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Like a latte whose foam has gone flat, the once-hot Cosi café chain has lost some of its flavor. From its opening in 1996, the New York-based eatery drew rave reviews for its flat-bread sandwiches and coffee creations served in a trendy yet casual setting. Locales range from downtown business districts — Manhattan has 19 — to upscale malls including Easton Town Center in Columbus, Ohio.

Last fall Cosi went public, and lost $15 million in 2002, facing nine class-action lawsuits claiming its executives filed false documents with the SEC. Cosi's stock price fell to a dollar and change, about a tenth of its price immediately following the IPO.

The National Restaurant Association expects sales to rise 4.5 percent in 2003. Limited-service restaurants, which include casual-dining spots like Cosi, are expected to post a 4.1 percent increase. And some casual dining chains are doing well. One standout is Panera Bread, whose nearly 500 bakery-cafes, about 70 percent of them franchises, are expected to score 2003 sales in excess of $1 billion.

As for Cosi, big changes are ahead. The former chairman and COO have departed, administrative costs have been slashed 30 percent, 13 stores will be closed (Cosi has not said where) and plans for 25 new stores have been scrapped. It negotiated a $3 million bank loan and announced that it will raise $12 million through a rights offering.

Cosi also is reducing its need for capital by targeting franchisors. “We're making these changes as our business gains momentum,” says new chairman, turnaround specialist William Forrest of Gleacher Partners, one of Cosi's biggest stockholders. Adds interim CEO Jay Wainwright: “There is a significant untapped growth opportunity in franchising and area development.This strategy can enable us to grow more efficiently and more rapidly.”

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