COSI INC

We cannot predict whether additional financing will be available on terms acceptable to us, or at all, and there can be no assurance that we will be able to strengthen our balance sheet. If we are unable to raise additional capital in the near-term as noted above, and if we are unable to extend the maturity of the outstanding debt, the cash and cash equivalents available to us will not be sufficient to fund our cash requirements for working capital needs and debt service obligations over the next 12 months.  Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment.  These factors may make the timing, amount, terms and conditions of additional financings unattractive to us.  Moreover, there can be no assurance that we will be able to sell restaurants or franchise markets, attract new franchisees, exit unprofitable locations in an efficient and cost-effective manner, or restructure our debt on terms acceptable to us, or at all.  If we are unable to raise additional capital or execute any of the foregoing strategies in a timely manner and on terms acceptable to us, our business, results of operations and financial condition will be materially and adversely affected.

In accordance with ASC Topic 350, Goodwill (“ASC Topic 350”), goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method. Goodwill acquired in business combinations is assigned to the reporting units that are expected to benefit from the synergies of the combination as of the acquisitions date. US GAAP requires us to perform an impairment test of goodwill on an annual basis or whenever events or circumstances make it more likely than not that impairment of goodwill may have occurred. Goodwill impairment testing involves a two-step process. The Company first compares the fair value of the reporting unit to its respective carrying amount, including goodwill, to assess whether potential goodwill impairment exists.  The estimated fair value is determined based on market capitalization as the Company feels that this is the best indicator of fair value due to the Company being reported as a single reporting unit. A sustained decline in our stock price is one of several qualitative factors we consider when evaluating whether events or changes in circumstances indicate it is more likely than not that a potential goodwill impairment exists. We concluded that the decline in stock price observed during the second quarter and subsequent to quarter-end, did not represent a sustained decline and that no triggering events occurred during the second quarter requiring an interim goodwill impairment test as of June 27, 2016.  We believe, however, that if the stock price, sales and cashflow remains at a sustained decline, impairment may be a possibility in the near future.

For Property, Plant and Equipment, we evaluate recoverability based on the restaurant’s forecasted undiscounted cash flows, generally for the remainder of the original lease term, which incorporates our best estimate of sales growth and margin improvement based upon our plans for the unit and actual results at comparable restaurants.  For restaurant assets that are deemed to not be recoverable, we write down the impaired restaurant to its estimated fair value. As of June 27, 2016, long-lived assets held and used with a carrying amount of $1.3 million were written down to their fair value of $0.1 million, resulting in asset impairment and disposal charges of $1.2 million  included in earnings. The asset impairment charges relates to 12 underperforming restaurants identified for closure as part of the Company’s 2016 2Q review and on-ongoing strategy to re-balance the profitability of the real estate portfolio.

On May 17, 2016, Cosi, Inc. (the “Company”) received notice from the NASDAQ Stock Market, indicating that the Company will have an additional 180-day grace period, or until November 14, 2016, to regain compliance with NASDAQ’s minimum bid price requirement.  In order to regain compliance, shares of the Company’s common stock must maintain a minimum bid closing price of at least $1.00 per share for a minimum of ten consecutive business days during the additional grace period.  The notification letter has no effect at this time on the listing of the Company’s common stock on The NASDAQ Capital Market.  The Company’s common stock will continue to trade on The NASDAQ Capital Market under the symbol “COSI”.  The Company has provided written notice to NASDAQ of its intention to cure the minimum bid price deficiency during the second grace period by effecting a reverse stock split if necessary.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.