SOUPMAN, INC. - FORM 10-K - February 25, 2015

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EXCEL - IDEA: XBRL DOCUMENT - SOUPMAN, INC.	Financial_Report.xls
EX-32.1 - CERTIFICATION - SOUPMAN, INC.	f10k2014ex32i_soupman.htm
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EX-31.2 - CERTIFICATION - SOUPMAN, INC.	f10k2014ex31ii_soupman.htm
EX-31.1 - CERTIFICATION - SOUPMAN, INC.	f10k2014ex31i_soupman.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2014

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from______________________ to__________________________

Commission File Number: 000-53943

SOUPMAN, INC.

(Name of small business issuer in its charter)

Delaware		61-1638630
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

1110 South Avenue, Suite 100 Staten Island, NY		10314
(Address of principal executive offices)		(Zip Code)

(212) 768-7687

Registrant’s telephone number, including area code:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☐ No ☒

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of issuer’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file, a non-accelerated file, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the issuer’s common stock held by non-affiliates of the registrant as of February 28, 2014 was $12,085,061 based on $0.48, the price at which the registrant’s common stock was last sold on that date.

As of February 24, 2015, the issuer had 50,133,471 shares of common stock outstanding.

Documents incorporated by reference: None

SOUPMAN, INC.

FORM 10-K

TABLE OF CONTENTS

		Page

	PART I.
Item 1.	Business	1
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	7
Item 2.	Properties	7
Item 3.	Legal Proceedings	8
Item 4.	Mine Safety Disclosure	8
	PART II.
Item 5.	Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities	9
Item 6.	Selected Financial Data	10
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	13
Item 8.	Financial Statements and Supplementary Data	F-1
Item 9.	Changes in and Discussions with Accountants on Accounting and Financial Disclosure	14
Item 9A.	Controls and Procedures	39
Item 9B.	Other Information	15
	PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	16
Item 11.	Executive Compensation	19
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	22
Item 13.	Certain Relationships and Related Transactions, and Director Independence	23
Item 14.	Principal Accountant Fees and Services	23
	PART IV.
Item 15.	Exhibits and Financial Statement Schedules	24
SIGNATURES		25

PART I

Forward-Looking Statements

Most of the matters discussed within this report include forward-looking statements on our current expectations and projections about future events. In some cases you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. We do not undertake any obligation to update any forward-looking statements. Unless the context requires otherwise, references to “we,” “us,” “our,” and “Soupman,” refer to Soupman, Inc.

Item 1. Business

OUR COMPANY

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 of $4,830,254 of OSM’s convertible notes were converted into 4,830,254 shares of our common stock.

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

We 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®”. Our brand is well known throughout the industry and our Chicken Vegetable soup was once rated as the best chicken soup in America by Consumer Reports.

Additional information about our Company is contained at our website, www.originalsoupman.com . Information on our website is not incorporated by reference into this report. We make available on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as soon as reasonably practicable after those reports are filed with the SEC. The following Corporate Governance documents are also posted on our website: Code of Business Conduct, Code of Ethics for Financial Management and Corporate Trading Policy Our phone number is (212) 768-7687 and our facsimile number is (212) 768-7055.

OUR BUSINESS

Overview of our Operations

Our Company manufactures and sells soups under the brand name “Original Soupman®”. 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 is 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.

Licensing Arrangement with Al Yeganeh

In July 2004, International Gourmet Soups licensed the exclusive rights to use, in perpetuity, the name, slogans, and recipes of Al Yeganeh, founder of the famous soup restaurant located in New York City on 8th Ave and 55 Street, in manufacturing and marketing in North America, over 40 varieties of gourmet soups under the brand “Original Soupman”.

The quality of his soup was such that Mr. Yeganeh gained a devoted local following and long lines of loyal customers outside the store that extended around the block. Mr. Yeganeh’s renowned soups abruptly went international in 1995 when they first aired the famous “soup” episode of the “Seinfeld” comedy television show, which featured a character based on Mr. Yeganeh. This episode is one of the best known and highest-rated of that phenomenally successful series, and it soon became common knowledge that the character of the irascible soup-restaurant proprietor was based—fairly or unfairly—on Mr. Yeganeh. Mr. Yeganeh was featured on “Late Night with David Letterman,” “The Oprah Winfrey Show,” “Good Day New York,” and “The Today Show,” CNN, CNBC’s “Squawk Box,” and “Your World with Neil Cavuto”, “Fox and Friends”, TIME Magazine, Consumer Reports and many other media venues. Mr. Yeganeh was paid $150,000 upon execution of the license agreement, and the agreement further provides that he was to receive a minimum royalty of $225,000 per year through June 30, 2014 based on a right to royalties of 3% on our gross sales (as such term is defined in the license agreement) 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 and 3% of our franchise fees (the latter amount to be donated to charities dedicated to relieving hunger). He also receives 50% of the net profits from the sale of certain merchandise. Pursuant to the terms of the license agreement, Mr. Yeganeh received 20% of the outstanding stock of our subsidiary Kiosk Concepts, Inc., which manages our franchise operations. In the event of a bona fide sale of all of the stock or assets of the Company Mr. Yeganeh is to receive the lesser of 10% of the sale price less all outstanding liabilities or $10,000,000. The license agreement with Mr. Yeganeh does not provide for any stated termination provisions.

Current Operations

We sell our soups in two distinct venues and packages. In the grocery segment, we sell our soups in the Tetra Recart shelf stable cartons that allows our soups to be displayed in the soup aisles of grocery stores along-side Campbell’s and Progresso the category leaders. In the food service segment, we sell our soups in 8 lb. frozen boilable pouches to our franchised restaurants, licensed customers and NYC public school system.

The soups are slow cooked in small batches using Al’s original recipes. The 8 lb. boilable pouches are flash-frozen to seal in the maximum amount of flavor and are used for our franchised restaurants and foodservice business. The Tetra Recart carton soups do not require any refrigeration and have no preservatives added. Our processes enable us to ship Mr. Yeganeh’s famous soups anywhere in the world.

Soupman Inc. markets the Tetra Recart carton soups. Our subsidiary, The Original Soupman Inc. markets our “Original Soupman” bulk soups and Kiosk Concepts, Inc., an 80% owned subsidiaries of The Original Soupman Inc., the remaining 20% of which is owned by Mr. Yeganeh, is the entity from which we conduct our franchising operations which collect franchise fees and royalties.

Original Soupman Tetra Carton Soups

With our launching of the Soupman brand shelf stable Tetra Recart soup in the grocery stores and supermarkets in May 2012, we are now part of the $6 billion US grocery soup category and plan to be able to gain a meaningful portion of that business. The Tetra Recart carton allows us to sell our soups on grocery store shelves that we previously could not sell, such as our best-selling soup in our restaurants, Lobster Bisque. We believe that all of our 17 oz. Original Soupman cartons contain a healthy, tasty, nutritious meal and consumers will appreciate the quality of our product as an alternative to other soups including Campbell’s and Progresso soups. Tetra Recart packaging is easier to ship, easier to stock and easier on the environment. Several thousand products around the world have shifted to Tetra Recart and/or Aseptic shelf stable packaging due to its environmentally friendly traits and its being BPA-Free.

The Tetra Recart cartons give us the ability to sell our award winning soups where people look for them in the canned soup aisle. This packaging enables us to offer the same quality soups as our restaurants in a shelf stable product for less cost while maintaining significant profit margins. We believe that this will be the catalyst and inflection point which will propel the Soupman brand into the mainstream of the national soup retail industry. The first 4 varieties in 17.3 oz. Tetra Recart cartons were Lobster Bisque, Chicken Noodle, Lentil and Tomato Bisque. Our first authorizations were in HEB, Safeway, Vons, Randall’s, Tom Thumb, Pavilions, A&P, and priced between $2.84 and $4.49.

We have since increased the number of varieties to include Crab Corn Chowder, Chicken Gumbo and Jambalaya, one of the Seinfeld favorites. HEB, Safeway and others have added these new varieties on their shelves. Our customer list has grown adding Publix, Harris Teeter, Met Foods, Meijer’s, Weis, Pathmark, Walmart, Stop & Shop, Giant, Martin’s, Vons, Waldbaums, Price Chopper, Wegman’s, The Fresh Market, Fairway and other major retail chains.

We believe the supermarket industry is currently seeking new product concepts to drive incremental sales and profits in today’s economy. The Original Soupman’s marketing strategy is to exceed our customer’s expectations for premium soup products and healthy meal replacements. Original Soupman targets consumers in the retail landscape that are educated, health and taste conscious, working and have limited time to cook and desire high quality meals for immediate consumption. We plan to continue to add new soups to the Tetra Recart line from our restaurants. We also hired award winning designer Rollin Binzer to redesign the package graphics for 2014, which we believe will better represent the product quality and be able to catch the eye of the consumer faster. We created an Organic Gluten Free Lentil soup in a 6 pack for Costco and expect to add other organic soups, lower-sodium soups, additional restaurant varieties in tetra cartons all with recipes for our customers to follow which will help stretch the dollar by putting the soup over pasta, rice or potatoes. In addition, we hired Brand Initiatives Group as our Marketing and Branding consultants in June 2014 (www.brandinitiatives.com). BIG executives have worked on the international and national brands including Adidas, Pony, French’s Mustard, Frank’s Hot Sauce and many more.

We plan to target all grocery chains as well as upscale customers such as Whole Foods, Wild Oats and Trader Joe’s as potential clients for our products. In addition, we plan to expand our branded offering to soup bases, ready to use broths and dry soup mixes to compete in these growing categories with Mr. Yeganeh’s famous recipes which we believe will make his broths and stocks sought after by customers. These products will be priced for grocery and discount stores such as Wal-Mart and are expected to have significant operating margins for our company.

Franchising

Our entire line of over 40 varieties of “Original Soupman” soups are sold directly to consumers in Original Soupman restaurants by franchisees, to whom we sell the bulk soups. We currently have 10 franchise locations (which include five co-branded locations as described below).

Our flagship Original Soupman Delicatessen & Restaurant model opened in December 2013 at Resorts in Atlantic City NJ (www.resortsac.com). This model has modified signage emphasizing the Delicatessen menu which has resulted in increased sales overall. We expect this store to achieve sales of $1,800,000 in 900 sq. ft. The franchisee and operating partner Bill White is a very experienced food operator. Mr. White also operates Famous Famiglia Pizza, Haagen Daaz, Ruby’s Diner in Resorts AC as well as other brands including Johnny Rockets and Guy Fierro’s. Robert Azinian, Original Soupman national casino developer and one of the first Johnny Rockets franchisees, is a partner in the Resorts Atlantic City restaurant. There are also plans for full seating Al’s NY Delicatessen & Restaurants for casinos and airports with expected sales of up to $4 to $5 million annually. The Original Soupman Delicatessen model was first opened in 2009 at the Mohegan Sun Casino in Connecticut (www.mohegansun.com). The franchisee of this restaurant is Lloyd Sugarman, our Chairman of the Board and former CEO. We expect that this 650 sq. ft. food court model can experience sales of more than $1,400,000 annually. Mr. Sugarman is a partner in our Resorts Atlantic City franchise too.

We have identified casinos, airports, theme parks and other tourist locals as our preferred locations for the continued expansion of our franchises, and plan to vigorously pursue marquee destinations for additional franchise store build-outs.

Co-Branded Franchising

We will continue to seek to identify quality partners with whom we can forge a synergistic relationship, whether in the United States and/or Canada, for the purpose of expanding our brand awareness and sales volume. Our co-brand model, where our soups are served together with other franchised food items, such as Tim Horton’s coffee products, is available to professional franchise operators who in the past six years have survived the worst economic climate in their lifetimes and see the need to add consumer traffic and revenue while driving sales more consistently throughout the day. Our dedicated franchise partners agree with the synergy and benefits of co-branding with the Original Soupman. We currently have co-branded franchise agreements with the following organizations:

Tim Horton’s (http://www.timhortons.com)

Cold Stone Creamery, Inc. (http://www.coldstonecreamery.com)

Ranch*1 (http://www.ranch1.com)

Co-branding enables The Original Soupman to expand more rapidly with existing operators, with less risk, offering our consumers a healthy lunch/dinner with more variety and brand recognition while offsetting the seasonality of our products.

Original Soupman Mobile Franchise Program

We have started an Original Soupman mobile food truck franchise program which we began selling franchises in July 2014, the franchise fee is $15,000 and the weekly royalty will be $200 up to $400,000 in annual sales at which time it is 4% of sales. This “soupmobile” model is designed to limit the risks associated with stores, move from location to location at busy times of the day and feature our famous soups and a limited sandwich selection that will include our Lobster Roll. We also intend to add “bowls” to this menu, which consists of either rice or pasta topped with our soup. The first Soupmobile is operating in New Jersey at Rutger’s University as well as Jersey City and Newark. We expect another Soupmobile unit to begin operating in Manhattan Park on Wall Street in NYC in January 2015, and the first Original Soupman soupmobile to be on the streets of Kansas City operated by Iraq Veteran Sgt. Dan the Soupman in 2015. Shaquille O’Neal, as one of the owners of Amongst Elite Inc., the New Jersey Soupmobile franchisee, has agreed to help drive the growth of this Soupmobile franchise program for our company. Atlanta Food Group, a national franchise sales broker whose partners founded Moe’s Southwest represents the franchise sales for Original Soupman.

Licensed Soup Program

We are testing adding our branded Original Soupman soups as a product in large chains with substantial daily foot traffic and lunch business. This would only require a License Agreement to purchase our soups but not require fees or royalties. This program is targeted towards select successful strategic chains such as Starbuck’s (www.starbucks.com), Subway (www.Subway.com) and Tim Horton’s restaurants (www.timhortons.com) regarding our branded Original Soupman program for their stores in the US and Canada.

In all instances we offer the power of our brand and world famous soups to strategic partners that have thousands of outlets, high traffic and proven success. We anticipate our licensed soup initiative to become a formidable revenue source for the Company in the coming years, allowing us to take advantage of the scale these national chains provide, as well as providing a platform for which to leverage the strong and established brand awareness these potential partners have with our target consumers and the power of our celebrity Original Soupman partners.

Original Soupman Branded School Lunch Program

There have been many studies that have concluded that the menus in many school lunch programs are too high in saturated fat and cholesterol and lacking in fiber, vegetables and other nutrient-rich foods. These reports show that major changes are needed to encourage the health of our nation’s youth, and to reverse the growing trends of childhood obesity, early-onset diabetes, and hypertension, among other chronic diseases, in children and teens. We have, in cooperation with the New York City Department of Education School Foods, developed a menu of low fat, low calorie menu items that are high in fiber, protein and vegetable nutritionals. We started shipping Original Soupman Mexicali Beans in January 2012 as a lunch item to the NYC Schools, at elementary, middle and high school levels, in the five boroughs of NYC. There are approximately 860,000 meals served daily in the NYC School system. We continued scaling of this program by adding Curried Chickpeas with Tomatillos and Stewed Pinto Beans, which are vegetarian dishes that have also been authorized in the NYC schools. Our plan will be to grow this program across the nation’s school system with the help of Shaq and the Healthy School Foods initiative.

Our products for school lunches are sold ready to ‘heat n serve’ as a branded Original Soupman product which is user friendly for the cafeteria employees (no mixing and cooking) and has been well received by the students who consider it a delicious and healthy alternative meal. In addition, we believe there are many other meals, which we can prepare in a “heat-n-serve” format for schools across the country, and we are currently testing a variety of products and formulations to meet the requirements set forth by the Department of Education. The Company displayed its products at the School Nutrition Association conference www.schoolnutrition.org in July 2012, where Shaquille O’Neal was a featured speaker and Reggie Jackson held a private event for school food buyers from around the country. In addition, Reggie introduced several new vegetarian items which conform to the 2012-2013 USDA School Food guidelines including Curried Chick Peas and Stewed Pinto Beans which are now being served in NYC public schools. Tim Gannon, master chef and co-founder of Outback Steakhouse and Soupman Culinary Director, developed these new recipes for the schools which are tasty, low in sodium, low fat and high in dietary fiber. The conference, which was attended by 3,500 school nutritionist from around the United States, was an introduction for other school systems to taste Original Soupman products and we were very pleased they liked them and expressed interest in and a need for healthy, ready to serve meals. Original Soupman can provide more nutritional menu options for their respective students in a unique and fun way utilizing Shaq, whom the children look up to.

These meet the criteria of the Healthier US Schools Challenge (“HUSSC”).The HUSSC, which is a USDA program, is a primary component of First Lady, Michelle Obama’s “Let’s Move” campaign.

We have our bulk soups co-packed for us to be sold in our restaurants and to our food service accounts by several manufacturers under strict confidentiality.

In addition, we have contracted manufacturing of our Tetra products by a highly specialized manufacturing company equipped with the Tetra proprietary equipment. All Original Soupman soups are produced in the United States of America to the high standards of quality.

High Profile Strategic Brand Champions

We have relationships with a trio of American Icons; Yankee great Reggie Jackson; Seinfeld star Jason Alexander; and NBA superstar Shaquille O’Neal.

Reggie Jackson, “Mr. October”, The Hall of Fame Great, has joined our management team in an advisory capacity to represent our brand in the media, with high profile customers and at trade shows. Reggie’s high profile and business contracts enable Original Soupman to gain high-level meetings with industry leaders. He is a door opener for our brand and a world-class ambassador for Original Soupman.

Jason Alexander played George Costanza in the famous Seinfeld “Soup” episode that portrayed Al Yeganeh’s character. We intend for him to be our spokesperson to drive sales and awareness and spearhead the marketing of the shelf stable Soupman product launch.

Shaquille O’Neal is a future NBA Hall of Fame basketball player who is currently one of the most followed athletes on Twitter with almost 8 million followers. This social media mastery is only part of what Shaq brings to the Original Soupman team. His business acumen includes being an early investor in Google and Vitamin Water (bought out by Coca-Cola for $4 Billion) as well as starring in his own reality show and selling over a hundred million pair of ‘value-priced’ sneakers under the SHAQ brand in Wal-Mart and other retailers. In addition, Shaq is invested in several restaurant chains and has extensive relationships we believe will be fortuitous in gaining partnerships with national chains for The Original Soupman in the future. We intend for him to assist our marketing campaigns for Tetra Recart soups, soupmobile franchises as well as the school healthy foods programs.

E-Commerce and On-Line Distribution

We are a legendary brand with extraordinary awareness. While our distribution channels continue to be built, we maintain an interactive website which allows our loyal Soupman fans from around the world to purchase our Tetra Pak carton soup varieties as well as our collection of licensed merchandise. Our e-commerce website is www.originalsoupman.com. Information on this e-commerce website is not incorporated by reference into this report.

THE SOUP MARKET

Soup is purchased by 92% of U.S. households, a sign of strong consumer acceptance of the category. (Mintel-US-SOUP-2013). Recession-inspired frugality resulting in changing consumer purchase habits has conspired to soften sales in the $6.4 billion soup industry. In spite of this challenging market, manufacturers have invested capital and Research and Development (R&D) resources to bring market offerings into line with consumers’ needs and desires. Some of the initiatives include introducing more trendy soup flavors and new products to expand consumers’ use of soup beyond “winter comfort food” and more toward meal-preparation solutions. (Mintel-US-SOUP 2012)

Our goal is to capture at least 2% of that market over the next five years, equivalent to $128 million in wholesale sales supermarket.

Supermarket Stores

The Supermarket industry consists of over 37,000 stores with 2014 total sales of $522 billion. (Statista 2015). In addition, there are over 136,000 grocery stores with similar revenue. It is our goal to capture a portion of this market.

Fast-Food Trends

Within the food service industry, fast food represents $188.0 billion of total restaurant sales in 2013 which is a 4.9% increase. There are approximately 313,000 fast food stores in the U.S. (Nation’s Restaurant News 2013). People are frequenting fast-food outlets more often and they are spending more money at fast-food outlets.

Health concerns are also forcing fast-food outlets to add healthier foods to their menus. With baby boomers worrying about cholesterol, and big chains being sued over high-fat content foods, it’s tempting to conclude that finally, health concerns are rewriting fast-food menus. Based upon the nutritional content of our soup, we believe l our soups offer a healthy alternative to other foods sold at fast food outlets.

An important subset of the branded premium specialty operations is the growing popularity of upscale “quick-casual” fast-food concepts, as exemplified by restaurants such as those in the Panera Bread, Cosi, and Chipotle Mexican Grille chains. Our target customer has annual household income of $75,000 or more, educated and health conscious. It is our opinion that quick-casual consumers are more health conscious and want lighter fare, all-natural products, and varied international or exotic ingredients. They have less time for lunch and dinner, and regard quality take-home foods as supplementing, or as an alternative to, home cooking. These consumers are seeking “home meal replacement” choices and we believe that soup is the perfect home meal replacement.

We estimate that soup currently accounts for 4% of U.S. food-service sales. We believe that we can profit from each of the trends noted above—stores seeking to increase ticket sales, consumers seeking healthier fare, and the growing popularity of branded, comparatively upscale outlets- because they will lead to an increase in the soup component of food-service sales. In particular, to take advantage of these trends we have developed a “clip-on” Original Soupman co-branded franchise model, in which our soup products in certain outlets are one of several co-branded food concepts; providing an outlet a means of increasing ticket sales and offsetting the effects of seasonality. In addition, we are beginning our mobile food truck franchising program.

Fast-Food Franchises

We are currently franchising fast-food “Original Soupman” co-branded stores in high-traffic locations (including shopping malls, airports, casinos, travel plazas, tourist locations, and major city centers) throughout the U.S. We have had franchise approvals in 47 U.S. states, have now submitted our franchise offering documents to include our mobile franchise program and we received approval in June 2014. Since October 2004, more than 10,000 applications from potential franchisees have been received. Our focus will be on experienced multi-store operators, mobile soup truck owner/operators and co-branding into existing successful operations.

Franchising Terms

Our franchise fee is generally $35,000 per unit (although in certain situations, where a franchisee agrees to open three or more stores, we charge a discounted fee), $20,000 for a co-branded store and we collect a 5% royalty on all sales of products sold by the franchisee, $15,000 mobile franchise fee and $200 weekly royalty, in addition to revenue we receive from the franchisee for the purchase of the soups. Each franchise is for a ten-year term, which is auto-renewable if the franchisee is in compliance with our franchise requirements, which include meeting quality standards, following the procedures set forth in our operations manual, selling our soups exclusively and making prompt payments.

The Original Soupman Delicatessen model first opened in the Mohegan Sun Casino in Connecticut in December 2009 is a 650 square foot restaurant with common seating. A typical Original Soupman Delicatessen could cost up to $200,000 or more depending on the size and location. Our flagship Original Soupman Delicatessen & Restaurant model opened in December 2013 at Resorts in Atlantic City NJ (www.resortsac.com). This model has modified signage emphasizing the Delicatessen menu which has resulted in increased sales overall. We expect this store to achieve sales of $1,800,000 in 900 sq. ft. This is relatively inexpensive compared to the average restaurant cost due to our simple equipment package. Our stores have no fat fryers or fire suppression systems. Consumers prefer to dine in a comfortable setting with seating and we intend to continue to refine this model while co-branding Original Soupman (which only requires approximately $60,000 in capital investment), throughout the United States and Canada with quality partners.

PRICING AND GROSS MARGINS

We sell our “Original Soupman” franchisees products at an average price of approximately $35 per case, which returns average gross margins of approximately 25%. Our franchisees have signed 10-year contracts with the Company, with 10 year auto-renewal provisions. Our Tetra Recart soups are competitively priced with the premium packaged soups and we believe taste far superior. The average margin for these Original Soupman tetra cartons produced in the United States since May 2014 are approximately 38%. This is substantially better than the margins previously realized when the product was manufactured in Canada in 2012 and 2013. There are more facilities in the United States being equipped with the specialized tetra recart machinery so production capacity in the US will be increasing to meet industry demands.

Franchisees are free to set retail prices at their restaurants, and we expect that franchise outlets will sell a 12-ounce bowl of hot soup for approximately $6 and more for Lobster bisque. We have also implemented a Daily Special in our restaurants for $6.95 which includes a cup of the Original Soupman soup, ½ sandwich or salad and fresh brewed tea or lemonade to be competitively priced. We have also implemented a pay-one-price strategy of $4.49 for a cup and $5.99 for a bowl in order to have our customers have a better price/value perception of Original Soupman while returning a cost of goods sold of approximately 35% for our operators.

MARKETING

We are building on the fame of Mr. Yeganeh by investing strategically in people, packaging, advertising, promotions, and establishing a corporate identity. We have also invested sparingly in trade events including the Multi –Unit Operator Conference, the FMI (Food Marketing Institute) show, MUFSO conference, IFA conference, ARN conference and The Money Show conferences in the past. We sample our soups and are able to meet potential restaurant operators, customers and strategic partners at these events. We did not have sufficient capital budget to attend these shows in 2014.

We have signed on three brokerage firms to sell our new Tetra Recart soups in the grocery and club store industries. Advantage Sales & Marketing (http://asmnet.com) represents us in all supermarkets nationally, Wal-Mart, Target stores as well as distributors, convenience stores and drug chains including CVS, Walgreen’s and Rite Aid. Acosta Sales & Marketing (http://www.acosta.com) handles $1.4 billion in annual sales to Safeway stores (which was acquired by Albertson in 2014) and handles us product exclusively at Safeway. Innovation Sales (http://www.foodmarketingcoop.com) works exclusively selling to Costco and has several full distribution “Kirkland signature” items.

In keeping with Mr. Yeganeh’s tradition of feeding the hungry and homeless, we have formed a charitable foundation called “Al Feeds the Hungry Foundation” from which we make donations to local organizations who help feed the hungry. Our agreement with Mr. Yeganeh provides that 3% of the franchise fees payable to Mr. Yeganeh shall be paid to a charity named by Mr. Yeganeh which helps feed the hungry. To date, we have donated over $75,000 in cash and meals.

PRODUCTS AND OPERATIONS

Our “Original Soupman” product line consists of all of Al Yeganeh’s soups, which to date is 40 different types, each featuring fresh ingredients and exotic flavors. Mr. Yeganeh and our team developed a proprietary cooking process, unique to the food manufacturing industry, enabling them to produce a line of packaged and frozen gourmet soups of the highest quality. We make all our products from raw materials, initially sautéing primary components, and then gradually adding complementary ingredients. All of our soups are manufactured and packaged by us or our manufacturers at their facilities and shipped by common carrier or their trucks to the sale destination.

Products sold through our franchise program and our kettle soups are packed in 8-pound boilable poly bags which have been designed to lock in flavor and frozen. At the point of sale, the soup is heated in branded kettles that “finish” the soup and bring all flavors to their peak. No additional ingredients are required, except lobster and crab meats for our specialty soups. We add some fresh herbs as a garnish at our stores which include dill, cilantro and fresh basil. Franchisees will offer toppings for the soups, such as sour cream, guacamole, cheese or onions, which add variety to each soup offering.

In May 2012 we began selling our “Original Soupman” soups to consumers in grocery stores in the Tetra Recart cartons that allow them to be displayed for the first time on shelves in the canned soup aisle. Not only does the Tetra Recart packaging allow us to eliminate the need to refrigerate our soups and allow our soups to be displayed on the shelves in the soup aisles but soups packaged in Tetra Recart cartons are easier to ship, easier to stock and easier on the environment. We pack Lobster Bisque, Chicken Noodle, Lentil and Tomato Bisque in the Tetra Recart packaging. In September 2013, we introduced 3 new varieties in the tetra packages: Crab Corn Chowder, Chicken Gumbo and Jambalaya. In 2014 we introduced new graphic designs, discontinued tomato bisque and introduced an all-natural gluten free lentil soup. In 2015 we will introduce an Organic Gluten Free Lentil soup in a 6 pack of tetra cartons at Costco.

COMPETITION

We compete directly with national and regional soup wholesalers, marketer of canned and packaged soups, and regional retail soup chains. In addition, we compete indirectly with many well-established food-service companies, including fast-food restaurants, delicatessens, take-out food service companies, supermarkets, and convenience stores.

Our competition includes the following companies.

Regional and National Wholesale Manufacturers (kettle programs)

1. Heinz—Chef Francisco

2. Campbell’s—Stockpot

3. Kettle Cuisine

4. Blount soups

Branded Marketers (canned, cartons, refrigerated, jarred, tetra paks)

1. Campbell’s—Stockpot, GO Soups, Selects, Gourmet Bisques, Chunky and Kettle Soups

2. Pacific

3. Hain Food Group—Imagine Soups

4. Blount (Costco Kirkland refrigerated soups)

5. Wolfgang Puck

6. Progresso

Fast Food Chains with Proprietary Soup Sourcing

1. Hale & Hearty (local NYC)

2. Panera Bread (National)

3. Souper Salad (South West)

4. Zoup (Michigan Area)

Our franchise operations are subject to competition from every other franchise chain. There are many alternatives available to franchisees. Many of the fast food chains are more established than us and have greater marketing and distribution resources than us, which permit them to implement extensive advertising programs and attract franchisees. However, we feel that the quality of our product will help us attract franchisees.

Barriers to entry are moderate in this industry. The start-up costs for equipment, supplies, and establishing distribution are significant, and it is critical that one have access to industry expertise. Due to the size and complexity of their equipment and their existing production techniques, the larger soup companies are not equipped to produce higher-quality, all-natural gourmet soups. Regional producers of refrigerated gourmet soups are in general unable to freeze their product. This shortens its shelf life and therefore limits how widely the product can be distributed. In addition, there is little consumer awareness of regional brands, such as Hale & Hearty. We have not experienced these barriers to entry as we are a low capital intense national retailer with the ability to ship frozen products nationally and even internationally, for example, to Canada.

EMPLOYEES

We currently have four full time employees and one part time employee.

Hank said to eliminate risk factors

Item 1. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Our primary offices are located at 1110 South Avenue, Staten Island, New York 10314. We currently rent approximately 400 square feet of office space in Staten Island, New York for monthly rent of $3,340. We believe our current offices will be adequate for the foreseeable future.

Item 3. Legal Proceedings

Soupman, Inc. is one of several defendants in a lawsuit filed by Gourmet Sales and Marketing, LLC (“GSM”) in July 2011 in the Supreme Court of the City of New York (Case Index 651961/2011). GSM claims that it is owed $37,500 in sales commissions based upon an August 2009 sales and marketing agreement. Aside from the claim for an accounting, compensatory damages and/or punitive damages are demanded with respect to the other claims. The Company served its answer to the complaint in October 2011, in which it denied the allegations of the complaint with respect to the claims of liability and asserted numerous defenses and affirmative defenses. The matter is in the discovery phase of litigation. In the Company and its counsel’s opinion, the complaint lacks merit as the agreement that forms the basis of GSM’s claims may be invalid and unenforceable, GSM is not owed any money, and the Company believes that punitive damages are without basis.

Soupman, Inc. is a defendant in a lawsuit filed by Mark Hellner and four other plaintiffs in New York State Supreme Court (Case Index No. 6083/2014). The plaintiffs are holders of a series of notes issued by the Company and are seeking repayment of the notes with interest. The plaintiffs have prevailed in the action and on December 23, 2014 submitted a proposed judgment in the amount of $263,941.43. The Court received the proposed judgment and did not immediately enter the judgment. Instead, in early January 2015 the court requested that counsel attempt to agree on the prejudgment interest calculations due and then present a stipulated judgment. To date, no such agreement has been reached. No assurance can be given as to when the judgment in this case will be entered. In addition, the entry of this judgment could have a material adverse effect on the Company and its business operations.

The Original Soupman, Inc. Kiosk Concepts Inc. and International Gourmet Soups Inc. are defendants in a lawsuit filed by Penny Fern Hart in New York State Supreme Court (Case Index No. 653215/ 2014) in which Hart is demanding repayment of a note in the amount of $1,500,000 plus interest for 2014 and collection costs. We believe. Hart has tortuously interfered with the Company’s business, business relationships and attempted capital financings and that the interference has had negative impact on the Company's business and enterprise value. The case is in discovery phase and the Company believes it will prove liability on the part of Hart. No assurance can be given as to the ultimate outcome of this action or its effect on the Company. In the event the Company is not successful in defending this action it would likely have a material adverse effect on the Company and its business operations.

Soupman, Inc. is also a defendant in a filed by Hart in New York State Supreme Court (Case Index No. 650501/14) in which Hart is seeking, among other things, to have a restricted legend removed from 550,000 shares of Soupman, Inc. common stock. The Company believes that Hart has breached the terms of the Forbearance Agreement, dated May 20, 2011, as amended, which she entered into with the Company, and specifically that she sold shares that she was not entitled to sell by its terms, and, as such, and the restriction should not be lifted until a full accounting is made of her sales. The case is in discovery phase and the Company believes it will prevail in proving Hart breached the Forbearance Agreement. No assurance can be given as to the ultimate outcome of these actions or its effect on the Company. In the event the Company is not successful in defending this action it could likely have a material adverse effect on the Company and its business operations.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities

Our common stock has traded on the over the counter market under the symbol “SOUP” since February 1, 2011. The following table states the range of the high and low sales prices of our common stock for each of the calendar quarters during the years ended August 31, 2014 and August 31, 2013. These quotations represent inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions. As of January 1, 2015, there were approximately 700 stockholders of record of our common stock; this number does not include beneficial owners from whom shares are held by nominees in street name.

	High		Low
YEAR ENDED AUGUST 31, 2014
Fourth quarter	$	.35		.20
Third quarter	$	.52		.26
Second quarter	$	.60		.36
First quarter	$	.72		.49
YEAR ENDED AUGUST 31, 2013
Fourth quarter	$	.73		.40
Third quarter	$	.82		.44
Second quarter	$	.61		.38
First quarter	$	.73		.50

Dividend Policy

We have never paid any cash dividends on our common stock to date, and do not anticipate paying such cash dividends in the near future. Whether we declare and pay dividends is determined by our board of directors at their discretion, subject to certain limitations imposed under Delaware corporate law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our board of directors.

Equity Compensation Plan

The following table sets forth information about the securities authorized for issuance under our equity compensation plans for the fiscal year ended August 31, 2014.

Plan Category

Number of
Securities
to be Issued
Upon
Exercise of
Outstanding
Options

Weighted-Average
Exercise Price of
Outstanding
Options

Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans

Equity compensation plans approved by stockholders:

2010 Stock Incentive Plan

1,975,000

.53

750,000

Equity compensation plans not approved by stockholder

N/A

Total

1,975,000

.53

750,000

Recent Sales of Unregistered Securities

The following unregistered securities were issued by the Company between September 1, 2014 and February 13, 2014:

Series B Preferred Stock

The Company will issue 4,715,000 shares of Series B Preferred Stock at $0.20 per share, for cash proceeds committed of $943,000.

Common Stock

The Company issued 1,050,000 shares of common stock for services rendered at prices ranging from $0.03 - $0.19 per share having a fair value of $34,200, based upon the quoted closing trading price on the date the shares were issued.

The Company issued 2,857,057 shares of common stock upon the conversion of certain notes payable ranging from $0.02 - $0.10 per shares having a fair value of $83,973 based on the conversion prices as per the convertible note agreements.

The securities set forth above issued for cash proceeds or services were issued pursuant to Section 4(a) (2) of the Securities Act. The holders represented that they were “accredited investors” and their intention to acquire the securities for investment only, and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

The securities issued upon conversion of certain notes payable were issued pursuant to Section 3(a) (9) of the Securities Act.

Item 6. Selected Financial Data

Not required because the Company is a smaller reporting company.

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 consolidated financial statements and notes thereto for the year ended August 31, 2014 found in this report and the risk factors other information set forth in herein or in our Current Reports filed with the Securities and Exchange Commission. 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.

Overview

Our Company manufactures and sells soups under the “Original Soupman” brand. We sell our soups in a new innovative Tetra Recart shelf stable cartons in the canned soup aisle where most “heat & serve” retail soup approximately $6 billion in purchases are made 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 - Year ended August 31, 2014

The following table summarizes our operating results for the years ended August 31, 2014 and 2013; all amounts have been rounded to the nearest thousandth.

	2014			2013

Revenue	$	3,098,000		$	2,383,000
Cost of Sales		2,841,000			1,987,000
Gross Profit		257,000			396,000
Operating Expenses		3,755,000			4,805,000
Loss From Operations		(3,498,000	)		(4,409,000	)
Other Income (Expense)		147,000			(2,159,000	)
Net Loss (including non-controlling interest)	$	(3,351,000	)	$	(6,568,000	)

Revenue

Soup sales accounted for approximately 95% and 92% of overall revenue for the years ended August 31, 2014 and 2013, respectively, while franchise revenues accounted for the remaining 5% and 8%, respectively. Our year-over-year revenues increase of approximately 30% was primarily attributable to the continued introduction of our new Tetra Recart line of soups and the soup line sold to the New York City school system.

Soup sales broke down as follows:

Category	2014 Soup Sales		Pct. of Soup Sales			Year-over-year Increase
Tetra Recart	$	1,740,000		56	%		51	%
Franchisees		767,000		26	%		0	%
New York School System	$	438,000		14	%		68	%

Soup sales 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 the years ended August 31, 2014 and 2013 were approximately $285,000 and $260,000, respectively, while sales discounts for the same periods were approximately $52,000 and $35,000 respectively.

Cost of Sales

Costs of sales, for the years ended August 31, 2014 and 2013, included freight of approximately $285,000 and $181,000 respectively. Cost of sales represents costs associated with soup sales only; the Company had no cost of sales associated with franchise activities.

Cost of Sales as a percent of soup sales was approximately 96% and 91% for the years ended August 31, 2014 and 2013, respectively. This percentage is negatively impacted by slotting fees and sales discounts, which lowers the reportable revenue and therefore increase our cost of sales percentage.

Operating Expenses

Operating expenses for the years ended August 31, 2014 and 2013 were approximately $3,755,000 and $4,805,000, respectively, or 121% and 184% of revenue, respectively. Major components of our operating expenses for the year ended August 31, 2014 primarily consisted of approximately $1,150,000 for stock issued for services, approximately $922,000 for payroll and payroll related expenses, approximately $564,000 in professional fees, approximately $179,000 for a reserve for doubtful accounts, approximately $75,000 for the promotion of our products, $198,000 in royalty fees, approximately $147,000 for business travel and approximately $83,000 in insurance expense.

Other Income/Expenses

Other income and expenses were approximately $147,000 of income and $2,159,000 of expenses, respectively, for the years ended August 31, 2014 and 2013. Our year-over-year change in other income/expenses of approximately $2,306,000 was primarily associated with an approximately $2,579,000 increase in a change in fair value for derivative liabilities, approximately $291,000 derecognition of debt, offset by an approximately $862,000 gain from the deconsolidation of our variable interest entity in 2013.

Net Loss

Our net loss for the year ended August 31, 2014 as compared to the year ended August 31, 2013 decreased approximately $3,217,000 or approximately 49%, 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, 2014 was approximately $3,325,000 or $0.08 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.

Liquidity and Capital

The following table summarizes our working capital for the years ended August 31, 2014 and 2013; all amounts have been rounded to the nearest thousandth.

	As of August 31, 2014			As of August 31, 2013
Current assets	$	880,000		$	779,000
Current liabilities	$	11,483,000		$	11,564,000
Working capital (deficit)	$	(10,603,000	)	$	(10,785,000	)

At August 31, 2014, we had cash and cash equivalents of approximately $14,000 as compared to approximately $115,000 at August 31, 2013. Since August 31, 2014, we have raised additional capital of $1,243,000 through the issuance of notes and sale of stock. Our year-over-year working capital deficit decreased approximately $182,000, primarily due to an increase in accounts payable and accrued expenses of approximately $1,522,000 and an increase in inventory of approximately $136,000 offset by a decrease in derivative liabilities of approximately $1,715,000.

For the year ended August 31, 2014, net cash used in operating activities was approximately $1,793,000 as compared to approximately $2,256,000 for the year ended August 31, 2013. Our primary uses of net cash from operating activities for the year ended August 31, 2014 were losses from operations of approximately $3,351,000 and increases in accounts payable – net of approximately $1,522,000, inventory of approximately $136,000, accounts receivable – net of approximately $51,000 and a change in fair market value of derivatives of $2,105,000 and a gain on debt write down of approximately $291,000 offset by non-cash adjustments to reconcile net loss to net cash of expenses relating to shares issued of approximately $1,601,000, amortization expenses relating to debt of approximately $871,000 and losses on debt extinguishments of approximately $148,000.

Our primary uses of cash for the year ended August 31, 2013 were losses from operations of approximately $6,330,000 and increases in accounts payable and accrued liabilities of approximately $1,400,000, accounts receivable of approximately $237,000 and a non-cash adjustment for derivative expense of approximately $354,000, offset by non-cash adjustments to reconcile net loss to net cash of expenses relating to shares issued of approximately $2,244,000, allowance taken on notes and franchise receivables of approximately $635,000, amortization expenses related to debt of approximately $534,000, losses on debt extinguishments of approximately $341,000 and bad debt expense of approximately $108,000.

Net cash used in investing activities for the year ended August 31, 2014 was approximately $56,000, from advances to franchisees. This compares with net cash used in investing activities of approximately $1,000 for the year ended August 31, 2013.

Net cash provided by financing activities for year ended August 31, 2014 was approximately $1,748,000 which included approximately $1,873,000 from the issuance of convertible notes and approximately $786,000 from the sale of common stock offset by approximately $911,000 used for the repayment of debt and accrued interest.

Current and Future Financing Needs

We have incurred a stockholders’ deficit of approximately $10,408,000 through August 31, 2014 and have incurred a net loss of approximately $3,325,000 for the year ended August 31, 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 August 31, 2014, we had short-term debt of approximately $6,109,000 and a working capital deficit of approximately $10,603,000. 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, 2014 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, 2014, we raised approximately $2,659,000 (net of expenses) from the issuance of our common stock and the issuance of notes and since then we have raised an additional $1,243,000 from the issuance of notes and the issuance of stock. We expect to spend capital 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, 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.

While we believe we will require approximately $3,000,000 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 $3,000,000, 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 $5,000,000 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, rent very modest space and only have 4 full time employees therefore, 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 $3,000,000 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.

Critical Accounting Policies

In preparing the financial statements, management has to make certain judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. The actual outcome may differ from these judgments, estimates and assumptions. Judgments, estimates and assumptions are reviewed on an ongoing basis and are based on historical experience and various other factors, including expectations about future events, which are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

The Company considers its use of estimates, its revenue recognition policy and management’s, judgments and assumptions as critical:

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not required because the Company is a smaller reporting company

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

To the Board of Directors

Soupman, Inc.

New York, New York

We have audited the accompanying consolidated balance sheets of Soupman, Inc. and its subsidiaries (“the Company”) as of August 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of August 31, 2014 and 2013, and the results of their consolidated operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred net losses for the year ended August 31, 2014 and has a working capital deficit as of August 31, 2014. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are described in Note 15. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

MALONEBAILEY, LLP

www.malonebailey.com

Houston, Texas

February 24, 2015

F-1

Item 8. Financial Statements and Supplemental Data

Soupman, Inc. and Subsidiaries
Consolidated Balance Sheets

	August 31, 2014			August 31, 2013

Assets
Current Assets
Cash	$	14,179		$	114,894
Accounts receivable - net		358,296			307,051
Inventory		467,658			332,183
Prepaid expenses		39,769			24,416
Total Current Assets		879,902			778,544

Property and equipment - net		13,486			18,104

Other Assets
Accounts receivable - related party - net		76,335			51,657
Due from franchisees		62,683			6,369
Debt issue costs - net		22,096			6,076
Intangible assets - net		10,978			29,900
Other		9,692			4,800
Total Other Assets		181,784			98,802

Total Assets	$	1,075,172		$	895,450

Liabilities and Stockholders' Deficit

Current Liabilities
Accounts payable and accrued liabilities	$	4,539,930		$	3,308,046
Accounts payable and accrued liabilities - related parties		530,769			241,083
Convertible debt - net of discount		2,576,043			1,626,579
Non convertible debt - net of discount		3,533,192			4,374,085
Deferred franchise revenue		122,750			118,750
Derivative liabilities		180,418			1,895,630
Total Current Liabilities		11,483,102			11,564,173

Stockholders' Deficit
Preferred stock, par value $0.001; 25,000,000 shares authorized, 931,360 and 1,165,573 issued and outstanding		932			1,166
Common stock, par value $0.001; 75,000,000 shares authorized 47,170,509 and 36,615,720 issued and outstanding		47,171			36,616
Additional paid in capital		12,114,969			8,512,970
Accumulated deficit		(21,881,988	)		(18,557,209	)
Total Stockholders' Deficit		(9,718,916	)		(10,006,457	)
Noncontrolling interest		(689,014	)		(662,266	)
Total Deficit		(10,407,930	)		(10,668,723	)

Total Liabilities and Stockholders' Deficit	$	1,075,172		$	895,450

See accompanying notes to financial statements

F-2

Soupman, Inc. and Subsidiaries
Consolidated Statements of Operations

	Year Ended August 31
	2014			2013

Revenue
Soup sales - net	$	2,945,169		$	2,184,893
Franchise fees - net		(5,000	)		20,000
Franchise royalties		157,696			178,431
Total revenue		3,097,865			2,383,324

Cost of sales		2,840,744			1,987,263

Gross profit		257,121			396,061

Operating expenses:
General and administrative		3,557,688			4,579,580
Royalty		197,759			225,000
Total operating expenses		3,755,446			4,804,580

Loss from operations		(3,498,326	)		(4,408,519	)

Other income (expense)
Interest income		1,866			17,500
Interest expense		(1,504,624	)		(1,631,386	)
Non-payment of debt penalty		(158,400	)		(175,688	)
Prepayment of debt penalty		-			(50,250	)
Stock expense related to convertible notes		(274,600	)		-
Change in fair value of derivative liabilities		2,104,549			(474,111	)
Loss on debt extinguishment		(147,894	)		(338,507	)
Forbearance agreement		(165,000	)		(368,468	)
Gain from deconsolidation of variable interest entity - net		-			861,655
Derecognition of debt		290,902			-
Total other income (expense)		146,799			(2,159,255	)

Net loss including non controlling interest		(3,351,527	)		(6,567,774	)
Less: net loss attributable to noncontrolling interest		(26,748	)		(90,016	)
Net loss attributable to Soupman	$	(3,324,779	)	$	(6,477,758	)

Basic and diluted loss per share:	$	(0.08	)	$	(0.20	)

Weighted average number of common shares outstanding during the period - basic and diluted		40,783,004			32,442,840

See accompanying notes to financial statements

F-3

Soupman, Inc. and Subsidiaries

Consolidated Statement of Stockholders' Deficit

For the Years Ended August 31, 2014 and 2013

							Common Stock						Additional								Total
	$0.001 Par Value						$0.001 Par Value						Paid-in		Accumulated			Noncontrolling			Stockholders'
	Shares			Amount			Shares			Amount			Capital		Deficit			Interest			Deficit

Balance, August 31, 2012		1,200,266			1,200			30,904,790			30,905			5,053,684		(12,079,451	)		(572,250	)		(7,565,912	)

Conversion of preferred stock to common stock		(34,693	)		(34	)		34,693			34			-		-			-			-

Stock based compensation		-			-			-			-			18,448		-			-			18,448

Issuance of common stock for cash ($0.40)		-			-			1,023,750			1,024			408,476		-			-			409,500

Issuance of common stock for services rendered and reduction of accrued payroll ($0.38 - $0.73/share)		-			-			2,683,761			2,684			2,040,761		-			-			2,043,445

Issuance of common stock for forbearance agreement ($0.73/share)		-			-			504,750			505			367,963		-			-			368,468

Issuance of common stock with notes payable ($0.40 - $0.90/share)		-			-			121,600			122			74,918		-			-			75,040

Issuance of common stock with notes payable - recorded as debt discount ($0.40 - $0.90/share)		-			-			1,223,126			1,223			192,602		-			-			193,825

Issuance of common stock for nonpayment of notes payable ($0.40 - $0.70/share)		-			-			119,250			119			64,944		-			-			65,063

Debt discount - beneficial conversion feature		-			-			-			-			177,268		-			-			177,268

Modification of loans under modification accounting		-			-			-			-			66,312		-			-			66,312

Warrants issued as debt issue costs		-			-			-			-			37,094		-			-			37,094

Original issue discount		-			-			-			-			10,500		-			-			10,500

Net loss		-			-			-			-			-		(6,477,758	)		(90,016	)		(6,567,774	)

Balance, August 31, 2013		1,165,573		$	1,166			36,615,720		$	36,616		$	8,512,970	$	(18,557,209	)	$	(662,266	)		(10,668,723	)

Stock based compensation		-			-			-			-			404,285		-			-			404,285

Issuance of common stock for services rendered ($0.23 - $0.69/share)		-			-			2,996,798			2,997			1,028,753		-			-			1,031,750

Issuance of common stock for cash ($0.20 - $0.40/share)		-			-			3,020,000			3,020			782,980		-			-			786,000

Issuance of common stock for forbearance agreement ($0.60/share)		-			-			275,000			275			164,725		-			-			165,000

Issuance of common stock for debt and accrued interest ($0.11 - $0.26)		-			-			4,188,778			5,089			1,195,846		-			-			1,200,935

Stock issued for non-payment of debt		-			-			40,000			40			13,560		-			-			13,600

Debt discount attributable to modification accounting		-			-			-			-			10,750		-			-			10,750

Reversal of shares issued in error		-			-			(200,000	)		(200	)		200		-			-			-

Conversion of preferred stock to common stock		(234,213	)		(234	)		234,213			234			-		-			-			-

Net loss		-			-			-			-			-		(3,324,779	)		(26,748	)		(3,351,527	)

Balance, August 31, 2014		931,360		$	932			47,170,509		$	47,171		$	12,114,969	$	(21,881,988	)	$	(689,014	)	$	(10,407,930	)

See accompanying notes to financial statements

F-4

Soupman, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

	Year Ended August 31
	2014			2013
Cash Flows From Operating Activities:
Net loss	$	(3,351,527	)	$	(6,567,774	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock based compensation		404,285			18,448
Stock issued for services		843,350			1,870,644
Stock issued for services - related parties		188,400			-
Stock issued for non payment of note payable		-			65,063
Stock issued for repayment of notes		-			98,250
Stock issued for forbearance		165,000			368,468
Debt issue costs		(27,500	)		-
Bad debt expense		178,633			32,750
Bad debt expense - related party		-			20,520
Change in fair market value of derivative liabilities		(2,104,549	)		474,111
Loss on debt extinguishment		147,893			338,507
Amortization of intangibles		18,922			18,869
Amortization of debt discount		859,514			813,534
Amortization of debt issue cost		11,480			258,856
Gain on deconsolidation of VIE		-			(861,655	)
Gain on write down of debt		(290,902	)		-
Original issue discount		(74,270	)		-
Depreciation		7,458			9,251
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable		(229,878	)		(59,929	)
Accounts receivable - related party		(24,678	)		(69,378	)
Inventory		(135,475	)		(332,183	)
Prepaid expenses		(15,353	)		2,058
Other assets		(4,892	)		27,388
Accounts payable and accrued liabilities		1,350,676			1,028,660
Accounts payable and accrued liabilities - related parties		289,686			189,448
Deferred franchising revenue		4,000			-
Net Cash Used in Operating Activities		(1,789,727	)		(2,256,094	)

Cash Flows From Investing Activities:
Due from franchisee		(48,584	)		(627	)
Due from franchisees - related party		(7,730	)		-
Fixed assets acquired		(2,840	)		-
Net Cash Used in Investing Activities		(59,154	)		(627	)

Cash Flows From Financing Activities:
Proceeds from issuance of notes		1,873,140			2,087,500
Proceeds from issuance of common stock for cash		786,000			409,500
Repayment of debt and accrued interest		(910,974	)		(263,220	)
Cash paid for direct offering costs of convertible notes payable and issuance of common stock		-			(36,480	)
Net Cash Provided by Financing Activities		1,748,166			2,197,300

Net decrease in cash		(100,715	)		(59,421	)

Cash at beginning of year		114,894			174,315

Cash at end of period	$	14,179		$	114,894

Supplemental disclosures of cash flow information:
Cash paid for interest	$	111,940		$	182,976
Cash paid for taxes	$	-		$	-

Supplemental disclosures of non-cash investing and financing activities:
Stock issued for debt	$	930,935		$	-
Debt discount recorded on derivatives	$	241,444		$	569,519
Reclassification of accrued interest on debt from debt to accrued interest	$	-		$	251,711
Beneficial conversion feature	$	-		$	177,268
Reduction of accrued payroll through issue of common stock-related parties	$	-		$	172,801
Debt modifications	$	-		$	78,687
Common stock issued in connection with debt financing	$	283,600		$	158,240
Warrants issued as direct offering	$	-		$	37,094
Original Issue discount	$	-		$	10,500
Debt discount recorded on debt modification	$	10,750		$	-
Conversion of preferred stock to common stock	$	234		$	34
Reversal of shares issued in error	$	200		$	-

See accompanying notes to financial statements

F-5

Soupman, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

August 31, 2014 and 2013

Note 1 – Description of Business and Summary of Significant Accounting Policies

The Company (fka/ Passport Arts, Inc.) was incorporated in the State of Nevada on December 2, 2008. On January 31, 2011, the Company reincorporated in Delaware and changed its name to Soupman, Inc.

The Company manufactures and sells a variety of soups to grocery chains and franchisees.

Fiscal Year

The Company’s fiscal year-end is August 31.

Principles of Consolidation

The consolidated financial statements include the accounts of Soupman, Inc., its wholly owned subsidiary The Original Soupman, Inc. (“OSM”), OSM’s wholly-owned subsidiary, International Gourmet Soups, Inc. (“IGS”), and IGS’s 80%-owned subsidiary Kiosk Concepts, Inc. (“Kiosk”) (collectively “Soupman” or “the Company”.)

The Company reports the non-controlling interests in Kiosk as a component of equity separate from the Company’s equity.

All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassification

To conform to the current year’s presentation, the Company has combined its derivative expense into the change in fair value of derivatives in its presentation of comparative income and cash flows for the year ended August 31, 2013. This nomenclature change had no material effect on the financial position, results of operations or cash flows for the years presented.

Uses of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets and potential impairment thereof, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimated results.

Risks and Uncertainties

The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure. These conditions may limit our access to capital. See Note 15 – Going Concern.

The Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the success of franchisees, (ii) the cyclical nature of the soup business, (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales.

Cash and Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.

Inventory

Inventory consists of soup and is stated at the lower of cost or market.

F-6

Loss Contingencies

The Company is subject to the possibility of various losses arising from the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss, in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us, to determine whether such accruals should be adjusted, and whether new accruals are required.

Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment quarterly, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful live of the respective asset(s). Expenditures for maintenance and repairs are charged to expense as incurred.

Intangible Assets

Amortization of identifiable intangible assets is provided utilizing the straight-line method over the estimated useful live of the respective asset(s) and are reviewed quarterly for impairment or if an indicator(s) of a potential impairment exist.

Fair Value of Financial Instruments

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following are the hierarchical levels of inputs to measure fair value:

●	Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

●

Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

●

Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

		2014				2013
Derivative liabilities (balance)		$	180,418			$	1,895,630

The Level 3 valuation relates to derivative liabilities measured using management's estimates of fair value as well as other significant inputs, such as volatility and risk free interest rate, which may be unobservable. See Note 9.

The Company has determined the estimated fair value amounts presented in these financial statements using available market information and appropriate methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The estimates presented in the financial statements are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Fair value estimates are based upon pertinent information available. The Company has determined that the carrying value of all financial instruments approximates fair value. The Company's financial instruments consist primarily of accounts receivable, inventory, prepaid expenses, accounts payable and accrued liabilities and debt. The carrying amounts of the Company's financial instruments generally approximated their fair values as of August 31, 2014 and 2013, respectively, due to the short-term nature of these instruments.

Variable Interest Entity

A variable interest entity is a legal entity, other than an individual, used for business purposes that either (a) has equity investors that do not provide sufficient financial resources for the entity to support its activities, or (b) has equity investors that lack certain characteristics of controlling interest.

A legal entity must be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity’s residual returns or both. For the year ended August 31, 2013 the Company’s financial statements included Soup Kitchen, International and its subsidiaries (“Soup Kitchen” or “SKI”), which was deconsolidated during the year ended August 31, 2013; See Note 13.

F-7

Derivative Liabilities

Fair value accounting requires bifurcation of embedded derivative instruments, such as ratchet provisions or conversion features in convertible debt or equity instruments, and measurement of their fair value. In determining the appropriate fair value, the Company uses the Black-Scholes pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once derivative liabilities are determined, they are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value is recorded in results of operations as a change in fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes pricing model.

Beneficial Conversion Feature

For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.

When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.

Debt Issue Costs

The Company may record debt issue costs in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash or warrants, the fair value of which is determined using the Black-Scholes pricing model.

Debt Discount

The Company records debt discounts in connection with raising funds through the issuance of debt. These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Original Issue Discount

For certain convertible debt issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

Share-Based Payments

Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.

Fair value of stock options and warrants, is generally determined using a Black-Scholes pricing model, which incorporates assumptions about expected volatility, risk free rate, dividend yield, and expected life. Compensation cost for share-based awards is recognized on a straight-line basis over the vesting period.

Revenue Recognition

Revenue is recorded when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the asset(s) are transferred to the customer without further obligation by the Company, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.

The Company recognizes soup revenue when the product(s) are received by the customer and the risk of ownership is transferred to the customer. Sales discounts and promotions, such as “buy one, get one free”, and slotting fees are netted against soup revenue. For the years ended August 31, 2014 and 2013 the Company recorded incentives of $285,415 and $260,153. The Company does not offer a right of return.

Revenues from individual franchise sales are recognized when substantially all significant services that are to be provided by the Company have been performed. Royalty fees are charged to the franchisee at 5% of the franchisee's gross sales and are recorded when charged.

The Company charges its franchisees an advertising fee equal to ½% of their sales revenue and initially carries this fee as a liability (deferred income), which is included as a component of accounts payable and accrued liabilities. This advertising fee is included in revenue once the Company performs by completing the respective advertisement(s).

F-8

Cost of Sales

Cost of sales represents costs directly related to the production and manufacturing of the Company’s products.

Soup sold is typically shipped directly to the customer from the third party manufacturer; costs associated with shipping and handling are shown as a component of cost of sales.

Advertising

The Company expenses advertising costs when incurred. Advertising expense for the years ended August 31, 2014 and 2013 is as follows:

		2014				2013
Advertising		$	27,003			$	46,226

Earnings (Loss) Per Share

Basic earnings/loss per share (“EPS”) is computed by dividing net loss attributable to the Company that is available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all dilutive potential of shares of common stock outstanding during the period including stock warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of warrants), and convertible debt, using the if-converted method. Diluted EPS excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.

The Company has the following potential common stock equivalents at August 31, 2014 and 2013:

	2014		2013
Stock options (exercise price - $0.50 - $0.75/share)	$	1,975,000	$	1,975,000
Warrants (exercise price $0.40- $1.25/share)		5,792,702		5,792,702
Convertible Series A preferred shares (exercise price $0.001/share)		931,360		1,165,573
Convertible debt - derivatives liabilities (exercise price $0.03 - $1/share)		4,666,502		4,667,790
Total common stock equivalents		13,365,564		13,601,065

Certain of the outstanding convertible debt and warrants contain ratchet provisions that would cause variability in the exercise price at the balance sheet date. As a result, common stock equivalents may change at each reporting period.

The Company reflected a net loss for the years ended August 31, 2014 and 2013; therefore, the effect of considering any common stock equivalents would have been anti-dilutive; consequently, a separate computation of diluted earnings (loss) per share is not presented.

Non-controlling Interest

In December 2009, OSM acquired 80% of Kiosk, which it reported the third party’s 20% as a noncontrolling interest. As part of the Company’s merger in December 2010 with OSM, the Company began to report this noncontrolling interest on its financial statements.

Concentrations

The following table shows significant concentrations in our accounts receivable at August 31, 2014 and 2013.

	2014			2013
E		9	%		20	%
A		2	%		16	%
C		10	%		11	%

Vendors

The following table shows significant concentrations in our purchases for the years ended August 31, 2014 and 2013.

	2014			2013
B		45	%		52	%
A		39	%		48	%
C		16	%		0	%

F-9

Sales

The following table shows significant concentrations in our revenues for the years ended August 31, 2014 and 2013.

	2014			2013
A		22	%		32	%
B		18	%		11	%

Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.

In addition, ASC Topic 740-20, “Income Taxes – Intraperiod Tax Allocation” requires management to assess the need to accrue or disclose uncertain tax positions for proposed potential adjustments from various federal and state authorities who regularly audit the Company in the normal course of business. In making these assessments, management must often analyze complex tax laws of multiple jurisdictions. The accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company records the related interest expense and penalties, if any, as tax expense in the tax provision.

Recent Accounting Pronouncements

In July 2013, the FASB issued amended guidance that simplifies how entities test indefinite-lived intangible assets other than goodwill for impairment. After assessment of certain qualitative factors, if it is determined to be more likely than not that an indefinite-lived asset is impaired, entities must perform the quantitative impairment test. Otherwise, the quantitative test becomes optional. The amended guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2013, with early adoption permitted. The Company adopted this new guidance in the first quarter of the fiscal 2014. The adoption of this guidance did not affect the Company’s Consolidated Financial Statements.

Note 2 – Accounts & Franchisee Receivable / Franchisee Receivable – Related Parties

Accounts receivable consisted of the following at August 31, 2014 and 2013.

	2014			2013
Accounts receivable	$	590,199		$	339,801
Allowance for doubtful accounts		(231,903	)		(32,750	)
Accounts receivable – net	$	358,296		$	307,051

Related-parties and franchise accounts receivable consisted of the following at August 31, 2014 and 2013.

	2014		2013
Accounts receivable	$	76,335	$	72,177
Due from franchisee		62,683		-
Allowance for doubtful accounts		-		(20,520	)
Accounts receivable – net	$	139,018	$	51,657

For the years ended August 31, 2014 and 2013, related party accounts receivables represented amounts owed to the Company by franchises for soup sold to locations owned or operated by directors of the Company. At August 31, 2013, the Company took a 50% reserve against its 90-day or greater related-party receivables; no reserve was taken for 2014.

F-10

Note 3 – Prepaid Expenses

Prepaid expenses consist of the following at August 31, 2014 and 2013.

	2014		2013
Prepaid insurance	$	20,000	$	19,517
Prepaid freight		4,899		4,899
Prepaid inventory		9,870		-
Prepaid other		5,000		-
Prepaid expenses – net	$	39,769	$	24,416

Note 4 – Property and Equipment

Property and equipment consist of the following at August 31, 2013 and 2011.

	2014			2013			Life
Vehicles	$	11,843		$	11,843			5 years
Equipment		24,683			21,843			5 – 7 years
Furniture and fixtures		12,410			12,410			5 years
Total		48,936			46,096
Less: accumulated depreciation		(35,450	)		(27,992	)
Property and equipment – net	$	13,486		$	18,104

There were no impairment charges taken during the years ended August, 31, 2014 and 2013, respectively.

Note 5 – Notes Receivable – Franchisees – Related Parties

During the year ended August 31, 2013, the Company executed three 7%-notes receivable with related party franchisees for $485,772, maturing on October 31, 2018. The Company advanced these funds to assist with the operating expenses and renovation of these locations, one of which was Al Yeganeh‘s famous soup restaurant on 8th Ave and 55 Street in New York City which was reopened as a franchise location after being shuttered closed by Al for six years.

Monthly interest-only payments from the franchisees were approximately $4,100, until November 1, 2013, when the franchisees were scheduled to begin to pay both principal and interest. The aggregate monthly principal and interest payments was to be approximately $12,000, unless a location is closed or sold, at which time, the note is to become due.

On November 18, 2012, one of the locations was sold to a third non-related party. A payment of $143,482 against a note balance of $216,815 was received and the Company thereafter entered into a new 5% note of $73,333 with the new non-related-party purchaser.

At August 31, 2013, the Company had received all due interest payments from the original 55th Street location’s franchisee, but due to the store’s lower operating margins, as compared to other high traffic and less expensive locations, took a 100% allowance against the receivable. The Company received $79,518.61 in payments for the year ended August 31, 2014 which was applied to the unpaid balance of the loan leaving a balance of $176,340.

At August 31, 2013, the Company took a 100% allowance and recorded a $555,856 reserve against all of its notes receivable franchisee, which included the notes receivable described above from (i) the franchisee for Al’s original store on 55th Street and (ii) the other location sold in November 2011.

The following is a summary of amounts due from franchisees to the Company at August 31, 2014 and 2013.

	2014		2013
Total notes receivable – franchisees – related parties	$	-	$	485,772
Less: Allowance for uncollectibility		-		(485,772	)
Notes receivable – franchisees – related parties		-		-

Notes receivable – franchise		-		70,084
Less: Allowance for uncollectibility		-		(70,084	)
Total notes receivable franchisee	$	-	$	-

F-11

Note 6 – Intangible Assets

Intangible assets consist of the following at August 31, 2014 and 2013.

	2014			2013
Soup formulas	$	27,418		$	27,418
Recipes		53,750			53,750
Total		81,168			81,168
Less: accumulated amortization		(70,190	)		(51,268	)
Intangible assets-net	$	10,978		$	29,900

There were no impairment charges taken during the years ended August 31, 2014 and 2013, respectively.

The estimated useful lives of the Company’s intangible assets are as follows:

Intangible Asset			Life
Soup formulas			5 years
Recipes			4 years

The estimated future amortization expense of intangible assets for the years ended August 31 is as follows:

Fiscal Year ended August 31,	Amount
2015		9,384
2016		1,594
Total	$	10,978

Note 7 – Accounts Payable and Accrued Liabilities – Related Parties

Related Parties Accounts Payable consists of the following at August 31, 2014 and 2013:

Description	2014		2013
Accrued Payroll	$	452,569	$	189,283
Accrued expenses (car allowances)		78,200		51,800
Total	$	530,769	$	241,083

Note 8 – Debt

Debt consists of the following at August 31, 2014 and 2013:

Description	2014			2013
A. Unsecured convertible debt – Derivative Liabilities	$	1,533,154		$	1,732,250
Less : debt discount		-			(297,153	)
Convertible debt - net		1,533,154			1,435,097

B. Convertible debt – Unsecured		1,378,207			479,097
Less : debt discount		(335,318	)		(287,615	)
Convertible debt - net		1,042,889			191,482

C. Notes - Secured		2,700,000			3,246,902

D. Notes – Unsecured		833,192			1,127,183

Total debt	$	6,109,235		$	6,000,664

Debt in default consists of secured and unsecured notes totaling $2,546,597 and $1,646,768 at August 31, 2014 and 2013, respectively.

F-12

The corresponding debts above are more fully discussed below:

(A) Unsecured Convertible Debt – Derivative Liabilities

During the year ended August 31, 2014, the Company converted certain of its convertible debts to derivative debt because of the application of an embedded conversion feature in the form of an anti-dilution provision (ratchet feature); see Note 9. During the year ended August 31, 2013, the Company issued unsecured convertible debt and warrants that had an embedded conversion feature in the form of an anti-dilution provision (ratchet feature); see Note 9.

This debt includes the following terms:

Description	Information	2014		2013
Interest Rate			N/A		8 - 12%
Maturity Date(s)			June 24, 2014 to Dec. 9, 2014		Aug 3, 2013 to Feb. 14, 2014

Series 2	Fixed conversion price of $1.00 ($1.00 warrants)		-		265,000
Series 3	Fixed conversion price of $0.40 ($0.75 warrants)		-		735,000
Series 5	Converted to a derivative after 180 days; see note 8(b).		73,404		-

During the year ended August 31, 2014, the Company entered into various debts that could have become a derivative if not pad within 180 days (Series 1 debts). During the year ended August 31, 2014, the Company paid $158,400 as a non-payment of debt penalty against these debts. For the year ended August 31, 2013, the Company paid $175,688 as a non-payment of debt penalty and $50.250 as a prepayment of debt penalty, again against its Series 1 debt(s). In connection with its Series 2 debt and during the years ended August 31, 2013, the Company issued 66,250 and 183,063 3-year warrants, respectively. In connection with its Series 3 debt and during the year ended August 31, 2013, the Company issued 183,750 3-year warrants; the Company issued no Series 2 or 3 debt during the year ended August 31, 2014.

Holder of both Series 2 and Series 3 debt have the option to convert all or part of the note’s principal and accrued interest into shares of the Company’s common stock at the conversion prices and terms set out above. In addition, upon receipt by the Company of cash proceeds of at least $2 million or more in additional funding (the “Financing”) the principal and interest of these notes will automatically convert into the securities offered in the Financing and the note holders will entitled to all rights provided to the new investor(s) in the Financing, including but not limited the conversion price offered in the Financing.

Unsecured convertible debt recorded as a derivative liability consists of the following at August 31, 2014 and 2013:

Description	2014			2013
Carry forward balance	$	1,732,250		$	832,750
Borrowings		-			1,000,000
Repayment of convertible debt		(118,500	)		(100,500	)
Reclassification of convertible non-derivative debt to derivative debt		347,160			-
Conversion of convertible non-derivative debt to stock		(427,756	)		-
Ending balance	$	1,533,154		$	1,732,250

F-13

(B) Convertible Debt – Unsecured

During the years ended August 31, 2014 and 2013 the Company issued unsecured convertible debt (that was not recorded as a derivative liability.) This debt includes the following terms:

	Information	2014			2013
Interest rate			12	%		12	%
Default interest rate			N/A			N/A
Term			1 year			1 year
Maturity			Aug. 3, 2014 to Aug. 20, 2014			Aug. 3, 2014 to Aug. 20, 2014
Series 4 debt	Twelve months twelve percent (12%) interest; convertible at $0.75	$	-		$	650,000
Series 5 debt	Zero percent (0%) interest if repaid within 3 months; Convertible at the lesser of $0.47 or 65% of the lowest trade price in the then prior 25 days, but only after 180 days from the loan date		1,380,526			-
Series 7 debt	1-year, 12% interest, fixed conversion at $0.60		280,000			-
Series 8 debt	24 month, 8% interest, fixed conversion at $0.40	$	100,000		$	-

In connection with Series 4 debt and during the year ended August 31, 2013, note holders received 121,600 shares of the Company’s common stock having a fair value of $75,040 and the Company recorded debt issue costs of $73,574 ($36,480 in cash and $37,094 as the fair value of the 81,067 warrants issued.) The Company amortized $73,574 and $258,856 of its debt issue costs relating to its Series 4 debt during the years ended August 31, 2014 and 2013, respectively.

In connection with Series 4 debt and during the year ended August 31, 2014, note holders received 40,000 shares of the Company’s common stock having a fair value of $283.

In addition, in connection with Series 4 debt and for the year ended August 31, 2013, each note holders received an additional 12,500 shares of the Company’s common stock for each $100,000 invested (an aggregate of 119,250 shares having a fair value of $65,063) because their loans were not repaid within 3 months; no additional shares were due during the year ended August 31, 2014.

In connection with Series 5 debt and for the year ended August 31, 2014, the Company incurred $25,000 in debt issue costs.

Under the terms of the Series 4 notes and subsequent to the funding (up to a $1 million) of this series of notes, debt holders are entitled to receive 8% of the first $3 million then so raised (but not to exceed the amount due under the note.) In addition, if the Company raises in excess of $3 million, debt holders are to receive 100% of the amount due under their note. At August 31, 2014, and subsequent to the funding of these Series 4 notes, the Company had not raised in excess of the $3 million threshold. During the year ended August 31, 2014 and 2013, the Company repaid $170,683 and $59,220 towards these notes.

F-14

In the event the Company defaults on any of its Series 4 notes (defined as nonpayment of note within three months of notice after maturity) debt holders at their option, may convert the amount then due (including accrued interest) into common shares of the Company at a 35% discount to the average of the then lowest three days closing prices for the then preceding 20 days. At August 31, 2014 and 2013, $274,097 and $0 of these notes were in default.

In connection with the Series 5 debt, and for the years ended August 31, 2014 and 2013, the Company recorded $0 and $4, 468 as a beneficial conversion feature and incurred an original issue discount of $73,220 and $10,500, respectively (which was recorded as debt discount).

Holders of Series 4 and Series 5 debt are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at the conversion prices and terms discussed above.

In connection with its series 7 debt, and for the years ended August 31, 2014 the Company issued 900,000 shares of its common stock with a fair value of $270,000; there was no series 7 debt for the year ended August 31, 2013.

Convertible debt consists of the following activity and terms:

	2014			2013
Carry forward balance	$	479,097		$	650,000
Borrowings		1,246,270			409,000
Repayment of convertible debt		-			(59,220	)
Reclassification of convertible debt to demand		-			(520,683	)
Reclassification of convertible debt to derivative debt		(347,160	)		-
Ending balance	$	1,378,207		$	479,097

The fair value for warrants issued as debt issue costs for the years ended August 31, 2013 were based upon the following management assumptions; there were no warrants issued as debt issue cost for the year ended August 31, 2014:

Information	2014		2013
Exercise price	$	-	$	0.75
Expected dividends		-		0	%
Expected volatility		-		106	%
Expected term				3 years
Risk free interest rate		-		0.31% - 0.36	%

(C) Notes - Secured

Secured notes consist of the following activity and terms:

	Information	2014		2013
Interest Rate			7% - 12.75%		7% - 12.75%
Maturity			Sep. 1, 2014- Aug. 28, 2014		Sep. 1, 2014- Aug. 28, 2014
SKI debts	Secured by all the assets of OSM		2,700,000		2,990,902
Series 6 debt	Secured by the tetra pack inventory, tetra pack receivables and a second position on all other assets of OSM.		-		256,000

The total amounts owed to both secured debt holders represent amounts originally owed by SKI which were guaranteed by the Company; see Note 13 - Deconsolidation of Variable Interest Entity.

	2014			2013
Carry forward balance	$	3,246,902		$	3,242,613
Borrowings (Series 6)		-			256,000
Repayment of debt		(50,000	)		-
Conversion of debt to common stock		(206,000	)		-
Reclassification of accrued interest on debt from debt to accrued interest		-			(251,711	)
Removal of secured debt associated with deconsolidation of VIE		(290,902	)		-
Ending balance	$	2,700,000		$	3,246,902

F-15

In August 2013, the Company entered into a 13-month forbearance agreement with a debt holder (representing $1,500,000 of the Company’s secured debt, excluding accrued interest.) The debt holder received 550,000 shares of the Company’s common stock, having a fair value of $396,000 ($0.72/share) which was charged to other expense and was based on the quoted closing trading price of the Company’s stock on the date of the forbearance. The debt holder also received the 500,000 shares (which were previously reserved for the benefit of the debt holder), having a fair value of $425,000 ($0.85/share) which reduced debt and was based on the closing price of the Company’s stock on the date of the second forbearance. Per the second forbearance agreement, proceeds from the debt holder’s sale of the original 500,000 shares will adjust the amount owed by the Company to the debt holder dollar-for-dollar but not to exceed the total amount of the debt. The Company will review the debt holder’s sales of these shares on a quarterly basis, and may either decrease or increase the Company’s recorded debt based on the dollar amount received from the stock sales, offsetting the aggregate as either a gain on or loss from debt settlement.

In connection with the Series 6 debt, and for the year ended August 31, 2013, the Company recorded $256,000 as debt discount ($172,000 of which as a beneficial conversion feature) and issued 1 million shares of common stock and 2.5 million 3-year $0.40 warrants to purchase shares of the Company’s common stock. In addition, the holder of the Series 6 debt is entitled to an additional 500,000 shares of the Company’s common stock, should an additional $744,000 (for an aggregate total of $1 million) be funded. There was no series 6 debt for the year ended August 31, 2014.

(D) Notes – Unsecured Demand Notes

Unsecured demand notes consist of the following at August 31, 2014 and 2013:

Description	2014			2013
Carry forward balance	$	1,127,183		$	287,500
Borrowings		626,870			422,500
Repayments		(708,861	)		(204,000	)
Conversion of demand debt to stock		(212,000	)		-
Reclassification from derivative to demand debt		-			100,500
Reclassification from convertible to demand debt		-			520,683
Ending balance	$	833,192		$	1,127,183

During the years ended August 31, 2013, the Company reclassified convertible debt that had passed its maturity date to unsecured due-on-demand debt. During the year ended August 31, 2014, the Company reclassified debt originally classified as a derivative to on-demand debt.

Unsecured demand notes at August 31, 2014 and 2013 consist of the following:

Amount		Information	Maturity
$	785,692	Represents current convertible demand debt	Nov. 6, 2014 – May 10, 2014
$	10,000	Represents an advance from a third party	Due on demand
$	37,500	The Company is in litigation regarding this debt; see Note 12.	In litigation

E) Debt discount

For the years ended August 31, 2014 and 2013, the Company recorded debt discount of $ 610,064 and $911,014.

F-16

For the year ended August 31, 2014, debt discount consists of $66,843 related to notes that contained embedded conversion options that are required to be bifurcated and reported at fair value (see Note 8 (A)) and, $543,221 related to convertible debt that contained a beneficial conversion feature (see Note 8(B)).

For the year ended August 31, 2013, debt discount consists of $569,519 related to notes that contained embedded conversion options that are required to be bifurcated and reported at fair value (see Note 8 (A)) and, $341,495 related to convertible debt that contained a beneficial conversion feature (see Note 8(B)).

	August 31, 2014			August 31, 2013
Total outstanding debt	$	6,444,553		$	6,585,432
Carry forward debt discount – net		(584,768	)		(404,088	)
Debt discount		(610,064	)		(994,214	)
Amortization of debt discount		859,514			813,534
Debt – net	$	6,109,235		$	6,000,664

The Company’s remaining debt discount of $335,318 will be fully amortized in 2014.

The Company recorded debt discount relating to its derivative debt to the extent of gross proceeds raised in its debt financing transactions, and immediately expensed the remaining value of the derivative if it exceeded the gross proceeds of the note. The Company recorded a derivative expense of $0 and 37,054 for the years ended August 31, 2014 and 2013, respectively.

Note 9 – Derivative Liabilities

The Company identified conversion features embedded within convertible debt and warrants issued during the years ended August 31, 2014 and 2013 (see Note 8(A)).

The fair value of the Company’s derivative liabilities at August 31, 2014 and 2013 is as follows.

	2014			2013
Carry forward balance	$	1,895,630		$	513,493
Fair value at the commitment date for convertible notes		241,444			527,796
Fair value at the commitment date for warrants issued		-			78,777
Reclassification to additional paid in capital for financial instruments that ceased to be a derivative liability		-			-
Loss on debt extinguishment		147,893			338,507
Fair value mark-to-market adjustment		(2,104,549	)		437,057
Derivative liabilities (balance)	$	180,418		$	1,895,630

The fair value at the commitment and re-measurement dates for convertible debt and warrants that are treated as derivative liabilities with embedded conversion features were based upon the following management assumptions for the years ended August 31, 2014 and 2013:

2014	Commitment Date		Re-measurement Date
Exercise price		$0.47 or 65% of market		$0.27 or 65% of market to $1.00
Expected dividends		0%		0%
Expected volatility		116% -137%		129%-147%
Expected term: convertible debt and warrants		6 months		6 months to 1.5 years
Risk free interest rate		0.10% - 0.13%		0.05% - 0.09%

2013	Commitment Date		Re-measurement Date
Exercise price		$ 0.40 - $1.00		$ 0.40 - $1.00
Expected dividends		0%		0%
Expected volatility		103% -136 %		103%-149%
Expected term: convertible debt and warrants		6 months – 3 years		0.02 – 2.95 years
Risk free interest rate		0.12% - 0.41%		0.03% - 0.79%

Modification of underlying debt

During the year ended August 31, 2014 and 2013 the Company negotiated modifications to certain of its underlying unsecured notes, which had an embedded conversion feature. For each modification, the Company compared the value of both the old and new convertible debt as well as the fair value of any new warrants granted in the modification. For all notes the Company determined whether the present value of the cash flows associated with the new debt exceeded the present value of the old debt by more than 10%, and if so, applied extinguishment accounting; for all other notes, modification accounting was applied. The Company recorded $10,750 as debt discount in conjunction with modification of debt.

F-17

Note 10 – Deferred Franchise Revenue

Deferred franchise revenues result from payments received from new franchises prior to the Company’s performance under the terms of the franchise agreements. Often these payments are made before stores locations have been identified. One new franchise was sold in 2014 and one was sold in 2013 but was reversed during 2014 when the store closed. The Company has not performed the required services to recognize this revenue.

Note 11 – Stockholders’ Deficit

(A) Series A – Convertible Preferred Stock

Holders of the Company’s preferred shares have no voting rights and receive no dividends, but receive $1.00 per share in the case of liquidation of the Company. This series of shares convert on a 1:1 basis at par value ($0.001) into shares of the Company’s common stock. In the event that shares are issued, the Company will evaluate for beneficial conversion features.

Series A convertible preferred stock consists of the following activity for the years ended August 31, 2014 and 2013:

Balance - August 31, 2012	$	1,200,266
Conversion to common stock		(34,693	)
Balance - August 31, 2013		1,165,573
Conversion to common stock		(234,213	)
Balance – August 31, 2014	$	931,360

No gain or loss was recorded in the conversion of preferred to common stock.

(B) Common Stock

For the years ended August 31, 2014 and 2013, the Company issued the following shares of common stock:

	2014								2013
Type	Shares			Fair, value			Range of value per share		Shares		Fair value		Range of value per share
1. Stock issued for cash		3,020,000			786,000			0.20-0.40		1,023,750	$	409,500	$	.40
2. Stock issued for services		2,996,798			1,031,750			0.23-.69		2,683,761	$	2,043,445	$	0.38 - 0.73
3. Stock issued in connection with convertible debt (see Note 8(B))		4,188,778			1,200,935			0.11-0.26		1,344,726	$	268,865	$	0.40 - 0.90
4. Stock issued for non-payment of debt (see Note 8(B))		40,000			13,600			0.34		119,250	$	65,063	$	0.40 - 0.70
5. Stock issued in forbearance agreement (see Note 8(C))		275,000			165,000			0.60		504,750	$	368,468	$	0.73
6. Stock issued in error		(200,000	)		(200	)
7. Conversion of Series A Preferred Stock to common stock		234,213			234			.001		34,693	$	34	$	.001

F-18

Unless otherwise indicated, fair value for the share issued was based upon the quoted closing trading price on the dates shares were issued.

The corresponding stock issuances above are more fully discussed below:

1 - No expenses were paid in connection with shares issued in 2014 and 2013.

2 - Includes 236,703 shares having a fair value of $172,801, issued during the year ended August 31 2013, to executives for salaries owed; this amount reduced accrued payroll. No shares were issued to executives for the year ended August 31, 2014.

3 - Shares issued in connection with certain convertible notes; see Note 8(B). The value of these shares was treated as a debt discount and will be amortized over the life of the debt.

4 - Shares issued in connection with non-payment within 3-months on certain convertible notes; see Note 8(B).

5 - Issued in connection with a forbearance agreement in 2013; see Note 8(C) and #6 below. The fair value of these shares was recorded as other expense.

6 - Reversal of stock issued in error.

7 - Shares issued 1 for 1 in connection with the conversion of Series A preferred shares; no gain or loss incurred on conversion.

(C) Stock Options

There were no stock options issued for the years ended August 31, 2014 and August 31, 2013.

The following is a summary of the Company’s stock option activity for the years ended August 31, 2014 and 2013:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Balance – August 31, 2012		1,975,000	$	0.53
Granted		-	$	-
Exercised		-	$	-
Forfeited		-	$	-
Balance – August 31, 2013		1,975,000	$	0.53		7.44 years		408,250
Exercisable – August 31, 2013		1,875,000	$	0.51		6.95 years		408,250
Grant date fair value of options granted – 2013		-	$	-
Weighted average grant date fair value – 2013		-

Balance – August 31, 2013		1,975,000	$	0.53		7.44 years		408,250
Granted		-
Exercised		-
Forfeited		-
Balance – August 31, 2014		1,975,000	$	0.53		6.44 years		0
Exercisable – August 31, 2014		1,875,000	$	0.51		6.00 years		0

Outstanding options held by related parties (August 31, 2014)		1,450,000
Exercisable options held by related parties (August 31, 2014)		1,450,000

F-19

The following is a summary of the Company’s unvested stock options at August 31, 2014 and 2013.

	Un-Vested Stock Options			Weighted Average Grant Date Fair Value
Unvested – August 31, 2012		440,000		$	0.59
Granted		-			-
Vested/Exercised		(340,000	)		0.50
Forfeited/Cancelled		-			-
Unvested – August 31, 2013		100,000		$	0.75
Granted		-
Vested/Exercised		-
Forfeited/Cancelled		-
Unvested – August 31, 2014		100,000		$	0.75
Weighted average remaining life for vesting		6.44 years

The Company expensed $0 and $18,448 for the years ended August 31, 2014 and 2013, respectively related to vested options.

(D) Stock Warrants

The following is a summary of the Company’s stock warrant activity for the years ended August 31, 2014 and 2013:

	Number of Warrants			Weighted Average Exercise Price
Balance at August 31, 2012		1,952,135		$	0.98
Granted (for debt)		3,788,967		$	0.68
Granted (other)		150,000		$	0.50
Exercised		-			-
Forfeited		(98,400	)	$	0.54
Balance at August 31, 2013		5,792,702			0.67
Granted (for debt)		480,000		$	0.80
Granted (other)		-			-
Exercised		-			-
Forfeited		(334,500	)	$	0.80
Balance at August 31, 2014		5,938,202		$	0.66

		Warrants Outstanding					Warrants Exercisable
Range of exercise price		Number Outstanding	Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price		Intrinsic Value
	$0.75 -$1.25	5,938,202		2.77	$	0.66	5,938,202	$	0.66	$	-

F-20

Note 12 – Commitments and Contingencies

Commitments

The Company is obligated to pay the minority stockholder of Kiosk an amount equal to 3% of its gross soup sales on the first $50,000,000 in sales, 2% of sales between $50,000,000 and $75,000,000, and 1% of sales thereafter, in perpetuity. The Company was also obligated to pay the minority stockholder a minimum against these sales of $225,000 per year through June 30, 2014 provided certain services to the Company are rendered. For the years ended August 31, 2014, and 2013, the Company recorded these payments as royalty expense.

On January 18, 2013, the Company granted 200,000 stock options to a consultant, having a grant date fair value of $147,588; these options have an exercise price of $0.75 and a life of 10 years. Fifty thousand (50,000) of these options vested on the grant date and fifty thousand (50,000) vested on the second anniversary of the grant date (January 18, 2014). The remaining one hundred thousand (100,000) options vest as follows: 10,000 shares vest and are then exercisable for every $1,000,000 in qualifying revenues received by the Company in connection with the consultants’ successful introduction of customers. As of August 31, 2014, none of these 100,000 shares have been earned.

In June of 2013, the Company entered into an employment agreement with one of its now current directors. Under the agreement the Company agreed to issue the following assuming the director is still employed by the Company:

(1)	200,000 shares of common stock on June 1, 2014
(2)	200,000 shares of common stock on January 1, 2014
(3)	200,000 shares of common stock on June 1, 2014
(4)	200,000 shares of common stock on January 1, 2015
(5)	Up to 400,000 shares of common stock if the Company’s stock price reaches certain targets
(6)	Up to 500,000 shares of common stock based on future sales of the Company

The Company determined the agreement contains a combination of service, market and performance conditions as defined under ASC 718. Additionally, the Company determined the fair value of these awards to be $1,033,350. During the years ended August 31, 2014 and 2013, $309,116 and $544,687 of compensation cost was recognized under this agreement, leaving $442,033 of compensation cost to be recognized through June 13, 2015.

In December of 2013, the Company entered into an agreement with a consultant. Under the agreement the Company agreed to issue 25,000 shares of common stock that vest in three months from the grant date, 25,000 shares of common stock that vest 18 months from the grant, and an additional 5,000 shares per certain incremental future sales of the Company. The Company determined the agreement contains a performance condition as defined under ASC 718. Additionally, the Company determined the fair value of these awards to be $22,495. During the year ended August 31, 2014 and 2013,respectively, $13,499 and $23,994 of compensation cost was recognized under this agreement.

In January of 2014, the Company entered into an agreement with a consultant. Under the agreement the Company agreed to issue 150,000 shares of common stock that vest in six months from the grant date and 150,000 shares of common stock that vest on December 31, 2014. The Company determined the fair value of these awards to be $143,970. During the years ended August 31, 2014 and 2013, respectively, $23,994 and $119,976 of compensation cost was recognized under this agreement.

F-21

Litigations, Claims and Assessments

F-22

Note 13 – Deconsolidation of Variable Interest Entity

On December 29, 2009, OSM purchased all of the assets of SKI for $100,000 and guaranteed $3,670,000 of SKI’s secured debt. In addition, OSM had agreed to pay SKI royalties of 1% of all of OSM sales for five years (through 2014), which will represent substantively all of SKI‘s revenue. See Note 8(C) regarding amounts still under guarantee.

The guaranty of the secured debt was a significant part of the acquisition, because the assets acquired by OSM comprised substantially all of the income producing assets of SKI, creating an obligation on the part of OSM that was almost certain to occur. In addition, the assets securing the debt were the assets obtained in the acquisition.

On May 31, 2010 an involuntary bankruptcy petition was entered against SKI which has historically been consolidated in the Company’s financial statements as a variable interest entity (“VIE”). From the date of bankruptcy petition until the year ended August 31, 2013, the Company elected to continue including SKI as a VIE in its financial statements, because, among other things, it believed that the involuntary petition would be dismissed. The net effect of the deconsolidation at August 31, 2013 was a reduction of accounts payable and accrued liabilities of approximately $862,000; this gain was shows as other income on the Company’s 2013 statement of operations. However, the Company previously guaranteed of certain of the secured debts shall remain on the Company’s books; see Note 8(C).

Note 14 – Income Taxes

There was no income tax expense for the years ended August 31, 2014 and 2013 due to the Company’s net losses.

At August 31, 2014, the Company has a net operating loss carry-forward of approximately $16.9 million available to offset future taxable income expiring through 2033. The current tax effect should the entire NOL be used is approximately $7.7 million. Utilization of future net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code.

The Company’s tax expense differs from the “expected” tax expense for the years ended August 31, 2014 and 2013, (computed by applying the Federal Corporate tax rate of 34% to loss before taxes and 7.1% for New York State Corporate Taxes, the blended rate used was 38.69%).

The valuation allowance at August 31, 2013 was approximately $ 4.0 million. The net change in valuation allowance during the year ended August 31, 2014 was an increase of approximately $5.2 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of August 31, 2014.

The effects of temporary differences that gave rise to significant portions of deferred tax assets at August 31, 2014 and 2013 are as follows:

Deferred tax assets:	2014			2013
Net operating loss carry-forward		9,200,000			7,699,000
Total gross deferred tax assets		9,200,000			7,699,000
Less valuation allowance		(9,200,000	)		(7,699,000	)
Net deferred tax assets	$	-		$	-

At August 31, 2014 and 2013, respectively, the Company did not record any liabilities for uncertain tax positions and the Company does not anticipate that it is reasonably possible that unrecognized tax benefits as of August 31, 2014 will significantly change within the next 12 months.

F-23

Note 15 – Going Concern

As reflected in the accompanying financial statements, for the year ended August 31, 2014 the Company had a net loss of approximately $3.3 million, net cash used in operations of approximately $1.8 million working capital deficit of approximately $10.6 million and a stockholders’ deficit of approximately $10.4 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue its operations is dependent on management's plans, which may include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur liabilities with certain related parties to sustain the Company’s existence.

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues will be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

In response to these problems, management has taken the following actions:

●	seeking additional third party convertible debt financing
●	seeking to increase sales and distribution of Tetra Pak products; and
●	seeking to open new franchise locations;
●	allocating sufficient resources to continue advertising and marketing efforts

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 16 – Subsequent Events

The following unregistered securities were issued by the Company between September 1, 2014 and February 20, 2014:

Series B Preferred Stock

The Company will issued 4,715,000 shares of Series B Preferred Stock at $0.20 per share, for cash proceeds committed of $943,000.

Common Stock

The Company issued a 10% $300,000 one year convertible note convertible into shares of the Company’s Common stock at the greater $0.20 per share or the price of a new stock offered in an anticipated capital raise.

F-24

Item 9A. Controls and Procedures

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is appropriately recorded, processed, summarized and reported within the specified time periods. Based on their evaluation of our past performance and timely filings, as of August 31, 2014, the period covered by this Annual Report on Form 10-K, our Chief Executive Officer (“PEO”) and Chief Financial Officer (“PFO”) had concluded that our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) were not effective to ensure that information required to be disclosed by us in the report that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

However, we experienced a delay in this current filing due to a medical emergency surgery of Mr. Bertrand, our President and Chief Financial Officer, which disabled him from performing the necessary work needed to timely file this report. In addition, our Chief Executive Officer resigned on January 30, 2015, and although the search for a new Chief Executive Officer is underway, in the interim Mr. Bertrand is acting as our PEO and PFO. As such, we carried out an evaluation, under the supervision and with the participation of our management, including Mr. Bertrand, in his capacity now as our PEO and PFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the date of this Annual Report and have concluded that the Company’s disclosure controls are not now effective, and that in order to be effective we must have additional personnel engaged in the reporting process to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, regardless of whether or not any particular officer is unable to perform their duties.

The Company’s management is responsible for establishing and maintaining internal controls over financial reporting and disclosure controls. Internal Control Over Financial Reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that :

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the registrant; and

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.

Management has conducted an evaluation of the effectiveness of our internal control over financial reporting for the year ended August 31, 2014, based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based upon their evaluation, the PEO and PFO had concluded as of August 31, 2014 that the Company’s internal controls over financial reporting were not effective as of that date.

However, we experienced a delay in this current filing due to a medical emergency surgery of Mr. Bertrand, our President and Chief Financial Officer, which disabled him from performing the necessary work needed to timely file this report. In addition, our Chief Executive Officer resigned on January 30, 2015, and although the search for a new Chief Executive Officer is underway, in the interim Mr. Bertrand is acting as our PEO and PFO. As such, we carried out an evaluation the effectiveness of our internal control over financial reporting for the year ended August 31, 2014, based on the framework established in Internal Control-Integrated Framework issued by COSO, of the effectiveness of the design and operation of our internal controls over financial reporting as of the date of this Annual Report and have concluded that the Company’s internal controls over financial reporting are not now effective, and that in order to be effective we must have additional personnel engaged in the financial reporting process to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, regardless of whether or not any particular officer is unable to perform their duties.

Although the Company has made substantial progress in the segregation of duties for the year ended August 31, 2014 consistent with its control objectives through the hiring of additional staff with technical accounting expertise, its limited resources have made it difficult for it to maintain appropriate oversight by those in charge of governance. The Company intends to hire additional personnel as soon as its finances permit it to ensure that its reports are timely filed. The Company has taken steps to improve its internal controls and disclosure controls and has prepared and implemented written policies and checklists with procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements and internal controls and procedures have been developed and implemented surrounding the financial reporting process, primarily through the use of account reconciliations and supervision.

We intend to continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes, and to retain additional staff, as required, to assist in financial and accounting controls.

Our management, including Mr. Bertrand, our current PEO and PFO, does not expect that our disclosure controls or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

(b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended August 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following individuals serve as the directors and executive officers of the Company as of August 31, 2014 and the date of this annual report. All directors of our company hold office until the next annual meeting of our shareholders or until their successors have been elected and qualified. The executive officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.

Our directors and executive officers, their ages, positions held, and durations of such are as follows:

Name	Position Held with Our Company	Age		Date first Elected or Appointed
Tim Gannon	Former Chairman of the Board and Former Culinary and Business Development Advisor		66		October 18, 2012	**
Lloyd Sugarman	Chairman of the Board, Director and Former CEO		60		April 22, 2013	**
Daniel Rubano	Senior Vice President Franchise, Secretary, Director		54		December 15, 2010
Robert Bertrand	President, Chief Financial Officer, Treasurer		60		December 15, 2010
Ronald Crane	Director		65		August 13, 2013
Rocco Fiorentino	Director		59		August 13, 2013
Dan Noor	Director		45		January 9, 2015
Pasquale Guadagno	Director		58		January 9, 2015

^** On January 8, 2015, Mr, Gannon resigned from the board of directors, and subsequently on January 9, 2015, Mr, Sugarman was appointed the Chairman of the Board. Mr. Sugarman is and remains a director of the Company and the Chairman of the Board, however on January 30, 2015 he resigned from the CEO position.

Business Experience

The following is a brief account of the business experience of our directors and executive officers during at least the past five years, including their principal occupations and employment during the period, and the name and principal business of the organization in which such occupations or employment were carried on.

Lloyd Sugarman, Chairman of the Board and Former CEO

As a co-founder of Johnny Rockets, Lloyd Sugarman was one of the first to sign on when the restaurant chain started franchising in 1986. Because of his success as a multi-unit franchise operator, Lloyd was asked to join the corporate team of Johnny Rockets to help the company duplicate his success throughout the franchise system. He then went on to open additional Johnny Rockets restaurants with his son, which, today continue to be among the chain’s highest-grossing locations. As a creative innovator and forward thinker, Lloyd is credited with introducing dancing servers, food court restaurant locations and a meatless hamburger that revolutionized the Johnny Rockets brand.

In 2010, believing in the potential of the Original Soupman brand, Sugarman became an Area Developer, opening multiple Original Soupman franchises across the country. Lloyd was the brains behind the creation of the Al’s New York Delicatessen & Restaurant concept, which features the world-renowned Original Soupman soups and a full authentic NY delicatessen menu.

Lloyd has been the recipient of numerous awards throughout his career for his entrepreneurial achievements, including the Lifetime Achievement Award in his native Cranston, RI. He has received numerous highest sales volume awards from Johnny Rockets corporate and was named Franchisee of the Month in 2012 by Restaurant Business magazine. He also received the Lifetime Achievement Award from the Hamilton School in Rhode Island for his dedication to working with and improving the quality of life for children with learning disabilities. With “Quality of Food Worth Serving” as a mantra, Lloyd takes pride in winning the best hamburger in the market for eight years in a row in Providence, RI, and says his major attraction to Original Soupman was the delicious, quality soup products. Lloyd also serves on the Advisory Board for the Multi-Unit Franchising Conference.

We selected Mr. Sugarman to serve on our board because he brings a wealth of retail merchandising, restaurant operations and franchising experience to Soupman. Mr. Sugarman’s business background provides him with a broad understanding of the issues facing the food industry and our company as well as the financial markets and the opportunities available to us.

We also believe that as a matter of “best practices” and good corporate governance that the Chairman and CEO positions should be held by two separate individuals. As such, we have begun a search for a CEO with a strong business background in the food industry, and in connection with our determination to split the Chairman and CEO positions, Mr. Sugarman voluntarily resigned as CEO on January 30, 2015.

Daniel Rubano, Sr. Vice President Franchise, Secretary, Director

Mr. Rubano joined our management team as Senior Vice President of Franchise Development and Operations, Secretary and a member of the Board of Directors in January 2010. He has over 25 years of franchise and restaurant experience. He was a member of Soup Kitchen International Board of Directors from 2003 until 2006. For the four years before joining our company, he was President of Ranch*1, a grilled chicken franchise, and for the last two years before joining us, President of Johnny's NY Pizza, a full service restaurant franchise, and Rollerz Wraps, a quick service salad and wrap franchise, all owned by Kahala Corporation. Prior to that, he held various positions within Kahala Corporation which included; Vice President of Blimpie/Hess Account, Director of Operations, and Franchise Sales. Kahala Corporation is the franchisor of over 3,000 restaurants under the names of Cold Stone Creamery, Ranch*1, Blimpie, Surf City Squeeze, Taco Time, Johnny's NY Pizza, Samurai Sam’s, The Great Steak and Potato Co., N'rgize and Frulatti Café. He was previously the Director of Franchise Operations for Ranch*1 from November 1996 through August 2001. Mr. Rubano brings to the board substantial experience in and perspective on consumer marketing, business operations and the food industry. Mr. Rubano brings to the board of directors extensive knowledge of our industry, having served in senior corporate positions in various food companies. His business experience provides him with a broad understanding of the operational, financial and strategic issues facing companies in our industry.

We selected Mr. Rubano to serve on the board because of his extensive knowledge of our industry, having served in senior corporate positions in various food companies. His business experience provides him with a broad understanding of the operational, financial and strategic issues facing companies in our industry.

Rocco Fiorentino, Director

Rocco Fiorentino brings more than 25 years of franchise industry experience as President and CEO of The Benetrends Group and its subsidiaries. He also is an active member of the Board of Directors for Swiss Farm Stores and Saxbys Coffee, franchisors of drive thru grocery stores and coffee shops, respectively.

Additionally, he serves on the Board of Directors for the International Franchise Association (IFA) and is co-chairman of IFA’s Membership Committee. Before adding these stellar accolades to his resume, Fiorentino served as President and CEO of Freedom Rings, LLC, was an area developer and multi-unit franchisee for Krispy Kreme Doughnuts in Pennsylvania, New Jersey and Delaware, and was Chairman of the Multi-Unit Franchise Conference from 2003 to 2005. As a veteran franchise expert, Fiorentino is a frequent speaker and moderator on franchise matters at the IFA Conference and the Multi-Unit Franchise Conference, and has authored a variety of articles on franchiser financing.

We selected Mr. Fiorentino to serve on our board because of his extensive franchise experience. His successful management experience provides him with a broad understanding of issues faced by growing companies.

Ronald Crane, Director

Ron Crane has more than 30 years of experience as a practicing attorney in various areas of the law including real estate, contracts and talent agreement and licensing. As Senior Counsel and the practice head in the Advertising and Intellectual Property areas at Omnicom Group Inc., the world’s largest global strategic holding company in the areas of advertising, marketing and corporate communication.

We selected Mr. Crane to serve on our board because he brings to the board extensive advertising and marketing knowledge. In addition, his legal background aids us in the protection of our intellectual property.

Dan Noor, Director

Dan Noor is currently Managing Director at Virtu Capital, a management consulting firm formed by him to provide financial consulting services to companies and other clients, including assistance with the delivery and implementation of financial plans. Prior to 2013, for over five years he was the principal at I Focus Consultants, a management consulting firm providing advice regarding venture capital and investment banking transactions for over five years. Mr Noor received his training and education from New York University in 1992 with a BS/BA in Political Science and Sociality.

We selected Mr. Noor to serve on our board because of his investment banking experience.

Pasquale Guadagno, Director

Pasquale Guadagno is the Chairman of Packwood Financial, a management consulting firm formed by him to provide financial consulting services to companies and other clients, From January 2014 through December 2014 he was employed as a Vice President and registered representative at National Securities Corporation in New York, New York. From February 2010 through December 2013, he was employed as a Vice President and registered representative at Legends Securities, Inc. He began his career over thirty years ago at Kidder Peabody & Co. and holds a Series 7, 24, 64 and 65 license.

We selected Mr. Guadagno to serve on our board because of his investment banking experience.

Robert Bertrand, President, Chief Financial Officer, Treasurer

Mr. Bertrand is our President, Chief Financial Officer and Treasurer. He has held that position since inception of the Company. He has been the President and Chief Financial Officer of The Original Soupman, Inc. and Soup Kitchen International since November 2004. For the two years prior to this, he was the Chief Operating Officer and Chief Financial Officer of a startup manufacturer of healthy, indulgent chocolate products sold under the brand name of “SOBE.” From 2000 to 2002, he was a partner in Bullard Financial, Inc., a financial services company specializing in strategic financial planning for small businesses, their owners, and their officers. Mr. Bertrand spent 20 years with two publicly traded companies, Industrial Acoustics Company, Inc. (from 1990 to 2000) and Bairnco Corporation (from 1980 to 1990), starting as accounting manager and ultimately ending up as CFO and Senior Vice-President of Finance and Administration. In 1977, he started his professional career with Singer & Lusardi, a medium-sized CPA firm located in Worcester, Massachusetts. Mr. Bertrand holds a BS in Accounting from Northeastern University and a Masters from Columbia University.

Tim Gannon. Former Chairman of the Board and Culinary and Business Development Advisor.

Tim Gannon, our former Chairman and Culinary and Business Development Advisor, was the co-founder of Outback Steakhouse, Inc. He is the creator of the “Bloomin’ Onion” recipe, and many of the other dishes on Outback’s menu. He has served in various senior management capacities at Outback Steakhouse since he co-founded it, and currently serves as a Director Emeritus of OSI Restaurant Partners, LLC, and the company, which currently owns Outback Steakhouse.

In 1994, Inc. Magazine named Tim Gannon Entrepreneur of the Year. In 1999, The Florida Restaurant Association honored him with its “Lifetime Achievement Award”. In the year 2000, Tim received an honorary Doctorate Degree in Business Administration and Food Service Management from Johnson & Wales University. He is also a member of the Tampa Bay Chamber of Commerce Business Hall of Fame. In 2009, he was inducted into the U.S. Business Hall of Fame along with his partners Chris Sullivan and Bob Basham.

Directorships of Other Reporting Companies

None of our directors or executive officers are directors or officers of other reporting companies.

Family Relationships

There are no family relationships between our directors and executive officers.

Audit Committee and Audit Committee Financial Expert

Our board of directors acts as our audit committee. Our Board of Directors has determined that both Mr. Sugarman qualify as “audit committee financial experts” as that term is used in Section 407 of Regulation S-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities of Broadcaster. Officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) forms they file. These filings are publicly available on the SEC’s website at www.sec.gov. Based solely on our review of the copies of such forms received by us and our review of the SEC’s website, we believe that during fiscal year ended August 31, 2014, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with.

Code of Business Conduct

We have established and maintain a Code of Business Conduct which is applicable to all employees, officers, and directors. Our policy is designed to deter wrongdoing and to promote honest and ethical conduct and compliance with all applicable laws and regulations. It also communicates our expectations of our employees and helps enable us to provide accurate and timely disclosure in our filings with the SEC and other public communications. In addition, the policy incorporates guidelines pertaining to topics such as environmental compliance, health and safety compliance; diversity and non-discrimination; vendor relations, employee privacy; and business continuity.

Our Code of Business Conduct and Code of Ethics for Financial Management is posted on our website, www.soupmaninc.com.

Item 11. Executive Compensation

General

Included in the table below is our executive compensation as of August 31, 2014, as required by Item 402 of Regulation S-K.

Name and Principal Position	Year		Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		All Other Compensation ($)(5)		Total ($)

Lloyd Sugarman (1)		2014	$	150,000	$	-	$	69,000	$	-	$	7,200	$	262,200
Chairman of the Board and Former CEO		2013	$	50,000	$	-	$	112,500	$	-	$	2,400	$	164,900

Daniel Rubano (2)		2014	$	70,000	$	-	$	-	$	-	$	36,000	$	106,000
Sr. VP, Secretary and Director		2013	$	70,000	$	-	$	-	$	-	$	31,884	$	101,884

Robert Bertrand (3)		2014	$	170,000	$	-	$	-	$	-	$	27,600	$	197,600
President and CFO		2013	$	170,000	$	-	$	-	$	-	$	27,612	$	197,612

Notes:

(1)	Mr. Sugarman’s 2014 base salary was $150,000 all of which has been accrued and is reported as related part accounts payable in note 7 of the Notes to the Consolidated Financial Statements included in “Item 1 – Financial Statements” His 2013 base Salary was $50,000, of which $2,885 was paid in cash and $47,115 was accrued and is reported as related party account payable in Note 7 of the Notes to the Consolidated Financial Statements included in “Item 1 — Financial Statements”.

(2)	Mr. Rubano’s 2014 base salary was $70,000 , of which $3,000 was paid in cash and $67,000 was accrued and is reported as related party account payable in Note 7 of the Notes to the Consolidated Financial Statements included in “Item 1 — Financial Statements”. Mr. Rubano’s 2013 base salary was $70,000, of which $19,191 was paid in cash and $50,809 was accrued and is reported as related party account payable in Note 7 of the Notes to the Consolidated Financial Statements included in “Item 1 — Financial Statements”.

(3)	Mr. Bertrand’s 2014 base salary was $170,000, of which $100,211 was paid in cash and $69,789 was accrued and is reported as related party accounts payable in Note 7 of the Notes to the Consolidated Financial Statements included in “Item 1—Financial Statements” Mr. Bertrand’s 2013 base salary was $170,000, of which $97,199 was paid in cash and $72,801 was paid in stock.

(4)	On June 13, 2012 we entered into an agreement with Tim Gannon, to serve as our Culinary and Business Development Advisor. Mr. Gannon subsequently became the Chairman of our Board of Directors on August 22, 2013. Pursuant to the June 13, 2012 agreement, Mr. Gannon received solely stock-based compensation in connection with his services. Upon his commencement of employment, he received 400,000 shares of the Company’s common stock, as well as has been issued 10,000 shares of the Company’s common stock each month. For the years ended August 31, 2013 and 2012, he received 320,000 and 450,000 shares of the Company’s common stock.

	In addition, Mr. Gannon was entitled to receive, for every incremental $1 million in Company annual sales since the date of his agreement, 5,000 shares of the Company’s common stock, with a maximum total award of 500,000 shares (should the Company have achieved $100 million in annual sales). The Company had determined the Mr. Gannon’s agreement contained a combination of service, market and performance conditions as defined under ASC 718. Additionally, the Company determined the fair value of these awards to be $1,033,350. During the years ended August 31, 2014 and 2013, $544,687 and $46,630 of compensation cost was recognized, leaving $442,033 of compensation cost to be recognized through June 13, 2015.

(5)	All other compensation is comprised of medical premiums paid for Mr. Rubano and Mr. Bertrand and car allowances for all named executive officers. Car allowances have been accrued and are reported as related party account payable in Note 7 of the Notes to the Consolidated Financial Statements included in “Item 1 — Financial Statements.

Employment Agreements

Lloyd Sugarman Employment Agreement

Prior to his resignation as CEO on January 30, 2015, Mr. Sugarman served as the Company’s CEO under a three-year employment agreement executed on April 22, 2013. The employment agreement provided that Mr. Sugarman was to receive a base salary of $150,000.00 and an annual bonus of up to $50,000, payable 30 days after the close of each year, on a pro rata basis, if at least 80% of the sales projections established by the Board of Directors at the beginning of each year are met. The Company was also to pay Sugarman the greater of $500 or 5% bonus for each co-branded franchise or franchise sold during his employment with the Company. Mr. Sugarman agreed that his base salary would initially be paid at the rate of $75,000 per annum until $2,000,000 in capital was raised by the Company. Currently, there is accrued and unpaid salary to Mr. Sugarman of $158,115. The employment agreement had also provided fora car allowance of $600 a month (which he never received). Mr. Sugarman received 1,500,000 shares of the Company’s common stock in connection with the employment agreement, which shares were to vest as follows:

(i)	300,000 shares on signing
(ii)	300,000 shares on the first anniversary of the agreement;
(iii)	300,000 shares on the second anniversary of the agreement;
(iv)	300,000 shares on the third anniversary of the agreement;
(v)	300,000 shares upon the Company being funded with at least $2 million.

Because Mr. Sugarman voluntarily resigned on January 30, 3015 as CEO at the request of the Board in order to allow the position of Chairman and CEO to be split between two individuals for corporate governance purposes, the Board determined to fully vest all his shares as of that date.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information relating to equity awards outstanding at the end of Fiscal 2014 for each Named Executive Officer.

Name	Number of Securities Underlying Unexercised Options Exercisable		Option Exercise Price ($/share)		Option Expiration Date		Number of shares or units of stock that have not vested		Market value of shares of units of stock that have not vested

Daniel Rubano		250,000		.50		12/31/2020

Robert Bertrand		250,000		.50		12/31/2020

Lloyd Sugarman(1)		-		-				1,200,000	$	732,000

Notes:

(1)	Pursuant to Mr. Sugarman’s employment agreement, he received 300,000 shares of stock in 2014 having a fair market value of $69,000 and 300,000 shares of stock in 2013, having a fair market value of $112,500.

Aggregated Options Exercised in Last Fiscal Year

No stock options have been exercised by any director or executive officer since the date of the grant.

Compensation of Directors

The following table sets forth information for the fiscal year ended August 31, 2014 regarding the compensation of our directors who at August 31, 2014 were not also named executive officers or material employees.

Name

Fees Earned or

Paid in Cash

Warrants

Granted

Ron Crane(1)

Rocco Fiorentino(2)

Notes:

(1)	Mr. Crane was appointed as an independent, non-employee member of the board on August 22, 2013. Pursuant to his agreement, he received 150,000 $0.50 5-year warrants. Previously Mr. Crane served on the Company’s board of advisors, where he received 50,000 shares of the Company’s common stock in 2011.

(2)	Mr. Fiorentino was appointed as an independent, non-employee member of the board on August 22, 2013. Previously Mr. Fiorentino served on the Company’s board of advisors, where he received 50,000 shares of the Company’s common stock in 2011 and 25,000 shares in 2012.

Item 12. Security Ownership of Certain Beneficial Owners

The following table sets forth, as of the date of this report, the total number of shares owned beneficially by each of our directors and executive officers individually and our directors and executive officers as a group, and the present owners of 5% or more of our total outstanding

Name and Address of Beneficial Owner	Title of Class		Amount and Nature of Beneficial Ownership (1)			Percentage of Class (2)
Lloyd Sugarman 1110 South Avenue Staten Island, NY 10314		Common		700,000			1.5	%
Ronald Crane 1110 South Avenue Staten Island, NY 10314		Common		57,500			0.1	%
Rocco Fiorentino 1110 South Avenue Staten Island, NY 10314		Common		75,000			0.2	%
Daniel Rubano 1110 South Avenue Staten Island, NY 10314		Common		2,375,000	(3)		4.9	%
Pasquale Guadagno 1110 South Avenue Staten Island, New York 10314		Common		140,000			0.3	%
Dan Noor 1110 South Avenue Staten Island, New York 10314		Common		0			0.0	%
Robert Bertrand 1110 South Avenue Staten Island, NY 10314		Common		874,335	(4)		1.8	%
Arnold Casale 1110 South Avenue Staten Island, NY 10314		Common		4,221,835	(3)		8.8	%
Directors and Executive Officers as a Group (7)		Common		5,171,835			10.8	%
Tim Gannon 1110 South Avenue Staten Island, NY 10314		Common		1,090,000			2.3	%

Notes:

(1)

Beneficial ownership of a security includes any person, who directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares.

(2)	Based on 47,170,509 common shares and 931,360 preferred shares outstanding at August 31, 2014.

(3)	Includes options exercisable for 250,000 shares of stock that each of the beneficial owners has the right to exercise on the date hereof.

(4)	Includes options exercisable for 250,000 shares of stock that each of the beneficial owners has the right to exercise on the date hereof and 50,000 shares of Preferred Stock that are convertible at the option of the beneficial holder at any time.

Item 13. Certain Relationships and Related Transactions, and Director Independence

In July 2010, Al Yeganeh ‘s famous soup restaurant on 8th Ave and 55 Street in New York City reopened as a franchise location after being shuttered closed by Al for six years. Daniel Rubano, a Director and Senior Vice President is the owner of this franchise which has paid or has accrued to the Company royalties of $ 31,876 and $38,542 during the years ended August 31, 2014 and 2013, respectively and owes $35,327 as of August 31, 2014.

In 2010 the Company executed a 7% note receivable for $255,859 with the franchise to defray the costs of renovating the store and its lower operating margins as compared to other high traffic and less expensive locations. This note has a maturity date of October 31, 2018 with payments of interest only through November 30, 2012. At August 31, 2013 the Company had received all due interest payments, but due to the store’s operating margins, took a 100% allowance against the receivable. During the year ended August 31, 2014, The Company received $79,518.61 in payments which was applied to the unpaid balance of the loan leaving a balance of $176,340.

Lloyd Sugarman, our former Chief Executive Officer and Chairman of the Board of the Company, is also an owner of one of the Soupman franchises which has paid or has accrued to the Company royalties of $48,765 and $55,173 during the years ended August 31, 2014 and 2013, respectively and owes $41,008 of royalties as of August 31, 2014

Ronald Crane, Rocco Fiorentino, Pasquale Guadagno and Dan Noor are independent directors under applicable SEC regulations.

Our board of directors reviews on an on-going basis for potential conflicts of interest, and approves if appropriate, all “related party transactions, which include all transactions required to be disclosed pursuant to SEC Regulation S-K, Item 404.

Item 14. Principal Accountant Fees and Services

MaloneBailey, LLP serves as our current independent registered public accounting firm.

Independent Registered Public Accounting Firm Fees and Services

The following table sets forth the aggregate fees including expenses billed to us for the years ended August 31, 2014 and 2013.

	August 31, 2014		August 31, 2013
Audit Fees and Expenses (1)	$	72,000		72,000
All Other Fees		-		-
	$	72,000		72,000

(1) Audit fees and expenses were for professional services rendered for the audit and reviews of the consolidated financial statements of the Company, professional services rendered for issuance of consents and assistance with review of documents filed with the SEC.

PART IV

Item 15. Exhibits and Financial Statement Schedules and Reports on Form 8-K

(a)(1)	The following financial statements are included in this Annual Report on Form 10-K for the fiscal year ended August 31, 2014.

	1.	Independent Auditor’s Reports

	2.	Consolidated Balance Sheets as of August 31, 2014 and 2013

	3.	Consolidated Statements of Operations for the years ended August 31, 2014 and 2013

	4.	Consolidated Statements of Changes in Stockholders’ Deficit for the years ended August 31, 2014 and 2013

	5.	Consolidated Statements of Cash Flows for the years ended August 31, 2014 and 2013

	6.	Notes to Consolidated Financial Statements

(a)(2)	All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated Financial Statements or related notes.
(a)(3)	The following exhibits are either filed as part of this report or are incorporated herein by reference:

3.1	Articles of Incorporation(1)
3.2	Bylaws(1)
3.3	Certificate of Designations for Series A(2)
3.4	Certificate of Designation for Series B(3)
4.1	2010 Stock Incentive Plan(4)
10.1	Merger Agreement between OSM Merger and Passport Arts, Inc.(2)
10.2	Agreement, dated as of April 27, 2004, between International Gourmet Soups, Inc., Kiosk Concepts, Inc., Yegan Food, Inc. and Al Yeganeh (5)
10.3	Amendment, dated February 20, 2004, between International Gourmet Soups, Inc., Kiosk Concepts, Inc., Yegan Food, Inc. and Al Yeganeh (5)
10.4	Forbearance Agreement dated May, 20,2011 (6)
10.5	Secured Guaranty dated May 20, 2011 (6)
10.6	Keepwell Agreement dated May 20, 2011 (6)
10.7	Amendment to Forbearance Agreement dated August 1, 2012 (9)
10.8	Endorsement Agreement, by and between Mine O’Mine, Inc. and the Company, dated as of July 29, 2011(7)
10.9	Employment Agreement of Arnold Casale dated September 1, 2010 (10)
10.10	Employment Agreement of Robert Bertrand dated September 1, 2010 (10)
10.11	Employment Agreement of Daniel Rubano dated September 1, 2010 (10)
10.12	Employment Agreement of Tim Gannon dated June 13, 2012 (8)
10.13	Employment Agreement of Lloyd Sugarman dated April 22, 2012 (11)
21.1	Subsidiaries (10)
31.1	Certification pursuant to Rule 13a-14(a)/15d-14(a) (1) *
31.2	Certification pursuant to Rule 13a-14(a)/15d-14(a) (1) *
32.1	Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002(1) *
32.2	Certification pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002(1) *

*	Filed herewith

(1)	Incorporated by reference from our registration statement on Form S-1 filed on October 26, 2009
(2)	Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on December 20, 2010
(3)	Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on January 8, 2015
(4)	Incorporated by reference from our registration statement on Form S-8 filed on February 2, 2011
(5)	Incorporated by reference from our quarterly report on Form 10-Q filed on April 19, 2011
(6)	Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on May 25, 2011
(7)	Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on August 21, 2011
(8)	Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on June 13, 2012.
(9)	Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on August 6, 2012.
(10)	Incorporated by reference from our Form 10-K/A filed with the Securities and Exchange Commission on August 28, 2013.
(11)	Incorporated by reference from our Form 8-K filed with the Securities and Exchange Commission on April 26, 2013.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.

	SOUPMAN, INC.

Date: February 25, 2015	By:	/s/ Robert Bertrand
		Robert Bertrand
		President and Chief Financial Officer
		(Principal Executive Officer)

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: February 25, 2015	By:	/s/ Lloyd Sugarman
		Chairman of the Board and Director

Date: February 25, 2015

By:

/s/ Robert Bertrand

Robert Bertrand

President and Chief Financial Officer

(Principal Executive Officer)

(Principal Financial Officer)

Date: February 25, 2015

By:

/s/ Daniel Rubano

Senior Vice President of Franchise Development

and Operations and Director

Date: February 25, 2015

By:

/s/ Dan Noor

Director

Date: February 25, 2015	By:	/s/ Pasquale Guadagno
		Director

Date: February 25, 2015	By:	/s/ Ronald Crane
		Director

Date: February 25, 2015	By:	/s/ Rocco Fiorentino

Attached files

SOUPMAN, INC. Reports

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