<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-28088
MODACAD, INC.
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(Exact name of small business issuer as specified in its charter)
California 95-4145930
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1954 Cotner Avenue, Los Angeles 90025
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(310) 312-9826
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(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
The number of shares outstanding of the registrant's common stock, as of July
30, 1997, was 5,617,304.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ModaCAD, Inc.
BALANCE SHEET
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 2,009,783
Accounts receivable,
net of allowance for doubtful accounts of $124,141 1,088,636
Inventories 20,550
Prepaid expenses and other current assets 175,197
-------------
Total current assets 3,294,166
Capitalized computer software development costs,
net of accumulated amortization of $710,889 3,819,027
Furniture and equipment, net (Note 2) 837,872
Investment in and advances to unconsolidated subsidiary 55,324
Other assets 34,678
-------------
$ 8,041,067
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 455,284
Deferred income 95,671
-------------
Total current liabilities 550,955
-------------
Stockholders' equity:
Common stock. no par value; authorized 15,000,000 shares;
issued and outstanding 4,058,890 (Note 4) 12,568,418
Accumulated deficit (5,078,306)
-------------
Total stockholders' equity 7,490,112
-------------
$ 8,041,067
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
ModaCAD, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $1,132,522 $ 554,512 $1,728,412 $ 893,475
----------- ----------- ----------- -----------
Cost of sales 35,452 30,786 55,763 59,542
Selling, general & administrative 890,072 462,349 1,474,938 842,973
Research and development 22,198 7,141 47,076 42,650
Amortization of capitalized
software development costs 167,953 61,985 335,906 97,762
----------- ----------- ----------- -----------
Total expenses 1,115,675 562,261 1,913,683 1,042,927
----------- ----------- ----------- -----------
Income (Loss) from operations 16,847 (7,749) (185,271) (149,452)
Investment income 20,012 39,789 39,537 39,789
----------- ----------- ----------- -----------
Net income (loss) $ 36,859 $ 32,040 $ (415,734) $ (109,663)
=========== =========== =========== ===========
Net income (loss) per share $ 0.01 $ 0.01 $ (0.03) $ (0.04)
=========== =========== =========== ===========
Weighted average
common shares outstanding 5,065,435 3,830,433 5,621,867 2,623,393
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
ModaCAD, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (145,734) $ (109,663)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 23,328 25,146
Amortization of capitalized software
development costs 335,906 97,762
Provision for loss an accounts receivable 12,000 0
Issuance of warrants for services rendered 6,000 0
(Increase) decrease in:
Accounts receivable 242,217 (99,076)
Inventories 5,475 (32,625)
Prepaid expenses and other current assets (47,790) (66,088)
Other assets (12,237) (26,497)
Increase (decrease) in:
Accounts payable and accrued expenses 84,542 (502,346)
Deferred income 20,891 7,445
----------- -----------
Net cash provided by(used in) operating activities 524,598 (705,942)
----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment (258,711) (408,424)
Capitalized computer software development cost (1,288,580) (776,705)
----------- -----------
Net cash used in investing activities (1,547,291) (1,185,129)
----------- -----------
Cash flows from financing activities:
Repayment of borrowings under notes payable 0 (250,000)
Repayment of borrowings from officers/stockholders (75,000) (200,000)
Proceeds from issuance of common stock and warrants 968,513 5,543,491
Change in deferred offering costs 0 289,597
----------- -----------
Net cash provided by financing activities 893,513 5,383,088
----------- -----------
Net increase (decrease) in cash (129,180) 3,492,017
Cash, beginning of period 2,138,963 13,224
----------- -----------
Cash, end of period $2,009,783 $3,505,241
=========== ===========
Supplemental Cash Flow Information
Interest paid $ 0 $ 0
=========== ===========
Income taxes paid $ 800 $ 800
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ModaCAD, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1: GENERAL
As contemplated by the Securities and Exchange Commission under Item 310(b) of
Regulation S-B, the accompanying financial statements and footnotes have been
condensed and therefore do not contain all disclosures required by generally
accepted accounting principles. The interim financial data are unaudited;
however, in the opinion of ModaCAD, Inc. (the "Company" or "ModaCAD"), the
interim data include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods. Results for interim periods are not necessarily indicative of those to
be expected for the full year.
Note 2: FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
<TABLE>
<S> <C>
Furniture and fixtures $ 157,970
Office equipment 68,500
Computer equipment and software 1,028,430
Leasehold improvements 84,512
------------
$ 1,339,412
Less: Accumulated depreciation 501,540
------------
$ 837,872
============
</TABLE>
Note 3: PAY-OFF OF ADVANCES FROM OFFICERS/STOCKHOLDERS
In April 1997, advances from certain of the Company's officers/stockholders in
the amount of $75,000 were paid in full.
Note 4: STOCKHOLDERS' EQUITY
Stock Option Plan
In 1995, the Company adopted the 1995 Stock Option Plan (the "Plan") which
expires in 2006. In June 1997, the Plan was amended upon approval votes from a
majority of the Company's shareholders. Under the Plan and its amendment,
750,000 shares have been reserved for issuance. Prior to 1997, 180,000 and
24,000 options to purchase common stock were granted to certain employees with
an exercise price of $5.00 and $4.6875, respectively, per share. In January
1997, 23,000 and 2,000 options to purchase common stock were granted to certain
employees with an exercise price of $5.875 and $8.3125, respectively, per share.
In February 1997, 2,000 options to purchase common stock were granted to an
employee with an exercise price of $6.875 per share. In May 1997, 2,000 options
to purchase common stock were granted to an employee with an exercise price of
$9.625 per share. During the second quarter of 1997, three of such employees
exercised their options to purchase a total of 10,000 shares of common stock at
the exercise price of $4.6875 and $5.875 for each of 5,000 shares.
4
<PAGE>
ModaCAD, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 4: STOCKHOLDERS' EQUITY (Continued)
Exercise of Warrants
In connection with loans from a third party in December 1995 and January 1996,
the Company granted such lender 125,000 and 75,000 warrants exercisable through
December 1997 and January 1998, respectively, each with an exercise price of
$4.00 per warrant. Each warrant gives the holder the right to purchase one
share of the Company's common stock and one redeemable warrant exercisable to
purchase one share of common stock at a price of $6.50 per share for a period
of five years from March 27, 1996. In the first six months of 1997, the warrant
holder exercised a total of 102,500 warrants to purchase 102,500 shares of the
Company's common stock and 102,500 redeemable common stock purchase warrants
for $410,000.
Redemption Notice for and Exercise of Publicly Traded Warrants
In April 1996, the Company completed an initial public offering (the "IPO") of
1,400,000 units ("Units"). Each Unit consisted of one share of the Company's
common stock and one redeemable warrant exercisable to purchase one share of
common stock at a price of $6.50 per share for a period of five years from March
27, 1996. In April 1996, an additional 210,000 Units were sold pursuant to the
over-allotment option granted to the underwriters. The warrants are redeemable
at the Company's option commencing June 25, 1996 upon 30 days notice to holders
of the warrants at $0.01 per warrant if the closing bid price of the Company's
common stock averages in excess of $7.50 for a period of 20 consecutive trading
days ending within 15 days of the notice of redemption. On June 19, 1997,
upon meeting such criteria, the Company notified the holders of the publicly
traded warrants that it intended to redeem any unexercised warrants outstanding
on July 29, 1997. As of June 30, 1997, the warrant holders had exercised a
total of 44,200 warrants to purchase 44,200 shares of the Company's common
stock for $287,300.
Exercise of Underwriter's Warrants
In connection with the IPO, the Company issued to the principal underwriter in
the IPO, for $1,400, a warrant to purchase 140,000 units, at a per unit
exercise price of $6.00, each unit consisting of one share of Common Stock and
one redeemable warrant exercisable to purchase one share of Common Stock at an
exercise price of $9.10 per share. Such units are exercisable for a four-year
period commencing March 26, 1997. In the second quarter of 1997, the
underwriter exercised a total of 36,400 warrants to purchase 36,400 shares of
the Company's common stock and 36,400 redeemable common stock purchase warrants
for $218,400.
Note 5: NET INCOME/LOSS PER SHARE
Net income/loss per share is based on the weighted average number of shares and
equivalent shares of common stock outstanding during each quarter and each
six-month period. Primary and fully-diluted net income/loss per share are not
materially different.
5
<PAGE>
Note 5: NET INCOME/LOSS PER SHARE (Continued)
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 (SFAS No.128), "Earning Per Share", which is
effective for financial statements issued for periods ending after December 31,
1997. SFAS No. 128 requires public companies to present basic earnings per
share and, if applicable, diluted earnings per shares, instead of primary and
fully diluted earnings per share. The Company has not yet determined the
effect of adopting SFAS No. 128.
Note 6: SUBSEQUENT EVENTS
Exercise of Warrants
In July 1997, the Company's third party lender mentioned in Note 4 exercised
25,000 warrants to purchase 25,000 shares of the Company's common stock and
25,000 redeemable common stock purchase warrants for $100,000.
Exercise of Publicly Traded Warrants
As of July 29, 1997, in connection with the Company's notice of the warrant
redemption, the stock transfer agent notified the Company that more than 95% of
the publicly traded warrants had been exercised.
Exercise of Underwriter's Warrants
In July 1997, the underwriter mentioned in Note 4 exercised 10,000 warrants to
purchase 10,000 shares of the Company's common stock and 10,000 redeemable
common stock purchase warrants for $60,000. In addition, the underwriter
exercised 1,400 common stock purchase warrants to purchase 1,400 shares of
common stock for $12,740.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-QSB.
GENERAL
ModaCAD was incorporated in 1988 to develop, market and support software
products based on its proprietary modeling and rendering technology for use in
industrial design applications including the apparel, textile and home
furnishings industries. The Company's products utilize the Company's
proprietary modeling and rendering technology, operate on standard personal
computers running Macintosh or Windows operating systems and are grouped into
two principal product groups: commercial (computer aided design or "CAD" and
electronic merchandising products) and consumer (3-D Home Interiors products).
The Company's CAD software products are used principally by industrial
designers to model three-dimensional synthetic objects from two-dimensional
images and to render such objects in real time with photorealistic imagery.
The Company's electronic merchandising products combine the Company's technology
with digital product catalogs produced by the Company or by product
manufacturers using the Company's CAD software. The Company completed its
development of the 3-D Home Interiors product in 1996 and commenced receiving
revenues from the sales of this consumer product in late second quarter of
1997. The amount of revenues received from such products depends on various
factors outside the Company's control including, to a significant extent, on
the Company's sole publisher of the 3-D Home Interiors product, the price the
publisher establishes from time to time for such product, customer acceptance
of such product, royalties payable based on product sales and the publisher's
product release and marketing plans.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996
The following table sets forth selected items from the Company's statements of
operations (in thousands) and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C> <C> <C>
Net sales $1,133 100.0% $ 555 100.0%
Cost of sales 36 3.2 31 5.6
Selling, general and administrative 890 78.6 463 83.4
Research and development 22 1.9 7 1.3
Amortization of software development costs 168 14.8 62 11.2
------- ------ ------- ------
Total expenses 1,116 98.5 563 101.5
------- ------ ------- ------
Income (Loss) from operations 17 1.5 ( 8) (1.5)
Investment income 20 1.8 40 7.2
------- ------ ------- ------
Net income $ 37 3.3% $ 32 ( 5.7%)
======= ====== ======= ======
</TABLE>
7
<PAGE>
Net Sales
Net sales increased $578,000, or 104%, to $1,133,000 in the second quarter of
1997 from $555,000 in the second quarter of 1996 primarily due to sales
increases in the Company's commercial products (electronic merchandising and
CAD products), consumer products, consulting and training services and
maintenance fees. Net sales attributable to hardware sales decreased by
$8,000 due to the Company's decision to phase out its hardware sales in 1995.
The Company generated no hardware sales revenue in the second quarter of 1997.
Sales of commercial products increased $535,000, or 108%, to $1,030,000 in the
second quarter of 1997 from $495,000 in the second quarter of 1996 primarily
due to $400,000 foreign sales generated from two of the Company's major
customers in Europe and $113,000 domestic sales generated from another major
customer in the second quarter of 1997.
Sales of consumer products increased $7,000 due to the beginning of royalty
payments being received from the Company's publisher in connection with the
sales of the Company's 3-D Home Interiors product in the second quarter of
1997. The Company generated no such sales in the second quarter of 1996.
The Company received $25,000 in revenue generated from consulting services in
the second quarter of 1997 compared to no revenue from consulting services in
the second quarter of 1996. This increase was attributable to the software
consulting service provided to one of the Company's customers in conjunction
with the customer's annual conference meeting.
Training services increased by $1,000, or 5%, to $20,000 in the second quarter
of 1997 from $19,000 in the second quarter of 1996 primarily due to the
Company's decision to eliminate its outside independent contractor and to
provide customer training itself. Net sales in the first quarter of 1997 also
reflect a $11,000 increase in product maintenance fees.
Cost of Sales
Cost of sales increased $5,000, or 16%, to $36,000 in the second quarter of
1997 from $31,000 in the second quarter of 1996. This increase is primarily
due to a $29,000 increase in cost of commercial product sales and $24,000
decrease in cost of hardware sales. The increase in cost of commercial product
sales reflected the sales increase in commercial products. The decrease in
cost of hardware sales was due to the Company's decision to phase out its
hardware sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $427,000, or 92%, to
$890,000 in the second quarter of 1997 from $463,000 in the second quarter of
1996. This increase was primarily due to the increase of $131,000 in personnel
costs resulting from the hiring of additional personnel in 1996 to support the
Company's increased operating activities. Certain related costs including
travel, marketing, telephone and office supplies expenses increased $155,000,
or 89%, to $330,000 in the second quarter of 1997 from $175,000 in the second
quarter of 1996. The increases in the marketing expenses reflect the
implementation of the Company's planned expansion into new markets after the
close of the Company's initial public offering (the "IPO") in April 1996.
Additionally, professional services including accounting, legal and consulting
services increased $146,000, or 4,867%, to $149,000 in the second quarter of
1997 from $3,000 in the second quarter of 1996. The increase in professional
services was primarily due to the Company's increased requirements for these
services in the second quarter of 1997 compared to the second quarter of 1996
as a result of the Company's status as a public company in 1997.
8
<PAGE>
Research and Development
The Company incurred $682,000 of research and development costs during the
second quarter of 1997, of which $660,000 was capitalized as software
development costs and $22,000 was expensed, compared to $490,000 for the second
quarter of 1996, of which $483,000 was capitalized and $7,000 was expensed.
The 39% increase in research and development expenditures from the second
quarter of 1996 to the second quarter of 1997 was primarily due to the hiring
of additional personnel in connection with the further development of the
Company's commercial and consumer products.
Amortization of Software Development Costs
The amortization of software development costs increased $106,000, or 171%, to
$168,000 in the second quarter of 1997 from $62,000 in the second quarter of
1996 as the Company began marketing (and amortizing development costs
associated with) several new versions of software products after the second
quarter of 1996.
Investment Income
Investment income decreased $20,000, or 50%, to $20,000 in the second quarter
of 1997 from $40,000 in the second quarter of 1996 due to the decrease in
dividend income generated from a money market account in which the unexpended
proceeds from the Company's IPO are maintained. The decrease in dividend
income resulted from a smaller balance maintained in the money market account
in the second quarter of 1997 as compared to the balance maintained in that
account in the second quarter of 1996.
Income Taxes
The Company recorded no provision for income taxes in either the second quarter
of 1997 or the second quarter of 1996 due to the utilization of net operating
loss carryforwards.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
The following table sets forth selected items from the Company's statements of
operations (in thousands) and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C> <C> <C>
Net sales $1,729 100.0% $ 893 100.0%
Cost of sales 56 3.2 59 6.7
Selling, general and administrative 1,475 85.4 843 94.3
Research and development 47 2.7 43 4.8
Amortization of software development costs 336 19.4 98 10.9
------- ------ ------- ------
Total expenses 1,914 110.7 1,043 116.7
------- ------ ------- ------
Loss from operations (185) (10.7) (150) (16.7)
Investment income 40 2.3 40 4.5
------- ------ ------- ------
Net loss $ (145) 8.4% $ (110) (12.2%)
======= ====== ======= ======
</TABLE>
9
<PAGE>
Net Sales
Net sales increased $836,000, or 94%, to $1,729,000 in the first six months of
1997 from $893,000 in the comparable period of 1996 primarily due to sales
increases in the Company's commercial products (electronic merchandising and
CAD products), consumer products, consulting and training services and
maintenance fees. Net sales attributable to hardware sales decreased by
$8,000 due to the Company's decision to phase out its hardware sales in 1995.
The Company generated no hardware sales revenue in the first six months of 1997.
Sales of commercial products increased $749,000, or 96%, to $1,532,000 in the
first six months of 1997 from $783,000 in the first six months of 1996
primarily due to $400,000 foreign sales generated from two of the Company's
major customers in Europe and $363,000 domestic sales generated from two other
major customers in the first six months of 1997.
Sales of consumer products increased $7,000 due to the beginning of royalty
payments being received from the Company's publisher in relation with the sales
of the Company's 3-D Home Interiors product in the second quarter of 1997.
The Company generated no such sales in the first six moths of 1996.
The Company received $65,000 in revenue generated from consulting services in
the first six months of 1997 compared to no revenue from consulting services in
the first six months of 1996. This increase was attributable to the software
consulting service provided to the Company's customers in conjunction with the
sales of commercial products and the customer's annual conference meeting.
Training services increased by $9,000, or 35%, to $35,000 in the first quarter
of 1997 from $26,000 in the first six months of 1996 primarily due to the
Company's decision to eliminate its outside independent contractor and to
provide customer training itself. Net sales in the first quarter of 1997 also
reflect a $8,000 increase in product maintenance fees.
Cost of Sales
Cost of sales decreased $3,000, or 5%, to $56,000 in the first six months of
1997 from $59,000 in the first six months of 1996. This decrease is primarily
due to a $39,000 increase in cost of commercial product sales and $42,000
decrease in cost of hardware sales. The increase in cost of commercial product
sales reflected the sales increase in commercial products. The decrease in
cost of hardware sales was due to the Company's decision to phase out its
hardware sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $632,000, or 75%, to
$1,475,000 in the first six months of 1997 from $843,000 in the first six
months of 1996. This increase was primarily due to the increase of $204,000 in
personnel costs resulting from the hiring of additional personnel in 1996 to
support the Company's increased operating activities. Certain related costs
including travel, marketing, telephone and office supplies expenses increased
$233,000, or 77%, to $535,000 in the first six months of 1997 from $302,000 in
the first six months of 1996. The increases in the marketing expenses reflect
the implementation of the Company's planned expansion into new markets after
the close of the Company's initial public offering in April 1996. Additionally,
professional services including accounting, legal and consulting services
increased $199,000, or 1,809%, to $210,000 in the first six months of 1997 from
$11,000 in the first six months of 1996. The increase in professional services
was primarily due to the Company's increased requirements for these services in
the first six months of 1997 compared to the first six months of 1996 as a
result of the Company's status as a public company in 1997.
10
<PAGE>
Research and Development
The Company incurred $1,402,000 of research and development costs during the
first six months of 1997, of which $1,355,000 was capitalized as software
development costs and $47,000 was expensed, compared to $820,000 for the first
six months of 1996, of which $777,000 was capitalized and $43,000 was expensed.
The 71% increase in research and development expenditures from the first six
months of 1996 to the first six months of 1997 was primarily due to the hiring
of additional personnel in connection with the further development of the
Company's commercial and consumer products.
Amortization of Software Development Costs
The amortization of software development costs increased $238,000, or 243%, to
$336,000 in the first six months of 1997 from $98,000 in the first six months
of 1996 as the Company began marketing (and amortizing development costs
associated with) several new versions of software products after the first six
months of 1996.
Investment Income
Investment income in the first six months of 1997 and 1996 was dividend income
generated from a money market account in which the unexpended proceeds from the
Company's IPO are maintained. Since the Company received its IPO proceeds in
April 1996, investment income in the 1996 period was generated only in the
second quarter of 1996. As a larger balance was maintained in the account in
the second quarter of 1996, the investment income generated in the 1996 period
was equivalent to the income generated in the 1997 period.
Income Taxes
The Company recorded no provision for income taxes in either the first six
months of 1997 or the first six months of 1996 due to the utilization of net
operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's gross accounts receivable balance decreased $242,000, or 17%, to
$1,213,000 at June 30, 1997 from $1,455,000 at December 31, 1996. The decrease
was primarily due to the collection of a $750,000 payment from the Company's
consumer product distributor in March 1997 and a $513,000 receivable balance at
June 30, 1997 related to the sales generated at the end of the second quarter.
The allowance for doubtful accounts consists principally of amounts set up in
the fourth quarter of 1996 for two specific customers. The Company is still
pursuing collection from these customers.
In connection with loans from a third party in December 1995 and January 1996,
the Company granted such lender 125,000 and 75,000 warrants exercisable through
December 1997 and January 1998, respectively, each with an exercise price of
$4.00 per warrant. Each warrant gives the holder the right to purchase one
share of the Company's common stock and one redeemable warrant exercisable to
purchase one share of common stock at a price of $6.50 per share for a period
of five years from March 27, 1996. During the first six months of 1997, such
lender exercised a total of 102,500 warrants to purchase 102,500 shares of the
Company's common stock and 102,500 redeemable common stock purchase warrants
for $410,000. In July 1997, the third party lender exercised 25,000 warrants to
purchase 25,000 shares of the Company's common stock and 25,000 redeemable
common stock purchase warrants for $100,000.
11
<PAGE>
In April 1996, the Company completed an IPO of 1,400,000 units (each unit
consisting of one share of common stock and one warrant to purchase one share
of common stock) resulting in net proceeds to the Company of approximately
$5,400,000 after paying underwriters' fees and costs associated with the
offering. An additional 210,000 units were sold in April 1996 pursuant to the
over-allotment option granted to the underwriters resulting in additional net
proceeds to the Company of approximately $900,000 after paying underwriters'
fees and cost of issuance. The warrants are redeemable at the Company's option
commencing June 25, 1996 upon 30 days notice to holders of the warrants at
$0.01 per warrant if the closing bid price of the Company's common stock
averages in excess of $7.50 for a period of 20 consecutive trading days ending
within 15 days of the notice of redemption. On June 19, 1997, upon meeting
such criteria, the Company notified the holders of the publicly traded warrants
that it intended to redeem any unexercised warrants outstanding on July 29,
1997. As of June 30, 1997, the warrant holders had exercised a total of 44,200
warrants to purchase 44,200 shares of the Company's common stock for $287,300.
As of July 29, 1997, the stock transfer agent notified the Company that more
than 95% of the publicly traded warrants had been exercised.
In connection with the IPO in April 1996, the Company issued to the principal
underwriter in the IPO, for $1,400, a warrant to purchase 140,000 units, at a
per unit exercise price of $6.00, each unit consisting of one share of Common
Stock and one redeemable warrant exercisable to purchase one share of Common
Stock at an exercise price of $9.10 per share. Such units are exercisable for a
four-year period commencing March 26, 1997. In the second quarter of 1997, the
underwriter exercised a total of 36,400 warrants to purchase 36,400 shares of
the Company's common stock and 36,400 redeemable common stock purchase warrants
for $218,400. In July 1997, the underwriter exercised 10,000 warrants to
purchase 10,000 shares of the Company's common stock and 10,000 redeemable
common stock purchase warrants for $60,000. In addition, the underwriter
exercised 1,400 common stock purchase warrants to purchase 1,400 shares of
common stock for $12,740.
The Company anticipates continuing to use its capital primarily to fund the
activities related to the design, development, marketing, sales and support of
the Company's products. Together with its existing capital and anticipated
funds form operations, the Company believes that the net proceeds received form
the exercise of the warrants will be sufficient to provide its anticipated cash
needs for working capital and capital expenditure for at least the next 18
months. Thereafter, if cash generated from operations is insufficient to
satisfy the Company's capital requirements, the Company may have to sell
additional equity or debt securities or obtain credit facilities, assuming the
Company can do so on acceptable terms.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On June 10, 1997, the Company held its Annual Meeting of
Shareholders at which the shareholders approved:
(1) The election of Joyce Freedman, Maurizio Vecchione, Lee
Freedman, Andrea Vecchione, Stephen Wyle and Peter Frank to
the Board of Directors to serve until the next annual meeting
or until their successors are elected and qualified. The
following directors received the number of votes set opposite
their respective names.
For Election Withheld
Joyce Freedman 3,642,645 18,200
Maurizio Vecchione 3,642,645 18,200
Lee Freedman 3,642,645 18,200
Andrea Vecchione 3,642,645 18,200
Stephen Wyle 3,639,645 21,200
Peter Frank 3,642,645 18,200
(2) The approval of an amendment to the Company's 1995 Stock
Option Plan to increase the total number of shares of the
Company's Common Stock authorized for issuance thereunder
from 300,000 to 750,000 shares. Such proposal received
2,435,822 votes for approval, 59,130 votes against the
approval, 2,300 votes abstained, and there were 1,163,593
broker non-votes.
(3) The ratification of the Company's appointment of Singer Lewak
Greenbaum & Goldstein LLP as the Company's independent
certified public accountants for the 1997 fiscal year.
Such proposal received 3,641,505 votes for the ratification,
9,200 votes against the ratification and 10,140 votes
abstained.
Item 5. Other Information
None.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule.1
(b) Reports on Form 8-K
None.
- --------
1 This exhibit is being filed electronically in the electronic format specified
by EDGAR.
14
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ModaCAD, INC.
Date: July 30, 1997 By: /s/ LEE FREEDMAN
---------------------------
Lee Freedman
Vice President, Finance and
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Sequentially
Description Numbered Page
<S> <C>
27.1 Financial Data Schedule.1
</TABLE>
- --------
1 This exhibit is being filed electronically in the electronic format specified
by EDGAR.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATIONS AS OF MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10-QSB FOR QUARTER ENDED MARCH 31,1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,009,783
<SECURITIES> 0
<RECEIVABLES> 1,212,777
<ALLOWANCES> 124,141
<INVENTORY> 20,550
<CURRENT-ASSETS> 3,294,166
<PP&E> 1,339,412
<DEPRECIATION> 501,540
<TOTAL-ASSETS> 8,041,067
<CURRENT-LIABILITIES> 550,955
<BONDS> 0
0
0
<COMMON> 12,568,418
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,041,067
<SALES> 1,728,412
<TOTAL-REVENUES> 1,728,412
<CGS> 55,763
<TOTAL-COSTS> 55,763
<OTHER-EXPENSES> 1,857,920
<LOSS-PROVISION> 12,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (145,734)
<INCOME-TAX> 0
<INCOME-CONTINUING> (145,734)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,734)
<EPS-PRIMARY> (0.026)
<EPS-DILUTED> (0.026)
</TABLE>
