Cosi, Inc. (NASDAQ:COSI), today reported 2016 second quarter results for the period ended June 27, 2016. For the 2016 second quarter the Company reported a net loss of ($3.1) million, or ($0.07) per diluted share, compared to ($3.9) million, or ($0.08) per diluted share, in the 2015 second quarter.

2016 Second Quarter Revenue Highlights:

• Total revenues for the 2016 second quarter of $22.8 million decreased $1.6 million, or 7.0%, when compared to the 2015 second quarter.
• Company-owned restaurant net sales for the 2016 second quarter of $22.3 million decreased $1.7 million, or 7.1%, when compared to the 2015 second quarter due to a decrease in net sales in our comparable restaurant base of 4.1%, or approximately $0.7 million, a decrease in net sales of approximately $1.7 million related to restaurants closed during and subsequent to the three-month period ended June 29, 2015, and a net increase in sales of approximately $0.7 million from 17 new or acquired  restaurants.
• System-wide comparable restaurant net sales for the 2016 second quarter, as measured for restaurants in operation for more than 15 consecutive months as Company-owned or franchised restaurants, recorded an aggregate decrease of 4.5% when compared to the 2015 second quarter due to a decrease of 6.6% in Company-owned restaurants and an increase of 0.4% in franchised restaurants.
• The Hearthstone restaurants recorded an aggregate increase in comparable restaurant net sales for the 2016 second quarter of 2.1% when compared to the 2015 second quarter.
• Franchise fees and royalty revenues for the 2016 second quarter of $0.5 million increased $0.1 million, or 16.8%, when compared to the 2015 second quarter due to the opening of three Franchise locations, partially offset by the closure of one Franchise location.

2016 Second Quarter Costs and Expenses Highlights:

• Cost of food and beverage. The cost of food and beverage as a percentage of restaurant net sales for the 2016 second quarter decreased by 1.1%, when compared to the 2015 second quarter.  This decrease was primarily the result of operational improvements and stability in the costs of certain contracted commodities.
• Restaurant labor and related benefits. Restaurant labor and related benefits as a percentage of sales for the 2016 second quarter decreased by 0.9%, when compared to the 2015 second quarter.  This decrease was due to the concerted efforts on hourly scheduling and manager configurations as well as other productivity initiatives.
• Occupancy and other restaurant operating expenses.  Occupancy and other restaurant operating expenses, as a percentage of sales, for the 2016 second quarter, decreased by 1.3% when compared to the 2015 second quarter.  This decrease was the result of newly acquired restaurants with higher sales volumes and lower fixed costs, as well as the closure of underperforming units with high occupancy costs.
• General and administrative expenses. General and administrative expenses for the 2016 second quarter decreased by approximately $0.7 million, when compared to the 2015 second quarter as a result of a decrease in stock compensation expense and payroll savings associated with reduction of headcount in the corporate office.

“While we appreciate that we are operating in a challenging external environment, we are relentlessly focused on increasing guest satisfaction, driving trial and increasing guest frequency, and ultimately improving the disappointing sales in the quarter,”

“Restaurant cash flow margin of 4.9% for the quarter improved by 330 and 450 basis points versus the same quarter last year and quarter over quarter respectively, demonstrating steady margin improvements since the third quarter last year. As a result, we closed this quarter with an ending cash balance of $3.1 million, a decrease of $0.1 million when compared to the ending cash balance of $3.2 million at the close of the first quarter 2016. While we believe restaurant sales will improve in the third quarter as a result of existing and new operational and marketing initiatives, we do not expect to reach the range required to turn cash flow positive in the third quarter. As a result, we are focused on increasing the depth and scale of our sales-building efforts, implementing further cost reduction initiatives, continue exploring the sale of assets, and pursue initiatives to strengthen the balance sheet,” stated RJ Dourney, President & CEO.

“Now, specific to sales, while I appreciate that we are operating in a challenging external environment, we are relentlessly focused on increasing guest satisfaction, driving trial and increasing guest frequency, and ultimately improving the disappointing sales in the quarter,” Dourney went on to say.

2016 Second Quarter Restaurant Counts:

• As of June 27, 2016, there were 74 Company-owned and 30 franchise-owned restaurants operating in 15 states, the District of Columbia, the United Arab Emirates, and Costa Rica. During the three-month period ended June 27, 2016, we closed two Company-owned restaurants in Birmingham, MI and Owings Mills, MD. The change in restaurant counts is described below:

		For the Three-Month Period Ended
		June 27, 2016				June 29, 2015
		Company-Owned	Franchise	Total		Company-Owned	Franchise	Total
Restaurants at beginning of period		76	31	107		63	49	112
Franchise-owned converted to Company-owned		-	-	-		16	16	-
New restaurants opened		-	-	-		-	1	1
Restaurants permanently closed		2	1	3		1	2	3
Restaurants at end of period		74	30	104		78	32	110

Unaudited 2016 Second Quarter Financial Statements

 

Cosi, Inc.
Consolidated Balance Sheets (Unaudited)
(dollars in thousands, except per share amounts)
			June 27, 2016					December 28, 2015
Assets
Current assets:
	Cash and cash equivalents			$	3,095			$	5,152
	Credit card receivables				725				343
	Accounts receivable, net of allowances of $200 and $223, respectively				978				899
	Inventories				864				1,051
	Prepaid expenses and other current assets				1,248				1,335
	Total current assets				6,910				8,780
Furniture and fixtures, equipment and leasehold improvements, net					9,455				11,892
Notes receivable, net of allowances of $1,001, respectively					-				-
Intangible assets, net					2,147				2,642
Goodwill					11,632				11,632
Restricted cash					-				5,002
Other assets					1,099				1,313
	Total assets			$	31,243			$	41,261
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable			$	2,629			$	1,564
	Accrued expenses				6,195				6,920
	Current portion of other long-term liabilities				178				105
	Current portion of long-term debt				7,070				473
	Total current liabilities				16,072				9,062
	Deferred franchise revenue				1,735				1,726
	Other long-term liabilities, net of current portion				1,595				1,625
	Long-term debt, net				-				10,669
	Deferred income tax				428				327
	Total liabilities				19,830				23,409
	Commitments and Contingencies
Stockholders' equity:
	Common stock - $.01 par value; 100,000,000 shares authorized,
		48,193,265 and 47,972,150 shares issued, respectively			482				479
	Additional paid-in capital				344,516				344,296
	Treasury stock, 59,886 shares at cost				(1,198	)			(1,198	)
	Accumulated deficit				(332,387	)			(325,725	)
	Total stockholders' equity				11,413				17,852
	Total liabilities and stockholders' equity			$	31,243			$	41,261

Cosi, Inc.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
				Three Months Ended								Six Months Ended
				June 27, 2016				June 29, 2015				June 27, 2016				June 29, 2015
Revenues:
		Restaurant net sales		$	22,326			$	24,027			$	43,547			$	41,234
		Franchise fees and royalties			493				422				952				1,123
			Total revenues		22,819				24,449				44,499				42,357
Costs and expenses:
		Cost of food and beverage			5,797				6,514				11,452				11,358
		Restaurant labor and related benefits			7,780				8,588				15,784				15,684
		Occupancy and other restaurant operating expenses			7,644				8,532				15,131				15,169
					21,221				23,634				42,367				42,211
		General and administrative expenses			2,502				3,181				4,792				5,797
		Depreciation and amortization			778				846				1,762				1,426
		Provision for losses on asset impairments
			and disposals		1,169				-				1,212				-
		Closed store costs expense			25				52				128				13
		Lease termination costs			44				142				225				193
		Loss on sale of assets			-				-				197				18
			Total costs and expenses		25,739				27,855				50,683				49,658
			Operating loss		(2,920	)			(3,406	)			(6,184	)			(7,301	)
Other income (expense):
	Interest expense				(169	)			(313	)			(337	)			(569	)
	Debt issuance and debt discount amortization				(165	)			(165	)			(330	)			(330	)
	Other income				151				10				290				12
			Total other income (expense)		(183	)			(468	)			(377	)			(887	)
			Net loss before income taxes		(3,103	)			(3,874	)			(6,561	)			(8,188	)
	Provision for income tax expense				(16	)			-				(101	)			-
			Net loss	$	(3,119	)		$	(3,874	)		$	(6,662	)		$	(8,188	)
Per Share Data:
	Loss per share, basic and diluted			$	0.07			$	0.08			$	0.14			$	0.20
		Weighted average common shares outstanding,
			basic and diluted		46,866,339				45,726,432				46,789,834				41,522,803

Cosi, Inc.
Consolidated Statement of Stockholders' Equity
(dollars in thousands, except share data)
		Common Stock												Treasury Stock
										Additional				Shares of		Amount
		Number of								Paid In				Treasury		Treasury				Accumulated
		Shares				Amount				Capital				Stock		Stock				Deficit				Total
Balance, December 28, 2015			47,972,150			$	479			$	344,296			59,886		$	(1,198	)		$	(325,725	)		$	17,852
Issuance of restricted stock,
	net of forfeitures		413,054				4				(4	)		-			-				-				-
Forfeiture of common stock
	in connection with the Holdback Settlement		(191,939	)			(1	)			(123	)		-			-				-				(124	)
Stock-based compensation			-				-				347			-			-				-				347
Net loss			-				-				-			-			-				(6,662	)			(6,662	)
Balance, June 27, 2016			48,193,265			$	482			$	344,516			59,886		$	(1,198	)		$	(332,387	)		$	11,413

Cosi, Inc.
Consolidated Statements of Cash Flows
(in thousands)
			June 27, 2016					June 29, 2015
Cash flows from operating activities:
	Net loss			$	(6,662	)		$	(8,188	)
	Adjustments to reconcile net loss to net cash used in
		operating activities
		Depreciation and amortization			1,762				1,426
		Amortization of debt issuance and debt discount costs			330				330
		Loss on sale of assets			197				18
		Deferred income tax			101				-
		Non-cash portion of asset impairments and disposals			1,212				-
		Provision for bad debts			198				83
		Provision for notes receivable			-				225
		Provision for lease termination reserve			225				217
		Non-cash gain on settlement of Holdback Agreement			(124	)			-
		Stock-based compensation expense			347				843
		Interest expense paid in kind			-				315
		Changes in operating assets and liabilities, net of effect of acquisitions
		Credit card receivables			(382	)			(285	)
		Accounts receivable			(277	)			21
		Inventories			187				-
		Prepaid expenses and other current assets			87				(455	)
		Other assets			147				41
		Accounts payable and accrued expenses			340				(3,248	)
		Deferred franchise revenue			9				(10	)
		Other liabilities			(187	)			-
		Net cash used in operating activities			(2,490	)			(8,667	)
Cash flows from investing activities:
	Capital expenditures				(487	)			(2,103	)
	Proceeds from sale of assets				251				-
		Net cash used in investing activities			(236	)			(2,103	)
Cash flows from financing activities:
	Principal payments on long-term debt				(4,333	)			(6,612	)
	Net proceeds from private placement				-				15,263
	Return of excess restricted cash held in escrow account				5,002				(5,000	)
		Net cash provided by financing activities			669				3,651
Net decrease in cash and cash equivalents					(2,057	)			(7,119	)
Cash and cash equivalents, beginning of year					5,152				21,053
Cash and cash equivalents, end of period				$	3,095			$	13,934
Supplemental disclosures of cash flow information:
Cash paid for:
	Interest			$	339			$	43
	Corporate franchise and income taxes			$	72			$	356
Non-cash financing activities
	Issuance of common stock for acquisition			$	-			$	4,666

About Così, Inc.Così (http://www.getcosi.com) is an international fast casual restaurant company.  At the heart of every Cosi® restaurant is an open-flame stone-hearth oven where the Così® signature flatbread is made from scratch throughout the day.  The flatbread is made from a generations-old recipe and is part of many Così® favorites. Così® was founded on the idea that good-for-you food should be delicious.  Menu items are made using fresh ingredients and distinctive sauces and spreads to create edgy flavors.  The menu features made-to-order sandwiches, hand-tossed salads, bowls, breakfast wraps, melts, all natural soups, signature Squagels®, artisan flatbread pizzas, S`mores, snacks and desserts.  Guests can also enjoy handcrafted beverages and a variety of coffee-based and specialty beverages. 

Così® employees create a welcoming environment where guests are invited to relax and enjoy great food.  In many cases, Così® is the cornerstone of the communities that they are in and take pride in supporting community organizations and local charities. There are currently 74 Company-owned and 30 franchise restaurants operating in fifteen states, the District of Columbia, Costa Rica and the United Arab Emirates.

"Così," "(Sun & Moon Design)" and related marks are registered trademarks of Così, Inc. in the U.S.A. and certain other countries. Copyright © 2015 Così, Inc. All rights reserved.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. This press release contains statements that constitute forward- looking statements under the federal securities laws. Forward-looking statements are statements about future events and expectations and not statements of historical fact. The words "believe," "may," "will," "should," "anticipate," "estimate," "expect," "intend," "objective," "seek," "plan," "strive," or similar words, or negatives of these words, identify forward- looking statements. We qualify any forward-looking statements entirely by these cautionary factors. Forward-looking statements are based on management's beliefs, assumptions and expectations of our future economic performance, taking into account the information currently available to management. Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or financial condition to differ materially from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. Factors that could contribute to these differences include, but are not limited to: the results being reported in this release are unaudited and subject to change; the cost of our principal food products and supply and delivery shortages and interruptions; labor shortages or increased labor costs; changes in demographic trends and consumer tastes and preferences, including changes resulting from concerns over nutritional or safety aspects of beef, poultry, produce, or other foods or the effects of food-borne illnesses, such as E. coli, "mad cow disease" and avian influenza or "bird flu"; competition in our markets, both in our business and in locating suitable restaurant sites; our operation and execution in new and existing markets; expansion into new markets including foreign markets; our ability to attract and retain qualified franchisees and our franchisees' ability to open restaurants on a timely basis; our ability to locate suitable restaurant sites in new and existing markets and negotiate acceptable lease terms; the rate of our internal growth and our ability to generate increased revenue from our existing restaurants; our ability to generate positive cash flow from existing and new restaurants; fluctuations in our quarterly results due to seasonality; increased government regulation and our ability to secure required government approvals and permits; our ability to create customer awareness of our restaurants in new markets; the reliability of our customer and market studies; cost effective and timely planning, design and build out of restaurants; our ability to recruit, train and retain qualified corporate and restaurant personnel and management; market saturation due to new restaurant openings; inadequate protection of our intellectual property; our ability to obtain additional capital and financing; adverse weather conditions which impact customer traffic at our restaurants; and adverse economic conditions. Further information regarding factors that could affect our results and the statements made herein are included in our filings with the Securities and Exchange Commission.

Additional information is available on Così's website athttp://www.getcosi.com in the investor relations section.

CONTACT:
InvestorRelations@getcosi.com

Miguel Rossy-Donovan
Chief Financial Officer
(857) 415-5020