<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
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 number 0-19616
UTOPIA MARKETING, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3060101
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
58 WEST 40TH STREET, NEW YORK, NEW YORK 10018
(Address of principal executive offices, including zip code)
(212) 944-4830
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 X
------- -------
As of November 1, 1996 there were 13,741,367 shares of Common Stock
outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UTOPIA MARKETING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
_______________________________________________________________________________
SEPTEMBER 28, DECEMBER 30,
1996 1995
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 144 $ 128
Due from factor, less allowance of $700 4,937 --
Accounts receivable, less allowances of $258
and $157 908 2,427
Due from shareholders -- 168
Merchandise inventories 225 5,692
Prepaid expenses 30 212
-------- --------
Total current assets 6,244 8,627
Property and equipment, net 171 581
Other assets 25 267
-------- --------
TOTAL ASSETS $ 6,440 $ 9,475
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to factor $ -- $ 1,684
Accounts payable 1,274 4,985
Accrued expenses 308 967
Other current liabilities -- 2
-------- --------
Total current liabilities 1,582 7,638
-------- --------
LONG-TERM OBLIGATIONS 62 91
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 15 11
Additional paid-in capital 32,883 30,780
Accumulated deficit (28,102) (28,390)
Deferred compensation -- (655)
-------- --------
Total shareholders' equity 4,796 1,746
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,440 $ 9,475
-------- --------
-------- --------
See notes to condensed consolidated financial statements.
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UTOPIA MARKETING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA, UNAUDITED)
_______________________________________________________________________________
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED,
------------------------------ ------------------------------
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenue $ 7,034 $12,688 $24,344 $34,918
Cost of sales 7,010 8,013 20,788 23,550
------- ------- ------- -------
Gross profit 24 4,675 3,556 11,368
Selling, general and
administrative expense (2,720) (3,595) (7,958) (9,094)
Sale of trademark, net 4,100 4,100
------- ------- ------- -------
Operating income (loss)
before extraordinary item,
interest and taxes 1,404 1,080 (302) 2,274
Interest expense (194) (418) (648) (751)
------- ------- ------- -------
Income (loss) before income
taxes and extraordinary item 1,218 662 (950) 662
Income taxes 50 30 50 30
------- ------- ------- -------
Net income (loss) before
extraordinary item $ 1,160 $ 632 $(1,000) $ 1,493
------- ------- ------- -------
------- ------- ------- -------
Extraordinary gain, net of
income taxes 1,288 1,288
------- ------- ------- -------
Net income $ 2,448 $ 632 $ 288 $ 1,493
------- ------- ------- -------
------- ------- ------- -------
Income (loss) per share before
extraordinary income $ .09 $ .06 $ (.07) $ .13
Extraordinary income per share .09 .09
------- ------- ------- -------
Net income per share $ .18 $ .06 $ .02 $ .13
------- ------- ------- -------
------- ------- ------- -------
Weighted average shares
outstanding 13,741 11,386 13,741 11,379
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
UTOPIA MARKETING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 28, 1996 AND JULY 1, 1995
(IN THOUSANDS, UNAUDITED)
_______________________________________________________________________________
NINE MONTHS ENDED,
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 288 $ 1,493
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 244 318
Deferred compensation expense 655 545
Changes in assets and liabilities:
Due from factor, net (6,621) (104)
Accounts receivable 1,519 (351)
Due from shareholder 168 --
Merchandise inventories 5,467 (5,372)
Prepaid expenses 182 353
Other assets 236 --
Accounts payable and accrued expenses (4,370) 2,778
Other current liabilities (2) (18)
------- -------
Net cash used by operating activities (2,234) (358)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net loss on disposal (purchase) of property and
equipment 166 (152)
Refund of other assets 6 --
------- -------
Net cash provided by (used in) investing
activities 172 (152)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term obligations (29) (56)
Proceeds from issuance of common stock, net 2,107 38
------- -------
Net cash provided by (used in) financing
activities 2,078 (18)
------- -------
NET INCREASE (DECREASE) IN CASH 16 (528)
CASH:
Beginning of period 128 683
------- -------
End of period $ 144 $ 155
------- -------
------- -------
See notes to condensed consolidated financial statements.
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<PAGE>
UTOPIA MARKETING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE-MONTH PERIODS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
_______________________________________________________________________________
1. SALE OF TRADEMARK
On July 2, 1996, the Company entered into an agreement with Maxwell Shoe
Company Inc. (the "Purchaser" or "Maxwell") to sell all worldwide rights to
the Company's trademarks, trade names and intellectual property rights free
and clear of all liens, mortgages, encumbrances and security interests for
$5.5 million in cash. In August 1996, the Company received $5.3 million.
The balance of $.2 million is being held in escrow until April 1997. The
Purchaser will not assume any of the Company's liabilities or obligations.
On September 11, 1996 the Company changed its name to Utopia Marketing,
Inc. The Company is undecided as to the nature of its future operations,
however, management is considering various investment alternatives.
2. SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have
been prepared from the records of the Company without audit and, in the
opinion of management, include all adjustments (consisting of normal
recurring accruals) necessary to fairly present the Company's financial
position at September 28, 1996 and the results of its operations and its
cash flows for the nine-month periods ended September 28, 1996 and
September 30, 1995. The condensed consolidated balance sheet as of
December 30, 1995, presented herein, has been prepared from the audited
consolidated balance sheet of the Company.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the year ended December 30,
1995. As permitted by the rules and regulations of the Securities and
Exchange Commission, certain information and footnote disclosures included
in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted for the
purposes of these condensed consolidated interim financial statements. The
condensed consolidated interim financial statements should be read in
conjunction with the audited consolidated financial statements, including
the notes thereto, for the year ended December 30, 1995.
The results of operations for the three- and nine-month periods ended
September 28, 1996 are not necessarily indicative of the results to be
expected for any other period or for the full year.
3 COMPOSITION AND CONVERSION AGREEMENT
At June 26, 1996, the Company had approximately $4.9 million of accounts
payable with two of its major vendors. On that date, the Company entered
into an agreement with those vendors whereby the vendors agreed to forgive
$1.3 million of indebtedness and convert $2.0 million of indebtedness to
2.6 million shares of common stock, $.001 par value, at a conversion debt
purchase price of $.75 per share.
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<PAGE>
The remaining aggregate debt due to these vendors of $1.6 million was paid
in the quarter ended September 28, 1996.
******
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The following discussion of the Company's results of operations for the
three-and nine-month periods ended September 28, 1996 and September 30, 1995
includes the consolidated results of operations of Sam & Libby, Inc. and its
three wholly-owned subsidiaries, Sanders Importacao E. Exportacao Ltda. ("Sam
& Libby Brazil"), Sam & Libby (HK) Limited, ("Sam & Libby Hong Kong"), and
Sam & Libby Outlets, Inc. The Hong Kong subsidiary was liquidated in
connection with the Company's discontinued apparel operation. In the fourth
quarter of 1995, the Company terminated operations in Brazil.
RESULTS OF OPERATIONS
NET REVENUE
Net revenue for the three months and nine months ended September 28, 1996
decreased 45% and 30%, respectively, compared to the same period of last
year. For the three month period, sales declined because of the Company's
sale of its trademarks and the resultant sale of lower priced inventory, as
well as the poor reception of the product line by customers and the inability
to obtain sufficient financing for the production of goods ordered by
customers.
GROSS PROFIT
Gross profit as a percentage of net revenue for the three months ended
September 28, 1996 was 0.3% compared to 36.8% for the same period of 1995.
This steep decline is due to the significant off-price sales incurred by the
Company to reduce its inventory position, additional inventory markdowns to
net realizable value, and the effect of allocating fixed production costs
over a smaller sales base.
These factors caused the gross margin as a percentage of sales for the nine
months ended September 28, 1996 and September 30, 1995, respectively, to
reduce to 14.6% from 32.6%.
SALE OF TRADEMARK
The company has sold all worldwide rights to the Company's trademarks, trade
names and intellectual property rights for $5.5 million. The Company's
current operations are limited to collecting its receivables and selling the
balance of its inventory. Management is considering various investment
alternatives, such as either acquiring a business or commencing a new
business.
In connection with the sale of its trademarks, the Company has recognized
various reserves, expenses and loss on disposal of approximately $1.4 million.
These adjustments include the acceleration of the Deferred Compensation
because of the change of control (as defined) that occurred ($.3 million),
the write-off of the unamortized portion of trademark costs previously
capitalized ($.1 million), loss on assets disposed ($.2 million), additional
warehouse fees ($.2 million), additional professional fees ($.2 million) and
additional bad debt expense ($.4 million).
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expense decreased for the three-
and nine-month periods ended September 28, 1996 and September 30, 1995,
respectively, due to an overall reduction of expense levels, principally the
reduction of payroll expense, partially offset by the additional reserves for
collectibility of certain assets. SG&A as a percentage of sales increased to
38.7% from 28.3% for the three-month period and increased to 32.7% from 26.0%
for the nine month period because the benefit of the overall reduction of
expense levels was limited by the decreased sales base.
INTEREST EXPENSE
Interest expense for the three months and nine months ended September 28,
1996 was $194,000 and $418,000 compared to $648,000 and $751,000 for the same
period of last year. This decrease in interest expense is related primarily
to the payoff of the Company's factor advance with the proceeds of the
Maxwell transaction. This payoff eliminated the Company's factor advance and
consequently significantly reduced interest expense. For the nine month
period, the decrease for the last three months was partially offset by
advances received from the Company's factor to meet working capital
requirements in the first six months. In addition, the Company's borrowing
rate increased due to its overadvance position. Factor advances were
significantly lower throughout the first six months of 1995 as the Company
maintained funds sufficient to meet working capital needs.
EXTRAORDINARY GAIN
During the three months ended September 28, 1996, the Company recognized $1.3
million of extraordinary income for the forgiveness of debt agreed to by two
major vendors in connection with the composition and conversion agreement.
That agreement included the debt forgiveness ($1.3 million) and the
conversion of $2.0 million of indebtedness to 2.6 million shares of common
stock, $.001 par value, at a conversion debt purchase price of $.75 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash for the nine months ended September 28,
1996 was from the sale of inventory and conversion of debt to equity, as well
as the sale of the trademark. This cash was used to decrease payables,
increase the balance due from factor, and increase cash balances.
On May 31, 1996, the Board of Directors authorized the Company to enter into
an agreement with Maxwell Shoe Company Inc. (the "Purchaser" or "Maxwell") to
sell all worldwide rights to Sam & Libby's trademarks, trade names and
intellectual property rights free and clear of all liens, mortgages,
encumbrances and security interests for $5.5 million in cash. The Purchaser
will not assume any of the Company's liabilities or obligations. In August
1996, the Company received $5.3 million. The balance of $.2 million is being
held in escrow until April 1997. In connection with the sale of its
trademark, the Company changed its name to Utopia Marketing, Inc.
At June 26, 1996, the Company had approximately $4.9 million of accounts
payable with two of its vendors. On that date, the Company entered into an
agreement with those vendors whereby the vendors agreed to forgive $1.3
million of indebtedness and to convert $2.0 million of indebtedness to 2.6
million shares of common stock, $.001 par value, at a conversion debt
purchase price of $.75 per share. At June 29, 1996, the Company recorded the
conversion of debt to equity. The remaining aggregate debt due to these
vendors of $1.6 million was paid in August 1996.
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<PAGE>
The Company has not decided on the nature of its future operations subsequent
the sale of its trademark. However, the Company is considering various
investment alternatives, such as either acquiring a business or commencing a
new business. The Company's continued existence is dependent upon its
ability to maintain sufficient liquidity during 1996 to acquire a successful
business or commence a successful new business. Management's plans to
improve its liquidity to have sufficient cash for its various investment
alternatives include: i) reducing inventory levels by sale of existing
inventory, and ii) collection of existing receivables.
The Company believes it can improve its liquidity to have sufficient cash for
a successful investment alternative. Management believes execution of those
steps will provide sufficient liquidity for its to continue as a going
concern in its present form. Accordingly, the consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amount and classification of
liabilities or any other adjustments that might be necessary should the
Company be unable to continue as a going concern in its present form.
However, there can be no assurance that all of these steps, if successfully
completed, can improve the Company's liquidity and that the investment
alternative will be successful.
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<PAGE>
UTOPIA MARKETING, INC.
PART II. OTHER INFORMATION
_______________________________________________________________________________
ITEMS 1 AND 2. NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEMS 4 AND 5. NOT APPLICABLE
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<PAGE>
UTOPIA MARKETING, INC.
SIGNATURES
_______________________________________________________________________________
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereto duly authorized.
UTOPIA MARKETING, INC.
(Registrant)
Date: November 11, 1996 _________________________________________
Kenneth Sitomer
Chief Operating Officer
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-28-1996
<CASH> 144
<SECURITIES> 0
<RECEIVABLES> 6803
<ALLOWANCES> 958
<INVENTORY> 225
<CURRENT-ASSETS> 6244
<PP&E> 1490
<DEPRECIATION> 1319
<TOTAL-ASSETS> 6440
<CURRENT-LIABILITIES> 1582
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 4781
<TOTAL-LIABILITY-AND-EQUITY> 6440
<SALES> 24344
<TOTAL-REVENUES> 24344
<CGS> 20788
<TOTAL-COSTS> 7958
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 648
<INCOME-PRETAX> (950)
<INCOME-TAX> 50
<INCOME-CONTINUING> (1,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,288
<CHANGES> 0
<NET-INCOME> 288
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
