##### 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 3, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the transition period from  to
 Commission File No. 000-50052
 COSI, INC.
  Delaware
    
    06-1393745(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1751 Lake Cook Road
Deerfield, Illinois 60015
 (847) 597-8800
 þ o
 þ o
 o þ




---



COSI, INC.
 
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets  as of October 3, 2005 and January 3, 2005
    
    
    3Consolidated Statements of Operations  Three and nine month periods ended October 3, 2005 and September 27, 2004
    
    
    4Consolidated Statement of Stockholders Equity  Nine month period ended October 3, 2005
    
    
    5Consolidated Statements of Cash Flows  Nine month periods ended October 3, 2005 and September 27, 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7-13Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-24Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 2. Exhibits and Reports on Form 8-K
    
    
    25SIGNATURES
    
    
    26EXHIBIT INDEX
    
    
    27CERTIFICATIONS
    
    
    33-35General Separation and Release AgreementCertificationCertificationCertification
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Cosi, Inc.
 
 Consolidated Balance Sheets
As of October 3, 2005 and January 3, 2005
(dollars in thousands, except per share data)
 October 3, 2005
    
    
    January 3, 2005(Unaudited)
    
    
    (Note 1)AssetsCurrent assets:Cash and cash equivalents
    
    $
    5,318.0
    
    
    $
    1,089.7Investments
    
    
    34,868.6
    
    
    
    9,961.6Accounts receivable, net of allowances of $131.6 and $152.4, respectively
    
    
    588.2
    
    
    
    613.2Inventories
    
    
    863.1
    
    
    
    890.5Prepaid expenses and other current assets
    
    
    2,128.2
    
    
    
    2,315.1Total current assets
    
    
    43,766.1
    
    
    
    14,870.1Property, equipment and leasehold improvements, net
    
    
    33,478.1
    
    
    
    34,074.5Intangibles, security deposits and other assets, net
    
    
    2,543.7
    
    
    
    2,193.7Total assets
    
    $
    79,787.9
    
    
    $
    51,138.3Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    2,196.5
    
    
    $
    3,973.0Accrued expenses
    
    
    7,550.7
    
    
    
    9,677.5Deferred franchise revenue
    
    
    290.0
    
    
    
    Current portion of other liabilities
    
    
    371.9
    
    
    
    363.0Current portion of long-term debt
    
    
    22.1
    
    
    
    74.9Total current liabilities
    
    
    10,431.2
    
    
    
    14,088.4Other long-term liabilities, net of current portion
    
    
    7,447.7
    
    
    
    7,614.2Long-term debt, net of current portion
    
    
    115.5
    
    
    
    283.4Total liabilities
    
    
    17,994.4
    
    
    
    21,986.0Commitments and contingenciesStockholders equity:Common stock  $.01 par value; 100,000,000 shares authorized,
38,169,582 and 30,819,716 shares issued and outstanding, respectively
    
    
    381.7
    
    
    
    308.2Additional paid-in capital
    
    
    266,819.4
    
    
    
    225,519.7Deferred stock compensation
    
    
    (2,804.9
    )
    
    
    (900.0
    )Treasury stock, 239,543 shares at cost
    
    
    (1,197.7
    )
    
    
    Notes receivable from stockholders
    
    
    
    
    
    
    (1,458.8
    )Accumulated deficit
    
    
    (201,405.0
    )
    
    
    (194,316.8
    )Total stockholders equity
    
    
    61,793.5
    
    
    
    29,152.3Total liabilities and stockholders equity
    
    $
    79,787.9
    
    
    $
    51,138.3
 The accompanying notes are an integral part of these consolidated financial statements.
 3




---



##### Table of Contents



Cosi, Inc.
 
 Consolidated Statements of Operations
For the Three and Nine Month Periods Ended October 3, 2005 and September 27, 2004
(dollars in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedOctober 3,
    
    
    September 27,
    
    
    October 3,
    
    
    September 27,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)
    
    
    (Restated)
    
    
    (Unaudited)
    
    
    (Restated)Revenues:Restaurant net sales
    
    $
    30,778.4
    
    
    $
    28,170.0
    
    
    $
    88,550.5
    
    
    $
    82,095.8Franchise fees and royalties
    
    
    25.0
    
    
    
    
    
    
    
    77.8
    
    
    
    Total revenues
    
    
    30,803.4
    
    
    
    28,170.0
    
    
    
    88,628.3
    
    
    
    82,095.8Cost of sales:Cost of goods sold
    
    
    7,254.2
    
    
    
    7,016.6
    
    
    
    21,275.3
    
    
    
    20,695.0Restaurant operating expenses
    
    
    17,648.6
    
    
    
    16,228.3
    
    
    
    50,693.0
    
    
    
    49,509.9Total cost of sales
    
    
    24,902.8
    
    
    
    23,244.9
    
    
    
    71,968.3
    
    
    
    70,204.9General and administrative expenses
    
    
    5,480.9
    
    
    
    5,845.6
    
    
    
    15,614.7
    
    
    
    14,156.9Stock compensation expense
    
    
    1,124.5
    
    
    
    (689.3
    )
    
    
    2,429.5
    
    
    
    2,505.4Depreciation and amortization
    
    
    1,868.1
    
    
    
    1,696.8
    
    
    
    5,483.6
    
    
    
    5,184.4Restaurant pre-opening expenses
    
    
    300.6
    
    
    
    125.5
    
    
    
    439.0
    
    
    
    185.1Provision for losses on asset impairments
and disposals
    
    
    
    
    
    
    
    
    
    
    49.7
    
    
    
    474.4Lease termination (benefit) expense
    
    
    (69.1
    )
    
    
    357.3
    
    
    
    (67.8
    )
    
    
    (374.5
    )Operating loss
    
    
    (2,804.4
    )
    
    
    (2,410.8
    )
    
    
    (7,288.7
    )
    
    
    (10,240.8
    )Interest income
    
    
    342.0
    
    
    
    58.4
    
    
    
    426.6
    
    
    
    85.2Interest expense
    
    
    (7.6
    )
    
    
    (2.8
    )
    
    
    (31.4
    )
    
    
    (38.0
    )Reserve for notes receivable from
stockholders
    
    
    
    
    
    
    (1,472.0
    )
    
    
    (261.1
    )
    
    
    (1,472.0
    )Other income (expense)
    
    
    43.6
    
    
    
    11.9
    
    
    
    66.4
    
    
    
    (125.7
    )Net loss
    
    $
    (2,426.4
    )
    
    $
    (3,815.3
    )
    
    $
    (7,088.2
    )
    
    $
    (11,791.3
    )Per Share Data:Net loss per share, basic and diluted
    
    $
    (0.06
    )
    
    $
    (0.12
    )
    
    $
    (0.21
    )
    
    $
    (0.41
    )Weighted average shares outstanding:
    
    
    37,570,756
    
    
    
    30,609,402
    
    
    
    33,616,991
    
    
    
    28,954,759
 The accompanying notes are an integral part of these consolidated financial statements.
 4




---



##### Table of Contents



Cosi, Inc.
 
 Consolidated Statement of Stockholders Equity
For the Nine Months Ended October 3, 2005
(unaudited)
(dollars in thousands, except share data)
 Common Stock
    
    
    
    
    
    Treasury StockNotesAdditional
    
    
    
    
    
    Number
    
    
    
    
    
    ReceivableNumber of
    
    
    
    
    
    Paid In
    
    Deferred
    
    of
    
    
    
    
    
    from
    
    AccumulatedShares
    
    Amount
    
    Capital
    
    Compensation
    
    Shares
    
    Amount
    
    Stockholders
    
    Deficit
    
    TotalBalance,January 3, 2005
    
    
    30,819,716
    
    
    $
    308.2
    
    
    $
    225,519.7
    
    
    $
    (900.0
    )
    
    
    
    
    
    
    
    
    
    $
    (1,458.8
    )
    
    $
    (194,316.8
    )
    
    $
    29,152.3Issuance of
common stock
    
    
    5,837,563
    
    
    
    58.4
    
    
    
    34,253.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,312.3Issuance of
restricted common stock
    
    
    637,500
    
    
    
    6.4
    
    
    
    3,363.0
    
    
    
    (2,613.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    756.4Stock compensation
    
    
    25,610
    
    
    
    0.3
    
    
    
    1,306.8
    
    
    
    708.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,015.2Exercise of options
    
    
    790,504
    
    
    
    7.9
    
    
    
    2,376.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,384.4Exercise of warrants
    
    
    58,689
    
    
    
    0.5
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reserve for
notes receivable from
stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261.1
    
    
    
    
    
    
    
    261.1Return of shares for
notes receivable
from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    239,543
    
    
    
    (1,197.7
    )
    
    
    1,197.7
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,088.2
    )
    
    
    (7,088.2
    )Balance, October 3, 2005
    
    
    38,169,582
    
    
    $
    381.7
    
    
    $
    266,819.4
    
    
    $
    (2,804.9
    )
    
    
    239,543
    
    
    $
    (1,197.7
    )
    
    $
    0.0
    
    
    $
    (201,405.0
    )
    
    $
    61,793.5
 The accompanying notes are an integral part of these consolidated financial statements.
 5




---



##### Table of Contents



Cosi, Inc.
 
 Consolidated Statements of Cash Flows
For the Nine Month Periods Ended October 3, 2005 and September 27, 2004
(dollars in thousands)
 October 3, 2005
    
    
    September 27, 2004(Unaudited)
    
    
    (Restated)Cash flows from operating activities:Net loss
    
    $
    (7,088.2
    )
    
    $
    (11,791.3
    )Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation and amortization
    
    
    5,483.6
    
    
    
    5,184.4Non-cash portion of asset impairments and disposals
    
    
    1.4
    
    
    
    380.5Recovery for bad debts
    
    
    (20.8
    )
    
    
    (58.7
    )Stock compensation expense
    
    
    2,771.6
    
    
    
    2,768.0Reserve on notes receivable from stockholders
    
    
    261.1
    
    
    
    1,472.0Changes in operating assets and liabilities:Accounts receivable
    
    
    45.8
    
    
    
    (223.7
    )Inventories
    
    
    27.4
    
    
    
    35.2Other assets
    
    
    (299.4
    )
    
    
    62.1Prepaid expenses and other current assets
    
    
    186.9
    
    
    
    815.4Accounts payable
    
    
    (1,776.5
    )
    
    
    (2,929.1
    )Accrued expenses
    
    
    (1,464.9
    )
    
    
    (49.6
    )Other liabilities
    
    
    (615.6
    )
    
    
    (911.8
    )Lease termination accrual
    
    
    86.0
    
    
    
    (1,044.6
    )Net cash used in operating activities
    
    
    (2,401.6
    )
    
    
    (6,291.2
    )Cash flows used in investing activities:Capital expenditures
    
    
    (4,888.8
    )
    
    
    (2,740.9
    )Purchases of investments net of redemptions
    
    
    (24,907.0
    )
    
    
    (9,938.2
    )Net payment of security deposits
    
    
    (50.6
    )
    
    
    (340.9
    )Net cash used in investing activities
    
    
    (29,846.3
    )
    
    
    (13,020.0
    )Cash flows provided by financing activities:Net proceeds from issuance of common stock
    
    
    36,696.7
    
    
    
    20,009.0Principal payments on long-term debt and capital lease obligations
    
    
    (220.6
    )
    
    
    (45.4
    )Net cash provided by financing activities
    
    
    36,476.1
    
    
    
    19,963.6Net increase in cash and cash equivalents
    
    
    4,228.1
    
    
    
    652.4Cash and cash equivalents, beginning of period
    
    
    1,089.7
    
    
    
    7,957.0Cash and cash equivalents, end of period
    
    $
    5,317.8
    
    
    $
    8,609.4Supplemental disclosures of cash flow information:Cash paid for:Interest
    
    $
    14.0
    
    
    $
    48.0Corporate franchise and income taxes
    
    $
    130.7
    
    
    $
    145.1
 The accompanying notes are an integral part of the consolidated financial statements.
 6




---



##### Table of Contents



COSI, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
      Note 2  Financial Statement Restatement
   7




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
  As PreviouslyReported (1)
    
    
    Adjustments
    
    
    As RestatedThree months ended September 27, 2004:Restaurant expenses
    
    $
    16,419.1
    
    
    $
    (190.8
    )
    
    $
    16,228.3Depreciation and amortization
    
    
    1,653.5
    
    
    
    43.3
    
    
    
    1,696.8Operating loss
    
    
    (2,558.3
    )
    
    
    147.5
    
    
    
    (2,410.8
    )Net loss
    
    
    (3,962.8
    )
    
    
    147.5
    
    
    
    (3,815.3
    )Net loss per share, basic and diluted
    
    $
    (0.13
    )
    
    $
    0.01
    
    
    $
    (0.12
    )Nine months ended September 27, 2004:Restaurant expenses
    
    $
    49,941.8
    
    
    $
    (431.9
    )
    
    $
    49,509.9Depreciation and amortization
    
    
    5,050.5
    
    
    
    133.9
    
    
    
    5,184.4Operating loss
    
    
    (10,538.8
    )
    
    
    298.0
    
    
    
    (10,240.8
    )Net loss
    
    
    (12,089.3
    )
    
    
    298.0
    
    
    
    (11,791.3
    )Net loss per share, basic and diluted
    
    $
    (0.42
    )
    
    $
    0.01
    
    
    $
    (0.41
    )
 
 (1)
    
    as previously reported after certain reclassifications made to conform to current year presentation Note 3  Investments
  Accounting for Certain Investments in Debt and Equity Securities,
 8




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 Note 4  Stock-Based Compensation
 Accounting for Stock-Based Compensation
 Three Month Periods Ended
    
    
    Nine Month Periods EndedOctober 3,
    
    
    September 27,
    
    
    October 3,
    
    
    September 27,2005
    
    
    2004
    
    
    2005
    
    
    2004(Unaudited)
    
    
    (Restated)
    
    
    (Unaudited)
    
    
    (Restated)Net loss as reported
    
    $
    (2,426.4
    )
    
    $
    (3,815.3
    )
    
    $
    (7,088.2
    )
    
    $
    (11,791.3
    )Add: stock-based compensation expense included
in reported net loss
    
    
    1,040.7
    
    
    
    (979.3
    )
    
    
    1,182.1
    
    
    
    2,009.6Deduct: Total stock-based employee compensation
expense determined under the fair value based
method for all awards
    
    
    (448.8
    )
    
    
    (671.7
    )
    
    
    (1,468.0
    )
    
    
    (1,925.0
    )Pro forma net loss
    
    $
    (1,834.5
    )
    
    $
    (5,466.3
    )
    
    $
    (7,374.1
    )
    
    $
    (11,706.7
    )Net loss per common share: basic and dilutedAs reported
    
    $
    (0.06
    )
    
    $
    (0.12
    )
    
    $
    (0.21
    )
    
    $
    (0.41
    )Pro forma
    
    $
    (0.05
    )
    
    $
    (0.18
    )
    
    $
    (0.22
    )
    
    $
    (0.40
    )
  Accounting for Stock
Issued to Employees
 Accounting for Stock Issued to Employees
 Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees , Statement of Cash Flows
 9




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
  NOTE 5  Inventories
  NOTE 6  Property, Equipment and Leasehold Improvements
  October 3,
    
    
    January 3,($
in 000s)
    
    2005
    
    
    2005Leasehold improvements
    
    $
    38,494.6
    
    
    $
    36,694.6Furniture and fixtures
    
    
    9,533.9
    
    
    
    8,856.7Restaurant equipment
    
    
    13,516.6
    
    
    
    12,886.0Computer and telephone equipment
    
    
    8,636.3
    
    
    
    8,254.0Construction in progress
    
    
    1,724.0
    
    
    
    530.171,905.4
    
    
    
    67,221.4Less: accumulated depreciation and
amortization
    
    
    (38,427.3
    )
    
    
    (33,146.9
    )Net property, equipment and leasehold improvements
    
    $
    33,478.1
    
    
    $
    34,074.5
 Restaurant Impairment Charges:
 Accounting for the Impairment or Disposal of Long Lived Assets Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to be disposed of Reporting Results of Operations
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions
 10




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 Note 7  Accrued Expenses
  October 3,
    
    
    January 3,($
in 000s)
    
    2005
    
    
    2005Payroll and related benefits and taxes
    
    $
    3,300.9
    
    
    $
    2,648.3Professional and legal costs
    
    
    486.1
    
    
    
    553.0Taxes payable
    
    
    756.1
    
    
    
    762.3Severance payable  current portion
    
    
    168.7
    
    
    
    380.7Rent obligations
    
    
    435.8
    
    
    
    459.0Gift cards/certificates
    
    
    286.4
    
    
    
    334.7Utilities
    
    
    477.0
    
    
    
    332.2Insurance
    
    
    15.0
    
    
    
    2,216.7Other
    
    
    1,624.7
    
    
    
    1,990.6Accrued expenses
    
    $
    7,550.7
    
    
    $
    9,677.5
 Note 8  Long-Term Debt
 Notes Payable:
     NOTE 9  Earnings Per Share
  11




---



##### Table of Contents



COSI, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  continued
 NOTE 10  Lease Termination Costs
 Accounting for Costs Associated with Exit or
Disposal Activities
  NOTE 11  Contingencies
  NOTE 12  Restricted Stock
  12




---



##### Table of Contents



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




---



##### Table of Contents



Item 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 OVERVIEW
         14




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Long lived assets Accounting for the Impairment or Disposal of Long Lived Assets Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be
Disposed of Reporting Results of Operations Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions
 Lease termination costs
 Accounting for Costs Associated with Exit or
Disposal Activities
 Stock options Accounting for Stock Based
Compensation Transition and Disclosure Accounting for
Stock Based Compensation
 15




---



##### Table of Contents



Accounting for Stock Issued to
Employees
 Accounting for Stock Issued to Employees
 Share-Based Payment,
which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. Accounting for Stock Issued to Employees , Statement of Cash Flows
 Inventories:
 Property and Equipment
 Accounting for Lease Obligations: Accounting for Operating Leases with Scheduled
Rent Increases
 Landlord Allowances Issues Relating to Accounting for Leases
 Income taxes
       16




---



##### Table of Contents



Cost of goods sold.
 Restaurant operating expenses.
 General and administrative expenses.
 Stock compensation expense.
 Depreciation and amortization.
 Restaurant pre-opening expenses.
 17




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedOctober 3
    
    
    September 27
    
    
    October 3
    
    
    September 272005
    
    
    2004
    
    
    2005
    
    
    2004(restated)
    
    
    
    
    
    
    (restated)Restaurant net sales
    
    
    99.9
    %
    
    
    100.0
    %
    
    
    99.9
    %
    
    
    100.0
    %Franchise fees and royalties
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0Total revenue
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and expenses:Cost of goods sold (1)
    
    
    23.6
    
    
    
    24.9
    
    
    
    24.0
    
    
    
    25.2Restaurant operating expenses (1)
    
    
    57.3
    
    
    
    57.6
    
    
    
    57.3
    
    
    
    60.4Total cost
of sales (1)
    
    
    80.9
    
    
    
    82.5
    
    
    
    81.2
    
    
    
    85.6General and
administrative expenses
    
    
    17.8
    
    
    
    20.8
    
    
    
    17.6
    
    
    
    17.2Stock compensation expense
    
    
    3.7
    
    
    
    (2.4
    )
    
    
    2.7
    
    
    
    3.1Depreciation and amortization
    
    
    6.1
    
    
    
    6.0
    
    
    
    6.2
    
    
    
    6.3Restaurant pre-opening expenses
    
    
    1.0
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.2Provision for losses on asset impairments
and disposals
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    0.6Lease termination (benefit) expense
    
    
    (0.2
    )
    
    
    1.3
    
    
    
    (0.1
    )
    
    
    (0.5
    )Operating loss
    
    
    (9.1
    )
    
    
    (8.7
    )
    
    
    (8.2
    )
    
    
    (12.5
    )Other income (expense):Interest income
    
    
    1.1
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.1Interest expense
    
    
    
    
    
    
    
    
    
    
    Reserve for stockholders notes receivables
    
    
    
    
    
    
    (5.2
    )
    
    
    (0.3
    )
    
    
    (1.8
    )Other income
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    (0.2
    )Net Loss
    
    
    (7.9
    )%
    
    
    (13.5
    )%
    
    
    (8.0
    )%
    
    
    (14.4
    )%
 
 (1)
    
    As a percentage of restaurant net sales Restaurant Net Sales
   18




---



##### Table of Contents



Franchise Fees and Royalties
  Costs and Expenses
 Cost of goods sold.
  Restaurant operating expenses Accounting for Stock Issued to
Employees
 Accounting for Stock Issued to Employees
 19




---



##### Table of Contents



General and administrative costs
  Stock compensation expense. Accounting for Stock Issued to Employees, Accounting for Stock Issued to Employees,
 Accounting for Stock Issued to Employees, Accounting for
Stock Issued to Employees,
 Depreciation and amortization
 Restaurant pre-opening expenses
 20




---



##### Table of Contents



Loss on impairment of property and equipment and restaurant disposals
 Lease termination costs
 Reserve for notes receivable from stockholders.
 Interest income and expense
 Other income
 LIQUIDITY AND CAPITAL RESOURCES
    21




---



##### Table of Contents



Contractual Obligations:
 Payments Due by Period(in thousands)Due
    
    
    Due
    
    
    Due
    
    
    DueTotal
    
    
    4th Quarter
    
    
    Fiscal 2006
    
    
    Fiscal 2008
    
    
    AfterDescription
    
    Obligations
    
    
    Fiscal 2005
    
    
    to Fiscal 2007
    
    
    to Fiscal 2009
    
    
    Fiscal 2009Long-term debt
    
    $
    137.6
    
    
    $
    19.0
    
    
    $
    35.8
    
    
    $
    38.2
    
    
    $
    44.6Operating leases (1)(2)
    
    
    80,020.8
    
    
    
    3,244.1
    
    
    
    26,007.8
    
    
    
    22,917.8
    
    
    
    27,851.1Employee severance
    
    
    168.7
    
    
    
    113.5
    
    
    
    55.2
    
    
    
    
    
    
    
    Purchase obligations (3)
    
    
    1,022.5
    
    
    
    1,022.5
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    81,349.6
    
    
    $
    4,399.1
    
    
    $
    26,098.8
    
    
    $
    22,956.0
    
    
    $
    27,895.7
 
 (1)
    
    Amounts shown are net of $1.5 million of sublease rental income due under non-cancelable subleases.(2)
    
    Includes approximately $1.1 million of obligations on leases for restaurants that have been closed as of October 3, 2005.(3)
    
    Primarily contractual obligations related to new restaurant construction.  22




---



##### Table of Contents



PURCHASE COMMITMENT
    FORWARD-LOOKING STATEMENTS
  
    
    the cost of our principal food products and supply and delivery shortages and interruptions;
    
    labor shortages or increased labor costs;
    
    changes in consumer preferences and demographic trends;
    
    expansion into new markets;
    
    our ability to locate suitable restaurant sites in new and existing
markets and negotiate acceptable lease terms;
    
    competition in our markets, both in our business and in locating suitable restaurant sites;
    
    our operation and execution in new and existing markets;
    
    our ability to recruit, train and retain qualified corporate and restaurant personnel and management;
    
    cost effective and timely planning, design and build-out of restaurants;
    
    our ability to attract and retain qualified franchisees;
    
    the availability and cost of additional financing, both to fund our
existing operations and to grow and open new restaurants;
 23




---



##### Table of Contents




    
    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;
    
    the reliability of our customer and market studies;
    
    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;
    
    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




---



##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1: LEGAL PROCEEDINGS
  
 Item 6: EXHIBITS
 (a)
    
    Exhibits:
 Exhibit Number
    
    DescriptionExhibit 10.1
    
    General Separation and Release Agreement between Cosi, Inc. and Cynthia
Jamison, dated August 17, 2005 (Filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on August 23, 2005, file # 000-50052).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




---



##### Table of Contents



SIGNATURES
  COSI, INC.Date: November 10, 2005
    
    By: /s/ KEVIN ARMSTRONGKevin ArmstrongChief Executive OfficerDate: November 10, 2005
    
    By: /s/ WILLIAM KOZIELWilliam KozielChief Financial Officer (chief accounting
officer)Treasurer and Secretary
 26




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit 10.1
    
    General Separation and Release Agreement between Cosi, Inc. and Cynthia
Jamison, dated August 17, 2005 (Filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on August 23, 2005, file # 000-50052).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