HAPPINESS EXPRESS, INC.
In 1989, two longtime sales reps in the toy industry, Joseph and Isaac Sutton, founded
Happiness Express, Inc.
The business model developed by the Sutton brothers involved
acquiring the licensing rights to market toys and other merchandise featuring popular characters
appearing in movies, television programs, and books and other publications intended principally
The company got off to a quick start, thanks to the uncanny ability of the Sutton
brothers to identify children’s characters, such as The Little Mermaid and Barney, that would
have tremendous appeal among children.
By 1994, the company had annual sales of $40
That same year, the Sutton brothers took Happiness Express public with a successful
By 1995, the company’s “hottest” line of merchandise featured the Mighty Morphin
In fact, 75 percent of the company’s reported revenues for fiscal 1995 resulted
from sales of Power Rangers toys and merchandise.
Unfortunately for the Sutton brothers and
their fellow stockholders, sales of Power Rangers merchandise began falling dramatically near
the end of the company’s 1995 fiscal year as children’s interest in the enigmatic crusaders
To sustain their company’s impressive profit and revenue trends, Happiness Express
booked several million dollars of fictitious sales and accounts receivable near the end of fiscal
(Ironically, the fraudulent scheme resulted in Happiness Express being named the “#1
Hot Growth Company” in the United States by
Public allegations of insider trading involving Happiness Express’s executives and hints
of financial irregularities in its accounting records prompted an SEC investigation and ultimately
resulted in the company filing for bankruptcy in the fall of 1996.
A class-action lawsuit by
Happiness Express’s stockholders targeted Coopers & Lybrand, which had issued unqualified
opinions on the company’s financial statements each year through fiscal 1996.
thrust of the lawsuit was that Coopers & Lybrand had recklessly audited Happiness Express’s
sales and accounts receivable, which prevented the firm from discovering the bogus sales and
receivables entered in the company’s accounting records near the end of fiscal 1995.
examines the audit procedures that Coopers & Lybrand applied to Happiness Express’s sales and
receivables, with a particular focus on the firm’s receivables confirmation and sales cut-off