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 July 3, 1999
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)
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
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 ___
As of July 23, 1999, there were 14,266,367 shares of Common stock
outstanding.
UTOPIA MARKETING, INC.
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of July 3, 1999
(unaudited) and July 4, 1998 (unaudited) 2
Condensed Statements of Operations for the six months
ended July 3, 1999 (unaudited) and July 4, 1998 (unaudited) 3
Condensed Statements of Cash Flows for the six months
ended July 3, 1999 (unaudited) and July 4, 1998 (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 10
1
PART I
ITEM 1. FINANCIAL STATEMENTS
UTOPIA MARKETING, INC.
BALANCE SHEETS
ASSETS
July 3, January 2,
1999 1999
---------- -----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 577 $ 1,942
Accounts receivable............................................. 209 0
Miscellaneous receivable........................................ 0 0
Merchandise inventories......................................... 315 0
Prepaid expenses................................................ 0 68
------------ -----------
TOTAL CURRENT ASSETS.............................................. 1,101 2,010
Property and equipment, net..................................... 60 0
Other assets.................................................... 1 0
------------ -----------
TOTAL ASSETS................................................ $ 1,162 $ 2,010
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 300 $ 40
Accrued expenses................................................ 146 46
------------ -----------
TOTAL CURRENT LIABILITIES..................................... 446 86
------------ -----------
LONG-TERM OBLIGATIONS............................................. 0 0
------------ -----------
SHAREHOLDERS' EQUITY:
Common stock.................................................... 14 14
Additional paid-in capital...................................... 32,947 32,947
Accumulated deficit............................................. (32,245) (31,037)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY.................................... 716 1,924
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ 1,162 $ 2,010
============ ============
See Notes to Financial Statements.
2
UTOPIA MARKETING, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---------- ----------- ---------- -----------
(IN THOUSANDS EXCEPT (IN THOUSANDS EXCEPT
PER SHARE DATA) PER SHARE DATA)
Net revenue......................................... $ 233 $ 0 $ 233 $ 0
Cost of sales....................................... 135 0 138 0
----------- ----------- ----------- ------------
GROSS PROFIT...................................... 98 0 95 0
Selling, general and administrative expenses........ 798 96 1,337 150
----------- ----------- ----------- ------------
Operating Income (loss)............................. (700) (96) (1,242) (150)
Interest income/(expense)........................... 14 32 34 65
----------- ----------- ----------- ------------
Income (loss) before income
taxes and extraordinary item....................... (686) (64) (1,208) (85)
Income taxes........................................ 0 0 0 0
----------- ----------- ----------- ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ (686) (64) (1,208) (85)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Extraordinary gain, net of Income Taxes $ 0 $ 0 $ 0 0
----------- ----------- ----------- ------------
NET INCOME (LOSS) $ (686) (64) $ (1,208) (85)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
NET INCOME (LOSS) PER SHARE $ (0.05) $ (0.01) $ (0.08) (0.01)
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Weighted average shares outstanding................. 14,216 14,216 14,216 14,216
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See Notes to Financial Statements
3
UTOPIA MARKETING, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
--------------------------
JULY 3, JULY 4,
1999 1998
------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ (1,208) $ (85)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................. 3 0
Deferred compensation expense.................................. 0 0
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable.......................................... (209) 34
Merchandise inventories...................................... (315) 0
Prepaid expenses............................................. 68 0
Other assets................................................. (1) 0
Accounts payable, accrued expenses........................... 360 4
Other current liabilities.................................... 0 0
------------ ------------
Net cash provided by (used in) operating activities.............. (1,302) (47)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (63) 0
------------ ------------
Net cash provided by (used in) investing activities.............. (63) 0
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations............................. 0 0
Proceeds from issuance of common stock, net.................... 0 0
------------ ------------
Net cash (used in) provided by financing activities.............. 0 0
------------ ------------
Net (decrease) in cash and cash equivalents...................... (1,365) (47)
Cash and cash equivalents:
Beginning of period............................................ 1,942 2,389
End of period.................................................. $ 577 $ 2,342
----------- -----------
----------- -----------
See Notes to Financial Statements
4
UTOPIA MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTH PERIODS ENDED JULY 3, 1999 AND JULY 4, 1998
(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
July 3, 1999 and July 4, 1998 and the results of operations and its cash
flows for the six month periods ended July 3, 1999 and July 4, 1998.
Accounting policies followed by the Company are described in Note 1 to
the audited financial statements for the year ended January 2, 1999. As
permitted by the rules and regulations of the Securities & 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 2, 1999.
The results of operations and cash flows for the six month period ended
July 3, 1999 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.
Results of Operations
Six months ended July 3, 1999 and July 4, 1998
Revenues. The Company generated net revenues of $233,000 through the sale
of its new product line under the brand name NAKEDFEET[TM] during the second
quarter ended July 3, 1999. Interest income for the six month periods ended
July 3, 1999 and July 4, 1998 were $34,000 and $65,000, respectively.
Interest income was earned as a result of the Company holding its funds in a
money market account.
Gross Profit. Gross profit of $95,000 for the six months ended July 3,
1999 includes $24,000 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 six months ended July 4, 1998, because the
Company was not selling any products.
6
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,337,000 for the six months ended July
3, 1999 as compared to $150,000 for the six months ended July 4, 1998.
Selling, general and administrative expenses for the six months ended July 3,
1999 consisted primarily of $332,000 in personnel costs; $300,000 for sales
representatives; $128,000 for travel and entertainment; $110,000 in product
development; $94,000 for trade shows; and $73,000 in professional fees
related to the commencement of operations. Selling, general and
administrative expenses for the six months ended July 4, 1998 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 1999 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 as it develops and
commercializes its new line of footwear products.
Liquidity and Capital Resources
The Company's primary source of liquidity for the first two quarters of
1999 was funds held in a money market account. The Company increased capital
expenditures as a result of the Board's decision to develop and commercialize
a line of footwear. The Company purchased computer equipment and software
during the first two quarters of 1999, totaling $63,241.
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
7
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 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.
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 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
8
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 2, 1999, filed with the Securities and Exchange Commission on
April 19, 1999, under the caption "Forward-Looking Information: Certain
Cautionary Statements".
9
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.*
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
b. The Company did not file any reports on Form 8-K during
the quarter ended July 3, 1999:
- -------------------
* 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.
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: August 11, 1999 BY:/s/Samuel L. Edelman
Samuel L. Edelman,
Chairman of the Board
Chief Executive Officer
Dated: August 11, 1999 BY:/s/Vance F. Kistler
Vance F. Kistler, Controller