##### 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 September 28, 2009
 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 o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



COSI, INC.
 
 Page NumberPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Consolidated Balance Sheets  as of September 28, 2009 and December 29, 2008
    
    
    3Consolidated Statements of Operations  Three and nine month periods ended
September 28, 2009 and September 29, 2008
    
    
    4Consolidated Statement of Stockholders Equity  Nine month period ended
September 28, 2009
    
    
    5Consolidated Statements of Cash Flows  Nine month periods ended
September 28, 2009 and September 29, 2008
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-13Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14-27Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    27PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    28Item 6.
    
    Exhibits
    
    
    28SIGNATURES
    
    
    29EXHIBIT INDEX
    
    
    30CERTIFICATIONS
    
    
    31-33EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 Cosi, Inc.
Consolidated Balance Sheets
As of September 28, 2009 and December 29, 2008
(dollars in thousands, except share and per share data)
 September 28,
    
    
    December 29,2009
    
    
    2008(Unaudited)
    
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,589
    
    
    $
    5,589Accounts receivable, net
    
    
    708
    
    
    
    916Inventories
    
    
    955
    
    
    
    998Prepaid expenses and other current assets
    
    
    859
    
    
    
    3,650Total current assets
    
    
    7,111
    
    
    
    11,153Furniture and fixtures, equipment and leasehold improvements, net
    
    
    24,681
    
    
    
    29,779Intangibles, security deposits and other assets, net
    
    
    1,687
    
    
    
    1,849Total assets
    
    $
    33,479
    
    
    $
    42,781Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,253
    
    
    $
    3,378Accrued expenses
    
    
    8,387
    
    
    
    9,835Deferred franchise revenue
    
    
    18
    
    
    
    149Current liabilities of discontinued operations
    
    
    
    
    
    
    4Current portion of other long-term liabilities
    
    
    468
    
    
    
    668Total current liabilities
    
    
    11,126
    
    
    
    14,034Deferred franchise revenue
    
    
    2,606
    
    
    
    2,545Other long-term liabilities, net of current portion
    
    
    6,540
    
    
    
    7,176Total liabilities
    
    
    20,272
    
    
    
    23,755Commitments and contingenciesStockholders equity:Common stock  $.01 par value; 100,000,000 shares
authorized, 40,866,474 and 40,663,164 shares issued, respectively
    
    
    409
    
    
    
    407Additional paid-in capital
    
    
    277,429
    
    
    
    276,593Treasury stock, 239,543 shares at cost
    
    
    (1,198
    )
    
    
    (1,198
    )Accumulated deficit
    
    
    (263,433
    )
    
    
    (256,776
    )Total stockholders equity
    
    
    13,207
    
    
    
    19,026Total liabilities and stockholders equity
    
    $
    33,479
    
    
    $
    42,781
 The accompanying notes are an integral part of these consolidated financial statements.
 3




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Cosi, Inc.
Consolidated Statements of Operations
For the Three and Nine Month Periods Ended September 28, 2009 and September 29, 2008
(dollars in thousands, except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 28,
    
    
    September 29,
    
    
    September 28,
    
    
    September 29,2009
    
    
    2008
    
    
    2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Restaurant net sales
    
    $
    29,528
    
    
    $
    33,975
    
    
    $
    88,667
    
    
    $
    102,641Franchise fees and royalties
    
    
    505
    
    
    
    955
    
    
    
    1,668
    
    
    
    2,203Total revenues
    
    
    30,033
    
    
    
    34,930
    
    
    
    90,335
    
    
    
    104,844Costs and expenses:Cost of food and beverage
    
    
    6,858
    
    
    
    7,611
    
    
    
    20,011
    
    
    
    23,408Restaurant labor and related benefits
    
    
    11,086
    
    
    
    11,540
    
    
    
    32,592
    
    
    
    34,557Occupancy and other restaurant operating expenses
    
    
    9,312
    
    
    
    10,485
    
    
    
    27,324
    
    
    
    30,16927,256
    
    
    
    29,636
    
    
    
    79,927
    
    
    
    88,134General and administrative expenses
    
    
    3,484
    
    
    
    5,429
    
    
    
    11,186
    
    
    
    16,537Depreciation and amortization
    
    
    1,701
    
    
    
    2,152
    
    
    
    5,444
    
    
    
    6,319Restaurant pre-opening expenses
    
    
    13
    
    
    
    
    
    
    
    13
    
    
    
    100Provision for losses on asset impairments
and disposals
    
    
    
    
    
    
    800
    
    
    
    238
    
    
    
    1,067Closed store costs
    
    
    
    
    
    
    6
    
    
    
    45
    
    
    
    53Lease termination expense
    
    
    
    
    
    
    55
    
    
    
    207
    
    
    
    298Total costs and expenses
    
    
    32,454
    
    
    
    38,078
    
    
    
    97,060
    
    
    
    112,508Operating loss
    
    
    (2,421
    )
    
    
    (3,148
    )
    
    
    (6,725
    )
    
    
    (7,664
    )Interest income
    
    
    
    
    
    
    18
    
    
    
    2
    
    
    
    90Interest expense
    
    
    (1
    )
    
    
    (2
    )
    
    
    (4
    )
    
    
    (5
    )Other income
    
    
    60
    
    
    
    37
    
    
    
    70
    
    
    
    39Loss from continuing operations
    
    
    (2,362
    )
    
    
    (3,095
    )
    
    
    (6,657
    )
    
    
    (7,540
    )Discontinued operations:Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )Net loss
    
    $
    (2,362
    )
    
    $
    (3,095
    )
    
    $
    (6,657
    )
    
    $
    (7,852
    )Per Share Data:Loss per share, basic and dilutedContinuing operations
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (0.16
    )
    
    $
    (0.19
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )Net loss
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (0.16
    )
    
    $
    (0.20
    )Weighted average shares outstanding:
    
    
    40,521,231
    
    
    
    40,103,956
    
    
    
    40,387,960
    
    
    
    40,021,556
 The accompanying notes are an integral part of these consolidated financial statements.
 4




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Cosi, Inc.  Consolidated Statement of Stockholders Equity
For the Nine Months Ended September 28, 2009
(unaudited)
(dollars in thousands, except share data)
 Common Stock
    
    
    Treasury StockAdditionalNumber of
    
    
    
    
    
    
    Paid In
    
    
    Number of
    
    
    
    
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Shares
    
    
    Amount
    
    
    Deficit
    
    
    TotalBalance, December 29, 2008
    
    
    40,663,164
    
    
    $
    407
    
    
    $
    276,593
    
    
    
    239,543
    
    
    $
    (1,198
    )
    
    $
    (256,776
    )
    
    $
    19,026Net issuances of
restricted stock
    
    
    203,310
    
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    838
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    838Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,657
    )
    
    
    (6,657
    )Balance, September 28, 2009
    
    
    40,866,474
    
    
    $
    409
    
    
    $
    277,429
    
    
    
    239,543
    
    
    $
    (1,198
    )
    
    $
    (263,433
    )
    
    $
    13,207
 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 September 28, 2009 and September 29, 2008
(dollars in thousands)
 September 28,
    
    
    September 29,2009
    
    
    2008(Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net loss
    
    $
    (6,657
    )
    
    $
    (7,852
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activitiesDepreciation and amortization
    
    
    5,444
    
    
    
    6,324Non-cash portion of asset impairments and disposals
    
    
    238
    
    
    
    1,155Non-cash portion of store closing costs
    
    
    
    
    
    
    24Provision for bad debts
    
    
    78
    
    
    
    2Stock-based compensation expense
    
    
    838
    
    
    
    1,294Changes in operating assets and liabilities:Accounts receivable
    
    
    130
    
    
    
    (206
    )Inventories
    
    
    43
    
    
    
    65Prepaid expenses and other current assets
    
    
    2,793
    
    
    
    1,227Other assets
    
    
    162
    
    
    
    64Accounts payable and accrued expenses
    
    
    (2,651
    )
    
    
    1,227Deferred franchise revenue
    
    
    (70
    )
    
    
    (613
    )Other long-term liabilities
    
    
    (795
    )
    
    
    (545
    )Net cash (used in) provided by operating activities
    
    
    (447
    )
    
    
    2,166Cash flows from investing activities:Capital expenditures
    
    
    (553
    )
    
    
    (2,389
    )Proceeds from sale of assets
    
    
    
    
    
    
    30Net refunds of security deposits
    
    
    
    
    
    
    10Net cash used in investing activities
    
    
    (553
    )
    
    
    (2,349
    )Cash flows from financing activities:Net proceeds from exercise of stock options
    
    
    
    
    
    
    53Net cash provided by financing activities
    
    
    
    
    
    
    53Net decrease in cash and cash equivalents
    
    
    (1,000
    )
    
    
    (130
    )Cash and cash equivalents, beginning of period
    
    
    5,589
    
    
    
    6,309Cash and cash equivalents, end of period
    
    $
    4,589
    
    
    $
    6,179Supplemental disclosure of cash flow information:Cash paid for:Corporate franchise and income taxes
    
    $
    168
    
    
    $
    90
 The accompanying notes are an integral part of these consolidated financial statements.
 6




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
      Note 2  Summary of Significant Accounting Policies
 Generally Accepted
Accounting Principles
 Fair Value Measurements and
Disclosures
 Subsequent Events
 7




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 Business Combinations
 Consolidation
 Derivatives and Hedging
  Note 3  Stock-Based Compensation Expense
  For the Three Months Ended
    
    
    For the Nine Months Ended(in thousands)
    
    
    (in thousands)September 28,
    
    
    September 29,
    
    
    September 28,
    
    
    September 29,2009
    
    
    2008
    
    
    2009
    
    
    2008Stock option compensation expense
    
    $
    10
    
    
    $
    33
    
    
    $
    38
    
    
    $
    135Restricted stock compensation expense, net of forfeitures
    
    
    244
    
    
    
    267
    
    
    
    800
    
    
    
    1,159Total non-cash, stock-based compensation expense,
net of forfeitures
    
    $
    254
    
    
    $
    300
    
    
    $
    838
    
    
    $
    1,294
  8




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
     NOTE 4  Warrants
  NOTE 5  Earnings Per Share
   9




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 NOTE 6 Asset impairments
   NOTE 7  Lease Termination Costs
   NOTE 8  Discontinued Operations
    10




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
  Three Months Ended
    
    
    Nine Months EndedSeptember 28,
    
    
    September 29,
    
    
    September 28,
    
    
    September 29,2009
    
    
    2008
    
    
    2009
    
    
    2008(dollars in thousands)
    
    
    (dollars in thousands)RevenuesRestaurant net sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    373Costs and expensesCost of food and beverage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107Restaurant labor and related benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188Occupancy and other restaurant operating expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    476Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Closed store costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116Asset impairments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88Total costs and expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    685Loss from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (312
    )
  NOTE 9  Contingencies
  NOTE 10  Income Taxes
   11




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 Income Taxes
   NOTE 11  Litigation
  NOTE 12  New Accounting Pronouncements
 Fair Value Measurements and
Disclosures
  Note 13 Subsequent Events
   12




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




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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 September 28, 2009 and September 29, 2008 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 2008 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 EndedSeptember 28, 2009
    
    September 29, 2008Company-
    
    
    
    
    
    
    
    
    
    Company-Owned
    
    Franchise
    
    Total
    
    Owned
    
    Franchise
    
    TotalRestaurants at beginning of period
    
    
    98
    
    
    
    44
    
    
    
    142
    
    
    
    102
    
    
    
    43
    
    
    
    145New restaurants opened
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Restaurants permanently closed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Restaurants at end of period
    
    
    99
    
    
    
    45
    
    
    
    144
    
    
    
    101
    
    
    
    43
    
    
    
    144For the Nine Months EndedSeptember 28, 2009
    
    September 29, 2008Company-
    
    
    
    
    
    
    
    
    
    Company-Owned
    
    Franchise
    
    Total
    
    Owned
    
    Franchise
    
    TotalRestaurants at beginning of period
    
    
    101
    
    
    
    50
    
    
    
    151
    
    
    
    107
    (a)
    
    
    34
    
    
    
    141New restaurants opened
    
    
    2
    
    
    
    4
    
    
    
    6
    
    
    
    1
    
    
    
    10
    
    
    
    11Restaurants permanently closed
    
    
    4
    
    
    
    9
    
    
    
    13
    
    
    
    7
    
    
    
    1
    
    
    
    8Restaurants at end of period
    
    
    99
    
    
    
    45
    
    
    
    144
    
    
    
    101
    
    
    
    43
    
    
    
    144
 
 (a)
    
    Includes three locations that are classified as discontinued operations.  14




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Recent Developments
    15




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CRITICAL ACCOUNTING POLICIES
   Long Lived Assets Property, Plant, & Equipment
 Lease Termination Charges Exit or Disposal Cost Obligations
 Accounting for Lease Obligations: Leases
 Landlord Allowances Leases
 Income Taxes
 Income Taxes
 16




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Restaurant Net Sales.
 Franchise Fees and Royalties.
 Gift Card Sales
    Cost of Food and Beverage.
 Restaurant Labor and Related Benefits.
 Occupancy and Other Restaurant Operating Expenses.
 General and Administrative Expenses.
 Depreciation and Amortization.
 17




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Restaurant Pre-opening Expenses.
 RESULTS OF OPERATIONS
  Three Months Ended
    
    Nine Months EndedSeptember 28,
    
    September 29,
    
    September 28,
    
    September 29,2009
    
    2008
    
    2009
    
    2008Revenues:Restaurant net sales
    
    
    98.3
    %
    
    
    97.3
    %
    
    
    98.2
    %
    
    
    97.9
    %Franchise fees and royalties
    
    
    1.7
    
    
    
    2.7
    
    
    
    1.8
    
    
    
    2.1Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost and expenses:Cost of food and beverage (1)
    
    
    23.2
    
    
    
    22.4
    
    
    
    22.6
    
    
    
    22.8Restaurant labor and related benefits (1)
    
    
    37.5
    
    
    
    34.0
    
    
    
    36.8
    
    
    
    33.7Occupancy and other restaurant operating expenses (1)
    
    
    31.5
    
    
    
    30.8
    
    
    
    30.8
    
    
    
    29.492.2
    
    
    
    87.2
    
    
    
    90.2
    
    
    
    85.9General and administrative expenses
    
    
    11.6
    
    
    
    15.5
    
    
    
    12.4
    
    
    
    15.8Depreciation and amortization
    
    
    5.7
    
    
    
    6.2
    
    
    
    6.0
    
    
    
    6.0Restaurant pre-opening expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Provision for losses on asset impairments
and disposals
    
    
    
    
    
    
    2.3
    
    
    
    0.3
    
    
    
    1.0Closed store costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Lease termination expense
    
    
    
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3Total costs and expenses
    
    
    108.1
    
    
    
    109.0
    
    
    
    107.4
    
    
    
    107.3Operating loss
    
    
    (8.1
    )
    
    
    (9.0
    )
    
    
    (7.4
    )
    
    
    (7.3
    )Interest income
    
    
    
    
    
    
    0.0
    
    
    
    
    
    
    
    0.1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    0.2
    
    
    
    0.1
    
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (7.9
    )
    
    
    (8.9
    )
    
    
    (7.4
    )
    
    
    (7.2
    )Discontinued operations:Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Net loss
    
    
    (7.9
    )
    
    
    (8.9
    )
    
    
    (7.4
    )
    
    
    (7.5
    )
 
 (1)
    
    These are expressed as a percentage of restaurant net sales versus all
other items expressed as a percentage of total revenues. 18




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Restaurant Net Sales
 Restaurant net salesas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    29,528
    
    
    
    98.3
    %Quarter ended September 29, 2008
    
    $
    33,975
    
    
    
    97.3
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    88,667
    
    
    
    98.2
    %Nine months ended September 29,
2008
    
    $
    102,641
    
    
    
    97.9
    %
 Restaurant net sales.
  Franchise Fees and Royalties
 Franchise fees and royaltiesas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    505
    
    
    
    1.7
    %Quarter ended September 29, 2008
    
    $
    955
    
    
    
    2.7
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    1,668
    
    
    
    1.8
    %Nine months ended September 29,
2008
    
    $
    2,203
    
    
    
    2.1
    %
 Franchise fees and royalties.
  19




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##### Table of Contents



Costs and Expenses
 Cost of food and beverageas a % of restaurant(in thousands)
    
    net salesQuarter ended September 28, 2009
    
    $
    6,858
    
    
    
    23.2
    %Quarter ended September 29, 2008
    
    $
    7,611
    
    
    
    22.4
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    20,011
    
    
    
    22.6
    %Nine months ended September 29,
2008
    
    $
    23,408
    
    
    
    22.8
    %
 Cost of food and beverage
  Restaurant labor and related benefitsas a % of restaurant(in thousands)
    
    net salesQuarter ended September 28, 2009
    
    $
    11,086
    
    
    
    37.5
    %Quarter ended September 29, 2008
    
    $
    11,540
    
    
    
    34.0
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    32,592
    
    
    
    36.8
    %Nine months ended September 29,
2008
    
    $
    34,557
    
    
    
    33.7
    %
 Restaurant labor and related benefits.
 20




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##### Table of Contents



Occupancy and other restaurantoperating expensesas a % of restaurant(in thousands)
    
    net salesQuarter ended September 28, 2009
    
    $
    9,312
    
    
    
    31.5
    %Quarter ended September 29, 2008
    
    $
    10,485
    
    
    
    30.8
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    27,324
    
    
    
    30.8
    %Nine months ended September 29,
2008
    
    $
    30,169
    
    
    
    29.4
    %
 Occupancy and other restaurant operating expenses
 General and administrative expensesas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    3,484
    
    
    
    11.6
    %Quarter ended September 29, 2008
    
    $
    5,429
    
    
    
    15.5
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    11,186
    
    
    
    12.4
    %Nine months ended September 29,
2008
    
    $
    16,537
    
    
    
    15.8
    %
 General and administrative expenses
  Depreciation and amortizationas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    1,701
    
    
    
    5.7
    %Quarter ended September 29, 2008
    
    $
    2,152
    
    
    
    6.2
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    5,444
    
    
    
    6.0
    %Nine months ended September 29,
2008
    
    $
    6,319
    
    
    
    6.0
    %
 21




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##### Table of Contents



Depreciation and amortization
 Restaurant pre-opening expensesas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    13
    
    
    
    0.0
    %Quarter ended September 29, 2008
    
    $
    
    
    
    
    0.0
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    13
    
    
    
    0.0
    %Nine months ended September 29,
2008
    
    $
    100
    
    
    
    0.1
    %
 Restaurant pre-opening expenses
 Provision for losses on asset impairmentsand disposalsas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    
    
    
    
    0.0
    %Quarter ended September 29, 2008
    
    $
    800
    
    
    
    2.3
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    238
    
    
    
    0.3
    %Nine months ended September 29,
2008
    
    $
    1,067
    
    
    
    1.0
    %
 Provision for losses on asset impairments and disposals
  Closed store costsas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    
    
    
    
    0.0
    %Quarter ended September 29, 2008
    
    $
    6
    
    
    
    0.0
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    45
    
    
    
    0.0
    %Nine months ended September 29,
2008
    
    $
    53
    
    
    
    0.1
    %
 22




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##### Table of Contents



Closed store costs
  Lease termination expenseas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    
    
    
    
    0.0
    %Quarter ended September 29, 2008
    
    $
    55
    
    
    
    0.2
    %
 as a % of total(in thousands)
    
    revenuesNine months ended September 28, 2009
    
    $
    207
    
    
    
    0.2
    %Nine months ended September 29, 2008
    
    $
    298
    
    
    
    0.3
    %
 Lease termination expense
 Loss from continuing operationsas a % of total(in thousands)
    
    revenuesQuarter ended September 28, 2009
    
    $
    (2,362
    )
    
    
    (7.9
    %)Quarter ended September 29, 2008
    
    $
    (3,095
    )
    
    
    (8.9
    %)
 as a % of total(in thousands)
    
    revenuesNine months ended September 28,
2009
    
    $
    (6,657
    )
    
    
    (7.4
    %)Nine months ended September 29,
2008
    
    $
    (7,540
    )
    
    
    (7.2
    %)
 Loss from continuing operations
 Discontinued operations
 23




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
        24




---



##### Table of Contents



Payments Due by Period(in thousands)Due
    
    
    Due
    
    
    DueTotal
    
    
    Due
    
    
    Fiscal 2010
    
    
    Fiscal 2012
    
    
    AfterDescription
    
    Obligations
    
    
    Fiscal 2009
    
    
    to Fiscal 2011
    
    
    to Fiscal 2013
    
    
    Fiscal 2013Long-term debt (1)
    
    $
    75
    
    
    $
    25
    
    
    $
    50
    
    
    $
    
    
    
    $
    Operating leases (2)
    
    
    73,612
    
    
    
    3,773
    
    
    
    29,833
    
    
    
    21,805
    
    
    
    18,201Other long-term liabilities (3)
    
    
    1,111
    
    
    
    83
    
    
    
    945
    
    
    
    83Total contractual cash
obligations
    
    $
    74,798
    
    
    $
    3,881
    
    
    $
    30,828
    
    
    $
    21,888
    
    
    $
    18,201
 
 (1)
    
    Amounts shown include aggregate scheduled interest payments of $0.01 million. The pricipal amount of the debt, net of interest
obligations, is included in the other long-term liabilities, in the attached consolidated balance sheets. This obligation is related to a
trademark infringement settlement.(2)
    
    Amounts shown are net of an aggregate $0.1 million of sub-lease rental income due under non-cancelable subleases and include
aggregate accrued contractual lease increases of approximately $4.5 million, which are included in other long-term liabilities
in the attached consolidated balance sheets.(3)
    
    These obligations are related to contractual obligations for lease termination agreements and for an obligation related
to a legal settlement. These obligations are non-interest bearing and are included in other long-term liabilities
in the attached consolidated balance sheets.  PURCHASE COMMITMENTS
    25




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##### 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;
    
    public health issues such as the H1N1 influenza A virus, commonly referred to as
the swine flu that cause people to stay home from work or away from public places;
    
    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;
 26




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##### Table of Contents




    
    inadequate protection of our intellectual property;
    
    the availability and terms of financing and capital and the general volatility of
the securities markets,
    
    adverse weather conditions which impact customer traffic at our restaurants; and
    
    adverse economic conditions that cause individuals or businesses to decrease their
discretionary spending.
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   Item 4. Controls and Procedures
   
 Part II. OTHER INFORMATION
 
 Item 1: LEGAL PROCEEDINGS
  27




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##### Table of Contents



Item 1A: RISK FACTORS
  
 Item 6: EXHIBITS
 Exhibits
 Exhibit Number
    
    DescriptionExhibit 10.1
    
    Form of Purchase Agreement, dated as of September 28, 2009, for Jim
Hyatt, Bill Koziel, Vicki Baue, Paul Bower, Becky Iliff, Maggie Martensen, Bob
Merritt, Creed Ford, Mark Demilio and Mike ODonnell (Incorporated by reference
to Exhibit 10.1 to the Companys Registration Statement on Form S-3 (Commission
File No. 333-162233)).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.
 28




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##### Table of Contents



SIGNATURES
  COSI, INC.Date: November 09, 2009
    By:
    /s/ JAMES HYATTJames HyattPresident,
Chief Executive Officer, and
DirectorDate: November 09, 2009
    By:
    /s/ WILLIAM KOZIELWilliam KozielChief Financial Officer (chief
accounting officer)
Treasurer and Secretary 29




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##### Table of Contents



EXHIBIT INDEX
 Exhibit 10.1
    
    Form of Purchase Agreement, dated as of September 28, 2009, for Jim
Hyatt, Bill Koziel, Vicki Baue, Paul Bower, Becky Iliff, Maggie Martensen, Bob
Merritt, Creed Ford, Mark Demilio and Mike ODonnell (Incorporated by reference
to Exhibit 10.1 to the Companys Registration Statement on Form S-3 (Commission
File No. 333-162233)).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.
 30