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Executives

Bill Koziel - CFO

Stephen Edwards - President and CEO

Analysts

Tony Brenner - ROTH Capital Partners

Sean Gordon - Private investor

Cosi, Inc. (COSI) Q2 2013 Earnings Call August 15, 2013 10:00 AM ET

Operator

Good day ladies and gentlemen and welcome to the Second Quarter 2013 Cosi Earnings Conference Call. My name is (Alicia) and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I’d now like to turn the conference over to your host for today, Mr. Bill Koziel, Chief Financial Officer. Please proceed.

Bill Koziel

Thank you, Operator. Good morning, everyone. I’d like to welcome you to Cosi’s 2013 second quarter results conference call. Joining me on the call this morning is Stephen Edwards, Cosi’s President and Chief Executive Officer.

Cosi’s earnings release was issued today and is available in the Investor Information section of our website at www.getcosi.com. During the call, we’ll be referencing supplemental materials, which are also available in the Investor Information section of our website. If you have not already done so, please access those materials at this time.

As we always do, we’ll address our regulatory housekeeping matters before we begin. During our introductory comments and in our responses to your questions, certain items may be discussed which are not based on historical fact. Any such items, including expected results, and any details related to expected performance should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve risks and uncertainties that could cause our future performance and financial results to differ materially, and therefore, you should not place undue reliance on these forward-looking statements.

We refer all of you to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance, and our financial condition.

For the call today, Stephen will begin with comments about our business I’ll then take us through a brief review of the results for the quarter and then we’ll open the call for your questions.

I’ll now turn it over to Stephen.

Stephen Edwards

Thank you Bill, and good morning everyone. My comments today will be brief. But I want to give you an overview of our objectives moving forward. As you’ve already seen the company was unprofitable on the second quarter, if we maintain this trajectory we are heading towards another year of unprofitability and capital loss. This cannot stand; we must change either the way we do business or the structure of our company or both. We are reviewing all alternatives. Let me describe some of the more important items on our agenda.

First, we must reverse the decline in revenues. Without sales growth we will not be a profitable company. To that end, we are working to create the products, service and experience our customers demand. Service is where we are experiencing some of the greatest shortfall and where we will be focusing the majority of our efforts.

Second, many of our stores are unprofitable; we cannot continue to carry them. We are exploring several options for these locations including early termination, subleasing, refranchising and we’re justified additional investment of personnel and resources.

Finally, we must define a long term strategy to develop our brand and grow our business. In addition, we must ensure that we have the resources, both financial and human to execute that plan.

I have made a significant personal commitment to the future of Cosi, both in terms of money and personal effort. I am joined by several others both in the field and at the corporate office who have decided that they are going to see Cosi succeed. There is much to be done, we are working very hard. We understand that we will be judged by how quickly and effectively we respond to the challenge. Now let me turn it back to Bill.

Bill Koziel

Thanks, Stephen. Please refer to pages four and five of the supplemental information as I briefly review the financial and operating performance for the quarter. For the second quarter we reported a net loss of $2.1 million or $0.12 per share. This compared with the 2012 second quarter net income of $77,000 or $0.01 per share. The net earnings loss per share calculation for both quarters reflects the impact of the reverse stock split affected on May 9. Also included in the 2013 second quarter results were asset impairment charges of $355,000 or $0.02 per share related to five underperforming locations, two of which closed in July. Impairment charges in the 2012 quarter were only $27,000. Also included in the 2013 second quarter were lease termination charges of a $126,000 related to the two company-owned locations that were closed in July subsequent to the quarter.

Let's now look at revenue performance which was a significant driver of our financial performance for the quarter. The $2.7 million decline in company owned restaurant sales was largely due to the $1.8 million loss in sales from six locations that closed during and subsequent to the second quarter of 2012. Balance of the decline in company owned restaurant sales was due to a 3.6% decrease in second quarter company owned comparable restaurant sales which is comprised of a 5% decrease in traffic partially offset by 1.4% increase in average check. The traffic decline for the quarter occurred across all day parts. The increase in average check was largely result of approximately 1% pricing taken in the second quarter, since the second quarter last year as well as the launch this year of the new bowl category which has higher average selling prices than our other entrée categories. The strongest market performance for the second quarter was in New York City where we achieved positive comparable sales growth. The quarter-over-quarter decline in franchise fees and royalties of $234,000 was largely the result of approximately $190,000 in fees that were recorded in the 2012 second quarter related to two terminated development agreements as well as to a 1.4% decline in comparable sales and the impact of several store closings.

As to the other components of operating performance for the quarter, cost of food and beverage for the 2013 second quarter was 24.4% of restaurant net sales compared to the prior year at 22.9%. The increasing cost over the prior year was attributable to several factors; first, our sales mix in the quarter shifted towards products that have a higher cost as a percentage of net sales than other products, most notably our new category of bowls which was launched at the beginning of the year. Although the bowls have a higher cost as a percentage of net sales, they also do generate higher average gross margin dollars per transaction. We also continue to be impacted by a higher usage of fresh vegetables in our products as compared to the prior year, we anticipated this would drive an increase in cost but we believe it is the correct move for the brand. We were also impacted by the continued erosion of beverage sales, specifically fountain beverages that historically have a lower average cost compared to non beverage products. The increase in labor and related benefits, occupancy and other operating expenses as a percentage of restaurant net sales was due in large part to the deleveraging impact of the comp stores sales decline and the fixed cost components of these categories. Additionally, we were also adversely impacted in the quarter by higher employee health related cost. Higher cost for the maintenance of existing company restaurants and higher paper and packaging costs primarily related to catering.

The increase in general and administrative expense in the 2013 second quarter when compared to the prior year was due to a charge of approximately $500,000 for severance costs related to administrative labor reductions that occurred in the quarter. Cash on the balance sheet was approximately $12 million as of July 1st 2013 and Cosi has no debt. The slight decrease in the cash balance as compared to the balance at the end of the first quarter was largely due to capital expenditures for the new location which is under construction in the Eastern Town Center mall in Ohio and capital repairs at existing company restaurants.

It is important to note before we conclude that slide five of the supplementary materials provides a reconciliation of the non-GAAP measures on slide four to our reported quarter's results. That concludes our brief presentation this morning. Steven and I look forward to answering your questions. Operator, please open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Tony Brenner with Roth Capital Partners. Please proceed.

Tony Brenner - ROTH Capital Partners

Thank you. I have a couple of questions. Earlier I think it was indicated that the company had planned to close I think between 6 and 12 stores by the end of the year. It sounds like you’ve closed 2 of them since you’ve indicated that. And I wonder if that’s still an objective.

Stephen Edwards

Hi. Tony, we have about 12 or 13 stores right now on what we’re going to call our watch list and what that means is they are being examined for our alternatives relative to closure meaning an early termination, a sublease to the extent and early termination is not an opportunity that’s provided to us by the landlord. Some of them have a short tenure left on the lease, so anywhere from let’s say 10 to 14 months. So the ability to, we’ll try and work to negotiate to be out by the end of the year but the landlord measures hold us in the space till the lease expires. But that’s clearly a store that’s on our exit list.

We have some stores that run that list that right now are not performing, meaning they are losing money. But they are in tremendous real-estate locations, and they just been terribly undermanaged. And we’re making an effort to see if we can rejuvenate those stores but with a short time horizon to try and make that happen. Whether or not we’ll actually take specific action on those before the end of the year, it will depend on the performance and them and how they respond to what we’re doing in that location.

So I wouldn’t make a hard and fast statement that all the 12 will be closed by year-end because we have various alternatives that we have to pursue. We can’t just turn off the lights and walk away from any of these locations, we have to have a plan of exit, and we’re working very diligently on them. We’ve had discussions with all of the landlords in situations where we were not provided early termination, we had to develop an alternative strategy and we’re doing just that.

Tony Brenner - ROTH Capital Partners

Okay, the two stores that were closed you paid an early termination charge. Is that correct?

Stephen Edwards

We paid an early termination charge and actually in both of them, one was a very short lease so their early termination charge wasn’t very significant. The other one had a little bit longer tenure on it, so we had to pay a bit more. But, yes, we did pay an early termination fee on that.

Tony Brenner - ROTH Capital Partners

You mentioned the two area development agreements were terminated. Could you just expand on that a little bit?

Stephen Edwards

Tony, those were actually terminated a year ago and included in last second quarter’s franchise revenues, which is why we saw the decline year-over-year.

Tony Brenner - ROTH Capital Partners

One strategy apparently had and tended to be to reimage some stores and replace equipment in stores in order to speed up service which Stephen you’ve indicated, and it’s the primary focus. Will the company still pursue that strategy?

Stephen Edwards

So, when I talk about the service, speed the service is only one component of it. So, the service that we’re dealing with today is we’re trying to make sure that we have what we could call, Class A hospitality and service in the store. We have a culture that’s lost engagement with the process of serving food to people in a hospitable way. And we get a number of remarks from customers about how much they love our food and our products. But they just been disappointed time and time again by the service and the experience that they’ve received in the store. And so when I say that we’re trying to elevate our quality of service, it really is focused on that. It’s focused on customer engagement. It’s focused on friendly service, hospitable service and fast service. But fast is kind of the third priority in our leg. We have many stores that aren’t even close to operating capacity speed of service is not our issue. Our issue is our customer counts and we need to improve our customer count.

So the only way you can really do that is by increasing the amount of customers, increasing the frequency of customers. And people only come back when they enjoy the experience they received. And so that is our number one priority in the short term is to drive that throughout the organization from a cultural standpoint.

With regard to remodeling, we found that in most cases that just properly caring for the stores, creating energy amongst the partners in the stores, and attending properly to the guest is much more effective way, a much more capital efficient way for us to show improvement in the store. We have some of our older stores and I’m just going to mention two of them. The first being 45th Street, which is showing positive customer trends despite the fact that’s a small store and despite the fact that it already runs at extremely high volumes, they’re seeing positive comp store sales this year because they were early adopters of this customer focus and high hospitality, high service approach.

Tony Brenner - ROTH Capital Partners

Is that your Lexington Avenue store?

Stephen Edwards

Some store on the West 45th street. I think you’ll see a whole new attitude if anybody goes in the store you will see a whole new attitude from the employees there. They are really very attentive and very outspoken and engaging with the customer and people are responding. We had the same phenomenon happened in our eastern store interesting in the old location prior to our move where we went in and we wanted to make sure that we had a really top flight team ready to go prior to the opening of the new eastern unit which happened last week. And we spend lot of time retraining and making sure that the team was up to the level of what they needed to be. And even prior to the move we were generating comp store sales day-after-day that was greater than 20% over the prior year and that was an old facility received, no new equipment, no remodeling, no nothing. It just received a healthy dose of realignment and attitude improvement from the staff. And I would tell you that the difference and the experience when you go into that store today or even prior to the day they moved and what it was six months ago is significant. That’s what we need at Cosi.

People love our product, people love our sandwiches, they love our salads, we hear that time and time again, that’s never ever not complain, a complain is just because someone was rude to me, my sandwich or my salad was incomplete and the ingredients that it was suppose to have, they left the Basel of my TBM or I got the wrong order or it took me 20 minutes to get my order when there was nobody else in the store and those were the kind of service items that we need to address. Class A, hospitality and service experience is what we’re really focused on.

Tony Brenner - ROTH Capital Partners

What about your franchises? My understanding was certain number of them were beginning to pursue that we image new equipment strategy.

Stephen Edwards

It’s not that we don’t have new equipments; I just don’t want anybody to think that new equipment is the savoir of our business. Savior of our business is going about retaining customers and the only way we can retain customers is that they come into Cosi and they have a positive enjoyable experience. Every time we offend somebody, we run a customer away. So, we got to stop that. But there is equipment that we have and we’re working on and we’re going to make decisions about deploying into the stores, some of which will improve the speed of service particularly in the hot items and that is important, its particular important than our down town stores but that’s not going to be what saves us from a customer count standpoint, what’s going to save us is retaining and building customer across all day parts.

Tony Brenner - ROTH Capital Partners

What are your intentions with respect to refranchising stores?

Stephen Edwards

We indicated that we intend to refranchise stores, we have begun discussions on a number of transactions around refranchising our stores and when we have something to announce we’ll certainly let everyone know.

Operator

Your next question comes from the line of (inaudible) with Midtown Partners. Please proceed.

Unidentified Analyst

I just had question, I know in the past you’ve mentioned that franchise stores there seems to a sales of store that have done little bit better than the company owned, but it seem like a little bit more of a variants for this quarter. I was just wondering if you could, if you noticed any reasons or why that happened and you could address that I guess.

Stephen Edwards

Variants in terms of…

Unidentified Analyst

The same store sales results were franchises versus company on stores.

Stephen Edwards

I think that our franchisees are just doing a better job executing in the store than we are honestly, I mean I visited a number of our franchised locations, I visited number of our franchisees, they have exactly the quality of service experience that we’re missing in our stores and as a result of that they continue to drive customer counts and build their business and they’re doing exactly what it is we need to do.

Unidentified Analyst

I guess just because we haven’t spoke to you yet Stephen, you can just give us a sense of your strategy and how it sort of differed from Carin Stutz’s strategy.

Stephen Edwards

Well, I guess the one difference is that - I think the biggest differences that I have come more focused on doing that’s necessary around staffing of the restaurants to ensure that we can deliver on the experience we need to keep customers happy and keep them coming back to Cosi.

Here historically, I am not sure this is more of a continuous of what has been a driver of this business for a while. There has always been a heavy focus on controlling hourly labor in the store and what happens is at some point when your (AUB) is dropped to a certain level, you start managing labor to a particular percentage-- hourly labor to a percentage and you starts end up being under staff in the stores and that’s just in the night calls it’s a poor experience for the customer and night sales and sale decline is a result they just don’t come back.

So, one of the main thing that I have done that’s been different as I have challenged managers and we have come up with standards as to how the store needs to be staffed on a minimum level in order to ensure they were open and ready for business. And in some cases that means that we had to add additional bodies in the store we have to increase our headcount which seems odd for a company that right now is declining in profitability but it was a necessity, it was a requirement for us to continue to be able to be open for business and delivering the experience that people expect. And so now I have managers when I talk to them, I told them, I said don’t ever quote to me your labor percentage I want you to quote to me your transaction counts and talk to me about hospitality and the quality of your team and their level of engagement because that’s really what we need, we need to drive revenue and we can only drive revenue if we make guests happy and that right now is our number priority throughout the whole company.

We actually sit around ask everyone in the company to sign a pledge and that pledge requires everybody to commit to higher standards. And there is just three things they have to focus on: cleanliness, friendliness and quality of food and if they do those three things they’ve achieved their requirement as a member of our team and the health of our business is dependent on it, the ability to grow our business is dependent on then naturally the number one priority today in the field.

Operator

Your next question comes from the line of (Carlos Palatino) with Così. Please proceed.

Unidentified Analyst

I am a private investor; I have been following Cosi for quite some time, I am in the restaurant business myself and I visit many of your restaurants in Washington DC and I could say anything more than what you just said about the reality of our customer service because that’s been the lack in every visit that I make. My question is what is your forecasted business trends for the rest of quarter number three and number four and how you believe you are going to be able to achieve that forecast?

Stephen Edwards

Right now we have a forecast of what we expect the business to do for the balance of the year; I am not prepared to share that with you on the call today. I will give you some commentary to say that and I am sure somebody will ask for, our comp store trends have not changed from where they were in the second quarter, so we are working and highly focused on that as a number one priority, how we perform the rest of the year will be dependent on what the direction for that is for the balance of the year. That’s really I like to say.

Operator

Your next question come from the line of (Scott Banks), private investor.

Unidentified Analyst

Just a couple of questions. Steven, you have been with the brand for a while, so I am curious since you become CEO can you further elaborate on perhaps how are looking at the business differently than you had just being the board member?

Stephen Edwards

We have lost a lot of ground in terms of revenue and as a result through the flow through the bottom line we have degraded our profitability at the store level. So today I think more about managing the business to ensure viability and long-term growth then I might have thought about is just the simple value opportunity before and underperforming asset. I think we have to be more careful and cautious about our decisions. We have to be focused on those few things that are really going to ensure that we grow and prosper and we are smaller now and we have to be very mindful of every move we make. That’s only the difference I would say today.

Unidentified Analyst

And the next question is in terms of Eastern Avenue location, how does that fit into the bigger picture and you mentioned some of the positive trend you are seeing. Is that maybe because there is a simpler menu, less labor and easier process for the customer to engage within the brand, within the four walls as opposed to maybe the existing store base?

Stephen Edwards

There is no meaningful change in terms of the product that we provide at Eastern. There is a little bit, there is a few more features on the menu that we might have another location primarily because of the customer base that exist there in the mall and the fact that we wanted to build a little bit better dinner business. Then we have at other locations. The facility itself is a beautiful restaurant. It was designed to be a more sophisticated interpretation of a Cosi, like, the equipment is new, the facility is new. But the way we conduct business in it, is pretty much same as everywhere. The reason we’re seeing positive trends really has to do with the caliber of the employee and the level of engagement that they have in the success of that location as a business. It is in many cases, 9 day from some of our other locations where we are failing miserably, you will find the team there that truly works together with the team in a leveled excitement that you’d really like that, as a restaurant operator you would really like to see. And I think that’s the only difference. So I would feel differently about those situations, if I said well it’s because we certainly have a big bright new shiny location that sales are improving but they actually improve before even arrived there. So that leads me to believe that it’s really all about the people, more than anything else.

Unidentified Analyst

And lastly in terms of opportunity, whether its breakfast or dinner, are there any new strategies or ways that you guys are looking at the business differently to drive some of those day parts?

Stephen Edwards

We are working to drive our business across all day parts. We are always, we have a team here lead by Michael Foley, it’s working diligently on all of our products from our Coffee to our Breakfast items, to our Lunch and to our Dinner business and we have tremendous amount in the works. It’s a multiunit business. It takes time and you have to be very careful about the process of rolling things out. We are trying to move more quickly. In some cases we put some things out and then had to go back and make changes, which is okay. It’s we need to make changes; we need to make the changes quickly. But we have a lot in the works and all I can say there is just stay tuned.

Operator

(Operator Instructions) Your next question comes from the line of Sean Gordon, private investor, please proceed.

Sean Gordon - Private investor

First one to highlight to that these several restaurants that you’re focusing on, it definitely, like I am a frequent consumer of Cosi products, and so very happy to hear that service element is going to be elevated. That’s definitely kind of key element, thank you for that. Also I just want to complement, that we see of a great job on the cash front. I know the cash previous quarter, I think it was $12.1 million versus roughly $12 million this quarter, so happy to see the cash burden getting decreased. And then around that if you can maybe speak to what your expectations are for the remainder of the year.

And also the gentlemen at Roth Capital mentioned, trying to ask around the remodeling and I know that you touched upon it as though that’s not necessary the primary focus and certainly in the Eastern Store, just seeing the service change, have a greater impact. But when Carin was on the call, I noted there was a focus to remodeling and I think she mentioned onetime there were four stores in the New York that would be remodeled by the end of the summer. And so if you could just speak a little a more to this actual remodeling in your plan. And then two or three others were okay. So the strategy to simplify the menu, I know again the bigger focus is on service but as you work through the menu I thought that there was a comment that the menu was smaller. But that was in the pop-up store or the other store that’s opening in the mall. So is there a move to actually get to a smaller menu? Or is that no longer a primary concern?

And then on beverage attachment, that seems to be a consistent issue on every call, and the top is going to be a bigger push for tea and coffee which is obviously a massive market. I think in the previous call you guys quoted maybe a 4% and it was coffee or attachment, I mean that is coffee. But that’s obviously a big market where I walk to these stores in my neighborhood and there is all towers where the store is empty and there is another café that are packed literally across the street, or it may just be some from the fact they have outlets in every table where people plug in their laptops, they’re happy but, clearly you guys know that you are missing this opportunity to coffee and tea; so curious at that too. If you need organic questions, there is a something now?

Stephen Edwards

Thank you Sean; on which I will take a few of these off; with regard to cash burn, it’s really difficult for us to give a specific number on that because it will depend upon some of the strategic actions that we’ll take around stores, the time of closures, the refranchising of units, and honestly the comp-store sales direction on the business for the balance of the year that the flow through one way or the other has a material impact on the cash generation or use of the business. So, all we can tell you is that our capital expenditure budget for the second half of the year is about half of what we said it would be for the whole year, we did about half in the first half and we are going do 600,000 or so on the back half, but the ultimate cash projection here like I said depends on too many factors now to really has or to guess. I will tell you that managing the cash is a very high priority and so we’ll make decisions with that in mind but can’t be specific.

Around remodeling, I know that Carin had an intent and which was focused on doing four stores in New York, I will tell you that we are thinking more strategically she may have had her specific strategic agenda but our strategic agenda when we think about where we remodel, it’s really going to be driven by those locations where we think we can make a difference due to a targeted investment. I doubt we’ll do what you might consider an extensive or significant remodel, some of its going to be just about bringing equipment up to (stuff) that’s failing or needs to be replaced. In some cases it maybe the addition of additional equipment that provides us with greater throughput such as the manner that we have been working within a couple of locations.

In some cases it’s just going to be a new graphics package that goes in on the wall and helps us to have more cohesive branding view across all stores. In some cases it’s going to be painting, but where we choose to do that is really going to be driven by what it is that we are trying to accomplish in a particular location. We have one location right now that is a money loosing store, that we have decided to implement a very significant intervention on to see if we can change the direction and performance of the store because it sits in a very, very attractive real-estate location and we would hate to walk away from it without making sure that we can’t make it work through better execution. We have been failing there from an execution standpoint for a long time. And if we start to see traction there then that would become a candidate for a much more extensive remodel, but we are going to wait to make sure that the money is well spent.

We have another location where, for instance our (food prep) table now it was sitting on a wood pedestal and the wood is starting to wear away and as a result of that we have been notified that we need to bring that current by the local health department in order to be compliant and so as a result of that we are going to choose to spend a little bit of money in that store while we are doing that work. But as it goes to a more formal let’s work our way through the whole chain and do a remodeling I don’t think that’s something that really is on our agenda at the moment.

So, I might have missed one in there in the middle but you can come back and remind me. With regard to simplification of the menu we are working, we need to learn to do what we do in the store. We need to bring greater simplicity in operation. Labor costs are still a big issue for us because of our AUVs and the fact that we operate across a long day. Now we are from sun up to sun down was the old mantra of Cosi and whenever you do that and you deliver revenue across that of the amount that we deliver the labor coverage required to do that doesn’t match up well with the sales, quite honestly. So, we are trying to address that in a number of ways, we are trying to adjust that by; we have changed some of the hours of operation of stores. So but they are open in times when we are just not doing any business. That is going to affect our comp store sales as we report them going forward and you should be aware of that. But it results in saving the cost of being open from a personnel standpoint during that timeframe.

And the second thing, we have to focus on is what are we requiring our partners to do on the store and is it due to the complexity of what we offer our customers from a product standpoint and that is a very meaningful thing that we are addressing right now and we are trying to get to a point where we have a large team focused on what is the right mix of items for us, can we deliver on what people really care about which we have come to conclude is really a lot about our signature flat bread it’s the one thing that we deliver that no one else can deliver is baked in store from scratch all day long flat bread and it is truly a cravable product that keeps many people coming back. How do we build a menu around that that’s simpler and highlights that at the core of our offering and that’s something that we are working on. That will take some time but it’s something it’s definitely a top focus for us.

Regarding beverage, people just are drinking less soft drinks now; there is nothing we can do about it. I can understand it to be, it’s one of those trends, you just don't want to be attached to right now unfortunately but that's just the way it is. We’re trying to work on a number of beverage items that will improve our opportunity to garner beverage revenue and attachment from the guest, but they are still in development, I won't say that we believe that we can do specialty beverages than more extensive we're doing today, but we believe we can do them in a more extensive way in the future, and we’re working on that project, we just rolled out Numi Tea across the chain as a way to elevate our tea program, it's an organic fair trade tea that I think a meaningful step up from our prior offering, so hopefully we'll get some credit for that and we'll build a bigger tea business.

And we're currently in the middle of doing a full evaluation of our coffee program to try and get the product and the delivery system in the store, because Cosi should stand for coffee, it’s just a mistake that we're not viewed as a coffee provider. And our real driver looking into the back half of this year is one thing we're focused on is we're going to build a business that says Cosi loves coffee and you should see something happening there shortly. So did I miss one?

Sean Gordon - Private investor

No you actually did a fantastic job taking detail oriented answering these questions. My only last question would then be regards to the CEO position you are an interim CEO of the company, do you think you would stay in that slot for a while or permanently any plan around that?

Stephen Edwards

I did not take the job as in interim position, I will tell you that I am confident at the moment I am 100% confident the right moment I am the right person to lead the company, if that ever changes I will but the first to raise my hand and suggest that we need a different kind of person. But for the time being you are stuck with me.

Sean Gordon - Private investor

While I think you are saying so far, so thank you.

Operator

Your next question comes from the line of (Ray Reyes), please proceed.

Unidentified Analyst

Hi Stephen its (Ray Reyes) from Street Asset Management, really good to hear the focus on upgrading really appreciate that. Have you aligned your incentives of the managers and the staff to this new goal of increasing comp sales and then delivering customer services to producing cost?

Stephen Edwards

We changed our bonus plan for managers and district managers just this week, that's the only gating factor for their participation on the bonus pool now, is the delivery of the prior year sales. And if they deliver at least prior year sales or better they get to participate, otherwise they do not.

Unidentified Analyst

And how do you deal with the franchisees who are sub-par are not executing and how do you get them to buy into this new strategy and approach, those who have not been profitable in the past.

Stephen Edwards

Yeah, that's a good question we do have a few franchisees that need to upgrade their level of service and attention in store. And we continue to visit them, cover them from a operations standpoint and try to work with them to understand the benefits of it, but it's something we're aware of. I would say for the most part all of our franchisees knew how to run their restaurants well. And I am thankful that we have the caliber of people working as franchisees in the system because they don't need a lot of hand holding quite honestly.

Unidentified Analyst

Two other questions; are there any leases for profitable desirable locations that are coming due that you will not be able to renew?

Stephen Edwards

We have one location that was sort of a near term issue for us and that was a profitable location and we have already received an extension on that. So I don't, Bill you correct me if I am wrong, there is nothing in the next 12 months that would create any concern for us right now.

Unidentified Analyst

And then finally I was late on for the call, but the cash, so at this point you do not anticipate having to raise additional capital?

Stephen Edwards

Right now we have adequate liquidity for the foreseeable future, that's correct.

Operator

There are no additional questions at this time. I will now like to turn the presentation back over to Mr. Bill Koziel.

Bill Koziel

Thank you, Operator. That concludes our presentation today; we thank you all for your interest in Cosi and for joining us on the call. Thank you.

Operator

Ladies and gentleman that concludes today's conference. Thank you for your participation. Have a great day.

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