##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended October 2, 2005.                                             
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to          .                                  

Commission File Number: 000-51535





CARIBOU COFFEE COMPANY, INC.


(Exact Name of Registrant as Specified in Its Charter)


|                                                                                              |  |                                         
|--------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Minnesota                                                                                     |  | 41-1731219                              
|(State or other jurisdiction of
    incorporation or organization)                            |  | (I.R.S. Employer
    Identification No.)
|                                                                                             
|3900 Lakebreeze Avenue
    Brooklyn Center, Minnesota(Address of principal executive offices) |  | 55429(Zip Code)                         

(763) 592-2200




Not Applicable




o þ


o þ


o þ




|                                        |  |                                           
|--------------------------------------- |  | ------------------------------------------
|Title                                   |  | Shares Outstanding as of November 11, 2005
|                                        |  |                                           
|Common Stock, par value $0.01 per share |  | 19,269,133                                









---










CARIBOU COFFEE COMPANY, INC.


FORM 10-Q


For the Thirteen Week Period Ended October 2, 2005


Table of Contents


|                                             |  |                                                                                           |    |  |    | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I. FINANCIAL
    INFORMATION           
|Item 1.                                      |  | Financial Statements                                                                      |    |  | 3  | 
|                                             |  | Condensed Consolidated Statements of
    Operations                                       |    |  | 3  | 
|                                             |  | Condensed Consolidated Balance Sheets                                                     |    |  | 4  | 
|                                             |  | Condensed Consolidated Statements of Cash
    Flows                                       |    |  | 5  | 
|                                             |  | Notes to Condensed Consolidated Financial
    Statements                                  |    |  | 6  | 
|Item 2.                                      |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |    |  | 14 | 
|Item 3.                                      |  | Quantitative and Qualitative Disclosures
    About Market Risk                            |    |  | 32 | 
|Item 4.                                      |  | Controls and Procedures                                                                   |    |  | 32 | 
|PART II. OTHER INFORMATION                  
|Item 1.                                      |  | Legal Proceedings                                                                         |    |  | 32 | 
|Item 2.                                      |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                           |    |  | 33 | 
|Item 3.                                      |  | Defaults Upon Senior Securities                                                           |    |  | 33 | 
|Item 4.                                      |  | Submission of Matters to a Vote of Security
    Holders                                   |    |  | 33 | 
|Item 5.                                      |  | Other Information                                                                         |    |  | 34 | 
|Item 6.                                      |  | Exhibits                                                                                  |    |  | 34 | 
|Signatures                                   |  |                                                                                           | 35 | 
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO



2



---



##### Table of Contents






PART I  FINANCIAL INFORMATION







|        |                      
|------- | ---------------------
|Item 1. | Financial Statements.

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |          |   |   |             |            |  
|--------------------------------------------------------------- | ----------------- | -------------------- | ---------- | -------- | ----------------------- | - | ---------- | ------------- | - | - | ----------- | -------- | - | - | ----------- | ---------- | -
|                                                                |                   | Thirteen Weeks Ended |            |          | Thirty-Nine Weeks Ended |  
|                                                                |                   |                      |            |          |                         |  
|                                                                |                   | September 26,        |            |          | October 2,              |   |            | September 26, |   |   | October 2,  |         
|                                                                |                   | 2004                 |            |          | 2005                    |   |            | 2004          |   |   | 2005        |         
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         
|                                                                |                   | (Unaudited)          |           
|Coffeehouse sales                                               |                   | $                    | 37,901,565 |          |                         | $ | 46,682,924 |               |   | $ | 109,505,494 |          |   | $ | 137,872,690 |           
|Other sales                                                     |                   |                      | 833,452    |          |                         |   | 2,110,436  |               |   |   | 2,162,996   |          |   |   | 4,241,137   |           
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         
|Total net sales                                                 |                   |                      | 38,735,017 |          |                         |   | 48,793,360 |               |   |   | 111,668,490 |          |   |   | 142,113,827 |           
|Cost of sales and related occupancy costs                       |                   |                      | 15,650,630 |          |                         |   | 19,606,907 |               |   |   | 45,934,186  |          |   |   | 57,023,608  |           
|Operating expenses                                              |                   |                      | 16,138,502 |          |                         |   | 20,142,047 |               |   |   | 46,382,590  |          |   |   | 57,918,649  |           
|Opening expenses                                                |                   |                      | 364,116    |          |                         |   | 398,649    |               |   |   | 815,242     |          |   |   | 1,176,470   |           
|Depreciation and amortization                                   |                   |                      | 3,188,716  |          |                         |   | 4,116,304  |               |   |   | 9,078,191   |          |   |   | 11,463,016  |           
|General and administrative expenses                             |                   |                      | 3,781,367  |          |                         |   | 5,573,713  |               |   |   | 10,810,522  |          |   |   | 17,189,663  |           
|Closing expense and disposal of assets                          |                   |                      | 2,532      |          |                         |   | 189,725    |               |   |   | 560,700     |          |   |   | 310,393     |           
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         
|Operating loss                                                  |                   |                      | (390,846   | )        |                         |   | (1,233,985 | )             |   |   | (1,912,941  | )        |   |   | (2,967,972  | )         
|Other income (expense):                                         |                   |                      |            |          |                         |   |            |               |   |   |             |          |   |   |             |           
|                                                                | Interest income   |                      |            | 1,335    |                         |   |            | 1,400         |   |   |             | 4,246    |   |   |             | 28,378     |  
|                                                                | Interest expense  |                      |            | (264,127 | )                       |   |            | (512,222      | ) |   |             | (626,934 | ) |   |             | (1,424,559 | )
|                                                                | Derivative income |                      |            |         |                         |   |            | 623,109       |   |   |             |         |   |   |             | 623,109    |  
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         
|Loss before provision for income taxes and minority interest    |                   |                      | (653,638   | )        |                         |   | (1,121,698 | )             |   |   | (2,535,629  | )        |   |   | (3,741,044  | )         
|Provision for income taxes                                      |                   |                      | 136,500    |          |                         |   | (46,323    | )             |   |   | 137,830     |          |   |   | 255,000     |           
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         
|Loss before minority interest                                   |                   |                      | (790,138   | )        |                         |   | (1,075,375 | )             |   |   | (2,673,459  | )        |   |   | (3,996,044  | )         
|Minority interest                                               |                   |                      | 31,444     |          |                         |   | 123,005    |               |   |   | 177,190     |          |   |   | 308,071     |           
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         
|Net loss                                                        |                   | $                    | (821,582   | )        |                         | $ | (1,198,380 | )             |   | $ | (2,850,649  | )        |   | $ | (4,304,115  | )         
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         
|Basic and diluted net loss per share                            |                   | $                    | (0.06      | )        |                         | $ | (0.08      | )             |   | $ | (0.21       | )        |   | $ | (0.31       | )         
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         
|Basic and diluted weighted average number of shares outstanding |                   |                      | 13,801,436 |          |                         |   | 14,142,047 |               |   |   | 13,797,317  |          |   |   | 13,916,940  |           
|                                                                |                   |                      |            |          |                         |   |            |               |   |   |             |         



3



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)





CONDENSED CONSOLIDATED BALANCE SHEETS


|                                     |                                                                                                                                                                                       |                                            |            |             |            |  |            |             |             | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ----------- | ---------- |  | ---------- | ----------- | ----------- | 
|                                     |                                                                                                                                                                                       | January 2,                                 |            |             | October 2, | 
|                                     |                                                                                                                                                                                       | 2005                                       |            |             | 2005       | 
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 
|                                     |                                                                                                                                                                                       |                                            |            | (Unaudited) |           
|                                    
|ASSETS                              
|Current assets:                      |                                                                                                                                                                                       |                                            |            |             |            |  |            |            
|                                     | Cash and cash equivalents                                                                                                                                                             |                                            | $          | 7,618,470   |            |  | $          | 3,871,091   |            
|                                     | Accounts receivable (net of allowance for doubtful accounts of
    approximately $34,900 and $19,092 at January 2, 2005 and
    October 2, 2005)                                      |                                            |            | 857,692     |            |  |            | 849,398     |            
|                                     | Stock subscription receivable                                                                                                                                                         |                                            |            |            |            |  |            | 69,761,160  |            
|                                     | Other receivables                                                                                                                                                                     |                                            |            | 1,093,675   |            |  |            | 1,385,761   |            
|                                     | Income tax receivable                                                                                                                                                                 |                                            |            | 451,168     |            |  |            | 9,731       |            
|                                     | Inventories                                                                                                                                                                           |                                            |            | 5,704,440   |            |  |            | 10,532,729  |            
|                                     | Prepaid expenses and other current assets                                                                                                                                             |                                            |            | 441,014     |            |  |            | 1,245,589   |            
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 
|                                     |                                                                                                                                                                                       | Total current assets                       |            |             | 16,166,459 |  |            |             | 87,655,459  | 
|                                     | Property and equipment, net of accumulated depreciation and
    amortization                                                                                                          |                                            |            | 67,639,732  |            |  |            | 78,637,075  |            
|                                     | Notes receivable                                                                                                                                                                      |                                            |            | 80,649      |            |  |            | 68,561      |            
|                                     | Restricted cash                                                                                                                                                                       |                                            |            | 539,983     |            |  |            | 321,030     |            
|                                     | Other assets                                                                                                                                                                          |                                            |            | 1,780,105   |            |  |            | 1,747,818   |            
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 
|                                     |                                                                                                                                                                                       | Total assets                               |            | $           | 86,206,928 |  |            | $           | 168,429,943 | 
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 
|LIABILITIES AND SHAREHOLDERS EQUITY
|Current liabilities:                 |                                                                                                                                                                                       |                                            |            |             |            |  |            |            
|                                     | Accounts payable                                                                                                                                                                      |                                            | $          | 5,311,686   |            |  | $          | 11,875,335  |            
|                                     | Accrued compensation                                                                                                                                                                  |                                            |            | 4,707,242   |            |  |            | 4,121,949   |            
|                                     | Accrued expenses                                                                                                                                                                      |                                            |            | 5,469,931   |            |  |            | 6,973,826   |            
|                                     | Deferred revenue                                                                                                                                                                      |                                            |            | 5,308,713   |            |  |            | 5,150,952   |            
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 
|                                     |                                                                                                                                                                                       | Total current liabilities                  |            |             | 20,797,572 |  |            |             | 28,122,062  | 
|Revolving credit facility            |                                                                                                                                                                                       |                                            | 19,923,930 |             |            |  | 29,923,930 |            
|Deferred rent liability              |                                                                                                                                                                                       |                                            | 8,420,509  |             |            |  | 9,518,134  |            
|Deferred revenue                     |                                                                                                                                                                                       |                                            | 3,055,000  |             |            |  | 3,055,000  |            
|Minority interests in affiliates     |                                                                                                                                                                                       |                                            | 217,206    |             |            |  | 250,292    |            
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 
|                                     |                                                                                                                                                                                       | Total long term liabilities                |            |             | 31,616,645 |  |            |             | 42,747,356  | 
|Commitments and contingencies        |                                                                                                                                                                                       |                                            |            |             |            |  |            |            
|Shareholders equity:                |                                                                                                                                                                                       |                                            |            |             |            |  |            |            
|                                     | Preferred stock, par value $.01, 20,000,000 shares
    authorized; no shares issued and outstanding                                                                                   |                                            |            |            |            |  |            |            |            
|                                     | Common stock, par value $.01, 200,000,000 shares
    authorized; 13,801,436 and 19,265,533 shares issued and
    outstanding at January 2, 2005 and October 2, 2005,
    respectively |                                            |            | 138,014     |            |  |            | 192,664     |            
|                                     | Treasury stock                                                                                                                                                                        |                                            |            |            |            |  |            | (12,390     | )          
|                                     | Additional paid-in capital                                                                                                                                                            |                                            |            | 53,634,009  |            |  |            | 121,663,678 |            
|                                     | Accumulated deficit                                                                                                                                                                   |                                            |            | (19,979,312 | )          |  |            | (24,283,427 | )          
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 
|                                     |                                                                                                                                                                                       | Total shareholders equity                 |            |             | 33,792,711 |  |            |             | 97,560,525  | 
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 
|                                     |                                                                                                                                                                                       | Total liabilities and shareholders equity |            | $           | 86,206,928 |  |            | $           | 168,429,943 | 
|                                     |                                                                                                                                                                                       |                                            |            |             |            | 



4



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                              |                                                              |                                           |             |            |            |   |             |            |            |  
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------------------- | ----------- | ---------- | ---------- | - | ----------- | ---------- | ---------- | -
|                                                                                              |                                                              | Thirty-Nine Weeks Ended                   |            
|                                                                                              |                                                              |                                           |            
|                                                                                              |                                                              | September 26,                             |             |            | October 2, |  
|                                                                                              |                                                              | 2004                                      |             |            | 2005       |  
|                                                                                              |                                                              |                                           |             |            |            |  
|                                                                                              |                                                              | (Unaudited)                               |            
|Operating activities                                                                          |                                                              |                                           |             |            |            |   |             |           
|Net loss                                                                                      |                                                              | $                                         | (2,850,649  | )          |            | $ | (4,304,115  | )         
|Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities: |                                                              |                                           |             |            |            |   |             |           
|                                                                                              | Depreciation and amortization                                |                                           |             | 10,088,564 |            |   |             | 12,769,836 |           
|                                                                                              | Amortization of deferred financing fees                      |                                           |             | 212,039    |            |   |             | 248,218    |           
|                                                                                              | Minority interests in affiliates                             |                                           |             | 177,190    |            |   |             | 308,070    |           
|                                                                                              | Provision for closing expense and asset disposals            |                                           |             | 260,700    |            |   |             | 163,504    |           
|                                                                                              | Non cash compensation                                        |                                           |             |           |            |   |             | 987,750    |           
|                                                                                              | Non cash derivative income                                   |                                           |             |           |            |   |             | (623,109   | )         
|                                                                                              | Changes in operating assets and liabilities:                 |                                           |             |            |            |   |             |            |           
|                                                                                              |                                                              | Restricted cash                           |             |            |           |   |             |            | 218,953    |  
|                                                                                              |                                                              | Accounts receivable and other receivables |             |            | (214,077   | ) |             |            | (271,704   | )
|                                                                                              |                                                              | Income tax receivable                     |             |            | (409,200   | ) |             |            | 441,437    |  
|                                                                                              |                                                              | Inventories                               |             |            | (1,898,921 | ) |             |            | (4,828,288 | )
|                                                                                              |                                                              | Prepaid expenses and other assets         |             |            | 102,045    |   |             |            | (949,782   | )
|                                                                                              |                                                              | Accounts payable                          |             |            | 1,919,803  |   |             |            | 6,563,650  |  
|                                                                                              |                                                              | Accrued compensation                      |             |            | 536,498    |   |             |            | (585,292   | )
|                                                                                              |                                                              | Accrued expenses                          |             |            | 2,342,008  |   |             |            | 396,809    |  
|                                                                                              |                                                              | Deferred revenue                          |             |            | 2,147,303  |   |             |            | (157,761   | )
|                                                                                              |                                                              | Deferred compensation                     |             |            | (165,781   | ) |             |            |           |  
|                                                                                              |                                                              |                                           |             |            |            |  
|Net cash provided by operating activities                                                     |                                                              |                                           | 12,247,522  |            |            |   | 10,378,176  |           
|Investing activities                                                                          |                                                              |                                           |             |            |            |   |             |           
|Payments for property and equipment                                                           |                                                              |                                           | (23,227,899 | )          |            |   | (22,982,042 | )         
|                                                                                              |                                                              |                                           |             |            |            |  
|Net cash used in investing activities                                                         |                                                              |                                           | (23,227,899 | )          |            |   | (22,982,042 | )         
|Financing activities                                                                          |                                                              |                                           |             |            |            |   |             |           
|Borrowings under revolving credit facility                                                    |                                                              |                                           | 15,136,753  |            |            |   | 10,000,000  |           
|Repayment of revolving credit facility                                                        |                                                              |                                           | (3,263,904  | )          |            |   |            |           
|Distribution of minority interests earnings                                                  |                                                              |                                           | (178,054    | )          |            |   | (274,985    | )         
|Prepaid IPO Expenses                                                                          |                                                              |                                           |            |            |            |   | (823,812    | )         
|Issuance of common stock                                                                      |                                                              |                                           | 49,309      |            |            |   | 38,398      |           
|Repurchase of common stock                                                                    |                                                              |                                           |            |            |            |   | (12,390     | )         
|Deferred financing fees paid                                                                  |                                                              |                                           | (1,542,672  | )          |            |   | (70,724     | )         
|                                                                                              |                                                              |                                           |             |            |            |  
|Net cash provided by financing activities                                                     |                                                              |                                           | 10,201,432  |            |            |   | 8,856,487   |           
|                                                                                              |                                                              |                                           |             |            |            |  
|Decrease in cash and cash equivalents                                                         |                                                              |                                           | (778,945    | )          |            |   | (3,747,379  | )         
|Cash and cash equivalents at beginning of period                                              |                                                              |                                           | 4,779,317   |            |            |   | 7,618,470   |           
|                                                                                              |                                                              |                                           |             |            |            |  
|Cash and cash equivalents at end of period                                                    |                                                              | $                                         | 4,000,372   |            |            | $ | 3,871,091   |           
|                                                                                              |                                                              |                                           |             |            |            |  
|Supplemental disclosure of cash flow information                                              |                                                              |                                           |             |            |            |   |             |           
|Noncash financing and investing transactions:                                                 |                                                              |                                           |             |            |            |   |             |           
|                                                                                              | Accrual for IPO Expenses                                     |                                           | $           |           |            |   | $           | 1,221,187  |           
|                                                                                              |                                                              |                                           |             |            |            |  
|                                                                                              | Accrual for leasehold improvements, furniture, and equipment |                                           | $           | 346,964    |            |   | $           | 797,805    |           
|                                                                                              |                                                              |                                           |             |            |            |  



5



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




|   |                      
|-- | ---------------------
|1. | Basis of Presentation







| |                            
| | ---------------------------
| | Principles of Consolidation





| |                 
| | ----------------
| | Use of Estimates





| |                
| | ---------------
| | Fiscal Year End



6



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                    
| | -------------------
| | Revenue Recognition









| |                                  
| | ---------------------------------
| | Operating Leases and Rent Expense

Accounting for Leases, Accounting for Operating Leases
With Scheduled Rent Increases.




| |                   
| | ------------------
| | Stock Compensation

Accounting for Stock Issued to
Employees, Accounting for Stock-Based
Compensation, Accounting for Stock-Based
Compensation  Transition and Disclosure, Interim Financial Reporting,


7



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                                        |             |                      |          |       |                         |   |            |               |   |   |            |       |   |   |            |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | -------------------- | -------- | ----- | ----------------------- | - | ---------- | ------------- | - | - | ---------- | ----- | - | - | ---------- | ----- | -
|                                                                                                                                                        |             | Thirteen Weeks Ended |          |       | Thirty-Nine Weeks Ended |  
|                                                                                                                                                        |             |                      |          |       |                         |  
|                                                                                                                                                        |             | September 26,        |          |       | October 2,              |   |            | September 26, |   |   | October 2, |      
|                                                                                                                                                        |             | 2004                 |          |       | 2005                    |   |            | 2004          |   |   | 2005       |      
|                                                                                                                                                        |             |                      |          |       |                         |   |            |               |   |   |            |      
|                                                                                                                                                        |             | (Unaudited)          |         
|Net loss: As reported                                                                                                                                   |             | $                    | (821,582 | )     |                         | $ | (1,198,380 | )             |   | $ | (2,850,649 | )     |   | $ | (4,304,115 | )    
|Deduct: Total stock-based employee compensation expense
    determined under the fair value based method for all awards, net
    of related tax effects |             |                      | 75,412   |       |                         |   | 114,729    |               |   |   | 285,784    |       |   |   | 177,987    |      
|                                                                                                                                                        |             |                      |          |       |                         |   |            |               |   |   |            |      
|Pro forma net loss                                                                                                                                      |             | $                    | (896,994 | )     |                         | $ | (1,313,109 | )             |   | $ | (3,136,433 | )     |   | $ | (4,482,102 | )    
|                                                                                                                                                        |             |                      |          |       |                         |   |            |               |   |   |            |      
|Basic and diluted net loss per share                                                                                                                    |             |                      |          |       |                         |   |            |               |   |   |            |       |   |   |            |      
|                                                                                                                                                        | As reported |                      | $        | (0.06 | )                       |   | $          | (0.08         | ) |   | $          | (0.21 | ) |   | $          | (0.31 | )
|                                                                                                                                                        | Pro forma   |                      | $        | (0.06 | )                       |   | $          | (0.09         | ) |   | $          | (0.23 | ) |   | $          | (0.32 | )



|   |                                 
|-- | --------------------------------
|3. | Recent Accounting Pronouncements

Consolidation of Variable Interest Entities Consolidated Financial Statements,


Share-Based Payment Accounting for Stock-Based Compensation, Accounting for Stock
Issued to Employees.


Accounting Changes and Error Corrections. Accounting Changes, Reporting Accounting Changes in Interim
Financial Statements,


8



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Accounting for Rental Costs
Incurred during a Construction Period.




|   |                                        
|-- | ---------------------------------------
|4. | Coffeehouse Closing and Asset Disposals

Accounting
for the Impairment or Disposal of Long-Lived Assets.


Accounting for Costs Associated with Exit or
Disposal Activities.


|                                                                                      |                                                   |                      |       |   |                         |   |         |               |  |   |            |         |  |   |         |        | 
|------------------------------------------------------------------------------------- | ------------------------------------------------- | -------------------- | ----- | - | ----------------------- | - | ------- | ------------- |  | - | ---------- | ------- |  | - | ------- | ------ | 
|                                                                                      |                                                   | Thirteen Weeks Ended |       |   | Thirty-Nine Weeks Ended |  
|                                                                                      |                                                   |                      |       |   |                         |  
|                                                                                      |                                                   | September 26,        |       |   | October 2,              |   |         | September 26, |  |   | October 2, |        
|                                                                                      |                                                   | 2004                 |       |   | 2005                    |   |         | 2004          |  |   | 2005       |        
|                                                                                      |                                                   |                      |       |   |                         |   |         |               |  |   |            |        
|                                                                                      |                                                   | (Unaudited)          |      
|Coffeehouse closures                                                                  |                                                   |                      |      |   |                         |   |        |               |  |   | 2          |         |  |   | 2       |       
|                                                                                      |                                                   |                      |       |   |                         |   |         |               |  |   |            |        
|Amount charged to operations for closed coffeehouses:                                 |                                                   |                      |       |   |                         |   |         |               |  |   |            |         |  |   |         |       
|                                                                                      | Cash closure costs                                |                      | $     |  |                         |   | $       |              |  |   | $          | 300,000 |  |   | $       | 30,000 | 
|                                                                                      | Net book value of closed coffeehouse fixed assets |                      |       |  |                         |   |         |              |  |   |            | 259,272 |  |   |         |       | 
|Amount charged to operations for other fixed asset write-offs                         |                                                   |                      | 2,532 |   |                         |   |        |               |  |   | 1,428      |         |  |   | 12,668  |       
|Amount charged to operations for lease costs associated with a
    closed coffeehouse |                                                   |                      |      |   |                         |   | 150,836 |               |  |   |           |         |  |   | 150,836 |       
|Amount charged to operations for costs to consolidate
    facilities-cash             |                                                   |                      |      |   |                         |   | 38,889  |               |  |   |           |         |  |   | 116,889 |       
|                                                                                      |                                                   |                      |       |   |                         |   |         |               |  |   |            |        
|Coffeehouse closing expense and disposal of assets                                    |                                                   | $                    | 2,532 |   |                         | $ | 189,725 |               |  | $ | 560,700    |         |  | $ | 310,393 |       
|                                                                                      |                                                   |                      |       |   |                         |   |         |               |  |   |            |        

9



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |            
|-- | -----------
|5. | Inventories



|                                |  |            |           |             |            |   |            | 
|------------------------------- |  | ---------- | --------- | ----------- | ---------- | - | ---------- | 
|                                |  | January 2, |           |             | October 2, |  
|                                |  | 2005       |           |             | 2005       |  
|                                |  |            |           |             |            |  
|                                |  |            |           | (Unaudited) |           
|Coffee                          |  | $          | 2,579,718 |             |            | $ | 4,387,869  | 
|Other Merchandise held for sale |  |            | 1,086,611 |             |            |   | 3,160,916  | 
|Supplies                        |  |            | 2,038,111 |             |            |   | 2,983,944  | 
|                                |  |            |           |             |            |  
|                                |  | $          | 5,704,440 |             |            | $ | 10,532,729 | 
|                                |  |            |           |             |            |  







|   |                                    
|-- | -----------------------------------
|6. | Equity and Stock Based Compensation



10



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                       |  |                   |         |  |                |   |      | 
|---------------------- |  | ----------------- | ------- |  | -------------- | - | ---- | 
|                       |  | Shares Subject to |         |  | Exercise Price |  
|Fiscal Quarter Ended   |  | Options Granted   |         |  | per Share      |  
|                       |  |                   |         |  |                |  
|January 2, 2005        |  |                   | 66,666  |  |                | $ | 6.70 | 
|April 3, 2005          |  |                   |        |  |                |   |     | 
|July 3, 2005 (Grant 1) |  |                   | 340,431 |  |                | $ | 7.09 | 
|July 3, 2005 (Grant 2) |  |                   | 35,044  |  |                | $ | 9.87 | 
|October 2, 2005        |  |                   | 372,931 |  |                | $ | 9.87 | 





|                        |  |                      |      |   |                         |  |      |               |  |  |            |   |  |  |      |  
|----------------------- |  | -------------------- | ---- | - | ----------------------- |  | ---- | ------------- |  |  | ---------- | - |  |  | ---- | -
|                        |  | Thirteen Weeks Ended |      |   | Thirty-Nine Weeks Ended | 
|                        |  |                      |      |   |                         | 
|                        |  | September 26,        |      |   | October 2,              |  |      | September 26, |  |  | October 2, |  
|                        |  | 2004                 |      |   | 2005                    |  |      | 2004          |  |  | 2005       |  
|                        |  |                      |      |   |                         |  |      |               |  |  |            |  
|Expected dividend yield |  |                      |     |   |                         |  |     |               |  |  |           |   |  |  |     |  
|Risk free interest rate |  |                      | 3.43 | % |                         |  | 4.05 | %             |  |  | 3.43       | % |  |  | 3.93 | %
|Expected life           |  |                      | 5    |   |                         |  | 5    |               |  |  | 5          |   |  |  | 5    |  





11



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Accounting for
Derivative Instruments and Hedging Activities.




|   |             
|-- | ------------
|7. | Income Taxes





|   |                   
|-- | ------------------
|8. | Net Loss Per Share



|                                                                                   |  |                      |            |   |                         |   |            |               |  |   |            |   |  |   |            |  
|---------------------------------------------------------------------------------- |  | -------------------- | ---------- | - | ----------------------- | - | ---------- | ------------- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                   |  | Thirteen Weeks Ended |            |   | Thirty-Nine Weeks Ended |  
|                                                                                   |  |                      |            |   |                         |  
|                                                                                   |  | September 26,        |            |   | October 2,              |   |            | September 26, |  |   | October 2, |  
|                                                                                   |  | 2004                 |            |   | 2005                    |   |            | 2004          |  |   | 2005       |  
|                                                                                   |  |                      |            |   |                         |   |            |               |  |   |            |  
|Net loss                                                                           |  | $                    | (821,582   | ) |                         | $ | (1,198,380 | )             |  | $ | (2,850,649 | ) |  | $ | (4,304,115 | )
|                                                                                   |  |                      |            |   |                         |   |            |               |  |   |            |  
|Weighted average common shares outstanding (for basic and
    diluted calculation) |  |                      | 13,801,436 |   |                         |   | 14,142,047 |               |  |   | 13,797,317 |   |  |   | 13,916,940 |  
|                                                                                   |  |                      |            |   |                         |   |            |               |  |   |            |  
|Basic and diluted net loss per share                                               |  | $                    | (0.06      | ) |                         | $ | (0.08      | )             |  | $ | (0.21      | ) |  | $ | (0.31      | )





|   |                              
|-- | -----------------------------
|9. | Commitments and Contingencies



12



---



##### Table of Contents



CARIBOU COFFEE COMPANY, INC. AND AFFILIATES


(A Majority Owned Subsidiary of Caribou Holding Company
Limited)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|10. | Subsequent Events



13



---



##### Table of Contents








|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations.



Overview






Critical Accounting Policies




Fiscal Periods




14



---



##### Table of Contents



Results of Operations




|                                                             |             |                      |       |      |                         |  |       |               |   |  |            |      |   |  |       |      |  
|------------------------------------------------------------ | ----------- | -------------------- | ----- | ---- | ----------------------- |  | ----- | ------------- | - |  | ---------- | ---- | - |  | ----- | ---- | -
|                                                             |             | Thirteen Weeks Ended |       |      | Thirty-Nine Weeks Ended | 
|                                                             |             |                      |       |      |                         | 
|                                                             |             | September 26,        |       |      | October 2,              |  |       | September 26, |   |  | October 2, |     
|                                                             |             | 2004                 |       |      | 2005                    |  |       | 2004          |   |  | 2005       |     
|                                                             |             |                      |       |      |                         |  |       |               |   |  |            |     
|Statement of Operations Data:                                |             |                      |       |      |                         |  |       |               |   |  |            |      |   |  |       |     
|Net sales:                                                   |             |                      |       |      |                         |  |       |               |   |  |            |      |   |  |       |     
|                                                             | Coffeehouse |                      |       | 97.8 | %                       |  |       | 95.7          | % |  |            | 98.1 | % |  |       | 97.0 | %
|                                                             | Other       |                      |       | 2.2  | %                       |  |       | 4.3           | % |  |            | 1.9  | % |  |       | 3.0  | %
|                                                             |             |                      |       |      |                         |  |       |               |   |  |            |     
|Total net sales                                              |             |                      | 100.0 | %    |                         |  | 100.0 | %             |   |  | 100.0      | %    |   |  | 100.0 | %   
|Cost of sales and related occupancy costs                    |             |                      | 40.4  | %    |                         |  | 40.2  | %             |   |  | 41.1       | %    |   |  | 40.1  | %   
|Operating expenses                                           |             |                      | 41.7  | %    |                         |  | 41.3  | %             |   |  | 41.5       | %    |   |  | 40.8  | %   
|Opening expenses                                             |             |                      | 0.9   | %    |                         |  | 0.8   | %             |   |  | 0.7        | %    |   |  | 0.8   | %   
|Depreciation and amortization                                |             |                      | 8.2   | %    |                         |  | 8.4   | %             |   |  | 8.1        | %    |   |  | 8.1   | %   
|General and administrative expenses                          |             |                      | 9.8   | %    |                         |  | 11.4  | %             |   |  | 9.7        | %    |   |  | 12.1  | %   
|Closing expense and disposal of assets                       |             |                      | 0.0   | %    |                         |  | 0.4   | %             |   |  | 0.5        | %    |   |  | 0.2   | %   
|                                                             |             |                      |       |      |                         |  |       |               |   |  |            |     
|Operating loss                                               |             |                      | (1.0  | )%   |                         |  | (2.5  | )%            |   |  | (1.7       | )%   |   |  | (2.1  | %)  
|Other income (expense):                                      |             |                      |       |      |                         |  |       |               |   |  |            |      |   |  |       |     
|Interest income                                              |             |                      | 0.0   | %    |                         |  | 0.0   | %             |   |  | 0.0        | %    |   |  | 0.0   | %   
|Interest expense                                             |             |                      | (0.7  | )%   |                         |  | (1.0  | )%            |   |  | (0.6       | )%   |   |  | (1.0  | %)  
|Derivative income                                            |             |                      | 0.0   | %    |                         |  | 1.3   | %             |   |  | 0.0        | %    |   |  | 0.4   | %   
|                                                             |             |                      |       |      |                         |  |       |               |   |  |            |     
|Loss before provision for income taxes and minority interest |             |                      | (1.7  | )%   |                         |  | (2.3  | )%            |   |  | (2.3       | )%   |   |  | (2.6  | %)  
|Provision for income taxes                                   |             |                      | 0.4   | %    |                         |  | (0.1  | )%            |   |  | 0.1        | %    |   |  | 0.2   | %   
|                                                             |             |                      |       |      |                         |  |       |               |   |  |            |     
|Loss before minority interest                                |             |                      | (2.0  | )%   |                         |  | (2.2  | )%            |   |  | (2.4       | )%   |   |  | (2.8  | %)  
|Minority interest                                            |             |                      | 0.1   | %    |                         |  | 0.3   | %             |   |  | 0.2        | %    |   |  | 0.2   | %   
|                                                             |             |                      |       |      |                         |  |       |               |   |  |            |     
|Net loss                                                     |             |                      | (2.1  | )%   |                         |  | (2.5  | )%            |   |  | (2.6       | )%   |   |  | (3.0  | %)  
|                                                             |             |                      |       |      |                         |  |       |               |   |  |            |     

Thirteen Weeks Ended October 2, 2005 vs. Thirteen
Weeks Ended September 26, 2004


Net Sales




Costs and Expenses


Cost of sales and related occupancy costs.


15



---



##### Table of Contents



Operating expenses.


Depreciation and amortization.


General and administrative expenses.


Closing expenses and disposal of assets.


Interest expense.


Derivative Income. Accounting for
Derivative Instruments and Hedging Activities.


Thirty-Nine Weeks Ended October 2, 2005 Compared to
Thirty-Nine Weeks Ended September 26, 2004


Net Sales




Costs and Expenses


Cost of sales and related occupancy costs.


16



---



##### Table of Contents





Operating expenses.


Opening expenses.


Depreciation and amortization.


General and administrative expenses.


Closing expenses and disposal of assets.


Interest expense.


Derivative Income. Accounting for
Derivative Instruments and Hedging Activities.


17



---



##### Table of Contents



Liquidity and Capital Resources














Off-Balance Sheet Arrangements




Key Financial Metrics




18



---



##### Table of Contents





|                                                                |  |                      |       |   |                         |   |       |                    |  |   |                 |   |  |   |        |   
|--------------------------------------------------------------- |  | -------------------- | ----- | - | ----------------------- | - | ----- | ------------------ |  | - | --------------- | - |  | - | ------ | --
|                                                                |  | Thirteen Weeks Ended |       |   | Thirty-Nine Weeks Ended |  
|                                                                |  |                      |       |   |                         |  
|                                                                |  | September 26, 2004   |       |   | October 2, 2005         |   |       | September 26, 2004 |  |   | October 2, 2005 |  
|                                                                |  |                      |       |   |                         |   |       |                    |  |   |                 |  
|Non-GAAP Metrics:                                               |  |                      |       |   |                         |   |       |                    |  |   |                 |   |  |   |        |   
|Percentage change in comparable coffeehouse net sales(1)        |  |                      | 7.3   | % |                         |   | 3.7   | %                  |  |   | 8.3             | % |  |   | 7.2    | % 
|Percentage change in comparable coffeehouse average check(2)    |  |                      | 3.7   | % |                         |   | 5.0   | %                  |  |   | 1.6             | % |  |   | 7.3    | % 
|Percentage change in comparable coffehouse transaction count(3) |  |                      | 3.6   | % |                         |   | (1.3  | )%                 |  |   | 6.7             | % |  |   | (0.1   | )%
|EBITDA(4)                                                       |  | $                    | 3,180 |   |                         | $ | 3,840 |                    |  | $ | 7,998           |   |  | $ | 10,117 |   
|Adjusted EBITDA(4)                                              |  | $                    | 3,180 |   |                         | $ | 3,217 |                    |  | $ | 7,998           |   |  | $ | 11,232 |   
|Coffeehouses open at beginning of period                        |  |                      | 263   |   |                         |   | 325   |                    |  |   | 251             |   |  |   | 304    |   
|Coffeehouses opened during the period                           |  |                      | 17    |   |                         |   | 19    |                    |  |   | 31              |   |  |   | 42     |   
|Coffeehouses closed during the period                           |  |                      |      |   |                         |   |      |                    |  |   | (2              | ) |  |   | (2     | ) 
|                                                                |  |                      |       |   |                         |   |       |                    |  |   |                 |  
|Coffeehouses open at end of period                              |  |                      | 280   |   |                         |   | 344   |                    |  |   | 280             |   |  |   | 344    |   
|                                                                |  |                      |       |   |                         |   |       |                    |  |   |                 |  
|Licensed coffeehouses open at end of period                     |  |                      | 2     |   |                         |   | 4     |                    |  |   | 2               |   |  |   | 4      |   
|Total coffeehouses open at end of period                        |  |                      | 282   |   |                         |   | 348   |                    |  |   | 282             |   |  |   | 348    |   
|                                                                |  |                      |       |   |                         |   |       |                    |  |   |                 |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Percentage change in comparable coffeehouse net sales compares
    the net sales of coffeehouses during a fiscal period to the net
    sales from the same coffeehouses for the equivalent period in
    the prior year. A coffeehouse is included in this calculation
    beginning in its thirteenth full fiscal month of operations. A
    closed coffeehouse is included in the calculation for each full
    month that the coffeehouse was open in both fiscal periods.
|   
|(2) | The percentage change in comparable coffeehouse average check
    compares the product of aggregate net sales divided by aggregate
    transactions for coffeehouses during a fiscal period to the same
    product from the same coffeehouses for the equivalent period in
    the prior year. A coffeehouse is included in this calculation
    beginning in its thirteenth full fiscal month of operations.                                                               
|   
|(3) | The percentage change in comparable coffeehouse transaction
    count compares the number of customer transactions of
    coffeehouses during a fiscal period to the number of customer
    transactions from the same coffeehouses for the equivalent
    period in the prior year. A coffeehouse is included in this
    calculation beginning in its thirteenth full fiscal month of
    operations.                                                                      
|   
|(4) | See reconciliation and discussion of non-GAAP measures which
    follow at the end of this section.                                                                                                                                                                                                                                                                                                                                                                          





| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our coffeehouse leases are generally short-term
    (5-10 years) and we must depreciate all of the cost
    associated with those leases on a straight-line basis over the
    initial lease term excluding renewal options (unless such
    renewal periods are reasonably assured at the inception of the
    lease). We

19



---



##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | opened 233 coffeehouses from the beginning of fiscal 2000
    through October 2, 2005, including 149 coffeehouses
    since the beginning of fiscal 2003. As a result, we believe
    depreciation expense is disproportionately large when compared
    to the sales from a significant percentage of our coffeehouses
    that are in their initial years of operations. Also, many of the
    assets being depreciated have actual useful lives that exceed
    the initial lease term excluding renewal options. Consequently,
    we believe that adjusting for depreciation and amortization is
    useful for evaluating the operating performance of our
    coffeehouses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In June 2005, we recorded a one-time compensation charge of
    $1.7 million in connection with amending the terms of the
    employment agreement with our Chief Executive Officer. We
    believe that it is useful to exclude this expense from Adjusted
    EBITDA because it was non-recurring and was unrelated to our
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | In connection with the our initial public offering
    (IPO), we granted the underwriters an option to
    purchase 803,700 shares of the our common stock at
    $14 per share for 30 days beginning on
    September 28, 2005 (the grant date). Since this
    option extended beyond the closing of the IPO, the option
    represents a call option that meets the definition of a
    derivative under SFAS No. 133, Accounting for
    Derivative Instruments and Hedging Activities. Accordingly,
    the call option has been separately accounted for at fair value
    with the change in fair value between the grant date and
    October 2, 2005 recorded as other income. We used the
    Black-Scholes valuation model to determine the fair value of the
    call option at the grant date and at October 2, 2005 using
    the following assumptions: 50% volatility factor, 30 day
    life and risk free interest rate of 3.43%. At September 28,
    2005, we recorded a liability of $657,989 with a corresponding
    decrease to additional paid in capital to record the fair value
    of the call option on such date. The fair value of the call
    option aggregated $34,880 on October 2, 2005 and we
    recorded the decrease in such fair value aggregating $623,109 as
    other income in the statement of operations for the
    thirteen-week period ended October 2, 2005. The recognition
    of the derivative and related change in fair value represent
    non-cash transactions for statement of cash flow purposes. The
    underwriters did not exercise their option and it expired on
    October 28, 2005. We believe that it is useful to exclude
    this expense from Adjusted EBITDA because it was non-recurring
    and was unrelated to our operations.





| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | As measurements of operating performance because they assist us
    in comparing our operating performance on a consistent basis as
    they remove the impact of items not directly resulting from our
    coffeehouse operations;
|
| |  | For planning purposes, including the preparation of our internal
    annual operating budget;                                                                                                                                      
|
| |  | To establish targets for certain management compensation
    matters; and                                                                                                                                                          
|
| |  | To evaluate our capacity to incur and service debt, fund capital
    expenditures and expand our business.                                                                                                                         





20



---



##### Table of Contents





|                                  |  |                      |       |   |                         |   |        |                    |  |   |                 |   |  |   |        |  
|--------------------------------- |  | -------------------- | ----- | - | ----------------------- | - | ------ | ------------------ |  | - | --------------- | - |  | - | ------ | -
|                                  |  | Thirteen Weeks Ended |       |   | Thirty-Nine Weeks Ended |  
|                                  |  |                      |       |   |                         |  
|                                  |  | September 26, 2004   |       |   | October 2, 2005         |   |        | September 26, 2004 |  |   | October 2, 2005 |  
|                                  |  |                      |       |   |                         |   |        |                    |  |   |                 |  
|                                  |  | (Thousands)          |      
|Net loss                          |  | $                    | (822  | ) |                         | $ | (1,198 | )                  |  | $ | (2,851          | ) |  | $ | (4,304 | )
|Interest expense                  |  |                      | 264   |   |                         |   | 512    |                    |  |   | 627             |   |  |   | 1,425  |  
|Interest income                   |  |                      | (1    | ) |                         |   | (1     | )                  |  |   | (4              | ) |  |   | (28    | )
|Depreciation and amortization(1)  |  |                      | 3,602 |   |                         |   | 4,573  |                    |  |   | 10,088          |   |  |   | 12,769 |  
|Provision for income taxes        |  |                      | 137   |   |                         |   | (46    | )                  |  |   | 138             |   |  |   | 255    |  
|                                  |  |                      |       |   |                         |   |        |                    |  |   |                 |  
|EBITDA                            |  |                      | 3,180 |   |                         |   | 3,840  |                    |  |   | 7,998           |   |  |   | 10,117 |  
|Derivative income                 |  |                      |      |   |                         |   | (623   | )                  |  |   |                |   |  |   | (623   | )
|Amendment of employment agreement |  |                      |      |   |                         |   |       |                    |  |   |                |   |  |   | 1,738  |  
|                                  |  |                      |       |   |                         |   |        |                    |  |   |                 |  
|Adjusted EBITDA                   |  | $                    | 3,180 |   |                         | $ | 3,217  |                    |  | $ | 7,998           |   |  | $ | 11,232 |  
|                                  |  |                      |       |   |                         |   |        |                    |  |   |                 |  






|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes depreciation and amortization associated with our
    headquarters and roasting facility that are categorized as
    general and administrative expenses and cost of sales and
    related occupancy costs on our statement of operations.

21



---



##### Table of Contents



RISK FACTORS


Certain statements we make in this filing, and other written
or oral statements made by or on our behalf, may constitute
forward-looking statements within the meaning of the
federal securities laws. Words or phrases such as should
result, are expected to, we
anticipate, we estimate, we
project, we believe, or similar expressions
are intended to identify forward-looking statements. These
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from our
historical experience and our present expectations or
projections. We believe that these forward-looking statements
are reasonable; however, you should not place undue reliance on
such statements. Such statements speak only as of the date they
are made, and we undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of
future events, new information or otherwise. The following risk
factors, and others that we may add from time to time, are some
of the factors that could cause our actual results to differ
materially from the expected results described in our
forward-looking statements.


Risks Related to Our Business


We have a history of net losses and may incur losses in the
future.






Implementation of our growth strategy may divert
managements attention from other aspects of our business
and place a strain on our management, operational and financial
resources, as well as our information systems.






| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | obtain suitable sites at acceptable costs in highly competitive
    real estate markets;                                           
|
| |  | successfully manage new coffeehouses;                                                                                              
|
| |  | hire, train and retain qualified personnel;                                                                                        
|
| |  | continue to improve and expand our coffee, other beverage and
    food offerings;                                                  
|
| |  | expand our commercial sales;                                                                                                       
|
| |  | attract licensees who will operate coffeehouses internationally
    and in certain strategic situations domestically;              
|
| |  | continue to upgrade inventory control, marketing and information
    systems; and                                                  
|
| |  | maintain strict quality control from the purchase of coffee
    beans to the cup of freshly brewed coffee in a customers
    hand.



22



---



##### Table of Contents





If we fail to continue to develop and maintain our brand, our
business could suffer.




We will need to raise significant additional capital in order
to continue to grow our business, which subjects us to the risks
that we may be unable to maintain or grow our business as
planned or that our shareholders may be subject to substantial
additional dilution.






We compete with a number of companies for customers. The
success of these competitors could have an adverse effect on
us.






23



---



##### Table of Contents



We may not be successful in maintaining or expanding our
commercial business.




We may not be able to manage our expected growth, which could
adversely affect our operating results.




Our new coffeehouses may not achieve market acceptance or the
same levels of profitability in the geographic regions we enter
or be profitable in existing markets.






A significant interruption in the operation of our roasting
or distribution facility could potentially disrupt our
operations.




Because our business is highly dependent on a single product,
gourmet coffee, we are vulnerable to changes in consumer
preferences and economic conditions that could harm our
financial results.




24



---



##### Table of Contents





We depend on the expertise of key personnel. If these
individuals leave or change their role without effective
replacements, our operations may suffer.




We may not be able to hire or retain additional coffeehouse
managers and other coffeehouse personnel and our recruiting and
compensation costs may increase as a result of turnover, both of
which may increase our costs and reduce our profitability and
may adversely impact our ability to implement our business
strategy.




Our roasting methods are essential to the quality of our
coffee, and our business would suffer if our competitors were
able to duplicate them.




We are susceptible to adverse trends and economic conditions
in Minnesota.




Because we rely heavily on third party shipping companies to
deliver our coffee, any disruption in their services or increase
in shipping costs could adversely affect our sales and
profitability.




25



---



##### Table of Contents







| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | have an adverse impact on the quality of the coffee shipped, and
    thereby adversely affect our brand and reputation;
|
| |  | result in the disposal of an amount of coffee that could not be
    shipped in a timely manner; and                    
|
| |  | require us to contract with alternative, and possibly more
    expensive, shipping companies.                          



We could be subject to complaints or claims from our
customers or adverse publicity resulting from those complaints
or claims.




Complaints or claims by current, former or prospective
employees could adversely affect us.




We may not be able to renew leases or control rent increases
at our retail locations or obtain leases for new stores.




26



---



##### Table of Contents



Our growth through licensing may not occur as rapidly as we
currently anticipate and may be subject to additional risks.






Growth of our international operations may be adversely
affected by factors outside of our control.




Compliance with health, environmental, safety and other
government regulations applicable to us could increase costs and
affect profitability.




We may not be able to adequately protect our intellectual
property, which could harm the value of our brands and adversely
affect our sales and profitability.




27



---



##### Table of Contents





Our disclosure controls and procedures may not prevent or
detect all errors or acts of fraud.




If we fail to maintain an effective system of internal
controls over financial reporting, we may not be able to
accurately report our financial results or prevent fraud. As a
result, current and potential shareholders could lose confidence
in our financial and other public reporting, which would harm
our business and the trading price of shares of our common
stock.




We have a significant number of options outstanding to
acquire shares of our common stock that, when exercised, will
dilute existing shareholders and could decrease the market price
of our common stock.




Changes in other existing financial accounting standards or
practices or taxation rules or practices may adversely affect
our results of operations.




28



---



##### Table of Contents





Risks Related to Our Industry


Our gourmet coffee contains caffeine and other active
compounds, the health effects of some of which are not fully
understood.




A shortage in the supply, or an increase in the price, of
coffee beans could adversely affect our net sales.




We face the risk of fluctuations in the cost, availability
and quality of our non-coffee raw ingredients.




Risks Related to Our Structure


Arcapita has substantial control over us, and could limit
other shareholders ability to influence the outcome of
matters requiring shareholder approval and may support corporate
actions that conflict with other shareholders
interests.




29



---



##### Table of Contents





Our compliance with Shariah principles may make it
difficult for us to obtain financing and may limit the products
we sell.




We may be subject to adverse publicity resulting from
statements about Arcapita or complaints or questions from our
customers arising from such adverse publicity.




Our quarterly results and comparable coffeehouse net sales
may fluctuate significantly and could fall below the
expectations of securities analysts and investors, which could
cause the market price of our common stock to decline.








| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | the disposition of coffeehouses;                                                               
|
| |  | the opening of new coffeehouses;                                                               
|
| |  | increases in labor costs;                                                                      
|
| |  | increases in the cost of food products;                                                        
|
| |  | the ability of our licensees to meet their future commitments
    under development agreements;
|
| |  | consumer concerns about food quality;                                                          
|
| |  | the level of competition from existing or new competitors in the
    our industry;             
|
| |  | inclement weather patterns, and                                                                

30



---



##### Table of Contents





| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | economic conditions generally, and in each of the markets in
    which we are located.



Provisions in our articles of incorporation and bylaws and of
Minnesota law have anti-takeover effects that could prevent a
change in control that could be beneficial to our shareholders,
which could depress the market price of shares of our common
stock.






| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | authorize our board of directors to issue preferred stock and to
    determine the rights and preferences of those shares, which
    would be senior to our common stock, without prior shareholder
    approval;
|
| |  | establish advance notice requirements for nominating directors
    and proposing matters to be voted on by shareholders at
    shareholder meetings;                                                             
|
| |  | provide that directors may be removed by shareholders only for
    cause;                                                                                                                                        
|
| |  | limit the right of our shareholders to call a special meeting of
    shareholders; and                                                                                                                           
|
| |  | impose procedural and other requirements that could make it
    difficult for shareholders to effect some corporate actions.                                                                                     

We will incur increased costs as a result of being a new
public company.




Because we do not intend to pay dividends, shareholders will
benefit from an investment in shares of our common stock only if
it appreciates in value.




31



---



##### Table of Contents








|        |                                                                
|------- | ---------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market
    Risk.



| |                              
| | -----------------------------
| | Primary Market Risk Exposures





| |                                                               
| | --------------------------------------------------------------
| | Financial Instruments and Derivative Commodity
    Instruments










|        |                         
|------- | ------------------------
|Item 4. | Controls and Procedures.






PART II  OTHER INFORMATION







|        |                   
|------- | ------------------
|Item 1. | Legal Proceedings.



32



---



##### Table of Contents












|        |                                                                 
|------- | ----------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of
    Proceeds.



| |                                        
| | ---------------------------------------
| | Unregistered Sales of Equity Securities





| |                
| | ---------------
| | Use of Proceeds








|        |                                 
|------- | --------------------------------
|Item 3. | Defaults Upon Senior Securities.








|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders.



33



---



##### Table of Contents







| |                
| | ---------------
| | For: 11,994,941
| | Against:      
| | Withheld:     





| |                
| | ---------------
| | For: 11,994,941
| | Against:      
| | Withheld:     





| |                
| | ---------------
| | For: 11,994,941
| | Against:      
| | Withheld:     






|        |                   
|------- | ------------------
|Item 5. | Other Information.








|        |          
|------- | ---------
|Item 6. | Exhibits.

| |    |    |  |                                                                                                                                                                                                          
| | -- | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1 |  | Form of Amended and Restated Articles of Incorporation of the
    Company (incorporated by reference to Exhibit 3.1 to the
    Companys Registration Statement on Form S-1/A filed
    August 25, 2005).
| | 3  | .2 |  | Form of Amended and Restated Bylaws of the Company (incorporated
    by reference to Exhibit 3.2 to the Companys
    Registration Statement on Form S-1/A filed August 25,
    2005).                   
| | 31 | .1 |  | Certification Pursuant to Rule 13a  14(a), as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                
| | 31 | .2 |  | Certification Pursuant to Rule 13a  14(a), as
    Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                
| | 32 | .1 |  | Certification Pursuant to 18 U.S. C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                                                         
| | 32 | .2 |  | Certification Pursuant to 18 U.S. C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.                                                                         

34



---



##### Table of Contents






SIGNATURE






| |                              | 
| | ---------------------------- | 
| | CARIBOU COFFEE COMPANY, INC. | 



| |     |                         | 
| | --- | ----------------------- | 
| | By: | /s/ George E. Mileusnic | 

| |                         |  | 
| | ----------------------- |  | 
| |                        
| | George E. Mileusnic    
| | Chief Financial Officer



35