##### 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 2, 2007
 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
 COSÌ, 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
  o þ o
 o þ




---



##### 



COSI, INC.
 
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets  as of July 2, 2007 and January 1, 2007
    
    
    3Consolidated Statements of Operations  Three and six month periods ended
July 2, 2007 and July 3, 2006
    
    
    4Consolidated Statement of Stockholders Equity  Six month period ended
July 2, 2007
    
    
    5Consolidated Statements of Cash Flows  Six month periods ended
July 2, 2007 and July 3, 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-11Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12-24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    25Item 6. Exhibits
    
    
    25SIGNATURES
    
    
    26EXHIBIT INDEX
    
    
    27CERTIFICATIONS
    
    
    28-30302 Certification of Chief Executive Officer302 Certification of Chief Financial OfficerSection 906 Certification
  PART I. FINANCIAL INFORMATION
 2




---



##### Table of Contents



Item 1. Financial Statements
 Cosi, Inc.
 
 Consolidated Balance Sheets
 As of July 2, 2007 and January 1, 2007
 (dollars in thousands, except and per share data)
 July 2, 2007
    
    
    January 1, 2007(Unaudited)
    
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    5,824.3
    
    
    $
    898.2Investments
    
    
    4,986.2
    
    
    
    18,961.5Accounts receivable, net
    
    
    1,078.4
    
    
    
    1,950.9Inventories
    
    
    1,055.9
    
    
    
    941.5Prepaid expenses and other current assets
    
    
    3,237.8
    
    
    
    4,032.8Assets of discontinued operations
    
    
    715.2
    
    
    
    2,092.2Total current assets
    
    
    16,897.8
    
    
    
    28,877.1Furniture and fixtures, equipment and leasehold improvements, net
    
    
    46,172.2
    
    
    
    44,000.9Intangibles, security deposits and other assets, net
    
    
    2,848.3
    
    
    
    2,879.1Total assets
    
    $
    65,918.3
    
    
    $
    75,757.1Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,267.7
    
    
    $
    4,898.1Accrued expenses
    
    
    9,801.9
    
    
    
    8,375.0Deferred franchise revenue
    
    
    1,221.3
    
    
    
    1,172.5Current liabilities of discontinued operations
    
    
    184.8
    
    
    
    177.5Current portion of long-term debt
    
    
    17.0
    
    
    
    17.0Current portion of other long-term liabilities
    
    
    681.1
    
    
    
    517.9Total current liabilities
    
    
    14,173.8
    
    
    
    15,158.0Deferred franchise revenue
    
    
    2,700.0
    
    
    
    2,345.0Long-term debt, net of current portion
    
    
    82.8
    
    
    
    82.8Other long-term liabilities, net of current portion
    
    
    7,494.4
    
    
    
    7,540.0Total liabilities
    
    
    24,451.0
    
    
    
    25,125.8Commitments and contingenciesStockholders equity:Common stock  $.01 par value; 100,000,000 shares authorized,
40,612,578 and 39,910,114 shares issued, respectively
    
    
    406.1
    
    
    
    399.1Additional paid-in capital
    
    
    273,634.9
    
    
    
    271,200.3Treasury stock, 239,543 shares at cost
    
    
    (1,197.7
    )
    
    
    (1,197.7
    )Accumulated deficit
    
    
    (231,376.0
    )
    
    
    (219,770.4
    )Total stockholders equity
    
    
    41,467.3
    
    
    
    50,631.3Total liabilities and stockholders equity
    
    $
    65,918.3
    
    
    $
    75,757.1
 The accompanying notes are an integral part of these consolidated financial statements.
 3




---



##### Table of Contents



Cosi, Inc.
 
 Consolidated Statements of Operations
 For the Three and Six Month Periods Ended July 2, 2007 and July 3, 2006
 (dollars in thousands, except share and per share data)
 Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    July 3,
    
    
    July 2,
    
    
    July 3,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Restaurant net sales
    
    $
    35,445.4
    
    
    $
    31,838.0
    
    
    $
    66,491.3
    
    
    $
    60,793.9Franchise fees and royalties
    
    
    404.8
    
    
    
    130.9
    
    
    
    837.2
    
    
    
    318.2Total revenues
    
    
    35,850.2
    
    
    
    31,968.9
    
    
    
    67,328.5
    
    
    
    61,112.1Costs and expenses:Cost of food and beverage
    
    
    8,079.9
    
    
    
    7,140.7
    
    
    
    15,287.8
    
    
    
    13,891.0Restaurant labor and related benefits
    
    
    12,101.9
    
    
    
    10,046.0
    
    
    
    23,110.8
    
    
    
    19,601.3Occupancy and other restaurant operating expenses
    
    
    9,900.3
    
    
    
    7,648.3
    
    
    
    19,046.2
    
    
    
    14,983.530,082.1
    
    
    
    24,835.0
    
    
    
    57,444.8
    
    
    
    48,475.8General and administrative expenses
    
    
    5,602.8
    
    
    
    4,788.2
    
    
    
    11,532.1
    
    
    
    10,341.9Stock-based compensation expense
    
    
    537.7
    
    
    
    991.0
    
    
    
    589.1
    
    
    
    2,931.5Depreciation and amortization
    
    
    2,275.1
    
    
    
    1,733.6
    
    
    
    4,400.3
    
    
    
    3,474.2Restaurant pre-opening expenses
    
    
    311.4
    
    
    
    653.3
    
    
    
    581.5
    
    
    
    874.0Provision for losses on asset impairments
and disposals
    
    
    2,826.7
    
    
    
    
    
    
    
    2,826.7
    
    
    
    Closed store costs
    
    
    261.7
    
    
    
    
    
    
    
    261.7
    
    
    
    Lease termination expense (benefit)
    
    
    193.1
    
    
    
    (8.8
    )
    
    
    193.1
    
    
    
    17.7Total costs and expenses
    
    
    42,090.6
    
    
    
    32,992.3
    
    
    
    77,829.3
    
    
    
    66,115.1Operating loss
    
    
    (6,240.4
    )
    
    
    (1,023.4
    )
    
    
    (10,500.8
    )
    
    
    (5,003.0
    )Interest income
    
    
    139.0
    
    
    
    384.6
    
    
    
    344.2
    
    
    
    746.4Interest expense
    
    
    (2.0
    )
    
    
    (2.3
    )
    
    
    (4.0
    )
    
    
    (4.7
    )Other income
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.8Loss from continuing operations
    
    
    (6,103.3
    )
    
    
    (640.6
    )
    
    
    (10,160.2
    )
    
    
    (4,260.5
    )Discontinued operations:Operating loss from discontinued operations
    
    
    (104.0
    )
    
    
    (108.3
    )
    
    
    (252.1
    )
    
    
    (416.8
    )Asset impairments of discontinued operations
    
    
    (1,193.3
    )
    
    
    
    
    
    
    (1,193.3
    )
    
    
    Loss from discontinued operations
    
    
    (1,297.3
    )
    
    
    (108.3
    )
    
    
    (1,445.4
    )
    
    
    (416.8
    )Net loss
    
    $
    (7,400.6
    )
    
    $
    (748.9
    )
    
    $
    (11,605.6
    )
    
    $
    (4,677.3
    )Per Share Data:Loss per share, basic and dilutedContinuing operations
    
    $
    (0.16
    )
    
    $
    (0.02
    )
    
    $
    (0.26
    )
    
    $
    (0.11
    )Discontinued operations
    
    $
    (0.03
    )
    
    $
    (0.00
    )
    
    $
    (0.04
    )
    
    $
    (0.01
    )Net loss
    
    $
    (0.19
    )
    
    $
    (0.02
    )
    
    $
    (0.30
    )
    
    $
    (0.12
    )Weighted average shares outstanding:
    
    
    39,353,590
    
    
    
    38,188,028
    
    
    
    38,962,370
    
    
    
    38,008,655
 The accompanying notes are an integral part of these consolidated financial statements.
 4




---



##### Table of Contents



Cosi, Inc.
 
 Consolidated Statement of Stockholders Equity
 For the Six Months Ended July 2, 2007
 (unaudited)
 (dollars in thousands, except share data)
 Common Stock
    
    
    Treasury StockAdditionalNumber of
    
    
    
    
    
    
    Paid In
    
    
    Number of
    
    
    
    
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Shares
    
    
    Amount
    
    
    Deficit
    
    
    TotalBalance, January 1, 2007
    
    
    39,910,114
    
    
    $
    399.1
    
    
    $
    271,200.3
    
    
    
    239,543
    
    
    $
    (1,197.7
    )
    
    $
    (219,770.4
    )
    
    $
    50,631.3Exercise of options
    
    
    901,598
    
    
    
    8.9
    
    
    
    1,834.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,843.4Net forfeiture of restricted stock
    
    
    (199,833
    )
    
    
    (2.0
    )
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    598.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    598.2Exercise of warrants
    
    
    699
    
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,605.6
    )
    
    
    (11,605.6
    )Balance, July 2, 2007
    
    
    40,612,578
    
    
    $
    406.1
    
    
    $
    273,634.9
    
    
    
    239,543
    
    
    $
    (1,197.7
    )
    
    $
    (231,376.0
    )
    
    $
    41,467.3
 The accompanying notes are an integral part of these consolidated financial statements.
 5




---



##### Table of Contents



Cosi, Inc.
 
 Consolidated Statements of Cash Flows
 For the Six Month Periods Ended July 2, 2007 and July 3, 2006
 (dollars in thousands)
 July 2, 2007
    
    
    July 3, 2006(Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net loss
    
    $
    (11,605.6
    )
    
    $
    (4,677.3
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activitiesDepreciation and amortization
    
    
    4,645.4
    
    
    
    3,673.7Non-cash portion of asset impairments and disposals
    
    
    2,871.5
    
    
    
    17.6Non-cash portion of store closing costs
    
    
    1,455.0
    
    
    
    Recovery for bad debts
    
    
    0.4
    
    
    
    4.9Stock-based compensation expense
    
    
    598.2
    
    
    
    2,956.3Changes in operating assets and liabilities:Accounts receivable
    
    
    872.2
    
    
    
    (185.4
    )Inventories
    
    
    (109.5
    )
    
    
    (2.2
    )Prepaid expenses and other current assets
    
    
    794.9
    
    
    
    907.7Other assets
    
    
    28.3
    
    
    
    241.4Accounts payable and accrued expenses
    
    
    (947.2
    )
    
    
    (2,129.9
    )Deferred franchise revenue
    
    
    403.8
    
    
    
    1,895.0Other liabilities
    
    
    116.5
    
    
    
    66.5Net cash (used in) provided by operating activities
    
    
    (876.1
    )
    
    
    2,768.3Cash flows from investing activities:Capital expenditures
    
    
    (10,034.6
    )
    
    
    (8,301.8
    )Purchases of investments
    
    
    (20,776.8
    )
    
    
    (120,002.6
    )Redemptions of investments
    
    
    34,752.0
    
    
    
    124,978.8Net refunds of security deposits
    
    
    2.6
    
    
    
    22.0Net cash provided by (used in) investing activities
    
    
    3,943.2
    
    
    
    (3,303.6
    )Cash flows from financing activities:Net proceeds from exercise of stock options
    
    
    1,843.5
    
    
    
    1,069.8Exercise of warrants
    
    
    
    
    
    
    442.8Principal payments on long-term debt
    
    
    
    
    
    
    (3.0
    )Net cash provided by financing activities
    
    
    1,843.5
    
    
    
    1,509.6Net increase in cash and cash equivalents
    
    
    4,910.6
    
    
    
    974.3Cash and cash equivalents of continuing operations, beginning of period
    
    
    898.2
    
    
    
    1,904.8Cash and cash equivalents of discontinued operations, beginning of period
    
    
    40.2
    
    
    
    47.5Total cash and cash equivalents, beginning of period
    
    
    938.4
    
    
    
    1,952.3Cash and cash equivalents of continuing operations, end of period
    
    
    5,824.3
    
    
    
    2,909.1Cash and cash equivalents of discontinued operations, end of period
    
    
    24.7
    
    
    
    17.5Total cash and cash equivalents, end of period
    
    $
    5,849.0
    
    
    $
    2,926.6Supplemental disclosure of cash flow information:Cash paid for:Corporate franchise and income taxes
    
    $
    61.5
    
    
    $
    47.7
 The accompanying notes are an integral part of these consolidated financial statements.
 6




---



##### Table of Contents



COSI, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
       Note 2  Stock-Based Compensation
  For the Three Months Ended
    
    
    For the Six Months Ended(in thousands)
    
    
    (in thousands)July 2, 2007
    
    
    July 3, 2006
    
    
    July 2, 2007
    
    
    July 3, 2006Stock option compensation expense
    
    $
    108.5
    
    
    $
    279.2
    
    
    $
    226.7
    
    
    $
    553.1Restricted stock compensation expense
    
    
    433.6
    
    
    
    723.0
    
    
    
    371.5
    
    
    
    2,403.2Total non-cash stock compensation expense
    
    
    542.1
    
    
    
    1,002.2
    
    
    
    598.2
    
    
    
    2,956.3Non-cash compensation included in restaurant
labor and related benefits
    
    
    4.4
    
    
    
    11.2
    
    
    
    9.1
    
    
    
    24.8Separately captioned stock compensation expense
    
    $
    537.7
    
    
    $
    991.0
    
    
    $
    589.1
    
    
    $
    2,931.5
  7




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
   July 3,
2006
  NOTE 3  Warrants
    8




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
  NOTE 4  Earnings Per Share
  NOTE 5  Lease Termination Costs
   NOTE 6  Discontinued Operations
  Accounting for the Impairment or Disposal of Long-Lived Assets
 9




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 Three Months Ended
    
    
    Six Months EndedJuly 2, 2007
    
    
    July 3, 2006
    
    
    July 2, 2007
    
    
    July 3, 2006(dollars in thousands)RevenuesRestaurant net sales
    
    $
    684.5
    
    
    $
    540.6
    
    
    $
    1,297.0
    
    
    $
    1,042.3Costs and expensesCost of food and beverage
    
    
    197.5
    
    
    
    152.5
    
    
    
    379.7
    
    
    
    377.3Restaurant labor and related benefits
    
    
    304.0
    
    
    
    274.2
    
    
    
    617.9
    
    
    
    595.7Occupancy and other restaurant operating expenses
    
    
    164.8
    
    
    
    114.1
    
    
    
    306.4
    
    
    
    242.1666.3
    
    
    
    540.8
    
    
    
    1,304.0
    
    
    
    1,215.1Depreciation and amortization
    
    
    122.2
    
    
    
    108.1
    
    
    
    245.1
    
    
    
    199.5Restaurant pre-opening expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44.5Total costs and expenses
    
    
    788.5
    
    
    
    648.9
    
    
    
    1,549.1
    
    
    
    1,459.1Operating loss from discontinued operations
    
    $
    (104.0
    )
    
    $
    (108.3
    )
    
    $
    (252.1
    )
    
    $
    (416.8
    )
  July 2, 2007
    
    
    January 1, 2007(dollars in thousands)Current assets:Cash and cash equivalents
    
    $
    24.8
    
    
    $
    40.2Inventories
    
    
    40.4
    
    
    
    45.4Total current assets of discontinued operations
    
    
    65.2
    
    
    
    85.6Furniture and fixtures, equipment and leasehold improvements, net
    
    
    650.0
    
    
    
    2,006.6Total assets of discontinued operations
    
    $
    715.2
    
    
    $
    2,092.2Current liabilities:Accrued Expenses
    
    
    184.8
    
    
    
    177.5Total current liabilities of discontinued operations
    
    $
    184.8
    
    
    $
    177.5
  NOTE 7  Contingencies
  NOTE 8  Income Taxes
  10




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
  Accounting for Uncertainty in
Income Taxes, an
interpretation of FASB Statement No. 109
    11




---



##### Table of Contents



Item 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
for the fiscal quarters ended July 2, 2007 and July 3, 2006 should be read in conjunction
with Selected Consolidated Financial Data and our audited consolidated financial statements
and the notes to those statements that are in our 2006 Annual Report on Form 10-K. Our
discussion contains forward-looking statements based upon current expectations that involve
risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual
results and the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those set forth
under Cautionary Note Regarding Forward-Looking Statements below and elsewhere in this
Quarterly Report.
 OVERVIEW
  For the Three Months EndedJuly 2, 2007
    
    
    July 3, 2006Company-
    
    
    
    
    
    
    
    
    
    
    Company-Owned
    
    
    Franchise
    
    
    Total
    
    
    Owned
    
    
    Franchise
    
    
    TotalRestaurants at beginning of period
    
    
    113
    (a)
    
    
    19
    
    
    
    132
    
    
    
    94
    (b)
    
    
    5
    
    
    
    99New restaurants opened
    
    
    1
    
    
    
    3
    
    
    
    4
    
    
    
    9
    
    
    
    1
    
    
    
    10Restaurants permanently closed
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Restaurants at end of period
    
    
    113
    (a)
    
    
    22
    
    
    
    135
    
    
    
    103
    (b)
    
    
    6
    
    
    
    109
 
 (a)
    
    Includes six locations that are classified as discontinued operations.(b)
    
    Includes two company-owned locations that were closed in October 2005 as a result of Hurricane
Wilma.
During the fourth quarter of fiscal 2006, one location was re-opened and one location was
permanently closed. For the Six Months EndedJuly 2, 2007
    
    
    July 3, 2006Company-
    
    
    
    
    
    
    
    
    
    
    Company-Owned
    
    
    Franchise
    
    
    Total
    
    
    Owned
    
    
    Franchise
    
    
    TotalRestaurants at beginning of period
    
    
    110
    (a)
    
    
    13
    
    
    
    123
    
    
    
    96
    (b)
    
    
    5
    
    
    
    101New restaurants opened
    
    
    4
    
    
    
    9
    
    
    
    13
    
    
    
    11
    
    
    
    1
    
    
    
    12Restaurants permanently closed
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    4
    
    
    
    
    
    
    
    4Restaurants at end of period
    
    
    113
    (a)
    
    
    22
    
    
    
    135
    
    
    
    103
    (b)
    
    
    6
    
    
    
    109
 
 (a)
    
    Includes six locations that are classified as discontinued operations.(b)
    
    Includes two company-owned locations that were closed in October 2005 as a result of Hurricane
Wilma.
During the fourth quarter of fiscal 2006, one location was re-opened and one location was
permanently closed.    12




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Long Lived Assets Accounting for
the Impairment or Disposal of Long-Lived Assets
 13




---



##### Table of Contents



Lease Termination Charges Accounting
for Costs Associated with Exit or Disposal Activities
 Stock-based Compensation Share-Based Payment Accounting for Stock-Based Compensation
  Expected dividend yield
    
    
    0
    %Expected stock price volatility
    
    
    68
    %Average risk-free interest rate
    
    
    3.79
    %Average expected life of options
    
    5.0 years
  14




---



##### Table of Contents



Accounting for Lease Obligations: Accounting for Operating Leases with Scheduled Rent Increases
 Landlord Allowances Issues Relating to Accounting for Leases
 Income Taxes
 Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109
    Restaurant Net Sales.
 Franchise Fees and Royalties.
 Gift Card Sales
   15




---



##### Table of Contents



Cost of Food and Beverage.
 Restaurant Labor and Related Benefits.
 Occupancy and Other Restaurant Operating Expenses.
 General and Administrative Expenses.
 Stock-based Compensation Expense.
 Depreciation and Amortization.
 Restaurant Pre-opening Expenses.
 16




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended
    
    Six Months EndedJuly 2,
    
    July 3,
    
    July 2,
    
    July 3,2007
    
    2006
    
    2007
    
    2006Revenues:Restaurant net sales
    
    
    98.9
    %
    
    
    99.6
    %
    
    
    98.8
    %
    
    
    99.5
    %Franchise fees and royalties
    
    
    1.1
    
    
    
    0.4
    
    
    
    1.2
    
    
    
    0.5Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and expenses:Cost of food and beverage (1)
    
    
    22.8
    
    
    
    22.4
    
    
    
    23.0
    
    
    
    22.8Restaurant labor and related benefits (1)
    
    
    34.1
    
    
    
    31.6
    
    
    
    34.8
    
    
    
    32.2Occupancy and other restaurant operating expenses (1)
    
    
    27.9
    
    
    
    24.0
    
    
    
    28.6
    
    
    
    24.684.8
    
    
    
    78.0
    
    
    
    86.4
    
    
    
    79.6General and administrative expenses
    
    
    15.6
    
    
    
    15.0
    
    
    
    17.1
    
    
    
    16.9Stock-based compensation expense
    
    
    1.5
    
    
    
    3.1
    
    
    
    0.9
    
    
    
    4.8Depreciation and amortization
    
    
    6.3
    
    
    
    5.4
    
    
    
    6.5
    
    
    
    5.7Restaurant pre-opening expenses
    
    
    0.9
    
    
    
    2.0
    
    
    
    0.9
    
    
    
    1.4Provision for losses on asset impairments
and disposals
    
    
    7.9
    
    
    
    
    
    
    
    4.2
    
    
    
    Closed store costs
    
    
    0.7
    
    
    
    
    
    
    
    0.4
    
    
    
    Lease termination expense
    
    
    0.5
    
    
    
    
    
    
    
    0.3
    
    
    
    Total costs and expenses
    
    
    117.4
    
    
    
    103.2
    
    
    
    115.6
    
    
    
    108.2Operating loss
    
    
    (17.4
    )
    
    
    (3.2
    )
    
    
    (15.6
    )
    
    
    (8.2
    )Other income:Interest income
    
    
    0.4
    
    
    
    1.2
    
    
    
    0.5
    
    
    
    1.2Loss from continuing operations
    
    
    (17.0
    )
    
    
    (2.0
    )
    
    
    (15.1
    )
    
    
    (7.0
    )Discontinued Operations:Operating loss from discontinued operations
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.5
    )Asset impairments of discontinued operations
    
    
    (3.3
    )
    
    
    
    
    
    
    (1.8
    )
    
    
    Loss from discontinued operations
    
    
    (3.3
    )
    
    
    (0.3
    )
    
    
    (1.8
    )
    
    
    (0.5
    )Net Loss
    
    
    (20.3
    )%
    
    
    (2.3
    )%
    
    
    (16.9
    )%
    
    
    (7.5
    )%
 
 (1)
    
    These are expressed as a percentage of restaurant net sales versus all other
items expressed as a percentage of total revenues. Restaurant Net Sales
   17




---



##### Table of Contents



Franchise Fees and Royalties
   Costs and Expenses
 Cost of food and Beverage
  Restaurant Labor and Related Benefits.
  18




---



##### Table of Contents



Occupancy and Other Restaurant Operating Expenses
  General and Administrative Costs
  Stock-based Compensation Expense. Share-Based Payment,
 Share-Based Payment, .
 Depreciation and Amortization
  19




---



##### Table of Contents



Restaurant Pre-opening Expenses
  Provision for Losses on Asset Impairments and Disposals
 Closed Store Costs
 Lease Termination Expense
 Interest Income and Expense
  Operating Loss
  20




---



##### Table of Contents



Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
 LIQUIDITY AND CAPITAL RESOURCES
       21




---



##### Table of Contents



Contractual Obligations
 Payments Due by Period (in thousands)Due 3rdthrough 4th
    
    
    Due Fiscal
    
    
    Due FiscalTotal
    
    
    Quarter of
    
    
    2008 through
    
    
    2010 through
    
    
    Due AfterDescription
    
    Obligations
    
    
    Fiscal 2007
    
    
    Fiscal 2009
    
    
    Fiscal 2011
    
    
    Fiscal 2011Long Term Debt (1)
    
    $
    125.0
    
    
    $
    25.0
    
    
    $
    50.0
    
    
    $
    50.0
    
    
    $
    Operating Leases (2) (3)
    
    
    96,991.2
    
    
    
    8,147.0
    
    
    
    31,178.4
    
    
    
    25,958.6
    
    
    
    31,707.2Purchase obligations (4)
    
    
    155.0
    
    
    
    155.0
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    97,271.2
    
    
    $
    8,327.0
    
    
    $
    31,228.4
    
    
    $
    26,008.6
    
    
    $
    31,707.2
 
 (1)
    
    Amounts shown include aggregate scheduled interest payments of $0.03 million.(2)
    
    Amounts shown are net of an aggregate $0.7 million of sub-lease rental income
due under non-cancelable subleases.(3)
    
    Amounts include approximately an aggregate $0.4 million of obligations on leases
for restaurants that have been closed as of July 2, 2007.(4)
    
    Constitute primarily contractual obligations related to new restaurant construction.  PURCHASE COMMITMENTS
    22




---



##### Table of Contents



CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
  
    
    the cost of our principal food products and supply and delivery shortages or interruptions;
    
    labor shortages or increased labor costs;
    
    changes in demographic trends and consumer tastes and preferences, including
changes resulting from concerns over nutritional or safety aspects of beef, poultry,
produce or other foods or the effects of food-borne illnesses such as mad cow
disease and avian influenza or bird flu;
    
    competition in our markets, both in our business and locating suitable restaurant sites;
    
    our operation and execution in new and existing markets;
    
    expansion into new markets, including foreign countries;
    
    our ability to attract and retain qualified franchisees;
    
    our ability to locate suitable restaurant sites in new and existing markets and
negotiate acceptable lease terms;
    
    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 existing and new restaurants;
    
    fluctuations in our quarterly results due to seasonality;
    
    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;
    
    the reliability of our customer and market studies;
    
    cost effective and timely planning, design and build-out of new restaurants;
    
    our ability to recruit, train and retain qualified corporate and restaurant personnel and management;
    
    market saturation due to new restaurant openings;
    
    inadequate protection of our intellectual property;
    
    adverse weather conditions which impact customer traffic at our restaurants; and
    
    adverse economic conditions.
 23




---



##### 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
  24




---



##### Table of Contents



Item 1A: RISK FACTORS
  
 Item 6: EXHIBITS
 Exhibits
 Exhibit Number
    
    DescriptionExhibit 31.1
    
    Certification of the Interim 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.
 25




---



##### Table of Contents



SIGNATURES
  COSI, INC.Date: August 8, 2007
    By:
    /s/ ROBERT MERRITTRobert MerrittInterim Chief Executive Officer,
President and DirectorDate: August 8, 2007
    By:
    /s/ WILLIAM KOZIELWilliam KozielChief Financial Officer (chief accounting officer)
Treasurer and Secretary 26




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit 31.1
    
    Certification of the Interim 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.
 27