<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                         ------------------------------
 
                                   FORM 10-K
                         ------------------------------
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
 
                                       OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
 
                         COMMISSION FILE NUMBER 0-19616
 
                             UTOPIA MARKETING, INC.
                          (FORMERLY SAM & LIBBY, INC.)
                                  (REGISTRANT)
 
<TABLE>
<S>                                    <C>
              CALIFORNIA                             94-3060101
   (STATE OR OTHER JURISDICTION OF                (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)              IDENTIFICATION NO.)
         212 MOUNT HOLLY ROAD                          10536
          KATONAH, NEW YORK                          (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE
               OFFICES)
</TABLE>
 
                 Registrant's telephone number: (914) 232-2244
 
          Securities registered pursuant to Section 12(b) of the Act:
                                      None
 
          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $0.001 Par Value
                         ------------------------------
 
     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 [X]      No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.            [X]
 
     The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the average of the closing sales price of the Common
Stock on February 23, 1998, as reported by the National Quotation Bureau, LLC,
was approximately $164,000. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded from this computation in that such persons may be deemed to
be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
 
     As of February 27, 1998, the registrant has 14,216,367 shares of Common
Stock outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Parts of the Registrant's Proxy Statement (to be filed) for the Special in
Lieu of Annual Meeting of Shareholders which is expected to be held on June 9,
1998 are incorporated by reference into PART III of this Form 10-K Report.
================================================================================
<PAGE>   2
 
                                     PART I
 
ITEM 1.  BUSINESS
 
     Commencing in May, 1996, when the Company commenced in-depth negotiations
with Maxwell shoe Company, Inc. for the sale of Utopia's trademarks, which would
result in the termination of its then present business, Utopia's management
began to explore new avenues of business for Utopia. The management of Utopia
looked into business combination opportunities in the apparel, industrial,
manufacturing, financial services and scientific fields. Additionally, in the
event that the sale of the trademarks was not successfully concluded, the
Company also explored various business combination opportunities in the footwear
industry. The Company evaluated internally approximately fifty (50) possible
business combinations, all of which were rejected for one or more of the
following reasons: (i) management believed that Utopia's assets would not be
sufficient to allow the merged entities to succeed without additional
substantial dilution to Utopia's shareholders; (ii) Utopia's equity ownership
interest would not be significant; (iii) the expected multiple of earnings for
the merged entities would have diminished the Utopia's value: and/or (iv) the
need for cash required a strategic partner or such heavy debt that the risk of
failure of the merged entities appeared to be an unacceptable risk. None of
these explorations resulted in any business combination talks being completed.
The Company is continuing its search for new ventures.
 
SALE OF TRADEMARK
 
     On July 2, 1996, Utopia Marketing, Inc. (formerly Sam & Libby, Inc.) (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. The Purchaser did not
assume any of the Company's liabilities or obligations. In August 1996, the
Company received cash of $5.3 million. The balance of $0.2 million was received
in April 1997.
 
     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.
 
PRODUCTS
 
     Utopia Marketing, Inc. has sold all of its trademarks, etc. and currently
has no products under development. Prior to the sale of its trademarks, the
Company marketed the following products:
 
     SAM & LIBBY WOMEN'S FOOTWEAR.  The Company offered more than 100 different
styles of women's casual shoes, dress shoes, boots, sandals and espadrilles in a
broad range of colorful and creative designs. SAM & LIBBY brand women's footwear
sold at retail prices ranging from $15 to $60 per pair. The Company introduced
new shoes in each of the four footwear selling seasons-spring, summer, fall and
holiday/resort.
 
     SAM & LIBBY CHILDREN'S FOOTWEAR.  The children's line primarily consisted
of infants and girls footwear. The children's line included both adaptations
from the women's line and stand alone fashion developed exclusively for the
children's line. The line encompassed all aspects of girls and infants footwear
from dress to casual.
 
     The Company introduced a new line of girls' fashion athletic shoes for Fall
1996 delivery.
 
     JUST LIBBY FOOTWEAR.  JUST LIBBY was an upscale women's footwear line with
higher price points than the SAM & LIBBY line and targeted a more sophisticated
fashion-conscious customer. JUST LIBBY brand women's footwear sold at retail
prices ranging from $60 to $100 per pair.
 
     HANDBAGS.  In March 1994, the Company initiated its handbag division. The
product line was directed at two different customer bases. The higher priced
line was marketed under the JUST LIBBY brand, whereas the lower price points
were marketed under the SAM & LIBBY brand. In 1995, the Company discontinued the
division. Revenue for 1995 and 1994 was not significant.
<PAGE>   3
 
     PRIVATE LABEL PRODUCTS.  In connection with its private label business, the
Company arranged for the manufacture of women's and children's footwear for
selected retailers primarily under the retailer's private label. Under this
arrangement, the Company received a fee for providing design expertise, acting
as a sourcing agent for the retailer, managing the manufacturing process,
inspecting the finished goods and arranging the sale of the finished goods by
the manufacturer to the retailer. The retailer paid the manufacturer directly
for the products.
 
     The private label business provided the Company with several competitive
advantages, including the retention of revenues that might otherwise have been
lost due to copying, increased manufacturing volume (which reduced manufacturing
costs of the Company's other footwear products) and the strengthening of
business relationships between the Company and its contract manufacturers. The
private label business provided revenue to the Company without the inventory
risk, warehousing and other carrying costs involved in the sale of its branded
products.
 
     APPAREL.  In the first quarter of 1993, the Company signed an agreement,
effective May 1, 1993, to transfer its apparel division to AMG Apparel Ltd.
("AMG Apparel"), an apparel and licensing company located in Los Angeles. The
Company received no royalty revenue in 1994 and a minimal amount of royalty
revenue in 1993. During 1993, AMG Apparel stopped paying its royalty
obligations.
 
DESIGN AND DEVELOPMENT
 
     The Company no longer designs or develops any products. Prior to the sale
of its trademarks, the design process typically began about nine months before
the start of a season. The major influences upon the process included the design
team's impression of current worldwide lifestyle and clothing trends and shoe
fashions, as well as the history of a particular shoe or fashion style in the
United States. Other factors included the availability of raw materials, the
capabilities of the factories that will manufacture the products and the target
retail cost of the product. The design team traveled extensively in Europe to
discover and confirm the latest fashion trends and subscribed to various fashion
and color information services to keep abreast of trends emerging in the fashion
industry. Senior management was actively involved in the analysis of fashion
trends and the design process for the Company's products.
 
     After the design team arrived at a consensus regarding the fashion themes
for the coming season, the group manufactured designs that translated these
themes into SAM & LIBBY or JUST LIBBY products. These interpretations included
variations in product color, material, structure and decoration. Drawings and
prototypes of the products were sent to the Company's foreign manufacturing
agents, where samples were created. The Company attempted to minimize the risks
relating to changing fashion trends and product acceptance by producing a large
number of styles before each selling season, evaluating trade acceptance before
volume manufacture, and closely monitoring retail sales trends after retail
introduction.
 
MARKETING AND PROMOTION
 
     The Company no longer markets or promotes any products. Prior to the sale
of its trademarks, the Company advertised, marketed and promoted the SAM & LIBBY
brand name through a variety of means, including nationwide print media, product
packaging, in-store visual support and other point-of-sale materials. The
Company's in-house advertising department oversaw the conception, development
and implementation of most aspects of the packaging, advertising, marketing and
sales promotion for the Company's products. Senior management was directly
involved in shaping the Company's image and its advertising and promotional
activities.
 
     The Company marketed its products in approximately 2,000 retail locations
in the United States through a broad network of department and specialty retail
stores. Certain of the Company's high volume accounts feature "shop-in-shop"
formats in which floor space was dedicated exclusively to SAM & LIBBY products.
The Company's ten largest customers represented approximately 50% and 49% of
gross sales in 1996 and 1995, respectively. In 1995 Kinney Corporation (a
division of Woolworth) accounted for approximately 11% of gross sales. In
addition, certain of the Company's former customers are under common ownership.
During 1996 and 1995, the department store groups owned by the Federated
Department Stores Company
                                        2
<PAGE>   4
 
("Federated"), as a group, accounted for approximately 9% and 11% of the
Company's gross revenues. No single department store unit of either group
accounted for more than 6% and 3% of gross sales in 1996 and 1995, respectively.
While the Company believes that purchasing decisions were made independently by
each department store unit (including stores that are part of the May and
Federated groups), in some cases the trend may have been towards more
centralized purchasing decisions.
 
     During 1993, the Company changed from a sales force primarily composed of
Company employees to a sales force primarily composed of independent sales
representatives whose compensation was based upon commissions earned. Senior
management was actively involved in selling to major accounts. Sales to foreign
customers were nominal.
 
     The Company opened one outlet store in Vacaville, California in September
1991. This store was located in a factory outlet shopping mall to avoid
substantial competition with the Company's major retailing customers and sold
factory seconds as well as excess stock merchandise. This store was closed in
June 1996.
 
     In July 1992, the Company opened one retail footwear store in the Beverly
Center mall in Beverly Hills, California. This store enabled the Company to
display substantially all of its footwear offerings in one retail location as
well as test market new footwear styles. This store was also closed in June
1996.
 
     In connection with the closing of the retail stores, the Company incurred
certain expenses for the year ended December 31, 1996, representing principally
the write-off of property assets no longer being used.
 
MANUFACTURING
 
     The Company no longer manufactures any products. From inception to July 2,
1996 (the date the Company sold its trademarks), the Company's footwear products
were manufactured to its specifications by independent contractors located in
Brazil, Taiwan, the People's Republic of China ("China"), Spain and Italy. In
1996, most of the Company's leather footwear was manufactured in Brazil and most
of its canvas and synthetic footwear was manufactured in Taiwan and China. The
percentage of footwear products manufactured in each country varies from time to
time depending on the particular material emphasized in the Company's product
lines from season to season. The 1994 change in the Brazilian currency, which is
no longer considered inflationary and has lost some of its competitive pricing,
created additional opportunities in the Far East, which in 1996 was the primary
source for the Company's footwear.
 
     The Company sought to develop long-term relationships with factories that
met the Company's requirements for quality, volume and price. In most cases, the
Company attempted to have one line within each factory dedicated solely to the
manufacture of the Company's products in order to improve productivity on the
line and simplify quality control procedures.
 
     Sanders-Importacao E Exportacao Ltd. ("Sam & Libby Brazil"), the Company's
wholly-owned subsidiary and exclusive agent in Brazil, produced prototypes of
new footwear styles, placed orders with Brazilian factories, monitored
manufacturing quality on a daily basis, inspected finished goods and coordinated
shipment of finished goods to the United States. In the last quarter of 1995,
the Company sold the building and closed its Brazilian office operation. Sam &
Libby used independent agents in the Far East to perform similar services for
the Company.
 
IMPORTS AND IMPORT RESTRICTIONS
 
     The Company no longer imports any products. In 1996, substantially all of
the Company's products were manufactured in Brazil, Taiwan, China, Italy and
Hong Kong. Although the Company had no long-term manufacturing agreements with
its producers and competed with other companies for production facilities
(including companies that are much larger than the Company), management believed
that the Company's relationships with its footwear producers were satisfactory
and that it had the ability to develop, over time, alternative sources in
various countries for the footwear obtained from its current producers.
 
                                        3
<PAGE>   5
 
     The Company's arrangements with its manufacturers and suppliers were
subject to the usual risks of doing business abroad, including revaluation of
currencies, export duties, import controls and trade barriers, tariffs, quotas,
restrictions on the transfer of funds and, in certain parts of the world,
political instability. The Company's products were also subject to United States
customs duties. United States customs duties at the time the Company ceased
importing products were 10% of factory cost on footwear made principally of
leather, 6% of factory cost on synthetic footwear and up to 48% of factory cost
on canvas and fabric shoes.
 
DISTRIBUTION
 
     The Company no longer distributes any products.
 
     The Company had a contract (the "RML Agreement") with RML Limited ("RML"),
an independent warehouse facility located in Harrisburg, Pennsylvania pursuant
to which RML provides the Company with warehouse, distribution, inspection and
other services for a fee based upon gross shipping dollars, which is calculated
on a declining percentage as various sales plateaus are achieved. The agreement
expired by its term in April 1995 but was renewed until February 1997. The
renewed agreement expired in February 1997.
 
BACKLOG
 
     At the end of 1997, the Company had no unfilled customer orders.
 
EMPLOYEES
 
     As of January 3, 1998, the Company had no full-time employees.
 
ITEM 2.  PROPERTIES
 
     The company currently occupies temporary space at 212 Mount Holly Road,
Katonah, New York 10536.
 
     The company terminated the lease on its Corporate office space at 58 West
40th on June 30, 1997. In 1996, the Company cancelled its lease for
approximately 1,200 square feet in a showroom in Dallas. The Company forfeited
its security deposit in connection with the cancellation of this lease. The
Company had two lease agreements for terms not exceeding five years for an
outlet store in Vacaville, California (approximately 2,200 square feet) and a
full price retail footwear store located in Beverly Hills, California
(approximately 1,000 square feet). During 1996 these leaseholds were canceled.
Sam & Libby Brazil sold the office building in Novo Hamburgo, Brazil during the
fourth quarter of 1995. The Company currently rents, on a month-to-month basis,
space at a commercial warehouse facility for the storage of Utopia's business
records.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     An action entitled Paul F. Ostrynski, et al. V. Sam Edelman, et al. Was
commenced in or about March 1997 In the U.S. District Court, Southern District
of Florida, Miami Division, Case No. 97-0531, alleging that the defendants Sam
Edelman, Ralph Braha, Braha Industries Inc. and Utopia Marketing, Inc. failed to
pay for goods ordered, and expenses related thereto, demanding money damages of
$770,202.78. Each of the defendants moved to dismiss the Complaint and, while
such motions were pending, in or about September 1997, a Stipulation of
Settlement was signed by the parties, pursuant to which Utopia paid $27,000 and
Braha Industries, Inc. paid $15,000 for an aggregate settlement of $42,000 to
the plaintiff.
 
     On April 27, 1992, a class action lawsuit was filed against the Company and
certain of its directors and officers and the managing underwriters of the
Company's initial public offering for alleged violations of federal securities
laws and state common law. The complaint sought unspecified actual and punitive
damages, costs and attorney's fees on behalf of purchasers of the Company's
Common Stock during the period from December 4, 1991 through April 24, 1992.
Similar follow-on suits, containing virtually identical allegations, were filed
by six other plaintiffs. The district court ordered consolidation of all of the
complaints into one class action.
 
                                        4
<PAGE>   6
 
     On August 1, 1994, the district court entered final judgment approving the
settlement and dismissing the lawsuit. Under the terms of the settlement, the
claims against the Company and other defendants were dismissed without any
admission or presumption of liability or wrongdoing. A settlement fund
consisting of $6.25 million in cash and 595,000 shares of the Company's Common
Stock was established. The Company contributed $2.15 million in cash into the
fund in March 1994 and the Company's director's and officer's liability
insurance carrier contributed $4.1 million into the fund in August 1994. In
October 1995 the Company contributed the 595,000 shares of Common Stock into the
fund and the escrow agent distributed the shares to the claimants.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     Not applicable
 
                                        5
<PAGE>   7
 
                                    PART II
 
ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
         MATTERS
 
     Prior to the sale of its trademarks, the Company's Common Stock was traded
on the Nasdaq National Market under the symbol "SAML". On September 11, 1996,
the Company changed its name to Utopia Marketing, Inc. Its stock is traded
over-the-counter under the symbol "UTPM." The Company's Common Stock has been
sporadically trading in the over-the-counter market.
 
     The following table sets forth the high and low closing sales prices of the
Company's Common Stock for the years ended January 3, 1998 ("1997") and December
28, 1996 ("1996"), as reported by the Nasdaq National Market for the period that
the Company's Common Stock was traded on Nasdaq and the high and low sales
prices as reported by the National Quotation Bureau, LLC for the period that the
Company's Common Stock has been trading in the over-the-counter market (no high
and low bid quotations were available to registrant from the aforesaid quotation
service).
 
<TABLE>
<CAPTION>
                                                              HIGH    LOW
                                                              ----    ---
<S>                                                           <C>     <C>
1996
First Quarter...............................................  1 5/8    3/4
Second Quarter..............................................  2 1/16   1/4
Third Quarter...............................................   7/8     1/8
Fourth Quarter..............................................  5/16    .05
1997
First Quarter...............................................  3/16    .02
Second Quarter..............................................   1/4    .05
Third Quarter...............................................   1/4    .01
Fourth Quarter..............................................   1/4    .01
</TABLE>
 
     As of February 27, 1998, the Company had 1,075 shareholders of record. The
Company has no shares of any other class of capital stock outstanding other than
its Common Stock. The Company has not paid any cash dividends on its Common
Stock since its inception, other than distributions to Samuel L. Edelman, Louise
B. Edelman and Stuart L. Kreisler (the "Principal Shareholders") during the
period that the Company was an S Corporation and in connection with the
termination of the Company's status as an S Corporation. The Company currently
anticipates that any future earnings will be retained for development of its
business and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future.
 
                                        6
<PAGE>   8
 
ITEM 6.  SELECTED FINANCIAL DATA
 
     The selected financial data set forth below for the years ended January 1,
1994, December 31, 1994, December 30, 1995, December 28, 1996 and January 3,
1998 has been derived from the Company's Consolidated Financial Statements, and
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and with Management's Discussion and Analysis of
Financial Condition and Results of Operations. See Notes 1, 12 and 13 of Notes
to Consolidated Financial Statements regarding change in fiscal year,
discontinued operations and extraordinary gain, respectively.
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                         --------------------------------------------------------------------
                                         JANUARY 3,   DECEMBER 28,   DECEMBER 30,   DECEMBER 31,   JANUARY 1,
                                            1998          1996           1995           1994          1994
                                         ----------   ------------   ------------   ------------   ----------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                      <C>          <C>            <C>            <C>            <C>
INCOME STATEMENT DATA:
Net revenue............................   $   129       $23,637        $38,755        $36,540       $ 33,217
Gross profit...........................        71         2,771          9,269          7,654          3,132
Net loss from continuing Operations....      (786)       (2,675)        (3,773)        (3,789)       (16,174)
Net loss from discontinued Operations
  including applicable tax effect......                                                                 (648)
Extraordinary gain.....................                   1,288
                                          -------       -------        -------        -------       --------
Net loss...............................   ($  786)      ($1,387)       ($3,773)       ($3,789)      ($16,822)
                                          =======       =======        =======        =======       ========
Net loss per share from Continuing
  operations...........................   ($ 0.06)      ($ 0.22)       ($ 0.35)       ($ 0.35)      ($  1.60)
Net loss per share from Discontinued
  operations...........................                                                                (0.06)
Extraordinary income per share.........                    0.11
                                          -------       -------        -------        -------       --------
Net loss per share.....................   ($ 0.06)      ($ 0.11)       ($ 0.35)       ($ 0.35)      ($  1.66)
                                          =======       =======        =======        =======       ========
Weighted average shares Outstanding....    13,866        12,136         10,878         10,800         10,163
                                          =======       =======        =======        =======       ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................   $ 2,373       $ 3,162        $   989        $ 3,391       $  6,558
Total assets...........................     2,428         3,344          9,475          7,849         14,836
Long-term obligations..................         0             7             91             99            195
Shareholders' equity...................     2,373         3,180          1,746          5,019          8,454
Shareholders' equity per share.........      0.17          0.23           0.16           0.46           0.78
</TABLE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
GENERAL
 
     The following discussion of the Company's consolidated results of
operations for the years ended January 3, 1998, December 28, 1996, and December
30, 1995 includes the results of operations of Sam & Libby Brazil, Sam & Libby
Hong Kong and Sam & Libby Outlets, Inc. ("Sam & Libby Outlets"), wholly-owned
subsidiaries of the Company.
 
Sale of Trademark
 
     On July 2, 1996, the Company entered into an agreement (the "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 was received in April 1997.
The Purchaser did not assume any of the Company's liabilities or obligations.
 
                                        7
<PAGE>   9
 
RESULTS OF OPERATIONS
 
Net Revenue
 
     The Company's net revenue for 1997 consisted primarily of selling off the
remaining inventory. Due to this low sales volume net revenue decreased by
approximately 99% from 1996. (See the Company's December 28, 1996 financial
statements for a discussion of the sale of all the Company's trademarks to
Maxwell Shoe Company, Inc. in July 1996).
 
     Net revenue for 1996 decreased approximately 36% from 1995. Under the terms
of the Agreement, the Company was precluded from designing, selling or producing
any products using the name SAM & LIBBY and associated trademarks, trade names,
etc. other than products in production or in inventory as of July 2, 1996 (date
of agreement).
 
     In attempting to collect the amounts due to the Company, the Company was
forced to grant greater than normal markdowns. Also, due to the time pressures
imposed by the Agreement, the Company sold the remaining inventory at close-out
prices.
 
     Net revenue for 1995 increased approximately 6% from 1994. Before returns
and allowances, sales actually were higher by approximately 9% but significant
returns and allowances especially in the fourth quarter of 1995 negatively
impacted the net sales line for 1995. One of the reasons for the excessive
returns in the fourth quarter of 1995 was related to quality problems for
certain styles of Fall 1995 shoes.
 
     In an attempt to remedy the traditional low sales volume in the 1995 fourth
quarter, the Company planned a fourth quarter business based on a suede sneaker
program which would be a natural evolution of its strong canvas sneaker program
during the preceding nine months. The very soft retail market for back-to-school
reduced the department stores' ability to buy fourth quarter merchandise which
resulted in a poor selling fourth quarter and a higher than anticipated
inventory level (see Gross Profit discussion). Further adversely impacting net
revenue were additional markdowns in the fourth quarter given to customers
because of the weak sales at retail during for the fall selling season.
 
     Net revenue for 1994 increased approximately 10.0% from 1993. Sales of
branded footwear increased 14.7% while private label commission revenue
decreased 82.6%. The increase in sales of branded footwear is principally
attributable to increased sales of units closer to the list price of SAM & LIBBY
brand women's and children's footwear due to better end customer acceptance of
the Company's products and decreased returns and customer allowances. The
reduction in private label revenue was a result of management's decision to
focus its energies towards the branded label business.
 
     Despite the improved performance of 1994 compared to 1993, fourth quarter
1994 revenue was negatively affected by the Company's decision to not design and
produce a holiday/resort line of shoes, additional customer allowances given in
the fourth quarter of 1994 as well as the decision by the Company to curtail
buying inventory without significant customer orders. In addition, the loss of
fourth quarter revenue reflected the continued weak economic and retailing
environment and competitive pressures.
 
Gross Profit
 
     Gross profit as a percentage of net revenue ("Profit Margin") declined to
11.7% in 1996 from 23.9% in 1995.
 
     The same causes that impacted net revenue affected the gross profit,
namely, higher than normal markdown allowances and disposal of inventory at
close-out prices due to the sale of the SAM & LIBBY trademarks (see Net Revenue
discussion).
 
     The Profit Margin improved to 23.9% in 1995 from 20.9% in 1994. Profit
margin before customer allowances and markdowns improved approximately 6% from
1994 since the Company was able to sell more of its merchandise closer to the
list price. Negatively impacting the Profit Margin were additional allowances
given to customers as well as higher inventory markdowns necessitated by the
excessive level of Fall 1995
 
                                        8
<PAGE>   10
 
inventory as stated above. The effect of customer allowances as well as
inventory markdown was especially affected in the fourth quarter of 1995 which
resulted in a negative gross margin for the reasons stated.
 
     The Profit Margin improved to 20.9% in 1994 from 9.4% in 1993. The increase
is principally a result of the factors mentioned above (reduced allowances and a
greater proportion of units sold closer to the list price) combined with lower
1994 inventory reserves which are a function of a reduced level of prior season
inventory. In addition, during the third quarter of 1994, the Company recovered
approximately $500,000 of chargebacks (net of expenses) fully reserved in prior
periods. The negative profit margin in the fourth quarter of 1994 is a function
of the items mentioned above. The decline in private label revenue negatively
affected the Profit Margin in 1994 when compared to 1993.
 
Selling, General and Administrative Expenses
 
     Selling general and administrative expenses ("SG&A") as a percentage of net
revenues increased from 37.1% in 1996 to approximately 750% in 1997 due to the
minimal sales volume and the continuing contractual obligations and other fixed
expenses. These contractual obligations had substantially been completed by the
third quarter of 1997.
 
     Selling general and administrative expenses ("SG&A") increased as a
percentage of net revenues from 29.8% in 1995 to 37.1% in 1996. The percent
increase was the result of the substantial decrease in net revenue discussed
above. The expenses decreased from $11,539,000 in 1995 to $8,773,000 in 1996 and
decreased again in 1997 to $966,000. The decrease in expenses was the result of
the Company's ending of its design, production and sales efforts, all as a
result of the sales of its trademark, partially offset by certain termination
expenses.
 
     SG&A as a percentage of net revenue slightly increased from $10,978,000
(30.0% of net revenues) in 1994 to $11,539,000 (29.8% of net revenues) in 1995.
The increase is principally a result of additional advertising expenses in 1995.
 
     SG&A as a percentage of net revenue decreased from $13,946,000 (42.0% of
net revenues) in 1993 to $10,978,000 (30.0% of net revenues) in 1994. The
reduction in both percentage and absolute dollars is principally due to
reductions in advertising, staffing, commissions and overall administrative
expense control.
 
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 approximately
$1.3 million of indebtedness and convert approximately $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. The forgiveness of the debt is
shown as an extraordinary item in the accompanying consolidated statement of
operations.
 
Settlement of Shareholder Lawsuit
 
     On April 27, 1992, a class action lawsuit was filed against the Company and
certain of its directors and officers and the managing underwriters of the
Company's initial public offering for alleged violations of federal securities
laws and state common law. The complaint sought unspecified actual and punitive
damages, costs and attorney's fees on behalf of purchasers of the Company's
Common Stock during the period from December 4, 1991 to April 24, 1992. Similar
follow-on suits, containing virtually identical allegations, were filed by six
other plaintiffs. The district court ordered consolidation of the complaints
into one class action lawsuit.
 
     On August 1, 1994, the district court entered final judgment approving the
settlement and dismissing the lawsuit. Under the terms of the settlement, the
claims against the Company and other defendants were dismissed without any
admission or presumption of liability or wrongdoing. A settlement fund
consisting of $6.25 million in cash and 595,000 shares of the Company's Common
Stock was established. The Company contributed $2.15 million in cash into the
fund in March 1994 and the Company's director's and officer's liability
insurance carrier contributed $4.1 million into the fund in August 1994. In
October 1995 the
                                        9
<PAGE>   11
 
Company contributed the 595,000 shares of Common Stock into the fund and the
escrow agent distributed the shares to the claimants.
 
RML Agreement
 
     The Company had a contract (the "RML Agreement") with RML Limited ("RML"),
an independent warehouse facility located in Harrisburg, Pennsylvania pursuant
to which RML provided the Company with warehouse, distribution, inspection and
other services for a fee based upon gross shipping dollars, which was calculated
on a declining percentage as various sales plateaus were achieved. The agreement
expired by its term in April 1995 but was renewed until February 1997. The RML
Agreement terminated on February 28, 1997.
 
Interest Revenue/Expense
 
     Interest revenue for 1997 was revenue associated with the interest earned
from amounts due from the factor. The amount due from the factor at January 3,
1998 was $2,389,270 included in the balance sheet caption "Cash and cash
equivalents".
 
     In 1997 net interest income increased from a net interest expense in 1996
of $641,000 to a net interest income of $109,000.
 
     Interest expense decreased from $1,045,000 in 1995 to $641,000 in 1996.
Interest expense increased from $500,000 in 1994 to $1,045,000 in 1995.
 
     The decrease from 1995 to 1996 was the result of the receipt of $5.3
million in August 1996 on account of the sale of the trademarks, discussed
above. Subsequent to the sale of the trademarks, the requirements for cash
advances and overadvances from its factor against unmatured factored receivables
decreased. The increase from 1994 to 1995 was the result of increasing needs of
cash advances from its factor. Conversely, the decrease in interest expense
observed in 1996 is principally the reflection of positive cash positions with
the Factor during the last quarter of 1996.
 
Other Expense
 
     In the fourth quarter of 1995, management made the decision to close the
Company's operations in Brazil, as the Company's buying strategy shifted from
Brazil to China. As a result, the Company took a charge of $427,000 for closing
the operations.
 
     Other expense in 1995 includes the loss in the sale of the building in
Brazil and certain expenses related to the liquidation of the Company's Hong
Kong subsidiary.
 
Liquidity and Capital Resources
 
     In June 1996, two major creditors of the Company were owed approximately
$4,900,000. Such creditors agreed to restructure the debt by forgiving
approximately $1,288,000 (reflected as an extraordinary item on the accompanying
consolidated statement of operations), the acceptance of 2,698,000 shares of the
Company's common stock valued at $.75 a share ($2,027,000). The balance of the
debt (approximately $1,600,000) was paid in August 1996.
 
     During 1996, the Company experienced continuing losses from operations. The
ability to fund its operating losses and cash required for operations was
uncertain. An opportunity to sell its trademarks to Maxwell Shoe Co. Inc. for a
total of $5,500,000 plus certain other expenses was offered in conjunction with
the restructuring of its debt to two major creditors. The Company accepted the
offer in July 1996 and ceased designing, producing and selling of its product
under the terms of such agreement.
 
     During 1995, the Company was able to fund its operating losses and cash
used in operations through advances from its factor based on the collateral
borrowing formula as well as an overadvance line. In order for the Company to
avail itself of this overadvance line, a principal shareholder and executive
officer of the
 
                                       10
<PAGE>   12
 
Company, executed a personal guarantee up to $500,000 of the overadvance
facility in the form of collateral assigned to the factor. In January 1997 the
collateral was returned.
 
     During 1996, the Company was able to repay its overadvance facility with
the factor as a result of the normal collection process of factored receivables
and the sale of the trademarks discussed above.
 
     The Company also had a letter of credit agreement from its factor. Letter
of credit financing, which reduces the advance availability under the borrowing
base formula, was insignificant in 1996 and in 1995. There were no outstanding
letters of credit on December 28, 1996, and at January 3, 1998.
 
     The Company's business does not require significant capital expenditures.
There were no capital expenditures for 1996, nor in the year ended January 3,
1998.
 
     Other than those incurred in seeking new business opportunities, the main
activities of the Company since July 1996 have been the collecting of the amount
due to the Company or its factor and the sale of the merchandise inventory under
the terms of the agreement with Maxwell. As of September 26, 1997 these
activities were substantially complete.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
     The Registrant believes that it falls within the scope of the definition of
a Small Business Issuer and therefore is exempt from the requirements of this
Item 7A, even though for the fiscal year ended January 3, 1998, it did not file
on forms designated as small business issuers forms.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The Company's consolidated financial statements as of January 3, 1998 and
December 28, 1996 and for each of the three years in the period ended January 3,
1998 are included in this report as listed on the Index to Financial Statements
appearing in Item 14.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
     On March 26, 1998 Registrant filed a Current Report on Form 8-K, regarding
a change in Registrant's Certifying Accountant. The information regarding the
change from such Current Report on Form 8-K is set forth below:
 
"ITEM 4.  CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
 
     Registrant hereby reports the termination of Deloitte & Touche, LLP, its
certifying accountant, as a cost saving measure because of the reduction of its
business activities and the hiring of Michael, Adest & Blumenkrantz, with
offices at 7 Penn Plaza, Room 316, New York, New York 10001
 
1.   Deloitte & Touche, LLP has been terminated and the Registrant has engaged
     Michael, Adest & Blumenkrantz on March 20, 1998 to perform an audit of the
     Registrant for its fiscal year ended January 3, 1998.
 
2.   Deloitte & Touche, LLP's report on the financial statements of the
     Registrant for the fiscal year ended December 28, 1996 did not contain an
     adverse opinion or a disclaimer of opinion, nor was it qualified or
     modified as to uncertainty, audit scope, or accounting principles and the
     report on the financial statements of the Registrant for the fiscal year
     ended December 30, 1995, was qualified as to the substantial doubt about
     the Registrant's ability to continue as a going concern.
 
3.   The decision to change accountants was approved by Registrant's Board of
     Directors.
 
4.   During the Registrant's fiscal years ended December 30, 1995, December 28,
     1996 and January 3, 1998, and during the period January 4, 1998 through
     March 20, 1998, there were no disagreements between Registrant and its
     former accountant on any matter of accounting principles or practices,
     financial statement disclosure or auditing scope or procedure that if not
     resolved to the satisfaction of the former
 
                                       11
<PAGE>   13
 
     accountant would have caused the former accountant to refer to the subject
     matter of the disagreement in connection with the report.
 
5.   During the Registrant's fiscal years ended December 30, 1995, December 28,
     1996 and January 3, 1998, and during the period January 4, 1998 through
     March 20, 1998:
 
     (i)   The accountant did not advise Registrant of the lack of internal
           controls necessary to develop reliable financial statements;
 
     (ii)  The accountant did not advise Registrant that it could no longer rely
           on representations of Registrant's management or that it was
           unwilling to be associated with the financial statements prepared by
           Registrant's management;
 
     (iii) The accountant did not advise Registrant of the need to significantly
           expand the scope of its audit or of the existence of information that
           if further investigated could materially impact the fairness or
           reliability of audited reports or financial statements or cause the
           accountant to be unable to rely on management's representation; and
 
     (iv) The accountant did not advise Registrant of information that, in the
          opinion of the accountant, materially impacted the fairness or
          reliability or a previously issued audit report or underlying
          financial statement.
 
     Registrant, Utopia Marketing, Inc. hereby reports the engagement of a new
accountant, Michael, Adest & Blumenkrantz. The below information is provided
pursuant to Item 304(a) of Regulation S-K, Section 229.304(a).
 
1.   Michael, Adest & Blumenkrantz was engaged by Registrant on March 20, 1998.
 
2.   During the fiscal years ended December 30, 1995, December 28, 1996 and
     January 3, 1998, and during the period January 4, 1998 to the date of
     engagement of Michael, Adest & Blumenkrantz, Registrant did not consult the
     new firm of Michael, Adest & Blumenkrantz regarding (i) the application of
     accounting principles to a specified transaction, either completed or
     proposed; (ii) the type of audit opinion that might be rendered on
     Registrant's financial statements; or (iii) any matter that was the subject
     of a disagreement with Registrant's former accountant as defined in
     304(a)(l)(iv) of Regulation S-K or any other matter that was a reportable
     event as defined in 304(a)(l)(v) of Regulation S-K.
 
ITEM 7.  EXHIBITS.
 
     A letter from Deloitte & Touche, LLP addressed to the Securities Exchange
Commission, shall be filed by an amendment to this Current Report on Form 8-K."
 
     The letter from Deloitte & Touche, LLP to the Securities Exchange
Commission referred to in the preceding paragraph, also appears as Exhibit 16.1
to this Annual Report on Form 10-K.
 
                                       12
<PAGE>   14
 
                                    PART III
 
     Certain information required by Part III is incorporated by reference to
the registrant's definitive proxy statement that will be filed pursuant to
Regulation 14A (the "Proxy Statement") no later than 120 days after the end of
the fiscal year covered by this report.
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information concerning the Company's directors required by this Item is
incorporated by reference to the Proxy Statement (to be filed) under the caption
"Election of Directors -- Nominees."
 
     The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, and their ages as of January 3, 1998, are
as follows:
 
<TABLE>
<CAPTION>
                                                                                            OFFICER
          NAME            AGE                           POSITION                             SINCE
------------------------  ---    -------------------------------------------------------    -------
<S>                       <C>    <C>                                                        <C>
                                 Chairman of the Board, President and Chief Executive
Samuel L. Edelman.......   46    Officer                                                       1987
                                 Executive Vice President, Corporate Development and
Louise B. Edelman.......   44    Secretary..............................................       1987
</TABLE>
 
     Samuel L. (Sam) Edelman co-founded the Company with his wife, Louise B.
Edelman, in October 1987. Since the Company's inception, Mr. Edelman has served
as the Chairman of the Board, President and Chief Executive Officer. From April
1983 to July 1987, Mr. Edelman served as the President of the Esprit Footwear
Division of Esprit De Corp., an apparel and footwear company ("Esprit"). Prior
to April 1983, Mr. Edelman occupied various executive positions, including
Executive Vice President of Kenneth Cole Productions, a footwear company.
 
     Louise B. (Libby) Edelman, a co-founder of the Company, served as Senior
Vice President -- Image from the Company's founding until the second quarter of
1992. At the time, Ms. Edelman was promoted to Executive Vice President --
Corporate Development. In 1997 Ms. Edelman was elected to the additional office
of Secretary of the Company. Prior to October 1987, Ms. Edelman held various
positions, including National Sales Manager for Esprit Kids Shoes, Director of
Public Relations for Calvin Klein Ltd., a fashion company, and Senior Fashion
Editor of Seventeen, Mademoiselle and Harper's Bazaar magazines. Ms. Edelman has
served as a Director of the Company since its founding.
 
     With the exception of Sam Edelman and Libby Edelman, who are married to
each other, there is no family relationship among directors or executive
officers of the Company.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
SUMMARY COMPENSATION
 
     The information required by this item is incorporated by reference to the
proxy statement (to be filed) under the caption "Executive Compensation."
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this item is incorporated by reference to the
proxy statement (to be filed) under the caption "Security Ownership of Certain
Beneficial Owners and Management".
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this item is incorporated by reference to the
proxy statement (to be filed) under the caption "Certain Relationships and
Related Transactions".
 
                                       13
<PAGE>   15
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(a) The following documents are filed as a part of this Report:
 
     1.   Financial Statements.  The following Consolidated Financial Statements
          of the Company and Independent Auditors' Report are filed as a part of
          this Report:
 
<TABLE>
<CAPTION>
                                                                 PAGE
                                                                 ----
<S>                                                           <C>
Independent Auditors' Report................................          F-1
Consolidated Balance Sheets -- January 3, 1998 and December
  28, 1996..................................................          F-2
Consolidated Statements of Operations -- Years Ended January
  3, 1998, December 28, 1996 and December 30, 1995..........          F-3
Consolidated Statements of Shareholders' Equity -- Years
  Ended January 3, 1998, December 28, 1996 and December 30,
  1995......................................................          F-4
Consolidated Statements of Cash Flows -- Years Ended January
  3, 1998, December 28, 1996 and December 30, 1995..........          F-5
Notes to Consolidated Financial Statements..................  F-6 to F-12
</TABLE>
 
     2.   Financial Statement Schedules.  The following financial statement
          schedules of the Company for the years ended January 3, 1998, December
          28, 1996 and December 30, 1995 are filed as part of this Report and
          should be read in conjunction with the Consolidated Financial
          Statements of the Company and Notes thereto:
 
<TABLE>
<CAPTION>
                                                                 PAGE
                                                                 ----
<S>                                                           <C>
Schedule II -- Valuation and Qualifying Accounts............          S-1
</TABLE>
 
     Schedules other than those listed above have been omitted because they are
not applicable, not required, or the required information has been given in the
Consolidated Financial Statements of the Company and Notes thereto.
 
     3.   Exhibits.  The following Exhibits are filed as part of, or
          incorporated by reference into, this Report:
 
<TABLE>
    <S>            <C>
          3.1      Restated Articles of Incorporation.(1)
          3.2      Restated Bylaws.(1)
          4.1      Article III of Restated Articles of Incorporation (see
                   Exhibit 3.1).(1)
          4.2      Form of Common Stock Certificate.(1)
         10.1      1991 Stock Plan and forms of Incentive Stock Option
                   agreement and Nonstatutory Stock Option Agreement.(1)
         10.2      1991 Employee Stock Purchase Plan.(1)
         10.3      Shareholders Agreement, as amended and restated.(1)
         10.4      Factoring Agreement between Registrant and Republic Factors
                   Corp.(1)
         10.5      Form of Indemnification Agreement.(1)
         10.6      S Corporation Termination, Tax Allocation and
                   Indemnification Agreement.(1)
         10.7      Merchandise License Agreement between Sam & Libby, Inc. and
                   AMG Apparel Ltd. dated as of May 1, 1993.(4)
         10.8      Facilities and Service Contract dated April 22, 1993 between
                   Sam & Libby Inc. and RML Limited.(2)
         10.9      Employment Agreement dated as of May 3, 1993 between Kenneth
                   Sitomer and Sam & Libby, Inc.(3)
</TABLE>
 
                                       14
<PAGE>   16
<TABLE>
    <S>            <C>
         10.10     Agreement, dated as of August 12, 1993, between Lane
                   International Trading, Inc., Sam & Libby Taiwan and Sam &
                   Libby, Inc.(4)
         10.11     Promissory Note dated August 12, 1993 from Sam & Libby, Inc.
                   to Sam & Libby Taiwan.(4)
         11.1      Calculation of Earnings Per Share.
         16.1      Letter Regarding Change in Certifying Accountant
         21.1      List of Subsidiaries.
         23.1      Independent Auditors' Consent and Report on Schedules.
</TABLE>
 
---------------
 
(1) Exhibits 3.1, 3.2, 4.1, 4.2, 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6 are
    incorporated by reference to exhibits filed with the Company's Registration
    Statement on Form S-1 (No. 33-43424) filed October 18, 1991, Amendment No. 1
    thereto filed November 7, 1991, Amendment No. 2 thereto filed November 25,
    1991 and Amendment No. 3 thereto filed December 4, 1991, which Registration
    Statement became effective December 4, 1991.
(2) Exhibit 10.8 is incorporated by reference to Exhibit 10.9 of the Company's
    Quarterly Report on Form 10-Q for the quarter ended July 3, 1993.
(3) Exhibit 10.9 is incorporated by reference to Exhibit 10.10 of the Company's
    Quarterly Report on Form 10-Q for the quarter ended July 3, 1993.
 
(4) Exhibits 10.7, 10.10 and 10.11 are incorporated by reference to such
    Exhibits to the Company's Annual Report on Form 10-K for the year ended
    January 1, 1994.
 
(b)  Reports on Form 8-K.  There were no Reports on form 8-K during the quarter
     ended January 3, 1998.
 
     For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933 (the "Act"),
the Company hereby undertakes as follows, which undertaking shall be
incorporated by reference into the Company's Registration Statement on Form S-8
No. 33-45671.
 
     Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
 
                                       15
<PAGE>   17
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
 
                                          UTOPIA MARKETING INC.
                                          (formerly SAM & LIBBY, Inc.
                                                         SAMUEL L. EDELMAN
                                          By:
                                          --------------------------------------
 
                                                     Samuel L. Edelman
                                                  Chief Executive Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report of Form 10-K has been signed by the following persons in the capacities
and on the dates indicated:
 
<TABLE>
<CAPTION>
                  SIGNATURE                                   TITLE                        DATE
                  ---------                                   -----                        ----
<C>                                            <S>                                  <C>
            /s/ SAMUEL L. EDELMAN              President and Chief Executive        April 1, 1998
---------------------------------------------  Officer (Principal Executive
              Samuel L. Edelman                Officer), and Chairman of the Board
 
            /s/ LOUISE B. EDELMAN              Executive Vice President --          April 1, 1998
---------------------------------------------  Corporate Development and Director
              Louise B. Edelman
 
             /s/ BRUCE OBERFEST                Director                             April 1, 1998
---------------------------------------------
               Bruce Oberfest
 
             /s/ JOEL N. SOLOMON               Director                             April 1, 1998
---------------------------------------------
               Joel N. Solomon
</TABLE>
 
                                       16
<PAGE>   18
 
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and Shareholders
  Utopia Marketing, Inc. (formerly Sam & Libby, Inc.):
 
     We have audited the accompanying consolidated balance sheet of Utopia
Marketing, Inc. (formerly Sam & Libby, Inc.), and subsidiaries as of January 3,
1998, and the related consolidated statements of income, shareholders' equity,
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. The consolidated balance sheet of Utopia Marketing, Inc. (Formerly Sam &
Libby, Inc.), and subsidiaries as of December 26, 1996 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the two-year period ended December 28, 1996, were audited by
other auditors whose report thereon dated February 7, 1997, expressed an
unqualified opinion on those statements.
 
     We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
 
     In our opinion, the January 3, 1998 consolidated statements referred to
above present fairly, in all material aspects, the financial position of Utopia
Marketing, Inc. (Formerly Sam & Libby, Inc.) and subsidiaries at January 3,
1998, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
 
New York, New York
March 31, 1998
 
                                       F-1
<PAGE>   19
 
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                                JANUARY 3,     DECEMBER 28,
                                                                   1998            1996
                                                                ----------     ------------
                                                                (IN THOUSANDS EXCEPT SHARE DATA)
<S>                                                             <C>            <C>
                                          ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................     $  2,389        $  2,852
  Due from factor (Less allowance of $75 as of December 28,
     1996)..................................................            0             107
  Account receivable........................................            0             293
  Miscellaneous receivable..................................           39               0
  Merchandise inventories...................................            0              36
  Prepaid expenses..........................................            0              31
                                                                 --------        --------
     TOTAL CURRENT ASSETS...................................     $  2,428        $  3,319
Property and equipment, net.................................            0               0
Other assets................................................            0              25
                                                                 --------        --------
     TOTAL ASSETS...........................................     $  2,428        $  3,344
                                                                 ========        ========
 
                           LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................     $     30        $     58
  Accrued expenses..........................................           25              99
                                                                 --------        --------
     TOTAL CURRENT LIABILITIES..............................     $     55        $    157
                                                                 --------        --------
LONG-TERM OBLIGATIONS.......................................            0               7
                                                                 --------        --------
SHAREHOLDERS' EQUITY:
  Preferred stock, $.001 par value; 5,000,000 shares
  Authorized, none issued
  Common stock, $.001 par value; 45,000,000 shares
  Authorized, 14,216,367 and 13,741,367 shares
  Outstanding...............................................           14              14
  Additional paid-in capital................................       32,947          32,943
  Accumulated deficit.......................................      (30,588)        (29,777)
                                                                 --------        --------
     TOTAL SHAREHOLDERS' EQUITY.............................        2,373           3,180
                                                                 --------        --------
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................     $  2,428        $  3,344
                                                                 ========        ========
</TABLE>
 
                See notes to Consolidated Financial Statements.
 
                                       F-2
<PAGE>   20
 
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                              ----------------------------------------
                                                              JANUARY 3,   DECEMBER 28,   DECEMBER 30
                                                                 1998          1996           1995
                                                              ----------   ------------   ------------
                                                                (IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                                           <C>          <C>            <C>
Net revenue.................................................   $   129       $ 23,637       $ 38,755
Cost of sales...............................................        58         20,866         29,486
                                                               -------       --------       --------
  Gross profit..............................................        71          2,771          9,269
Selling, general and administrative expenses................      (966)        (8,833)       (11,539)
Gain on sale of trademark...................................                    4,100
                                                               -------       --------       --------
Operating loss before extraordinary item, interest and
  taxes.....................................................      (895)        (1,952)        (2,270)
Interest income (expense) -- net............................       109           (723)        (1,503)
                                                               -------       --------       --------
Loss before extraordinary item..............................      (786)        (2,675)        (3,773)
Extraordinary gain..........................................                    1,288
                                                               -------       --------       --------
Net income..................................................   $  (786)      $ (1,387)      $ (3,773)
                                                               =======       ========       ========
Loss per share before extraordinary income..................   $ (0.06)      $  (0.22)      $  (0.35)
Extraordinary income per share..............................                     0.11           0.00
                                                               -------       --------       --------
Net loss per share..........................................   $ (0.06)      $  (0.11)      $  (0.35)
                                                               =======       ========       ========
Weighted average shares outstanding.........................    13,866         12,136         10,878
                                                               =======       ========       ========
</TABLE>
 
                 See notes to Consolidated Financial Statements
 
                                       F-3
<PAGE>   21
 
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                      RETAINED
                                                       ADDITIONAL     EARNINGS
                                                        PAID-IN     (ACCUMULATED     DEFERRED
                                      SHARES  AMOUNT    CAPITAL       DEFICIT)     COMPENSATION    TOTAL
                                      ------  ------   ----------   ------------   ------------   -------
<S>                                   <C>     <C>      <C>          <C>            <C>            <C>
BALANCE AT JANUARY 1, 1995..........  10,802   $11      $30,742      $ (24,617)      $ (1,117)    $ 5,019
Common stock issued under stock
  plans.............................      34                 13                                        13
Exercise of employee stock
  options...........................     100                 25                                        25
Amortization of deferred
  compensation......................                                                      462         462
Net loss............................                                    (3,773)                    (3,773)
                                      ------   ---      -------      ---------       --------     -------
BALANCE AT DECEMBER 30, 1995........  10,936    11       30,780        (28,390)          (655)      1,746
Common stock issued under stock
  plans.............................      18                 32                                        32
Exercise of employee stock
  options...........................      78                 80                                        80
Common stock issued in
  connection with debt
  forgiveness.......................   2,698     3        2,024                                     2,027
Common stock issued in exchange of
  Services..........................      11                 27                                        27
Amortization of deferred
  compensation......................                                                      655         655
Net loss............................                                    (1,387)                    (1,387)
                                      ------   ---      -------      ---------       --------     -------
BALANCE AT DECEMBER 28, 1996........  13,741    14       32,943        (29,777)             0       3,180
Write off of foreign subsidiary.....                                       (25)                       (25)
Exercise of employee stock
  options...........................     400                  4                                         4
Common stock issued in exchange of
  Services..........................      75
Net loss............................                                      (786)                      (786)
                                      ------   ---      -------      ---------       --------     -------
Balance at January 3, 1998..........  $14,216  $14      $32,947      $ (30,588)      $      0     $ 2,373
                                      ======   ===      =======      =========       ========     =======
</TABLE>
 
                 See notes to Consolidated Financial Statements
 
                                       F-4
<PAGE>   22
 
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                              ----------------------------------------
                                                              JANUARY 3,   DECEMBER 28,   DECEMBER 30,
                                                                 1998          1996           1995
                                                              ----------   ------------   ------------
                                                                           (IN THOUSANDS)
<S>                                                           <C>          <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................    $ (786)      $(1,387)       $(3,773)
Adjustments to reconcile net loss to net cash provided by
  (used in) operating activities:
  Depreciation and amortization.............................                     302            461
  Loss on disposal of fixed assets..........................                     279
  Gain on debt forgiveness..................................                  (1,288)
  Deferred compensation expense.............................                     655            462
  Gain on sale of assets....................................                                    246
  Provision for allowances against accounts receivable......                    (157)             7
Changes in operating assets and liabilities:
     Accounts receivable....................................       254         2,291           (747)
     Due (from) to factor...................................       107        (1,791)         1,168
     Due from shareholders..................................                     168
     Merchandise inventories................................        36         5,656         (2,545)
     Prepaid expenses and other assets......................        31           423            217
     Accounts payable, accrued expenses and other current
       liabilities..........................................      (102)       (2,455)         3,739
                                                                ------       -------        -------
Net cash provided by (used in) operating activities.........      (460)        2,696           (765)
                                                                ------       -------        -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment........................                                   (182)
  Proceeds from sale of property and equipment..............                                    362
                                                                ------       -------        -------
Net cash provided by (used in) investing activities.........         0             0            180
                                                                ------       -------        -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of long-term obligations........................        (7)          (84)            (8)
  Proceeds from issuance of common stock, net...............         4           112             38
                                                                ------       -------        -------
Net cash provided by (used in) financing activities.........        (3)           28             30
                                                                ------       -------        -------
Net increase (decrease) in cash and cash equivalents........      (463)        2,724           (555)
Cash and cash equivalents:
  Beginning of period.......................................     2,852           128            683
                                                                ------       -------        -------
  End of period.............................................    $2,389       $ 2,852        $   128
                                                                ======       =======        =======
</TABLE>
 
                 See Notes to Consolidated Financial Statements
 
                                       F-5
<PAGE>   23
 
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
      YEARS ENDED JANAURY 3, 1998, DECEMBER 28, 1996 AND DECEMBER 30, 1995
 
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Business.  The Company no longer designs, develops and markets women's and
children's footwear. On July 2, 1996, the Company entered into an agreement (the
"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 cash of $5.3 million. The balance of $0.2 million was paid
in April 1997. The Purchaser did not assume any of the Company's liabilities or
obligations. In connection with such sale, the Company changed its name to
Utopia Marketing, Inc.
 
     The Company had a contract (the "RML Agreement") with RML Limited ("RML"),
an independent warehouse facility located in Harrisburg, Pennsylvania pursuant
to which RML provides the Company with warehouse, distribution, inspection and
other services for a fee based upon gross shipping dollars, which is calculated
on a declining percentage as various sales plateaus are achieved. The agreement
expires by its term in April 1995 but was automatically renewable from year to
year unless either party gives notice of non-renewal. The agreement terminated
on February 28, 1997.
 
     Principles of Consolidation.  The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries,
Sanders-Importacao E Exportacao Ltd. ("Sam & Libby Brazil"), Sam & Libby (HK)
Limited ("Sam & Libby Hong Kong") and Sam & Libby Outlets, Inc. ("Sam & Libby
Outlets"). All material intercompany transactions and balances have been
eliminated.
 
     In the fourth quarter of 1995, the Company closed the operations in Brazil.
As a result, the Company took a charge of $427,000 for the closing of those
operations.
 
     Fiscal Year.  The Company has a 52/53-week fiscal year ending on the
Saturday closest to December 31. The fiscal years ended December 28, 1996 and
December 30, 1995 contained 52 weeks. The fiscal year ended January 3, 1998 had
53 weeks.
 
     Cash Equivalents.  Cash equivalents are highly liquid investments with an
original maturity of three months or less. They include funds of $2,389,270 held
by the factor as of January 3, 1998.
 
     Merchandise Inventories.  The Company has no merchandise inventories as of
year end.
 
     Property and Equipment.  The Company currently has no Property and
Equipment. In past years Property and equipment had been stated at cost.
Depreciation was calculated using the straight line method over the estimated
useful life of the respective assets, which range from five to seven years. The
cost of leasehold improvements was amortized over the estimated useful life of
the asset or the applicable lease term, whichever is less (see Note 3).
 
     Revenue Recognition.  Revenue from the sale of merchandise and private
label commissions is recognized upon shipment to the customer, sales are
recognized net of returns and allowances.
 
     Net Income (Loss) Per Share.  Net income (loss) per share is based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year as calculated under the treasury stock method.
 
     Financial Instruments.  The fair value of the Company's financial
instruments approximates their carrying values.
 
     Reclassifications.  Certain 1995 financial statement amounts have been
reclassified to conform with the 1996 presentation.
 
                                       F-6
<PAGE>   24
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
YEARS ENDED JANAURY 3, 1998, DECEMBER 28, 1996 AND DECEMBER 30, 1995 (Continued)
 
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
     Use of Estimates  -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
     Long-Lived Assets  - In March 1995, the Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement is effective
for fiscal years beginning after December 15, 1995. The adoption by the Company
of such standard in 1996 had no material effect on the financial statements.
 
     Stock-Based Compensation  -- In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which is effective for the Company
beginning January 1, 1996. SFAS No. 123 requires expanded disclosures in annual
financial statements of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Companies are permitted, however,
to continue to apply Accounting Principles Board (APB) Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation awards to employees and will make the required
disclosure of the pro forma effect on net income and earnings per share in its
notes to the annual consolidated financial statements. The Company has not
granted any stock options during 1997, 1996 and 1995 and the pro forma
disclosure is not required at January 3, 1998.
 
NOTE 2 -- FACTORING AGREEMENT
 
     In March 1994, the Company entered into a new factoring and financing
arrangement (the "Agreement") with a bank (the "factor") which provides
factoring services, advances and letters of credit to support on-going
operations. Under the terms of the Agreement, the Company could borrow up to the
lesser of $10 million or the sum of (i) up to 80% of eligible credit approved
receivables plus (ii) the lesser of (a) the sum of (1) up to 30% of eligible
inventory in the United States plus (2) 30% of the first cost of eligible
finished goods being imported under letters of credit and eligible in transit
finished goods inventory imported on open account and consigned to the financial
corporation or (b) $9.5 million, less certain reserves. Subsequent to December
31, 1994, the percentage of eligible credit approved receivables against which
the Company could borrow was reduced from 80% to 75% subject to a monthly
valuation of a three month moving average computation whereby the percentage
could be increased to 80%. In addition, eligible recourse receivables added to
the borrowing base formula. The Company assigned all of its trade receivables
under the Agreement. Approximately 85% of trade receivables were sold on a
non-recourse basis. For those receivables sold on recourse basis, the Company
either obtained credit insurance, required cash deposits or received letters of
credit payable to the Company. The borrowing rate was prime plus 1.25% unless
the Company is in an overadvance position, when the borrowing rate was prime
plus 2.25% (prime rate at December 28, 1996 was 8%). The factor commission rate
was 0.75%. Overadvances under the Agreement were available at the sole
discretion of the factor. In order to enable the Company to use such overadvance
availability, a principal shareholder and executive officer executed a personal
guaranty for up to $500,000 of the overadvance facility in the form of
collateral assigned to the factor. If the Company was not in an overadvance
position for 90 consecutive days commencing March 13, 1995, the factor would
cancel and return the guaranty and collateral at the request of such principal
shareholder and executive officer. In January 1997, the personal
 
                                       F-7
<PAGE>   25
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
YEARS ENDED JANAURY 3, 1998, DECEMBER 28, 1996 AND DECEMBER 30, 1995 (Continued)
 
NOTE 2 -- FACTORING AGREEMENT (continued)
collateral was returned to this principal shareholder and executive officer. The
factor had a security interest in substantially all of the Company's tangible
and intangible assets. The Agreement which was payable on demand expired March
7, 1997. The Company now has only an interest bearing account of approximately
$2,389,270 earning approximately 4 to 5% per year with the factor.
 
NOTE 3 -- PROPERTY AND EQUIPMENT
 
     The company currently has no property or equipment.
 
NOTE 4 -- LONG-TERM OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
 
     The Company currently has no long-term obligations and commitments.
 
     The Internal Revenue Service has notified the Company it will be making an
Employment Tax Compliance Review for 1995 and 1996. A review is not an audit,
but may result in an audit.
 
NOTE 5 -- OTHER INCOME (EXPENSE)
 
     Other income (expense) consists of the following:
 
<TABLE>
<CAPTION>
                                                          JANUARY 3,    DECEMBER 28,     DECEMBER 30,
                                                             1998           1996             1995
                                                          ----------    -------------    -------------
                                                                         (IN THOUSANDS)
    <S>                                                   <C>           <C>              <C>
    Interest income...................................      $ 109                 --                --
    Interest expense..................................         --               (641)    $       (1045)
    Other.............................................         --                (82)             (458)
                                                            -----       -------------    -------------
    Other Income/(expense)............................      $ 109               (723)            (1503)
                                                            =====       =============    =============
</TABLE>
 
NOTE 6 -- INCOME TAXES
 
     The provision (benefit) for income taxes for financial reporting purposes
differs from the tax provision (benefit) computed by applying the statutory
Federal income tax rate of 34% as follows:
 
<TABLE>
<CAPTION>
                                                                          YEAR ENDED
                                                          ------------------------------------------
                                                          JANUARY 3,    DECEMBER 28,    DECEMBER 30,
                                                             1998           1996            1995
                                                          ----------    ------------    ------------
                                                                                      (IN THOUSANDS)
    <S>                                                   <C>           <C>             <C>
    Federal income tax benefit at
      the statutory rate..............................      $(267)        $  (472)        $(1,283)
    State income taxes, net of federal benefit........        (47)            (83)           (302)
    Foreign subsidiary activity.......................                         22             117
    Deferred tax assets not utilized..................        314             533           1,468
                                                            -----         -------         -------
    Provision (benefit) for income taxes..............      $   0         $     0         $     0
                                                            =====         =======         =======
</TABLE>
 
                                       F-8
<PAGE>   26
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
YEARS ENDED JANAURY 3, 1998, DECEMBER 28, 1996 AND DECEMBER 30, 1995 (Continued)
 
NOTE 6   -- INCOME TAXES (Continued)
     The components of the net deferred tax benefit are as follows:
 
<TABLE>
<CAPTION>
                                                          JANUARY 3,    DECEMBER 28,    DECEMBER 30,
                                                             1998           1996            1995
                                                          ----------    ------------    ------------
                                                                        (IN THOUSANDS)
    <S>                                                   <C>           <C>             <C>
    Fixed assets......................................      $   0         $   418         $   393
    Inventory.........................................          0              91             658
    Allowance for doubtful accounts...................          0             455             401
    Net operating loss carryforward...................          0           8,267           7,442
    Accrued expenses..................................          0                              10
    Other.............................................                          2             336
                                                            -----         -------         -------
                                                                0           9,233           9,240
    Valuation allowance...............................          0          (9,233)         (9,240)
                                                            -----         -------         -------
    Net deferred tax benefit..........................      $   0         $     0         $     0
                                                            =====         =======         =======
</TABLE>
 
     The Company has net operating loss carryforwards of approximately $21.3
million for Federal income tax purposes expiring between 2007 and 2017.
 
     As a result of an examination by the Internal Revenue Service (the
"Service"), the Company was assessed an additional federal income tax liability
for the 1989 fiscal year relating to the reclassification of certain executive
compensation as a non-deductible dividend. In 1996, the Company has paid
approximately $168,000 for federal and state income taxes plus interest and
penalties. This amount was previously accrued.
 
NOTE 7 -- SHAREHOLDERS' EQUITY
 
     1991 Stock Option Plan.  In September 1991, the Board of Directors approved
the 1991 Stock Option Plan (the "1991 Plan"), which allows for the grant of
incentive stock options (as defined in Section 422 of the Internal Revenue Code)
to employees and nonstatutory stock options to both employees and outside
Directors. The Board of Directors had reserved 500,000 shares of Common Stock
for issuance under the 1991 Plan. In May 1993, the Board of Directors reserved
an additional 1,000,000 for issuances of shares under the 1991 Plan. Stock
options intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code are granted to employees at prices not less than the fair
market value of the common stock on the date of grant. The 1991 Plan permits and
the Company has granted, from time to time, non-statutory stock options at
exercise prices less than the fair market value of the common stock on the date
of grant. The 1991 Plan specifies that the Company's outside Directors are to
receive a stock option grant of 5,000 shares on the date first elected to the
Board and an additional 5,000 shares each year thereafter. Such options are
granted at the fair market value of the common stock on the date of grant, vest
over four years, and are exercisable only while the outside Director remains a
Director. The 1991 Plan also permits the Company to grant rights to purchase
common stock at a price which is at least 50% of the fair market value of the
common stock on the date of grant. The offer of a right must be accepted within
six months of its grant by the execution of a restricted stock purchase
agreement between the Company and the offeree and the payment of the purchase
price of the shares. As of January 3, 1998, no rights have been granted. On
February 24, 1993, the Compensation Committee of the Board of Directors (the
"Committee") authorized a stock option exchange program covering 224,000 stock
options with exercise prices of $5.25 to $9.375 per share. Under the terms of
 
                                       F-9
<PAGE>   27
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
YEARS ENDED JANAURY 3, 1998, DECEMBER 28, 1996 AND DECEMBER 30, 1995 (Continued)
 
NOTE 7 -- SHAREHOLDERS' EQUITY (Continued)
the stock option exchange program, 224,000 new options were issued at an
exercise price of $3.25 per share, the fair market value of the Company's shares
on the date of the grant. On November 9, 1994, the Committee authorized a stock
option exchange program covering 215,000 stock options with exercise prices of
$2.63 per share. Under the terms of the stock option exchange program, 215,000
new stock options were issued at an exercise price of $1.00 per share, the fair
market value of the Company's shares on the date of the grant. As of January 3,
1998 no rights have been granted. Total activity for the 1991 Stock Option Plan
for the years ended January 3, 1998, December 28, 1996 and December 30, 1995 was
as follows:
 
<TABLE>
<CAPTION>
                                                                     SHARES        PRICES
                                                                    ---------    -----------
    <S>                                                             <C>          <C>
    Outstanding, January 1, 1995................................      772,500    $.25--22.50
    Options exercised...........................................     (100,000)   $ .25--2.65
                                                                    ---------
    Outstanding, December 30, 1995..............................      672,500    $.25--22.25
    Options exercised...........................................      (78,000)   $1.00--2.42
                                                                    ---------
    Outstanding, December 28, 1996..............................      594,500    $.25--22.25
    Options exercised...........................................     (400,000)   $  .01--.25
    Options cancelled...........................................     (194,500)   $ .01 --.25
                                                                    ---------
    Outstanding, January 3, 1998................................            0
</TABLE>
 
     Employee Stock Purchase Plan. In September 1991, the Board of Directors
approved the 1991 Employee Stock Purchase Plan and reserved 150,000 shares of
common stock for issuance under this plan. During 1996, 1995 and 1994, employees
purchased 17,686, 34,654 and 7,998 shares, respectively, of common stock through
payroll deductions. Through January 3, 1998, 88,915 shares had been issued under
this plan.
 
NOTE 8 -- MAJOR CUSTOMERS
 
     Not applicable in 1997.
 
     One customer accounted for approximately 11% of gross sales during 1996 and
11% of gross sales during 1995 (a different customer than 1996). In addition,
certain of the Company's customers are under common ownership. During 1996 and
1995, one department store group accounted for approximately 9% and 11% of the
Company's net revenue.
 
NOTE 9 -- RELATED PARTY TRANSACTIONS
 
     In August 1993, the Company signed a one-year promissory note to its former
joint venture partner in the amount of $1.8 million, plus interest at six
percent, for payment of such obligation. At January 1, 1994, the balance of the
note payable was $1.189 million. During 1994, the Company repaid $999,000 of the
note payable and recognized income related to forgiveness of the remaining of
$190,000.
 
     During 1995, a principal shareholder and executive officer guaranteed a
portion of the Company's overadvance facility with its factor (Note 2). In
January 1997 the guaranty of the principal shareholder and executive officer
guaranteeing a portion of the Company's over advance facility with its factor
was terminated.
 
                                      F-10
<PAGE>   28
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
YEARS ENDED JANAURY 3, 1998, DECEMBER 28, 1996 AND DECEMBER 30, 1995 (Continued)
 
NOTE 10 -- ADDITIONAL STATEMENTS OF CASH FLOWS INFORMATION
 
     Total cash paid for interest is as follows:
 
<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                              ----------------------------------------
                                                              JANUARY 3,   DECEMBER 28    DECEMBER 30,
                                                                 1998          1996           1995
                                                              ----------   ------------   ------------
                                                                           (IN THOUSANDS)
    <S>                                                       <C>          <C>            <C>
    Interest................................................      $0           $641           $945
                                                                  ==           ====           ====
    Non cash financing activities:
      Conversion of $2 million indebtedness into shares of
         Common Stock in 1996 (see note 13).
</TABLE>
 
NOTE 11 -- SETTLEMENT OF SHAREHOLDER LAWSUIT
 
     On April 27, 1992, a class action lawsuit was filed against the Company and
certain of its present directors and officers and the managing underwriters of
the Company's initial public offering for alleged violations of federal
securities laws and state common law. The complaint sought unspecified actual
and punitive damages, costs and attorney's fees on behalf of purchasers of the
Company's common stock during the period from December 4, 1991 through April 24,
1992. Similar follow-on suits, containing virtually identical allegations, were
filed by six other plaintiffs. The district court ordered consolidation of all
of the complaints into one class action. On August 1, 1994, the district court
entered final judgment approving the settlement and dismissing the lawsuit.
Under the terms of the settlement, the claims against the Company and other
defendants were dismissed without any admission or presumption of liability or
wrongdoing. A settlement fund consisting of $6.25 million in cash and 595,000
shares of the Company's Common Stock was established. The Company contributed
$2.15 million in cash into the fund in March 1994 and the Company's director's
and officer's liability insurance carrier contributed $4.1 million into the fund
in August 1994. In October 1995, the Company contributed 595,000 shares of
Common Stock into the fund and the escrow agent distributed the shares to the
claimants.
 
NOTE 12 -- DISCONTINUED OPERATIONS
 
     In the first quarter of 1993, the Company signed an agreement, effective
May 1, 1993, to transfer its apparel division to AMG Apparel Ltd. ("AMG"), an
apparel and licensing company located in Los Angeles. In exchange for the use of
the SAM & LIBBY name, the Company was to receive a royalty based on AMG's sales
of Sam & Libby apparel. The Company received no royalty revenue in 1994. During
1994, AMG stopped paying its royalty obligations. The Company has commenced
legal action to regain the rights to its apparel merchandise. In connection with
the transfer of the apparel division to AMG, the Company closed its Hong Kong
office in 1993. The Company incurred certain personnel and other expenses in
connection with the discontinuance of the apparel business.
 
                                      F-11
<PAGE>   29
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
YEARS ENDED JANAURY 3, 1998, DECEMBER 28, 1996 AND DECEMBER 30, 1995 (Continued)
 
NOTE 13 -- COMPOSITION AND CONVERSION AGREEMENT
 
     As of 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 approximately
$1.3 million of indebtedness and convert approximately $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. The remaining aggregate debt
due to these vendors of approximately $1.6 million was paid in the quarter ended
September 28, 1996.
 
NOTE 14 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                     ---------------------------------------------------
                                                     MARCH 31,   JUNE 30,   SEPTEMBER 26,    JANUARY 3,
                                                       1997        1997         1997            1998
                                                     ---------   --------   -------------   ------------
                                                                       (IN THOUSANDS)
    <S>                                              <C>         <C>        <C>             <C>
    Net revenue....................................   $    72    $    25       $    22        $    10
    Gross profit (loss)............................        41          8            22             10
    Net income (loss) from continuing
      Operations before income taxes...............      (337)      (318)          (62)           (69)
    Net income (loss)..............................   $  (337)   $  (318)      $   (62)       $   (69)
                                                      -------    -------       -------        -------
    Net income (loss) per share....................   $ (0.02)   $ (0.03)      $  0.00        $ (0.01)
                                                      =======    =======       =======        =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                     ---------------------------------------------------
                                                     MARCH 30,   JUNE 29,   SEPTEMBER 28,   DECEMBER 28,
                                                       1996        1996         1996            1996
                                                     ---------   --------   -------------   ------------
                                                                       (IN THOUSANDS)
    <S>                                              <C>         <C>        <C>             <C>
    Net revenue....................................   $11,957    $ 5,353       $ 7,034        $  (707)
    Gross profit (loss)............................     3,643       (111)           24           (785)
    Net income (loss) from continuing
      Operations before income taxes...............       606     (2,767)        2,448         (1,674)
    Net income (loss)..............................   $   606    $(2,767)      $ 2,948        $(1,674)
                                                      -------    -------       -------        -------
    Net income (loss) per share....................   $  0.05    $ (0.24)      $  0.18        $ (0.10)
                                                      =======    =======       =======        =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                     ---------------------------------------------------
                                                     APRIL 1,    JULY 1,    SEPTEMBER 30,   DECEMBER 30,
                                                       1995        1995         1995            1995
                                                     ---------   --------   -------------   ------------
                                                                       (IN THOUSANDS)
    <S>                                              <C>         <C>        <C>             <C>
    Net revenue....................................   $10,459    $11,772       $12,688        $ 3,836
    Gross profit (loss)............................     3,132      3,562         4,675         (2,100)
    Net income (loss) from continuing
      Operations before income taxes...............       356        505           662         (5,296)
    Net income (loss)..............................   $   356    $   505       $   632        $(4,966)
                                                      -------    -------       -------        -------
    Net income (loss) per share....................   $  0.03    $  0.04       $  0.06        $  0.46
                                                      =======    =======       =======        =======
</TABLE>
 
                                      F-12
<PAGE>   30
 
                                  SCHEDULE II
 
                             UTOPIA MARKETING, INC.
                           FORMERLY SAM & LIBBY, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                                                ADDITIONS
                                                   BALANCE AT   CHARGED TO
                                                   BEGINNING    COSTS AND                     BALANCE AT
                   YEAR ENDED                      OF PERIOD     EXPENSES    DEDUCTIONS(1)   END OF PERIOD
                   ----------                      ----------   ----------   -------------   -------------
                                                                       (IN THOUSANDS)
<S>                                                <C>          <C>          <C>             <C>
YEAR ENDED DECEMBER 30, 1995
  Provision for doubtful accounts................     $781        $2,825        $3,065           $541
YEAR ENDED DECEMBER 28, 1996
  Provision for doubtful accounts................     $541        $2,250        $2,716           $ 75
YEAR ENDED JANUARY 3, 1998
  Provision for doubtful accounts................     $ 75        $    0        $   75           $  0
</TABLE>
 
---------------
(1) Write-off of doubtful accounts against reserve
 
                                       S-1
<PAGE>   31

                                Exhibit Index
                                -------------
 
<TABLE>
    <S>            <C>
      3.1      Restated Articles of Incorporation.(1)
      3.2      Restated Bylaws.(1)
      4.1      Article III of Restated Articles of Incorporation (see
               Exhibit 3.1).(1)
      4.2      Form of Common Stock Certificate.(1)
     10.1      1991 Stock Plan and forms of Incentive Stock Option
               agreement and Nonstatutory Stock Option Agreement.(1)
     10.2      1991 Employee Stock Purchase Plan.(1)
     10.3      Shareholders Agreement, as amended and restated.(1)
     10.4      Factoring Agreement between Registrant and Republic Factors
               Corp.(1)
     10.5      Form of Indemnification Agreement.(1)
     10.6      S Corporation Termination, Tax Allocation and
               Indemnification Agreement.(1)
     10.7      Merchandise License Agreement between Sam & Libby, Inc. and
               AMG Apparel Ltd. dated as of May 1, 1993.(4)
     10.8      Facilities and Service Contract dated April 22, 1993 between
               Sam & Libby Inc. and RML Limited.(2)
     10.9      Employment Agreement dated as of May 3, 1993 between Kenneth
               Sitomer and Sam & Libby, Inc.(3)
     10.10     Agreement, dated as of August 12, 1993, between Lane International Trading, Inc., Sam & Libby
               Taiwan and Sam & Libby, Inc.(4)
     10.11     Promissory Note dated August 12, 1993 from Sam & Libby, Inc. to Sam & Libby Taiwan.(4)
     11.1      Calculation of Earnings Per Share.
     16.1      Letter Regarding Change in Certifying Accountant
     21.1      List of Subsidiaries.
     23.1      Independent Auditors' Consent and Report on Schedules.
     27        Financial Data Schedule

---------------
 
(1) Exhibits 3.1, 3.2, 4.1, 4.2, 10.1, 10.2, 10.3, 10.4, 10.5 and 10.6 are
    incorporated by reference to exhibits filed with the Company's Registration
    Statement on Form S-1 (No. 33-43424) filed October 18, 1991, Amendment No. 1
    thereto filed November 7, 1991, Amendment No. 2 thereto filed November 25,
    1991 and Amendment No. 3 thereto filed December 4, 1991, which Registration
    Statement became effective December 4, 1991.
(2) Exhibit 10.8 is incorporated by reference to Exhibit 10.9 of the Company's
    Quarterly Report on Form 10-Q for the quarter ended July 3, 1993.
(3) Exhibit 10.9 is incorporated by reference to Exhibit 10.10 of the Company's
    Quarterly Report on Form 10-Q for the quarter ended July 3, 1993.
(4) Exhibits 10.7, 10.10 and 10.11 are incorporated by reference to such
    Exhibits to the Company's Annual Report on Form 10-K for the year ended
    January 1, 1994.

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