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 October 2, 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 November 12, 1999, there were 15,216,367 shares of Common stock
outstanding.
UTOPIA MARKETING, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheets as of October 2, 1999
(unaudited) and October 3, 1998 (unaudited) 2
Condensed Statements of Operations for the nine months
ended October 2, 1999 (unaudited) and October 3, 1998
(unaudited) 3
Condensed Statements of Cash Flows for the nine months
ended October 2, 1999 (unaudited) and October 3, 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 4 - Submission of Matters to a Vote of Security Holders 9
Item 6 - Exhibits and Reports on Form 8-K 11
1
PART I
ITEM 1. FINANCIAL STATEMENTS
UTOPIA MARKETING, INC.
BALANCE SHEETS
ASSETS
October 2, January 2,
1999 1999
---------- -----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
CURRENT ASSETS:
Cash and cash equivalents......................... $ 124 $ 1,942
Accounts receivable............................... 548 0
Miscellaneous receivable.......................... 0 0
Merchandise inventories........................... 187 0
Prepaid expenses.................................. 0 68
------------ -----------
TOTAL CURRENT ASSETS................................ 859 2,010
Property and equipment, net....................... 57 0
Other assets...................................... 0 0
------------ -----------
TOTAL ASSETS.................................. $ 916 $ 2,010
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 373 $ 40
Accrued expenses.................................. 222 46
------------ -----------
TOTAL CURRENT LIABILITIES..................... 595 86
------------ -----------
LONG-TERM OBLIGATIONS............................... 0 0
------------ -----------
SHAREHOLDERS' EQUITY:
Common stock...................................... 14 14
Additional paid-in capital........................ 32,947 32,947
Accumulated deficit............................... (32,640) (31,037)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY.................... 321 1,924
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $ 916 $ 2,010
============ ============
See Notes to Financial Statements.
2
UTOPIA MARKETING, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- --------------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
---------- ----------- ---------- ------------
(IN THOUSANDS EXCEPT (IN THOUSANDS EXCEPT
PER SHARE DATA) PER SHARE DATA)
Net revenue......................................... $ 1,123 $ 0 $ 1,357 $ 0
Cost of sales....................................... 762 0 900 0
----------- ----------- ----------- ------------
GROSS PROFIT...................................... 361 0 457 0
Selling, general and administrative expenses........ 756 108 2,099 258
----------- ----------- ----------- ------------
Operating Income (loss)............................. (395) (108) (1,642) (258)
Interest income/(expense)........................... 5 31 39 96
----------- ----------- ----------- ------------
Income (loss) before income
taxes and extraordinary item....................... (390) (77) (1,603) (162)
Income taxes........................................ 0 0 0 0
----------- ----------- ----------- ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ (390) (77) (1,603) (162)
=========== =========== =========== ============
Extraordinary gain, net of Income Taxes $ 0 $ 0 $ 0 0
----------- ----------- ----------- ------------
NET INCOME (LOSS) $ (390) (77) $ (1,603) (162)
=========== =========== =========== ============
NET INCOME (LOSS) PER SHARE $ (0.03) $ (0.01) $ (0.11) (0.01)
=========== =========== =========== ============
Weighted average shares outstanding................. 14,229 14,216 14,229 14,216
=========== =========== =========== ============
See Notes to Financial Statements
3
UTOPIA MARKETING, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
---------------------------
OCTOBER 2, OCTOBER 3,
1999 1998
------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss)....................................... $ (1,603) $ (162)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 6 0
Deferred compensation expense........................... 0 0
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable..................................... (548) 29
Merchandise inventories................................. (187) 0
Prepaid expenses........................................ 68 (46)
Other assets............................................ 0 0
Accounts payable, accrued expenses...................... 509 (6)
Other current liabilities............................... 0 0
----------- -----------
Net Cash provided by (used in) operating activities....... (1,755) (185)
----------- -----------
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............... (1,818) (185)
Cash and cash equivalents:
Beginning of period..................................... 1,942 2,389
End of period........................................... $ 124 $ 2,204
========== ==========
See Notes to Financial Statements
4
UTOPIA MARKETING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 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 October 2, 1999 and October 3, 1998 and the results of operations and its
cash flows for the nine month periods ended October 2, 1999 and October 3,
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 nine month period ended
October 2, 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.
NOTE 2 - SUBSEQUENT EVENTS
On October 6, 1999, the Company completed the purchase of certain assets,
including certain trademarks of Ipanema Shoe Corporation, a New York
corporation. The terms of this transaction were reported in a Form 8-K
filed with the Securities and Exchange Commission on October 20, 1999.
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 ?? 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 will assist
in collecting Ipanema's outstanding accounts receivable of
approximately $2,000,000 in exchange for Ipanema's payment to the
Company of 30% of the gross collections of such accounts
receivable. As of November 5, 1999 the Company had received
$325,000 under the Collection Services Agreement.
Results of Operations
Nine months ended October 2, 1999 and October 3, 1998
Revenues. The Company generated net revenues of $1,357,000
through the sale of its new product line under the brand name
NAKEDFEET[TM] during the three quarters ended October 2, 1999.
Interest income for the nine month periods ended October 2, 1999
6
and October 3, 1998 were $39,000 and $96,000, respectively.
Interest income was earned as a result of the Company holding its
funds in a money market account.
Gross Profit. Gross profit of $457,000 for the nine months
ended October 2, 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 nine months ended October 3, 1998, because the Company was
not selling any products.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased to $2,099,000 for
the nine months ended October 2, 1999 as compared to $258,000 for
the nine months ended October 3, 1998. Selling, general and
administrative expenses for the nine months ended October 2, 1999
consisted primarily of $426,000 in personnel costs; $443,000 for
sales representatives; $195,000 for travel and entertainment;
$197,000 in product development; $161,000 for trade shows; and
$122,000 in professional fees. Selling, general and
administrative expenses for the nine months ended October 2, 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 three
quarters of 1999 was funds held in a money market account. The
Company has increased its capital expenditures as a result of the
Board of Directors' decision to develop and commercialize a line
of footwear. The Company purchased computer equipment and
software totaling $63,000 during the first three quarters of
1999.
Beginning in the fourth quarter of 1999, the Company
anticipates that it will incur substantial increased costs as a
result of its acquisition of the Ipanema TM brand name and
business. The Company believes that these costs will be at least
partially offset by the commissions paid to the Company under the
Collection Services Agreement. The Company has an arrangement with
7
Capital Factors, Inc., whereby it can borrow an amount equal to
85% of the Company's accounts receivable and 50% of its inventory.
The Company will accrue interest on all amounts borrowed from
Capital Factors, Inc. at an annual rate of prime plus 1%. As of
October 2, 1999, the Company had not borrowed any funds under the
factoring arrangement.
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 increase cost associated with
the acquisition of the Ipanema TM brand name; the commissions to
be paid to the Company under the Collection Services Agreement
with Ipanema; 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 2, 1999, filed with the Securities and Exchange
Commission on April 19, 1999, under the caption "Forward-Looking
Information: Certain Cautionary Statements".
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 28, 1999, the Company held its 1999 Annual
Meeting of Shareholders in West Palm Beach, Florida. Only holders
of record of the Company's common stock on August 20, 1999 (the
"Record Date") were entitled to vote at the Annual Meeting. As of
the Record Date, there were 14,216,367 shares of common stock
outstanding. The following matters were submitted for a vote by
the shareholders:
9
Proposal 1: To elect six directors of the Company to serve until
the 2000 Annual Meeting of Shareholders and until
their successors have been elected and qualified.
Set forth below is information regarding the election of the directors:
Name For Against Withheld
- ---- --- ------- --------
Louise Edelman 13,754,934 0 32,240
Samuel Edelman 13,754,996 0 32,178
Stuart Kreisler 13,757,086 0 30,088
Bruce Oberfest 13,756,113 0 31,061
Joel Solomon 13,757,113 0 30,061
Robert Wildrick 13,756,375 0 30,799
Proposal 2: To approve the Utopia Marketing, Inc. 1999 Long-Term
Incentive Plan (the "Plan").
Set forth below is information regarding the approval of
the Plan:
Broker Non-
Votes For Against Abstain
- ----------- --- ------- --------
2,277,893 10,088,963 1,406,573 13,745
Proposal 3: To ratify the appointment of Rachlin, Cohen & Holz
LLP as the Company's independent certified public
accountants for the year ending December 31, 1999.
Set forth below is information regarding the ratification of
the appointment of Rachlin, Cohen & Holz LLP:
10
For Against Abstain
--- ------- --------
13,754,591 24,860 7,723
11
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.
10.1 Asset Purchase Agreement, dated as of October 5,
1999, by and among Utopia Marketing, Inc.,
Ipanema Shoe Corporation and Sumitomo Corporation
of America.**
10.2 Subordinated Convertible Promissory Note, dated
October 5, 1999, issued by Utopia Marketing, Inc.
to Ipanema Shoe Corporation.**
10.3 Collection Services Agreement, dated as of
October 5, 1999, between Utopia Marketing, Inc.,
Ipanema Shoe Corporation and Sumitomo Corporation
of America.**
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.
** Filed in a Form 8-K which was filed with the Securities and
Exchange Commission on October 20, 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 October 2, 1999.
12
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: November 16, 1999 BY:/s/Samuel L. Edelman
Samuel L. Edelman, Chairman
of the Board Chief Executive
Officer
Dated: November 16, 1999 BY:/s/Vance F. Kistler
Vance F. Kistler, Controller
13
EXHIBIT INDEX
Exhibit Description
- ------- -----------
27 Financial Data Schedule.