##### 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 June 28, 2010
 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 o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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##### 



COSI, INC.
  
 
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets  as of June 28, 2010 and December 28, 2009
    
    
    3Consolidated Statements of Operations  Three and six month periods ended June 28, 2010 and June 29, 2009
    
    
    4Consolidated Statement of Stockholders Equity  Six month period ended June 28, 2010
    
    
    5Consolidated Statements of Cash Flows  Six month periods ended June 28, 2010 and June 29, 2009
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-12Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-27Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    28PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 5. Exhibits
    
    
    29SIGNATURES
    
    
    30EXHIBIT INDEX
    
    
    31CERTIFICATIONSExhibit 31.1Exhibit 31.2Exhibit 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 June 28, 2010 and December 28, 2009
(dollars in thousands, except share and per share data)
 June 28, 2010
    
    
    December 28, 2009(Unaudited)
    
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    12,335
    
    
    $
    4,079Accounts receivable, net
    
    
    858
    
    
    
    560Inventories
    
    
    793
    
    
    
    967Prepaid expenses and other current assets
    
    
    1,243
    
    
    
    2,136Total current assets
    
    
    15,229
    
    
    
    7,742Furniture and fixtures, equipment and leasehold improvements, net
    
    
    16,699
    
    
    
    22,100Intangibles, security deposits and other assets, net
    
    
    2,742
    
    
    
    1,728Total assets
    
    $
    34,670
    
    
    $
    31,570Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    3,112
    
    
    $
    3,079Accrued expenses
    
    
    8,012
    
    
    
    9,628Deferred franchise revenue
    
    
    61
    
    
    
    44Current portion of other long-term liabilities
    
    
    574
    
    
    
    588Total current liabilities
    
    
    11,759
    
    
    
    13,339Deferred franchise revenue
    
    
    2,238
    
    
    
    2,563Other long-term liabilities, net of current portion
    
    
    5,351
    
    
    
    6,343Total liabilities
    
    
    19,348
    
    
    
    22,245Commitments and contingenciesStockholders equity:Common stock  $.01 par value; 100,000,000 shares
authorized,
51,683,441 and 40,862,474 shares issued, respectively
    
    
    517
    
    
    
    409Additional paid-in capital
    
    
    283,144
    
    
    
    277,994Treasury stock, 239,543 shares at cost
    
    
    (1,198
    )
    
    
    (1,198
    )Accumulated deficit
    
    
    (267,141
    )
    
    
    (267,880
    )Total stockholders equity
    
    
    15,322
    
    
    
    9,325Total liabilities and stockholders equity
    
    $
    34,670
    
    
    $
    31,570
 The accompanying notes are an integral part of these consolidated financial statements.
  3




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##### Table of Contents



Cosi, Inc.
Consolidated Statements of Operations
For the Three and Six Month Periods Ended June 28, 2010 and June 29, 2009
(dollars in thousands, except share and per share data)
 Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 29,
    
    
    June 28,
    
    
    June 29,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Restaurant net sales
    
    $
    28,589
    
    
    $
    31,015
    
    
    $
    55,663
    
    
    $
    59,139Franchise fees and royalties
    
    
    1,034
    
    
    
    621
    
    
    
    1,558
    
    
    
    1,163Total revenues
    
    
    29,623
    
    
    
    31,636
    
    
    
    57,221
    
    
    
    60,302Costs and expenses:Cost of food and beverage
    
    
    6,567
    
    
    
    6,915
    
    
    
    12,895
    
    
    
    13,153Restaurant labor and related benefits
    
    
    10,631
    
    
    
    11,006
    
    
    
    21,295
    
    
    
    21,750Occupancy and other restaurant operating expenses
    
    
    8,704
    
    
    
    9,044
    
    
    
    17,748
    
    
    
    18,01125,902
    
    
    
    26,965
    
    
    
    51,938
    
    
    
    52,914General and administrative expenses
    
    
    3,630
    
    
    
    3,621
    
    
    
    6,952
    
    
    
    7,458Depreciation and amortization
    
    
    1,196
    
    
    
    1,779
    
    
    
    2,576
    
    
    
    3,743Provision for losses on asset impairments and disposals
    
    
    212
    
    
    
    238
    
    
    
    212
    
    
    
    238Lease termination expense and closed store costs
    
    
    11
    
    
    
    7
    
    
    
    12
    
    
    
    252Gain on sale of assets
    
    
    (5,120
    )
    
    
    
    
    
    
    (5,207
    )
    
    
    Total costs and expenses
    
    
    25,831
    
    
    
    32,610
    
    
    
    56,483
    
    
    
    64,605Operating income (loss)
    
    
    3,792
    
    
    
    (974
    )
    
    
    738
    
    
    
    (4,303
    )Interest income
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2Interest expense
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (3
    )Other income
    
    
    2
    
    
    
    5
    
    
    
    3
    
    
    
    9Net income (loss)
    
    $
    3,793
    
    
    $
    (969
    )
    
    $
    739
    
    
    $
    (4,295
    )Per Share Data:Earnings per share:Basic
    
    $
    0.07
    
    
    $
    (0.02
    )
    
    $
    0.01
    
    
    $
    (0.11
    )Diluted
    
    
    0.07
    
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    (0.11
    )Weighted average shares outstanding:Basic
    
    
    51,108,465
    
    
    
    40,030,460
    
    
    
    50,045,292
    
    
    
    40,321,325Diluted
    
    
    51,324,065
    
    
    
    40,030,460
    
    
    
    50,260,892
    
    
    
    40,321,325
 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 Six Months Ended June 28, 2010
(unaudited)
(dollars in thousands, except share data)
 Common StockAdditional
    
    
    Treasury StockNumber of
    
    
    
    
    
    
    Paid In
    
    
    Number of
    
    
    
    
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Shares
    
    
    Amount
    
    
    Deficit
    
    
    TotalBalance, December 28, 2009
    
    
    40,862,474
    
    
    $
    409
    
    
    $
    277,994
    
    
    
    239,543
    
    
    $
    (1,198
    )
    
    $
    (267,880
    )
    
    $
    9,325Issuance of common stock (1)
    
    
    10,451,677
    
    
    
    105
    
    
    
    4,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,895Forfeitures of restricted stock
    
    
    (21,400
    )
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    390,690
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    363Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739
    
    
    
    739Balance, June 28, 2010
    
    
    51,683,441
    
    
    $
    517
    
    
    $
    283,144
    
    
    
    239,543
    
    
    $
    (1,198
    )
    
    $
    (267,141
    )
    
    $
    15,322
 (1)
    
    The additional paid-in capital represents the proceeds net of issuance costs of approximately $273,000 from the shareholder
rights offering and related private placement to directors and officers of the Company, completed in January 2010 The accompanying notes are an integral part of these consolidated financial statements.
  5




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Cosi, Inc.
Consolidated Statements of Cash Flows
For the Six Month Periods Ended June 28, 2010 and June 29, 2009
(dollars in thousands)
 June 28, 2010
    
    
    June 29, 2009(Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net income (loss)
    
    $
    739
    
    
    $
    (4,295
    )Adjustments to reconcile net income (loss) to net cash used in operating activitiesDepreciation and amortization
    
    
    2,576
    
    
    
    3,743Gain on sale of restaurants
    
    
    (5,120
    )
    
    
    Gain on sale of assets
    
    
    (87
    )
    
    
    Non-cash portion of asset impairments and disposals
    
    
    212
    
    
    
    238Provision for bad debts
    
    
    13
    
    
    
    98Stock-based compensation expense
    
    
    363
    
    
    
    584Changes in operating assets and liabilities:Accounts receivable
    
    
    (167
    )
    
    
    156Inventories
    
    
    174
    
    
    
    49Prepaid expenses and other current assets
    
    
    893
    
    
    
    2,335Other assets
    
    
    60
    
    
    
    90Accounts payable and accrued expenses
    
    
    (1,630
    )
    
    
    (2,430
    )Deferred franchise revenue
    
    
    (308
    )
    
    
    (70
    )Lease termination accrual
    
    
    (170
    )
    
    
    (76
    )Other liabilities
    
    
    (463
    )
    
    
    (502
    )Net cash used in operating activities
    
    
    (2,915
    )
    
    
    (80
    )Cash flows from investing activities:Proceeds from sale of restaurants
    
    
    6,400
    
    
    
    Capital expenditures
    
    
    (343
    )
    
    
    (325
    )Proceeds from sale of assets
    
    
    171
    
    
    
    Return of security deposits
    
    
    48
    
    
    
    Net cash provided by (used in) investing activities
    
    
    6,276
    
    
    
    (325
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    4,895
    
    
    
    Net cash provided by financing activities
    
    
    4,895
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    8,256
    
    
    
    (405
    )Cash and cash equivalents, beginning of period
    
    
    4,079
    
    
    
    5,589Cash and cash equivalents, end of period
    
    $
    12,335
    
    
    $
    5,184Supplemental disclosure of cash flow information:Cash paid for:Corporate franchise and income taxes
    
    $
    178
    
    
    $
    139Supplemental disclosure of non-cash investing activities:In connection with the sale of the thirteen Company-owned restaurants in D.C. to a franchisee
(see Note 9), a $1.35 million three-year promissory note was issued
 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  Stock-Based Compensation Expense
  For the Three Months Ended
    
    
    For the Six Months Ended(in thousands)
    
    
    (in thousands)June 28, 2010
    
    
    June 29, 2009
    
    
    June 28, 2010
    
    
    June 29, 2009Stock option compensation expense
    
    $
    
    
    
    $
    14
    
    
    $
    1
    
    
    $
    28Restricted stock compensation expense, net of forfeitures
    
    
    125
    
    
    
    277
    
    
    
    362
    
    
    
    556Total non-cash, stock-based
compensation expense, net of
forfeitures
    
    $
    125
    
    
    $
    291
    
    
    $
    363
    
    
    $
    584
   7




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
     Note 3  Earnings Per Share
 For the Three Months Ended
    
    
    For the Six Months Ended(in thousands)
    
    
    (in thousands)June 28, 2010
    
    
    June 29, 2009
    
    
    June 28, 2010
    
    
    June 29, 2009Net income (loss)
    
    $
    3,793
    
    
    $
    (969
    )
    
    $
    739
    
    
    $
    (4,295
    )Shares:Weighted average number of shares outstanding
    
    
    51,108,465
    
    
    
    40,030,460
    
    
    
    50,045,292
    
    
    
    40,321,325Dilutive non-vested stock awards
    
    
    215,600
    
    
    
    
    
    
    
    215,600
    
    
    
    Diluted weighted average number of shares
outstanding
    
    
    51,324,065
    
    
    
    40,030,460
    
    
    
    50,260,892
    
    
    
    40,321,325Basic earnings per share
    
    $
    0.07
    
    
    $
    (0.02
    )
    
    $
    0.01
    
    
    $
    (0.11
    )Diluted earnings per share
    
    $
    0.07
    
    
    $
    (0.02
    )
    
    $
    0.01
    
    
    $
    (0.11
    )
  8




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
   Note 4  Asset Impairments
    Note 5  Lease Termination Costs
    9




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 Note 6  Contingencies
   Note 7  Income Taxes
        10




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
continued
 Note 8  New Accounting Pronouncements
   Note 9  Sale of Restaurants
      11




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COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
  Note 10  Rights Offering and Private Placement of Common Stock
  Note 11  Subsequent Event
 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard;
Transfer of Listing
   12




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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 June 28, 2010 and June 29, 2009 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 2009 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 EndedJune 28, 2010
    
    
    June 29, 2009Company-
    
    
    
    
    
    
    
    
    
    
    Company-Owned
    
    
    Franchise
    
    
    Total
    
    
    Owned
    
    
    Franchise
    
    
    TotalRestaurants at beginning of
period
    
    
    99
    
    
    
    44
    
    
    
    143
    
    
    
    97
    
    
    
    49
    
    
    
    146Company-owned sold to
franchisee
    
    
    13
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    New restaurants opened
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    2Restaurants permanently closed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Restaurants at end of period
    
    
    86
    
    
    
    58
    
    
    
    144
    
    
    
    98
    
    
    
    46
    
    
    
    144
 For the Six Months EndedJune 28, 2010
    
    
    June 29, 2009Company-
    
    
    
    
    
    
    
    
    
    
    Company-Owned
    
    
    Franchise
    
    
    Total
    
    
    Owned
    
    
    Franchise
    
    
    TotalRestaurants at beginning of
period
    
    
    99
    
    
    
    46
    
    
    
    145
    
    
    
    101
    
    
    
    50
    
    
    
    151Company-owned sold to
franchisee
    
    
    13
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    New restaurants opened
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    4Restaurants permanently closed
    
    
    
    
    
    
    2
    
    
    
    2
    
    
    
    4
    
    
    
    7
    
    
    
    11Restaurants at end of period
    
    
    86
    
    
    
    58
    
    
    
    144
    
    
    
    98
    
    
    
    46
    
    
    
    144
  ®
  13




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®
 ®
   Rights Offering and Private Placement of Common Stock
  Sale of Restaurants
    14




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Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard;
Transfer
of Listing
  CRITICAL ACCOUNTING POLICIES
   Long Lived Assets
  15




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Lease Termination Charges
 Accounting for Lease Obligations
 Landlord Allowances
 Stock-Based Compensation Expense
   Income Taxes
   Restaurant Net Sales.
 Franchise Fees and Royalties.
  16




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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.
 Restaurant Pre-opening Expenses.
  17




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RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 29,
    
    
    June 28,
    
    
    June 29,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues:Restaurant net sales
    
    
    96.5
    %
    
    
    98.0
    %
    
    
    97.3
    %
    
    
    98.1
    %Franchise fees and royalties
    
    
    3.5
    
    
    
    2.0
    
    
    
    2.7
    
    
    
    1.9Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost and expenses:Cost of food and beverage (1)
    
    
    23.0
    
    
    
    22.3
    
    
    
    23.2
    
    
    
    22.2Restaurant labor and related benefits (1)
    
    
    37.2
    
    
    
    35.5
    
    
    
    38.3
    
    
    
    36.8Occupancy and other restaurant operating expenses (1)
    
    
    30.4
    
    
    
    29.2
    
    
    
    31.9
    
    
    
    30.590.6
    
    
    
    87.0
    
    
    
    93.4
    
    
    
    89.5General and administrative expenses
    
    
    12.3
    
    
    
    11.4
    
    
    
    12.1
    
    
    
    12.4Depreciation and amortization
    
    
    4.0
    
    
    
    5.6
    
    
    
    4.5
    
    
    
    6.2Provision for losses on asset impairments and disposals
    
    
    0.7
    
    
    
    0.8
    
    
    
    0.4
    
    
    
    0.4Lease termination expense and closed store costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4Gain on sale of assets
    
    
    (17.3
    )
    
    
    
    
    
    
    (9.1
    )
    
    
    Total costs and expenses
    
    
    87.2
    
    
    
    103.1
    
    
    
    98.7
    
    
    
    107.1Operating income (loss)
    
    
    12.8
    
    
    
    (3.1
    )
    
    
    1.3
    
    
    
    (7.1
    )Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    12.8
    %
    
    
    (3.1
    )%
    
    
    1.3
    %
    
    
    (7.1
    )%
 (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)
    
    
    revenuesThree months ended June 28, 2010
    
    $
    28,589
    
    
    
    96.5
    %Three months ended June 29, 2009
    
    $
    31,015
    
    
    
    98.0
    %
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    55,663
    
    
    
    97.3
    %Six months ended June 29, 2009
    
    $
    59,139
    
    
    
    98.1
    %
 Restaurant net sales.
  Franchise Fees and Royalties
 Franchise fees and royaltiesas a % of total(in thousands)
    
    
    revenuesThree months ended June 28, 2010
    
    $
    1,034
    
    
    
    3.5
    %Three months ended June 29, 2009
    
    $
    621
    
    
    
    2.0
    %
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    1,558
    
    
    
    2.7
    %Six months ended June 29, 2009
    
    $
    1,163
    
    
    
    1.9
    %
 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 salesThree months ended June 28,
2010
    
    $
    6,567
    
    
    
    23.0
    %Three months ended June 29,
2009
    
    $
    6,915
    
    
    
    22.3
    %
 as a % of restaurant(in thousands)
    
    
    net salesSix months ended June 28, 2010
    
    $
    12,895
    
    
    
    23.2
    %Six months ended June 29, 2009
    
    $
    13,153
    
    
    
    22.2
    %
 Cost of food and beverage
 Restaurant labor and related benefitsas a % of restaurant(in thousands)
    
    
    net salesThree months ended June 28, 2010
    
    $
    10,631
    
    
    
    37.2
    %Three months ended June 29, 2009
    
    $
    11,006
    
    
    
    35.5
    %as a % of restaurant(in thousands)
    
    
    net salesSix months ended June 28, 2010
    
    $
    21,295
    
    
    
    38.3
    %Six months ended June 29, 2009
    
    $
    21,750
    
    
    
    36.8
    %
 Restaurant labor and related benefits
   20




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##### Table of Contents



Occupancy and other restaurantoperating expensesas a % of restaurant(in thousands)
    
    
    net salesThree months ended June 28, 2010
    
    $
    8,704
    
    
    
    30.4
    %Three months ended June 29, 2009
    
    $
    9,044
    
    
    
    29.2
    %
 as a % of restaurant(in thousands)
    
    
    net salesSix months ended June 28, 2010
    
    $
    17,748
    
    
    
    31.9
    %Six months ended June 29, 2009
    
    $
    18,011
    
    
    
    30.5
    %
 Occupancy and other restaurant operating expenses
 General and administrative expensesas a % of total(in thousands)
    
    
    revenuesThree months ended June 28, 2010
    
    $
    3,630
    
    
    
    12.3
    %Three months ended June 29, 2009
    
    $
    3,621
    
    
    
    11.4
    %
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    6,952
    
    
    
    12.1
    %Six months ended June 29, 2009
    
    $
    7,458
    
    
    
    12.4
    %
 General and administrative expenses
 Depreciation and amortizationas a % of total(in thousands)
    
    
    revenuesThree months ended June 28,
2010
    
    $
    1,196
    
    
    
    4.0
    %Three months ended June 29,
2009
    
    $
    1,779
    
    
    
    5.6
    %
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    2,576
    
    
    
    4.5
    %Six months ended June 29, 2009
    
    $
    3,743
    
    
    
    6.2
    %
  21




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Depreciation and amortization
 Provision for losses on assetimpairments and disposalsas a % of total(in thousands)
    
    
    revenuesThree months ended June 28, 2010
    
    $
    212
    
    
    
    0.7
    %Three months ended June 29, 2009
    
    $
    238
    
    
    
    0.8
    %
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    212
    
    
    
    0.4
    %Six months ended June 29, 2009
    
    $
    238
    
    
    
    0.4
    %
 Provision for losses on asset impairments and disposals
 Closed store costsas a % of total(in thousands)
    
    
    revenuesThree months ended June 28, 2010
    
    $
    2
    
    
    
    0.0
    %Three months ended June 29, 2009
    
    $
    2
    
    
    
    0.0
    %
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    2
    
    
    
    0.0
    %Six months ended June 29, 2009
    
    $
    45
    
    
    
    0.1
    %
 Closed store costs
 Lease termination expenseas a % of total(in thousands)
    
    
    revenuesThree months ended June 28, 2010
    
    $
    9
    
    
    
    0.0
    %Three months ended June 29, 2009
    
    $
    5
    
    
    
    0.0
    %
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    10
    
    
    
    0.0
    %Six months ended June 29, 2009
    
    $
    207
    
    
    
    0.3
    %
  22




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##### Table of Contents



Lease termination expense
 Gain on sale of assetsas a % of total(in thousands)
    
    
    revenuesThree months ended June 28, 2010
    
    $
    5,120
    
    
    
    17.3
    %Three months ended June 29, 2009
    
    $
    
    
    
    
    
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    5,207
    
    
    
    9.1
    %Six months ended June 29, 2009
    
    $
    
    
    
    
    
 Gain on sale of assets
 Net income (loss)as a % of total(in thousands)
    
    
    revenuesThree months ended June 28, 2010
    
    $
    3,793
    
    
    
    12.8
    %Three months ended June 29, 2009
    
    $
    (969
    )
    
    
    (3.1
    %)
 as a % of total(in thousands)
    
    
    revenuesSix months ended June 28, 2010
    
    $
    739
    
    
    
    1.3
    %Six months ended June 29, 2009
    
    $
    (4,295
    )
    
    
    (7.1
    %)
 Net income (loss).
 LIQUIDITY AND CAPITAL RESOURCES
   23




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24




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##### Table of Contents



Payments Due by Period(in thousands)Due
    
    
    Due
    
    
    DueTotal
    
    
    Due
    
    
    Fiscal 2011
    
    
    Fiscal 2013
    
    
    AfterDescription
    
    Obligations
    
    
    Fiscal 2010
    
    
    to Fiscal 2012
    
    
    to Fiscal 2014
    
    
    Fiscal 2014Long-term debt (1)
    
    $
    50
    
    
    $
    25
    
    
    $
    25
    
    
    $
    
    
    
    $
    Operating leases (2)
    
    
    62,731
    
    
    
    7,076
    
    
    
    26,168
    
    
    
    17,816
    
    
    
    11,671Other long-term liabilities (3)
    
    
    781
    
    
    
    227
    
    
    
    554
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    63,562
    
    
    $
    7,328
    
    
    $
    26,747
    
    
    $
    17,816
    
    
    $
    11,671
 (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 $0.05 million of sub-lease rental income due under non-cancelable subleases and include
aggregate accrued contractual lease increases of approximately $4.0 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.        25




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##### Table of Contents



PURCHASE COMMITMENTS
    Self-Insurance
  CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
   26




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##### Table of Contents




    
    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 E.coli, mad cow disease
and avian influenza or bird flu;
    
    competition in our markets, both in our existing 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 and our franchisees ability
to open restaurants on a timely basis;
    
    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 new and 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;
    
    our ability to obtain additional capital and financing;
    
    adverse weather conditions, which impact customer traffic at our restaurants; and
    
    adverse economic conditions.
   27




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
       
 Item 4. Controls and Procedures
    28




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##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1: LEGAL PROCEEDINGS
   
 Item 1A: RISK FACTORS
  
 Item 5: EXHIBITS
 Exhibits
 Exhibit Number
    
    DescriptionExhibit 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.
  29




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##### Table of Contents



SIGNATURES
  COSI, INC.Date: August 12, 2010
    By:
    /s/ JAMES HYATTJames HyattPresident,
Chief Executive Officer, and
DirectorDate: August 12, 2010
    By:
    /s/ WILLIAM KOZIELWilliam KozielChief Financial Officer (chief accounting officer)
Treasurer and Secretary  30




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##### Table of Contents



EXHIBIT INDEX
 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.
  31