UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission File No.: 0-19616
UTOPIA MARKETING, INC.
(Exact Name of Registrant as Specified in its Charter)
Florida 94-3060101
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization ) Identification number)
312 Clematis Street, Suite 500, West Palm Beach, Florida 33401
(Address of Principal Executive Offices, Including Zip Code)
(561) 835-9998
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve 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 [X] No [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of May 15, 2000, there were 15,216,367 shares of Common
stock outstanding.
UTOPIA MARKETING, INC.
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheets as of April 1, 2000
(unaudited) and January 1, 2000 (audited) 2
Condensed Statements of Operations for the three months
ended April 1, 2000 (unaudited) and April 3, 1999
(unaudited) 3
Condensed Statements of Cash Flows for the three months
ended April 1, 2000 (unaudited) and April 3, 1999
(unaudited) 4
Notes to Condensed Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
1
PART I
------
ITEM 1. FINANCIAL STATEMENTS
UTOPIA MARKETING, INC.
BALANCE SHEETS
ASSETS
April 1, January 1,
2000 2000
---------- -----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 132 $ 185
Due from factor, net of allowance.......................... 2,077 550
Merchandise inventories.................................... 1,251 1,418
Other current assets....................................... 0 54
---------- -----------
TOTAL CURRENT ASSETS......................................... 3,460 2,207
Property and equipment, net................................ 93 98
Intangible assets.......................................... 639 648
---------- -----------
TOTAL ASSETS........................................... $ 4,192 $ 2,953
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................... $ 1,093 $ 1,716
Accrued expenses, primarily accrued officers' salaries..... 320 317
Due to factor.............................................. 1,649 0
---------- -----------
TOTAL CURRENT LIABILITIES.............................. 3,062 2,033
---------- -----------
LONG-TERM OBLIGATIONS........................................ 479 468
---------- -----------
SHAREHOLDERS' EQUITY:
Common stock............................................... 15 15
Additional paid-in capital................................. 33,147 33,147
Accumulated deficit........................................ (32,511) (32,710)
---------- -----------
TOTAL SHAREHOLDERS' EQUITY............................. 651 452
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 4,192 $ 2,953
========== ===========
See Notes to Financial Statements.
2
UTOPIA MARKETING, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
--------------------------
April 1, April 3,
2000 1999
---------- -----------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
Net revenue......................................... $ 3,190 $ 0
Cost of sales....................................... 2,088 0
---------- ----------
GROSS PROFIT...................................... 1,102 0
Selling, general and administrative expenses........ 876 544
---------- ----------
Operating Income (loss)............................. 226 (544)
Interest income/(expense)........................... (28) 21
---------- ----------
Income (loss) before income
taxes and extraordinary item....................... 198 (523)
Income taxes........................................ 0 0
---------- ----------
NET INCOME (LOSS) $ 198 (523)
========== ==========
NET INCOME (LOSS) PER SHARE $ 0.01 $ (0.04)
========== ==========
Weighted average shares outstanding................. 15,216 14,216
========== ==========
See Notes to Financial Statements
3
UTOPIA MARKETING, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
---------------------------
APRIL 1, APRIL 3,
2000 1999
----------- ----------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)....................................... $ 198 $ (523)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 15 0
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable..................................... (1,527) 0
Merchandise inventories................................. 167 0
Prepaid expenses........................................ 0 51
Other assets............................................ 54 0
Accounts payable, accrued expenses...................... (620) 13
Other current liabilities............................... 1,649 0
---------- ----------
Net Cash provided by (used in) operating activities....... (64) (459)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (0) (63)
---------- ----------
Net Cash provided by (used in) investing activities....... (0) (63)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term obligations...................... 11 0
---------- ----------
Net Cash (used in) provided by financing activities....... 11 0
---------- ----------
Net (decrease) in cash and cash equivalents............... (53) (522)
Cash and cash equivalents:
Beginning of period..................................... 185 1,942
End of period........................................... $ 132 $ 1,420
========== ==========
See Notes to Financial Statements
4
UTOPIA MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTH PERIODS ENDED APRIL 1, 2000 AND APRIL 3, 1999
(UNAUDITED)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have
been prepared from the records of the Company without audit and,
in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) necessary to fairly
present the Company's financial position at April 1, 2000 and
January 1, 2000 and the results of operations and its cash flows
for the three month periods ended April 1, 2000 and April 3, 1999.
Accounting policies followed by the Company are described in
Note 1 to the audited financial statements for the year ended
January 1, 2000. As permitted by the rules and regulations of the
Securities and Exchange Commission, certain information and footnote
disclosures included in the annual financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted for the purposes of these condensed
interim financial statements. The unaudited condensed interim
financial statements included herein should be read in conjunction
with the audited financial statements and the notes thereto
included in the Company's Form 10-KSB for the year ended January
1, 2000.
The results of operations and cash flows for the three month
period ended April 1, 2000 are not necessarily indicative of the
results of operations or cash flows to be expected for any other
period or for the full year.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Utopia Marketing, Inc., formerly known as Sam & Libby, Inc.
(the "Company"), was founded in October 1987, primarily for the
purpose of developing and commercializing footwear products. In
1991, the Company completed a public offering of its common
stock. On July 2, 1996, the Company entered into an agreement
with Maxwell Shoe Company Inc. ("Maxwell") pursuant to which the
Company sold its brand names, trademarks, trade names and certain
other intellectual property rights to Maxwell, and received
approximately $5.5 million.
After the sale to Maxwell, the Company's management had been
primarily involved in the investigation of new business
opportunities for the Company. During this time, management
investigated possible acquisitions and mergers and explored
various start-up ventures. Since December 1998, the Company has
been developing and commercializing a line of fashion footwear
products under the Company's NAKEDFEET[TM] brand name.
On October 6, 1999, the Company acquired the rights from
Ipanema Shoe Corporation ("Ipanema") to market and commercialize
footwear under the brand name IPANEMA[TM]. In exchange for these
rights, the Company issued 1,000,000 shares of its common stock
to Ipanema and a convertible note for $500,000 plus interest due
October 5, 2002. Interest accrues under the note at prime rate
plus 1%. Additionally, in connection with the Ipanema asset
purchase, the Company entered into a Collection Services
Agreement with Ipanema, pursuant to which the Company assisted in
collecting Ipanema's outstanding accounts receivable of
approximately $3,300,000 in exchange for Ipanema's payment to the
Company of 30% of the gross collections of such accounts
receivable. As of April 1, 2000 the Company had received
$990,000 under the Collection Services Agreement. The Company
does not expect to earn any additional revenues under this
Agreement during fiscal year 2000.
Results of Operations
Three months ended April 1, 2000 and April 3, 1999
Revenues. The Company generated net revenues of $3,190,000
through the sale of its new product lines under the brand names
NAKEDFEET and IPANEMA during the three months ended April 1,
2000. Interest expense for the three months ended April 1, 2000
was $28,000 compared to interest income of $21,000 for the three
months ended April 3, 1999. Interest expense during the first
6
quarter of 2000 was incurred as a result of a credit facility
(the "Credit Facility") with Capital Factors, Inc. Borrowings
under the Credit Facility bear interest at a rate of prime plus
1%. Interest income during the 1999 period was earned as a
result of the Company holding its funds in a money market
account.
Gross Profit. Gross profit of $1,102,000 for the three
months ended April 1, 2000 includes $89,000 of first-cost
commissions. First-cost commissions are generated when the
Company acts as an agent for its customers. No gross profit was
generated during the three months ended April 3, 1999, because
the Company was not selling any products.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased to $876,000 for the
three months ended April 1, 2000 as compared to $544,000 for the
three months ended April 3, 1999. Selling, general and
administrative expenses for the three months ended April 1, 2000
consisted primarily of $212,000 in personnel costs; $220,000 for
sales representatives; $62,000 for travel and entertainment;
$202,000 for trade shows; and $37,000 in professional fees.
Selling, general and administrative expenses for the three months
ended April 3, 1999 consisted primarily of administrative
expenses in connection with the search for investment
opportunities.
The Company has incurred a substantial increase in selling,
general and administrative expenses during late 1999 and 2000 as
a result of the Company's commencement of the design and
development of a line of footwear. These expenses were incurred
as personnel increased, marketing and sales activities were begun
and a variety of promotional programs were undertaken in
connection with the development and marketing of the Company's
products. The Company also incurs significant research and
development expenses every season as it develops and
commercializes its next line of footwear products.
Liquidity and Capital Resources
The Company's primary source of liquidity for the first
quarter of 2000 was a credit facility extended by Capital
Factors, Inc. ("Capital Factors"), whereby the Company can borrow
an amount equal to 85% of the Company's accounts receivable and
50% of its inventory (the "Credit Facility"). The Credit
Facility is secured by the Company's receivables, which have been
assigned to Capital Factors and the Company's inventory, which
has been pledged to Capital Factors. Borrowings under the Credit
Facility accrue interest at a rate of prime plus 1% on its
outstanding balance, which totaled $1,650,000 as of April 1,
2000.
7
The Company has increased its capital expenditures as a
result of the Board of Directors' decision to develop and
commercialize a line of footwear. However, the Company did not
make any capital expenditures during the first quarter of 2000.
During the start-up phase of the Company's new operations,
the Company's cash requirements will be substantial. The Company
currently anticipates that it will require significant additional
capital to fund its working capital needs until it has positive
cash flows. Until the Company raises this additional capital, it
may not be able to expand its product lines or market its
products as quickly or effectively as will be required in order
for it to be competitive. The amount of additional capital the
Company will require will depend primarily on its ability to
design, develop and market products that are accepted by the
market and generate rapidly increasing levels of sales.
The Company's failure to design, develop and market well-
received products and other events, including the costs and timing
of establishing trademarks and other proprietary rights; the
Company's ability to manufacture products at an economically
feasible cost; the extent and terms of any collaborative
manufacturing, marketing or other arrangement; and changes in
economic or competitive conditions of the Company's planned
business, would cause the Company to require greater amounts of
additional capital prior to achieving positive cash flows.
The Company may seek to raise such additional capital through
loans, factoring and other financial arrangements, or the issuance
of debt or equity securities. To the extent the Company raises
additional capital by issuing equity securities or obtaining
borrowings convertible into equity, ownership dilution to existing
shareholders will result, and future investors may be granted
rights superior to those of existing shareholders. There can be
no assurance that any additional capital will be available to the
Company on acceptable terms, or at all.
If additional capital is not available, the Company will not
be able to complete the commercialization of any products it may
have developed. As a result, the Company may be required to
discontinue its operations without obtaining any value for its
products under development, thereby eliminating shareholder equity
or the Company could be forced to relinquish rights to some or all
of its products under development in return for an amount
substantially less than the Company expended to develop such
products.
8
FORWARD-LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Form 10-QSB, principally
in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," that are not related to
historical results, including statements relating to the design,
development and commercialization of the Company's products and
the expansion of marketing, promotional and research and
development programs, are forward-looking statements. Actual
results may differ materially from those projected or implied in
the forward-looking statements. Further, certain forward-looking
statements are based upon assumptions of future events that may
not prove to be accurate. These forward-looking statements
involve risks and uncertainties, including but not limited to, the
Company's ability to successfully develop and commercialize a line
of footwear; the Company's future cash flows, sales, gross margins
and operating costs; the substantial increased cost associated
with the acquisition of the Ipanema TM brand name; the Company's
ability to raise significant amounts of additional capital; the
Company's ability to devote the resources required to adequately
market a line of footwear; the Company's ability to recruit
qualified personnel; the Company's ability to manufacture products
at an economically feasible cost; the Company's ability to expand
its product lines; the Company's ability to establish trademarks
and other proprietary rights; the effect of conditions in the
footwear market and the economy in general; and certain other
risks. Forward-looking statements contained in this report and in
subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by cautionary statements in
this paragraph and elsewhere in this Form 10-QSB, in other reports
filed by the Company with the Securities and Exchange Commission
and in the Company's Form 10-KSB for the year ended January 1,
2000, filed with the Securities and Exchange Commission on April
17, 2000, under the caption "Forward-Looking Information: Certain
Cautionary Statements".
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
3.1 Articles of Incorporation of the Company.*
3.2 Bylaws of the Company.*
9
4.1 See Exhibits 3.1 and 3.2 for provisions of the
Articles of Incorporation and Bylaws of the
Company defining the rights of holders of Common
Stock of the Company.
27. Financial Data Schedule
* Filed with the Company's Annual Report on Form 10-KSB, filed
with the Securities and Exchange Commission on April 19, 1999,
and incorporated herein by reference.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
quarter ended April 1, 2000.
10
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
UTOPIA MARKETING, INC.
(Registrant)
Dated: May 15, 2000 BY: /s/ Samuel L. Edelman
----------------------------
Samuel L. Edelman, Chairman
of the Board
Chief Executive Officer
Dated: May 15, 2000 BY: /s/ Vance F. Kistler
-------------------------
Vance F. Kistler, Chief
Financial Officer
11
EXHIBIT INDEX
Exhibit Description
- ------- -----------
27 Financial Data Schedule.
12