this offering at any
time and for any reason. If this offering is terminated, all subscription funds
received from stockholders will be

refunded without interest. We will not consummate the rights offering if we
would be required to issue more than 19,140,892 shares.

Consequences of a Failure to Exercise Rights

You will retain your current number of shares of our common stock even if
you do not exercise your subscription rights. However, if other stockholders
exercise their subscription rights or the Funding Parties otherwise purchase
shares of our common stock pursuant to the Investment Agreement and you do not
exercise your subscription rights, your relative percentage ownership of our
common stock will decrease, and your relative voting rights and economic
interests will be diluted. If you fully subscribe for your basic subscription
amount and our stockholders subscribe for an aggregate of more than $7.5 million
pursuant to their basic subscription amount, your percentage ownership of our
equity will be reduced. If you fully subscribe for your basic subscription
amount and our stockholders subscribe for an aggregate of less than $7.5 million
but more than $2 million, your percentage ownership of our equity will not be
reduced, however, your ownership percentage relative to certain of the Funding
Parties will be reduced.

If our stockholders (other than the Funding Parties) do not subscribe for
a minimum of $2 million pursuant to the basic subscription privilege and the
over-subscription privilege we will not consummate the rights offering and the
Funding Parties may elect, pursuant to the Investment Agreement, to provide
funding in the form of a senior secured note convertible into shares of our
common stock. Additionally, the Funding Parties will not be required to convert
the outstanding amount of the $3 Million Note and the $1.5 Million Note into
shares of our common stock. Such notes may remain outstanding and be payable
upon maturity in December 2004, which could have an adverse effect on our near
term working capital. In this event, we may need to secure additional financing
upon the maturity of the $3 Million Note and the $1.5 Million Note. There can be
no assurance that we will be able to obtain such financing on favorable terms or
at all. Furthermore, if the Funding Parties elect to provide funding in the form
of a purchase of a senior secured convertible note, such note, along with the $3
Million Note and the $1.5 Million Note, will be secured by all of the Company's
tangible and intangible property (other than equipment pledged to secure the
Company's equipment loan credit facility). Therefore, the Company's stockholders
equity interest in the Company will be effectively subordinate to the senior
secured position of the Funding Parties.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

This section describes the material United States federal income tax
consequences relating to the receipt and exercise of rights. This section
applies to you only if you acquire your rights in the distribution and hold your
rights as capital assets for tax purposes. This section does not apply to you if
you are a member of a special class of holders subject to special rules,
including:

o a broker or dealer in securities or currencies;

o a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;

o a tax-exempt organization;

o a financial institution;

o a life insurance company;

o a person liable for alternative minimum tax;

o a person that holds rights as part of a straddle, hedge, conversion,
"synthetic security" or other integrated or risk-reduction
transaction;

o a United States expatriate; or

o a person whose functional currency is not the U.S. dollar.

This section is based on the Internal Revenue Code of 1986, as amended,
its legislative history, existing and proposed Treasury regulations,
administrative rulings and court decisions, all as currently in effect as of the
date of this prospectus, and all of which are subject to change, possibly on a
retroactive basis. This summary does not discuss all of the aspects of United
States federal income taxation that may be relevant to you in light of your
particular circumstances. In addition, this summary does not discuss any state,
local or foreign tax consequences. RIGHTS HOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE OFFERING THAT ARE
RELEVANT TO THEIR PARTICULAR SITUATIONS, AS WELL AS THE EFFECTS OF STATE, LOCAL
AND NON-U.S. TAX LAWS.

You are a "U.S. holder" for the purposes of this discussion if you are the
beneficial owner of rights and you are any one of the following:

o a citizen or resident of the United States;

o a domestic corporation or other entity, not including a partnership,
that is created or organized in or under the laws of the United
States or of any political subdivision thereof and is subject to
United States taxation;

o an estate the income of which is subject to United States federal
income tax regardless of its source; or

o a trust if a United States court can exercise primary supervision
over the trust's administration and one or more United States
persons are authorized to control all substantial decisions of the
trust.

A "non-U.S. holder" is any holder of rights that is not a U.S. holder.

If a partnership receives rights, the tax treatment of a partner generally
will depend upon the status of the partner and the activities of the
partnership. If you are a partnership, or a partner in a partnership, that will
receive rights, you should consult your tax advisor regarding the particular tax
consequences to you.

Distribution of Rights

Under the United States federal income tax laws, the distribution of
rights to you will be treated as a tax-free stock dividend, and you will not be
required to include any amount in income with respect to such distribution.

U.S. Holders

Basis and Holding Period of the Rights

If the fair market value of a right on the date of distribution is less
than 15% of the fair market value of a share of our common stock on that date
(with the fair market value for shares based upon the average of the high and
low trading prices for shares on that date), your tax basis in a right will be
zero unless you elect to allocate your tax basis in our common stock between the
common stock and the rights in proportion to their relative fair market values.
This election would need to be made for all the rights distributed to you, in
the form of a statement attached to your United States federal income tax return
for the year in which you receive the rights. If made, this election would be
irrevocable. If the fair market value of a right on the date of distribution is
15% or more of the fair market value of a share of our common stock, you will be
required to allocate your tax basis in our common stock between the rights and
the common stock in proportion to their relative fair market values. Your
holding period for your rights will include your holding period for the shares
of common stock with respect to which the rights were distributed.

Expiration of Rights

If the rights expire without exercise, no basis will be allocated to the
rights and no loss will be recognized upon their expiration. In this case, your
basis in our common stock would not be reduced as a result of the distribution
of the rights.

Exercise of Rights

If you are a U.S. holder, you will not recognize gain or loss upon
exercise of a right.

Tax Basis of Common Stock Acquired Upon Exercise of a Right

The tax basis of each share of our common stock acquired by an exercise of
a right will equal the sum of the exercise price to acquire our stock and the
tax basis, if any, with respect to the right. The holding period of any share of
our common stock acquired as a result of your exercise of a right will begin
with and include the date of the right exercise.

Non-U.S. Holders

If you are a non-U.S. holder, you will generally not be subject to United
States federal income tax in respect of any gain you recognize on the sale or
other taxable disposition of common stock, unless:

1. the gain is effectively connected with your conduct of a trade or
business within the United States or, if a tax treaty applies, is
attributable to your United States permanent establishment;

2. if you are an individual and you hold our stock as a capital asset,
you are present in the United States for 183 or more days in the
taxable year of the disposition and certain other tests are met; or

3. you are subject to tax under the provisions of United States federal
income tax law applicable to certain United States expatriates.

If you are a non-U.S. holder, gain you derive from the sale or other
disposition of common stock that is effectively connected with your conduct of a
trade or business within the United States is generally taxed at the graduated
rates applicable to United States persons. If you are a corporation, such
effectively connected income may also be subject to the United States branch
profits tax. If you are described under clause (2) of the preceding

paragraph, you will be subject to a flat 30% tax on the gain derived in the
disposition, which may be offset by certain U.S.-source capital losses
recognized within the same taxable year as such disposition.

NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR UNITED STATES TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF INVESTING IN OUR STOCK.

Backup Withholding and Information Reporting

If you are a non-U.S. holder, your sale, exchange or other disposition of
our common stock acquired through the exercise of a right may be subject to
information reporting to the IRS. Copies of these information returns also may
be made available under the provisions of a specific treaty or agreement to the
tax authorities of the country in which the you reside. Backup withholding
(currently 30%) may apply to "reportable payments" if you fail to provide a
correct taxpayer identification number and certain other information, fail to
provide a certification of exempt status or fail to report your full dividend
and interest income.

Payment to or through the United States office of any broker, U.S. or
foreign, of the proceeds of the disposition of our common stock acquired through
the exercise of a right generally will be subject to information reporting and
backup withholding unless you certify as to your non-U.S. status under penalties
of perjury or otherwise establish that you qualify for an exemption, provided
that the broker does not have actual knowledge that you are a U.S. holder or
that the conditions of any other exemption are not in fact satisfied. Payment to
or through a foreign office of a broker of the proceeds of the disposition of
our common stock acquired through the exercise of a right generally will not be
subject to information reporting or backup withholding; however, if such broker
has certain connections to the United States, then information reporting, but
not backup withholding, will apply unless you establish your non-U.S. status.

Backup withholding is not an additional tax; any amounts withheld under
the backup withholding rules will be allowed as a refund or credit against your
United States federal income tax liability provided the required information is
furnished to the IRS. The information reporting requirements may apply
regardless of whether backup withholding is required.

The foregoing discussion of U.S. federal income and estate tax
considerations is not tax advice. Accordingly, each prospective Non-U.S. Holder
of our common stock should consult that holder's own tax adviser with respect to
the federal, state, local and non-U.S. tax consequences of the acquisition,
ownership and disposition of our common stock.

PLAN OF DISTRIBUTION

We will distribute by mail a copy of this prospectus and the subscription
warrants evidencing the rights to our holders of record as of , 2003, on
or about , 2003. We expect that the holders of record who hold shares of
our common stock on behalf of beneficial owners will forward a copy of this
prospectus and the related subscription information and forms to those
beneficial holders in adequate time to permit beneficial owners to complete and
deliver any subscription instructions to those banks, brokers or other nominees.
However, we cannot assure you that this will be the case.

As discussed above, we have engaged American Stock Transfer & Trust
Company as our subscription agent to assist in the distribution of the rights,
this prospectus and the related subscription information and forms. American
Stock Transfer & Trust Company, as our subscription agent, will receive and
process all subscription warrants from our holders of record and will distribute
certificates for the shares of our common stock purchased by holders of record
upon the expiration of this offering. We have not engaged an underwriter to
conduct a distribution of any shares not purchased upon the exercise of the
rights.

BUSINESS

General

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

Our restaurants are located in a wide range of markets and trade areas,
including business districts and residential communities in both urban and
suburban locations. We believe that we have created significant brand equity in
our markets and that we have demonstrated the appeal of our concept to a wide
variety of customers. We opened 17 restaurants in 2001, 25 restaurants in 2002
and six restaurants in 2003. In 2003, we announced our intention to incorporate
a franchising and area developer model into our business strategy. We expect
that restaurants we own will always be an important part of our new restaurant
growth and we believe that incorporating a franchising and area developer model
into our strategy will position us to maximize the market potential for the Cosi
brand and concept consistent with our available capital and thus maximize
stockholder value.

History

Cosi Sandwich Bar. The Cosi Sandwich Bar concept was created in Paris in
the early 1990s and brought to the United States by us in 1996. Cosi Sandwich
Bar's signature "crackly crust" flatbread, derived from a generations-old
Italian recipe, was prepared daily at each restaurant where fresh loaves were
baked throughout the day. Cosi Sandwich Bar focused on selling sandwiches in
high-density central business districts in New York, Washington DC, Boston and
Philadelphia.

Xando Coffee and Bar. Xando Coffee and Bar, founded in 1994, was an
innovative concept that went beyond the traditional specialty coffee bar. Xando
Coffee and Bar locations were open for five dayparts. The 5 p.m. "unveiling" of
a full liquor bar featured coffee cocktails and was intended to create a dynamic
evening environment. The atmosphere of Xando Coffee and Bar was adjusted
appropriately for each daypart by changing the music and lighting throughout the
day. The evening environment was completed by the addition of table service.

Concept and Business Strategy

developer model into our strategy will position us to maximize the market
potential for the Cosi brand and concept consistent with our available capital
and thus maximize shareholder value.

Properties

All of our restaurants are located on leased properties. Each lease
typically has a 10-year base rent period, with various renewal options. Each
lease requires a base rent, and some locations provide for contingent rental
payments. At most locations, we reimburse the landlords for a proportionate
share of either the landlord's taxes or yearly increases in the landlord's
taxes. The following table depicts existing restaurants, by region as of June
30, 2003:

======================================= ======================== ==================== ====================
STREET ADDRESS CITY DATE OPENED FORMAT
- --------------------------------------- ------------------------ -------------------- --------------------

NORTHEAST
103 Pratt Street Hartford, CT October 1994 Cosi (a)
338 Elm Street New Haven, CT March 1996 Cosi
970 Farmington Avenue W. Hartford, CT August 1999 Cosi
133 Federal Street Boston, MA October 1998 Cosi Downtown
53 State Street Boston, MA May 1999 Cosi Downtown
14 Milk Street. Boston, MA July 1999 Cosi Downtown
2160 Broadway New York, NY May 1997 Cosi
504 Avenue of the Americas New York, NY March 1998 Cosi
257 Park Avenue South New York, NY February 1999 Cosi
165 East 52nd Street New York, NY February 1996 Cosi Downtown
38 East 45th Street New York, NY February 1997 Cosi Downtown
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
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
202 West 36th Street New York, NY November 1998 Cosi Downtown
3 East 17th Street New York, NY February 1999 Cosi Downtown
685 Third Avenue New York, NY June 1999 Cosi Downtown
461 Park Avenue South New York, NY January 2000 Cosi
279 Main Street Huntington, NY February 2000 Cosi
50 Purchase Street Rye, NY March 2000 Cosi
38 East 51st Street New York, NY July 2000 Cosi Downtown
841 Broadway New York, NY September 2000 Cosi
15 S. Moger Avenue Mt. Kisco, NY December 2000 Cosi
116 Montague Street Brooklyn, NY March 2001 Cosi
545 Washington Boulevard Jersey City, NJ May 2001 Cosi Downtown
369 Lexington Avenue New York, NY August 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 St. Morristown, NJ December 2002 Cosi
498 7th Ave 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

MID-ATLANTIC
235 South 15th Street Philadelphia, PA September 1996 Cosi
325 Chestnut Street Philadelphia, PA April 1997 Cosi
1128 Walnut Street Philadelphia, PA December 1997 Cosi
3601 Walnut Street Philadelphia, PA August 1998 Cosi
761 Lancaster Avenue Bryn Mawr, PA September 1998 Cosi
215 Lombard Street Philadelphia, PA May 1999 Cosi
1700 Market Street Philadelphia, PA September 1999 Cosi Downtown
1720 Walnut Street Philadelphia, PA October 2000 Cosi
King of Prussia Mall King of Prussia, PA November 2001 Cosi
11909 Democracy Drive Reston, VA May 2001 Cosi
3003 N. Charles Street Baltimore, MD December 1998 Cosi (a)
1350 Connecticut Avenue Washington, DC September 1997 Cosi
1647 20th Street NW Washington, DC August 1998 Cosi
301 Pennsylvania Avenue SE Washington, DC March 1999 Cosi
2050 Wilson Boulevard Arlington, VA April 1999 Cosi
1700 Pennsylvania Avenue Washington, DC August 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
7251 Woodmont Avenue Bethesda, MD December 2000 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 St Exton, PA November 2002 Cosi
5252 Wisconsin Ave Washington, DC December 2002 Cosi

MID-WEST
116 S. Michigan Avenue Chicago, IL September 2000 Cosi
57 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
230 West Monroe Street Chicago, IL May 2002 Cosi Downtown
1101 Lake Street Oak Park, IL June 2001 Cosi
21-25 East Chicago Avenue Hinsdale, IL December 2001 Cosi
1402 Commons Drive Geneva, IL September 2002 Cosi
4074 The Strand West Columbus, OH October 2001 Cosi
6390 Sawmill Road Columbus, OH September 2002 Cosi
2212 East Main Street Bexley, OH September 2002 Cosi
301 South State Street Ann Arbor, MI May 2001 Cosi
101 North Old Woodward Avenue Birmingham, MI August 2001 Cosi
301 East Grand River Avenue East Lansing, MI May 2002 Cosi
44951 Schoenherr Road Sterling Heights, MI May 2002 Cosi
8775 N. Port Washington Road Fox Point, WI December 2001 Cosi
30995 Orchard Lake Road Farmington Hills, MI July 2002 Cosi
84 N. Adams Road Rochester Hills, MI September 2002 Cosi
28674 Telegraph Rd Southfield, MI November 2002 Cosi

1478 Bethel Rd Columbus, OH November 2002 Cosi
233 North Michigan Ave Chicago, IL December 2002 Cosi Downtown
37652 Twelve Mile Road Farmington Hills, MI December 2002 Cosi
12 East Wilson Bridge Road Worthington, OH December 2002 Cosi
15131 LaGrange Rd Orland Park, IL December 2002 Cosi
28 East Jackson Blvd. Chicago, IL January 2003 Cosi Downtown
310 Polaris Parkway Polaris, OH February 2003 Cosi
- --------------------------------------- ------------------------ -------------------- --------------------

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

Cosi Products

We offer proprietary bread and coffee products for all five dayparts -
breakfast, lunch, afternoon coffee, dinner and dessert. Our food menu includes
Cosi Squagels(R) (square bagels made from Cosi bread), sandwiches, salads,
soups, Cosi CornersTM and other appetizers, Warm n' Cosi MeltsTM, pizzas,
s'mores and other desserts. Our beverage menu features a full line of coffee
beverages, teas, Arctic smoothies, mochas and lattes, Screamers(R) (coffee
beverages topped with ice cream) and our signature coffee cocktails.

We periodically introduce new menu segments and products in order to keep
our product offerings relevant to consumers in each daypart. New recipes are
developed by our executive chef in conjunction with our partner suppliers. These
recipes are thoroughly evaluated, both internally and through consumer focus
groups. New products are intended to drive customer frequency and average
checks, resulting in increased average unit volumes in new locations and
positive same restaurant sales increases in existing locations.

People

At March 31, 2003, we had 2,765 employees, 71 of which served in
administrative or executive capacities, 237 of which served as restaurant
management personnel, and 2,457 of which were hourly restaurant personnel.

None of our employees are covered by collective bargaining agreements and
we have never experienced an organized work stoppage or strike. We believe that
our working conditions and compensation packages are competitive and consider
relations with our employees to be good.

Operations

Management Structure. The restaurant operations team is built around
regional centers, led by a Regional Vice President, who reports to our Senior
Vice President of Operations. Each Regional Vice President is responsible for
all operations, training, recruiting and human resources within his or her
region. The Regional Vice Presidents are also responsible for the financial plan
for their region and for the people development plan to support the growth in
their region.

Sales Forecasting. Each of the Regional Vice Presidents and their District
Managers have real time access to sales forecast and actual sales information in
their restaurants through our web based reporting system. This allows restaurant
management teams to plan their staffing requirements on a weekly, daily and even
hourly basis to effectively serve our customers.

Product Quality. Our food and beverage quality is managed at three
critical stages: sourcing, line readiness and product preparation. Products are
delivered several times each week so that all restaurants maintain fresh,
quality products. Because our restaurants serve a different variety of products
during different dayparts, a specific line readiness checklist is completed to
ensure that the products have been rotated, prepared and staged correctly.
Finally, our partner-training program includes certification in both product
knowledge and product preparation standards.

Food and Labor Cost Controls. Our information system allows us to track
actual versus theoretical cost of goods sold. Detailed reports are available at
the restaurant level showing variances on an item-by-item basis. The

system is fully integrated into our accounts payable and general ledger systems
so that restaurant managers have control and can be held accountable for their
results.

We have developed a labor management system that helps our managers
control labor and ensures that staffing levels are appropriate to meet our
service standards. This labor management system provides our multi-unit managers
with performance reports on a real time basis that help them make staffing
adjustments during the course of the week. Our system was developed to maximize
labor efficiency and profitability of the restaurants.

We believe that the combination of these structured restaurant operating
systems and technologies allow our operators to focus their time more
effectively on the day-to-day drivers of our business.

Systems Infrastructure

We use an ASP model, which allows us to have the latest in technology and
up to the minute information without continually having to re-invest in hardware
and personnel. Our strategy includes utilizing web technology to put information
into the hands of the people who need to make decisions in a timely manner.

Our point of sale, back-office modules, and our Oracle financials systems
are fully integrated. This integration allows us to all be working with the
same, accurate data with minimal staffing. All information relating to
restaurant operations is uploaded onto a secure web site five times a day for
review and pre-selected reports are distributed to our operations team via
wireless and e-mail solutions.

We have a redundancy and back-up plan in place for all data as well as a
disaster recovery plan. The plan encompasses daily back up, weekly off-site
storage and redundant facilities.

Purchasing

We have relationships with some of the country's leading food and paper
providers to provide our restaurants with high quality proprietary food items at
competitive prices. We source and negotiate prices directly with these suppliers
and distribute these products to our restaurants through one distributor. We do
not utilize a commissary system. Our inventory control system allows each
restaurant to place orders electronically with our master distributor and then
transmit the invoice electronically to our accounts payable system. Our scalable
system eliminates duplicate work and we believe gives our management tight
control of costs while ensuring quality and consistency across all restaurants.

We purchase coffee through a single supplier. In the event of a business
interruption, our supplier is required to utilize the services of a third party
roaster to fulfill its obligations. If the services of a third party roaster are
used, our supplier will guarantee that the pricing formula and product
fulfillment standards stated in our contract will remain in effect throughout
such business interruption period. We may terminate our agreement with this
supplier upon 180 days notice.

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

During 2002, we received $600,000 in allowances from food and beverage
suppliers, which is being recognized ratably based on actual product purchased.
We may receive additional amounts if certain purchase levels are achieved.

Our primary suppliers and master distributor, Maines Food and Paper
Service, Inc., have parallel facilities and systems to minimize the risk of any
disruption of our supply chain.

Competition

The restaurant industry is intensely competitive and we compete with many
well-established food service companies, including other sandwich retailers,
specialty coffee retailers, bagel shops, fast food restaurants, delicatessens,
cafes, bars, take-out food service companies, supermarkets and convenience
stores. The principal

factors on which we compete are taste, quality and price of product offered,
customer service, atmosphere, location and overall guest experience. Our
competitors change with each of the five dayparts, ranging from coffee bars and
bakery cafes in the morning daypart, to fast food restaurants and cafes during
the lunch and afternoon dayparts, to casual dining chains during the dinner and
dessert dayparts. Many of our competitors or potential competitors have
substantially greater financial and other resources than we do which may allow
them to react to changes in pricing, marketing and the quick service restaurant
industry better than we can. We also compete with other employers in our markets
for hourly workers and may be subject to higher labor costs. We believe that our
concept, attractive price-value relationship and quality of products and service
allow us to compete favorably with our competitors.

Intellectual Property

We have the following U.S. Trademark registrations: "COSI," "Totally
Toasted Almond Mocha," "Mocha Kiss," "Squagels," "Xando," our sun and moon logo,
"Wake Up Call to Last Call," "Symphony Blend," "King of Hearts Blend,"
"Xandwich," "Generation XO," "Screamers," "Cosi Corners," and "Warm `n Cosi
Melts." We have a U.S. Trademark application pending for "Cosi Downtown."
"Arctic" is an unregistered trademark.

We have registered the trademark "COSI" in seven foreign jurisdictions
with respect to goods and services. We also have applications pending for
registration for the trademark "COSI" in four other foreign jurisdictions.

Government Regulation

Our restaurants are subject to regulation by federal agencies and to
licensing and regulation by state and local health, sanitation, building,
zoning, safety, fire and other departments relating to the development and
operation of restaurants. These regulations include matters relating to
environmental, building, construction and zoning requirements, franchising and
the preparation and sale of food and alcoholic beverages. Our facilities are
licensed and subject to regulation under state and local fire, health and safety
codes.

Many of our restaurants are required to obtain a license to sell alcoholic
beverages on the premises from a state authority and, in certain locations,
county and/or municipal authorities. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily operations
of each of our restaurants, including minimum age of patrons and employees,
hours of operation, advertising, wholesale purchasing, inventory control and
handling, and storage and dispensing of alcoholic beverages. We have not
encountered any material problems relating to alcoholic beverage licenses to
date. The failure to receive or retain a liquor license in a particular location
could adversely affect that restaurant and our ability to obtain such a license
elsewhere.

We are subject to "dram shop" statutes in the states in which our
restaurants are located. These statutes generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated individual. We carry
liquor liability coverage as part of our existing comprehensive general
liability insurance, which we believe is consistent with coverage carried by
other entities in the restaurant industry. Although we are covered by insurance,
a judgment against us under a dram-shop statute in excess of our liability
coverage could have a material adverse effect on us.

Our operations are also subject to federal and state laws governing such
matters as wages, working conditions, citizenship requirements and overtime.
Some states have set minimum wage requirements higher than the federal level.
Significant numbers of hourly personnel at our restaurants are paid at rates
related to the federal minimum wage and, accordingly, increases in the minimum
wage will increase labor costs. We are also subject to the Americans with
Disabilities Act of 1990, which, among other things, prohibits discrimination on
the basis of disability in public accommodations and employment. We are required
to comply with the Americans with Disabilities Act and regulations relating to
accommodating the needs of the disabled in connection with the construction of
new facilities and with significant renovations of existing facilities.

Legal Proceedings

From time to time, we are a defendant in litigation arising in the
ordinary course of our business, including claims resulting from "slip and fall"
accidents, claims under federal and state laws governing access to public
accommodations, employment related claims and claims from guests alleging
illness, injury or other food quality,

health or operational concerns. To date, none of such litigation, some of which
is covered by insurance, has had a material adverse effect on our consolidated
financial position, results of operations or cash flows.

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

MANAGEMENT

Directors and Executive Officers

The table below sets forth the names and ages of the directors, and the
current executive officers of the Company, as well as the positions and offices
held by such persons. A summary of the background and experience of each of
these individuals is set forth after the table. [need to conform this table to
info in Proxy]

Name Age Position(s) with Cosi
- -------------------------------------- -------- ---------------------------------------------------------------

DIRECTORS WHOSE TERMS EXPIRE IN 2003:

Terry Diamond (Nominee) 64 Director
Greg Woolley (Nominee) 29 Director
Nick Marsh 33 Director

CONTINUING DIRECTORS WHOSE TERMS
EXPIRE IN 2004:

Creed L. Ford, III 50 Director
Kevin Armstrong 45 President, Chief Executive Officer and Director
Jay Wainwright 32 Director and Employee

CONTINUING DIRECTORS WHOSE TERMS
EXPIRE IN 2005:

William D. Forrest 42 Chairman of the Board
D. Ian McKinnon 36 Director
Jeffrey M. Stork 47 Director

EXECUTIVE OFFICERS WHO ARE NOT
DIRECTORS:

Kenneth S. Betuker 50 Chief Financial Officer, Treasurer and Secretary
Joe Hoog 53 Senior Vice President, Operations
Gilbert Melott 39 Vice President of People
Charles Gray 30 Vice President of Information Systems

William D. Forrest, Executive Chairman. Mr. Forrest joined our Board of
Directors and was elected Chairman of the Board on March 31, 2003. On June 26,
2003, he was appointed Executive Chairman, an officer's position with day to day
general management responsibility for the affairs of the Company. Since 2001,
Mr. Forrest has headed the Restructuring Group at Gleacher & Co. Mr. Forrest has
served as a corporate restructuring professional since 1988 and, in 1997, he
attained the designation Certified Turnaround Professional ("CTP"). The CTP
designation establishes stringent criteria for practical experience, knowledge
and ethical integrity for the Corporate Renewal Industry. Prior to joining
Gleacher & Co., Mr. Forrest was a Managing Director of Catterton-Forrest LLC (a
division of Catterton Partners), where he was responsible for the acquisition
and management of portfolio companies, focused exclusively on the troubled
business space. From 1997 to 1999, Mr. Forrest was crisis manager/interim CEO
for Fine Host Corporation, a $330 million publicly traded food service company,
where he completed the successful turnaround by negotiating a comprehensive
balance sheet restructuring utilizing a pre-negotiated Chapter 11 bankruptcy
proceeding and by implementing a strategic integration plan of acquired
companies for this 23-subsidiary operating company. Mr. Forrest received a
Bachelor of Arts degree from Cornell University. His work has been published in
the American Bankruptcy Journal and he has been a featured speaker for
organizations including the Turnaround Management Association.

Kevin Armstrong, President, Chief Executive Officer and Director. Mr.
Armstrong was appointed President and Chief Executive Officer of the Company and
elected to the Board of Directors on July 7, 2003. Mr. Armstrong has over 20
years of experience in the restaurant industry. From November, 2000 to July,
2002, Mr. Armstrong was President and Chief Operating Officer of Long John
Silvers Restaurants, Inc., where he developed

successful brand strategies that reversed two years of sales decline and
resulted in three years of same store sales growth and profitability. Mr.
Armstrong was pivotal in bringing the company out of bankruptcy, ultimately
leading to its sale to YUM Brands. From August, 1999 to November, 2000, he was
Senior Vice President and Chief Marketing Officer of Long John Silvers
Restaurants, Inc. Prior to his tenure at Long John Silver's, from September,
1996 to August, 1999, Mr. Armstrong served as Chief Marketing Officer for Subway
Franchisee Advertising Trust, an independent arm of the $3.2 billion Subway
brand. There he reengineered marketing processes and reversed an 18 month
negative sales and profit performance period, increasing store profitability.
Mr. Armstrong also served as a consultant to PepsiCo's restaurant services
division from May 1991 to September 1996, developing brand-positioning
strategies for over forty diverse companies. From June 1989 to February 1991,
Mr. Armstrong was responsible for both domestic and international marketing
strategies at Burger King.

Jay Wainwright, Director and Employee. Mr. Wainwright, a founder of Cosi
Sandwich Bar, Inc., served as Chairman and Chief Executive Officer of that
entity from its inception in 1996 until its merger with Xando, Incorporated, in
1999. Mr. Wainwright served as interim President and Chief Executive Officer of
the Company from January 31, 2003 to July 7, 2003. He remains an employee of the
Company. Mr. Wainwright received a Bachelor of Arts degree from Hamilton
College.

Kenneth S. Betuker, Chief Financial Officer, Treasurer and Secretary. Mr.
Betuker has served as Chief Financial Officer and Treasurer of Cosi since May
2000 and as its Secretary since February 2003. Prior to joining Cosi, Mr.
Betuker was the Chief Financial Officer at Noodle Kidoodle, Inc., from 1996 to
May 2000, and the Chief Financial and Administrative Officer of First National
Supermarkets, Inc. (a subsidiary of Royal Ahold, NV), from 1986 to 1996. Mr.
Betuker graduated from Cleveland State University, cum laude, with a Bachelor of
Science degree, and was awarded a Masters Degree in Business Administration,
with Highest Distinction, from Babson College.

Gilbert Melott, Vice President of People. Mr. Melott has served as the
Company's Vice President of People since December 2001. From December 1995 to
November 2001, Mr. Melott was Executive Director of Training and Vice President
of People, Process and Education at Bennigan's. Prior to joining Bennigan's, Mr.
Melott was a Division Director of Human Resources at Sheraton Holding
Corporation in Boston, Massachusetts, and spent four years as Divisional
Training and Development Manager at TGI Friday's. Mr. Melott is a nationally
recognized expert in generational workplace studies and recipient of Industry of
Choice awards for achievement in training and education. Mr. Melott received a
Bachelor of Science degree in Marketing and Organizational Communication from
Fordham University in 1985.

Charles Gray, Vice President of Information Systems. Mr. Gray currently
serves as the Company's Vice President of Information Systems and has been with
Cosi since September 1998. Mr. Gray is a ten-year veteran in the food service
industry, having served as Director of Training for RANCH *1, Inc., from 1996 to
1998, Director of Operation Services for Einstein Bros. Bagels from 1995 to
1996, and Assistant Director of Training for Boston Market Corporation from 1992
to 1995. Mr. Gray is a graduate of the State University of New York at Albany.

Joe Hoog, Senior Vice President - Operations. Mr. Hoog joined Cosi as
Senior Vice President of Operations in November 2002. From 1996 to 2002, he was
with Einstein's Bros. Bagels, as President and Chief Operating Officer and as
Senior Vice President of Operations. Prior to joining Einstein Bros., Mr. Hoog
was a Regional Director and Zone Vice President for Blockbuster where he
orchestrated the Canadian expansion from 35 to 250 units in two years. Mr. Hoog
received a Bachelor of Arts degree in Sociology from Marian College.

Terry Diamond, Director. Mr. Diamond, a director of the Company since
February 2001, has served as Chairman of Talon Asset Management, Inc. since
1994. Talon Asset Management, Inc. is an investment management firm which
manages individual investment advisory accounts, is the sub-agent with
investment responsibility for the ABN Amro Mid-Cap Fund and operates hedge funds
and a private equity fund. Mr. Diamond also is the Managing Member of Talon
Opportunity Partners LLC, as well as the General Partner of Talon Opportunity
Partners, L.P. Mr. Diamond has acted as a consultant and board member to many
private, public and philanthropic organizations. Mr. Diamond received a Bachelor
of Science degree from the University of Michigan in 1960 and a Juris Doctor
degree from the University of Chicago Law School in 1963.

Creed L. Ford, III, Director. Mr. Ford has been a director of the Company
since March 1997. Mr. Ford has been Chairman and Co-Chief Executive Officer of
Fired Up, Inc., the parent company of Johnny Carino's

Country Italian restaurants and Gumbo's Louisiana Style Cafe, since 1997, and
the President of Ford Restaurant Group, a Chili's Grill & Bar franchisee, since
1997. From 1976 through 1997, Mr. Ford served in various capacities, including
Chief Operating Officer and Director, at Brinker International, Inc. As Chief
Operating Officer and Director, Mr. Ford oversaw all operations at Brinker for
all of its restaurant concepts. Mr. Ford serves on the boards of Rudy's BBQ,
Texas Restaurant Association Education Foundation, Texas A&M Center of
Entrepreneurship, and Fired Up, Inc.

D. Ian McKinnon, Director. Mr. McKinnon has been a director of the Company
since 2000 and is a partner of Ziff Brothers Investments, L.L.C. Mr. McKinnon
also is the President of ZBI Equities, L.L.C., ZBI's domestic public equity
investment adviser with several billion dollars under management. He currently
also serves on the Board of Trustees of Occidental College. Mr. McKinnon
graduated, summa cum laude and Phi Beta Kappa, from Occidental College, with a
Bachelor of Arts degree in Public Policy. Mr. McKinnon received a Masters Degree
in Business Administration from the Harvard Business School, with High
Distinction as a George F. Baker Scholar.

Jeffrey M. Stork, Director. Mr. Stork has been a director of the Company
since March 1995. Mr. Stork was most recently President and Chief Executive
Officer of The StonCor Group from 1983 to 2000. Currently, Mr. Stork is the
Managing Partner of Forms+Surfaces, LLC, a national architectural products
manufacturer. Mr. Stork currently serves on the boards of Sequel Genetics, Inc.,
and Forms+Surfaces, LLC. Mr. Stork earned a Bachelor of Science degree in
Chemical Engineering from Lehigh University.

Greg Woolley, Director. Mr. Woolley has been a director of the Company
since June 2001 and is Chief Executive Officer and a director of the LJCB
Investment Group. LJCB is one of Australia's leading private investment houses.
Prior to this, Mr. Woolley practiced mergers and acquisitions with Macquarie
Bank Limited. Mr. Woolley currently serves on the boards of Issues and Images,
an Australian marketing communications company, and the Australian Museum of
Contemporary Art. Mr. Woolley received a Bachelor of Commerce degree and a
Bachelor of Law degree, with Honours, from the University of Tasmania.

Meetings and Committees of the Board of Directors

The Board of Directors of Cosi held three meetings during fiscal 2002 and
took action by written consent on three occasions. Each current director
attended 75% or more of the aggregate number of meetings of the Board of
Directors and Board committees on which he served that were held during such
period, except that Creed Ford attended fewer than 75% of the aggregate number
of meetings of the Board of Directors and Greg Woolley was unable to attend one
of three Audit Committee meetings.

The Board of Directors of Cosi currently has three standing committees:
the Audit Committee, the Compensation Committee and the Nominating Committee.
The Audit Committee met three times during fiscal 2002. The Compensation
Committee met once in fiscal 2002. The Nominating Committee did not meet in
fiscal 2002, as the full Board of Directors performed the Nominating Committee's
functions during that period.

Audit Committee. The principal functions of the Audit Committee are to
review, act and report to the Board of Directors with respect to various
auditing and accounting matters, including the recommendation of our auditors,
the scope of our annual audits, fees to be paid to the auditors, evaluating the
performance of the auditors and our accounting practices. The members of the
Audit Committee are Jeffrey Stork, Creed Ford and Greg Woolley, each of whom is
deemed "independent" under Rule 4200(a)(14) of the National Association of
Securities Dealers' listing standards.

Compensation Committee. The principal functions of the Compensation
Committee are to review salaries, benefits and other compensation of the
Company's officers, other employees and consultants, make recommendations to our
Board of Directors regarding salaries, benefits and other compensation and
administer its employee benefit plans. As of May 17, 2003, the current members
of the Compensation Committee are Ian McKinnon and Jeffrey Stork.

Nominating Committee. The Nominating Committee recommends to the Board of
Directors those individuals to be nominated as directors. As of January 31,
2003, the current members of the Nominating Committee are Messrs. Ford and
Stork.

Executive Compensation

The following table sets forth certain summary information concerning
compensation paid by us, to or on behalf of the Chief Executive Officer and to
each of our five most highly compensated executive officers other than the Chief
Executive Officer during the fiscal year ended December 30, 2002.

SUMMARY COMPENSATION TABLE

Long Term
Compensation
Annual Compensation Awards
------------------------------- ------------------
Securities All Other
Underlying Compen-
Name and Principal Position Year Salary ($) Bonus ($) Options/SARs (#) sation ($) (1)
- ---------------------------------- ------ ----------------- ------------- ------------------ ----------------

Andy Stenzler 2002 222,115 68,750(3) --- ---
Chairman and Chief Executive 2001 137,500 19,342 145,782 ---
Officer (2)

Kenneth S. Betuker 2002 215,000 --- --- ---
Chief Financial Officer, 2001 215,000 9,383 99,465 ---
Treasurer and Secretary

Nick Marsh 2002 174,038 68,750 --- ---
Chief Operating Officer (4) 2001 137,500 19,342 145,782 ---

David Orwasher 2002 236,539 58,000 78,573 ---
Chief Development Officer (5) 2001 --- --- 14,286 ---

James M. Riley, Jr. 2002 191,539 --- --- ---
Vice President of Store 2001 185,000 5,578 68,096 ---
Development (6)

Jay Wainwright 2002 174,038 68,750 --- ---
President (7) 2001 137,500 17,689 71,915 ---

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

(1) The value of perquisites and benefits for each named executive officer does
not exceed the lesser of $50,000 or 10% of such individual's total annual
salary and bonus.

(2) Mr. Stenzler served as Chief Executive Officer of the Company during fiscal
2002. Mr. Stenzler resigned as Chairman and Chief Executive Officer on
January 31, 2003, and Jay Wainwright has served as the Company's interim
Chief Executive Officer since such date.

(3) This amount represents Mr. Stenzler's 2001 bonus, which was paid in 2002.

(4) Mr. Marsh served as Chief Operating Officer of the Company during fiscal
2002. Mr. Marsh's employment with the Company terminated as of April 30,
2003.

(5) Mr. Orwasher served as Chief Development Officer of the Company during
2002. Mr. Orwasher's employment with the Company terminated as of June 27,
2003.

(6) Mr. Riley served as Vice President of Store Development during fiscal 2002.
Mr. Riley's employment with the Company terminated on July 7, 2003.

(7) Mr. Wainwright served as President of the Company during fiscal 2002. From
January 31, 2003, to July 7, 2003, Mr. Wainwright served as the Company's
interim President and Chief Executive Officer. He remains an employee of
the Company.

Stock Option Grants and Exercises During the Last Fiscal Year

The following table sets forth information concerning stock option grants
made during fiscal 2002 to the executive officers named in the "Summary
Compensation Table." This information is for illustration purposes only and is
not intended to predict the future price of the common stock. The actual future
value of the options will depend on the market value of the common stock.

STOCK OPTION GRANTS IN FISCAL YEAR 2002

Potential Realizable Value At
Assumed Annual Rates of Stock
Price Appreciation For Option
Individual Grants Term
- ------------------------------------------------------------------------------- -----------------------------------
Number of Percent of
Securities Total
Underlying Options/SARs Exercise
Options/SARs Granted to Price Expiration
Name Granted Employees (%) ($/SH) Date 5% ($) 10% ($)
- -------------------------- ------------ ---------------- ----------- ---------- ------------------ ---------------

Andy Stenzler -- -- -- -- -- --
Kenneth S. Betuker -- -- -- -- -- --
Nick Marsh -- -- -- -- -- --
David Orwasher 78,573 15.7% 12.25 01/07/2012 -- 464,068
James M. Riley, Jr. -- -- -- -- -- --
Jay Wainwright -- -- -- -- -- --

The following table sets forth certain summary information concerning
exercised and unexercised options to purchase Cosi's common stock held by the
executive officers named in the "Summary Compensation Table" as of December 30,
2002.

STOCK OPTION EXERCISES IN FISCAL YEAR
2002 AND FISCAL YEAR-END OPTION VALUES

Shares of Common Stock Value of Unexercised
Underlying Unexercised In-The-Money Options/SARs at
Options at Fiscal Year End (#) Fiscal Year-End ($)
------------------------------ -----------------------------
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------- ------------ -------------- -------------- --------------- -------------- ---------------

Andy Stenzler -- -- 120,172 66,602 -- --
Chairman and Chief Executive
Officer (1)

Kenneth S. Betuker -- -- 20,952 107,086 -- --
Chief Financial Officer,
Treasurer and Secretary (1)

Nick Marsh -- -- 120,172 66,602 -- --
Chief Operating Officer (1)

David Orwasher -- -- -- 92,859 -- --
Chief Development Officer (1)

James M. Riley, Jr. -- -- 33,905 42,764 -- --
Vice President of Store
Development (1)

Jay Wainwright -- -- 379,137 62,721 401,217 (2) --
President

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

(1) Options owned by Messrs. Stenzler, Betuker, Marsh, Orwasher and Riley were
not in-the-money as of December 30, 2002.

(2) With respect to 81,337 exercisable options owned by Mr. Wainwright, the
value of unexercised in-the-money options is calculated by multiplying the
number of options by the difference between the exercise price, $1.56 per
share, and $5.78, the closing price of the Company's Common Stock at
December 30, 2002. With respect to 120,782 exercisable options owned by Mr.
Wainwright, the value of unexercised in-the-money options is calculated by
multiplying the number of options by the difference between the exercise
price, $5.30 per share, and $5.78, the closing price of the Company's
Common Stock at December 30, 2002.

Equity Compensation Plan Information

The following table sets forth certain information as of December 30,
2002, with respect to the Company's equity compensation plans under which shares
of the Company's common stock may be issued.

EQUITY COMPENSATION PLAN INFORMATION

Number of Securities
Remaining Available for
Number of Securities to be Weighted-Average Exercise Future Issuance Under
Issued Upon Exercise of Price of Outstanding Equity Compensation Plans
Outstanding Options, Options, Warrants and (Excluding Securities
Plan Category Warrants and Rights Rights Reflected in Column (a))
- ------------------------------ -------------------------- ---------------------------- --------------------------
(a) (b) (c)

Equity compensation plans
approved by security
holders...................... 3,406,332 $10.41 6,650,583

Equity compensation plans not
approved by security
holders...................... None None None

Total............... 3,406,332 $10.41 6,650,583

Stock Option Plans

Amended and Restated Cosi, Inc. Stock Incentive Plan

A total of 8,900,000 shares of common stock have been reserved for
issuance under the Amended and Restated Cosi, Inc. Stock Incentive Plan. Shares
subject to any unexercised options granted under the plan that have expired or
terminated become available for issuance again under the plan. The plan provides
for discretionary grants of incentive stock options, non-qualified stock options
and stock appreciation rights, or SARs, to the Company's employees and
consultants. The exercise price per share for an incentive stock option may not
be less than 100% of the fair market value of a share of common stock on the
grant date. The exercise price per share for a non-qualified stock option may
not be less than 85% of the fair market value of a share of common stock on the
grant date. The exercise price per share for an incentive stock option granted
to a person owning stock possessing more than 10% of the total combined voting
power of all classes of the Company's stock may not be less than 110% of the
fair market value of a share of common stock on the grant date. The aggregate
fair market value, determined on the date of grant, of the shares with respect
to which incentive stock options are exercisable for the first time during any
calendar year under all Cosi plans may not exceed $100,000. The Compensation
Committee has full discretion to administer and interpret the plan, to adopt
such rules, regulations and procedures as it deems necessary or advisable and to
determine the persons eligible to receive options or SARs, the time or times at
which the options or SARs may be exercised and whether all of the options or
SARs may be exercised at one time or in increments.

The Company may elect at any time to cancel any option or SAR granted
under the plan and, in the case of an option, pay the holder of such option the
excess of the fair market value of the shares subject to the option as of the
date of such election to cancel over the exercise price set forth in the
particular grant agreement, or, in the case of an SAR, the value of the SAR as
of the date of such election. The Company also may elect at any time to convert
any option granted under the plan to an SAR.

1996 Cosi Sandwich Bar, Inc. Incentive Stock Option Plan

As of April 25, 2003, options to purchase approximately 274,000 shares of
common stock are outstanding under the Cosi Sandwich Bar, Inc. Incentive Stock
Plan. Shares subject to any unexercised options granted under the plan that have
expired or terminated become available for issuance again under the plan. No
stock options may

be granted under the plan after October 1, 2001. The Cosi Sandwich Bar, Inc.
Incentive Stock Plan provides for discretionary grants of incentive stock
options to certain key employees. The exercise price per share for an option may
not be less than 100% of the fair market value of a share of common stock on the
grant date. The exercise price per share for an incentive stock option granted
to a person owning stock possessing more than 10% of the total combined voting
power of all classes of our stock may not be less than 110% of the fair market
value of a share of common stock on the grant date. To the extent that the
aggregate fair market value of stock with respect to which incentive stock
options are exercisable for the first time by an optionee during any calendar
year (under this plan and all of our other incentive stock option plans or those
of its subsidiaries) exceeds $100,000, such incentive stock option shall be
treated as options that are not incentive stock options. In the event that an
optionee's employment is terminated by us, other than for cause, such optionee
may exercise any exercisable options under the plan for a period of 30 days. In
the event that an optionee's employment is terminated by reason of death, such
optionee may exercise any exercisable options under the plan for a period of six
months. In the event that an optionee's employment is terminated by us for
cause, all options held by such optionee are immediately cancelled and we may
require such optionee to sell to it, at a sales price equal to the lesser of the
exercise price and the fair market value of the underlying shares, all shares
owned by the optionee that were acquired pursuant to this plan. The Cosi
Sandwich Bar, Inc. Incentive Stock Option Plan is administered and interpreted
by the Board of Directors.

Cosi Non-Employee Director Stock Option Plan

A total of 250,000 shares of common stock have been reserved for issuance
under the Cosi Non-Employee Director Stock Option Plan. Shares subject to any
unexercised options granted under the plan that have expired or terminated
become available for issuance again under the plan. The Cosi Non-Employee
Director Stock Option Plan provides for discretionary grants of non-qualified
stock options and SARs to our non-employee directors. The Board of Directors has
full discretion to administer and interpret the plan and full discretionary
authority to determine the non-employee directors eligible to receive options or
SARs, the time or times at which the options or SARs may be exercised and
whether all of the options or SARs may be exercised at one time or in
increments; provided, however, that the purchase price of shares subject to a
non-qualified stock option shall not be less than 85% of the fair market value
of a share of common stock on the grant date. Each optionee under the plan may
exercise any unexpired options or SARs following a change in control of Cosi, a
sale of substantially all of the assets of Cosi or shareholder approval of the
dissolution of Cosi.

Employee Stock Purchase Plan

The purpose of the Employee Stock Purchase Plan is to provide employees
with an opportunity to purchase our shares through accumulated payroll
deductions. The plan provides for the grant of stock options to eligible
employees. Each employee will be eligible to participate in the plan commencing
on the first day of the offering period (as described below) occurring on or
after the date on which the employee has been employed by us for six months. The
plan is administered by the Compensation Committee.

A total of 500,000 shares of common stock are authorized for issuance
under the plan. Any eligible employee may elect to participate in the plan by
authorizing the Compensation Committee to make payroll deductions to pay the
exercise price of an option at the time and in the manner prescribed by the
Compensation Committee. The employee may designate the amount of the payroll
deduction in whole percentages, up to 10% of the employee's compensation for
each payroll period in an offering period. In no event will an employee be
granted an option under the plan that would permit an employee to purchase
shares of common stock under the plan, to the extent that, immediately after the
grant, such employee (i) would own common stock and/or hold options to purchase
common stock possessing 5% or more of the total combined voting power or value
of all classes of our stock, or (ii) has the right to purchase common stock
during any calendar year having a fair market value in excess of $25,000.
Options are granted at two six-month offering periods in each calendar year. The
date of grant and the date of exercise for the first option period under the
plan in a given calendar year will be January 1 and June 30, respectively, and
the date of grant and date of exercise for the second option period will be July
1 and December 31, respectively. As of August 5, 2003, no options have been
granted under this plan. The price of stock purchased under the plan will be an
amount equal to the lesser of 85% of the fair market value of the stock on the
date of purchase or on the date of commencement of the applicable offering
period.

Executive Contracts and Change-in-Control and Other Arrangements

Employment Agreement with William D. Forrest. On June 26, 2003, we entered
into an employment agreement with Mr. Forrest. Pursuant to the agreement, Mr.
Forrest will serve as Executive Chairman for three years ending on March 31,
2006. In consideration for Mr. Forrest serving as Executive Chairman, on June
26, 2003, we issued 1,156,407 shares of authorized but unissued common stock,
representing 5% of our outstanding common stock on a fully diluted basis
(assuming all outstanding options and warrants are exercised). Upon completion
of the rights offering, we will issue a number of additional shares to Mr.
Forrest such that his percentage ownership of Cosi on a fully diluted basis
remains 5%, provided, however, that if the subscription price is less than $1.25
per share, the Company will issue Mr. Forrest a number of shares equal to the
number of shares that Mr. Forrest would have received in the offering based upon
a subscription price of $1.25 per share. Mr. Forrest's rights in the shares vest
as follows: (i) 25% of the shares vested upon issuance; (ii) 25% of the shares
will vest on April 1, 2004, provided the agreement is still in effect, and (iii)
on the last day of each month, commencing with April 2004, and ending on March
2006, 2.08% of the shares will vest, and an additional .08% of the shares will
vest on March 31, 2006, provided that at the end of each month the agreement is
still in effect. All shares not vested will fully vest upon the termination of
this agreement by Cosi without cause (as defined in the agreement), or upon a
change of control (as defined in the agreement). If Mr. Forrest is terminated by
Cosi for cause (as defined in the agreement), all unvested shares will be
forfeited. Mr. Forrest agreed that, during the term of the agreement and for a
period of 12 months thereafter, he will not compete with us or solicit our
employees

Employment Agreement with Jay Wainwright. The term of Mr. Wainwright's
agreement is for three years, expiring in 2005, subject to automatic one-year
extensions, unless we give Mr. Wainwright at least 180 days' prior written
notice of non-extension.

The agreement provides that we will pay Mr. Wainwright an annual base
salary of $175,000, with annual increases as provided in the agreement. As of
January 2003, the base salary of Mr. Wainwright increased to $275,000. Mr.
Wainwright will be eligible to receive an annual cash bonus, with a target bonus
potential equal to 50% of his base salary. Additionally, Mr. Wainwright will be
granted annual options to purchase common stock, in accordance with our current
compensation plan for senior management, with an initial grant target of 86,400
shares.

The agreement may be terminated by us for "good cause" or by the executive
voluntarily, and will automatically terminate upon Mr. Wainwright's death,
disability or retirement. If we do not extend Mr. Wainwright's employment period
beyond the third anniversary of the commencement date, or if the agreement is
terminated by Cosi without good cause, or if Mr. Wainwright terminates his
employment for good reason, we must pay Mr. Wainwright (i) his then-current
annual base salary and, unless Cosi does not extend the Mr. Wainwright's
employment period beyond the third anniversary of the commencement date,
non-incentive compensation, and provide Mr. Wainwright with his then-current
benefits through the greater of two years or the date on which Mr. Wainwright's
employment agreement expires, and (ii) an amount equal to two times the cash
bonus calculated at the greater of 50% of his then-current annual base salary or
the actual bonus earned by Mr. Wainwright for the directly preceding fiscal
year, payable in bi-weekly installments over such period. All options held by
Mr. Wainwright become 100% vested as of the date of termination. In addition,
upon a change of control, all outstanding stock options held by Mr. Wainwright
will automatically become fully vested, regardless of whether Mr. Wainwright
terminates his employment.

If Mr. Wainwright's employment agreement is terminated as a result of his
death, disability or retirement, the Company is obligated to pay Mr. Wainwright
(or his estate, as applicable), (i) his then-current annual base salary,
non-incentive compensation and employee benefits for a period of one year, and
(ii) an amount equal to Mr. Wainwright's cash bonus calculated at the greater of
50% of his then-current annual base salary or the actual bonus earned by Mr.
Wainwright for the directly preceding fiscal year, payable in equal installments
each payday over such one-year period. All options held by Mr. Wainwright become
100% vested upon Mr. Wainwright's death, retirement or disability.

If any of the payments provided for in Mr. Wainwright's employment
agreement would be subject to an excise tax under the Internal Revenue Code of
1986, as amended (the "Code"), Cosi is required to pay Mr. Wainwright the amount
necessary to fund the payment of any excise tax that Mr. Wainwright is required
to pay, as well as all income taxes imposed on such additional payment and any
interest or penalties relating to such payments. However, if a reduction of
$15,000 or less of the amount paid to Mr. Wainwright would avoid the imposition
of any

excise tax, then the amount paid to Mr. Wainwright will be reduced by the amount
necessary to avoid such imposition.

In the event that Mr. Wainwright's employment is terminated for good cause
or he voluntarily terminates employment, Mr. Wainwright will be subject to a
non-compete agreement for a period of 24 months following the termination.
During this 24-month period, Mr. Wainwright must not, directly or indirectly,
personally or with other employees, agents or otherwise, or on behalf of any
other person, firm or corporation, engage in any restaurant, bar, coffee shop or
similar business within certain operating criteria and certain defined
geographical regions.

Separation Agreement with Andy Stenzler. Andy Stenzler resigned as
Chairman and Chief Executive Officer of the Company, effective as of January 31,
2003, and entered into a settlement agreement with us, dated February 2, 2003
(the "Agreement"). Pursuant to the Agreement, Mr. Stenzler will receive his then
current base salary of $350,000 and non-incentive compensation (including
automobile allowance) and his then current benefits for two years from January
31, 2003. Mr. Stenzler will also receive $350,000, constituting an amount equal
to two times his cash bonus calculated at 50% of his then current annual base
salary, paid in equal bi-weekly installments over the same two-year period.
Additionally, all options to purchase shares of our common stock held by Mr.
Stenzler became 100% vested as of January 31, 2003, and will remain exercisable
for two years. We also agreed to pay certain of Mr. Stenzler's legal expenses in
an amount not to exceed $35,000 and to pay for a reasonable office and secretary
for Mr. Stenzler for a period of six months. Mr. Stenzler granted us a customary
release of claims and agreed not to compete with us or solicit our employees for
a period 24 months.

We agreed to indemnify Mr. Stenzler, to the fullest extent permitted by
our certificate of incorporation and by-laws, against all costs, expenses,
liability and losses reasonably incurred by him in connection with any action,
suit or proceeding arising out of the fact that he was a director, officer or
employee of the Company. We also agreed that the promissory note issued by Mr.
Stenzler to the Company, dated April 28, 1998, entered into in connection with
Mr. Stenzler's executive stock agreement, will not mature until April 28, 2005.

In connection with the Agreement, Mr. Stenzler sold a total of 223,714
shares of our common stock to Eric J. Gleacher, one of our directors, and ZAM
Holdings, L.P., our largest stockholder. Mr. Stenzler agreed to use a portion of
the funds from such sales to repay advances from the Company, made prior to
March 4, 2002, of $112,500 plus interest.

Separation Agreement with Nick Marsh. Nick Marsh resigned as Chief
Operating Officer of the Company, effective as of April 30, 2003, and entered
into a settlement agreement with us, dated July 9, 2003 (the "Marsh Agreement").
Pursuant to the Marsh Agreement, Mr. Marsh will receive a lump sum payment of
$200,000 payable following the consummation of the rights offering described in
this prospectus. Alternatively, we will make the lump sum payment if the rights
offering is not consummated and the Company secures alternative funding equal to
at least $8.5 million. We will not make the $200,000 lump sum payment if it does
not consummate the rights offering or secure additional funding by December 31,
2003. Mr. Marsh will receive 52 bi-weekly payments of $15,865.38 beginning June
1, 2003. However, if we make the $200,00 lump sum payment prior to January 15,
2004, the bi-weekly payments will cease after the 34th bi-weekly payment, and
the 34th bi-weekly payment will equal $1,442.46. Mr. Marsh will also receive an
automobile allowance of 24 monthly payments equal to $2000, and we will
reimburse Mr. Marsh for the cost of any excess mileage under his current
automobile lease. Additionally, all options held by Mr. Marsh became 100% vested
as of June 1, 2003, and will remain exercisable for two years. We also agreed to
pay certain of Mr. Marsh's legal expenses in an amount not to exceed $10,000,
and to allow Mr. Marsh to retain certain computer equipment issued to him by us.
Mr. Marsh granted us a customary release of claims.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of July 31, 2003, the following are the only entities (other than our
employees as a group) known to us to be the beneficial owners of more than 5% of
the Company's outstanding common stock.

Shares of Common Stock Percent of Common Stock
Name and Address of Beneficial Owner Beneficially Owned Beneficially Owned (1)
- --------------------------------------------- -------------------------------- ----------------------------------

Chilton Investment Company, Inc. 1,010,391 (2) 5.7%
1266 East Main Street, 7th Floor
Stamford, Connecticut 06902

William D. Forest 1,156,407 (3) 6.5%
c/o Cosi, Inc.
242 West 36th Street, New York, New York
10018

Eric J. Gleacher 877,143 (4) 5.0%
Gleacher Partners, LLC
660 Madison Avenue
New York, New York 10021

ZAM Holdings, L.P. 1,819,089 (5) 10.3%
c/o PBK Holdings, Inc.
283 Greenwich Avenue
Greenwich, Connecticut 06830

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

(1) Ownership percentage is based on 17,710,103 shares of common stock
outstanding as of June 26, 2003.

(2) According to the Schedule 13G, filed with the Securities and Exchange
Commission (the "SEC") on February 28, 2003, by Chilton Investment Company,
Inc., a Delaware corporation ("Chilton"), Chilton beneficially owns
1,010,391 shares of Common Stock with sole voting and sole dispositive
power over 1,010,391 shares.

(3) All shares are restricted stock issued to Mr. Forrest pursuant to an
employment agreement dated June 26, 2003. Such shares represent the sole
compensation of Mr. Forrest for serving as Executive Chairman of the
Company. 25% of the shares became fully vested upon issuance. As long as
the employment agreement is in effect on April 1, 2004, an additional 25%
of the shares will fully vest. As long as the agreement remains in effect
on the last day of each month, commencing with April, 2004 and ending with
March, 2006, 2.08% of the shares will fully vest on each such date

(4) Includes (i) 202,152 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $6.00, (ii) 14,126 shares of
common stock owned by Mr. Gleacher's wife, Anne, and (ii) 11,301 shares of
common stock owned by Mr. Gleacher's children.

(5) ZAM Holdings, L.P. ("ZAM"), a Delaware limited partnership, filed a
Schedule 13G with the SEC on February 13, 2003, on behalf of ZAM, PBK
Holdings, Inc., a Delaware corporation ("PBK"), and Philip B. Korsant
("Korsant"). According to the Schedule 13G, ZAM, PBK and Korsant
collectively beneficially own 1,819,089 shares of common stock, with shared
voting and shared dispositive power over 1,819,089 shares.

The determination that there were no other persons, entities or groups
known to us to beneficially own more than 5% of our common stock was based on a
review of our internal records and of all statements filed with respect to us
since the beginning of the past fiscal year with the SEC pursuant to Section
13(d) or 13(g) of the Securities Exchange Act of 1934, as amended.

Security Ownership of Management

The following table sets forth certain information regarding ownership of
common stock as of June 30, 2003 (including stock options issued to Kevin
Armstrong on July 7, 2003), by (i) each of the members of the Company's Board of
Directors, (ii) each of the Company's executive officers named in the "Summary
Compensation Table" under "Executive Compensation" below and (iii) all directors
and executive officers of the Company as a group. All shares were owned directly
with sole voting and investment power unless otherwise indicated.

Percent of Common
Shares of Common Stock Stock Beneficially
Name (1) Beneficially Owned Owned (2)
- ----------------------------- ---------------------- ------------------------

Andy Stenzler (3) 315,797 (4) 1.8%

Jay Wainwright (5) 525,225 (6) 2.9%

Kenneth S. Betuker 79,787 (7) *

Terry Diamond 625,021 (8) 3.5%

Creed L. Ford, III 268,908 1.5%

William D. Forrest (9) 1,156,407 6.5%

Eric J. Gleacher 877,143 (10) 5.0%

Nick Marsh (11) 539,511 (12) 3.0%

D. Ian McKinnon --- *

David Orwasher (13) --- *

James M. Riley, Jr. (14) --- *

Jeffrey M. Stork 772,671 (15) 4.4%

Greg Woolley 6,733 *

Kevin Armstrong 225,000 (16) 1.3%

All directors and executive
officers as a group (17
persons) (17) 5,482,775 29.0%

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

* Represents less than 1%.

(1) Each person listed in the table is or was a director or named executive
officer of the Company, with an address at c/o Cosi, Inc., 242 West 36th
Street, New York, New York 10018.

(2) Ownership percentages are based on 17,710,103 shares of common stock
outstanding as of June 30, 2003. With respect to each person, percentage
ownership is calculated by dividing the number of shares beneficially owned
by such person by the sum of the number of outstanding shares at such date
and the number of shares such person has the right to acquire upon exercise
of options or warrants that are currently exercisable or are exercisable on
or before December 31, 2003.

(3) Mr. Stenzler served as Chairman and Chief Executive Officer of the Company
during fiscal 2002. Mr. Stenzler resigned as Chairman and Chief Executive
Officer on January 31, 2003.

(4) Includes (i) 314 shares of Common Stock issuable upon exercise of
outstanding warrants at an exercise price of $0.01 per share, and (ii)
186,774 shares of Common Stock issuable upon exercise of outstanding
options at a weighted average exercise price of $12.25 per share.

(5) Mr. Wainwright served as interim Chief Executive Officer of the Company
effective from January 31, 2003 to July 7, 2003. Mr. Wainwright remains an
employee of the Company.

(6) Includes 427,573 shares of common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $7.09 per
share.

(7) Includes 79,787 shares of common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $12.25 per
share.

(8) Includes (i) 386,554 shares of common stock owned by Talon Opportunity
Fund, L.P. (Mr. Diamond is the Managing Member of Talon Opportunity Fund,
L.P.'s General Partner, Talon Pertnership Management, LLC), (ii) 25,995
shares of common stock issuable upon exercise of outstanding warrants at an
exercise price of $0.01 per share owned by Talon Opportunity Fund, L.P.,
(iii) 71,076 shares of common stock issuable upon exercise of outstanding
warrants at an exercise price of $6.00 per share owned by Talon Opportunity
Fund, L.P., (iv) 12,605 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $14,875 per share owned by
Talon Opportunity Fund, L.P. (v) 56,150 shares of common stock owned by Mr.
Diamond's wife, (vi) 314 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $0.01 per share owned by Mr.
Diamond's wife, and (vii) 14,215 shares of common stock issuable upon
exercise of outstanding warrants at an exercise price of $6.00 per share
owned by Mr. Diamond's wife, (viii) 1,004 shares of common stock issuable
upon exercise of outstanding warrants at an exercise price of $0.01 per
share owned by the Diamond Family Foundation and (ix) 7.108 shares of
common stock issuable upon exercise of outstanding warrants at an exercise
price of $6.00 owned by the Diamond Family Foundation.

(9) Mr. Forrest joined the Company's Board of Directors and was elected
Chairman on March 31, 2003. All shares are restricted stock issued to Mr.
Forrest pursuant to an employment agreement dated June 26, 2003. Such
shares represent the sole compensation of Mr. Forrest for serving as
Executive Chairman of the Company. 25% of the shares became fully vested
upon issuance. As long as the employment agreement is in effect on April 1,
2004, an additional 25% of the shares will fully vest. As long as the
agreement remains in effect on the last day of each month, commencing with
April, 2004 and ending with March, 2006, 2.08% of the shares will fully
vest on each such date.

(10) Includes (i) 202,152 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $6.00, (ii) 14,126 shares of
common stock owned by Mr. Gleacher's wife, Anne, and (ii) 11,301 shares of
common stock owned by Mr. Gleacher's children. Mr. Gleacher resigned from
the Board on May 17, 2003.

(11) Mr. Marsh served as Chief Operating Officer of the Company during fiscal
2002. Mr. Marsh's employment as Chief Operating Officer of the Company
terminated as of April 30, 2003.

(12) Includes (i) 314 shares of common stock issuable upon exercise of
outstanding warrants at an exercise price of $0.01 per share, and (ii)
186,774 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $12.25 per share.

(13) Mr. Orwasher served as Chief Development Officer during fiscal 2002. Mr.
Orwasher's employment terminated on June 30, 2003.

(14) Mr. Riley served as Vice President of Store Development during fiscal 2002.
Mr. Riley's employment terminated on July 7, 2003.

(15) Includes (i) 278,687 shares of common stock held by JDS Partners (Mr. Stork
is a managing member of JDS Partners), (ii) 1,099 shares of common stock
issuable upon exercise of outstanding warrants at an exercise price of
$0.01 per share, (iii) 30,000 share of common stock issuable upon exercise
of outstanding warrants at an exercise price of $6.00 per share, (iv) 2,198
shares of common stock issuable upon exercise of outstanding warrants at an
exercise price of $0.01 per share held by JDS Partners and (v) 30,000
shares of common stock issuable upon exercise of outstanding warrants at an
exercise price of $6.,00 per share held by JDS Partners.

(16) Represents 225,000 shares of common stock issuable upon exercise of
outstanding options at an exercise price of $1.77 per share.

(17) These 17 persons include all directors and officers detailed under
"Information Regarding Directors and Officers" above. In addition to the
securities listed in notes (4)-(7), (9) and (11)-(13), includes (i) 40,334
shares of common stock issuable upon exercise of outstanding options held
by Charles Gray at a weighted average exercise price of $12.18 per share,
(ii) 21,550 shares of common stock issuable upon exercise of outstanding
options held by Joe Hoog at a weighted average exercise price of $6.11 per
share, and (iii) 28,687 shares of common stock issuable upon exercise of
outstanding options with a weighted average exercise price of $12.25 held
by Gilbert Melott.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

A partner of Cadwalader, Wickersham & Taft LLP is an owner of less than
0.5% of our equity securities and the father of Jay Wainwright, a director of
the Company and formerly our interim President and Chief Executive Officer.
Cadwalader, Wickersham & Taft LLP has acted as our outside legal counsel since
October 1999. Cadwalader, Wickersham & Taft LLP provides legal services on
behalf of the Company, for which the firm was paid approximately $575,000,
$71,000 and $41,000 for the fiscal years 2002, 2001 and 2000, respectively.

Prior to February 2003, we engaged London Misher Public Relations, Inc., a
public relations firm that is partially owned by the wife of the Company's
former Chief Executive Officer. This firm provided the Company

with public relations services, for which the firm was paid approximately
$235,000, $146,000 and $67,000 for fiscal years 2002, 2001 and 2000,
respectively. The relationship with this firm has been terminated.

Our former Chief Executive Officer and its former Chief Operating Officer
each issued promissory notes to us in the amount of $1,362,400, each due in
2005, which accrue interest at an annual rate of 5.75%, in connection with each
executive's purchase of 119,771 shares of Cosi's preferred stock in 1998. In
1999, each share of preferred stock was converted into one share of common
stock. These notes remain outstanding.

In August 2002, the Company entered into Senior Secured Note and Warrant
Purchase Agreements with certain of its existing shareholders and members of its
Board of Directors. These agreements provided the Company with a credit facility
of up to $16.4 million available for general corporate purposes. In November
2002, the amount available under this facility was increased to $25 million. The
facility, which terminated upon the Company's initial public offering, allowed
the Company to draw down funds from time to time until August 12, 2003. Each
draw-down was evidenced by a senior secured note bearing interest at 12% per
annum. As of November 2002, we had issued $9.5 million of 12% senior secured
notes pursuant to this credit facility. These notes ranked senior to all of
Cosi's other funded indebtedness at the time and were secured by all of its
tangible and intangible property, other than equipment pledged to secure its
equipment loan credit facility and its capitalized lease obligations. All notes
issued pursuant to these agreements matured upon the consummation of our initial
public offering in November 2002 and were repaid out of the proceeds of the IPO.

Eric J. Gleacher, at the time, one of our directors, agreed to fund up to
$2,500,000 of the credit facility and was issued 202,152 warrants, ZAM Holdings,
L.P., an entity that owned 15.5% of our common stock prior to our initial public
offering (and currently owns 10.2% of its common stock), agreed to fund up to
$5,373,616 of the credit facility and was issued 439,710 warrants, and LJCB
Nominees Pty Ltd ("LJCB"), an entity that owned 7.5% of our common stock prior
to the initial public offering, agreed to fund up to $3,500,000 of the credit
facility and was issued 296,919 warrants. Terry Diamond, one of Cosi's
directors, is the managing member of the Diamond Family Foundation and the
husband of Marilyn Diamond. The Diamond Family Foundation agreed to fund up to
$75,000 of the credit facility and was issued 7,108 warrants. Marilyn Diamond
agreed to fund up to $150,000 of the credit facility and was issued 14,215
warrants. Jeffrey Stork, one of our directors, is the managing member of JDS
Partners. Mr. Stork agreed to fund up to $500,000 of the credit facility and was
issued 30,000 warrants. JDS Partners agreed to fund up to $500,000 of the credit
facility and was issued 30,000 warrants.

On March 31, 2003, we obtained a line of credit from First Republic Bank,
whereby we issued a senior secured promissory note to First Republic Bank in the
principal amount of $3,000,000. The note was guaranteed by Eric J. Gleacher,
Charles G. Phillips, and Ziff Investors Partnership, L.P. II, an entity related
to ZAM Holdings, L.P., our largest stockholder. On or before August 15, 2003,
First Republic Bank is required to assign the note to these persons or their
designees and the maturity date of the note will be extended to December 31,
2004. Subject to the receipt of stockholder approval of the conversion feature
of the senior secured notes, each of these persons will have the right to
convert, in whole or in part, their pro-rata share of the outstanding principal
amount of the note plus accrued and unpaid interest into shares of common stock
at a conversion price equal to the lesser of (i) $1.50 per share and (ii) 85% of
the weighted average price per share of our common stock as reported on the
Nasdaq National Market for the 15-trading-day period ending three trading days
before the conversion date.

On August 5, 2003, we issued senior secured promissory notes with an
aggregate principal amount of $1.5 million to Mr. Gleacher, Mr. Phillips and ZAM
Holdings L.P. Subject to the receipt of stockholder approval of the conversion
feature of the senior secured notes, each of these persons will have the right
to convert, in whole or in part, their pro-rata share of the outstanding
principal amount of the $1.5 Million Note plus accrued and unpaid interest into
shares of common stock at a conversion price equal to the lesser of (i) $1.50
per share and (ii) 85% of the weighted average price per share of our common
stock as reported on the Nasdaq National Market for the 15-trading-day period
ending three trading days before the conversion date.

On August 5, 2003, we entered into an Investment Agreement with Mr.
Gleacher, Mr. Phillips, LJCB, and ZAM Holdings, L.P. Pursuant to the Investment
Agreement, the Funding Parties have agreed, subject to certain conditions, to
provide funding to us in an aggregate amount up to $8.5 million (including the
$3 Million Note and the $1.5 Million Note) or, at the option of the Funding
Parties such greater amount permitted by the Investment Agreement to allow the
Funding Parties to maintain certain relative ownership levels. If our
stockholders (other than the Funding Parties) subscribe for at least $2.0
million worth of shares in the rights offering, the Funding Parties would,
subject to certain conditions, provide this funding in the form of an investment
in our common stock at the subscription price and, upon consummation of the
rights offering, the Funding Parties would convert the outstanding principal
amount of the $3 Million Note and the $1.5 Million Note. If our stockholders
(other than the Funding Parties) do not subscribe for at least $2.0 million
worth of shares in the rights offering, we will not consummate the rights
offering and, subject to stockholder approval, and certain other conditions, the
Funding Parties will provide funding to us, in the form of, at their option, a
purchase of shares of common stock at the subscription price or the purchase of
a senior secured note which is convertible into shares of common stock. The
aggregate amount of funding to be provided by the funding parties (whether in
the form of an investment in our common stock or a promissory note convertible
into shares of our common stock) will equal up to $8.5 million reduced by the
amount outstanding under the $3 Million Note and the $1.5 Million Note. The
Funding Parties have agreed not to exercise any of their subscription privileges
in the rights offering. The $8.5 million funding commitment described above is
allocated as follows: (a) Mr. Gleacher, $2,000,000; (b) Mr. Phillips, $750,000;
(c) LJCB, $750,000 and (d) ZAM Holdings, L.P. $5,000,000.

On August 5, 2003, the Company and Mr. Gleacher, Mr. Phillips and ZAM
Holdings, L.P. entered into an agreement pursuant to which Messrs. Gleacher and
Phillips and ZAM Holdings, L.P. agreed to provide funding to us by purchasing
senior secured promissory notes from us in the aggregate principal amount of $3
million if (i) the Rights Offering is abandoned by December 1, 2003, (ii) the
Company's stockholders do not approve (a) the conversion feature of the $3
Million Note and the $1.5 Million Note, and (b) the Investment Agreement, (iii)
as a result, the Funding Parties do not provide the funding contemplated by the
Investment Agreement and (iv) the Company's "Cumulative Modified EBITDA", as
defined elsewhere in this prospectus, for the months of July through October,
2003 is no less than a loss of $1,185,000.

The $3 million in additional funding will be provided in the form of a
non-convertible secured promissory note with terms which may be substantially
less favorable to us than the $3 Million Note and the $1.5 Million Note. The
note will mature on January 15, 2005. Messers. Gleacher and Phillips and ZAM
Holdings, L.P. will only provide this funding if, at our annual our Annual
Meeting of Stockholders, our stockholders do not approve the conversion feature
of the $3 Million Note and the $1.5 Million Note and the Investment Agreement,
and the Company does not consummate the rights offering and the other conditions
described above are met. In this event, the Funding Parties are only committed
to provide an aggregate of $7.5 million (the $3 Million Note, the $1.5 Million
Note and the $3 million non-convertible note described above) as opposed to up
to $8.5 million pursuant to the Investment Agreement (the $3 Million Note, the
$1.5 Million Note and up to $4 million pursuant to the Investment Agreement).

DESCRIPTION OF CAPITAL STOCK

Our Amended and Restated Certificate of Incorporation authorizes the
issuance of up to 100,000,000 shares of common stock and 40,000,000 shares of
preferred stock, 1,000,000 shares of which are designated as Series D Preferred
Stock, and 39,000,000 shares of which the rights and preferences may be
established from time to time by our board of directors. Upon completion of this
offering, assuming a subscription price and a conversion price of $1.50, based
on the number of shares outstanding as of June 30, 2003, a maximum of 27,090,594
shares of common stock and no shares of preferred stock will be outstanding. As
of August 4, 2003, we had approximately 228 record stockholders.

Common Stock

Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Thus, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
any dividends that may be declared by our board of directors out of funds
legally available for dividends, subject to any preferential dividend rights of
outstanding preferred stock. If we liquidate, dissolve or wind up, the holders
of common stock are entitled to receive ratably all of our assets available
after payment of all debts and other liabilities, subject to the prior rights of
any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights or any rights to share in any
sinking fund. The rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock that we may designate and
issue in the future.

Preferred Stock

Our Amended and Restated Certificate of Incorporation authorizes the
issuance of up to 40,000,000 shares of preferred stock from time to time in one
or more series and with terms of each series stated in our board's resolutions
providing for the designation and issue of that series. Our Amended and Restated
Certificate of Incorporation also authorizes the board of directors to fix,
state and express the powers, rights, designations, preferences, qualifications,
limitations and restrictions, and dividend, voting, conversion and redemption
rights pertaining to each series of preferred stock that we may issue. Without
seeking any stockholder approval, our board of directors may issue preferred
stock with voting and other rights that could adversely affect the voting power
of the holders of our common stock and could have the effect of delaying,
deferring or preventing a change in control. Other than the issuance of the
series of preferred stock previously authorized by the board of directors in
connection with the shareholder rights plan described below, we have no present
plans to issue any shares of preferred stock.

Stock Purchase Warrants

Warrants to purchase 2,210,511 shares of the Company's common stock were
outstanding as of June 30, 2003; 104,702 of which have an exercise price of
$0.01 per share and expire from November 2006 to April 2008; 2,070,004 of which
have an exercise price of $6.00 per share, become exercisable after August 16,
2003 and expire from August 2007 to November 2007; 33,279 of which have an
exercise price of $14.88 per share and expire in November 2007; and 2,526 of
which have an exercise price of $16.63 per share and expire in December 2006.
All of these warrants provide for anti-dilution adjustments in the event of
stock splits, stock dividends, sales by us of our stock at, or issuance of
options or warrants containing an exercise price of, less than fair market value
or merger, consolidation, recapitalization or similar transactions. All of the
holders of these warrants are entitled to participate in any dividends declared
upon shares of our common stock (other than dividends payable solely in shares
of common stock) as if these holders had fully exercised such warrants.

Registration Rights

We have granted registration rights to certain holders of shares of our
common stock and warrants under the terms of the Amended and Restated
Registration Agreement dated as of March 30, 1999, by and among us and Ziff
Asset Management, L.P., LBJ Capital, L.P., Talon Opportunity Fund, L.P., Howard
Babcock, Robert Burnstine, Jamie Diamond Schwartz, Jennifer Diamond, John
Diamond, Marilyn Diamond, Michael Warsh, Frances Tuite,

Chancellor Private Capital Partners III, L.P., Chancellor Private Capital
Offshore Partners II, L.P., Citiventure 96 Partnership, L.P., Chancellor Private
Capital Offshore Partners I, C.V., Blaine Trust, Handy Family Partnership LTD.,
Rod F. Dammeyer, Randolph Street Partners, Randolph Street Partners 1998 DIF,
LLC, Sheila Rosenberg, SZ Investments, L.L.C., JDS PARTNERS, Andrew Stenzler,
Nicholas Marsh, David Kaufman, Creed Ford, III, Jeffrey Stork, Donald Stork, Dan
Levitan, Stephen Marsh, James Learner, Joseph Learner, Richard Learner, James D.
McBride, III, and David Kelson. We have also entered into a Supplemental
Registration Rights Agreement with Eric Gleacher, Charles Phillips, LJCB and ZAM
Holdings, L.P. Subject to certain exceptions, including our right to defer a
demand registration for a single period of up to 90 days in a given year, these
holders have the right to require us to register their shares at our expense
under the circumstances described in the agreement. In addition, all holders of
shares with registration rights have the right to piggyback on any registration
for our account, subject to certain limitations. Accordingly, in the event that
we propose to register additional shares of common stock under the Securities
Act, the holders of shares with registration rights are entitled to receive
notice of that registration and to include their shares in the registration,
subject to limitations described in the agreement. All registration rights are
subject to conditions and limitations, among them our right to limit the number
of shares of common stock held by these security holders to be included in the
registration. We are generally required to bear all of the expenses of all
registrations (other than underwriting discounts and commissions).

We have also entered into a Supplemental Registration Rights Agreement,
dated as of August 5, 2003, with Eric Gleacher, Charles Phillips, LJCB and ZAM
Holdings, L.P. Pursuant to this agreement we have granted certain registration
rights to these parties, including, subject to certain limitations, the right to
require us to register their shares at our expense under the circumstances
described in the agreement. These parties also have the right to the right to
piggyback on any registration for our account, subject to certain limitations.
Additionally, we have agreed to file a shelf registration statement on Form S-3,
covering all of the shares subject to the Supplemental Registration Rights
Agreement, at such time as we are eligible to file such form.

Registration of the shares of common stock held by security holders with
registration rights would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon effectiveness of
such registration. In connection with any registration under these provisions,
we are required to indemnify the holder participating in an offering against
civil liabilities under the Securities Act.

Anti-Takeover Provisions of Our Amended and Restated Certificate of
Incorporation, By-laws and Shareholder Rights Plan

General

The provisions of our Amended and Restated Certificate of Incorporation,
By-laws and shareholder rights plan, as well as certain provisions of Delaware
statutory law, described in this section may delay or make it more difficult for
someone to acquire us without the approval of our board of directors. These
provisions could have the effect of discouraging third parties from making
acquisition proposals, although such proposals, if made, might be considered
desirable by a majority of our stockholders. These provisions may also have the
effect of making it more difficult for third parties to cause the replacement of
our current management without the concurrence of our board of directors.

Classified Board of Directors

Our Amended and Restated Certificate of Incorporation provides for our
board (other than those directors elected solely by any series of preferred
stock created by resolution of our board) to be divided into three classes of
directors serving staggered three year terms. As a result, approximately
one-third of our board will be elected each year. See "Management" above.

We believe a classified board will help to assure the continuity and
stability of our board, and our business strategies and policies as determined
by our board, because a majority of the directors at any given time will have
prior experience as our directors. This provision should also help to ensure
that our board, if confronted with an unsolicited proposal from a third party
that has acquired a block of our voting stock, will have sufficient time to
review the proposal and appropriate alternatives and to seek the best available
result for all stockholders.

This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of our board until the
second annual stockholders' meeting following the date the acquiror obtains the
controlling stock interest, could have the effect of discouraging a potential
acquiror from making a tender offer or otherwise attempting to obtain control of
us and could thus increase the likelihood that incumbent directors will retain
their positions.

Number of Directors; Removal; Vacancies

Our Amended and Restated Certificate of Incorporation and By-laws provide
that the number of directors will not be less than three nor more than 15 and,
except as may be provided in the terms of any series of preferred stock created
by resolutions of the board, will be determined from time to time exclusively by
a vote of a majority of our board then in office. Our Amended and Restated
Certificate of Incorporation also provides that our board will have the
exclusive right, except as may be provided in the terms of any series of
preferred stock created by resolutions of the board, to fill vacancies,
including vacancies created by expansion of our board. Furthermore, except as
may be provided in the terms of any preferred stock created by resolution of our
board with respect to the election of directors by the holders of such series,
directors may be removed by stockholders only for cause and only by the
affirmative vote of at least 66 2/3% of the voting power of all of the shares of
our capital stock then entitled to vote generally in the election of directors,
voting together as a single class.

These provisions could prevent stockholders from removing incumbent
directors without cause and filling the resulting vacancies with their own
nominees.

No Stockholder Action by Written Consent; Special Meetings

Our Amended and Restated Certificate of Incorporation provides that,
except as may be provided in the terms of any series of preferred stock created
by resolution of our board, stockholder action can be taken only at an annual or
special meeting of stockholders and cannot be taken by written consent in lieu
of a meeting. Our Amended and Restated Certificate of Incorporation also
provides that special meetings of stockholders can only be called by the
Chairman of the Board or by the Secretary pursuant to a resolution approved by a
majority of our board of directors then in office. Stockholders are not
permitted to call a special meeting of stockholders.

Approval of Certain Business Combinations

Our Amended and Restated Certificate of Incorporation requires that
certain business combinations with a "Related Person" (as such term is defined
in our Amended and Restated Certificate of Incorporation) be approved by the
affirmative vote of 80% of our outstanding shares generally entitled to vote for
the election of directors, unless (i) the business combination has been approved
by two-thirds of the board of directors; or (ii) the amount of consideration to
be received in the business combination by the holders of common stock or any
class or series of outstanding voting stock, other than common stock, shall be
equal to the greater of: (a) the highest per share price paid by the Related
Person for any shares of our stock acquired within the prior two years; or (b)
the "Fair Market Value" (as such term is defined in our Amended and Restated
Certificate of Incorporation) of our common stock.

Advance Notice for Raising Business or Making Nominations at Meetings

Our By-laws establish an advance notice procedure with regard to
stockholder proposals and nominations of individuals for election to the board
of directors. In general, notice of a stockholder proposal or a director
nomination for an annual meeting must be delivered to us at our executive
offices not less than 120 days nor more than 150 days before the date of the
anniversary of the last annual stockholders' meeting (unless the meeting is to
be held more than 30 days in advance of such anniversary date, in which event
the stockholder proposal or director nomination shall be delivered to us no
later than the close of business on the 10th day following the day on which
notice of the meeting was given) and must contain specified information and
conform to certain requirements, as set forth in our By-laws. Notice of a
director nomination for a special meeting must be received by us no later than
the 10th day following the day on which notice of the date of a special meeting
of stockholders was given. If the presiding officer at any stockholders' meeting
determines that a stockholder proposal or director nomination was not made in
accordance with the By-laws, we may disregard such proposal or nomination.

The notice of any nomination for election as a director must set forth the
name, age, business and residence address of the person or persons to be
nominated; the business experience during the past five years of such person or
persons, including the person's principal occupation or employment during such
period, the name and principal business of any corporation or other organization
in which such occupation or employment was carried on, and such other
information as to the nature of the persons responsibilities and level of
professional competence as may be sufficient to permit assessment of the
person's prior business experience; the class or series and number of shares of
our capital stock beneficially owned by the person; and any other information
relating to the person that would be required to be disclosed in a proxy
statement or other filing required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.

Amendments to By-Laws

Our Amended and Restated Certificate of Incorporation provides that our
board or the holders of at least 662/3% of the voting power of all shares of our
capital stock then entitled to vote generally in the election of directors,
voting together as a single class, have the power to amend or repeal our
By-laws.

Amendment of the Amended and Restated Certificate of Incorporation

Any proposal to amend, alter, change or repeal any provision of our
Amended and Restated Certificate of Incorporation, except as may be provided in
the terms of any preferred stock created by resolution of our board and which
relate to such series of preferred stock, requires approval by the affirmative
vote of both a majority of the members of our board then in office and a
majority vote of the voting power of all of the shares of our capital stock
entitled to vote generally in the election of directors, voting together as a
single class. However, any proposal to amend, alter, change or repeal the
provisions of our Amended and Restated Certificate of Incorporation relating to
(i) the classification of our board, (ii) removal of directors, (ii) the
prohibitions on stockholder action by written consent or stockholder calls for
special meetings, (iv) amendment of our By-laws or (v) amendment of the Amended
and Restated Certificate of Incorporation, requires approval by the affirmative
vote of 662/3% of the voting power of all of the shares of our capital stock
entitled to vote generally in the election of directors, voting together as a
single class; provided, however, that in the case of any proposal to amend,
alter, change or repeal the provision of our Amended and Restated Certificate of
Incorporation relating to business combinations, such a proposal requires
approval by the affirmative vote of 80% of the voting power of all of the shares
of our capital stock entitled to vote generally in the election of directors,
voting together as a single class.

Preferred Stock and Additional Common Stock

Under our Amended and Restated Certificate of Incorporation, our board
will have the authority to provide by resolution for the issuance of shares of
one or more series of preferred stock. Our board is authorized to fix by
resolution the terms and conditions of each such other series. See "Description
of Capital Stock -- Preferred Stock."

We believe that the availability of our preferred stock, in each case
issuable in series, and additional shares of common stock, could facilitate
certain financings and acquisitions and provide a means for meeting other
corporate needs that might arise. The authorized shares of our preferred stock,
as well as authorized but unissued shares of common stock, will be available for
issuance without further action by our stockholders, unless stockholder action
is required by applicable law or the rules of any stock exchange on which any
series of our stock may then be listed, or except as may be provided in the
terms of any preferred stock created by resolution of our board.

These provisions give our board the power to approve the issuance of a
series of preferred stock, or additional shares of common stock, that could,
depending on its terms, either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For example, the issuance of new shares
of preferred stock might impede a business combination if the terms of those
shares include voting rights which would enable a holder to block business
combinations or, alternatively, might facilitate a business combination if those
shares have general voting rights sufficient to cause an applicable percentage
vote requirement to be satisfied. Moreover, as discussed

below, the Series D preferred stock is issuable under the circumstances provided
for in the rights agreement upon exercise of the rights. See "Description of
Capital Stock -- Shareholder Rights Plan."

Delaware Business Combination Statute

Section 203 of the Delaware General Corporation Law, or the DGCL, provides
that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation may not engage in any business
combination with the corporation for a three-year period following the time that
such stockholder becomes an "interested stockholder" unless (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
"interested stockholder," (ii) upon consummation of the transaction which
resulted in the stockholder becoming an "interested stockholder," the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(iii) at or subsequent to such time, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 662/3% of the
outstanding voting stock which is not owned by the "interested stockholder."
Except as otherwise specified in DGCL Section 203, an "interested stockholder"
is defined to include (a) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person. Under
certain circumstances, DGCL Section 203 makes it more difficult for a person who
would be an "interested stockholder" to effect various business combinations
with a corporation for a three-year period, although the stockholders may elect
to exclude a corporation from the restrictions imposed thereunder. Our Amended
and Restated Certificate of Incorporation does not exclude us from the
restrictions imposed under DGCL Section 203. The provisions of DGCL Section 203
may encourage companies interested in acquiring us to negotiate in advance with
our board, since the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business combination
or the transaction which results in the stockholder becoming an interested
stockholder. These provisions also may have the effect of preventing changes in
our management. It is possible that such provisions could make it more difficult
to accomplish transactions that stockholders may otherwise deem to be in their
best interests.

Shareholder Rights Plan

Each holder of a share of our common stock has the right to purchase from
us one one-hundredth (1/100) of a share of our Series D Preferred Stock, $0.01
par value per share, at a price of $100 per one one-hundredth of a Series D
Preferred Share. The exercise price and the number of shares of Series D
Preferred Stock issuable upon exercise are subject to adjustments from time to
time to prevent dilution. The share purchase rights are not exercisable until
the earlier to occur of (i) 10 days following a public announcement that a
person or group of affiliated or associated persons, referred to as an acquiring
person, have acquired beneficial ownership of 15% or more of our outstanding
voting common stock or (ii) 10 business days following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer which
would result in an acquiring person beneficially owning 15% or more of our
outstanding voting shares of common stock.

If we are acquired in a merger or other business combination, or if more
than 50% of our consolidated assets or earning power is sold after a person or
group has become an acquiring person, proper provision will be made so that each
holder of a share purchase right -- other than share purchase rights
beneficially owned by the acquiring person, which will thereafter be void --
will have the right to receive, upon exercise of the share purchase right at the
then current exercise price, the number of shares of common stock of the
acquiring company which at the time of the transaction have a market value of
two times the exercise price. If any person or group becomes an acquiring
person, proper provision shall be made so that each holder of a share purchase
right -- other than share purchase rights beneficially owned by the acquiring
person, which will thereafter be void -- will have the right to receive upon
exercise of the share purchase right at the then current exercise price, the
number of shares of Series D Preferred Stock with a market value at the time of
the transaction equal to two times the exercise price.

Series D Preferred Stock issuable upon exercise of the share purchase
rights will not be redeemable. Each Series D preferred share will be entitled to
a minimum preferential dividend payment of $0.10 per share and will be entitled
to an aggregate dividend of 100 times the cash dividend declared per share of
common stock. In the event

we liquidate, the holders of the Series D Preferred Stock will be entitled to
receive a payment in an amount equal to the greater of $100 per one
one-hundredth share or 100 times the payment made per share of common stock.
Each Series D preferred share will have 100 votes, voting together with the
shares of common stock. Finally, in the event of any merger, consolidation or
other transaction in which shares of common stock are exchanged, each Series D
preferred share will be entitled to receive 100 times the amount received per
share of common stock. These rights are protected by customary antidilution
provisions.

Before the date the share purchase rights are exercisable, the share
purchase rights may not be detached or transferred separately from the common
stock. The share purchase rights will expire in 2012, or, if the share purchase
rights become exercisable before 2012, at the close of business on the 90th day
following such date the share purchase right become exercisable, provided that
our board of directors does not extend or otherwise modify the right. At any
time on or prior to 10 business days following the time an acquiring person
acquires beneficial ownership of 15% or more of our outstanding voting common
stock, our board of directors may redeem the share purchase rights in whole, but
not in part, at a price of $0.01 per share purchase right. Immediately upon any
share purchase rights redemption, the exercise rights terminate, and the holders
will only be entitled to receive the redemption price. A more detailed
description and terms of the share purchase rights are set forth in a rights
agreement between Cosi and American Stock Transfer and Trust Company, as rights
agent. This rights agreement could have the effect of discouraging tender offers
or other transactions that might otherwise result in our shareholders receiving
a premium over the market price for their common stock.

Our Board of Directors has specifically approved the Investment Agreement,
this rights offering and the transactions contemplated thereby (including the $3
Million Note and the $1.5 Million Note) for purposes of the Delaware business
combination statute, our shareholder rights plan and Article IX of our
Certificate of Incorporation.

Indemnification and Limitations on Liability of Directors and Officers

Our By-laws provide for indemnification of directors to the fullest extent
permitted by Delaware law. Our Amended and Restated Certificate of
Incorporation, to the extent permitted by Delaware law, eliminates or limits the
personal liability of directors to Cosi and its stockholders for monetary
damages for breach of fiduciary duty. Such indemnification may be available for
liabilities arising in connection with this offering. To the extent that
limitation of liability or indemnification for liabilities under the Securities
Act of 1933, as amended, may be permitted to directors, officers or persons
controlling us under the foregoing provisions, we have been informed that, in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. Our by-laws also
allow us to indemnify our officers to the fullest extent permitted by Delaware
law. Our by-laws obligate us, under certain circumstances, to advance expenses
to our directors and officers in defending an action, suit or proceeding for
which indemnification may be sought. We also can indemnify someone serving at
our request as a director, officer, employee, fiduciary or agent of another
corporation or of a partnership, joint venture, trust or other enterprise
against these liabilities.

Our By-laws also provide that we have the power to purchase and maintain
insurance on behalf of any person who is or was one of our directors, officers,
employees or agents against any liability asserted against that person or
incurred by that person in these capacities, whether or not we would have the
power to indemnify that person against these liabilities under Delaware law. We
maintain insurance on behalf of all of our directors and executive officers.

Transfer Agent and Registrar

American Stock Transfer and Trust Company is the transfer agent and
registrar for our common stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, assuming a subscription price and a
conversion price of $1.50 per share and conversion of the $3 Million Note and
the $1.5 Million Note, we will have a maximum of 27,090,594 shares of common
stock outstanding. All of the common stock sold in this offering will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended, except any shares that are purchased by our "affiliates," as
that term is defined

in Rule 144 under the Securities Act. Shares of our common stock purchased by
our affiliates may generally only be sold in compliance with the limitations of
Rule 144 described below. Substantial future sales of our common stock in the
public market after the offering may adversely affect our stock price.

In general, under Rule 144 as currently in effect, an affiliate is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the then outstanding shares of our
common stock (approximately 270,000 shares immediately after the rights
offering, assuming a subscription price of $1.50 per share and all rights are
subscribed for) or the average weekly trading volume in the common stock on an
exchange in the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain limitations on manner of sale, notice requirements
and availability of current public information about us.

LEGAL MATTERS

Certain legal matters with respect to the validity of common stock offered
hereby will be passed upon for us by Cadwalader, Wickersham & Taft LLP, New
York, New York. A partner of Cadwalader, Wickersham & Taft LLP beneficially
owned 64,008 shares prior to this offering, representing 0.39% of our common
stock prior to this offering.

EXPERTS

The consolidated financial statements (including the related financial
statement schedule) of Cosi, Inc., at December 30, 2002, December 31, 2001 and
for each of the three years in the period ended December 30, 2002, appearing in
this prospectus and registration statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.

On May 23, 2001, our board of directors dismissed Ernst & Young LLP and
engaged Arthur Andersen LLP as our principal accountants. The reports of Ernst &
Young LLP on the fiscal 1999 financial statements of Cosi did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles. There were no
disagreements with Ernst & Young LLP during fiscal 1999, 2000 or during fiscal
2001 preceding their replacement on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to their satisfaction, would have caused them to
make reference to the subject matter of the disagreement in connection with
their reports. None of the reportable events described under Item 304(a)(1)(v)
of Regulation S-K occurred during fiscal 2000 or preceding their replacement.
During fiscal 1999, 2000 and during fiscal 2001 preceding Ernst & Young LLP's
replacement, we did not consult with Arthur Andersen LLP regarding any of the
matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

On June 17, 2002, our board of directors dismissed Arthur Andersen LLP and
engaged Ernst & Young LLP as our principal accountants. The reports of Arthur
Andersen LLP on the fiscal 2001 and 2000 financial statements of Cosi (not
included herein) did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope or accounting
principles. There were no disagreements between us and Arthur Andersen LLP
during fiscal years 2000, 2001 or during fiscal 2002 preceding their replacement
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to their satisfaction, would have caused them to make reference to the subject
matter of the disagreement in connection with their reports. None of the
reportable events described under Item 304(a)(l)(v) of Regulation S-K occurred
within our two most recent fiscal years and the first quarter of fiscal year
2003. During fiscal 2000, 2001 and during fiscal 2002 preceding Arthur Andersen
LLP's replacement, we did not consult with Ernst & Young LLP regarding any of
the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

WHERE YOU CAN FIND MORE INFORMATION

This prospectus is part of a registration statement on Form S-1 that we
have filed with the Securities and Exchange Commission covering the shares of
common stock that we are offering pursuant to this rights offering.

This prospectus does not contain all of the information presented in the
registration statement, and you should refer to that registration statement with
its exhibits for further information. Statements in this prospectus describing
or summarizing any contract or other document are not complete, and you should
review the copies of those documents filed as exhibits to the registration
statement for more detail. You may read and copy the registration statement at
the Securities and Exchange Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. For information on the operation of the
Public Reference Room, call the Securities and Exchange Commission at
1-800-SEC-0330. You can also inspect our registration statement on the Internet
at the Securities and Exchange Commission's web site, http://www.sec.gov.

We also are required to file annual, quarterly and current reports, proxy
and information statements and other information with the Securities and
Exchange Commission. You can review this information at the Securities and
Exchange Commission's Public Reference Room or on its web site, as described
above.

CONSOLIDATED FINANCIAL STATEMENTS INDEX AND FINANCIAL STATEMENTS

COSI, INC.

CONSOLIDATED FINANCIAL STATEMENTS

INDEX

Page
----

Report of Independent Auditors ........................................... F-2

Consolidated Financial Statements (audited):

Consolidated Balance Sheets at December 30, 2002 and December 31, 2001 ... F-3

Consolidated Statements of Operations for the years ended December 30,
2002, December 31, 2001 and January 1, 2001 ........................... F-4

Consolidated Statements of Redeemable Securities and Stockholders'
Equity for the years ended December 30, 2002, December 31, 2001 and
January 1, 2001 ....................................................... F-5

Consolidated Statements of Cash Flows for the years ended December 30,
2002, December 31, 2001 and January 1, 2001 ........................... F-6

Notes to Consolidated Financial Statements ............................... F-7

Consolidated Interim Financial Statements (unaudited):

Consolidated Balance Sheets at December 30, 2002 and March 31, 2003 ...... F-24

Consolidated Statements of Operations for the quarters ended April 1,
2002 and March 31, 2003 ............................................... F-25

Consolidated Statements of Cash Flows for the quarters ended April 1,
2002 and March 31, 2003 ............................................... F-26

Notes to Consolidated Interim Financial Statements ....................... F-27

F-1

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Cosi, Inc.

We have audited the accompanying consolidated balance sheets of
Cosi, Inc. as of December 30, 2002 and December 31, 2001 and the related
consolidated statements of operations, redeemable securities and stockholders'
equity and cash flows for each of the three years in the period ended December
30, 2002. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Cosi,
Inc. at December 30, 2002 and December 31, 2001, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 30, 2002, in conformity with accounting principles generally
accepted in the United States.

As discussed in Note 2, the Company adopted SFAS No. 142, "Goodwill
and Other Intangible Assets" effective January 1, 2002.

/s/ ERNST & YOUNG LLP

New York, New York
February 19, 2003 except for Note 17,
as to which the date is March 31, 2003

F-2

COSI, INC.

CONSOLIDATED BALANCE SHEETS

December 30, 2002 December 31, 2001
----------------- -----------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................... $ 13,032,307 $ 4,469,571
Accounts receivable, net of allowances
of $232,129 and $219,845 ..................... 1,511,526 1,198,786
Inventory ....................................... 1,465,730 1,403,806
Prepaid expenses and other current assets ....... 1,676,279 568,353
----------------- -----------------
Total current assets ....................... 17,685,842 7,640,516
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 45,755,319 25,507,195
INTANGIBLES, SECURITY DEPOSITS AND OTHER ASSETS, net 2,801,919 2,240,733
----------------- -----------------
Total assets ............................... $ 66,243,080 $ 35,388,444
================= =================

LIABILITIES, REDEEMABLE SECURITIES
AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ................................ $ 8,925,245 $ 4,737,121
Accrued liabilities ............................. 5,922,408 4,951,809
Current portion of other liabilities ............ 671,601 1,678,880
Current portion of capital lease obligations .... 116,940 441,862
Current portion of long-term debt ............... 1,280,432 1,136,835
----------------- -----------------
Total current liabilities .................. 16,916,626 12,946,507

OTHER LIABILITIES, net of current portion .......... 9,748,334 9,531,364
CAPITAL LEASE OBLIGATIONS, net of current portion .. 2,485 135,236
LONG-TERM DEBT, net of current portion ............. 248,650 9,466,022
----------------- -----------------
Total liabilities .......................... 26,916,095 32,079,129

COMMITMENTS AND CONTINGENCIES (Note 13)

REDEEMABLE SECURITIES:
Series A Convertible Preferred stock -- $0.01 par
value; 2,005,862 authorized, 1,146,206 issued
and outstanding; aggregate liquidation
preference $18,768,150, including accrued
dividends of $4,727,116 in 2001 .............. -- 18,318,205
Series C Convertible Preferred stock-- $0.01 par
value; 10,510,191 authorized 4,161,589 issued
and outstanding, aggregate liquidation
preference of $74,524,713 including accrued
dividends of $8,807,592 in 2001 .............. -- 73,971,056
----------------- -----------------
Total redeemable securities ................ -- 92,289,261
----------------- -----------------

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock-- $.01 par value: 100,000,000 shares
authorized, 16,573,514 and 4,511,494 shares
issued and outstanding, respectively ............ 165,735 45,115
Additional paid-in capital ......................... 189,255,034 32,004,032
Notes receivable from stockholders ................. (2,974,804) (2,974,804)
Accumulated deficit ................................ (147,118,980) (118,054,289)
----------------- -----------------
Total stockholders' equity (deficit) ....... 39,326,985 (88,979,946)
----------------- -----------------
Total liabilities, redeemable securities and
stockholders' equity (deficit) .......... $ 66,243,080 $ 35,388,444
================= =================

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

F-3

COSI, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended
-----------------------------------------------------
December 30, December 31,
2002 2001 January 1, 2001
--------------- --------------- ---------------

NET SALES ............................................. $ 84,424,247 $ 70,184,136 $ 51,222,818

COST OF SALES:
Cost of goods sold ................................. 22,697,549 18,791,711 13,843,992
Restaurant operating expenses ...................... 50,852,670 45,114,495 32,172,860
--------------- --------------- ---------------
TOTAL COST OF SALES ................................... 73,550,219 63,906,206 46,016,852
GENERAL AND ADMINISTRATIVE EXPENSES ................... 17,811,712 18,361,511 14,774,234
DEPRECIATION AND AMORTIZATION ......................... 5,851,207 6,689,985 6,158,146
RESTAURANT PRE-OPENING EXPENSES ....................... 1,845,120 1,438,783 1,409,497
PROVISION FOR LOSSES ON ASSET IMPAIRMENTS AND DISPOSALS 1,056,471 8,486,309 5,847,545
LEASE TERMINATION COSTS ............................... (1,164,984) 6,410,759 477,266
--------------- --------------- ---------------
Operating loss ................................ (14,525,498) (35,109,417) (23,460,722)
INTEREST INCOME ....................................... 98,334 340,453 441,350
INTEREST EXPENSE ...................................... (1,192,598) (527,511) (210,655)
AMORTIZATION OF DEFERRED FINANCING COSTS .............. (548,972) (126,868)
LOSS ON EARLY EXTINGUISHMENT OF DEBT .................. (5,083,188)
OTHER INCOME (EXPENSE) ................................ 380,871 -- --
--------------- --------------- ---------------
Net loss ...................................... (20,871,051) (35,423,343) (23,230,027)
PREFERRED STOCK DIVIDENDS ............................. (8,193,640) (6,678,085) (4,219,684)
=============== =============== ===============
NET LOSS ATTRIBUTABLE TO COMMON STOCK ................. (29,064,691) $ (42,101,428) $ (27,449,711)
PER SHARE DATA:
Net Loss Per Share:
Basic and diluted ............................... $ (5.04) $ (9.34) $ (6.09)
=============== =============== ===============
Weighted Average Common Shares Outstanding:
Actual ............................................. 5,762,818 4,507,237 4,503,862
=============== =============== ===============

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

F-4

COSI, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY
For the Years Ended JANUARY 1, 2001, DECEMBER 31, 2001
and December 30, 2002

Redeemable Shares
-----------------------------------------------------------------------------
Series A Series C
Convertible Preferred Stock Convertible Preferred Stock
---------------------------- ----------------------------

Total
Number of Number of Redeemable
Shares Amount Shares Amount Securities
------------ ------------ ------------ ------------ ------------

BALANCE, January 3, 2000 ........... 1,146,206 15,118,619 1,268,981 19,901,891 35,020,510
Issuance of Series C convertible
preferred stock, net of issuance
costs ........................... -- -- 1,426,936 22,455,104 22,455,104
Accrued preferred stock dividend ... -- 1,320,434 -- 2,649,775 3,970,209
Accretion of preferred stock to
liquidation value ............... -- 224,936 -- 24,539 249,475
Issuance of common stock ........... -- -- -- -- --
Net loss ........................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE, January 1, 2001 ........... 1,146,206 16,663,989 2,695,917 45,031,309 61,695,298
Issuance of Series C convertible
preferred stock, net of issuance
costs ........................... -- -- 1,465,672 23,915,878 23,915,878
Issuance of warrants ............... -- -- -- -- --
Issuance of warrants in connection
with preferred stock financing .. -- -- -- -- --
Accrued preferred stock dividend ... -- 1,429,280 -- 4,980,812 6,410,092
Accretion of preferred stock to
liquidation value ............... -- 224,936 -- 43,057 267,993
Issuance of common stock ........... -- -- -- -- --
Net loss ........................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
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 preferred 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
(Note 16) ....................... -- -- 217,327 3,613,075 3,613,075
Issuance of common stock ........... -- -- -- -- --
Conversion to common stock ......... (1,146,206) (19,895,424) (5,321,545) (99,827,163) (119,722,587)
------------ ------------ ------------ ------------ ------------
Net loss ........................... -- -- -- -- --
============ ============ ============ ============ ============

Redeemable Shares
---------------------------

Common Stock
---------------------------
Notes
Additional Receivable
Number of Paid-In from Accumulated
Shares Amount Capital Stockholders Deficit Total
------------ ------------ ------------ ------------ ------------ ------------

BALANCE, January 3, 2000 ........... 4,503,815 45,038 30,606,697 (2,974,804) (48,503,150) (20,826,219)
Issuance of Series C convertible
preferred stock, net of issuance
costs ........................... -- -- -- -- -- --
Accrued preferred stock dividend ... -- -- -- -- (3,970,209) (3,970,209)
Accretion of preferred stock to
liquidation value ............... -- -- -- -- (249,475) (249,475)
Issuance of common stock ........... 54 1 634 -- -- 635
Net loss ........................... -- -- -- -- (23,230,027) (23,230,027)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, January 1, 2001 ........... 4,503,869 45,039 30,607,331 (2,974,804) (75,952,861) (48,275,295)
Issuance of Series C convertible
preferred stock, net of issuance
costs ........................... -- -- -- -- -- --
Issuance of warrants ............... -- -- 1,098,469 -- -- 1,098,469
Issuance of warrants in connection
with preferred stock financing .. -- -- 231,631 -- -- 231,631
Accrued preferred stock dividend ... -- -- -- -- (6,410,092) (6,410,092)
Accretion of preferred stock to
liquidation value ............... -- -- -- -- (267,993) (267,993)
Issuance of common stock ........... 7,625 76 66,601 -- -- 66,677
Net loss ........................... -- -- -- -- (35,423,343) (35,423,343)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 2001 ......... 4,511,494 45,115 32,004,032 (2,974,804) (118,054,289) (88,979,946)
Issuance of Series C convertible
preferred stock, net of issuance
costs ........................... -- -- -- -- -- --
Issuance of warrants ............... -- -- 4,901,874 4,901,874
Issuance of warrants in connection
with preferred 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)
Exchange of senior subordinated debt
and warrants for Series C
Convertible Preferred Stock
(Note 16) ....................... -- -- (429,865) -- -- (429,865)
Issuance of common stock ........... 5,594,409 55,944 33,077,182 -- 33,133,126
Conversion to common stock ......... 6,467,611 64,676 119,657,911 119,722,587
------------ ------------ ------------ ------------ ------------ ------------
Net loss ........................... -- -- -- -- (20,871,051) (20,871,051)
============ ============ ============ ============ ============ ============

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

F-5

COSI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

December 30, 2002 December 31, 2001 January 1, 2001
----------------- ----------------- ---------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................................... $ (20,871,051) $ (35,423,343) $ (23,230,027)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................................ 5,851,207 6,689,985 6,158,146
Amortization of deferred financing costs ..................... 548,972 126,868 --
Loss on early extinguishment of debt ......................... 5,083,188 -- --
Asset impairments and disposals .............................. 1,056,471 9,933,142 5,847,545

Provision for bad debts ...................................... 27,000 3,600 73,330

Changes in operating assets and liabilities:
Accounts receivable .......................................... (339,740) 762,161 (1,653,944)
Inventory .................................................... (61,924) (492,934) (397,048)
Other assets ................................................. (367,352) (619,006) 667,935
Accounts payable ............................................. 4,188,124 918,150 2,282,931
Accrued liabilities .......................................... 970,599 (255,229) 2,358,273
Accrued merger and integration ............................... -- -- (639,300)
Accrued contractual lease increases .......................... 785,794 825,772 628,401
Prepaid expenses and other current assets .................... (1,107,926) (53,084) (198,203)
Lease termination accrual .................................... (1,576,103) 5,201,674 (437,146)
----------------- ----------------- ---------------
Net cash used in operating activities ..................... (5,812,741) (12,382,244) (8,539,107)
----------------- ----------------- ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold improvements .. (27,155,800) (20,350,590) (18,161,055)
Payments made for security deposits .......................... (308,404) 82,725 (186,693)
----------------- ----------------- ---------------
Net cash used in investing activities ................... (27,464,204) (20,267,865) (18,347,748)
----------------- ----------------- ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ....................... 33,133,126 66,677 635
Net proceeds from issuance of preferred stock ................ 15,670,511 24,147,509 22,455,104
Retirement of Sr. Subordinated & Sr. Secured Notes ........... (16,320,692) -- --
Principal payments on capital lease obligations .............. (457,673) (572,060) (303,783)
Proceeds from long-term debt plus related Warrants and accrued
interest .................................................. 10,980,647 9,269,198 2,998,977
Principal payments on long-term debt ......................... (1,166,238) (854,516) (186,947)
----------------- ----------------- ---------------
Net cash provided by financing activities .................... 41,839,681 32,056,808 24,963,986
----------------- ----------------- ---------------
Net increase (decrease) in cash .............................. 8,562,736 (593,301) (1,922,869)

CASH AND CASH EQUIVALENTS, beginning of year .................... 4,469,571 5,062,872 6,985,741
----------------- ----------------- ---------------
CASH AND CASH EQUIVALENTS, end of year .......................... $ 13,032,307 $ 4,469,571 $ 5,062,872
================= ================= ===============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ..................................................... $ 1,323,459 $ 466,764 $ 220,492
================= ================= ===============
Corporate franchise and income taxes ......................... $ 118,690 $ 277,198 $ 7,931
================= ================= ===============
Non-cash financing transactions:
Assets acquired under capital leases ......................... $ -- $ -- $ 134,678
================= ================= ===============
Conversion of Senior Subordinated Debt to Series C Preferred . $ 3,183,210 $ -- $ --
================= ================= ===============
Conversion of Warrants to Series C Preferred ................. $ 429,865 $ -- $ --
================= ================= ===============

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

F-6

COSI, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 1, 2001, December 31, 2001 and December 30, 2002

1. Description and Organization of Business

Cosi, Inc. and subsidiaries (the "Company" or "Cosi") engages in the
business of operating restaurants, which sell high-quality coffees and
sandwiches along with a variety of coffee beverages, teas, baked goods and
alcoholic beverages. As of December 30, 2002, the Company had 91 restaurants in
operation in Connecticut, New York, the District of Columbia, Pennsylvania,
Maryland, Massachusetts, Virginia, Illinois, New Jersey, Michigan, Ohio and
Wisconsin.

2. Summary of Significant Accounting Policies

Fiscal Year End

The Company's fiscal year ends on the Monday closest to December 31.
Fiscal years 2002, 2001 and 2000 ended on December 30, 2002, December 31, 2001
and January 1, 2001, respectively. Fiscal 2002, 2001 and 2000 each contained 52
weeks.

Principles of Consolidation

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all short-term liquid investments with a
maturity of three months or less when purchased to be cash equivalents. At
December 30, 2002 and December 31, 2001, $9.4 million and $1.4 million,
respectively, was invested primarily in commercial paper and money market
accounts and is classified as cash and cash equivalents in the accompanying
consolidated balance sheets.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash deposits and accounts
receivable. The Company places its cash deposits in FDIC insured financial
institutions, commercial paper and money market funds. Cash deposits may exceed
FDIC insured levels from time to time.

The Company's accounts receivable consist principally of receivables
from trade or "house" accounts representing corporate customers, as well as
amounts due from certain landlords for tenant improvement reimbursements. The
Company has established credit procedures, whereby analyses are performed to
control the granting of credit to customers.

Inventory

Inventory is stated at the lower of cost (first in, first out
method) or market, and consists principally of whole bean coffee, liquor,
sandwich ingredients and packaging and related food supplies.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are stated at cost
and include improvements and costs incurred in the development and construction
of new restaurants and remodels, equipment and leasehold improvements.
Depreciation is computed using the straight-line method over estimated useful
lives, which range

F-7

from two to fifteen years. Leasehold improvements are amortized using the
straight-line method over the shorter of their estimated useful lives or the
term of the related leases.

Restaurant Impairment Charges

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of", and APB Opinion No. 30, "Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." SFAS 144 retains
the fundamental provisions of SFAS 121 for recognition and measurement of
impairment, but amends the accounting and reporting standards for segments of a
business to be disposed of. The Company adopted the provisions of this statement
beginning in fiscal 2002. The adoption of SFAS 144 did not have a material
impact on the Company's financial position or results of operations. In
accordance with SFAS. 144 and previously under SFAS 121, impairment losses are
recorded on long-lived assets on a restaurant by restaurant basis whenever
impairment factors are determined to be present. The Company considers a history
of restaurant operating losses to be the primary indicator of potential
impairment for individual restaurant locations. The Company has identified
certain units that have been impaired, and recorded charges of approximately
$5.8 million (related to ten restaurants), $7.2 million (related to fourteen
restaurants, including $0.3 million for one restaurant damaged in the events of
September 11, 2001 -- See Note 15) and $1.1 million (related to two restaurants)
in the statements of operations for fiscal years 2000, 2001 and 2002,
respectively. The Company determines whether a restaurant location is impaired
based on expected undiscounted cash flows, generally for the remainder of the
lease term, and then determines the impairment charge based on discounted cash
flows for the same period.

Intangibles, Security Deposits and Other Assets

Intangibles and other assets consist of expenditures associated with
obtaining liquor licenses, trademarks and logos. Liquor licenses are stated at
cost which, in the aggregate, is not in excess of market. Security deposits
primarily consist of deposits placed on leased locations. Amortization expense
related to intangibles and other assets amounted to approximately $8,400 and
$9,400 for fiscal years 2000 and 2001, respectively. Due to the adoption of SFAS
No. 142, "Goodwill and Other Intangible Assets" (see note 5) no amortization
expense was recorded in fiscal 2002.

The Company reviews intangible assets for impairment whenever events
or changes in circumstances indicate that the carrying amounts of those assets
may not be recoverable in accordance with SFAS 142. Management believes that
there is no impairment with respect to such intangible assets at December 30,
2002 or December 31, 2001.

Other Liabilities

Other liabilities consist of deferred rent and accrued lease
termination costs (see Note 14).

Income Taxes

The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the year in which those
temporary differences are expected to be recovered or settled.

Revenue Recognition

The Company records revenue at the time of the purchase of its
products by its customers.

F-8

Fair Value of Financial Instruments

The Company accounts for financial instruments in accordance with
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments". The
carrying value of all financial instruments reflected in the accompanying
balance sheet approximates fair value at December 30, 2002 and December 31,
2001.

Stock-Based Compensation

The following table illustrates the effect on net loss attributable
to common stock and net loss per common share as if the Company had applied the
fair value recognition provisions of SFAS 123 to stock-based employee
compensation.

2002 2001 2000
------------ ------------ ------------

Net loss attributable to common stock - as reported $(29,064,691) $(42,101,428) $(27,449,711)
Stock based compensation determined under SFAS 123 (1,952,266) (1,377,415) (570,972)
------------ ------------ ------------
Net loss attributable to common stock -Pro forma .. (31,016,957) (43,478,843) (28,020,683)
Net loss per common share-- Basic and Diluted:
As reported .................................... $ (5.04) $ (9.34) $ (6.09)
============ ============ ============
Pro forma ...................................... $ (5.38) $ (9.64) $ (6.23)
============ ============ ============

The fair value of each option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:

Fiscal Year Ended 2002 2001 2000
- -------------------------------------------- -------- -------- --------
Expected volatility ........................ 40% (a) -- --
Average expected option life ............... 5 years 5 years 5 years
Average risk-free interest rate ............ 4.11% 4.57% 6.37%
Dividend yield ............................. 0% 0% 0%

(a) For options issued subsequent to the Company's initial public offering.

Net Loss Per Share

The Company follows the provisions of SFAS No. 128, "Earnings Per
Share". In accordance with this statement, basic net loss per share is computed
by dividing the net loss attributable to common shareholders (after deducting
preferred stock dividends) by the weighted-average number of common shares
outstanding. Diluted net loss per share is computed by dividing the net loss
attributable to common shareholders by the weighted-average number of common
shares and dilutive common share equivalents, if any, outstanding. For all
periods presented, the impact of all common share equivalents has not been
included, as their inclusion would be anti-dilutive.

Segment Disclosures

The Company has adopted the provisions of SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information". Pursuant to this
pronouncement, operating segments are defined as components of an enterprise
about which separate financial information is available and is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources in assessing performance. Management of the Company considers its
operations to be in the food service industry and, as a result, the Company has
one single reporting operating unit with all sales historically generated in the
United States.

F-9

Pre-Opening Costs

All costs incurred prior to the opening of a location, which consist
primarily of salaries and other direct expenses incurred with the initial setup
of restaurants and certain costs related to remodels, employee training and
general restaurant management, are expensed as incurred.

Advertising Costs

Advertising costs are expensed as incurred and approximated
$110,000, $141,000 and $177,000 for fiscal years 2002, 2001 and 2000,
respectively.

Comprehensive Income

The Company's operations did not give rise to items includable in
comprehensive income that were not already in its net loss for fiscal years
2002, 2001 and 2000. Accordingly, the Company's comprehensive loss is the same
as its net loss for all periods presented.

Reclassifications

Certain items in the financial statements presented have been
reclassified to conform to the fiscal 2002 presentation.

Recently Issued Accounting Pronouncements

In April 2002, the FASB approved SFAS 145, "Rescission of FASB
Statements No. 4, 44 and 54, Amendment of SFAS 13, and Technical Corrections."
SFAS 145 rescinds previous accounting guidance, which required all gains and
losses from extinguishment of debt be classified as an extraordinary item. Under
SFAS 145 classification of debt extinguishment depends on the facts and
circumstances of the transaction. SFAS 145 is effective for fiscal years
beginning after May 15, 2002. The Company does not expect SFAS 145 to have a
material impact on our financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses accounting for
restructuring, discontinued operation, plant closing, or other exit or disposal
activity. SFAS 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. The adoption
of SFAS 146 is not expected to have a significant impact on the Company's
financial position and results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS 148 amends SFAS 123
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require more prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The additional disclosure requirements of SFAS 148 have been
incorporated into the accompanying financial statements and footnotes. The
Company has elected to continue to follow the intrinsic value method of
accounting as prescribed by APB 25 to account for employee stock options.

Use of Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results may differ from
those estimates.

F-10

3. Accounts Receivable, net

Accounts receivable, net, consists of the following:

December 30, December 31,
2002 2001
----------- -----------

Accounts receivable, trade ....................... $616,411 $657,102
Reimbursements due from landlords ................ 823,100 482,548
Other ............................................ 304,144 278,981
----------- -----------
1,743,655 1,418,631
Less: allowance for doubtful accounts ............ (232,129) (219,845)
----------- -----------
Accounts receivable .............................. $1,511,526 $1,198,786
=========== ===========

At December 30, 2002 one landlord reimbursement represented 27% of total
reimbursements due from landlords.

4. Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consist of the
following:

December 30, December 31,
2002 2001
------------ ------------

Leasehold improvements ......................... $36,297,351 $23,216,827
Furniture and fixtures ......................... 9,499,929 6,279,777
Restaurant equipment ........................... 13,000,904 6,455,154
Computer and telephone equipment ............... 7,962,204 5,600,702
Construction in progress ....................... 1,063,823 181,252
------------ ------------
67,824,211 41,733,712
Less: accumulated depreciation and amortization (22,068,892) (16,226,517)
------------ ------------
$45,755,319 $25,507,195
============ ============

Depreciation and amortization expense for fiscal years 2002, 2001
and 2000 was $5,851,207, $6,680,585 and $6,131,888, respectively.

5. Intangible Assets

Effective January 1, 2002, the Company adopted SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". These statements established financial accounting and reporting
standards for acquired goodwill and other intangible assets. Specifically, the
standards address how intangible assets should be accounted for both at the time
of acquisition and after they have been recognized in the financial statements.
The provisions of SFAS 141 apply to all business combinations initiated after
June 30, 2001. In accordance with SFAS 142, intangible assets, included
purchased goodwill, must be evaluated for impairment. Those intangible assets
that will continue to be classified as goodwill or as other intangibles with
indefinite lives are no longer amortized. Finite lived intangibles will continue
to be amortized over their estimated useful lives. The adoption of these
standards did not have a material impact on the Company's financial statements,
principally because the Company's significant business combination, which took
place in fiscal 1999, was accounted for under the pooling-of-interests method of
accounting in which no goodwill was recorded. The Company's intangibles consist
of expenditures associated with obtaining liquor licenses, trademarks and logos.
These identifiable intangibles have indefinite lives and, accordingly, are no
longer being amortized effective January 1, 2002 upon adoption of this
Statement.

F-11

In accordance with SFAS 142, the effect of this change is reflected
prospectively. The following table reflects consolidated results of operations
adjusted as though the adoption of SFAS 141 and 142 occurred as of January 2,
2001:

Year Ended
---------------------------------------------------------
December 30, 2002 December 31, 2001 January 1, 2001
----------------- ----------------- ---------------

Net loss:
As reported ............................. $(20,871,051) $(35,423,343) $(23,230,027)
Indefinite-lived intangibles amortization -- 9,400 8,400
----------------- ----------------- ---------------
As adjusted ............................. $(20,871,051) $(35,413,943) $(23,221,627)
================= ================= ===============

Intangible assets consist of the following, and are included in
Intangibles, Security Deposits and Other Assets, net:

December 30, December 31,
2002 2001
------------ ------------
Liquor Licenses .................................. $903,806 $527,679
Trademarks ....................................... 459,339 443,941
------------ ------------
$1,363,145 $971,620
============ ============

6. Accrued Liabilities

Accrued liabilities consist of the following:

December 30, December 31,
2002 2001
------------ ------------
Payroll and related benefits and taxes ........... $1,521,208 $2,043,941
Professional and legal costs ..................... 436,993 188,581
Taxes payable .................................... 825,331 473,022
------------ ------------
Other ............................................ 3,138,876 2,246,265
============ ============

7. Long-Term Debt

Notes Payable

The Company maintains a credit facility in the original amount of $3
million under a Master Loan and Security Agreement dated October 28, 1999 (the
"Equipment Loan Credit Facility"). The proceeds are required to be used for the
purchases of equipment. Borrowings are secured by the equipment purchased. Each
borrowing under the Equipment Loan Credit Facility is payable over 36 months and
the interest rate is determined at the time of the borrowing. Warrants to
purchase shares of common stock were issued in connection with the Credit
Facility. The warrants entitle the holder to acquire 8,068 shares of the
Company's common stock for $14.875 per share. As of December 30, 2002, there
were two notes payable outstanding under the Equipment Loan Credit Facility. The
note payable due September 1, 2003 requires monthly payments of $35,949, which
commenced in October 2000, and accrues interest at a rate of 9.10% per annum.
The note payable due December 1, 2003 requires monthly payments of $58,361,
which commenced in December 2001, and accrues interest at a rate of 8.50% per
annum.

In addition to the monthly payments, the Company is required to pay
loan fees of $113,738 and $186,158, respectively, which are due September 1,
2003 and December 1, 2003, respectively. The Company is amortizing these loan
fees as additional interest expense over the term of the notes.

In addition to the credit facility, the Company has an outstanding
note payable of approximately $130,000. The note is due March 2007 and requires
monthly payments of $3,097, which commenced in May 1998, and accrues interest at
a rate of 10% per year.

F-12

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

Senior Subordinated Debt

In November 2001, the Company issued approximately $9 million of
senior subordinated notes along with detachable warrants. The notes bore
interest at 13% per annum, compounded quarterly and payable in arrears, and were
subject to a mandatory prepayment at the election of the Company or the holders
at any time after the earliest of (i) a material change in ownership, as
defined, (ii) a merger or sale of substantially all of the Company's assets,
(iii) a substantial change in corporate structure, as defined, or (iv) a default
by the Company, as defined. The notes were repaid in December 2002 in connection
with the Company's initial public offering of its common stock. (see note 11)
The warrants are exercisable at $.01 per common share and are exercisable for a
period of 5 years from the date of issuance. The fair value ascribed to the
warrants was $1,079,808. The value assigned to the warrants was being recognized
as interest expense over the term of the notes. Upon the repayment of the notes
in December 2002 the Company recorded a charge of approximately $0.5 million to
write off the unamortized portion of the fair value ascribed to the warrants.
This amount is classified as loss on early extinguishment of debt in the
accompanying Consolidated Statement of Operations.

Senior Secured Debt

In August and November 2002, the Company entered into Senior Secured
Note and Warrant Purchase Agreements with certain of our existing shareholders
and members of our board of directors. These agreements provided the Company
with a credit facility of up to $25.0 million available for general corporate
purposes. The facility allowed the Company to draw down funds from time to time
until August 12, 2003. Each draw down was evidenced by a senior secured note
bearing interest at 12% per annum. During 2002 the Company issued $9.5 million
of 12% senior secured notes pursuant to this credit facility. These notes ranked
senior to all of the Company's other funded indebtedness and were secured by all
of the Company's tangible and intangible property, other than equipment pledged
to secure the Company's equipment loan credit facility and its capitalized lease
obligations. (see Note 8). Interest on the notes accrues and was payable
together with principal upon maturity. All notes issued pursuant to these
agreements matured, and the credit facility terminated, upon the consummation of
the Company's Initial Public Offering. (see Note 11).

In connection with the Senior Secured Note and Warrant Purchase
Agreements, the Company issued warrants to purchase an aggregate of 2,070,004
shares of its common stock, at an exercise price of $6.00 per share, pro rata to
the parties to the agreement. Each warrant issued pursuant to the Senior Secured
Note and Warrant Purchase Agreements has a five year term and may not be
exercised until after one year from the date of issuance. The fair value
ascribed to the warrants was $4,840,465. The value assigned to the warrants was
being recognized as interest expense over the term of the notes. Upon the
repayment of the notes in December 2002 the Company recorded a charge of
approximately $4.5 million to write off the unamortized portion of the fair
value ascribed to the warrants. This amount is classified as loss on early
extinguishments of debt in the accompanying Consolidated Statement of
Operations.

Maturities of long-term debt during the next five fiscal years and
thereafter are as follows (As of December 30, 2002)

2003 ............................................................ $ 1,280,432
2004 ............................................................ 41,434
2005 ............................................................ 45,438
2006 ............................................................ 49,836
2007 ............................................................ 29,139
Thereafter ...................................................... 82,803
$ 1,529,082
Less: Current maturities ........................................ (1,280,432)
-----------
Long-term debt, net ............................................. $ 248,650
===========

F-13

8. Capital Lease Obligations

At December 30, 2002, the Company is obligated under capital leases
for certain restaurant equipment with an original cost of $2,019,144. The leases
expire at various dates through 2004. The following is a schedule of future
minimum lease payments for capital leases as of December 30, 2002:

2003 ............................................................... 122,563
2004 ............................................................... 2,917
Total lease payments ............................................... 125,480
Less: amount representing interest ................................. (6,055)
Present value of net capital lease payments ........................ 119,425
Less: current portion .............................................. (116,940)
--------
Long-term portion .................................................. 2,485
========

9. Income Taxes

Significant components of the Company's deferred tax assets are as
follows:

December 30, December 31,
2002 2001
------------ ------------
Deferred tax assets:
Net operating loss carryforward ............. $ 30,851,620 $ 21,239,769
Deferred compensation ....................... 1,669,651 1,669,651
Depreciation expense and Impairment of ...... 8,837,192 10,139,945
Long-Lived Assets
Lease termination accrual ................... 2,451,461 3,034,619
Allowance for doubtful accounts ............. 85,888 81,343
Contractual lease increases ................. 1,403,914 1,113,171
Accrued expenses ............................ 492,299 238,190
Other assets ................................ 6,973 6,973
------------ ------------
Total deferred tax assets .............. 45,798,998 37,523,661
Valuation allowance ............................ (45,798,998) (37,523,661)
------------ ------------
Net deferred taxes ..................... $ -- $ --
============ ============

As of December 30, 2002, the Company has Federal net operating tax
loss carryforwards of approximately $83.4 million, which if not used, will
expire through 2022. Utilization of the net operating losses may be subject to
an annual limitation due to the change in ownership provisions of the Internal
Revenue Code and similar state provisions. These annual limitations may result
in the expiration of these net operating losses before their utilization. The
Company has recorded a valuation allowance to offset the benefit associated with
the deferred tax assets noted above due to the uncertainty of realizing the
related benefits.

10. Capitalization

Change in Authorized Number of Shares

On November 22, 2002, the Company amended its Certificate of
Incorporation to increase its authorized capital stock from 45,673,947 shares to
140,000,000, of which 100,000,000 shares will be Common Stock and 40,000,000
shares will be Preferred Stock.

Redeemable Securities

Series A Convertible Preferred Stock

In connection with the Series A Convertible Preferred Stock Purchase
Agreement (the "Series A Purchase Agreement") dated April 28, 1998, the Company
issued 1,142,124 shares of Series A Convertible Preferred Stock (the "Series A")
for approximately $14 million. The proceeds were reduced by $351,800 for closing
costs. The

F-14

Series A Purchase Agreement provides for the issuance of one warrant to purchase
one share of the Company's Common Stock at an exercise price of $.01 (the
"Warrants") for each 13 shares of Series A issued. The Warrants are exercisable
for a period of ten years from the date of issuance and will expire on the
earlier of (i) if required by the Company, the completion of a qualified public
offering, as defined or (ii) the redemption of all of the Series A. The Company
allocated $997,818 of the proceeds to the warrants to recognize their fair
value. In November 1999, the Company issued an additional 4,082 shares of Series
A for $50,000, based on the same terms and conditions. No additional warrants
were issued.

Series B Convertible Preferred Stock

Contemporaneously with the Series A Purchase Agreement, the Company
issued 261,521 shares of Series B Convertible Preferred Stock (the "Series B
Executive Stock") to certain officers of the Company in exchange for promissory
notes aggregating $2,974,804 pursuant to the terms of an Executive Stock
Agreement the "Executive Agreement". The promissory notes accrue interest at an
annual rate of 5.75% and mature in April 2003. These notes are included in
stockholders' equity as notes receivable from stockholders. The Executive
Agreement provided that shares of Series B vest at the rate of 25% per year or
immediately upon a qualified public offering. During 1999, the officers
converted the Series B Executive Stock into an equal number of shares of common
stock subject to the same vesting provisions. In the event that the Company no
longer employs the stockholders, the Executive Agreement provides for certain
Company stock repurchases and/or stockholder put options.

Series C Convertible Preferred Stock

On March 1, 1999, the Company entered into a bridge financing
arrangement (the "Agreement") pursuant to which it issued Subordinated
Promissory Notes (the "Promissory Notes") aggregating $1.5 million maturing on
July 28, 1999. The Promissory Notes bear interest at an escalating rate (ranging
from 12% to 18%) based on the number of days from the issuance of the Promissory
Notes. Warrants (the "Bridge Warrants") to purchase shares of Series A
Convertible Preferred Stock were issued in connection with the Promissory Notes.
The Bridge Warrants entitle the holder to acquire a certain amount of the
Company's Series A Convertible Preferred Stock for a price to be determined at
the time of the Company's next financing. The amount of preferred stock to be
issued would be based upon a price per share based on certain provisions in the
Agreement. At the time of the Company's March 30, 1999 financing, the terms of
the Bridge Warrants were specified to be for the purchase of 25,208 shares of
Series A Convertible Preferred Stock at $14.875 per share. The fair value of the
Bridge Warrants was determined using the Black-Scholes option-pricing model and
totaled $88,230. On March 30, 1999, the Promissory Notes were exchanged for
100,840 shares of Series C Convertible Preferred Stock. The value assigned to
the Bridge Warrants was recognized as interest expense and the carrying amount
of the Promissory Notes were converted to Series C Convertible Preferred Stock
upon conversion of the Promissory Notes.

On March 30, 1999, in connection with the 1999 Series C Preferred
Stock Purchase Agreement (the "1999 Series C Purchase Agreement"), the Company
issued 1,343,668 shares of Series C convertible preferred stock ("1999 Series
C"), par value $0.01 per share and received proceeds of approximately $20
million (including the exchange for the Company's Promissory Notes aggregating
$1.5 million; described above). The proceeds were reduced by $128,411 for
closing costs. During 1999, 74,687 shares of Series C were converted to an equal
number of shares of Common Stock.

During fiscal 2000, the Company issued an aggregate of 1,426,936
shares of Series C, par value $.01 at $15.75 per share, ("2000 Series C"). The
Company received aggregate proceeds of approximately $22.4 million in April
2000, June 2000, and September 2000. The terms of the issuance of 2000 Series C
are the same as the March 1999 issuance of 1999 Series C, with the exception
that the liquidation preference of the 2000 Series C is $15.75 per share.

During fiscal 2001, the Company issued 1,465,672 shares of Series C
convertible preferred stock, par value $.01. ("2001 Series C"). The Company
received proceeds of approximately $23.9 million, net of issuance costs. The
terms of the issuance of 2001 Series C are the same as the previous issuances of
Series C convertible preferred stock, with the exception that the liquidation
preference is $16.625 per share.

During fiscal 2002, the Company issued 1,159,956 shares of Series C
convertible preferred stock, par value $.01. ("2002 Series C"). The Company
received proceeds of approximately $19.2 million, net of issuance costs. The

F-15

terms of the issuance of 2002 Series C are the same as the previous issuances of
Series C convertible preferred stock, with the exception that the liquidation
preference is $16.625 per share.

In connection with the Company's initial public offering of its
common stock in November 2002, (see note 11) all outstanding shares of Series A
and Series C Convertible Preferred Stock were converted to common stock, on a
one for one basis. Upon the conversion any unamortized issuance costs were
charged to Additional Paid in Capital.

Common Stock Purchase Rights

On November 18, 2002, the Board of Directors resolved to adopt a
Shareholders' Rights Plan "Rights Plan". At that time the Board declared a
dividend distribution of one right ("Right") for each share of common stock,
$.01 par value per share of the Corporation on November 25, 2002, to
shareholders of record on November 25, 2002. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of preferred
stock of the Company designated as Series D Preferred Stock at a price of $100
per one one-hundredth of a share. The Board of Directors also resolved to amend
its certificate of incorporation, to designate 1,000,000 shares of Series D
Preferred Stock for such issuance.

Each holder of a share of the Company's common stock has the right
to purchase from the Company one one-hundredth (1/100) of a share of the
Company's Series D preferred stock, $.01 par value per share, at a price of $100
per one one-hundredth of a Series D preferred share. The exercise price and the
number of Series D preferred shares issuable upon exercise are subject to
adjustments from time to time to prevent dilution. The share purchase rights are
not exercisable until the earlier to occur of (1) 10 days following a public
announcement that a person or group of affiliated or associated persons,
referred to as an acquiring person, have acquired beneficial ownership of 15% or
more of the Company's outstanding voting common stock or (2) 10 business days
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer which would result in an acquiring person beneficially
owning 15% or more of the Company's outstanding voting shares of common stock.

If the Company is acquired in a merger or other business
combination, or if more than 50% of the Company's consolidated assets or earning
power is sold after a person or group has become an acquiring person, proper
provision will be made so that each holder of a share purchase right -- other
than share purchase rights beneficially owned by the acquiring person, which
will thereafter be void -- will have the right to receive, upon exercise of the
share purchase right at the then current exercise price, the number of shares of
common stock of the acquiring company which at the time of the transaction have
a market value of two times the exercise price. If any person or group becomes
an acquiring person, proper provision shall be made so that each holder of a
share purchase right -- other than share purchase rights beneficially owned by
the acquiring person, which will thereafter be void -- will have the right to
receive upon exercise of the share purchase right at the then current exercise
price, the number of shares of Series D preferred stock with a market value at
the time of the transaction equal to two times the exercise price.

Series D preferred shares issuable upon exercise of the share
purchase rights will not be redeemable. Each Series D preferred share will be
entitled to a minimum preferential dividend payment of $.10 per share and will
be entitled to an aggregate dividend of 100 times the cash dividend declared per
share of common stock. In the event the Company is liquidated, the holders of
the Series D preferred shares will be entitled to receive a payment in an amount
equal to the greater of $100 per one one-hundredth share or 100 times the
payment made per share of common stock. Each Series D preferred share will have
100 votes, voting together with the shares of common stock. Finally, in the
event of any merger, consolidation or other transaction in which shares of
common stock are exchanged, each Series D preferred share will be entitled to
receive 100 times the amount received per share of common stock. These rights
are protected by customary antidilution provisions.

Before the date the share purchase rights are exercisable, the share
purchase Rights may not be detached or transferred separately from the common
stock. The share purchase Rights will expire in 2012, or, if the share purchase
Rights become exercisable before 2012, at the close of business on the 90th day
following such date the share purchase Right become exercisable, provided that
the Company's board of directors does not extend or otherwise modify the Right.
At any time on or prior to 10 business days following the time an acquiring
person acquires beneficial ownership of 15% or more of the Company's outstanding
voting common stock, the Company's board of directors may redeem the share
purchase Rights in whole, but not in part, at a price of $.01 per share

F-16

purchase Right. Immediately upon any share purchase Rights redemption, the
exercise Rights terminate, and the holders will only be entitled to receive the
redemption price.

Stock Purchase Warrants

Warrants to purchase 2,212,636 shares of the Company's common stock
were outstanding as of December 30, 2002; 106,827 of which have an exercise
price of $.01 per share and expire from November 2006 to April 2008; 2,070,004
of which have an exercise price of $6.00 per share, become exercisable after
August 16, 2003 and expire from August 2007 to November 2007; 33,279 of which
have an exercise price of $14.88 per share and expire in November 2007; and
2,526 of which have an exercise price of $16.63 per share and expire in December
2006 All of these warrants provide for anti-dilution adjustments in the event of
stock splits, stock dividends, sales by the Company of its stock at, or issuance
of options or warrants containing an exercise price of, less than fair market
value or merger, consolidation, recapitalization or similar transactions. All of
the holders of these warrants are entitled to participate in any dividends
declared upon shares of the Company's common stock (other than dividends payable
solely in shares of common stock) as if these holders had fully exercised such
warrants.

11. Initial Public Offering

On November 22, 2002, the Company completed an initial public
offering of its common stock, issuing 5,555,556 shares at $7.00 per share.
Concurrently, all outstanding shares of Series A and Series C preferred stock
were converted to common stock, and all of the Company's outstanding obligations
under its Senior Subordinated and Senior Secured Debt agreements were repaid,
and the Company's Senior Secured Credit Facility was terminated (See Note 7). In
connection with the repayment of the Senior Subordinated and Senior Secured
debt, and the termination of the Senior Secured credit facility, all unaccreted
debt discount, and unamortized deferred financing charges were written off, and
a loss on early extinguishment of debt of approximately $5.1 million was
recorded. The total net proceeds of the offering, net of offering expenses of
approximately $6.1 million including underwriter's discount were approximately
$32.8 million.

12. Stock Option Plans

The Company has several stock option plans that provide for the
granting of incentive and nonqualified stock options to participants, employees
and non-employee directors, to acquire Common Stock.

There are approximately 10 million shares of Common Stock reserved
for issuance under the Plans. Grants have been made at fair market value (as
determined by the Board of Directors prior to the Company's initial public
offering) and generally vest over a period of five years and expire ten years
from the date of the grant. The Board of Directors approves vesting terms on an
individual basis. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees."

Activity with respect to the Company's stock option plans for the
years ended January 1, 2001, December 31, 2001 and December 30, 2002 was as
follows:

Range of Exercise Weighted Average
Number of Options Price Exercise Price
----------------- ----------------- ----------------

Balance as of January 3, 2000 . 1,428,609 $1.56 - 18.81 $8.18
Granted .................... 818,803 $12.25 $12.25
Exercised .................. (55) $10.94 $10.94
Canceled/Expired ........... (143,192) $8.93 - 12.25 $11.00
-----------------
Balance as of January 1, 2001 . 2,104,165 $1.56 - 18.81 $9.62
Granted .................... 1,377,234 $12.25 $12.25
Exercised .................. (5,349) $5.30 - $12.25 $7.31
Canceled/Expired ........... (210,445) $8.93 - $12.25 $11.93
-----------------
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
Canceled/Expired ........... (328,649) $6.11 - $12.25 $12.09
-----------------
Balance as of December 30, 2002 3,406,332 $1.56 - $18.81 $10.41
=================

F-17

There were approximately 1.8 million, 1.5 million and 1.1 million
options exercisable under the Plans as of December 30, 2002, December 31, 2001
and January 1, 2001, respectively.

Summarized information about the Company's stock options outstanding
and exercisable at December 30, 2002 is as follows:

Outstanding Exercisable
---------------------------------------- -------------------------
Remaining
Exercise Price Range Options Average Life Average Price Options Average Price
- -------------------- --------- ------------ ------------- --------- -------------

$1.56 ............. 171,234 3.6 years $1.56 171,234 $1.56
$5.30 - $6.11 ...... 475,518 5.8 years $5.55 336,409 $5.33
$8.93 - $12.25 ..... 2,702,436 7.4 years $11.71 1,251,116 $11.10
$14.88 - $18.81 .... 57,144 0.1 years $15.86 57,144 $15.86

13. Defined Contribution Plan

The Company has a 401(k) Plan (the "Plan") for all qualified
employees. The Plan provides for a matching employer contribution of twenty-five
percent of up to four percent of the employees' deferred savings. The employer
contributions vest over five years. The deferred amount cannot exceed fifteen
percent of an individual participant's compensation in any calendar year. The
Company's contribution to the Plan was $35,380, $26,115 and $21,635 for fiscal
years 2002, 2001 and 2000, respectively.

14. Commitments and Contingencies

Commitments

As of December 30, 2002 the Company is committed under lease
agreements expiring through 2014 for occupancy of its retail restaurants
(excluding leases for retail restaurants not yet opened as of December 30, 2002,
which are disclosed separately below) and for office space at the following
minimum annual rentals:

2003.................. $12,082,924
2004.................. 12,352,035
2005.................. 12,520,043
2006.................. 12,404,946
2007.................. 12,260,853
Thereafter............ 44,154,542

Amounts shown are net of approximately $2.5 million of sublease
rental income under non-cancellable subleases. Rental expense for the fiscal
years ended 2002, 2001 and 2000 totaled $10,434,766, $9,096,207 and $6,184,680 ,
respectively. Certain lease agreements have renewal options ranging from 3 years
to 15 years. In addition, certain leases obligate the Company to pay additional
rent if restaurant sales reach certain minimum levels (percentage rent). Amounts
incurred under these additional rent provisions were $217,075, $168,451 and
$174,402 for fiscal years 2002, 2001 and 2000, respectively.

As of December 30, 2002, future minimum rental payments required
under non-cancelable operating leases for retail restaurants, which were not yet
opened as of December 30, 2002, are as follows:

2003................. $ 1,660,839
2004................. 2,209,670
2005................. 2,322,144
2006................. 2,350,189
2007 2,405,282
Thereafter........... 13,521,350

Certain of the Company's lease agreements provide for scheduled rent
increases during the lease term, or for rental payments commencing at a date
other than the date of initial occupancy. In accordance with SFAS No. 13,
"Accounting for Leases," rent expense is recognized on a straight-line basis
over the term of the respective leases.

F-18

The Company's obligation with respect to these scheduled rent increases has been
presented as a long-term liability in other liabilities in the accompanying
consolidated balance sheets.

As of December 30, 2002, the Company had outstanding approximately
$368,000 in standby letters of credit, which were given as security deposits for
certain of the lease obligations. The letters of credit are fully secured by
cash deposits or marketable securities held in accounts at the issuing banks.
Such deposits are not available for withdrawal, amounted to approximately
$368,000 at December 30, 2002 and are included as a component of Intangible,
Security Deposits and Other Assets in the accompanying consolidated balance
sheet.

In fiscal 2000 and 2001, the Company recorded a provision of
approximately $477,000 and $6,411,000 respectively, and in 2002 the Company
recorded a credit of approximately $1,165,000, relating to lease commitments for
restaurants the Company has closed or is committed to close. During fiscal 2002,
the Company made cash payments totaling approximately $411,000 for those
restaurants' leases.

As of December 30, 2002, future minimum lease payments related to
restaurants that have been closed or are committed to be closed is approximately
$12.6 million, with remaining lease terms ranging from 6 to 12 years.

Other liabilities in the accompanying consolidated balance sheet as
of December 30, 2002 include $6,625,570 in accrued lease termination costs
(including a current portion of $671,601) and $3,794,354 in accrued contractual
lease increases. Other liabilities as of December 31, 2001 include $8,201,674 in
accrued lease termination costs (including a current portion of $1,678,880) and
$3,008,570 in accrued contractual lease increases.

Purchase Commitment

During fiscal year 1999, the Company entered into an exclusive
coffee supply agreement with an unrelated third party ("Supplier"). The
agreement calls for minimum purchases, in terms of both quantity and price, to
be made by the Company of coffee beans and related products. The agreement is in
effect through December 2003 but may be terminated by the Company or the
Supplier provided 180 days notice is given in advance of such termination. The
Company is obligated to purchase approximately $1.1 million of roasted coffee
between now and fiscal year end 2003 under the terms of that agreement.

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

During 2002, the Company received $600,000 in allowances from food
and beverage suppliers, which is being recognized ratably based on actual
product purchased. The Company may receive additional amounts if certain
purchase levels are achieved.

Self-Insurance

The Company has a self-insured group health insurance plan. The
Company is responsible for all covered claims to a maximum liability of $50,000
per participant during a plan year. Benefits paid in excess of $50,000 are
reimbursed to the plan under the Company's stop loss policy. In addition, the
Company also has an aggregate stop loss policy whereby the Company's liability
for total claims submitted cannot exceed a pre-determined dollar factor based
upon, among other things, past years' claims experience, actual claims paid, the
number of plan participants and monthly accumulated aggregate deductibles. Group
health insurance expense for the fiscal years 2002, 2001 and 2000 was
approximately $1,108,000, $968,000 and $800,000, respectively.

Litigation

From time to time, the Company is a party to litigation arising in
the normal course of its business operations. In the opinion of management and
counsel, it is not anticipated that the settlement or resolution of any such
matters will have a material adverse impact on the Company's financial
condition, liquidity or results of operations.

The Company has been named as a defendant in several purported class
action complaints (see Note 17).

F-19

Employment Agreements

During fiscal 2002, the Company entered into employment agreements
with certain officers and employees. The term of each agreement is for three
years with each agreement expiring in 2005. The Company's aggregate remaining
obligations under these employment agreements was approximately $3.4 million as
of December 30, 2002.

15. Related Party Transactions

The Company incurs fees with a legal firm, a partner of which is an
owner of less than 0.5% of the Company's equity securities, and is also the
father of the Company's former interim President and Chief Executive Officer.
This firm provides legal services on behalf of the Company, which amounted to
approximately $575,000, $71,000 and $41,000 for the fiscal years 2002, 2001 and
2000. Furthermore, prior to February 2003, the Company engaged London Misher
Public Relations, Inc., a public relations firm that is partially owned by the
wife of the Company's former Chief Executive Officer. This firm provided the
Company with public relations services, for which the firm was paid
approximately $235,000, $146,000 and $67,000 for fiscal years 2002, 2001 and
2000, respectively. The relationship with this firm has been terminated.
Management of the Company believes that these related party transactions were
effected on a basis that approximates fair market value. Subsequent to December
30, 2002 the relationship with the public relations firm has been terminated.

16. Effect of the Events of September 11, 2001

As a result of the events of September 11, 2001, a Company owned
restaurant location and a kiosk that had operated in the World Trade Center in
New York City were destroyed. Additionally, due to its proximity to the World
Trade Center, another restaurant in the World Financial Center was closed after
the attacks and was reopened in September 2002. The Company and its insurer, and
its insurance broker are in disagreement over the amount of insurance coverage
for these locations. Consequently, approximately $1.3 million has been included
in the 2001 provisions for asset impairments and disposals. The loss is net of
approximately $1.0 million received or recoverable by the Company from property
and casualty insurance. During fiscal 2002 the Company received $320,000 for
business interruption insurance claims which has been recorded as other income
in the accompanying statement of operations. Any future amounts received will be
recognized in income when received, or earlier, if the Company is notified of
the amount of claims approved by its insurers.

17. Subsequent Events

During the first quarter of Fiscal 2003, The Company announced its
intention to create a franchising and area development program. While management
expects that Company owned restaurants will always be an important part of the
Company's new restaurant growth, it believes that incorporating a franchising
and area developer model into the Company's strategy will position the Company
to maximize the market potential for the Cosi brand and concept consistent with
our available capital and thus maximize shareholder value. The Company also
announced that its Chairman and CEO had resigned, and that it was slowing the
growth of its company owned restaurants, and that it expected to record a
one-time charge of approximately $1.7 million in the first quarter of 2003 to
provide for severance costs related to the executive and general and
administrative staff reductions.

Subsequent to making that announcement on February 3, 2003, the
board determined that additional changes to executive management are
appropriate, and now expect that the charge in the first quarter of 2003 to
provide for severance costs related to the executive and general and
administrative staff reductions will be approximately $3.7 million.

In addition, during the first quarter of 2003, the Company expects
to record additional charges of $2.1 million to write down assets at three
restaurant locations that were closed during the first quarter of 2003, and on
25 locations which were in our development pipeline, but which have been
cancelled. During the first quarter of 2003, the Company obtained a $3 million
line of credit (the "Loan") from a bank to be used for general corporate
purposes. Under the terms of this Loan, the Company issued a senior secured
promissory note to the Lender in the aggregate principal amount of $3,000,000
(the "$3 Million Note"). The $3 Million Note bears interest at 75 basis points
over the bank's prime lending rate and is secured by all of the Company's
tangible and intangible property, other than equipment pledged to secure its
equipment loan credit facility (see page F-12). The Loan matures in May

F-20

2004. The Company has agreed to pay the bank fees and expenses of approximately
$22,000 upon funding of the Loan. The Loan is guaranteed, jointly and severally,
by Eric J. Gleacher, one of the Company's former Directors; Charles G. Phillips,
one of the Company's shareholders and an entity related to our ZAM Holdings, the
Company's largest shareholder (together, "the Guarantors"). At any time during
the term of the Loan, the Guarantors have the right to require the bank to
assign the Loan to the Guarantors or their designees that are reasonably
acceptable to the Company. If the Loan has not been assigned by the bank to the
Guarantors or their designees, and has not been paid in full by August 15, 2003,
then the bank is required to assign the Loan to the Guarantors or their
designees. If approved by the Company's shareholders, upon assignment of the
loan to the Guarantors or their designees, the loan will be convertible into
shares of our common stock, at the option of the Guarantors, at a conversion
price equal to the lesser of $1.50 or 85% of the weighted average price per
share of the Company's common stock for the fifteen trading day period ending
three trading days before the conversion date.

The Company currently anticipates making a rights offering (the
"Offering") to existing shareholders to raise approximately $12 million. The
Company currently anticipates that the Offering will give existing shareholders
the right to purchase shares of common stock at a purchase price per share equal
to the lesser of $1.50 or 85% of the weighted average price per share of common
stock for the fifteen trading day period ending three trading days before the
expiration date of the Offering. A group of shareholders, including the
Guarantors, have indicated that they will commit to purchase shares in the
offering, or provide other funding support, in the amount of $8.5 million of the
$12 million offering. This shareholder group's commitment to purchase shares in
the Offering will be subject to shareholder approval of the equity conversion
feature of the Loan.

The terms of the Loan and the Offering were reviewed and approved by
a committee of the board comprised of disinterested directors.

The Company intends to file a registration statement with the
Securities and Exchange Commission relating to the Offering. The timing and
completion of the Offering is subject to market conditions and other
contingencies. There can be no assurance that the Company will be able to
complete the Offering on terms acceptable to the Company or at all. The Offering
will only be made pursuant to a prospectus filed with the Securities and
Exchange Commission.

On March 31, 2003 Mr. William D. Forrest joined its Board of
Directors, and was elected Chairman of the Board. Mr. Forrest is a Managing
Director at Gleacher Partners, LLC. Eric Gleacher, who was previously Chairman
of the Board, will remain a director. The Company also announced that Jay
Wainwright will serve as interim Chief Executive Officer until a successor can
be hired, and Nick Marsh will be stepping down as Chief Operating Officer, and
will be leaving the Company.

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

F-21

things, plaintiffs in the Securities Exchange Act Litigation allege that
defendants failed to disclose that the funds raised by the IPO would be
insufficient to implement the Company's expansion plan; that at the time of the
IPO, defendants should have known that the costs of expansion would be greater
than the cash available to the Company, making it improbable that the Company
would be able to successfully continue to open new restaurants at the pace
announced by the Company; and that defendants failed to disclose that a
reduction in the offering price of the IPO would result in the Company being
forced to abandon its growth strategy.

The plaintiffs in the Securities Act Litigation and the Securities
Exchange Act Litigation (the "Litigations") generally seek to recover
compensatory damages, expert fees, attorneys' fees, costs of Court and pre- and
post-judgment interest. The Underwriter is seeking indemnification from the
Company for any damages assessed against it in the Securities Act Litigation.
The Litigations are at a preliminary stage, and the Company expects that these
related lawsuits will be consolidated into a single action. The Company believes
that it has meritorious defenses to these claims, and intends to vigorously
defend against them.

F-22

18. Selected Quarterly Operating Data (Unaudited)

The following table contains selected unaudited statement of
operations information for each quarter of fiscal 2002 and 2001. The Company
believes that the following information reflects all normal recurring
adjustments necessary for a fair presentation of the information for the periods
presented. The operating results for any quarter are not necessarily indicative
of results for any future period. Unaudited quarterly results were as follows:

2001 2002
------------------------------------------------- -------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)

Net sales .................. $ 15,855.9 $ 18,463.8 $ 18,217.0 $ 17,647.4 $ 18,052.1 $ 20,919.9 $ 22,085.5 $ 23,366.7
Cost of goods sold ......... 4,205.6 4,871.7 4,817.3 4,897.1 4,853.4 5,645.6 5,861.5 6,337.0
Restaurant operating
expenses ................ 9,976.1 11,586.2 11,984.7 11,567.5 11,127.0 12,366.5 13,160.6 14,198.6
Total costs of sales ....... 14,181.7 16,457.9 16,802.0 16,464.6 15,980.4 18,012.1 19,022.1 20,535.6
General and
administrative expenses . 3,735.2 4,534.5 4,528.4 5,563.4 4,620.3 4,227.6 4,051.7 4,912.1
Depreciation and
amortization ............ 2,021.9 2,126.9 1,243.0 1,298.2 1,210.3 1,335.5 1,602.2 1,703.2
Restaurant pre-opening
expenses ................ 253.6 320.0 407.9 457.3 111.4 286.1 542.3 905.3
Provision for losses on
asset impairments and
disposals ............... 90.4 -- 1,561.9 6,834.0 -- 7.3 -- 1,049.2
Lease termination costs .... 578.3 -- 1,647.1 4,185.3 -- -- -- (1,165.0)
Operating income(loss) ..... (5,005.2) (4,975.5) (7,973.3) (17,155.4) (3,870.3) (2,948.7) (3,132.8) (4,573.7)
Interest income ............ 60.8 105.9 146.9 26.9 29.9 32.4 20.0 16.0
Interest expense ........... (75.5) (92.1) (84.0) (276.0) (301.4) (245.6) (232.5) (413.1)
Amortization of deferred
financing cost & debt
discount ................ (22.9) (22.9) (22.9) (58.1) (86.4) (62.4) (230.5) (169.7)
Loss on Early
Extinguishment of Debt .. -- -- -- -- -- -- -- (5,083.2)
Other income(expense) ...... -- -- -- -- -- -- 380.4 .5
Net income (loss) .......... (5,042.8) (4,984.6) (7,933.3) (17,462.6) (4,228.2) (3,224.3) (3,195.4) (10,223.2)
Preferred stock
dividends ............... (1,312.7) (1,639.4) (1,836.0) (1,890.0) (1,960.5) (2,383.4) (2,432.8) (1,416.9)
Net income
(loss)attributable to
common stockholders ..... (6,355.5) (6,624.0) (9,769.3) (19,352.6) (6,188.7) (5,607.7) (5,628.2) (11,640.1)
Net income (loss) per
common share ............ (1.41) (1.47) (2.17) (4.29) (1.37) (1.23) (1.24) (1.23)
Shares used in computing
net loss per common
share (in thousands) .... 4,504 4,505 4,508 4,511 4,527 4,544 4,545 9,434

F-23

COSI, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share information)

March 31, 2003 December 30, 2002
-------------- -----------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 3,610.9 $ 13,032.3
Accounts receivable, net of allowances of $219.4 and $232.1,
respectively ............................................ 1,481.5 1,511.5
Inventory ................................................... 1,438.9 1,465.8
Prepaid expenses and other current assets ................... 1,396.6 1,676.3
-------------- -----------------
Total current assets ........................................... 7,927.9 17,685.9
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net ............ 44,917.2 45,755.3
INTANGIBLES, SECURITY DEPOSITS AND OTHER ASSETS, net ........... 2,913.6 2,801.9
-------------- -----------------
Total assets ........................................ $ 55,758.7 $ 66,243.1
============== =================

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ............................................ $ 6,389.9 $ 8,925.2
Accrued liabilities ......................................... 7,927.7 5,922.4
Current portion of other liabilities ........................ 671.6 671.6
Current portion of capital lease obligations ................ 62.6 117.0
Current portion of long-term debt ........................... 1,105.4 1,280.4
-------------- -----------------
Total current liabilities ........................... 16,157.2 16,916.6
OTHER LIABILITIES, net of current portion ...................... 11,558.7 9,748.3
CAPITAL LEASE OBLIGATIONS, net of current portion .............. 1.5 2.5
LONG-TERM DEBT, net of current portion ......................... 239.3 248.7
-------------- -----------------
Total liabilities ................................... 27,956.7 26,916.1
-------------- -----------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock-- $.01 par value: 100,000,000 shares authorized,
16,580,031 and 16,573,514 shares issued and outstanding,
respectively ............................................ 165.7 165.7
Additional paid-in capital .................................. 189,298.2 189,255.0
Notes receivable from stockholders .......................... (2,974.8) (2,974.8)
Accumulated deficit ......................................... (158,687.1) (147,118.9)
-------------- -----------------
Total stockholders' equity .......................... 27,802.0 39,327.0
-------------- -----------------
Total liabilities, and stockholders' equity ......... $ 55,758.7 $ 66,243.1
============== =================

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

F-24

COSI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

March 31, April 1,
2003 2002
---------- ----------

NET SALES ............................................. $ 25,654.4 $ 18,052.1

COST OF SALES:
Cost of goods sold ................................. 7,316.5 4,853.4
Restaurant operating expenses ...................... 16,801.2 11,127.0
---------- ----------
TOTAL COST OF SALES ................................... 24,117.7 15,980.4

GENERAL AND ADMINISTRATIVE EXPENSES ................... 7,925.2 4,620.3
DEPRECIATION AND AMORTIZATION ......................... 1,958.6 1,210.3
RESTAURANT PRE-OPENING EXPENSES ....................... 349.1 111.4
PROVISION FOR LOSSES ON ASSET IMPAIRMENTS AND DISPOSALS 2,568.0 --
LEASE TERMINATION COSTS ............................... 257.1 --

Operating loss ........................................ (11,521.3) (3,870.3)
INTEREST INCOME ....................................... 25.2 29.9
INTEREST EXPENSE ...................................... (47.0) (301.4)
AMORTIZATION OF DEFERRED FINANCING COSTS .............. (25.0) (86.4)
---------- ----------
Net loss .............................................. (11,568.1) (4,228.2)

PREFERRED STOCK DIVIDENDS ............................. -- (1,960.5)
---------- ----------
NET LOSS ATTRIBUTABLE TO COMMON STOCK ................. $(11,568.1) $ (6,188.7)
========== ==========

PER SHARE DATA:
Net Loss Per Share:
Basic and diluted ............................... $ (0.70) $ (1.37)
========== ==========
Weighted Average Common Shares Outstanding:
Actual .......................................... 16,573.8 4,527.6
========== ==========

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

F-25

COSI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

For the Three Months Ended
-------------------------------
March 31, 2003 April 1, 2002
-------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................... $ (11,568.1) $ (4,228.2)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization .............................. 1,958.6 1,210.3
Amortization of deferred financing costs ................... 25.0 86.4
Non-cash portion of asset impairments and disposals ........ 2,051.9 --
Provision for bad debts .................................... 9.0 --
Non-cash employee severance cost ........................... 43.1 --

Changes in operating assets and liabilities:
Accounts receivable ........................................... 21.0 382.9
Inventory ..................................................... 26.8 (49.0)
Other assets .................................................. (245.8) (64.5)
Accounts payable .............................................. (2,535.3) (2,362.6)
Accrued liabilities ........................................... 3,692.1 (46.8)
Accrued contractual lease increases ........................... 123.4 190.6
Prepaid expenses and other current assets ..................... 279.7 (277.3)
Lease termination accrual ..................................... 0.2 (127.3)
-------------- -------------
Net cash used in operating activities ...................... (6,118.4) (5,285.5)
-------------- -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold improvements ... (3,172.4) (2,725.5)
Return of (payments made for) security deposits ............... 109.2 (18.7)
-------------- -------------
Net cash used in investing activities ...................... (3,063.2) (2,744.2)
-------------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ........................ -- 351.6
Net proceeds from issuance of preferred stock ................. -- 15,669.9
Principal payments on capital lease obligations ............... (55.4) (154.1)
Proceeds from long-term debt plus related Warrants and accrued
interest ................................................... -- 727.3
Principal payments on long-term debt .......................... (184.4) (466.6)
-------------- -------------
Net cash provided by (used in) financing activities ........ (239.8) 16,128.1
-------------- -------------
Net increase (decrease) in cash ............................ (9,421.4) 8,098.4

CASH AND CASH EQUIVALENTS, beginning of year ..................... 13,032.3 4,469.6
-------------- -------------
CASH AND CASH EQUIVALENTS, end of period ......................... $ 3,610.9 $ 12,568.0
============== =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ...................................................... $ 47.0 $ 301.4
============== =============
Corporate franchise and income taxes .......................... $ 40.8 $ 14.6
============== =============
Non-cash financing transactions:
Conversion of Senior Subordinated Debt to Series C Preferred .. $ -- $ 3,183.2
============== =============
Conversion of Warrants to Series C Preferred .................. $ -- $ 429.9
============== =============

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

F-26

Notes to Consolidated Financial Statements (unaudited)

March 31, 2003

Note A --Basis of Presentation

The accompanying unaudited condensed consolidated financial
statements of Cosi, Inc. and its subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the thirteen-week
period ended March 31, 2003 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 29, 2003.

The balance sheet at December 30, 2002 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
in the United States for complete financial statements.

Certain reclassifications have been made to conform previously
reported data to the current presentation.

For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 30, 2002.

Note B -- Stock-Based Compensation

The Company complies with the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation". This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The provisions of SFAS 123 encourage entities to adopt a
fair value based method of accounting for stock compensation plans; however,
these provisions also permit the Company to continue to measure compensation
costs under pre-existing accounting pronouncements. In December 2002, the FASB
issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure." SFAS 148 amends SFAS 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require more prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The additional disclosure requirements of SFAS 148 have been
incorporated herein. Pursuant to SFAS 123, the Company has elected to continue
the accounting set forth in Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and to provide the necessary pro
forma disclosures.

F-27

For the Three Months Ended
(In 000's) March 31, 2003 April 1, 2002
-------------- -----------------
Net loss attributable to common stock - as
reported .............................. $ (11,568.1) $ (6,188.7)
============== =================
Stock based compensation included in the
determination of net loss, as reported 43.1 --
Stock based compensation determined under
SFAS 123 .............................. (450.7) (312.4)
-------------- -----------------
Net loss attributable to common stock -Pro
forma ................................. (11,975.7) (6,501.1)
Net loss per common share-- Basic and
Diluted:
As reported .............................. $ (0.70) $ (1.37)
============== =================
Pro forma ................................ $ (0.72) $ (1.44)
============== =================

Note C -- Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements consist of the
following:

(In 000's) March 31,2003 December 30,2002
-------------- -----------------
Leasehold improvements ................... $ 36,540.0 $ 36,297.4
Furniture and fixtures ................... 9,883.8 9,499.9
Restaurant equipment ..................... 14,168.8 13,000.9
Computer and telephone equipment ......... 8,282.3 7,962.2
Construction in progress ................. 50.0 1,063.8
-------------- -----------------
68,924.9 67,824.2
Less: accumulated depreciation and
amortization .......................... (24,007.7) (22,068.9)
-------------- -----------------
$ 44,917.2 $ 45,755.3
============== =================

Restaurant Impairment Charges

In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" and previously under SFAS 121, impairment losses
are recorded on long-lived assets on a restaurant by restaurant basis whenever
impairment factors are determined to be present. The Company considers a history
of restaurant operating losses to be the primary indicator of potential
impairment for individual restaurant locations. The Company has identified
certain units that have been impaired, and recorded an asset impairment charge
of approximately $0.7 million (related to two restaurants) in the first quarter
of fiscal 2003. No impairment charges were recorded in the first quarter of
fiscal 2002. The Company determines whether a restaurant location is impaired
based on expected undiscounted cash flows, generally for the remainder of the
lease term, and then determines the impairment charge based on discounted cash
flows for the same period.

In addition, during the first quarter of fiscal 2003 the Company
recorded a charge of $0.6 million to reflect the writedown of fixed assets
associated with the closure of three underperforming restaurants, and also
recorded a writedown of approximately $1.3 million to reflect the writeoff of
construction in progress on 25 restaurants which were in the development
pipeline, but have been cancelled. These charges have been recorded in provision
for losses on asset impairments and disposals in the accompanying Consolidated
Statements of Operations.

F-28

Note D -- Accrued Liabilities

Accrued liabilities consist of the following:

(In 000's) March 31,2003 December 30, 2002
-------------- -----------------

Payroll and related benefits and taxes .... $ 1,389.8 $ 1,521.2
Professional and legal costs .............. 331.2 437.0
Taxes payable ............................. 617.3 825.3
Severance payable - current portion ....... 1,616.1 --
Unearned vendor allowances ................ 590.4 595.5
Other ..................................... 3,382.9 2,543.4
-------------- -----------------
$ 7,927.7 $ 5,922.4
============== =================

Note E --Earnings Per Share

The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated (in thousands, except for per share
data):

For the Three Months Ended
March 31,2003 April 1, 2002
-------------- -----------------

Basic and Diluted:
Net loss .................................. $ (11,568.1) $ (4,228.2)
Preferred stock dividends ................. -- (1,960.5)
Net loss attributable to common stock ..... (11,568.1) (6,188.7)
-------------- -----------------
Weighted average common shares
outstanding ............................ 16,573.8 4,527.6
Net loss per share ........................ $ (0.70) $ (1.37)
============== =================

Note F - Employee Severance Charge

During the first quarter of fiscal 2003 the Company reduced its
Executive, General and Administrative staffing by 26 persons. These reductions
were made primarily due to a reduction in the Company's growth plans, and due to
a change in the Company's executive management. At that time the Company
recorded a charge of $3.7 million to provide for the costs expected to be
incurred in connection with this reduction. This charge is included in general
and administrative expenses in the accompanying consolidated statements of
operations. $0.4 million of these costs were paid during the first quarter of
fiscal 2003, leaving a remaining accrued liability of $3.3 million as of March
31, 2003. Of this amount, $1.7 million is due after one year and is included in
other liabilities, net of current portion in the accompanying financial
statements.

Termination
(In $000's) Benefits
-----------
Balance December 30, 2002 ........................................ --
Charges during the period ........................................ 3,700.0
Non-cash portion of charges ...................................... 43.1
Cash Payments .................................................... 354.1
-----------
Balance March 31, 2003 ........................................... 3,302.8

Note G -- Contingencies

F-29

812). At least seven additional class action complaints with similar allegations
were later filed (collectively, the "Securities Act Litigation"). The Securities
Act Litigation is brought on behalf of a purported class of purchasers of the
Company's stock allegedly traceable to its November 22, 2002 initial public
offering ("IPO"). The complaints in the Securities Act Litigation generally
claim that at the time of the IPO, the Company's offering materials failed to
disclose that the funds raised through the IPO would be insufficient to
implement the Company's expansion plan; that it was improbable that the Company
would be able to open 53 to 59 new restaurants in 2003; that at the time of the
IPO, Cosi had negative working capital and therefore did not have available
working capital to repay certain debts; and that the principal purpose for going
forward with the IPO was to repay certain existing shareholders and members of
the Board of Directors for certain debts and to operate the Company's existing
restaurants.

On February 21, 2003, a purported shareholder class action complaint
was filed in the Court alleging that the Company and certain of its officers and
directors violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and Rule 10-b promulgated thereunder, by issuing a series of material
misrepresentations to the market between November 22, 2002 and February 4, 2003
(the "Class Period") (Georgette Pacia v. Cosi, Inc. et al., No. 03-CV-1156). One
additional class action complaint with similar allegations was later filed
(collectively, the "Securities Exchange Act Litigation"). The emphasis of the
allegations in the complaint in the Securities Exchange Act Litigation is that
the defendants knowingly or recklessly caused misrepresentations and omissions
to be made regarding the Company's operating condition and future business
prospects. Among other things, plaintiffs in the Securities Exchange Act
Litigation allege that defendants failed to disclose that the funds raised by
the IPO would be insufficient to implement the Company's expansion plan; that at
the time of the IPO, defendants should have known that the costs of expansion
would be greater than the cash available to the Company, making it improbable
that the Company would be able to successfully continue to open new restaurants
at the pace announced by the Company; and that defendants failed to disclose
that a reduction in the offering price of the IPO would result in the Company
being forced to abandon its growth strategy.

The plaintiffs in the Securities Act Litigation and the Securities
Exchange Act Litigation (the "Litigations") generally seek to recover
compensatory damages, expert fees, attorneys' fees, costs of Court and pre- and
post-judgment interest. The Underwriter is seeking indemnification from the
Company for any damages assessed against it in the Securities Act Litigation.
The Litigations are at a preliminary stage, and the Company expects that these
related lawsuits will be consolidated into a single action. The Company believes
that it has meritorious defenses against these claims, and intends to vigorously
defend against them.

Note H -- Subsequent Events

The Company obtained a $3 million line of credit (the "Loan") from a
bank to be used for general corporate purposes. Under the terms of this Loan,
the Company issued a senior secured promissory note to the Lender in the
aggregate principal amount of $3,000,000 (the "$3 Million Note"). The $3 Million
Note bears interest at 75 basis points over the bank's prime lending rate and is
secured by all of the Company's tangible and intangible property, other than
equipment pledged to secure its equipment loan credit facility (see page F-12).
The Loan matures in May 2004. The Company has agreed to pay the bank fees and
expenses of approximately $22,000 upon funding of the Loan. The Loan is
guaranteed, jointly and severally, by Eric J. Gleacher, one of the company's
former Directors; Charles G. Phillips, one of the Company's shareholders and an
entity related to our ZAM Holdings, the Company's largest shareholder (together,
"the Guarantors"). At any time during the term of the Loan, the Guarantors have
the right to require the bank to assign the Loan to the Guarantors or their
designees that are reasonably acceptable to the Company. If the Loan has not
been assigned by the bank to the Guarantors or their designees, and has not been
paid in full by August 15, 2003, then the bank is required to assign the Loan to
the Guarantors or their designees. If approved by the Company's shareholders,
upon assignment of the loan to the Guarantors or their designees, the loan will
be convertible into shares of our common stock, at the option of the Guarantors,
at a conversion price equal to the lesser of $1.50 or 85% of the weighted
average price per share of the Company's common stock for the fifteen trading
day period ending three trading days before the conversion date.

F-30

entities, have indicated that they will commit to purchase shares in the
offering, or provide other funding support in the amount of $8.5 million of the
$12 million offering. This shareholder group's commitment to purchase shares in
the Offering is subject to shareholder approval of the equity conversion feature
of the Loan. The terms of the Loan were reviewed and approved by a committee of
the board of directors comprised of disinterested directors.

F-31

REPORT OF INDEPENDENT AUDITORS ON SCHEDULE

To the Board of Directors
Cosi, Inc.

We have audited the consolidated financial statements of Cosi, Inc.
as of December 30, 2002 and December 31, 2001, and for each of the three years
in the period ended December 30, 2002, and have issued our report thereon dated
February 19, 2003, except for Note 17 as to which the date is March 31, 2003.
(included elsewhere in this registration statement) Our audits also included the
financial statement Schedule II -- Valuation and Qualifying Accounts listen in
Item 16(b) of this registration statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.

In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

New York, New York
February 19, 2003

S-1

SCHEDULE II

COSI, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ending December 30, 2002

Balance at Charged to Charged to
Beginning of Costs and Other Accounts Deductions Balance at End
Description Period Expenses (Describe) (Describe) of Period
- ---------------------------------- ------------ ---------- -------------- ---------- --------------
(in $000s)

JANUARY 1, 2001
Allowance for doubtful accounts
receivable .................... 306.9 88.1 -- (28.0)(a) 367.0

Lease termination reserve ..... 3,437.1 477.3 -- (914.4)(b) 3,000.0

Accrued merger and integration
costs ...................... 639.3 55.7 -- (695.0)(c) --

DECEMBER 31, 2001
Allowance for doubtful accounts
receivable .................... 367.0 3.6 -- (150.8)(a) 219.8

Lease termination reserve ..... 3,000.0 6,410.8 -- (1,209.1)(b) 8,201.7

DECEMBER 30, 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

NOTES:

(a) Write-off of uncollectable accounts.

(b) Payments to landlords and others for leases on closed restaurants.

S-2

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

Set forth below is an estimate of the approximate amount of the fees
and expenses payable by Cosi in connection with this offering:

Securities and Exchange Commission Registration Fee .................. $774.25
National Association of Securities Dealers Inc. Registration Fee .....
Nasdaq National Market Listing Fees ..................................
Printing Expenses ....................................................
Legal Fees and Expenses ..............................................
Accounting Fees and Expenses .........................................
Transfer Agent Fees and Expenses .....................................
Miscellaneous ........................................................
-------
Total ................................................................ $
=======

Item 14. Indemnification of Directors and Officers

Section 145 of the DGCL permits indemnification of officers,
directors, and other corporate agents under certain circumstances and subject to
certain limitations. Our Amended and Restated Certificate of Incorporation and
By-laws provide that we will indemnify our directors and officers, and anyone
who is or was serving at Cosi's request as a director, officer, employee,
fiduciary, or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, to the fullest extent permitted under Delaware law.
These indemnification provisions may be sufficiently broad to permit
indemnification of Cosi's executive officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act
of 1933, as amended.

Cosi maintains directors' and officers' liability insurance against
any actual or alleged error, misstatement, misleading statement, act, omission,
neglect or breach of duty by any director or officer, excluding certain matters
including fraudulent, dishonest or criminal acts or self dealing.

Item 15. Recent Sales of Unregistered Securities

Since July, 2000, the Registrant and its Predecessors have sold and
issued the following unregistered securities:

(a) Issuances of shares of Common Stock other than pursuant to
exercise of employee stock options.

None.

(b) Issuances of Shares of Series C Preferred Stock.

On September 30, 2000, the Registrant issued a total of 677,866
shares of Series C Preferred to 10 investors, 9 of which were accredited
investors (5 of which were organizations described in Section 501(c)(3) of the
IRC, 2 of which represented to the Company that they were a natural person with
a net worth over $1 million, and 2 of which represented to the Company that they
were an entity in which all the equity owners are accredited investors) and all
10 of which were existing stockholders of the Registrant, for an aggregate
purchase price of $6,100,794, or $9.00 per share.

On January 31, 2001, the Registrant issued a total of 1,517,482
shares of Series C Preferred to 51 investors, 50 of which were accredited
investors (27 of which represented to the Company that they were a natural
person with a net worth over $1 million, 9 of which were organizations described
in Section 501(c)(3) of the IRC, 3 of which represented to the Company that they
were a natural person with individual income greater than $200,000, or, if

II-1

married, combined income with spouse of over $300,000, in 2 of the last 3 years,
4 of which were a trust with assets exceeding $5 million, not formed for the
specific purpose of acquiring the securities offered, and 7 of which represented
to the Company that they were an entity in which all the equity owners are
accredited investors) and 39 of which were existing stockholders of the
Registrant for an aggregate purchase price of $14,416,168, or $9.50 per share.

On March 31, 2001, the Registrant issued a total of 73,758 shares of
Series C Preferred to 1 accredited investor (which represented to the Company
that it was an entity in which all the equity owners are accredited investors)
for an aggregate purchase price of $700,701, or $9.50 per share.

On May 10, 2001, the Registrant issued a total of 868,822 shares of
Series C Preferred to 2 accredited investors (both of which were organizations
described in Section 501(c)(3) of the IRC) both of which were existing
stockholders of the Registrant, for an aggregate purchase price of $8,250,009,
or $9.50 per share.

On December 1, 2001, the Registrant issued a total of 105,264 shares
of Series C Preferred to an investor, for an aggregate purchase price of
$1,000,008, or $9.50 per share.

On February 23, 2002, the Registrant issued a total of 2,029,923
shares of Series C to 72 investors, 69 of which were accredited investors (46 of
which represented to the Company that they were a natural person with a net
worth over $1 million, 1 of which was a bank as defined in Section 3(a)(2) of
the Act, 1 of which was an organization described in Section 501(c)(3) of the
IRC, 5 of which represented to the Company that they were a natural person with
individual income greater than $200,000, or, if married, combined income with
spouse of over $300,000, in 2 of the last 3 years, 4 of which were a trust with
assets exceeding $5 million, not formed for the specific purpose of acquiring
the securities offered, and 13 of which represented to the Company that they
were an entity in which all the equity owners are accredited investors) and 24
of which were existing stockholders of the Registrant, for an aggregate purchase
price of $19,284,229.37, or $9.50 per share. Participating in this sale were 20
principals and 1 vice president of William Blair & Company, L.L.C.

From July 4, 2000 to August 1, 2003, the Registrant issued options
to purchase a total of 3,309,165 shares of Common Stock at a weighted-average
exercise price of $8.99 per share to 1,544 employees. No consideration was paid
to the Registrant by any recipient of any of the forgoing options for the grant
of such options.

On November 15, 2000, the Registrant sold 95 shares of its Common
Stock to an employee for aggregate consideration of $635, or approximately $6.68
per share, pursuant to the exercise of outstanding stock options granted prior
to January 2, 2001.

On February 10, 2001, the Registrant issued stock options to
purchase 19,156 shares of its Common Stock at an exercise price of $7.00 per
share, to an outside recruiter in consideration of executive recruitment
services rendered.

On February 15, 2001, the Registrant issued stock options to
purchase 20,000 shares of Common Stock at an exercise price of $7.00 per share,
to an outside consultant in consideration of consulting services rendered.

On March 1, 2001, the Registrant sold 400 shares of its Common Stock
to an employee for aggregate consideration of $2,500, or approximately $6.25 per
share, pursuant to the exercise of outstanding stock options granted prior to
January 2, 2001.

On July 13, 2001, the Registrant sold 9,319 shares of its Common
Stock to an employee for aggregate consideration of $38,803.92, or approximately
$4.16 per share, pursuant to the exercise of outstanding stock options granted
prior to January 2, 2001.

On November 20, 2001, the Registrant issued a stock option to
purchase 5,000 shares of its Common Stock at an exercise price of $7.00 per
share, to an outside consultant in consideration of store design services
rendered.

II-2

On December 31, 2001, the Registrant issued stock options to
purchase 150,000 shares of its Common Stock at an exercise price of $7.00 per
share, to four outside consultants in consideration of consulting services
rendered.

On December 31, 2001, the Registrant issued stock options to
purchase 20,000 shares of its Common Stock at an exercise price of $7.00 per
share, to an outside attorney in consideration of legal services rendered.

On January 30, 2002, the Registrant sold 56,250 shares of its Common
Stock to a former director for aggregate consideration of $351,562.50, or
approximately $6.25 per share, pursuant to the exercise of outstanding stock
options granted prior to January 2, 2001.

On February 11, 2002, the Registrant sold 41 shares of its Common
Stock to an employee for aggregate consideration of $287, or approximately $7.00
per share, pursuant to the exercise of stock options granted prior to January 2,
2001.

(d) Issuances and exercises of Warrants.

On November 6, 2001, the Registrant issued stock purchase warrants
to purchase 703 shares of Common Stock at $0.01 per share to 2 investors, 1 of
which represented to the Company that it was a natural person with a net worth
over $1 million and both of which were existing stockholders of the Registrant,
pursuant to a Note and Warrant Purchase Agreement.

On November 7, 2001, the Registrant issued stock purchase warrants
to purchase 92,077 shares of Common Stock at $0.01 per share to 4 investors, all
of which were accredited investors (2 of which represented to the Company that
they were a natural person with a net worth over $1 million, 1 of which was an
organization described in Section 501(c)(3) of the IRC, and 1 of which
represented to the Company that it was a natural person with individual income
greater than $200,000, or, if married, combined income with spouse of over
$300,000, in 2 of the last 3 years) and existing stockholders of the Registrant,
pursuant to a Note and Warrant Purchase Agreement.

On November 27, 2001, the Registrant issued a stock purchase warrant
to purchase 176 shares of Common Stock at $0.01 per share to an accredited
investor (which represented to the Company that it was a natural person with a
net worth over $1 million) and existing stockholder of the Registrant, pursuant
to a Note and Warrant Purchase Agreement.

On December 3, 2001, the Registrant issued a stock purchase warrant
to purchase 4,419 shares of Common Stock at $9.50 per share to an accredited
investor (which represented to the Company that it was an entity in which all
the equity owners are accredited investors) and existing stockholder of the
Registrant pursuant to a Note and Warrant Purchase Agreement.

On December 10, 2001, the Registrant issued a stock purchase warrant
to purchase 26 shares of Common Stock at $0.01 per share to an investor and
existing stockholder of the Registrant, pursuant to a Note and Warrant Purchase
Agreement.

On January 18, 2002, the Registrant issued a stock purchase warrant
to purchase 8,785 shares of Common Stock at $0.01 per share to two investors,
pursuant to a Note and Warrant Purchase Agreement.

On June 3, 2002, the Registrant sold 2,198 shares of its Common
Stock to an existing stockholders for an aggregate consideration of $21.98
pursuant to the exercise of outstanding warrants.

On July 17, 2002, the Registrant sold 220 shares of its Common Stock
to two existing stockholders for an aggregate consideration of $3.84 pursuant to
the exercise of outstanding warrants.

On August 1, 2002, the Registrant sold 144 shares of its Common
Stock to two existing stockholders for an aggregate consideration of $2.52
pursuant to the exercise of outstanding warrants.

On August 2, 2002, the Registrant sold 220 shares of its Common
Stock to an existing stockholder for an aggregate consideration of $3.85
pursuant to the exercise of outstanding warrants.

II-3

On August 12, 2002, the Registrant issued stock purchase warrants to
purchase 983,670 shares of Common Stock at $6.00 per share to 20 investors, all
of which were accredited investors and 18 of which were existing stockholders of
the Registrant, pursuant to a Senior Secured Note and Warrant Purchase
Agreement.

During September 2002, the Registrant issued stock purchase warrants
to purchase 210,000 shares of Common Stock at $6.00 per share to 20 investors,
all of which were accredited investors and 18 of which were existing
stockholders of the Registrant, pursuant to a Senior Secured Note and Warrant
Purchase Agreement.

During October 2002, the Registrant issued stock purchase warrants
to purchase 360,000 shares of Common Stock at $6.00 per share to 20 investors,
all of which were accredited investors and 18 of which were existing
stockholders of the Registrant, pursuant to a Senior Secured Note and Warrant
Purchase Agreement.

During November 2002, we issued stock purchase warrants to purchase
516,330 shares of common stock at $6.00 per share to nine investors, all of
which were accredited investors and all of which were existing stockholders,
pursuant to a Senior Secured Note and Warrant Purchase Agreement.

On December 19, 2002, we sold 4,396 shares of our common stock to an
existing stockholder for an aggregate consideration of $43.96 pursuant to the
exercise of outstanding warrants.

On March 28, 2003, we sold 2,121 shares of our common stock to five
existing stockholders for an aggregate consideration of $21.21 pursuant to the
exercise of outstanding warrants.

(e) Issuances of Promissory Notes.

On November 6, 2001, the Registrant sold promissory notes in the
principal amount of $40,000, to two investors, one of which was an accredited
investor (which represented to the Company that it was a natural person with a
net worth over $1 million) and both of which were existing stockholders of the
Registrant, pursuant to a Note and Warrant Purchase Agreement.

On November 7, 2001, the Registrant sold promissory notes in the
principal amount of $5,240,046, to four investors, all of which were accredited
investors (2 of which represented to the Company that they were a natural person
with a net worth over $1 million, 1 of which was an organization described in
Section 501(c)(3) of the IRC, and 1 of which represented to the Company that it
was a natural person with individual income greater than $200,000, or, if
married, combined income with spouse of over $300,000, in 2 of the last 3 years)
and existing stockholders of the Registrant, pursuant to a Note and Warrant
Purchase Agreement.

On November 27, 2001, the Registrant sold promissory notes in the
principal amount of $10,000, to an accredited investor (which represented to the
Company that it was a natural person with a net worth over $1 million) and
existing stockholder of the Registrant, pursuant to a Note and Warrant Purchase
Agreement.

On January 18, 2002, the Registrant sold a promissory note in the
principal amount of $500,000, to two investors, pursuant to a Note and Warrant
Purchase Agreement.

During September 2002, the Registrant sold promissory notes in the
principal amount of $3.0 million to 20 investors, all of which were accredited
investors and 18 of which were existing stockholders of the Registrant, pursuant
to a Senior Secured Note and Warrant Purchase Agreement.

During October 2002, the Registrant sold promissory notes in the
principal amount of $6.5 million to 20 investors, all of which were accredited
investors and 18 of which were existing stockholders of the Registrant, pursuant
to a Senior Secured Note and Warrant Purchase Agreement.

During April 2003, the Registrant issued a promissory note in the
principal amount of $3 million to First Republic Bank.

During August 2003, the Registrant issued promissory notes in the
amount of $1,348,042.50 to Eric J. Gleacher and ZAM Holdings, L.P.

There were no underwriters employed in connection with any of the
transactions set forth in Item 15.

II-4

The issuances described in this Item 15 prior to June 4, 2002 do not
reflect the 1.75 to 1 reverse stock split.

The issuances described in Items 15(a), 15(b), 15(d) (except for the
10th, 11th and 12th issuances) and 15(e) were made in reliance upon the
exemption from registration provided pursuant to Section 4(2) of the Securities
Act. The Company determined that each of these sales qualified as private
placements under Section 4(2) because (i) neither the issuer nor any person
acting on its behalf offered or sold these securities by any form of general
solicitation or general advertising, (ii) no private placement included more
than 3 non-accredited investors, (iii) in connection with each private
placement, the Company provided written disclosure with respect to all relevant
financial and other information to each investor, and (iv) the Company provided
written disclosure to each purchaser prior to sale stating that the securities
had not been registered under the Securities Act and, therefore, could not be
resold unless they were registered under the Securities Act or unless an
exemption from registration was available. The issuances described in paragraphs
10, 11 and 12 of Item 15(d) were made in reliance upon the exemption from
registration provided pursuant to Rule 506 of Regulation D, promulgated under
the Securities Act.

The issuances of options described in the first paragraph of Item
15(c) were not required to be registered under the Act because such issuances
did not involve a purchase or sale for purposes of the Act. The issuances of
options described in paragraphs 2, 3, 4, 5, 7, 8, 11, 12 and 13 of Item 15(c)
were made in reliance upon the exemption from registration provided pursuant to
Section 4(2) of the Securities Act. The sales of the Company's common stock
pursuant to the exercise of stock options described in paragraphs 6, 9, 10, 14,
and 15 of Item 15(c) we made in reliance upon the exemption from registration
provided pursuant to Rule 701 promulgated under the Securities Act as securities
sold pursuant to certain compensatory benefit plans and contracts relating to
compensation.

The recipients of securities in each such transaction represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and other instruments issued in
such transactions. All recipients either received adequate information about the
Registrant or had access, through employment or other relationships, to such
information.

Item 16. Exhibits and Financial Statement Schedules

a. Exhibits

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 -Form of Subscription Warrant.

4.3 -Rights Agreement between Cosi, Inc. and American Stock Transfer
and Trust Company, 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).

4.4.1 -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).

4.4.2 -Supplemental Registration Rights Agreement, dated as of
August 5, 2003 by and among the Company and the parties thereto.

II-5

4.5 -- Loan Agreement dated March 31, 2003 between Cosi, Inc. and
First Republic Bank (Filed as Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2003).

4.6 -- Promissory Note dated March 31, 2003 between Cosi, Inc. and
First Republic Bank (Filed as Exhibit 4.2 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2003).

4.7 -- 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 30,
2003).

4.8.1- Promissory Note dated August 5, 2003, between the Company and
ZAM Holdings, L.P.

4.8.2 - Promissory Note dated August 5, 2003, between the Company
and Eric J. Gleacher.

4.9 - 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.

4.10 - 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.

5.1* -Opinion of Cadwalader, Wickersham & Taft LLP as to the
legality of the securities being registered.

10.1.1 -Amended and Restated Cosi Stock Incentive Plan. (Filed as
exhibit 10.1 to the Company's Registration Statement on Form S-1,
file #333-86390).

10.1.2 - 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).

10.2 -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).

10.4.1 - Employment Agreement between Cosi, Inc. and Jay Wainwright,
effective as of January 1, 2002. (Filed as exhibit 10.5.2 to the
Company's Registration Statement on Form S-1, file #333-86390).

10.4.2 -Employment Agreement between Cosi, Inc. and David Orwasher,
effective as of January 1, 2002. (Filed as exhibit 10.5.4 to the
Company's Registration Statement on Form S-1, file #333-86390).

10.4.3 -Employment Agreement between Cosi, Inc. and William D.
Forrest, dated June 26, 2003.

10.4.4 - Separation Agreement between Cosi 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 30,
2003).

10.4.5 - Separation and Release Agreement between Cosi and Nicholas
Marsh, effective April 31, 2003.

II-6

10.5 - 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).

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 Schedule of Ernst & Young LLP, date as of
July 30, 2003.

23.2* -Consent of Cadwalader, Wickersham & Taft LLP (included in
exhibit 5.1)

24.1 -Power of Attorney (included on the signature page of this
registration statement).

99.1* -Form of Subscription Agent Agreement between Cosi, Inc. and
American Stock Transfer and Trust Company

99.2 -Form of Instructions as to Use of Rights Certificates.

99.3 -Form of Notice of Guaranteed Delivery for Rights Certificate.

99.4 -Form of Letter to Shareholders of Record.

99.5 -Form of Letter from Broker or Other Nominee to Beneficial
Shareholders.

99.6 -Form of Instructions by Beneficial Owner to Broker or Other
Nominee.

99.7 -Form of Letter to Brokers and Other Nominees.

99.8 -Form of Nominee Holder Certification Form.

- ----------

* To be filed by amendment.

(1) Portions of exhibit 10.5 have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for Confidential
Treatment.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as
amended, Cosi, Inc., has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, New York, on August 5, 2003.

COSI, INC.

By: /s/ Kevin Armstrong
-----------------------------------
Kevin Armstrong
Chief Executive Officer and President

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints William D. Forrest and Kevin
Armstrong, and each of them, his or her true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments, including post-effective amendments
or supplements to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each of said attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite, necessary and appropriate to be done with respect to this
Registration Statement or any amendments or supplements hereto in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, and hereby ratifies and confirms all said attorneys-in-fact and agents,
and each of them, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed on August 5, 2003, by the
following persons in the capacities indicated.

Signature Title
--------- -----

/s/ William D. Forrest
- ------------------------
William D. Forrest Chairman of the Board

/s/ Kevin Armstrong
- ------------------------ Chief Executive Officer, President and Director
Kevin Armstrong (Principal Executive Officer)

/s/ Jay Wainwright
- ------------------------
Jay Wainwright Director

/s/ Terry Diamond
- ------------------------
Terry Diamond Director

/s/ Creed L. Ford III
- ------------------------
Creed L. Ford III Director

/s/ Nick Marsh
- ------------------------
Nick Marsh Director

/s/ D. Ian McKinnon
- ------------------------
D. Ian McKinnon Director

/s/ Jeffrey M. Stork
- ------------------------
Jeffrey M. Stork Director

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Signature Title
--------- -----

/s/ Greg Woolley
- ------------------------
Greg Woolley Director

/s/ Kenneth S. Betuker
- ------------------------ Chief Financial Officer
Kenneth S. Betuker (Principal Financial and Accounting Officer)

II-9