Second Cup Royalty Income Fund Announces Fourth Quarter Same Café Sales Growth and Annual Adjustment to Royalty Pool

    MISSISSAUGA, ON, Jan. 17 /CNW/ - Second Cup Royalty Income Fund (the
"Fund") and The Second Cup Ltd. ("Second Cup") announced today their unaudited
same café sales results for the fourth quarter and the annual adjustment to
the number of Second Cup cafés in the royalty pool (the "Royalty Pool"). The
system sales of Second Cup cafés in the royalty pool is the basis on which the
Fund's indirect wholly-owned limited partnership, Second Cup Trade-Marks
Limited Partnership ("MarksLP") receives royalty payments from Second Cup. The
Fund expects to release its audited annual financial results on or before
March 14, 2008.

    Unaudited Same Café Sales Growth

    Same café sales growth for cafés in the Royalty Pool for the fourth
quarter and the year ended December 31, 2007 is expected to be 0.7% and 3.0%
    "Same café sales growth was particularly challenging in the quarter given
the comparatively strong results from the fourth quarter of 2006," commented
Bruce Elliot, President of Second Cup. "The poor weather across Canada in the
month of December, compared to a very mild December the year before, also had
a negative impact on our cafés during our most important sales period of the
year. Cafés located on street fronts and strip centres, which comprise more
then 40% of our network, were the most affected."
    The same café sales growth achieved in the fourth quarter represents the
12th consecutive quarter of positive same café sales growth since the
inception of the Fund, and the 17th consecutive quarter for Second Cup. Second
Cup also reported that cafés undergoing renovations in the quarter negatively
impacted sales by approximately 0.5% due to their temporary closure while
under renovation. In total, 40 cafés were renovated in 2007 compared to 11 in

    Royalty Pool Adjustment

    The Royalty Pool is adjusted on January 1 of each year to include sales
from new cafés that have been open for at least 60 days prior to November 1 of
the preceding year, after deducting sales of any Second Cup cafés that have
closed since the previous adjustment date. The Fund (through MarksLP) pays
Second Cup for the additional royalty stream, if any, from the sales of the
new cafés vended in to the Royalty Pool, based upon a formula set out in the
licence and royalty agreement between Second Cup and MarksLP. The formula,
designed to be accretive, is based on the sales from the new cafés and the
yield of the Fund's units. The accretion is achieved by discounting the
payment by 7.5%. The payment to Second Cup may be in the form of cash or
additional units of the Fund.
    Effective January 1, 2008, fifteen cafés with estimated total annual
system sales of $6,750,000 in 2008 were vended in to the Royalty Pool. Nine
cafés having total system sales of $3,513,000 were permanently closed in 2007
and removed from the Royalty Pool. This resulted in an estimated net system
sales increase for the Royalty Pool of $3,237,000. As a result of this
adjustment, the total number of cafés in the Royalty Pool as at January 1,
2008 is 357.
    The estimated net system sales increase from this adjustment would result
in additional annual royalty revenues to the Fund of $210,000. The initial
payment by MarksLP to Second Cup for these estimated additional royalty
revenues is $1,346,000. The initial payment is 80% of what will be owed by
MarksLP to Second Cup based on the estimated system sales of the fifteen cafés
vended in to the Royalty Pool. MarksLP has elected to satisfy this payment by
delivering 143,712 units of the Fund. These units were valued at $9.37 per
unit, calculated as the weighted average trading price of the units of the
Fund for the 20 trading days ending December 20, 2007. A final adjustment
payment will be made on January 1, 2009 based upon the actual system sales of
the fifteen new cafés during 2008.
    Second Cup has advised the Fund that 8 new cafes were opened subsequent
to September 2, 2007, bringing the total number of cafés opened in 2007 to 14.
These 8 cafés will be eligible for inclusion in the Royalty Pool effective
January 1, 2009, together with any cafes that are opened in 2008 prior to
September 2, 2008.
    The Fund is also pleased to announce that the actual system sales of the
eleven cafés added to the Royalty Pool on January 1, 2007 have now been
determined. Actual system sales for the period ended December 31, 2007 were
$4,960,000 as compared to the original estimate of $4,555,000. As a result, a
final adjustment payment of $295,000 will be made by MarksLP to Second Cup,
which MarksLP will satisfy by delivering 32,412 additional units of the Fund
to Second Cup. These units were valued at $9.09 per unit, calculated as the
weighted average trading price of the units of the Fund for the 20 days ending
December 21, 2006. In accordance with the license and royalty agreement,
MarksLP will also make a cash payment of $35,000 to Second Cup, representing
the cash distributions that would have otherwise been earned by Second Cup on
the 32,412 additional units above had they been issued on January 1, 2007.
    Subsequent to the transactions described above, Second Cup will own
approximately 2.5% of the total outstanding units of the Fund. Also, Mr.
Gabriel Tsampalieros, who controls Second Cup, will directly and indirectly
control a total of 993,496 units (including the 245,657 units owned by Second
Cup) which are held for investments purposes and which represent 10.1% of the
total outstanding units of the Fund.

    December Distribution

    As previously announced, on January 31, 2008 the Fund will make a
distribution payment of $0.0910 per unit for the month of December 2007 to
unitholders of record at the close of business on December 31, 2007.
    The Fund is an open-ended trust established under the laws of the
Province of Ontario. It holds, through an indirect wholly-owned limited
partnership, the Canadian trade-marks and other intellectual property and
associated rights used by Second Cup in connection with the operation of
Second Cup cafés in Canada. For more information on the Second Cup Royalty
Income Fund please visit
    Second Cup is Canada's largest specialty coffee café franchisor and
second largest retailer of specialty coffee, as measured by number of cafés.
For the ultimate on-line coffee experience, visit

    %SEDAR: 00021352E

For further information:

For further information: Stephen Devito, Chief Financial Officer, (905)

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