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SOUP > SEC Filings for SOUP > Form 10-Q on 14-Jan-2014All Recent SEC Filings

Show all filings for SOUPMAN, INC.

Form 10-Q for SOUPMAN, INC.


14-Jan-2014

Quarterly Report


ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following analysis of our consolidated financial condition and results of operations for the quarter ended November 30, 2013 should be read in conjunction with the consolidated financial statements, including footnotes, and other information presented elsewhere in this Quarterly Report on Form 10-Q and the risk factors and the financial statements and the other information set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 14, 2013.

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.

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. 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.

Overview

Our Company manufactures and sells soups under the "Original SoupmanŽ" brand. We sell our soups in new innovative Tetra Recart shelf stable cartons in the canned soup aisle where most "heat & serve" retail soup purchases are made (approximately $6 billion in the US each year.) We believe that with our new shelf-stable Tetra Recart packaging, which allows our soups to be displayed in the canned soup aisle, many consumers will choose the Soupman's famous soups from Al Yeganeh over the other typical inferior tasting canned soups. We believe we will capture the health conscientious consumers who are aware that recent reports have warned consumers that canned products contain BPA, a known cancer causing agent. Tetra Recart packaging is BPA free and recyclable.

We also have franchised and licensed restaurants in specifically designated heavy traffic locations, such as the Mohegan Sun Casino in Connecticut. We sell the Original Soupman soups in bulk 8 lb. frozen "heat 'n serve" pouches to our franchised and licensed restaurants. The bulk 8 lb. pouches are also used for the Original Soupman soups and products which we sell to the New York City Public school system.

Results of Operations - Three Months Ended November 30, 2013

The following table summarizes our operating results for the three months ended
November 30, 2013 and 2012, respectively. All amounts have been rounded to the
nearest thousandth.

                                                   2013             2012
Revenue                                         $ 1,102,000     $    790,000
Cost of Sales                                       967,000          533,000
Gross Profit                                        135,000          257,000
Operating Expenses                                  996,000        1,176,000
Loss From Operations                               (861,000 )       (919,000 )
Other Income (Expense)                              358,000         (307,000 )
Net Loss (including non-controlling interest)   $  (503,000 )   $ (1,226,000 )

Revenue
Soup sales accounted for approximately 97% and 92% of overall revenue for the three months ended November 30, 2013 and 2012, respectively, while franchise revenues accounted for the remaining 3% and 8%, respectively. Our quarter-over-quarter revenues increase of approximately 39% was primarily attributable to the continued introduction of our new Tetra Recart line of soups.

For the three months ended November 30, 2013, our Tetra Recart line of soups accounted for approximately $833,000 (78%) of total revenue. The balance of soup sales of approximately $239,000 (22%) of total revenue were sold to our franchisees and the New York City school system. Our year-over-year soup sales increased 48%, primarily attributable to an increase in Tetra Recart sales.

Reported revenues are net of slotting fees (a fee charged by supermarkets in order to have the product placed on their shelves) and sales discounts (early payment discounts). Slotting fees for three months ended November 30, 2013 and 2012, respectively, were approximately $114,000 and $17,000, while sales discounts for the same periods were approximately $20,000 and $11,000.

Cost of Sales
Costs of sales, for the three months ended November 30, 2013 and 2012, included freight of approximately $49,000 and $38,000, respectively. Cost of sales represents costs associated with soup sales only; the Company had no cost of sales associated with franchise activities.

For the three months ended November 30, 2013 and 2012, cost of sales as a percent of soup sales increased approximately 16% (from 74% to 90%) due primarily to an increase in year-over-year slotting fees and higher cost of sales on our newest line of Tetra Recart soups. Cost of sales as a percent of soup sales is negatively impacted by slotting fees and sales discounts, which lower the reportable revenue, thus increasing the percentage

We expect our costs of sales (specifically the cost of ingredients, packaging and freight) on all our products to decrease in 2014 as we transition to a Maryland based packer.

Operating Expenses
Year -over-year operating expenses as a percentage of revenue decreased approximately 59% (from 149% to 90%) for the three months ended November 30, 2013 as compared to the three months ended November 20, 2012. Major components of our operating expenses for the three months ended November 30, 2013 consisted primarily of approximately 249,000 in stock based compensation and stock issued for services, $219,000 for payroll and payroll related expenses, $180,000 in professional fees, $64,000 in insurance expense, $56,000 in royalty fees and $49,000 for the promotion of our products.


Other Income (Expense)
Other income for the three months ended November 30, 2013 was approximately $358,000 compared to other expenses of approximately $307,000 for the three months ended November 30, 2012. The year-over-year change from other expense to other income was approximately $665,000 and was primarily due to an approximately $826,000 increase in change in fair value of derivative liabilities and a decrease of approximately $48,000 in stock related expenses, offset primarily by increases of approximately $165,000 for a forbearance agreement, $30,000 in debt penalty payments and $26,000 in interest expense.

Net Loss
Our net loss for the three months ended November 30, 2013 as compared to the three months ended November 30, 2012 decreased approximately $723,000 (or 59%) primarily due to factors discussed above regarding Revenue, Cost of Sales, Operating Expenses and Other Expenses. Net loss for the three months ended November 30, 2013 was approximately $386,000 or $0.01 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.

Liquidity and Capital

The following table summarizes our working capital as of November 30, 2013 and
August 31, 2013; all amounts have been rounded to the nearest thousandth.

                                   As of                   As of
                             November 30, 2013        August 31, 2013
Current assets              $           845,000      $         779,000
Current liabilities         $        11,396,000      $      11,564,000
Working capital (deficit)   $       (10,551,000 )    $     (10,785,000 )

At November 30, 2013, we had cash of approximately $104,000 as compared to approximately $115,000 at August 31, 2013. Our working capital deficit decreased approximately $234,000, primarily due to a decrease in derivative liabilities of approximately $960,000 and an increase in accounts receivable and inventory of approximately $82,000 offset by an increase in accounts payable and accrued liabilities of approximately $678,000 and an increase in net debt of $80,000.

For the three months ended November 30, 2013 net cash used in operating activities was approximately $180,000 as compared to approximately $421,000 for the three months ended November 30, 2012. Our primary uses of net cash from operating activities for the three months ended November 30, 2013 were losses from operations of approximately $503,000, an increase in accounts payable - net of approximately $680,000 and a non-cash adjustment to reconcile net loss to net cash of approximately $960,000 relating to the change in fair value of derivative liabilities, offset in aggregate by non-cash adjustments to reconcile net loss to net cash of expenses relating to stock issued for compensation and services - net of approximately $249,000, amortization of approximately $236,000 and stock issued for forbearance of $165,000.

Net cash used in investing activities for the three months ended November 30, 2013 was approximately $31,000; approximately $16,000 from advances to franchisees, $8,000 in advances to related party franchisees and $7,000 for the purchase of fixed assets.

Net cash provided by financing activities for the three months ended November 30, 2013 was approximately $200,000, which primarily included approximately $270,000 - net from the issuance of convertible notes and $316,000 from the sale of common stock offset by approximately $383,000 used for the repayment of debt.

Current and Future Financing Needs

We have incurred a stockholders' deficit of approximately $10.4 million through November 30, 2013 and have incurred a net loss of approximately $500,000 for the three months ended November 30, 2013. 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 November 30, 2013, we had a net short term debt of approximately $6,113,000 and a working capital deficit of approximately $10.5 million. These factors raise substantial doubt about our ability to continue as a going concern. During the three months ended November 30, 2013, we raised approximately $597,000 (net of expenses) from the issuance of our common stock and the issuance of notes and since then we have raised an additional $179,500 from the issuance of notes and approximately $153,000 through the sale of stock. Our debt of approximately $6,081,000 net includes a guarantee of SKI's debt in the amount of approximately $2,991,000; however none of it 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. 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 or our sales revenue is insufficient 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.


We are currently seeking additional funding from investors as well as an investment bank for an operating line of credit secured by receivables and inventory. While we believe we will require approximately $6,000,000 to implement our full business strategy, we believe that if we are able to raise no less than $1,500,000, it will be sufficient to support our operations for the next 12 months. If we are unable to raise the entire $6,000,000, we will be forced to reduce our marketing and promotion efforts and potentially the size of our operations as well, unless current sales increase enough to support implementing our full business plan. We believe that at $6,000,000 in sales, our operations would be self-sustaining and cash flow positive. Due to the fact that we use co-packers to manufacture our products, have no bricks and mortar, rent very modest space and only have 8 full time employees, many of our fixed costs are minimal and will remain unchanged regardless of how much money we are able to raise. If we are forced to reduce our marketing and promotion efforts and/or size of our operations because we are unable to raise the entire $6,000,000 and current sales do not increase enough to support implementing our full business plan, our revenues will likely be less than had we been able to implement our full program, and as a direct result our income may suffer, and may not be sufficient to cover our negative cash flow, negatively affecting our liquidity

We are obligated to pay the minority stockholder of Kiosk a royalty equal to 3% of the gross sales of all of its soup on the first $50,000,000 of gross sales, 2% on gross sales between $50,000,000 and $75,000,000, and 1% on gross sales thereafter. We are required to pay a minimum of $225,000 per year if the gross sales threshold is not met. Payments are due quarterly for ongoing services through June 30, 2014.

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