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SOUP > SEC Filings for SOUP > Form 10-K/A on 28-Oct-2013All Recent SEC Filings

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Form 10-K/A for SOUPMAN, INC.


28-Oct-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the audited financial statements and notes thereto for the year ended August 31, 2012 found in this report. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by using words such as "anticipate," "believe," "intends," or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks.

Cautionary Note Regarding Forward-Looking Statements

This report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management's assumptions. Statements that are not historical facts are forward-looking statements, including forward-looking information concerning pharmacy sales trends, prescription margins, number and location of new store openings, outcomes of litigation, and the level of capital expenditures, industry trends, demographic trends, growth strategies, financial results, cost reduction initiatives, acquisition synergies, regulatory approvals, and competitive strengths. Words such as "expect," "outlook," "forecast," "would," "could," "should," "project," "intend," "plan," "continue," "sustain", "on track", "believe," "seek," "estimate," "anticipate," "may," "assume," and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those described in our reports that we file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise.

General

The following analysis of our consolidated financial condition and results of operations for the year ended August 31, 2012 should be read in conjunction with the consolidated financial statements, including footnotes, and other information presented elsewhere in this Report on Form 10-K and the risk factors and the financial statements and the other information set forth in our Current Reports filed with the Securities and Exchange Commission.

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to help the reader understand our results of operations and financial condition.


Overview

On December 15, 2010, we entered into a Merger Agreement in which The Original Soupman, Inc. ("OSM") was merged with and into OSM Merge, Inc. our subsidiary. All the outstanding shares of OSM were converted into an aggregate of 14,004,230 shares of our common stock and 1,987,783 shares of our preferred stock. In addition, principal and interest on $4,830,254 of OSM's convertible notes were converted into 4,830,256 shares of our common stock.

On January 31, 2011, we reincorporated in Delaware and changed our name from Passport Arts, Inc. to Soupman, Inc. Thereafter, our stock began trading on the over the counter market under the symbol SOUP.

We currently manufacture and sell soup to grocery chains, the New York City Public School System and other outlets and to our franchised restaurants under the brand name "The Original Soupman".

Results of Operations - Year ended August 31, 2012

The following table summarizes our operating results for the years ended August 31, 2012 and August 31, 2011.

                                     August 31, 2012      August 31, 2011
Revenue                             $       1,897,711     $        969,945
Cost of Sales                               1,502,268              686,745
Gross Profit                                  395,443              283,200
Operating Expenses                          5,472,213            6,376,403
Loss From Operations                       (5,076,770 )         (6,093,203 )
Other Income (Expense)                     (1,252,977 )           (107,376 )
Loss from Discontinued Operations                   -              (14,317 )
Net Loss                            $      (6,329,747 )   $    (6,214,896) )

Revenue

Soup sales accounted for approximately 90% and 86% of our overall revenue for the years ended August 31, 2012 and 2011, respectively, while franchise royalties accounted for the remaining approximate 10% and 14%, respectively. Actual soup sales for the same periods were approximately $1,700,000 and $831,000, a year-over-year increase of approximately 104%. This increase was primarily attributable to a 20% increase in sales to franchisees (which accounted for approximately $167,000 of the increase), the introduction of our new Tetra Recart line of soups (which accounted for approximately $490,000 of the increase) and the introduction of our soups into the New York City School System, (which accounted for an approximate $212,000 of the increase.)

Reported revenues are net of slotting fees (a fee charged by supermarkets in order to have a product placed on their shelves). Slotting fees for the years ended August 31, 2012 and 2011 were approximately $139,000 and $85,000, respectively, had they not existed, reported revenues would have been approximately $2,037,000 and $1,055,000 for the same periods, respectively.

Cost of Sales

Cost of sales for the year ended August 31, 2012 included a onetime write-off of approximately $22,000 in obsolete inventory, aggregate early payment discounts of approximately $28,000 and freight and other costs of approximately $111,000. Cost of sales represents costs associated with soup sales only; the Company has no cost of sales associated with franchise royalties.

Cost of sales as a percentage of soup revenue was 88% and 83% for the years ended August 31, 2012 and 2011, respectively; however, this percentage was negatively impacted by slotting fees, which lower reportable revenue and therefore increase our cost of sales percentage. Cost of sales as a percentage of soup revenue increased approximately 5% year-over-year primarily due to the increase in slotting fees, freight costs and the different mix of products sold.

Operating Expenses

Operating expenses for the year ended August 31, 2012, were approximately $5,247,000, which include approximately $1,991,000 in expenses related to the issuance of shares and stock options, approximately $1,102,000 in payroll related expenses, approximately $735,000 in professional fees (which include legal, accounting, strategic planning, public relations and branding and marketing), allowances taken for the possible non-collection of notes receivable and franchise advances of approximately $635,000, promotional expenses (exclusive of slotting fees) of approximately $270,000, a royalty payment of $225,000, travel expenses of approximately $138,000 and insurance expenses of approximately $100,000.


Operating expenses for the year ended August 31, 2012 as compared to the year ended August 31, 2011 decreased approximately $960,000 primarily due to an approximate $1,978,000 decrease in expenses related to stock based compensation primarily offset by allowances taken for the possible non-collection of notes receivable and franchise advances of approximately $635,000 and slight increases in payroll, promotions, royalties, and insurance expenses.

Other Expense

Other expense increased approximately $1,146,000 for the year ended August 31, 2012 as compared to the year ended August 31, 2011, up from approximately $107,000 to approximately $1, 253,000. This increase was primarily due to one-time charges (relating to a loan forbearance agreement, a debt prepayment penalty and certain debt extinguishments) of approximately $786,000, and increase in interest expense of approximately $676,000, offset by approximately $366,000 in the change in fair value of derivative instruments.

Net Loss

Net loss for the year ended August 31, 2012 as compared to the year ended August 31, 2011 increased approximately $115,000 or approximately 2% primarily due to the many factors discussed above under Revenue, Cost of Sales, Operating Expenses and Other Expenses. Net loss for the year ended August 31, 2012 was approximately $6,330,000 or $0.22 per share (basic and diluted).

There were no unusual or infrequent events or transactions, or significant economic changes that materially affected the amount of reported income or expenses from operations and nor is the Company aware of any known uncertainties that it reasonably expects will have a material impact income or expenses from operations, other than in the normal course of business such as seasonality or as otherwise described in our Annual Report in Part I - Item 1A - Risk Factors.

Liquidity and Capital

                            As of August      As of August
                              31, 2012          31, 2011
Current assets              $     480,661     $     541,070
Current liabilities         $   8,354,784     $   6,015,960
Working capital (deficit)   $  (7,874,123 )   $  (5,474,890 )

At August 31, 2012, we had cash and cash equivalents of $174,315 as compared to $343,927 at August 31, 2011. Since August 31, 2012, we have raised additional capital of $569,000 through the issuance of notes. The working capital deficit at August 31, 2012 of $7,874,123 and as of August 31, 2011 of $5,474,890 is an increase of $2,399,233. The increase is attributable to an increase in accounts payable and accrued liabilities of $920,861, an increase in net debt of $904,470 and an increase in derivative liabilities associated with the convertible notes payable and warrants of $513,493.It should also be noted that included in the current liabilities as at August 31, 2012 and 2011 are the current liabilities of Soup Kitchen International, Inc. as that company is included in the Soupman, Inc. statements (see note 1 Variable Interest Entities to the Soupman, Inc. and subsidiaries and Soup Kitchen International, Inc. Financial Statements). Those current liabilities include notes payables (guaranteed by Soupman, Inc.) in the amount of $3,242,613 accounts payable of $1,139,281 and accrued liabilities of $54,843. Without the current liabilities of Soup Kitchen International, Inc., the working capital deficit as of August 31, 2012 would be $3,436,385.

For the year ended August 31, 2012 cash used in operating activities was $1,604,572 as compared to $2,112,394 for the year ended August 31, 2011. Our primary uses of cash from operating activities for the year ended August 31, 2012 were losses from operations offset by increases in share based payments, stock issued for services, allowances taken on notes receivable , charges from derivative liabilities and stock issued for the forbearance agreement.

Net cash used in investing activities for the year ended August 31, 2012 was $4,869, predominantly from the purchase of property and equipment. This compares with net cash provided by investing activities of $482,151 for the year ended August 31, 2011 which was from the cash acquired in the merger.

Net cash provided by financing activities for year ended August 31, 2012 was $1,439,829 which included $1,861,249 from the issuance of convertible notes offset by $465,420 used for the repayment of debt.

Current and Future Financing Needs

We have incurred a stockholders' deficit of $7,565,912 through August 31, 2012 and have incurred a net loss of $6,329,747 for the year ended August 31, 2012. We have incurred negative cash flow from operations since inception and have primarily financed our operations through the sale of stock and the issuance of notes. At August 31, 2012, we had short term debt of $4,608,775 and a working capital deficit of $7,565,912. These factors raise substantial doubt about our ability to continue as a going concern. . The opinion of our independent registered accounting firm for the fiscal year ended August 31, 2012 is unqualified, however the opinion does state that there is substantial doubt as to our ability to continue as a going concern. During the year ended August 31, 2012, we raised $1,971,249 (net of expenses) from the issuance of our common stock, warrants, options and the issuance of notes and since then we have raised an additional $569,000 from the issuance of notes.. Our debt in the amount of $4,608,775 includes a guarantee of Soup Kitchen International Inc's debt in the amount of $3,242,613 part of which is past due. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including the promotion of our new shelf stable Tetra Pak, our advertising and marketing campaign, and fees in connection with regulatory compliance and corporate governance. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. Our current negative cash flow rate is approximately $100,000 per month. We do not have sufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. If our anticipated sales for the next few months do not meet our expectations, our existing resources will not be sufficient to meet our cash flow requirements. Furthermore, if our expenses exceed our anticipations, we will need additional funds to implement our business plan. We will not be able to fully establish our business if we do not have adequate working capital so we will need to raise additional funds, whether through a stock offering or otherwise.


Critical Accounting Policies

The information required by this section is incorporated herein by reference to the information set forth under the caption "Summary of Significant Accounting Policies" in Note 1 of the Notes to the Consolidated Financial Statements included in "Item 1 - Financial Statements" and is incorporated herein by reference.

Off-Balance Sheet Arrangements

We do not have any unconsolidated special purpose entities and, we do not have significant exposure to any off-balance sheet arrangements. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Cautionary Note Regarding Forward-Looking Statements

This report and other documents that we file with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management's assumptions. Statements that are not historical facts are forward-looking statements, including forward-looking information concerning pharmacy sales trends, prescription margins, number and location of new store openings, outcomes of litigation, and the level of capital expenditures, industry trends, demographic trends, growth strategies, financial results, cost reduction initiatives, acquisition synergies, regulatory approvals, and competitive strengths. Words such as "expect," "outlook," "forecast," "would," "could," "should," "project," "intend," "plan," "continue," "sustain", "on track", "believe," "seek," "estimate," "anticipate," "may," "assume," and variations of such words and similar expressions are often used to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those described in our reports that we file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements after the date they are made, whether as a result of new information, future events, changes in assumptions or otherwise.

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