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Article by DailyStocks_admin    (02-26-09 05:22 AM)

Filed with the SEC from Feb 12 to Feb 18:

Cosi (COSI)
ZAM Equities reported owning 4,619,064 shares (11.3%); no transaction details were provided.

BUSINESS OVERVIEW

Cosi, Inc., a Delaware corporation incorporated on May 15, 1998, owns, operates and franchises premium convenience restaurants which sell high-quality hot and cold sandwiches, freshly-tossed salads, Cosi bagels, pizzas, S’mores and other desserts, and a variety of coffees along with other soft drink beverages, teas and alcoholic beverages. Our restaurants are located in a wide range of markets and trade areas, including business districts and residential communities in both urban and suburban locations. We believe that we have created significant brand equity in our markets and that we have demonstrated the appeal of our concept to a wide variety of customers.

As of December 31, 2007, there were 141 Cosi owned and franchised restaurants operating in 19 states, the District of Columbia, and the United Arab Emirates (UAE).

Our internet website is www.getcosi.com . We make available free-of-charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission (“SEC”). In addition, our internet website includes, among other things, our corporate governance principles, charters of various committees of the Board of Directors, and our code of business conduct and ethics applicable to all employees, officers and directors. Copies of these documents may be obtained free of charge from our internet website. Any stockholder also may obtain copies of these documents, free of charge, by sending a request in writing to: Cosi, Inc., c/o Investor Relations, 1751 Lake Cook Road, Suite 600, Deerfield, Illinois 60015.

Business Strategy

Our goal is to become a leading national premium convenience restaurant company, and we are focused on knowing our customers and their needs. We believe that our target customers are adults aged 18 to 34, upscale suburbanites and metro elites of all ages, and that there are approximately 40 million heads of households in this demographic mix. Based on our market analysis we believe that the top 75 markets where our target customers are concentrated can support up to approximately 1,900 Cosi restaurants.

We plan to become a leading national premium convenience restaurant by:

Offering an innovative menu appealing to our target customer. Our restaurants offer innovative savory, freshly made-to-order products featuring our authentic hearth-baked crackly crust signature Cosi bread and high quality distinctive ingredients. We maintain a pipeline of new menu offerings that are introduced seasonally through limited time offerings to keep our products relevant to our target customers.

Providing customers with an exceptional service and dining experience. Our restaurants are designed to provide a memorable dining experience in a warm, welcoming environment offering free internet access through a managed Wi-Fi network. We seek to train our partners to provide the highest level of friendly customer service. We believe that we provide an “affordable luxury” that our customers can enjoy everyday.

Expanding marketing initiatives to build brand awareness. We focus our marketing efforts on building brand awareness and increasing frequency of visits. We do this through the development of a marketing calendar that focuses on four time periods (Winter, Spring, Summer, and Holiday), improved merchandising to better influence the purchasing behavior of our customers and reduce ordering complexity, developing marketing at the local store level and at grand openings, our CosiCard loyalty program, print advertising, and targeted direct-mail marketing campaigns.

Increasing comparable restaurant sales and average unit volumes. We seek to increase comparable restaurant sales and average unit volumes by introducing new menu items, expanding our catering sales, increasing sales across all dayparts and running seasonal product promotions. Comparable restaurant sales for our company-owned restaurants during each of the last three fiscal years of 2007, 2006, and 2005 increased 0.2%, 0.3%, and 6.9% respectively.

Operating our restaurants efficiently. We have developed operating disciplines that are designed to optimize the cost structure of our restaurants and to be applied consistently across our restaurants, and we continually seek to refine and improve upon those disciplines.

Growth Strategy

We plan to grow in both existing and new markets through the following:

Build a system of franchised restaurants and develop company-owned restaurants. We expect that company-owned restaurants (restaurants that we own as opposed to franchised restaurants) will always be an important part of our new restaurant growth; however, our franchising and area developer model will be key components of our growth strategy. We will continue to pursue company-owned development to achieve critical mass in our core markets while focusing on expanding our franchise system. We launched our franchising program in fiscal 2004 and continue to grow our franchise system through the development of new restaurants by new franchisees. We require that our franchisees have experience in multi-unit restaurant operations and development. We believe that our concept, growth opportunity and potential for strong unit-level economics will enable us to attract experienced and well-capitalized area developers. We are currently eligible to offer franchises in 47 states and the District of Columbia. We have secured franchise commitments from 31 area developers for 374 restaurants, for which we have received $4.4 million in deposits, including 34 restaurants existing as of the end of fiscal 2007, and one international license agreement covering six countries in the Persian Gulf.

Pursue foodservice strategic alliances. We will continue to explore strategic alliances with our Cosi Pronto (our grab-and-go concept) and full service concepts in educational institutions, airports, train stations and other public venues that meet our operating and financial criteria. We believe that this is an attractive opportunity as evidenced by our partnership with Aramark Educational Services, LLC for the operation of the Cosi restaurant located at St. Joseph’s University in Philadelphia, PA.

Cosi Product Offerings

We offer proprietary food and beverage products for three major dayparts — breakfast, lunch and dinner. Our food menu includes Cosi bagels, sandwiches, salads, soups, appetizers, melts, Flatbread pizzas, S’mores and other desserts. We feature our authentic hearth-baked crackly crust signature Cosi bread in two varieties, our original Rustica and our Etruscan Whole Grain. Our beverage menu features a variety of house coffees and other specialty coffee drinks, soft drinks, bottled beverages which include premium still and sparkling waters, and teas. We also offer beer and wine at most of our locations and an additional limited selection of alcoholic beverages in some locations.

All our restaurants offer catering service for the breakfast and lunch dayparts. Our catering offerings include breakfast baskets, lunch buffets, dessert platters, and include most of our menu offerings. We operate call centers in the New York City and Chicago metropolitan areas and our catering orders for these two major metropolitan areas are produced at central catering hubs. We offer set up and delivery by Cosi personnel to all our catering customers.

We periodically introduce new menu segments and products in order to keep our product offerings relevant to consumers in each daypart. New recipes are developed by our food and beverage team. These recipes are thoroughly evaluated, both internally and through consumer input.

People

On December 31, 2007, we had 107 company-owned restaurants and approximately 2,811 employees, of whom approximately 96 served in administrative or executive capacities, 295 served as restaurant management employees and 2,420 were hourly restaurant employees. None of our employees are covered by a collective bargaining agreement and we have never experienced an organized work stoppage or strike. We believe that our compensation packages are competitive and our relations with our employees are good.

Restaurant Operations

Management Structure. The restaurant operations team is built around regional centers, led by Regional Vice Presidents, who report to the Chief Operating Officer, who then reports to the Chief Executive Officer. Regional Vice Presidents are responsible for all operations, training, recruiting and human resources within their region. Regional Vice Presidents are also responsible for the financial plan for their region and for the people development plan to support the growth in their region. The Vice President of Operations Services and Programs is responsible for developing infrastructure standards and procedures across the system for the benefit of the entire brand.

Sales Forecasting. Regional Vice Presidents and District Managers have real-time access to sales forecasts and actual sales information through our web-based reporting system. This allows the entire management team to plan staffing requirements on a weekly, daily and even hourly basis to effectively serve our customers.

Product Quality. Our food and beverage quality is managed at four critical stages: sourcing, distribution, line readiness and product preparation. Products are delivered to the restaurants several times each week so that all restaurants maintain fresh quality products. Because our restaurants serve a different variety of products during different dayparts, a specific line readiness checklist is completed to ensure that the products have been rotated, prepared and staged correctly. Finally, our partner training program includes certification in both product knowledge and product preparation standards.

Food and Labor Cost Controls. Our information system allows us to track actual versus theoretical cost of goods sold. Detailed reports are available at the restaurant level showing variances on an item-by-item basis. The system is interfaced into our accounts payable and general ledger systems so that restaurant managers have control of their operations and can be held accountable for their results.

Our labor management standards help our managers control labor and ensure that staffing levels are appropriate to meet our service standards. Our reporting system provides our multi-unit managers with performance reports that help them make staffing adjustments during the course of the week. All labor scheduling is approved by a District Manager and unit level performance is reviewed weekly.

For manager and support controllables, we use either a fixed dollar budget standard or a percentage of net sales approach to plan expenditures effectively. Actual performance for each of these expense items is compared to budget on a weekly basis to help ensure accountability and operational alignment with financial planning efforts.

We believe that the combination of these structured restaurant operating systems and technologies allow our restaurant managers to focus their time more effectively on the day-to-day drivers of our business.

Management Information Systems

We use a select group of service providers to supplement our information technology infrastructure. This provides us access to up-to-date technology and the flexibility to adjust service levels as needed. Our strategy includes utilizing web-based technology to provide timely information to operate the business.

The systems are structured for the integration of data from the point-of-sale and back-office modules in the restaurants to our financial and inventory management systems. Key information relating to restaurant operations is uploaded onto a secure website five times a day for review and pre-selected reports are electronically distributed to our operations team.

We have a disaster recovery plan in place for all critical hardware, software, data and related processes. The plan encompasses scheduled back-ups, off-site storage, security, data integrity and redundant facilities for our servers and storage area networks.

Purchasing

We have relationships with some of the country’s best food, paper, and beverage providers to provide our restaurants with high quality proprietary food items at competitive prices. We source and negotiate prices directly with these suppliers and distribute these products to our restaurants primarily through a national network of independent distributors. We do not utilize a commissary system. Our inventory control system allows each restaurant to place orders electronically with our master distributor and then transmit the invoice electronically to our accounts payable system. Our scalable system eliminates duplicate work and we believe it gives our management tight control of costs while ensuring quality and consistency across all restaurants.

We have an agreement with Distribution Market Advantage, Inc. that provides us access to a national network of independent distributors. Under this agreement, which expires in November 2010, the independent distributors will supply us with approximately 77% of our food and paper products, primarily under pricing agreements that we negotiate directly with the suppliers.

We have a long-term beverage marketing agreement with the Coca-Cola Company. We received a marketing allowance under this agreement, which is being recognized as a reduction to expense ratably based on actual products purchased. Although we are eligible to receive additional amounts under the agreement if certain purchase levels are achieved, no additional amounts have been received or recorded as of December 31, 2007.

We purchase all contracted coffee products through a single supplier, Coffee Bean International, Inc. (“Coffee Bean International”), under an agreement that expires in June 2010. In the event of a business interruption, Coffee Bean International is required to utilize the services of a third-party roaster to fulfill its obligations. If the services of a third-party roaster are used, Coffee Bean International will guarantee that the product fulfillment standards stated in our contract will remain in effect throughout such business interruption period. Either party may terminate the agreement by written notice in accordance and subject to the terms of the agreement.

Our primary suppliers and independent distributors have parallel facilities and systems to minimize the risk of any disruption of our supply chain.

Competition

The restaurant industry is intensely competitive and we compete with many well-established food service companies, including other sandwich retailers, specialty coffee retailers, bagel shops, fast food restaurants, delicatessens, cafes, bars, take-out food service companies, supermarkets and convenience stores. The principal factors on which we compete are taste, quality and price of product offered, customer service, atmosphere, location and overall guest experience. Our competitors change with each daypart, ranging from coffee bars and bakery cafes in the morning daypart, to fast food restaurants and cafes during the lunch daypart, to casual dining chains during the dinner daypart. Many of our competitors or potential competitors have substantially greater financial and other resources than we do which may allow them to react more quickly to changes in pricing, marketing and the quick-service restaurant industry. We also compete with other employers in our markets for hourly workers and may be subject to higher labor costs. We believe that our concept, attractive price-value relationship and quality of products and service allow us to compete favorably with our competitors.

Intellectual Property

We have the following U.S. Trademark registrations: “Cosi”, “Cosi (with our hearth design)”, “Cosi Break Bar”, “Cosi-Dillas”, “Squagels”, “Xando”, “Cosi Pronto”, “Cosi Corners”, “Warm ’n Cosi Melts”, “Cosi Downtown”, and “Simply Good Taste.”

We have U.S. Trademark applications pending for the following trademarks: “Cosi (with our hearth design)”, “CosiCard”, “Hearth-Baked Dinners”, and “Relax. Catering by Cosi (& Design)”. “Artic”, “Slim Latte”, and “Cosi Lighter Side” are unregistered trademarks.

We have registered the trademark “Cosi” in 13 foreign jurisdictions with respect to goods and services. We also have trademark applications pending for registration for the trademark “Cosi” in the European Community and five other foreign jurisdictions, and we have applications pending for registration for the trademark “Cosi (with our hearth design)” and “Simply Good Taste” in two foreign jurisdictions.

Governmental Regulation

Our restaurants are subject to regulation by federal agencies and to licensing and regulation by state, local and where applicable, foreign health, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of restaurants. These regulations include matters relating to environmental, building, construction and zoning requirements, franchising and the preparation and sale of food and alcoholic beverages. In addition, our facilities are licensed and subject to regulation under state and local fire, health and safety codes.

Our restaurants that sell alcoholic beverages are required to obtain a license from a state authority and, in certain locations, county and/or municipal authorities. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of each of our restaurants, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, and storage and dispensing of alcoholic beverages. We have not encountered any material problems relating to alcoholic beverage licenses to date. The failure to receive or retain a liquor license in a particular location could adversely affect that restaurant and may impact our ability to obtain such a license elsewhere.

We are subject to “dram shop” statutes in the states in which our restaurants sell alcoholic beverages. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated individual. We carry liquor liability coverage as part of our existing comprehensive general liability insurance, which we believe is consistent with coverage carried by other entities in the restaurant industry. Although we are covered by insurance, a judgment against us under a dram-shop statute in excess of our liability coverage could have a material adverse effect on us.

Our operations are also subject to federal and state laws governing such matters as wages, working conditions, citizenship requirements and overtime. Some states have set minimum wage requirements higher than the federal level. Some of our hourly personnel at our restaurants are paid at rates based on the applicable minimum wage, and increases in the minimum wage will directly affect our labor costs. We are also subject to the Americans with Disabilities Act of 1990, which, among other things, prohibits discrimination on the basis of disability in public accommodations and employment. We are required to comply with the Americans with Disabilities Act and regulations relating to accommodating the needs of the disabled in connection with the construction of new facilities and with significant renovations of existing facilities.


MANAGEMENT DISCUSSION FROM LATEST 10K

The following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2007, January 1, 2007 and January 2, 2006 should be read in conjunction with “Selected Consolidated Financial Data” and our audited consolidated financial statements and the notes to those statements that are included elsewhere in this Annual Report. 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 Annual Report.

There are currently 106 company-owned and 42 franchise premium convenience restaurants operating in 19 states, the District of Columbia, and the United Arab Emirates (UAE), of which eight franchised restaurants opened subsequent to fiscal 2007; seven in the United States and one in the UAE. In addition, we closed one company-owned restaurant in Chicago subsequent to fiscal 2007. Our restaurants offer innovative savory made-to-order products featuring our authentic hearth-baked crackly crust signature Cosi bread and fresh distinctive ingredients. We maintain a pipeline of new menu offerings that are introduced seasonally through limited time offerings to keep our products relevant to our target customers. Our menu features high-quality sandwiches, freshly-tossed salads, Cosi bagels, hot melts, Flatbread pizzas, S’mores and other desserts, and a variety of coffees along with other soft drink beverages, bottled beverages including premium still and sparkling water, teas, alcoholic beverages, and other specialty coffees. Our restaurants offer lunch and afternoon coffee in a counter service format, with most offering breakfast and/or dinner and dessert menus as well. We operate our company-owned restaurants in two formats: Cosi and Cosi Downtown. Cosi Downtown restaurants, which are located in nonresidential central business districts, close for the day in the early evening, while Cosi restaurants offer dinner and dessert in a casual dining atmosphere.

We are currently eligible to offer franchises in 47 states and the District of Columbia. We offer franchises to area developers and individual franchise operators. The initial franchise fee, payable to us, for both an area developer and an individual franchise operator, is $40,000 for the first restaurant and $35,000 for each additional restaurant.

We believe that offering Cosi franchised restaurants to area developers and individual franchisees offers the prospects of strong financial returns. By franchising, we believe we will be able to increase the presence of our restaurants in various markets throughout the country and generate additional revenue without the large upfront capital commitments and risk associated with opening company-owned restaurants. As of December 31, 2007, we had secured franchise commitments from 31 area developers for 374 restaurants, for which we have received $4.4 million in deposits, including 34 restaurants existing as of the end of fiscal 2007, and an international licensing agreement with a licensee in the Persian Gulf.

We are currently licensing the right to develop and operate Cosi franchised restaurants in certain foreign jurisdictions in compliance with applicable local rules and regulations there.

We believe that incorporating a franchising and area developer model into our strategy will position us to maximize the market potential for the Cosi brand and concept consistent with our available capital and we expect that company-owned restaurants (restaurants that we own as opposed to franchised restaurants) will always be an important part of our new restaurant growth.

During the third quarter of fiscal 2007, the Company reached an agreement with Macy’s Inc. (“Macy’s”) relating to the six Cosi restaurants operated within Macy’s stores. Under the terms of the agreement, Cosi ceased operations and closed those locations on August 19, 2007. Macy’s purchased the fixed assets and leasehold improvements at these locations for a total consideration of approximately $0.7 million.

During fiscal 2007, we opened six new company-owned restaurants and permanently closed nine company-owned restaurants; six that operated in the Macy’s department stores, one restaurant each in Maryland and New Jersey, and one restaurant in New York City that had an expiring lease and where we opened a new restaurant in the immediate vicinity subsequent to its closing.

Cosi has reached an agreement in principle with a third party in the Seattle, Washington area to sell the assets of all three company-owned locations currently operating there. Under the terms of the agreement, Cosi will transfer rights to the assets and leasehold improvements for minimal cash consideration and the purchaser will assume the tenant obligations under the real estate operating leases and operate these locations under a different brand. The assets at these locations have been previously impaired in their entirety and we do not anticipate that we will realize any gain from this transaction. Cosi expects to exit these locations by the end of the second quarter of fiscal 2008.

Critical Accounting Policies

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable and generally accepted for companies in the restaurant industry. We believe that the following addresses the more critical accounting policies used in the preparation of our consolidated financial statements and require management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Long lived assets: Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long Lived Assets , requires management judgments regarding the future operating and disposition plans for marginally performing assets, and estimates of expected realizable values for assets to be sold. Actual results may differ from those estimates. The application of SFAS 144 has affected the amount and timing of charges to operating results that have been significant in recent years. We evaluate possible impairment at the individual restaurant-level whenever we determine impairment factors are present and at least annually. We consider a history of poor financial operating performance to be the primary indicator of potential impairment for individual restaurant locations. We determine whether a restaurant location is impaired based on expected undiscounted cash flows, generally for the remainder of the lease term, and then determine the impairment charge based on discounted cash flows for the same period. During fiscal 2007, we recorded impairment charges of approximately $7.2 million of which $3.4 million is related to the closed Macy’s locations and the locations in Seattle, Washington which are classified as discontinued operations, and $3.8 million related to underperforming locations including one restaurant in Chicago that was closed during the first quarter of fiscal 2008.

Lease termination charges: Statement for Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities , requires companies to recognize costs associated with exit or disposal activities when they are incurred, rather than at the date of a commitment to an exit or disposal plan. For all exit activities, we estimate our likely liability under contractual leases for restaurants that have been closed. Such estimates have affected the amount and timing of charges to operating results and are impacted by management’s judgments about the time it may take to find a suitable subtenant or assignee, or the terms under which a termination of the lease agreement may be negotiated with the landlord. During fiscal 2007, we recorded lease termination charges of approximately $0.3 million related to a location where, due to the enforcement of restrictions in a zoning overlay district, Cosi was denied the necessary permits to build a restaurant and we exercised the exit provision under the lease and to an underperforming restaurant in Chicago were we exercised the early exit provision of the lease.

Stock-based compensation: As of January 3, 2006, we have adopted the fair value recognition provision of SFAS 123R, Share-Based Payment , which generally requires, among other things, that all employee share-based compensation be measured using the fair value method and that all of the resulting compensation cost be recognized in the financial statements. We selected the modified prospective method of adoption. Under SFAS 123R, our stock compensation expense is recognized on a straight-line basis over the requisite service period of the award, which is the vesting term. We measure the estimated fair value of our granted stock options using a Black-Scholes pricing model and of our restricted stock based on the fair market value of a share of registered stock on the date of the grant. The operating results for fiscal years 2007 and 2006 reflect the adoption of SFAS 123R.

Accounting for lease obligations: In accordance with Financial Accounting Standards Board Technical Bulletin No. 85-3, Accounting for Operating Leases with Scheduled Rent Increases , we recognize rent expense on a straight-line basis over the lease term commencing on the date we take possession. We include any rent escalations, rent abatements during construction periods and other rent holidays in our straight-line rent calculation.

Landlord allowances: In accordance with Financial Accounting Standards Board Technical Bulleting (“FASB”) No. 88-1, Issues Relating to Accounting for Leases , we record landlord allowances as deferred rent in other long-term liabilities on the consolidated balance sheets and amortize them on a straight-line basis over the term of the related lease.

Income taxes: We have recorded a full valuation allowance to reduce our deferred tax assets related to net operating loss carry-forwards. Our determination of the valuation allowance is based on an evaluation of whether it is more likely than not that we will be able to utilize the net operating loss carry-forward, based on the Company’s operating results. A positive adjustment to income will be recorded in future years if we determine that it is more likely than not that we will realize these deferred tax assets.

We have adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”) as of January 2, 2007. FIN 48 prescribes a comprehensive financial statement model of how a company should recognize, measure, present and disclose uncertain tax positions that the company has taken or expects to take in its income tax returns. FIN 48 requires that only income tax benefits that meet the “more likely than not” recognition threshold be recognized or continue to be recognized on the effective date. Initial recognition amounts would be reported as a cumulative effect of a change in accounting principle.

No adjustment was made to the beginning retained earnings balance, as the ultimate deductibility of all tax positions is highly certain but there is uncertainty about the timing of such deductibility. No interest or penalties have been accrued relative to tax positions due to the Company having either a tax loss or net operating loss carry-forwards to offset any taxable income in all subject years. As a result, no liability for uncertain tax positions was recorded as of December 31, 2007.

Should the Company need to accrue interest or penalties on uncertain tax positions, it would recognize the interest as interest expense and the penalties as a general and administrative expense.

Revenue

Restaurant net sales. Our company-owned restaurant sales are composed almost entirely of food and beverage sales. We record revenue at the time of the purchase of our products by our customers.

Franchise fees and royalties. Franchise fees and royalties include fees earned from franchise agreements entered into with area developers and franchise operators, fees earned from our international license agreements, and royalties received based on sales generated at franchise restaurants. We recognize the franchise fee in the period in which each franchise location opens. We recognize franchise royalties in the period in which sales are made by our franchise operators.

Gift card sales. We offer our customers the opportunity to purchase gift cards at our restaurants and through our website. Customers can purchase these cards at varying dollar amounts. At the time of purchase by the customer, we record a gift card liability for the face value of the card purchased. We recognize the revenue and reduce the gift card liability when the gift card is redeemed. We do not reduce our recorded liability for potential non-use of purchased gift cards.

Comparable Restaurant Sales

In calculating comparable restaurant sales, we include a restaurant in the comparable restaurant base after it has been in operation for 15 full months. We remove from the comparable restaurant base any restaurant that is temporarily shut down for remodeling for a complete period in the period that it is shut down. At fiscal years ended December 31, 2007, January 1, 2007, and January 2, 2006 there were 95, 81, and 79 restaurants in our comparable restaurant base, respectively.

Costs and Expenses

Cost of food and beverage. Cost of food and beverage is composed of food and beverage costs. Food and beverage costs are variable based on the supply and demand of commodities and also fluctuate with changes in sales volume and product mix.

Restaurant labor and related benefits. The costs of labor and related benefits include direct hourly and management wages, bonuses, payroll taxes, health insurance and all other fringe benefits Occupancy and other restaurant operating expenses. Occupancy and other operating expenses include direct restaurant-level operating expenses, including the cost of paper and packaging, supplies, restaurant repairs and maintenance, utilities, rents and related occupancy costs.

General and administrative expenses. General and administrative expenses include all corporate and administrative functions that support our restaurants and provide an infrastructure to operate our business. Components of these expenses include executive management; supervisory and staff salaries; non-field bonuses and related taxes and employee benefits; travel; information systems; training; support center rent and related occupancy costs; and professional and consulting fees. The salaries, bonuses and employee benefits costs included as general and administrative expenses are generally more fixed in nature and do not vary directly with the number of restaurants we operate.

Stock compensation expense. Stock compensation expense includes the charges related to recognizing the fair value of stock options and restricted stock as compensation for awards to certain key employees and non-employee directors, except the costs related to compensation for restaurant employees which are included in restaurant labor and related benefits.

Depreciation and amortization. Depreciation and amortization principally consists of depreciation of restaurant assets.

Restaurant pre-opening expenses. Restaurant pre-opening expenses, which are expensed as incurred, include the costs of recruiting, hiring and training the initial restaurant work force, travel costs, the cost of food and labor used during the period before opening, the cost of initial quantities of supplies and other direct costs related to the opening of, or remodeling of, a restaurant. Pre-opening expenses also include rent expense recognized on a straight-line basis from the date we take possession through the period of construction, remodeling and fixturing prior to opening the restaurant.

Restaurant net sales increased 7.8% in fiscal 2007. This increase was due primarily to $12.7 million in net sales at new restaurants not yet in the comparable restaurant base, as of December 31, 2007, and a 0.2%, or $0.3 million, increase in comparable restaurant net sales, partially offset by a decrease of approximately $1.8 million in net sales associated with two company-owned restaurants sold to franchisees during the fourth quarter of fiscal 2006, the decline of $1.2 million in net sales related to restaurants closed subsequent to fiscal 2006, and a decline of $0.4 million in net sales related to restaurants temporarily closed for remodeling during fiscals 2006 and 2007. For comparable restaurants in fiscal 2007, our average check increased 3.4% and our transaction count decreased by 3.1%, compared to fiscal 2006. The 3.4% increase in average guest check is due primarily to an increase in catering transactions, a favorable shift in sales mix and the impact of a price increase that was taken during the second quarter of fiscal 2006. The increase in our average guest check was almost entirely offset by a decrease in guest traffic as compared to fiscal 2006.

Franchise fees and royalties during fiscal 2007 consist of $1.3 million in royalties from franchise restaurants operated during fiscal 2007 and $0.8 million in fees related to the 22 franchise restaurants that opened during fiscal 2007, including $0.09 million related to the licensing fees earned under the international licensing agreement for the locations in the UAE. Franchise fees and royalties during fiscal 2006 consisted of $0.4 million in royalties from franchise restaurants operated during fiscal 2006 and $0.4 million in fees related to the eight franchise restaurants that opened during fiscal 2006, including fees related to the conversion of two company-owned restaurants to franchise restaurants during fiscal 2006, one each in Connecticut and New Jersey, and three Boston restaurants converted to franchise restaurants at the end of fiscal 2005.

Restaurant labor and related benefits. The increase in restaurant labor and related benefits as a percentage of restaurant net sales during fiscal 2007 is due primarily to higher labor costs as a percentage of restaurant net sales in new restaurants opened since the second quarter of fiscal 2006 that have not yet reached maximum sales or operating efficiency and a slight deleveraging of labor costs against a relatively flat sales performance at comparable locations during fiscal 2007 as compared to fiscal 2006.

Occupancy and other restaurant operating expenses The increase in restaurant occupancy and other restaurant operating expenses as a percentage of restaurant net sales during fiscal 2007 is due primarily to the impact of fixed occupancy costs against sales at new restaurants that have not yet reached expected sales levels, higher costs for repairs and maintenance, the impact of relatively flat sales performance at comparable locations on occupancy costs, and slightly higher costs for paper and packaging.

General and administrative costs. The reduction in general and administrative costs during fiscal 2007 as compared to fiscal 2006 is due to lower costs associated with litigation, labor savings, including the impact of an administrative workforce reduction during the third quarter of fiscal 2007, and lower professional and consulting fees partially offset by higher recruiting costs primarily related to the search to select and appoint a new Chief Executive Officer.

Stock-based compensation expense. Stock-based compensation costs during fiscal 2007 consisted of approximately $1.6 million related to the vesting of restricted stock grants. In addition, we recorded a charge of approximately $0.4 million, in accordance with SFAS No. 123R, associated with the fair value of employee stock options that vested during fiscal 2007, including approximately $0.01 million which is included in restaurant labor and related benefits. During fiscal 2006, we recorded a charge of approximately $3.9 million related to the vesting of restricted stock grants. In addition, we recorded a charge of approximately $1.1 million, in accordance with SFAS No. 123R, associated with the fair value of employee stock options that vested during fiscal 2006, including approximately $0.04 million which is included in restaurant labor and related benefits.

Depreciation and amortization. The higher depreciation and amortization costs in 2007 as compared to 2006 are due primarily to the opening of new company-owned restaurants during and subsequent to fiscal 2006. The increase in depreciation and amortization expense was partially offset by the impact of impairments recorded during fiscal 2006 and the second quarter of fiscal 2007 as well as the continued depreciation and amortization of our comparable restaurant base.

Restaurant pre-opening expenses. Restaurant pre-opening expenses were $0.7 million during fiscal 2007, due primarily to occupancy, pre-opening payroll, supplies and training costs for six new restaurants opened during fiscal 2007. During fiscal 2007, 54.8% of restaurant pre-opening expenses were for occupancy costs incurred prior to the opening of the restaurants. Restaurant pre-opening expenses were $1.5 million in fiscal 2006, due primarily to pre-opening payroll, supplies and training costs for 21 new restaurants opened during fiscal 2006 and one new restaurant that opened in the first quarter of fiscal 2007. During fiscal 2006, 42% of restaurant pre-opening expenses were for occupancy costs incurred prior to the opening of the restaurants.

Provision for losses on asset impairments and disposals. The asset impairment charges of $3.8 million recorded in fiscal 2007 are related to seven underperforming locations that we have determined to be impaired, of which one is in the Mid-Atlantic region and three each are in the Northeast and Midwest regions. In addition, during fiscal 2007, we recorded impairment charges of $3.4 million related to Macy’s and Seattle locations, which are reported in discontinued operations. During fiscal 2006, we recorded asset disposal charges of approximately $0.2 million.

Closed store costs. Closed store costs during fiscal 2007 are related to one restaurant in New York City that closed at the lease expiration and was relocated within the immediate area during the second quarter of fiscal 2007, one underperforming location in New Jersey where the lease expired and we exited the location, as well as one underperforming location in Maryland where the lease was scheduled to expire in fiscal 2008 and where we negotiated an early exit agreement with the landlord. We did not have any closed store costs during fiscal 2006.

Loss from Continuing Operations. The increase in our loss from continuing operations during fiscal 2007, as compared to fiscal 2006, is due primarily to a decrease in restaurant operating margins driven mainly by operating inefficiencies at restaurants opened since the second quarter of fiscal 2006, higher food and labor costs, non-cash charges for asset impairments, higher depreciation and amortization costs, higher lease termination charges, and higher closed store costs.

Discontinued Operations. During the third quarter of fiscal 2007, Cosi reached an agreement with Macy’s Inc. (“Macy’s”) relating to six Cosi restaurants that were operated within Macy’s stores. Under the terms of the agreement, Cosi ceased operations and closed those locations on August 19, 2007. Macy’s purchased the fixed assets and leasehold improvements at these locations for a total consideration of approximately $0.7 million.

In addition, Cosi has reached an agreement in principle with a third party in the Seattle, Washington area to sell the assets of three underperforming company-owned locations currently operating there. Under the terms of the agreement, Cosi will transfer rights to the assets and leasehold improvements for minimal cash consideration and the new owner will assume the tenant obligations under the real estate operating leases and operate these locations under a different brand. The assets at these locations have been previously impaired in their entirety and we do not anticipate that we will realize any gain from this transaction. Cosi expects to exit these locations during by the end of the second quarter of fiscal 2008.

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets , the Macy’s and Seattle locations qualify as discontinued operations, and accordingly we have reported the results of operations of this group in discontinued operations in the accompanying consolidated financial statements for all periods presented.

We recorded a charge of $3.4 million during fiscal 2007 related to the impairment of the assets at the Seattle and Macy’s locations, which is also reported in discontinued operations in the accompanying consolidated financial statements.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

The following discussion and analysis of our financial condition and results of operations for the fiscal quarters ended September 29, 2008 and October 1, 2007 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 2007 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.

There are currently 101 company-owned and 50 franchised premium convenience restaurants operating in 18 states, the District of Columbia, and the United Arab Emirates (UAE). Subsequent to the third quarter of fiscal 2008, seven new franchised Cosi restaurants have opened, including one located in the UAE. During the third quarter of fiscal 2008, we closed one underperforming company-owned restaurant in Chicago. One new company-owned restaurant and seventeen franchised restaurants have opened during the first nine months of fiscal 2008, including four franchised restaurants in the UAE. During the first nine months of fiscal 2008, we closed seven company-owned restaurants, of which three were underperforming locations, one location where the lease expired and we were unable to negotiate acceptable renewal terms, and three were locations in Seattle, Washington where we exited the market and sold the assets at those locations to a local restaurant development company that will operate them under a different brand.
Our restaurants offer innovative, savory, made-to-order products featuring our authentic hearth-baked crackly crust signature Cosi bread and fresh distinctive ingredients. We maintain a pipeline of new menu offerings that are introduced seasonally through limited time offerings to keep our products relevant to our target customers.

Our menu features high-quality sandwiches, freshly tossed salads, Cosi bagels, Flatbread pizzas, S’mores and other desserts. We feature our authentic hearth-baked crackly crust signature Cosi bread in two varieties, our original Rustica and our Etruscan Whole Grain. Our beverage menu features a variety of house coffees and other specialty coffee drinks, soft drinks, bottled beverages including premium still and sparkling water and teas. We also offer beer and wine at most of our locations and an additional limited selection of alcoholic beverages at some of our locations. Our restaurants offer lunch and afternoon coffee in a counter service format, with most offering breakfast and/or dinner and dessert menus as well. We operate our company-owned restaurants in two formats: Cosi and Cosi Downtown. Cosi Downtown restaurants, which are located in nonresidential central business districts, close for the day in the early evening, while Cosi restaurants offer dinner and dessert in a fast casual dining atmosphere. All our restaurants offer our catering services which include breakfast baskets, lunch buffets, dessert and fruit platters, and many of our core menu offerings.
We are currently eligible to offer franchises in 47 states and the District of Columbia. We offer franchises to area developers and individual franchise operators. The initial franchise fee, payable to us, for both an area developer and an individual franchise operator, is $40,000 for the first restaurant and $35,000 for each additional restaurant.
We expect that company-owned restaurants (restaurants that we own as opposed to franchised restaurants) will always be an important part of our new restaurant growth; however, our franchising and area developer models will be key components of our growth strategy. We believe that our concept, growth potential and strong unit-level economics will enable us to attract experienced well-capitalized area developers. By franchising, we believe we will be able to increase the presence of our restaurants in various markets throughout the country and generate additional revenue without the large upfront capital commitments and risk associated with opening company-owned restaurants.
We also continue to explore strategic opportunities with our Cosi Pronto (our grab-and-go concept) and full-service concepts in educational establishments, airports, train stations and other public venues that meet our operating and financial criteria.
RECENT EVENTS
On November 4, 2008, the Board of Directors of the Company unanimously elected Robert S. Merritt, currently a member of the Board of Directors and our former Interim Chief Executive Officer, to serve as non-executive Chairman of the Board of the Company succeeding William D. Forrest. Mr. Forrest resigned as a member of the Board of Directors and as non-executive Chairman of the Board of Directors of the Company on November 4, 2008. Mr. Forrest’s resignation is not a result of a disagreement with the Company or with any of its operations, policies, or practices. In connection with his resignation, the Company’s Board of Directors expressly acknowledged his extraordinary efforts in serving as a director and as Chairman of the Board since 2003.
CRITICAL ACCOUNTING POLICIES
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the appropriate application of certain accounting policies, many of which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.
We believe the application of our accounting policies, and the estimates inherently required therein, are reasonable and generally accepted for companies in the restaurant industry. We believe that the following addresses the more critical accounting policies used in the preparation of our consolidated financial statements and require management’s most difficult and subjective judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Long Lived Assets : SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , requires management judgments regarding the future operating and disposition plans for marginally-performing assets, and estimates of expected realizable values for assets to be sold. The application of SFAS 144 has affected the amount and timing of charges to operating results that have been significant in recent years. We evaluate possible impairment at the individual restaurant level periodically and record an impairment loss whenever we determine impairment factors are present. We consider a history of poor financial operating performance to be the primary indicator of potential impairment for individual restaurant locations. We determine whether a restaurant location is impaired based on expected undiscounted cash flows, generally for the remainder of the lease term, and then determine the impairment charge based on discounted cash flows for the same period. Restaurants are not considered for impairment during the period before they enter the comparable restaurant base, unless specific circumstances warrant otherwise.
During the three month period ended September 29, 2008, we recorded an impairment charge of $0.8 million related to two underperforming locations. During the nine month period ended September 29, 2008, we recorded an impairment charge of approximately $1.1 million related to three underperforming locations. In addition, during the nine month period ended September 29, 2008 we also recorded an impairment charge of approximately $0.09 million related to the Seattle locations, which is reported in discontinued operations. During the three month period ended October 1, 2007, we recorded an impairment charge of approximately $0.4 million related to one underperforming location where we exercised the early exit provision of the lease, during the third quarter of fiscal 2007, and closed the restaurant during the first quarter of fiscal 2008. During the nine month period ended October 1, 2007, we recorded impairment charges of approximately $1.3 million related to three underperforming restaurants as well as approximately $3.1 million related to the Seattle and Macy’s locations which is reported in discontinued operations.
Lease Termination Charges : SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities , requires companies to recognize costs associated with exit or disposal activities when they are incurred, rather than at the end of a commitment to an exit or disposal plan. For all exit activities, we estimate our likely liability under contractual leases for restaurants that have been closed. Such estimates have affected the amount and timing of charges to operating results and are impacted by management’s judgments about the time it may take to find a suitable subtenant or assignee, or the terms under which a termination of the lease agreement may be negotiated with the landlord.
During the third quarter of fiscal 2008, we recorded lease termination charges of approximately $0.1 million related to one underperforming location that we closed during the quarter. During the nine month period ended September 29, 2008, we recorded lease termination charges of approximately $0.3 million related to one underperforming location that we closed during the third quarter and a location where we made the decision, subsequent to entering into a lease, not to build a restaurant and reached an agreement with the landlord to terminate the lease. During the third quarter of fiscal 2007, we recorded a lease termination charge of approximately $0.1 million related to a lease for an underperforming restaurant in Chicago for which we exercised the early exit provision of the lease. During the nine months ended October 1, 2007 we recorded lease termination charges of approximately $0.3 million related to (i) a lease for an underperforming restaurant in Chicago for which we exercised the early exit provision of the lease and (ii) a lease where, due to the enforcement of restrictions in a zoning overlay district, Cosi was denied the necessary permits to build a restaurant and, in accordance with the terms of the lease, Cosi exercised the exit provision.
Stock-Based Compensation Expense : We recognize stock-based compensation expense according to the fair value recognition provision of SFAS 123R, Share-Based Payment , which generally requires, among other things, that all employee share-based compensation be measured using a fair value method and that all the resulting compensation expense be recognized in the financial statements. Stock-based compensation expense that we recognized for the quarter ended September 29, 2008 included: (a) compensation expense for all share-based payments granted prior to, but not yet vested, as of June 30, 2008, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, Accounting for Stock-Based Compensation , and (b) compensation expense for all share-based payments granted on or after June 30, 2008, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. Under SFAS 123R, our stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the award, which is the vesting term. SFAS 123R also requires the Company to estimate forfeitures in calculating the expense relating to share-based compensation as opposed to recognizing forfeitures as an expense reduction as they occur. We recognized stock-based compensation expense of $0.3 million and $0.5 million for the quarters ended September 29, 2008 and October 1, 2007, respectively. For the nine month periods ended September 29, 2008 and October 1, 2007, we recognized stock-based compensation expense of $1.3 million and $1.1 million respectively.

We measure the estimated fair value of our granted stock options using a Black-Scholes pricing model and of our restricted stock based on the fair market value of a share of registered stock on the date of grant. The weighted average fair values of the stock options granted through 2005, the last time we issued options, calculated in accordance with SFAS 123R were determined using the Black-Scholes option-pricing model with the following weighted average assumptions:

We estimate forfeitures in calculating the expense relating to share-based compensation. Pre-vesting forfeiture rates are estimated based on historical data. The expected volatility is based on an average of the historical volatility of the Company’s stock, the implied volatility of market options, peer company volatility, and other factors. The average expected life represents the period of time that stock option grants are expected to be outstanding and is derived from historical terms and other factors. The risk-free interest rate is based on the rate of U.S. Treasury zero-coupon issues with remaining term equal to the expected life of option grants.
Accounting for Lease Obligations: In accordance with FASB Technical Bulletin No. 85-3, Accounting for Operating Leases with Scheduled Rent Increases , we recognize rent expense on a straight-line basis over the lease term commencing on the date we take possession. We include any rent escalations, rent abatements during the construction period and any other rent holidays in our straight-line rent expense calculation.
Landlord Allowances : In accordance with FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases , we record landlord allowances as deferred rent in other long-term liabilities on the consolidated balance sheets and amortize them on a straight-line basis over the term of the related leases.
Income Taxes : We have recorded a full valuation allowance to reduce our deferred tax assets related primarily to net operating loss carryforwards. Our determination of the valuation allowance is based on an evaluation of whether it is more likely than not that we will be able to utilize the net operating loss carryforwards, based on the Company’s operating results. A positive adjustment to income will be recorded in future years if we determine that we could realize these deferred tax assets.
We have adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”) as of January 2, 2007. FIN 48 prescribes a comprehensive financial statement model of how a company should recognize, measure, present and disclose uncertain tax positions that the company has taken or expects to take in its income tax returns. FIN 48 requires that only income tax benefits that meet the “more likely than not” recognition threshold be recognized or continue to be recognized on the effective date. Initial recognition amounts would be reported as a cumulative effect of a change in accounting principle.
No adjustment was made to the beginning retained earnings balance, as the ultimate deductibility of all tax positions is highly certain but there is uncertainty about the timing of such deductibility. No interest or penalties have been accrued relative to tax positions due to the Company having either a tax loss or net operating loss carry-forwards to offset any taxable income in all subject years. As a result, no liability for uncertain tax positions has been recorded.
Should the Company need to accrue interest or penalties on uncertain tax positions, it would recognize the interest as interest expense and the penalties as a general and administrative expense.


REVENUE
Restaurant Net Sales. Our company-owned and operated restaurant sales are composed almost entirely of food and beverage sales. We record revenue at the time of the purchase of our products by our customers.
Franchise Fees and Royalties. Franchise fees and royalties includes fees earned from franchise agreements entered into with area developers and franchise operators as well as royalties received based on sales generated at franchised restaurants. We recognize the franchise fee in the period in which a franchise location opens or when fees are forfeited as a result of a termination of an area development agreement. We recognize franchise royalties in the period in which sales are made by our franchise operators.
Gift Card Sales . We offer our customers the opportunity to purchase gift cards at our restaurants and through our website. Customers can purchase these cards at varying dollar amounts. At the time of purchase by the customer, we record a gift card liability for the face value of the card purchased. We recognize the revenue and reduce the gift card liability when the gift card is redeemed. We do not reduce our recorded liability for potential non-use of purchased gift cards.
COMPARABLE RESTAURANT SALES
In calculating comparable restaurant sales, we include a restaurant in the comparable restaurant base after it has been in operation for 15 full months. We remove from the comparable restaurant base any restaurant that is temporarily shut down for remodeling for a complete period in the period that it is shut down. At September 29, 2008 and October 1, 2007, there were 98 and 96 restaurants in our comparable restaurant base, respectively.
COSTS AND EXPENSES
Cost of Food and Beverage. Cost of food and beverage is comprised of food and beverage costs. Food and beverage costs are variable and increase with sales volume.
Restaurant Labor and Related Benefits. The costs of labor and related benefits include direct hourly and management wages, bonuses, payroll taxes, health insurance and all other fringe benefits.
Occupancy and Other Restaurant Operating Expenses. Occupancy and other operating expenses include direct restaurant level operating expenses, including the cost of paper and packaging, supplies, restaurant repairs and maintenance, utilities, rents and related occupancy costs.
General and Administrative Expenses. General and administrative expenses include all corporate and administrative functions that support our restaurants and provide an infrastructure to operate our business. Components of these expenses include executive management costs; supervisory and staff salaries; non-field stock-based compensation expense; non-field bonuses and related taxes and employee benefits; travel; information systems; training; support center rent and related occupancy costs; and professional and consulting fees. The salaries, bonuses and employee benefits costs included as general and administrative expenses are generally more fixed in nature and do not vary directly with the number of restaurants we operate. Stock-based compensation expense includes the charges related to recognizing the fair value of stock options and restricted stock as compensation for awards to certain key employees and non-employee directors, except the costs related to stock-based compensation for restaurant employees which are included in restaurant labor and related benefits.
Depreciation and Amortization. Depreciation and amortization consists principally of depreciation and amortization of restaurant assets.
Restaurant Pre-opening Expenses. Restaurant pre-opening expenses, which are expensed as incurred, include the costs of recruiting, hiring and training the initial restaurant work force, travel, the cost of food and labor used during the period before opening, the cost of initial quantities of supplies and other direct costs related to the opening or remodeling of a restaurant. Pre-opening expenses also include rent expense recognized on a straight-line basis from the date we take possession through the period of construction, renovation and fixturing prior to opening the restaurant.

CONF CALL

Bill Koziel

Thank you, Operator. Good afternoon. This is Bill Koziel, Chief Financial Officer. I would like to welcome you to Cosi's 2007 fourth quarter and full year results conference call. Joining me today on the call is Jim Hyatt, Cosi's President and Chief Executive Officer.

Cosi's earnings release was issued today at market close and is available in the Investor Information section of our website at www.getcosi.com. During the call, we will 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 the supplemental materials at this time.

Part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to risks and uncertainties. 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 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 today's call, Jim will begin with some initial thoughts regarding the fourth quarter. I will then review the financial and development results for the quarter and the full year and Jim will conclude by discussing our work and plans around specific components of our business. We will then open the call for questions. Jim?

Jim Hyatt

Thanks, Bill, and good afternoon, everyone. Let me start by saying that we are pleased with the progress that we've seen so far in the execution of our plans to improve Cosi's business performance. Cosi is showing resilient traction with our guests improving operations discipline in our restaurants and making good progress in corporate expense control. From 2007 we saw the positive sales trends of the third quarter carry into and throughout the fourth quarter and we continue to see this momentum building into 2008. Our positive traction in our comp sales has translated into a better overall system-wide comp performance and some of our competitors indicating we are advancing.

These positive sales and traffic trends have persisted despite adverse external factors, such as the recent major snowstorms in the Midwest along with the very challenging year-over-year weather throughout the entire Midwest, mid-Atlantic, and Northeast where all of our company restaurants are located. The increase sales trends have resulted for menu initiatives, daypart work, but so far mostly from improvements in guest satisfaction and throughput improvements from our operations advances.

So the patterns that we have seen demonstrate that when we are focused on improving the day-to-day operations of our business, streamlining the performance of our restaurants, and providing the superior experience and service our guests have come to expect, we reap rewards. We have a lot of work left to do. We are going into the right direction to capitalize on this very strong concept and brand.

After Bill takes you through the P&L, we are going to spend some time before the Q&A to talk with you about our work and our plans as they pertain to revenues, expenses, operations and our business development.

Now I will turn it back over to Bill for the financial discussion.

Bill Koziel

Thank you, Jim. I will begin by reviewing our detailed financial and operational performance for the fourth quarter and full year 2007. Pages four to seven of the supplemental information will guide you as I go through my remarks. For the fourth quarter, we reported a net loss of approximately $6.2 million or $0.16 per share. This is compared with the 2006 fourth quarter net loss of approximately $4.8 million or $0.12 per share. Included in the net loss for the fourth quarter of 2006 was a loss from discontinued operations of $400,000 or $0.01 per share, compared to a loss from discontinued operations of $600,000 or $0.01 per share in the 2006 quarter.

The 2007 fourth quarter loss from discontinued operations resulted from our decision to sell the asset of the three underperforming company-owned locations in Seattle, Washington. In addition to the Seattle locations, the loss from discontinued operations in the 2006 fourth quarter also includes the impact of the six restaurants operated inside Macy's stores that we closed in August of 2007. Importantly, we reduced our 2007 fourth quarter operating loss compared with the year earlier period by 38% to approximately $3.1 million from about $5.1 million, excluding impairment provisions, closed store costs, lease termination costs and benefits, and gains on sales of assets.

We recorded charges of $2.7 million or $0.07 per share in the 2007 fourth quarter related primarily to asset impairment provisions for seven company-owned restaurants locations largely from the 2006 class of restaurant openings which as we've shared with you previously have underperformed Cosi system-wide restaurants due mainly to site selection. In contrast to the charges we recorded in the 2007 quarter, we recorded a net gain of about a $0.5 million or $0.05 per share in our 2006 fourth quarter operating results.

For the year, we recorded a net loss of approximately $20,800,000 or $0.53 per share, compared with a net loss of approximately $12,300,000 or $0.32 per share in 2006. Our full year 2007 operating loss totaled $17.7 million versus approximately $12.4 million in 2006.

Continuing through the P&L, based on continuing operations, total revenues for the quarter, including franchise fees and royalties, grew 7.9% to $33.1 million compared with $30.7 million in the 2006 fourth quarter. The constitution of franchise fees and royalties more than doubled to $694,000 compared with $336,000 in the previous year's quarter, indicating an important trend line and source of earnings leverage for the future.

For the year, total revenues, including franchise fees and royalties, grew 8.8% to $135 million from $124 million in 2006. Franchise fees and royalties more than doubled for the year to $2.1 million from $850,000 in 2006. The additional contributions of franchise fees and royalty income for the quarter and the year further supports the planned transition from a company development strategy to a predominantly franchise development strategy supported by modest growth in a strong base of company-owned restaurants.

As we saw in the third quarter, some of the royalty increase for the fourth quarter was the result of year-over-year sales increase from franchise restaurants that have entered their 16th month of operation and have qualified to enter the comparable sales base. In the fourth quarter, we saw a comparable sales increase of 12% from franchise locations in operations more than 15 months, and for the full year an increase of 16.4% from comparable franchise locations.

At the end of the fourth quarter, there were 141 Cosi restaurants of which 34 were operated by franchisees compared to 123 Cosi restaurants at the end of 2006 of which 13 were operated by franchisees. At the end of the fourth quarter, there were 95 locations in the comparable restaurant base compared to 81 at the end of 2006.

As previously announced, company-owned comparable restaurant sales in the fourth quarter saw a 1.3% increase as measured for restaurants in operation for more than 15 months. The comparable sales increase was the result of a 2.3% increase at average check, driven by higher catering sales year-over-year, as well as a favorable shift in sales mix coming from menu items like our new flatbread pizza and holiday LTO offerings, but partially offset by a 1% decline in transactions.

System-wide, our comparable sales increase was 2.1% for the fourth quarter. For the year comparable sales for company-owned restaurants showed a modest increase of 0.2%, while our system-wide comparable sales increase was 1.4% for the year fueled by the strength of our performance in the third and fourth quarters.

As Jim said, we are pleased with the improving trend of our comparable sales performance, especially among our franchise-operated locations. Moreover, our improving sales trends were not the result of taking price increases, which creates further opportunity for comparable sales lift going forward. We'll talk about pricing a little later in our discussion of our plans as they pertain to driving revenues.

Turning to slides four and six, cost of food and beverage for the fourth quarter was 24.1% of restaurant net sales compared to 23.4% in the previous year's quarter. These costs were up on the full year to 23.4% compared with 22.9% for fiscal 2006. The increases were due primarily to higher commodity prices year-over-year on certain products including wheat, dairy and dairy-related items, the impact of the sales decline in higher margin beverage products, and slightly higher promotional discounts as compared to the prior year.

One note regarding commodity costs. Like many others in the industry, we are feeling the margin impact of commodity price increases, primarily in wheat and dairy and diary related products. As it relates to wheat, because we prepare and bake our bread entirely on the premises, utilizing a vast production model, we may have a somewhat better ability than some of our competitors to match bread supply with demand. And so, we believe fluctuations in wheat costs may have a less significant impact on our bottom line than on some others in the premium convenience sector.

For the fourth quarter, restaurant operating expense as a percentage of restaurant net sales was 65.1% compared with 63.9% in the 2006 quarter. For the year restaurant operating expense was 63.7% of restaurant net sales, up from 59.3% for 2006. Labor and related benefits expense as a percentage of restaurant net sales was flat on the quarter at 35.2%, reflecting the impact of our focus on properly managing the deployment of labor during peak and non-peak hours of operations, but up a 150 basis points on the full year to 34.7% from 33.2% in 2006, reflecting the de-leveraging impact of the comparable sales decline in the first six months of 2007, as well as labor inefficiencies associated with certain new restaurants.

Occupancy and other direct operating costs were 29.9% of restaurant net sales for the fourth quarter 2007 compared to 28.7% in the 2006 period. For the full year, these costs came in at 29% of restaurant net sales compared with 26.1% for the full year 2006.

The increase in occupancy and other direct operating costs was primarily due to higher restaurant maintenance expense as well as slightly higher paper and packaging costs. Total restaurant cash flow for the 2007 fourth quarter was approximately $3.5 million, resulting in a cash flow margin rate of 10.8% versus 12.7% in the 2006 fourth quarter. For the full year, cash flow was approximately $17.1 million, resulting in a cash flow margin rate of 12.9% versus 17.8% in the 2006 year.

The higher expenses and margin pressures were partially offset in the quarter by continued progress in corporate expense control. General and administrative expense improved by 670 basis points for the quarter, representing 12.5% of total revenues for the quarter, compared to 19.2% of total revenues in the 2006 fourth quarter, primarily due to labor savings achieved as we scaled our support infrastructure to better align with our current trends and including the reversal of discretionary bonus expense based on our performance for the year.

For the year, general and administrative expense improved 210 basis points to 15.6% versus 17.7% for the full year 2006. Cash, cash equivalents and short-term investments were approximately $6.3 million as of December 31, 2007 and Cosi had virtually no debt.

On slides five and seven, we have provided a reconciliation of the non-GAAP measures from slides fours and six to our reportedly quarterly and full year results respectively.

In summary, we are pleased with our progress, but believe we still have a long way to go. The current macroeconomic situation has created a difficult environment in this industry, on both the consumer and commodity cost fronts. However, we are seeing positive momentum and are encouraged by the increase in system-wide revenues, the continued improvements in comparable restaurant sales from both company and franchise operations without an increase in prices, and the improvements we've made in scaling corporate and general administrative expense.

Regarding development, during the 2007 fourth quarter we opened one company-owned location in Stamford, Connecticut, as we previously communicated, and closed one underperforming location in Baltimore, Maryland, which was an original Xando coffee bar location opened in 1998.

We opened the total of six company-owned locations for 2007. We currently have leases signed for two locations for 2008, one of which is already under construction. We intend to seek only real estate sites that are of an A type quality for our company-owned restaurant development.

As to franchise development, we are pleased that our franchise partners continue to demonstrate their enthusiasm for Cosi's concept with initial and subsequent openings despite the current challenges in the consumer and financing environment. Cosi franchisees opened seven locations during the fourth quarter, including our second international location in the United Arab Emirates. Eight additional franchise locations have opened year-to-date subsequent to the close of the fiscal year.

As you know, this year we emphasize franchise development and have strengthened the level of support we provide to our franchise partners. For the year 22 franchise locations were opened. For 2008 we continue to expect that franchisees will open between 25 to 35 locations. We currently have commitments from 31 franchise area developers for 332 locations not including the 42 already opened, reduction of 22 locations from our previously announced total of 396 (inaudible) termination of the commitment of one of our area developers.

Now I will turn the call back over to Jim for some further thoughts. Jim?

Jim Hyatt

Thanks you, Bill. Last quarter I laid out for you my impressions of my first two months at Cosi. I spent a great deal of time learning the business and identifying what I thought were some core strengths. I explained three main reasons why I was so exited to be part of this team. First, the fast casual segment in my view, the most exiting segment in the restaurant business today, and I believe that what Cosi offers to its guests positions this brand incredibly well in this space. Second, Cosi has a tremendously strong brand with great food and variety which has driven guest loyalty. Third, with these strengths, the company has attracted a quality group of experienced franchise area developers, especially important as we continue to transition our growth from company-owned and operated development to more franchise development, a key driver of long-term value at Cosi.

In the fourth quarter, we surgically started fixing the performance issues and we got down to serious business. We started implementing initiatives to enhance our financial performance and our operations performance. We made very good progress in many of these areas and I'm pleased with the adoption of the turnaround initiatives in the restaurants and the improvement trends by the operations teams.

We started our focus early in the quarter on listing sales, and with those efforts, we posted a respectable sales comp increase. Benchmarked against the competition and our previous trends at Cosi, it shows that we can have an immediate impact on the business. The Q4 sales lift, I want to clarify was accomplished without taking any price increases. So we are learning in delivering better guest excellence in our restaurants and the rewards of delivering on that obligation can be seen in Q4 and goes forward with us into 2008.

We still have a lot of ground to cover, but we are step-by-step working a wellness program and working with our restaurant teams to understand Così's expectation of delivering guest excellence on a very consistent basis.

So later in the quarter, we were able to calibrate and implement restaurant-specific financial controls. That started to move our margins back to where we expected them. I continue to believe that our first and second quarter results of 2008 will show clear evidence of the work that we have been doing to strengthen Cosi's operations and cash flow. I am proud of the progress the teams have made on margins as we work through Q1, and I expect to see them continue. And as I communicated to you on my first call, Q2 is my target to have things back on track.

We will take a little time to get everything calibrated, but we are experiencing very good improvement trends. My right promise over deliver commitment to you feels very good right now. And I spoke last quarter about brining a culture of accountability to Cosi. I believe that culture of accountability will help drive our success and the teams at Cosi or on the Board with the turnaround initiatives. So I would like to spend time now addressing four areas that Cosi's management team will be held accountable for in 2008; revenues, expenses, operations and business development.

Let's start with revenues. Being accountable to deliver guest excellence, thus increasing the likely to return and the likely to recommend attributes has become one of our jobs in our restaurants. Our increased performance in guest excellence has been fueling our sales and traffic trends in Q4 and now into 2008. Our restaurant teams are showing muscle memory now in service skills, and I'm proud of their progress, but we have just passed Mile Marker 2 of 12 for the year.

Beyond the guest excellence focus at the restaurants generating the sales lift, I want to also discuss the business opportunity we have to optimize the brand's positioning, and then I want to address the headroom that we have in pricing power. We are reworking six opportunity levers for our business related to revenue. They are lunch, catering, breakfast, kids, dinner and beverage. We need to properly pace these adjusted revenue levers into the business to get the results that we're after and we need to deploy them, and they'll be sequenced throughout 2008 and 2009.

To pace the restaurants workload and their focus on these revenue levers, we have parallel path working now on the first lever being lunch and the second lever of catering, which are already in play at the restaurants, while at the support center, teams work through the third lever being breakfast and the fourth lever being kids menu optimization and deployment. We will stage the initiatives in by calendar and by restaurant execution capability, but only after consumer testing tell us we have it right.

So related to the first lever, lunch, we are working on procedure simplification and capacity improvements to serve more guests in those power hours of the days. Shorter lines are possible through faster throughput and we're working hard to achieve that. We have a lunch menu that customers crave. So we need to learn to serve more of them at lunch and our improvements in this lever are being felt in our sales and from positive responses from our guest feedback tools.

Catering is the second of the six levers. And with a great menu already available for our catering business, we are specifically focused on this lever around logistics. Better oversight of catering logistics is where we can help the teams immediately. This area will give us a lot of punch as we move into the spring and the summer. And we now have a catering leader for the organization, and we are providing best practice training to the restaurants and now to the franchisees.

Development and staging the fourth lever, breakfast, is underway led by the chef and our product development team. We see great opportunity to provide customers with better menu options with the quick convenience required by the morning rush of breakfast time. In short, we want to make our breakfast lines food to Cosi's premium convenience position.

And we've not been getting our fair share of the breakfast day part. We see lost opportunity in this day part due to operations execution shortcoming, which we're fixing, and lost opportunity due to the need for some product innovation and menu architecture. We're on it and more on that next time.

The other three of the six revenue levers are kids, dinner and beverage. We are revamping our kids menu to include four or five menu meals, with crowd pleasing staple such as mac and cheese and peanut butter and jelly, so we can offer options for the family.

Related to the fifth lever, dinner, we're working on optimizing and expanding our dinners from the Hot Concept, which was launched last year in an effort to drive evening traffic in our neighborhood locations by providing variety to compliment our signatures sandwiches and pizza and to tap into the take-home business. We have a unique cooking platform here at Cosi that's not easily replicated by others, and we want to power up on our made fresh, high quality food offerings.

And the sixth lever is beverage. Cosi needs to do a better job capitalizing on our opportunities around coffee and our beverage counter space. The opportunities for both margin and traffic growth demand are that we revitalize this business opportunity. Beverage is a powerful lever, and we need to play offensively on this and recapture the previous revenue levels that we enjoyed at Cosi in the years past.

So those are six tactical levers that we're working to improve our revenue. Now let me talk about revenue as it relates to pricing, a seventh lever, if you will. Cosi last took price in May of 2006. Yes, I did say 2006, and that is 21 months of standing still. We see revenue opportunity in pricing to assist in our revenue goals for the year, but this will also help correct the margin erosion we have seen at Cosi through 2007 with commodity pricing.

Our margin erosion had two issues, commodity increases and poor controls at the restaurant. We have controls in place now and improvements to show from Q1, but let me communicate our pricing plans. We have a three step price strategy underway for 2008. Step one was made on February 26th. Cosi took a price increase in 40% of our restaurants as we move from having four different price tiers among the restaurants to two price tiers, providing a 90 basis point system-wide impact or increase.

So 40% of our restaurants took a small increase and the other 60% have not taken any price. We will do a step two price adjustment that is planned for all restaurants in Q2. Step two will be around a 200 basis point increase for all restaurants. And a third step in price for Cosi is not in our restaurant menu pricing but is related to our catering menu items for restaurants with catering business.

And a price comparison with our competition related to catering, we are much underpriced. Further we feel we have the better food quality so we immediately raised price for our catering business. We plan adjust our catering price in April to correct our disadvantage and capture revenue and margin results. After our review of catering in Q4, we found another connection to those margin losses of 2007, and is due to the cost of goods for catering which was 6% higher than for base business, and restaurants with growing catering sales are gaining farther and farther from their cost of goods margin targets. So we have our fix staged and it will be corrected in April.

So let me recap the effect on our system for our pricing adjustments. The blended system impact is 0.9 or 90 basis points for the February 26th adjustment. The step two price change projected for Q2 would represent around a 2%, 200 basis points increase for a then combined 2.9% increase in our everyday core menu. I might add that we've not had any negative reaction from gas related to the February 26th increase, nor have we had any push back on our guest feedback tools.

Now, an additional 1% system-wide effect will be felt when we adjust the catering price for our catering restaurants. So we are forecasting a run rate of around 4% in price once all of these adjustments are made, which will help us move into the summer. Now our recent comparable sales trends, traffic performance trends coupled with the price increases by the competition in the restaurant segments have demonstrated to us that we have permission to raise prices and in light of the commodity price increase, we are being responsible to do so.

I will turn now from revenue opportunities to expense and operations, which I see is being two sides of the same coin. If we operate in a discipline, in a cannibal manner across our organization, we'll reduce expenses. Now every component of the P&L is fair game. My priorities have been in three dominant areas; cost of goods sold, labor and G&A, but every line item is being evaluated on a routine basis. And you've heard from Bill, the dramatic improvement we made in G&A on a year-over-year basis. And as our revenue improves to our potential for the year, the margin will continue to right size itself and we are much improved in this area but still improving as we focused on the highest and best use of our G&A.

And our cost of goods sold is improving, however other significant room is there to improve as we should move better for our targets. We'll be there very soon based on the performance trends of the last 12 weeks.

Certainly Cosi is affected by the upward pressure on food and commodity prices in general. However, we can mitigate those increases and call back loss margins due to poor restaurant controls and accountability. We've done a lot of hard work in January with our district managers and general managers in skill training, sharing best practices, standardizing processes and discussing accountability. I have seen improvements already, but there are gaps in food cost controls versus theoretical that provide meaningful improvements to the restaurant economics and we're focused on closing those gaps.

One recent step we've taken toward this end is implementing a new inventory system that is helping our GMs take better accountability for their inventories and overall their cost of goods, as they balance the theoretical and budgets as well as now having action steps to help them fixed identified gaps.

Now related to labor margins, we deployed new allowances to the restaurants in December based on volumes, restaurant types service modes and also provided other coaching tools to help the managers execute against those new lower allowances. The teams have been calling back margins in this area without stalling any of the sales opportunities. Workload balance, daypart targets and other tools that we provided are working for us now, moving from Q4's introductions to these changes, then teaching and coaching sessions in January have allowed us to course correct and our margins are improving. I think you will be pleased with our results when we communicate with you on Q1, and as I've stated before, we should be in a right promise over delivery positions as we mature our skills in Q2.

As I said expenses and operations are two sides of the same coin, and so I want to spend a few moments on what we've been doing to strengthen our operations. And to no surprise, it comes back to accountability. Before we can hold people accountable, we need to make sure that they clearly understand what they're responsible for, what their specific role is and how it contributes to the organization's overall goals and that's what we've done.

We have worked as a team to get all of the general managers and district managers on the same page. We have and continue to delineate exactly what is expected of each player in the organization, so that there is no question about responsibility and accountability, and we are spending a lot of time now on recognition as results and best-ever trends are materializing.

So in my first full quarter, we provided the organization, both company and franchise, with an improvement plan outlined for 2008 and began to discuss this execution with everyone in our organization. We identified the four business plans with leadership accountability in order to have everyone play their positions and contribute their expertise to the improvement plans that we're deploying.

Those four business plans go after the promise and positioning of the brands of the consumer, the execution and delivery of those brand promises, the consistency of our brand day-to-day, restaurant-to-restaurant, operator-to-operator in the eyes of our guests, and then the measurement and accountability of getting results and having a profitable growth business.

In January, I spent time visiting every market, touring restaurants and to meet with all district managers and restaurant general managers in small groups to outline how each restaurant would achieve the improvements and performance that was striving for, in what timeline, and maybe most importantly, how we would help them.

We also put in place in December an operations excellence team focused on the development, implementation and the execution of an operations plan, sharing best practices across the system from both company-owned and franchise locations that we know will give us improved revenue and improved profitability.

Finally, we are focused on reducing our manager turnover rates. As many of you know, turnover in the restaurant business has a direct impact on restaurant margins. We can improve our training, but if we lose the people we train then we're back to square one and we lose all the equity in that management scale and guest excellence. We think people like working in a setting where expectations are clear and there is accountability, including reward for performance.

So the face-to-face time with our district mangers and our general managers in January was very helpful to ensure we all understand this is a people business first and we win with results. So we're very focused on our talent, our need to build skill, and our need to become one of the best places to work.

Now the fourth area that I said I wanted to discuss with you today after revenues, expenses and operations is business development. We are accountable to you to drive long-term growth in value and a primary driver in growing this business for the foreseeable future is franchisee development.

We continue to focus on developing partnerships and building relationships with well qualified franchise area developers as we continue to grow revenues from franchise and royalty fees. And as we've said, we plan to see between 25 and 35 new locations open this year and 8 have already opened in Q1.

We have limited plans for our company-owned locations this year with two leases signed to build two locations in 2008. From the company restaurant perspective, our focus is getting our already opened Cosi restaurants up to revenue, expense and guest excellence.

We have more to gain right now by running the restaurants that we already have right versus spending or spreading ourselves out further over the next 12 months on new company restaurants. We are, however, building a support infrastructure for our franchisees to help them grow. And as I see the company restaurants are now working the plan we've put in place for their profitability, we will be spending more attention to support the growth and performance of our franchise operators.

Frankly, for Q1 and Q4, my best support to the franchisees and our shareholders was to get the company business right, the support structure right, and then we can best support our franchisees and their plans for growth and profitability. We continue to interview potential franchisees on a monthly basis, and we believe we will continue to attract talented franchise developers to the Cosi concept and brand, and in turn, drive more shareholder value.

As I stated last quarter, Cosi's decisions related to the quality of the real estate, and then the lack of an operations culture that was built for guest excellence and profitability had disappointed us over the last couple of years. An operations culture built for guest excellence and profitability is ceded now and showing comparable sales lift and margin improvements. Now the quality of our real estate going forward will be a discipline of only improving and on boarding A quality sites. We will not approve anything, but A quality sites. So we are putting significant oversight into site selection, time line leadership and opening support to ensure that our new Cosi restaurants pull the brand up, not sideways or as we know happened in 2006 and 2007, they put a strain on the business and pulled us down. So you will see elevated and a very hands-on focus with real estate support to our franchisees beginning Q2.

In closing, despite operating in a difficult macroeconomic environment, we are seeing improvements in our operations as well as comparable sales growth momentum that have given us confidence that we are on the right track. We expect to see continue challenges from external factors including commodity headwinds in '08. However, we believe we can offset these higher costs by improving in many other areas. I continue to expect our focus on accountability and execution to yield hard benefits to the bottom line from both the cost and the revenue side of the ledger.

For 2008 with the two toughest months behind us related to our seasonal, or our lowest index revenue volume months, and our new ability to generate cash from operations in those months, are signs that we are on or slightly ahead of schedule in our improvement plans. I am very proud of the restaurant teams and the restaurant support center teams for the improvement and trends they are posting as we move into 2008.

Now, I don't want to get ahead of ourselves by looking too much into Q1, but I do want to indicate the adjustments that we made in course correcting the business in Q4 are showing measured results as we move into 2008. I have a lot of confidence in our new business foundation to drive guest, revenue and expense excellence. And the six revenue levers of lunch, catering, breakfast, kids, dinner, and beverage will have a meaningful impact on our business as we work them into 2008 and 2009. I have a lot of confidence in the Cosi team, the franchisees that we have in a system and the improvements that we are making together.

So Bill, let's take time for questions.

Bill Koziel

This concludes our brief presentation portion this afternoon. We look forward to answering all of your questions. Operator, please open the line to questions.

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