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

Show all filings for SOUPMAN, INC.

Form 10-Q for SOUPMAN, INC.


14-Apr-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 February 28, 2014 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 any of the 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 brand name "Original SoupmanŽ". Our soups are packaged in innovative Tetra Recart shelf stable cartons and are sold in the canned soup aisle of grocery stores, where most "heat & serve" retail soup purchases are made. The market size for our product in the US is approximately $6 billion annually.

We believe our sales will increase as soup consumers can now compare and choose Soupman's famous soups over other typical inferior tasting canned soups. We also believe we will capture the health conscience consumers, aware of recent reports warning that canned products contain BPA, a known cancer-causing agent. Tetra Recart packaging is BPA free, sustainable and recyclable.

We also sell the Original Soupman soups in bulk 8 lb. frozen "heat 'n serve" pouches to our franchised and licensed restaurants. We have franchised and licensed restaurants in specifically designated heavy traffic locations such as the Mohegan Sun Casino in Connecticut. Our newest Original Soupman Delicatessen & Restaurant opened this quarter at the Resorts Casino Hotel in Atlantic City.

We also sell Original SoupMan 8lb. bulk soups and other food products to the New York City Public school system, City University of New York, College of Staten Island and others. The products include vegetarian items, such a Mexicali Beans, Stewed Pinto Beans and Curried Chick Peas with Tomatillos, all of which are low-fat, low-sodium, and high in dietary fiber, and designed to taste great.


Results of Operations

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.

Six Months Ended February 28, 2014

The following table summarizes our operating results for the six months ended
February 28, 2014 and 2013, respectively. All amounts have been rounded to the
nearest thousandth.

                                                    2014             2013
Revenue                                         $  1,873,000     $  1,410,000
Cost of Sales                                      1,621,000        1,116,000
Gross Profit                                         252,000          294,000
Operating Expenses                                 2,116,000        2,173,000
Loss From Operations                              (1,864,000 )     (1,879,000 )
Other Income (Expense)                               360,000         (635,000 )
Net Loss (including non-controlling interest)   $ (1,504,000 )   $ (2,514,000 )

Revenue
Soup sales accounted for approximately 97% and 92% of overall revenue for the six months ended February 28, 2014 and 2013, respectively, while franchise revenues accounted for the remaining 3% and 7%, respectively. Our revenue increased approximately 33% for the six months ended February 28, 2014 as compared to the six months ended February 28, 2013, primarily due to the continued introduction of our new varieties to the Tetra Recart line of soups.

For the six months ended February 28, 2014, our Tetra Recart line of soups accounted for approximately $1,139,000 (61%) of total revenue. Soups sold to our franchisees and the New York City school system accounted for approximately $470,000 (25%) and $200,000 (11%), respectively, of total revenue. Our year-over-year soup sales increased approximately 40%, 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 our product placed on their shelves) and sales discounts (early payment discounts). Slotting fees for six months ended February 28, 2014 and 2013, respectively, were approximately $212,000 and $186,000, while sales discounts for the same periods were approximately $37,000 and $14,000.

Cost of Sales
Cost of sales, for the six months ended February 28, 2014 and 2013, included freight of approximately $119,000 and $69,000, respectively. Cost of sales represents costs associated with soup sales only; the Company had no cost of sales associated with franchise activities.

For the six months ended February 28, 2014 and 2013, cost of sales as a percent of soup sales increased approximately 4% (from 86% to 90%) due primarily to an increase in year-over-year slotting fees and higher cost of sales due to the production in Canada rather than the US of 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 cost of sales (specifically the cost of ingredients, packaging and freight) on all our products to decrease in 2014 as we transition to a United States based production facility.


Operating Expenses
Year -over-year operating expenses as a percentage of revenue decreased approximately 41% (from 154% to 113%) for the six months ended February 28, 2014 as compared to the six months ended February 28, 2013 primarily due to an increase in sales and a reduction in overhead. Major components of our operating expenses for the six months ended February 28, 2014 consisted of approximately $651,000 in stock based compensation and stock issued for services, $434,000 for payroll and payroll related expenses, $279,000 in professional fees, $115,000 in insurance expense, $112,000 in royalty fees and $94,000 for the promotion of our products.

Other Income (Expense)
For the six months ended February 28, 2013, other income was approximately $360,000 compared to other expenses of approximately $635,000. The year-over-year change from other expense to other income was approximately $995,000 and was primarily due to an approximately $950,000 increase in change in fair value of derivative liabilities and an approximately $291,000 settlement of debt, offset primarily by increases of approximately $165,000 for a forbearance agreement and $90,000 in interest expense.

Net Loss
Our net loss for the six months ended February 28, 2014 as compared to the six months ended February 28, 2013 decreased approximately $1,010,000 (or 40%) primarily due to factors discussed above regarding Revenue, Cost of Sales, Operating Expenses and Other Expenses. Net loss for the six months ended February 28, 2014 was approximately $1,504,000 or $0.04 per share (basic and diluted).

Three Months Ended February 28, 2014

The following table summarizes our operating results for the three months ended
February 28, 2014 and 2013, respectively. All amounts have been rounded to the
nearest thousandth.

                                                    2014             2013
Revenue                                         $    772,000     $    619,000
Cost of Sales                                        655,000          582,000
Gross Profit                                         117,000           37,000
Operating Expenses                                 1,120,000          997,000
Loss From Operations                              (1,003,000 )       (960,000 )
Other Income (Expense)                                 2,000         (356,000 )
Net Loss (including non-controlling interest)   $ (1,001,000 )   $ (1,296,000 )

Revenue
Soup sales accounted for approximately 95% and 92% of overall revenue for the three months ended February 28, 2014 and 2013, respectively, while franchise revenues accounted for the remaining 5% and 8%, respectively. Our revenue increased approximately 25% for the three months ended February 28, 2014 as compared to the three months ended February 28, 2013, primarily due to the continued introduction of our new varieties to the Tetra Recart line of soups and an increase in our sales to the New York City school program, partially offset by a decrease in franchise revenues.

For the three months ended February 28, 2014, our Tetra Recart line of soups accounted for approximately $307,000 (40%) of total revenue. Soup sold to our franchisees and the New York City school system accounted for approximately $247,000 (32%) and $182,000 (24%), respectively. Our year-over-year soup sales increased approximately 30%, primarily attributable to an increase in New York City school system sales as we introduced two new items to the menu in January.

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 February 28, 2014 and 2013, respectively, were approximately $97,000 and $169,000, while sales discounts for the same periods were approximately $27,000 and $12,000.


Cost of Sales
Cost of sales, for the three months ended February 28, 2014 and 2013, included freight of approximately $72,000 and $33,000, 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 February 28, 2014 and 2013, cost of sales as a percent of soup sales decreased approximately 14% (from 103% to 89%) due primarily to a decrease in year-over-year slotting fees and higher cost of sales due to the production in Canada rather than the US of 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 cost of sales (specifically the cost of ingredients, packaging and freight) on all our products to decrease in 2014 as we transition to a United States based production facility.

Operating Expenses
Year -over-year operating expenses as a percentage of revenue decreased approximately 16% (from 161% to 145%) for the three months ended February 28, 2014 as compared to the three months ended February 28, 2013 primarily due to an increase in sales and a reduction in overhead. Major components of our operating expenses for the three months ended February 28, 2014 consisted primarily of approximately $402,000 in stock based compensation and stock issued for services, $185,000 for payroll and payroll related expenses, $158,000 in professional fees, $89,000 for the promotion of our products, $56,000 in royalty fees and $52,000 in insurance expense, .

Other Income (Expense)
For the three months ended February 28, 2013, other income was approximately $2,000 compared to other expenses of approximately $336,000. The year-over-year change was approximately $338,000 and was primarily due the settlement of debt of approximately $291,000, an approximately $125,000 increase in change in fair value of derivative liabilities, offset primarily by an increase of approximately, $72,000 in interest expense.

Net Loss
Our net loss for the three months ended February 28, 2014 as compared to the three months ended February 28, 2013 decreased approximately $295,000 (or 23%) primarily due to factors discussed above regarding Revenue, Cost of Sales, Operating Expenses and Other Expenses. Net loss for the three months ended February 28, 2014 was approximately $1,001,000 or $0.03 per share (basic and diluted).

Liquidity and Capital

The following table summarizes our working capital as of February 28, 2014 and
August 31, 2013; all amounts have been rounded to the nearest thousandth.

                             February 28, 2014        August 31, 2013
Current assets              $           823,000      $         779,000
Current liabilities         $        11,799,000      $      11,564,000
Working capital (deficit)   $       (10,976,000 )    $     (10,785,000 )

At February 28, 2014, we had cash of approximately $54,000 as compared to approximately $115,000 at August 31, 2013. Our working capital deficit increased approximately $191,000, primarily due to an increase in accounts payable and accrued liabilities of $1,281,000 and decreases of approximately $1,015,000 and $31,000 in derivative liabilities and debt, and increases in accounts receivable and inventory of approximately $119,000 and a decrease in cash of approximately $61,000.

For the six months ended February 28, 2014, net cash used in operating activities was approximately $429,000 as compared to approximately $619,000 for the six months ended February 28, 2013. For the six months ended February 28, 2014, our primary uses of net cash from operating activities were from losses sustained in normal operations of approximately $1,505,000, an increase in accounts payable - net of approximately $1,298,000, an increase in accounts receivable - net and inventory of approximately $99,000 and adjustments to reconcile net loss to net cash of approximately $136,000.


For the six months ended February 28, 2014, net cash used in investing activities was approximately $44,000 all related to advances to franchisees.

For the six months ended February 28, 2014, net cash provided by financing activities was approximately $412,000, which primarily included approximately $520,000 from the issuance of convertible notes, $366,000 from the sale of common stock offset by approximately $474,000 used for the repayment of debt.

Current and Future Financing Needs

We have incurred a stockholders' deficit of approximately $10.8 million through February 28, 2014 and have incurred a net loss of approximately $1.5 million for the six months ended February 28, 2014. 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 February 28, 2014, we had a net short-term debt of approximately $6 million and a working capital deficit of approximately $11.0 million. These factors raise substantial doubt about our ability to continue as a going concern. During the six months ended February 28, 2014, we raised approximately $886,000 from the issuance of our common stock and notes and since then we have raised an additional $387,500 through the sale of stock. Our debt of approximately $6 million net includes a guarantee of Soup Kitchen International's ("SKI") debt of approximately $2.7 million, none 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 carton soups and our advertising and marketing campaigns. 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 a capital raise of $8 million. While we believe we will require approximately $8 million to implement our full business strategy, we believe that if we are able to raise no less than $1.5 million, it will be sufficient to support our operations for the next 12 months. If we are unable to raise the entire $8 million, we will be forced to reduce our marketing and promotion efforts unless current sales increase enough to support implementing our full business plan. We believe that at $5 million in sales, our operations would be self-sustaining and cash flow positive. We use co-packers to manufacture our products, have no bricks and mortar and rent inexpensive office space. Many of our fixed costs are minimal and will remain substantially unchanged regardless of how much money we are able to raise. If we are forced to reduce our marketing and promotion efforts because we are unable to raise the entire $8 million, 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.

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