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 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)
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 August 15, 2000, there were 15,216,367 shares of Common stock
outstanding.
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UTOPIA MARKETING, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION ----
Item 1 - Financial Statements
Condensed Balance Sheets as of July 1, 2000
(unaudited) and January 1, 2000 2
Condensed Statements of Operations for the three and six
months ended July 1, 2000 (unaudited) and July 3, 1999
(unaudited) 3
Condensed Statements of Cash Flows for the six months
ended July 1, 2000 (unaudited) and July 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 10
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PART I
ITEM 1. FINANCIAL STATEMENTS
UTOPIA MARKETING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
July 1, January 1,
2000 2000
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 50 $ 185
Due from factor, net of allowance......................... 1,059 550
Merchandise inventories................................... 644 1,418
Other current assets...................................... 0 54
---------- ----------
TOTAL CURRENT ASSETS...................................... 1,753 2,207
Property and equipment, net............................... 87 98
Intangible assets......................................... 629 648
---------- ----------
TOTAL ASSETS.............................................. $ 2,469 $ 2,953
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 632 $ 1,716
Accrued expenses.......................................... 366 317
Due to factor............................................. 593 0
---------- ----------
TOTAL CURRENT LIABILITIES.................................... 1,591 2,033
---------- ----------
LONG-TERM OBLIGATIONS........................................ 489 468
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock.............................................. 15 15
Additional paid-in capital................................ 33,147 33,147
Accumulated deficit....................................... (32,773) (32,710)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY................................ 389 452
--------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $ 2,469 $ 2,953
========= ==========
</TABLE>
See Notes to Condensed Financial Statements.
2
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UTOPIA MARKETING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- ------------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---------- ----------- ---------- -----------
(IN THOUSANDS EXCEPT (IN THOUSANDS EXCEPT
PER SHARE DATA) PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue......................................... $ 1,499 $ 233 $ 4,689 $ 233
Cost of sales....................................... 967 135 3,055 138
---------- ---------- ---------- -----------
GROSS PROFIT...................................... 532 98 1,634 95
Selling, general and administrative expenses........ 754 798 1,630 1,337
---------- ---------- ---------- -----------
Operating Income (loss)............................. (222) (700) 4 (1,242)
Interest income/(expense)........................... (40) 14 (68) 34
---------- ---------- ---------- -----------
Income (loss) before income
taxes............................................. (262) (686) (64) (1,208)
Income taxes........................................ 0 0 0 0
---------- ---------- ---------- -----------
NET INCOME (LOSS) $ (262) (686) (64) (1,208)
=========== ========== ========== ===========
NET INCOME (LOSS) PER SHARE $ (0.02) $ (0.05) $ (0.00) (0.08)
========== ========== ========== ===========
Weighted average shares outstanding................. 15,216 14,216 15,216 14,216
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Financial Statements
3
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UTOPIA MARKETING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
JULY 1, JULY 3,
2000 1999
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ ( 64) $ (1,208)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 51 3
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable..................................... (509) (209)
Merchandise inventories................................. 774 (315)
Prepaid expenses........................................ 0 68
Other assets............................................ 54 (1)
Accounts payable, accrued expenses...................... (1,034) 360
---------- ----------
Net cash provided by (used in) operating activities........ (728) (1,302)
---------- ----------
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:
Advances from factor.................................... 593 0
---------- ----------
Net cash (used in) provided by financing activities........ 593 0
---------- ----------
Net (decrease) in cash and cash equivalents................ (135) (1,365)
Cash and cash equivalents:
Beginning of period..................................... 185 1,942
End of period........................................... $ 50 $ 577
========== ==========
</TABLE>
See Notes to Condensed Financial Statements
4
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UTOPIA MARKETING, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX MONTH PERIODS ENDED JULY 1, 2000 AND JULY 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
July 1, 2000 and January 1, 2000 and the results of operations and its cash
flows for the three and six month periods ended July 1, 2000 and July 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 & 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 six-month period ended
July 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
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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
Six months ended July 1, 2000 and July 3, 1999
Revenues. The Company generated net revenues of $4,689,000 through the
sale of its product lines under the brand names NAKEDFEET[TM] and IPANEMA[TM]
during the six months ended July 1, 2000 compared with $233,000 for the same
period ended July 3, 1999. Net revenues increased as a result of a full six
6
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months of shipping and the addition of the IPANEMA product line. Interest
expense for the six-month period ended July 1, 2000 was $68,000 compared with
interest income of $34,000 for the period ended July 3, 1999. Interest
expense for the first six months of 2000 was on various borrowing from the
Company's factor and a $500,000 note due to the Sumitomo Corporation in
connection with the purchase certain IPANEMA assets. Interest income for
the first six months of 1999 was earned as a result of the Company holding
funds in a money market account.
Gross Profit. Gross profit of $1,634,000 for the six months ended
July 1, 2000 includes 360,000 of first-cost commissions. 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $1,630,000 for the six months ended
July 1, 2000 as compared to $1,337,000 for the six months ended July 3, 1999.
Selling, general and administrative expenses for the six months ended July 1,
2000 increased as a result of the addition of the IPANEMA division and
consisted primarily of $374,000 in personnel costs; $329,000 for sales
representatives; $144,000 for travel and entertainment; $235,000 for trade
shows; $163,000 for product development; and $59,000 for professional fees.
Liquidity and Capital Resources
The Company's primary source of liquidity for the first two quarters 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 $593,000 as of July 1, 2000.
The Company has increased its capital expenditures in fiscal year 1999
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 half of 2000.
During the current phase of the Company's operations, the Company's
cash requirements will continue to 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
7
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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.
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
8
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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 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".
9
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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. Current Reports on Form 8-K
There were no reports filed on Form 8-K during the
quarter ended July 1, 2000.
-------------------
* Filed with the Company's Annual Report on Form 10-KSB , filed
with the Securities and Exchange Commission on April 17,
1999, and incorporated herein by reference.
10
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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 15, 1999 BY:/s/Samuel L. Edelman
Samuel L. Edelman, Chairman of
the Board, Chief Executive
Officer
Dated: August 15, 1999 BY:/s/Vance F. Kistler
Vance F. Kistler, Chief Financial
Officer
