##### 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 July 4, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from _____to _____
 Commission File No. 000-50052
 COSI, INC.
  Delaware
    
    06-1393745(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1751 Lake Cook Road
Deerfield, Illinois 60015
 (847) 597-8800
 þ o
 þ o




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##### Table of Contents



COSI, INC.
 
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets  as of July 4, 2005 and January 3, 2005
    
    
    3Consolidated Statements of Operations  Three and six month periods ended
July 4, 2005 and June 28, 2004
    
    
    4Consolidated Statement of Stockholders Equity  Six month period ended
July 4, 2005
    
    
    5Consolidated Statements of Cash Flows  Six month periods ended July 4,
2005 and June 28, 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-14Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    15-24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25-26Item 4.Submission of Matters to a Vote of Security Holders
    
    
    26Item 6. Exhibits
    
    
    27SIGNATURES
    
    
    28EXHIBIT INDEX
    
    
    29Form of Franchise AgreementForm of Area Developer AgreementCertificationCertificationCertification




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Cosi, Inc.
 
 Consolidated Balance Sheets
As of July 4, 2005 and January 3, 2005
(dollars in thousands, except share data)
 July 4, 2005
    
    January 3, 2005(Unaudited)
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,100.2
    
    
    $
    1,089.7Investments
    
    
    32,896.5
    
    
    
    9,961.6Accounts receivable, net of allowances of $142.5 and $152.4, respectively
    
    
    532.6
    
    
    
    613.2Inventories
    
    
    916.7
    
    
    
    890.5Prepaid expenses and other current assets
    
    
    2,705.4
    
    
    
    2,315.1Total current assets
    
    
    45,151.4
    
    
    
    14,870.1Property, equipment and leasehold improvements, net
    
    
    32,204.9
    
    
    
    34,074.5Intangibles, security deposits and other assets, net
    
    
    2,486.0
    
    
    
    2,193.7Total assets
    
    $
    79,842.3
    
    
    $
    51,138.3Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,326.1
    
    
    $
    3,973.0Accrued expenses
    
    
    6,872.0
    
    
    
    9,677.5Current portion of other liabilities
    
    
    471.8
    
    
    
    363.0Current portion of long-term debt
    
    
    70.9
    
    
    
    74.9Total current liabilities
    
    
    9,740.8
    
    
    
    14,088.4Other long-term liabilities, net of current portion
    
    
    7,394.4
    
    
    
    7,614.2Long-term debt, net of current portion
    
    
    257.9
    
    
    
    283.4Total liabilities
    
    
    17,393.1
    
    
    
    21,986.0Commitments and contingenciesStockholders equity:Common stock  $.01 par value; 100,000,000 shares authorized,
38,037,763 and 30,819,716 shares issued and outstanding, respectively
    
    
    380.4
    
    
    
    308.2Additional paid-in capital
    
    
    265,398.2
    
    
    
    225,519.7Deferred stock compensation
    
    
    (3,153.0
    )
    
    
    (900.0
    )Treasury stock, 239,543 shares at cost
    
    
    (1,197.7
    )
    
    
    Notes receivable from stockholders
    
    
    
    
    
    
    (1,458.8
    )Accumulated deficit
    
    
    (198,978.7
    )
    
    
    (194,316.8
    )Total stockholders equity
    
    
    62,449.2
    
    
    
    29,152.3Total liabilities and stockholders equity
    
    $
    79,842.3
    
    
    $
    51,138.3
 The accompanying notes are an integral part of these consolidated financial statements.




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##### Table of Contents



Cosi, Inc.
 
 Consolidated Statements of Operations
For the Three and Six Month Periods Ended July 4, 2005 and June 28, 2004
(dollars in thousands, except share data)
 Three Months Ended
    
    Six Months EndedJuly 4,
    
    June 28,
    
    July 4,
    
    June 28,2005
    
    2004
    
    2005
    
    2004(Unaudited)
    
    (Restated)
    
    (Unaudited)
    
    (Restated)Revenues:Restaurant net sales
    
    $
    30,566.9
    
    
    $
    29,008.5
    
    
    $
    57,772.1
    
    
    $
    53,925.7Franchise fees and royalties
    
    
    52.7
    
    
    
    
    
    
    
    52.7
    
    
    
    Total revenues
    
    
    30,619.6
    
    
    
    29,008.5
    
    
    
    57,824.8
    
    
    
    53,925.7Cost of sales:Cost of goods sold
    
    
    7,347.3
    
    
    
    7,182.8
    
    
    
    14,021.1
    
    
    
    13,678.4Restaurant operating expenses
    
    
    16,853.9
    
    
    
    16,955.3
    
    
    
    33,044.4
    
    
    
    33,281.6Total cost of sales
    
    
    24,201.2
    
    
    
    24,138.1
    
    
    
    47,065.5
    
    
    
    46,960.0General and administrative expenses
    
    
    4,953.1
    
    
    
    4,047.8
    
    
    
    10,133.8
    
    
    
    8,311.3Stock compensation expense
    
    
    1,073.7
    
    
    
    547.7
    
    
    
    1,304.9
    
    
    
    3,194.7Depreciation and amortization
    
    
    1,850.4
    
    
    
    1,741.0
    
    
    
    3,615.5
    
    
    
    3,487.6Restaurant pre-opening expenses
    
    
    116.5
    
    
    
    0.1
    
    
    
    138.5
    
    
    
    59.5Provision for losses on asset impairments
and disposals
    
    
    51.0
    
    
    
    
    
    
    
    51.0
    
    
    
    474.4Lease termination benefit
    
    
    
    
    
    
    (29.5
    )
    
    
    
    
    
    
    (731.8
    )Operating loss
    
    
    (1,626.3
    )
    
    
    (1,436.7
    )
    
    
    (4,484.4
    )
    
    
    (7,830.0
    )Interest income
    
    
    53.7
    
    
    
    12.2
    
    
    
    84.6
    
    
    
    26.8Interest expense
    
    
    (17.5
    )
    
    
    (32.1
    )
    
    
    (23.8
    )
    
    
    (35.1
    )Reserve for notes receivable from
stockholders
    
    
    (277.9
    )
    
    
    
    
    
    
    (261.1
    )
    
    
    Other income (expense)
    
    
    1.7
    
    
    
    (141.3
    )
    
    
    22.8
    
    
    
    (137.7
    )Net loss
    
    $
    (1,866.3
    )
    
    $
    (1,597.9
    )
    
    $
    (4,661.9
    )
    
    $
    (7,976.0
    )Per Share Data:Net loss per share, basic and diluted
    
    $
    (0.06
    )
    
    $
    (0.05
    )
    
    $
    (0.15
    )
    
    $
    (0.28
    )Weighted average shares outstanding
    
    
    32,619,760
    
    
    
    29,305,644
    
    
    
    31,910,109
    
    
    
    28,127,437
 The accompanying notes are an integral part of these consolidated financial statements.




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Cosi, Inc.
 
 Consolidated Statement of Stockholders Equity
For the Six Months Ended July 4, 2005
(unaudited)
(dollars in thousands, except share data)
 Common Stock
    
    
    
    
    
    Treasury StockNotesAdditional
    
    
    
    
    
    Number
    
    
    
    
    
    ReceivableNumber of
    
    
    
    
    
    Paid In
    
    Deferred
    
    of
    
    
    
    
    
    from
    
    AccumulatedShares
    
    Amount
    
    Capital
    
    Compensation
    
    Shares
    
    Amount
    
    Stockholders
    
    Deficit
    
    TotalBalance,
January 3, 2005
    
    
    30,819,716
    
    
    $
    308.2
    
    
    $
    225,519.7
    
    
    $
    (900.0
    )
    
    
    
    
    
    $
    
    
    
    $
    (1,458.8
    )
    
    $
    (194,316.8
    )
    
    $
    29,152.3Issuance of common
stock
    
    
    5,837,563
    
    
    
    58.4
    
    
    
    34,258.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,316.5Issuance of restricted
common stock
    
    
    637,500
    
    
    
    6.4
    
    
    
    3,363.0
    
    
    
    (2,613.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    756.4Stock compensation
    
    
    25,610
    
    
    
    0.3
    
    
    
    266.2
    
    
    
    360.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    626.5Exercise of options
    
    
    717,374
    
    
    
    7.1
    
    
    
    1,991.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,998.3Reserve for notes
receivable from
stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261.1
    
    
    
    
    
    
    
    261.1Return of shares for
notes receivable
from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239,543
    
    
    
    (1,197.7
    )
    
    
    1,197.7
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,661.9
    )
    
    
    (4,661.9
    )Balance, July 4, 2005
    
    
    38,037,763
    
    
    $
    380.4
    
    
    $
    265,398.2
    
    
    $
    (3,153.0
    )
    
    
    239,543
    
    
    $
    (1,197.7
    )
    
    $
    
    
    
    $
    (198,978.7
    )
    
    $
    62,449.2
 The accompanying notes are an integral part of these consolidated financial statements.




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##### Table of Contents



Cosi, Inc.
 
 Consolidated Statements of Cash Flows
For the Six Month Periods Ended July 4, 2005 and June 28, 2004
(dollars in thousands)
 July 4, 2005
    
    June 28, 2004(Unaudited)
    
    (Restated)Cash flows from operating activities:Net loss
    
    $
    (4,661.9
    )
    
    $
    (7,976.0
    )Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation and amortization
    
    
    3,615.5
    
    
    
    3,487.6Non-cash portion of asset impairments and disposals
    
    
    4.7
    
    
    
    360.5Recovery for bad debts
    
    
    (9.8
    )
    
    
    (58.7
    )Stock compensation expense
    
    
    1,382.9
    
    
    
    3,567.8Reserve on notes receivable from stockholders
    
    
    261.1
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    90.4
    
    
    
    276.4Inventories
    
    
    (26.2
    )
    
    
    (2.4
    )Other assets
    
    
    (241.7
    )
    
    
    31.8Prepaid expenses and other current assets
    
    
    (390.4
    )
    
    
    438.5Accounts payable
    
    
    (1,646.8
    )
    
    
    (3,494.7
    )Accrued expenses
    
    
    (2,805.6
    )
    
    
    (592.6
    )Other liabilities
    
    
    (231.6
    )
    
    
    (932.9
    )Lease termination accrual
    
    
    120.6
    
    
    
    (768.4
    )Net cash used in operating activities
    
    
    (4,538.8
    )
    
    
    (5,663.1
    )Cash flows used in investing activities:Capital expenditures
    
    
    (1,750.6
    )
    
    
    (752.5
    )Purchases of
investments, net
    
    
    (22,934.9
    )
    
    
    (7,912.2
    )(Payment) return of security deposits
    
    
    (50.5
    )
    
    
    32.9Net cash used in investing activities
    
    
    (24,736.0
    )
    
    
    (8,631.8
    )Cash flows provided by financing activities:Net proceeds from issuance of common stock
    
    
    36,314.8
    
    
    
    19,608.9Principal payments on long-term debt and capital lease obligations
    
    
    (29.5
    )
    
    
    (34.2
    )Net cash provided by financing activities
    
    
    36,285.3
    
    
    
    19,574.7Net increase in cash and cash equivalents
    
    
    7,010.5
    
    
    
    5,279.8Cash and cash equivalents, beginning of period
    
    
    1,089.7
    
    
    
    7,957.0Cash and cash equivalents, end of period
    
    $
    8,100.2
    
    
    $
    13,236.8Supplemental disclosures of cash flow information:Cash paid for:Interest
    
    $
    8.7
    
    
    $
    35.1Corporate franchise and income taxes
    
    $
    122.6
    
    
    $
    220.9
 The accompanying notes are an integral part of the consolidated financial statements.




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COSI, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
      Note 2  Financial Statement Restatement




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##### Table of Contents



COSI, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
  As PreviouslyReported (1)
    
    Adjustments
    
    As RestatedThree months ended June 28, 2004:Restaurant expenses
    
    $
    17,075.8
    
    
    $
    (120.5
    )
    
    $
    16,955.3Depreciation and amortization
    
    
    1,695.8
    
    
    
    45.2
    
    
    
    1,741.0Operating loss
    
    
    (1,512.0
    )
    
    
    75.3
    
    
    
    (1,436.7
    )Net loss
    
    
    (1,673.2
    )
    
    
    75.3
    
    
    
    (1,597.9
    )Net loss per share, basic and diluted
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.05
    )Six months ended June 28, 2004:Restaurant expenses
    
    $
    33,522.7
    
    
    $
    (241.1
    )
    
    $
    33,281.6Depreciation and amortization
    
    
    3,397.1
    
    
    
    90.5
    
    
    
    3,487.6Operating loss
    
    
    (7,980.6
    )
    
    
    150.6
    
    
    
    (7,830.0
    )Net loss
    
    
    (8,126.6
    )
    
    
    150.6
    
    
    
    (7,976.0
    )Net loss per share, basic and diluted
    
    $
    (0.29
    )
    
    $
    0.01
    
    
    $
    (0.28
    )
 
 (1)
    
    as previously reported after certain reclassifications made to conform to current year presentation Note 3  Investments
  Accounting for Certain Investments in Debt and Equity Securities,




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COSI, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 Note 4  Stock-Based Compensation
 Accounting for Stock-Based Compensation
 Three Month Periods Ended
    
    Six Month Periods EndedJuly 4,
    
    June 28,
    
    July 4,
    
    June 28,2005
    
    2004
    
    2005
    
    2004(Unaudited)
    
    (Restated)
    
    (Unaudited)
    
    (Restated)Net loss as reported
    
    $
    (1,866.3
    )
    
    $
    (1,597.9
    )
    
    $
    (4,661.9
    )
    
    $
    (7,976.0
    )Add: stock-based compensation expense included
in reported net loss
    
    
    69.8
    
    
    
    407.1
    
    
    
    141.5
    
    
    
    2,988.9Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all awards
    
    
    (417.6
    )
    
    
    (725.9
    )
    
    
    (1,019.2
    )
    
    
    (1,253.2
    )Pro forma net loss
    
    $
    (2,214.1
    )
    
    $
    (1,916.7
    )
    
    $
    (5,539.6
    )
    
    $
    (6,240.3
    )Net loss per common share: basic and dilutedAs reported
    
    $
    (0.06
    )
    
    $
    (0.05
    )
    
    $
    (0.15
    )
    
    $
    (0.28
    )Pro forma
    
    $
    (0.07
    )
    
    $
    (0.07
    )
    
    $
    (0.17
    )
    
    $
    (0.22
    )
  Accounting for Stock
Issued to Employees
 Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees , Statement of Cash Flows




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COSI, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 NOTE 5  Inventories
  NOTE 6  Property, Equipment and Leasehold Improvements
  July 4,
    
    January 3,($
in 000s)
    
    2005
    
    2005Leasehold improvements
    
    $
    37,281.0
    
    
    $
    36,694.6Furniture and fixtures
    
    
    9,103.4
    
    
    
    8,856.7Restaurant equipment
    
    
    13,114.0
    
    
    
    12,886.0Computer and telephone equipment
    
    
    8,446.8
    
    
    
    8,254.0Construction in progress
    
    
    818.9
    
    
    
    530.168,764.1
    
    
    
    67,221.4Less: accumulated depreciation and
amortization
    
    
    (36,559.2
    )
    
    
    (33,146.9
    )Net property, equipment and leasehold
improvements
    
    $
    32,204.9
    
    
    $
    34,074.5
 Restaurant Impairment Charges:




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##### Table of Contents



COSI, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 Note 7  Accrued Expenses
  July 4,
    
    January 3,($
in 000s)
    
    2005
    
    2005Payroll and related benefits and taxes
    
    $
    2,509.8
    
    
    $
    2,648.3Professional and legal costs
    
    
    581.8
    
    
    
    553.0Taxes payable
    
    
    771.2
    
    
    
    762.3Severance payable  current portion
    
    
    48.0
    
    
    
    380.7Rent obligations
    
    
    324.4
    
    
    
    417.4Gift cards/certificates
    
    
    288.1
    
    
    
    334.7Utilities
    
    
    427.3
    
    
    
    332.2Unearned franchise fees
    
    
    197.5
    
    
    
    Insurance
    
    
    114.1
    
    
    
    2,216.7Other
    
    
    1,609.8
    
    
    
    2,032.2Accrued expenses
    
    $
    6,872.0
    
    
    $
    9,677.5
 Note 8  Long-Term Debt
 Notes Payable:
     NOTE 9  Earnings Per Share




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##### Table of Contents



COSI, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 NOTE 10  Lease Termination Costs
   NOTE 11  Contingencies
  Sheel Mohnot v. Cosi, Inc., et al., In re Cosi, Inc. Securities
Litigation




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##### Table of Contents



COSI, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
    NOTE 12  Restricted Stock




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##### Table of Contents



COSI, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
  Note 13  Public Offering




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Item 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 OVERVIEW




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CRITICAL ACCOUNTING POLICIES
   Long lived assets Accounting for the Impairment or Disposal of Long Lived Assets Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be
Disposed of Reporting Results of Operations Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions
 Lease termination costs
 Accounting for Costs Associated with Exit or
Disposal Activities




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##### Table of Contents



Stock options Accounting for Stock Based
Compensation Transition and Disclosure Accounting for
Stock Based Compensation Accounting for Stock Issued to Employees Accounting for Stock Issued to Employees,
 Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees , Statement of Cash Flows
 Inventories:
 Property and Equipment
 Accounting for Lease Obligations: Accounting for Operating Leases with Scheduled
Rent Increases
 Landlord Allowances Issues Relating to Accounting for Leases
 Income taxes




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##### Table of Contents



Cost of goods sold.
 Restaurant operating expenses.
 General and administrative expenses.
 Stock compensation expense.
 Depreciation and amortization.
 Restaurant pre-opening expenses.
 RESULTS OF OPERATIONS




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJuly 4
    
    June 28
    
    July 4
    
    June 282005
    
    2004
    
    2005
    
    2004(restated)
    
    
    
    (restated)Restaurant net sales
    
    
    99.8
    %
    
    
    100.0
    %
    
    
    99.9
    %
    
    
    100.0
    %Franchise fees and royalties
    
    
    0.2
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and expenses:Cost of goods sold (1)
    
    
    24.0
    
    
    
    24.8
    
    
    
    24.3
    
    
    
    25.4Restaurant operating expenses (1)
    
    
    55.1
    
    
    
    58.4
    
    
    
    57.2
    
    
    
    61.7Total cost
of sales (1)
    
    
    79.1
    
    
    
    83.2
    
    
    
    81.5
    
    
    
    87.1General and administrative expenses
    
    
    16.2
    
    
    
    13.9
    
    
    
    17.5
    
    
    
    15.4Stock compensation expense
    
    
    3.5
    
    
    
    1.9
    
    
    
    2.3
    
    
    
    5.9Depreciation and amortization
    
    
    6.0
    
    
    
    6.0
    
    
    
    6.3
    
    
    
    6.5Restaurant pre-opening expenses
    
    
    0.4
    
    
    
    
    
    
    
    0.2
    
    
    
    0.1Provision for losses on asset impairments
and disposals
    
    
    0.2
    
    
    
    
    
    
    
    0.1
    
    
    
    0.9Lease termination benefit
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (1.4
    )Operating loss
    
    
    (5.3
    )
    
    
    (4.9
    )
    
    
    (7.8
    )
    
    
    (14.5
    )Other income (expense):Interest income
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Interest expense
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Reserve for stockholders notes receivables
    
    
    (0.9
    )
    
    
    
    
    
    
    (0.4
    )
    
    
    Other income
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.2
    )Net Loss
    
    
    (6.1
    )%
    
    
    (5.5
    )%
    
    
    (8.1
    )%
    
    
    (14.8
    )%
 
 (1)
    
    As a percentage of restaurant net sales Restaurant Net Sales
   Franchise Fees and Royalties




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##### Table of Contents



Costs and Expenses
 Cost of goods sold.
  Restaurant operating expenses
 Accounting for Stock Issued to Employees
 General and administrative costs




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##### Table of Contents



Stock compensation expense. Accounting for Stock Issued to Employees,
 Accounting for Stock Issued
to Employees, Accounting for Stock Issued to Employees, Accounting for Stock Issued to Employees,
 Depreciation and amortization
 Restaurant pre-opening expenses
 Loss on impairment of property and equipment and restaurant disposals
 Lease termination costs
 Reserve for notes receivable from stockholders.




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##### Table of Contents



Interest income and expense
 Other income
 LIQUIDITY AND CAPITAL RESOURCES




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##### Table of Contents



Contractual Obligations:
 Payments Due by Period(in thousands)Due 3rd and
    
    Due
    
    Due
    
    DueTotal
    
    4th Quarter
    
    Fiscal 2006
    
    Fiscal 2008
    
    AfterDescription
    
    Obligations
    
    Fiscal 2005
    
    to Fiscal 2007
    
    to Fiscal 2009
    
    Fiscal 2009Long-term debt
    
    $
    328.8
    
    
    $
    45.4
    
    
    $
    109.0
    
    
    $
    69.2
    
    
    $
    105.2Operating leases (1)(2)
    
    
    82,422.9
    
    
    
    6,402.6
    
    
    
    25,891.8
    
    
    
    22,756.0
    
    
    
    27,372.5Employee severance
    
    
    48.0
    
    
    
    48.0
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations (3)
    
    
    1,283.3
    
    
    
    1,283.3
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    84,083.0
    
    
    $
    7,779.3
    
    
    $
    26,000.8
    
    
    $
    22,825.2
    
    
    $
    27,477.7
 
 (1)
    
    Amounts shown are net of $1.6 million of sublease rental income due under non-cancelable subleases.(2)
    
    Includes approximately $2.3 million of obligations on leases for restaurants that have been closed as of July 4, 2005.(3)
    
    Primarily contractual obligations related to new restaurant construction and the remodel of existing restaurants.  PURCHASE COMMITMENT
    FORWARD-LOOKING STATEMENTS




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##### Table of Contents




    
    the cost of our principal food products and supply and delivery shortages or interruptions;
    
    our ability to recruit, train and retain qualified corporate and restaurant personnel and management;
    
    changes in consumer preferences and demographic trends;
    
    competition in our markets, both in our business and in locating suitable restaurant sites;
    
    successful operation and execution in new and existing markets;
    
    our ability to attract and retain qualified franchisees;
    
    the availability and cost of additional financing, both to fund our
existing operations and to grow and open new restaurants;
    
    cost effective and timely planning, design and build-out of restaurants;
    
    the rate of our internal growth, and our ability to generate increased
revenue from our existing restaurants;
    
    our ability to generate positive cash flow from operations;
    
    increased government regulation and our ability to secure required
governmental approvals and permits;
    
    our ability to create customer awareness of our restaurants in new
markets;
    
    our ability to locate suitable restaurant sites in new and existing
markets and negotiate acceptable lease terms;
    
    market saturation due to new restaurant openings;
    
    the reliability of our customer and market studies;
    
    expansion into new markets;
    
    labor shortages or increased labor costs;
    
    inadequate protection of our intellectual property;
    
    Adverse weather conditions which impact customer traffic at our restaurants; and
    
    adverse economic conditions.




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##### Table of Contents



Item 3. Quantitative And Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
   
 Part II. OTHER INFORMATION
 
 Item 1: LEGAL PROCEEDINGS
  Sheel Mohnot v. Cosi, Inc., et al., In re Cosi, Inc. Securities
Litigation




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##### Table of Contents



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    Three directors were elected to serve for a three year term expiring at the 2008
Annual Meeting of Stockholders as follows:
 Name
    
    Votes For
    
    WithheldEli Cohen
    
    
    26,711,259
    
    
    
    337,462William D. Forrest
    
    
    27,004,790
    
    
    
    43,931Garry Stock
    
    
    27,000,348
    
    
    
    48,373
 2.
    
    BDO Seidman, LLP was ratified as our independent registered public
accounting firm for the fiscal year ended January 2, 2006 as follows:
 Votes For
    
    Votes Against
    
    Abstentions27,001,033
    
    
    25,686
    
    
    
    22,002
 3.
    
    The Cosi, Inc. 2005 Omnibus Long Term-Incentive Plan was approved as
follows:
 Votes For
    
    Votes Against
    
    Abstentions11,626,821
    
    
    3,811,646
    
    
    
    72,725




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##### Table of Contents



Item 6: EXHIBITS
 Exhibits
 Exhibit Number
    
    DescriptionExhibit 10.1
    
    Cosi, Inc. 2005 Omnibus Long-Term Incentive Plan (Filed as Exhibit 10.1
to our Current Report on Form 8-K filed on May 9, 2005, file #000-50052).Exhibit 10.2
    
    Form of Restricted Stock Award Agreement (Filed as Exhibit 10.1 to our
Current Report on Form 8-K filed June 6, 2005, file #000-50052).Exhibit 10.3
    
    Employment Agreement between Cosi, Inc. and Kevin Armstrong, dated as of
May 9, 2005 (Filed as Exhibit 10.5.11 to our Quarterly Report on Form 10-Q for
the quarter ended April 4, 2005, file #000-50052).Exhibit 10.4
    
    Form of Underwriting Agreement, by and among Cosi, Inc., S.G. Cowen &
Co., LLC and RBC Capital Markets Corporation (Filed as Exhibit 1.1 to the
Registration Statement on Form S-3/A, file #333-124833).Exhibit 10.5
    
    Form of Franchise Agreement.Exhibit 10.6
    
    Form of Area Developer Agreement.Exhibit 31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




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##### Table of Contents



SIGNATURES
  COSI, INC.Date: August 11, 2005
    
    By: /s/ KEVIN ARMSTRONGKevin ArmstrongChief Executive OfficerDate: August 11, 2005
    
    By: /s/ CYNTHIA JAMISONCynthia JamisonChief Financial Officer (chief accounting officer)Treasurer and Secretary




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##### Table of Contents



EXHIBIT INDEX
 Exhibit 10.1
    
    Cosi, Inc. 2005 Omnibus Long-Term Incentive Plan (Filed as Exhibit 10.1
to our Current Report on Form 8-K filed on May 9, 2005, file #000-50052).Exhibit 10.2
    
    Form of Restricted Stock Award Agreement (Filed as Exhibit 10.1 to our
Current Report on Form 8-K filed June 6, 2005, file #000-50052).Exhibit 10.3
    
    Employment Agreement between Cosi, Inc. and Kevin Armstrong, dated as of
May 9, 2005 (Filed as Exhibit 10.5.11 to our Quarterly Report on Form 10-Q for
the quarter ended April 4, 2005, file #000-50052).Exhibit 10.4
    
    Form of Underwriting Agreement, by and among Cosi, Inc., S.G. Cowen &
Co., LLC and RBC Capital Markets Corporation (Filed as Exhibit 1.1 to the
Registration Statement on Form S-3/A, file #333-124833).Exhibit 10.5
    
    Form of Franchise Agreement.Exhibit 10.6
    
    Form of Area Developer Agreement.Exhibit 31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.Exhibit 31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.Exhibit 32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.