##### 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 1, 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




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##### 



COSI, INC.
 
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets  as of October 1, 2007 and January 1, 2007 (Note 1)
    
    
    3Consolidated Statements of Operations  Three and nine month periods ended
October 1, 2007 and October 2, 2006
    
    
    4Consolidated Statement of Stockholders Equity  Nine month period ended
October 1, 2007
    
    
    5Consolidated Statements of Cash Flows  Nine month periods ended
October 1, 2007 and October 2, 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
    
    
    25Item 1A. Risk Factors
    
    
    25Item 6. Exhibits
    
    
    25SIGNATURES
    
    
    26EXHIBIT INDEX
    
    
    27Amended and Restated By-lawsGeneral Separation and Release AgreementGeneral Separation and Release Agreement302 Certification of Chief Executive Officer302 Certification of Chief Financial OfficerSection 906 Certification
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Cosi, Inc.
 
 Consolidated Balance Sheets
 As of October 1, 2007 and January 1, 2007
 (dollars in thousands, except share and per share data)
 October 1, 2007
    
    
    January 1, 2007(Unaudited)
    
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    9,703.9
    
    
    $
    898.2Investments
    
    
    
    
    
    
    18,961.5Accounts receivable, net
    
    
    764.2
    
    
    
    1,950.9Inventories
    
    
    1,019.0
    
    
    
    941.5Prepaid expenses and other current assets
    
    
    2,674.7
    
    
    
    4,032.8Assets of discontinued operations
    
    
    
    
    
    
    2,092.2Total current assets
    
    
    14,161.8
    
    
    
    28,877.1Furniture and fixtures, equipment and leasehold improvements, net
    
    
    45,890.4
    
    
    
    44,000.9Intangibles, security deposits and other assets, net
    
    
    2,353.8
    
    
    
    2,879.1Total assets
    
    $
    62,406.0
    
    
    $
    75,757.1Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,733.9
    
    
    $
    4,898.1Accrued expenses
    
    
    8,821.1
    
    
    
    8,375.0Deferred franchise revenue
    
    
    684.5
    
    
    
    1,172.5Current liabilities of discontinued operations
    
    
    12.6
    
    
    
    177.5Current portion of long-term debt
    
    
    17.0
    
    
    
    17.0Current portion of other long-term liabilities
    
    
    647.8
    
    
    
    517.9Total current liabilities
    
    
    12,916.9
    
    
    
    15,158.0Deferred franchise revenue
    
    
    2,993.0
    
    
    
    2,345.0Long-term debt, net of current portion
    
    
    82.8
    
    
    
    82.8Other long-term liabilities, net of current portion
    
    
    7,439.0
    
    
    
    7,540.0Total liabilities
    
    
    23,431.7
    
    
    
    25,125.8Commitments and contingenciesStockholders equity:Common stock  $.01 par value; 100,000,000 shares authorized,
40,970,096 and 39,910,114 shares issued, respectively
    
    
    409.7
    
    
    
    399.1Additional paid-in capital
    
    
    274,140.7
    
    
    
    271,200.3Treasury stock, 239,543 shares at cost
    
    
    (1,197.7
    )
    
    
    (1,197.7
    )Accumulated deficit
    
    
    (234,378.4
    )
    
    
    (219,770.4
    )Total stockholders equity
    
    
    38,974.3
    
    
    
    50,631.3Total liabilities and stockholders equity
    
    $
    62,406.0
    
    
    $
    75,757.1
 The accompanying notes are an integral part of these consolidated financial statements.
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Cosi, Inc.
 
 Consolidated Statements of Operations
 For the Three and Nine Month Periods Ended October 1, 2007 and October 2, 2006
 (dollars in thousands, except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2007
    
    
    2006
    
    
    2007
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Restaurant net sales
    
    $
    34,645.0
    
    
    $
    32,235.0
    
    
    $
    101,136.3
    
    
    $
    93,029.0Franchise fees and royalties
    
    
    611.2
    
    
    
    194.9
    
    
    
    1,448.4
    
    
    
    513.1Total revenues
    
    
    35,256.2
    
    
    
    32,429.9
    
    
    
    102,584.7
    
    
    
    93,542.1Costs and expenses:Cost of food and beverage
    
    
    8,221.0
    
    
    
    7,321.5
    
    
    
    23,508.9
    
    
    
    21,212.5Restaurant labor and related benefits
    
    
    12,111.6
    
    
    
    10,792.1
    
    
    
    35,222.4
    
    
    
    30,393.4Occupancy and other restaurant operating expenses
    
    
    10,119.6
    
    
    
    8,617.7
    
    
    
    29,165.8
    
    
    
    23,601.330,452.2
    
    
    
    26,731.3
    
    
    
    87,897.1
    
    
    
    75,207.2General and administrative expenses
    
    
    5,356.9
    
    
    
    5,658.1
    
    
    
    16,889.0
    
    
    
    16,000.0Stock-based compensation expense
    
    
    493.3
    
    
    
    894.1
    
    
    
    1,082.4
    
    
    
    3,825.5Depreciation and amortization
    
    
    2,298.9
    
    
    
    1,878.7
    
    
    
    6,699.2
    
    
    
    5,352.9Restaurant pre-opening expenses
    
    
    55.5
    
    
    
    398.3
    
    
    
    637.0
    
    
    
    1,272.3Provision for losses on asset impairments
and disposals
    
    
    365.5
    
    
    
    7.4
    
    
    
    3,192.3
    
    
    
    7.4Closed store (benefit) costs
    
    
    (62.0
    )
    
    
    
    
    
    
    199.6
    
    
    
    Lease termination expense
    
    
    83.7
    
    
    
    1.5
    
    
    
    276.8
    
    
    
    19.2Total costs and expenses
    
    
    39,044.0
    
    
    
    35,569.4
    
    
    
    116,873.4
    
    
    
    101,684.5Operating loss
    
    
    (3,787.8
    )
    
    
    (3,139.5
    )
    
    
    (14,288.7
    )
    
    
    (8,142.4
    )Interest income
    
    
    104.9
    
    
    
    333.1
    
    
    
    449.1
    
    
    
    1,079.5Interest expense
    
    
    (2.0
    )
    
    
    (2.3
    )
    
    
    (6.0
    )
    
    
    (7.0
    )Other income
    
    
    715.6
    
    
    
    57.0
    
    
    
    716.1
    
    
    
    57.8Loss from continuing operations
    
    
    (2,969.3
    )
    
    
    (2,751.7
    )
    
    
    (13,129.5
    )
    
    
    (7,012.1
    )Discontinued operations:Operating loss from discontinued operations
    
    
    (33.1
    )
    
    
    (103.7
    )
    
    
    (285.2
    )
    
    
    (520.5
    )Asset impairments of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1,193.3
    )
    
    
    Loss from discontinued operations
    
    
    (33.1
    )
    
    
    (103.7
    )
    
    
    (1,478.5
    )
    
    
    (520.5
    )Net loss
    
    $
    (3,002.4
    )
    
    $
    (2,855.4
    )
    
    $
    (14,608.0
    )
    
    $
    (7,532.6
    )Per Share Data:Loss per share, basic and dilutedContinuing operations
    
    $
    (0.08
    )
    
    $
    (0.07
    )
    
    $
    (0.34
    )
    
    $
    (0.19
    )Discontinued operations
    
    $
    (0.00
    )
    
    $
    (0.00
    )
    
    $
    (0.03
    )
    
    $
    (0.01
    )Net loss
    
    $
    (0.08
    )
    
    $
    (0.07
    )
    
    $
    (0.37
    )
    
    $
    (0.20
    )Weighted average shares outstanding:
    
    
    39,613,931
    
    
    
    38,355,027
    
    
    
    39,179,557
    
    
    
    38,124,113
 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 Nine Months Ended October 1, 2007
 (unaudited)
 (dollars in thousands, except share data)
 Common StockAdditional
    
    
    Treasury StockNumber 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
    
    
    907,166
    
    
    
    9.0
    
    
    
    1,847.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,856.0Issuance of restricted stock
    
    
    152,117
    
    
    
    1.5
    
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,095.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,095.0Exercise of warrants
    
    
    699
    
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,608.0
    )
    
    
    (14,608.0
    )Balance, October 1, 2007
    
    
    40,970,096
    
    
    $
    409.7
    
    
    $
    274,140.7
    
    
    
    239,543
    
    
    $
    (1,197.7
    )
    
    $
    (234,378.4
    )
    
    $
    38,974.3
 The accompanying notes are an integral part of these consolidated financial statements.
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Cosi, Inc.
 
 Consolidated Statements of Cash Flows
 For the Nine Month Periods Ended October 1, 2007 and October 2, 2006
 (dollars in thousands)
 October 1, 2007
    
    
    October 2, 2006(Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net loss
    
    $
    (14,608.0
    )
    
    $
    (7,532.6
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activitiesDepreciation and amortization
    
    
    6,944.3
    
    
    
    5,670.8Non-cash portion of asset impairments and disposals
    
    
    3,215.6
    
    
    
    17.6Non-cash portion of store closing costs
    
    
    1,392.9
    
    
    
    Recovery of bad debts
    
    
    1.0
    
    
    
    6.3Stock-based compensation expense
    
    
    1,095.0
    
    
    
    3,861.3Changes in operating assets and liabilities:Accounts receivable
    
    
    1,185.7
    
    
    
    (949.0
    )Inventories
    
    
    (32.1
    )
    
    
    (74.0
    )Prepaid expenses and other current assets
    
    
    1,358.0
    
    
    
    1,113.8Other assets
    
    
    91.3
    
    
    
    233.2Accounts payable and accrued expenses
    
    
    (541.7
    )
    
    
    (2,537.0
    )Deferred franchise revenue
    
    
    160.0
    
    
    
    2,360.0Other liabilities
    
    
    (620.8
    )
    
    
    2,593.4Net cash (used in) provided by operating activities
    
    
    (358.8
    )
    
    
    4,763.8Cash flows from investing activities:Capital expenditures
    
    
    (12,104.0
    )
    
    
    (15,739.6
    )Purchases of investments
    
    
    (20,776.8
    )
    
    
    (172,505.7
    )Redemptions of investments
    
    
    39,738.3
    
    
    
    185,744.4Net refunds of security deposits
    
    
    410.7
    
    
    
    21.6Net cash provided by (used in) investing activities
    
    
    7,268.2
    
    
    
    (2,479.3
    )Cash flows from financing activities:Net proceeds from exercise of stock options
    
    
    1,856.1
    
    
    
    1,274.6Exercise of warrants
    
    
    
    
    
    
    442.9Principal payments on long-term debt
    
    
    
    
    
    
    (3.0
    )Net cash provided by financing activities
    
    
    1,856.1
    
    
    
    1,714.5Net increase in cash and cash equivalents
    
    
    8,765.5
    
    
    
    3,999.0Cash 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
    
    
    9,703.9
    
    
    
    5,933.7Cash and cash equivalents of discontinued operations, end of period
    
    
    
    
    
    
    17.6Total cash and cash equivalents, end of period
    
    $
    9,703.9
    
    
    $
    5,951.3Supplemental disclosure of cash flow information:Cash paid for:Corporate franchise and income taxes
    
    $
    57.7
    
    
    $
    29.3
 The accompanying notes are an integral part of these consolidated financial statements.
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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 Nine Months Ended(in thousands)
    
    
    (in thousands)October 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2007
    
    
    2006
    
    
    2007
    
    
    2006Stock option compensation expense
    
    $
    87.7
    
    
    $
    273.6
    
    
    $
    314.4
    
    
    $
    826.8Restricted stock compensation expense
    
    
    409.1
    
    
    
    631.4
    
    
    
    780.6
    
    
    
    3,034.5Total non-cash stock compensation expense
    
    
    496.8
    
    
    
    905.0
    
    
    
    1,095.0
    
    
    
    3,861.3Non-cash compensation included in restaurant
labor and related benefits
    
    
    (3.5
    )
    
    
    (10.9
    )
    
    
    (12.6
    )
    
    
    (35.8
    )Separately captioned stock compensation expense
    
    $
    493.3
    
    
    $
    894.1
    
    
    $
    1,082.4
    
    
    $
    3,825.5
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COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
       8




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COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 NOTE 3  Warrants
    NOTE 4  Earnings Per Share
  NOTE 5  Lease Termination Costs
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COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 NOTE 6  Discontinued Operations
  Accounting
for the Impairment or Disposal of Long-Lived Assets
 Three Months Ended
    
    
    Nine Months EndedOctober 1, 2007
    
    
    October 2, 2006
    
    
    October 1, 2007
    
    
    October 2, 2006(dollars in thousands)RevenuesRestaurant net sales
    
    $
    358.3
    
    
    $
    521.1
    
    
    $
    1,655.3
    
    
    $
    1,563.4Costs and expensesCost of food and beverage
    
    
    106.3
    
    
    
    149.0
    
    
    
    486.0
    
    
    
    526.3Restaurant labor and related benefits
    
    
    187.2
    
    
    
    246.5
    
    
    
    805.1
    
    
    
    842.2Occupancy and other restaurant operating expenses
    
    
    97.9
    
    
    
    109.6
    
    
    
    404.3
    
    
    
    351.7391.4
    
    
    
    505.1
    
    
    
    1,695.4
    
    
    
    1,720.2Depreciation and amortization
    
    
    
    
    
    
    118.4
    
    
    
    245.1
    
    
    
    317.9Restaurant pre-opening expenses
    
    
    
    
    
    
    1.3
    
    
    
    
    
    
    
    45.8Total costs and expenses
    
    
    391.4
    
    
    
    624.8
    
    
    
    1,940.5
    
    
    
    2,083.9Operating loss from discontinued operations
    
    $
    (33.1
    )
    
    $
    (103.7
    )
    
    $
    (285.2
    )
    
    $
    (520.5
    )
  October 1, 2007
    
    
    January 1, 2007(dollars in thousands)Current assets:Cash and cash equivalents
    
    $
    
    
    
    $
    40.2Inventories
    
    
    
    
    
    
    45.4Total current assets of discontinued operations
    
    
    
    
    
    
    85.6Furniture and fixtures, equipment and leasehold improvements, net
    
    
    
    
    
    
    2,006.6Total assets of discontinued operations
    
    $
    
    
    
    $
    2,092.2Current liabilities:Accrued Expenses
    
    
    12.6
    
    
    
    177.5Total current liabilities of discontinued operations
    
    $
    12.6
    
    
    $
    177.5
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COSI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 NOTE 7  Contingencies
  NOTE 8  Income Taxes
  Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109
    11




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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 October 1, 2007 and October 2, 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 EndedOctober 1, 2007
    
    
    October 2, 2006Company-
    
    
    
    
    
    
    
    
    
    
    Company-Owned
    
    
    Franchise
    
    
    Total
    
    
    Owned
    
    
    Franchise
    
    
    TotalRestaurants
at beginning of period
    
    
    113
    (a)
    
    
    22
    
    
    
    135
    
    
    
    103
    (b)
    
    
    6
    
    
    
    109New restaurants opened
    
    
    1
    
    
    
    6
    
    
    
    7
    
    
    
    6
    
    
    
    2
    
    
    
    8Restaurants permanently closed
    
    
    7
    
    
    
    1
    
    
    
    8
    
    
    
    1
    
    
    
    
    
    
    
    1Restaurants at end of period
    
    
    107
    
    
    
    27
    
    
    
    134
    
    
    
    108
    (b)
    
    
    8
    
    
    
    116
 
 (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 Nine Months EndedOctober 1, 2007
    
    
    October 2, 2006Company-
    
    
    
    
    
    
    
    
    
    
    Company-Owned
    
    
    Franchise
    
    
    Total
    
    
    Owned
    
    
    Franchise
    
    
    TotalRestaurants
at beginning of period
    
    
    110
    (a)
    
    
    13
    
    
    
    123
    
    
    
    96
    (b)
    
    
    5
    
    
    
    101New restaurants opened
    
    
    5
    
    
    
    15
    
    
    
    20
    
    
    
    17
    
    
    
    3
    
    
    
    20Restaurants permanently closed
    
    
    8
    
    
    
    1
    
    
    
    9
    
    
    
    5
    
    
    
    
    
    
    
    5Restaurants at end of period
    
    
    107
    
    
    
    27
    
    
    
    134
    
    
    
    108
    (b)
    
    
    8
    
    
    
    116
 
 (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




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




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Lease Termination Charges Accounting for Costs Associated with Exit or
Disposal Activities
  Stock-based Compensation Share-Based Payment Accounting for Stock-Based Compensation
  14




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Expected dividend yield
    
    
    0
    %Expected stock price volatility
    
    
    68
    %Average risk-free interest rate
    
    
    3.79
    %Average expected life of options
    
    5.0 years
  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.
 15




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##### Table of Contents



Gift Card Sales
    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




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RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Restaurant net sales
    
    
    98.3
    %
    
    
    99.4
    %
    
    
    98.6
    %
    
    
    99.5
    %Franchise fees and royalties
    
    
    1.7
    
    
    
    0.6
    
    
    
    1.4
    
    
    
    0.5Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and expenses:Cost of food and beverage (1)
    
    
    23.7
    
    
    
    22.7
    
    
    
    23.3
    
    
    
    22.8Restaurant labor and related benefits (1)
    
    
    35.0
    
    
    
    33.5
    
    
    
    34.8
    
    
    
    32.7Occupancy and other restaurant operating expenses (1)
    
    
    29.2
    
    
    
    26.7
    
    
    
    28.8
    
    
    
    25.487.9
    
    
    
    82.9
    
    
    
    86.9
    
    
    
    80.9General and administative expenses
    
    
    15.2
    
    
    
    17.4
    
    
    
    16.5
    
    
    
    17.1Stock-based compensation expense
    
    
    1.4
    
    
    
    2.8
    
    
    
    1.1
    
    
    
    4.1Depreciation and amortization
    
    
    6.5
    
    
    
    5.8
    
    
    
    6.5
    
    
    
    5.7Restaurant pre-opening expenses
    
    
    0.2
    
    
    
    1.2
    
    
    
    0.6
    
    
    
    1.4Provision for losses on asset impairments
and disposals
    
    
    1.0
    
    
    
    
    
    
    
    3.1
    
    
    
    Closed store costs
    
    
    (0.2
    )
    
    
    
    
    
    
    0.2
    
    
    
    Lease termination expense
    
    
    0.2
    
    
    
    
    
    
    
    0.3
    
    
    
    Total costs
and expenses
    
    
    110.7
    
    
    
    109.7
    
    
    
    113.9
    
    
    
    108.7Operating loss
    
    
    (10.7
    )
    
    
    (9.7
    )
    
    
    (13.9
    )
    
    
    (8.7
    )Other income:Interest income
    
    
    0.4
    
    
    
    1.0
    
    
    
    0.4
    
    
    
    1.1Other income
    
    
    1.9
    
    
    
    0.2
    
    
    
    0.7
    
    
    
    0.1Loss from continuing operations
    
    
    (8.4
    )
    
    
    (8.5
    )
    
    
    (12.8
    )
    
    
    (7.5
    )Discontinued Operations:Operating loss from discontinued operations
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.6
    )Asset impairments of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1.2
    )
    
    
    Loss from discontinued operations
    
    
    (0.1
    )
    
    
    (0.3
    )
    
    
    (1.4
    )
    
    
    (0.6
    )Net Loss
    
    
    (8.5
    )%
    
    
    (8.8
    )%
    
    
    (14.2
    )%
    
    
    (8.1
    )%
 
 (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




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




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




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




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




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Contractual Obligations
 Payments Due by Period (in thousands)Due 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)
    
    
    90,287.2
    
    
    
    3,975.3
    
    
    
    30,568.4
    
    
    
    25,304.6
    
    
    
    30,438.9Purchase obligations (4)
    
    
    181.7
    
    
    
    181.7
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    90,593.9
    
    
    $
    4,182.0
    
    
    $
    30,618.4
    
    
    $
    25,354.6
    
    
    $
    30,438.9
 
 (1)
    
    Amounts shown include aggregate scheduled interest payments of $0.03 million.(2)
    
    Amounts shown are net of an aggregate $0.6 million of sub-lease rental income
due under non-cancelable subleases.(3)
    
    Amounts include approximately an aggregate $0.3 million of obligations on leases
for restaurants that have been closed as of October 1, 2007.(4)
    
    Constitute primarily contractual obligations related to new restaurant construction.  22




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##### Table of Contents



PURCHASE COMMITMENTS
    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;
 23




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##### Table of Contents




    
    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.
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
   24




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##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1: LEGAL PROCEEDINGS
  
 Item 1A: RISK FACTORS
  
 Item 6: EXHIBITS
 Exhibits
 Exhibit Number
    
    DescriptionExhibit 3.1
    
    Amended and Restated By-laws of the Company, dated August 7, 2007 (Filed as Exhibit 3.1 to the Companys Current Report on Form 8-K, dated August 13, 2007).Exhibit 10.1
    
    General Separation and Release Agreement by and between the Company and Patrick Donellan, dated August 8, 2007.Exhibit 10.2
    
    Employment Agreement, dated as of September 15, 2007 by and between the Company and James F. Hyatt (Filed as Exhibit 10.1 to the Companys Current Report on Form 8-K, dated September 18, 2007).Exhibit 10.3
    
    General Separation and Release Agreement by and between the Company and Gilbert Melott, dated October 10, 2007.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.
 25




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##### Table of Contents



SIGNATURES
  COSI, INC.
 Date: November 8, 2007
    By:
    /s/ JAMES HYATTJames HyattPresident,

Chief Executive Officer, and DirectorDate: November 8, 2007
    By:
    /s/ WILLIAM KOZIELWilliam KozielChief Financial Officer (chief
accounting officer)
Treasurer and Secretary 26




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##### Table of Contents



EXHIBIT INDEX
 Exhibit 3.1
    
    Amended and Restated By-laws of the Company, dated August 7, 2007 (Filed as Exhibit 3.1 to the Companys Current Report on Form 8-K, dated August 13, 2007).Exhibit 10.1
    
    General Separation and Release Agreement by and between the Company and Patrick Donnellan, dated August 8, 2007.Exhibit 10.2
    
    Employment Agreement, dated as of September 15, 2007 by and between the Company and James F. Hyatt (Filed as Exhibit 10.1 to the Companys Current Report on Form 8-K, dated September 18, 2007).Exhibit 10.3
    
    General Separation and Release Agreement by and between the Company and Gilbert Melott, dated October 10, 2007.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.
 27