<PAGE> 1
As filed with the Securities and Exchange Commission on June 9, 1997
Registration No. 333-26691
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------------------------------------
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------
MODACAD, INC.
(Name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7372 95-4145930
(State or jurisdiction Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number Identification Number)
</TABLE>
1954 COTNER AVENUE, LOS ANGELES, CALIFORNIA 90025 (310) 312-6632
(Address and telephone number of principal executive offices
and principal place of business)
--------------------------------------------
JOYCE FREEDMAN
PRESIDENT
MODACAD, INC.
1954 COTNER AVENUE
LOS ANGELES, CALIFORNIA 90025
(310) 312-6632
(Name, address and telephone number of agent for service)
--------------------------------------------
Copies to:
JOHN A. ST. CLAIR, ESQ.
ROBERT R. JESUELE, ESQ.
SYLVIA K. BURKS, ESQ.
COUDERT BROTHERS
1055 WEST SEVENTH STREET, 20TH FLOOR
LOS ANGELES, CALIFORNIA 90017
(213) 688-9088
--------------------------------------------
Approximate date of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
<PAGE> 2
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF PROPOSED
EACH CLASS OF PROPOSED MAXIMUM
SECURITIES AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SECURITY PRICE FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 147,500(1) $9.00 $1,327,500(2) $ 402
no par value
Blosch 147,500(3) $3.44 $ 507,400(2) $ 154
Underlying
Warrants
Common Stock, 52,500(4) $9.00 $ 472,500(5) $ 143
no par value
Common Stock, 140,000(6) $9.00 $1,260,000(7) $ 382
no par value
Underwriter 140,000(8) $9.10 $1,274,000(7) $ 386
Underlying
Warrants
TOTAL $1,771,250 $1,467
=================================================================================================
</TABLE>
(1) Such shares of Common Stock are issuable upon exercise of the
outstanding warrants previously issued to R. Kirk Blosch ("Blosch") in
connection with Blosch providing bridge financing to the Company (the
"Blosch Warrants"), and are held by Blosch. Each Blosch Warrant is
exercisable for units, at a per unit exercise price of $4.00, each unit
consisting of one share of Common Stock and one redeemable warrant to
purchase one share of Common Stock. Pursuant to Rule 416, there is also
being registered such indeterminate number of shares of Common Stock as
may be issuable pursuant to the anti-dilution and adjustment provisions
of the Blosch Warrants. Pursuant to Rule 457(g), the registration fee
for such securities has been calculated based upon the average of the
high and low reported price of the publicly traded shares of Common
Stock as of May 6, 1997.
- 2 -
<PAGE> 3
(2) Assumes exercise of all outstanding Blosch Warrants.
(3) Such warrants (the "Blosch Underlying Warrants") are issuable upon
exercise of the Blosch Warrants held by Blosch. Pursuant to Rule 416,
there is also being registered such indeterminate number of Blosch
Underlying Warrants as may be issuable pursuant to the anti-dilution
and adjustment provisions of the Blosch Warrants. Pursuant to Rule
457(g), the registration fee for such securities has been calculated
based upon the average of the high and low reported price of the
publicly traded warrants as of May 6, 1997.
(4) Such shares of the Company's Common Stock are issuable upon exercise of
the outstanding warrants that were issued upon the previous exercise by
Blosch of warrants to purchase 52,500 units, each unit consisting of
one share of Common Stock and one underlying warrant to purchase one
share of Common Stock (the "Outstanding Blosch Underlying Warrants")
held by Blosch or a transferee of the Outstanding Blosch Underlying
Warrants. Pursuant to Rule 416, there is also being registered such
indeterminate number of shares of Common Stock as may be issuable
pursuant to the anti-dilution and adjustment provisions of the
Outstanding Blosch Underlying Warrants. Pursuant to Rule 457(g), the
registration fee for such securities has been calculated based upon the
average of the high and low reported price of the publicly traded
shares of Common Stock as of May 6, 1997.
(5) Assumes exercise of all Outstanding Blosch Underlying Warrants.
(6) Such shares of Common Stock are issuable upon exercise of the
outstanding warrants to purchase units, at a per unit exercise price of
$6.00, each unit consisting of one share of Common Stock and one
redeemable warrant to purchase Common Stock (the "Underwriter
Warrants") held by W.B. McKee Securities, Inc. (the "Underwriter") or
its transferee. Pursuant to Rule 416, there is also being registered
such indeterminate number of shares of Common Stock as may be issuable
pursuant to the anti-dilution and adjustment provisions of the
Underwriter Warrants. Pursuant to Rule 457(g), the registration fee for
such securities has been calculated based upon the average of the high
and low reported price of the publicly traded shares of Common Stock as
of May 6, 1997.
(7) Assumes exercise of all Underwriter Warrants.
(8) Such warrants (the "Underwriter Underlying Warrants") are issuable upon
exercise of the Underwriter Warrants. Pursuant to Rule 416, there is
also being registered such indeterminate number of Underwriter
Underlying Warrants as may be issuable pursuant to the anti-dilution
and adjustment provisions of the Underwriter Warrants. The registration
fee for such securities has been calculated based upon the exercise
price of $9.10.
The Company hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR
QUALIFICATION UNDER THE SECURUTIES LAWS OF ANY SUCH STATE.
- -------------------------------------------------------------------------------
SUBJECT TO COMPLETION
JUNE , 1997
ModaCAD, INC.
340,000 SHARES OF COMMON STOCK
147,500 BLOSCH UNDERLYING WARRANTS
140,000 UNDERWRITER UNDERLYING WARRANTS
This Prospectus relates to 340,000 shares of Common Stock, without par
value, of ModaCAD, Inc. (the "Company) (the "Shares"), 147,500 redeemable Blosch
Underlying Warrants (as hereinafter defined), and 140,000 redeemable Underwriter
Underlying Warrants (as hereinafter defined).
The registration statement on Form S-3 (the "Registration Statement")
of which this Prospectus is a part registers 147,500 shares of the Company's
Common Stock and warrants to purchase 147,500 shares of Common Stock (the
"Blosch Underlying Warrants"), all of which are issuable upon the exercise of
the outstanding warrants (the "Blosch Warrants") previously issued to R. Kirk
Blosch, to purchase units, each unit consisting of one share of Common Stock and
one redeemable warrant to purchase one share of Common Stock at an exercise
price of $6.50. The Registration Statement of which this Prospectus is a part
also registers 52,500 shares of Common Stock issuable upon exercise of the
outstanding warrants that were issued upon the previous exercise of 52,500
Blosch Warrants (the "Outstanding Blosch Underlying Warrants"). Such additional
number of shares of Common Stock, and such additional number of Blosch
Underlying Warrants, as may become issuable pursuant to the anti-dilution
provisions of the Blosch Warrants and Blosch Underlying Warrants, as the case
may be, are also registered under the Registration Statement of which this
Prospectus is a part. All of the Blosch Warrants are presently exercisable at a
per unit exercise price of $4.00. Of the Blosch Warrants, 72,500 expire on
December 1, 1997, and 75,000 of the Blosch Warrants expire on January 9, 1998.
The Blosch Underlying Warrants expire on March 27, 2001 and are redeemable at
the Company's option upon 30 days' notice to holders of the Blosch Warrants (the
"Blosch Underlying Warrantholders") 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.
The Registration Statement of which this Prospectus is a part also
registers 140,000 shares of Common Stock and warrants to purchase 140,000 shares
of Common Stock (the "Underwriter Underlying Warrants") which are issuable upon
exercise of the outstanding warrants (the "Underwriter Warrants") previously
issued to W.B. McKee Securities, Inc. ("McKee Securities"), the underwriter in
the Company's initial public offering. The Underwriter warrants are exercisable
at a per unit exercise price of $6.00, to purchase units, each unit consisting
of one share of Common Stock and one redeemable warrant to purchase one share of
Common Stock at an exercise price of $9.10. Such additional number of shares of
Common Stock, and such additional number of Underwriter Underlying Warrants, as
may become issuable pursuant to the anti-dilution provisions of the Underwriter
Warrants are also registered under the Registration Statement of which this
Prospectus is a part. The Underwriter Warrants are presently exercisable at a
per unit exercise price of $6.00 until March 27, 2001, each such unit consisting
of one share of Common Stock and one redeemable warrant (the "Underwriter
Underlying Warrants") exercisable to purchase one share of Common Stock at an
exercise price of $9.10. The Underwriter Underlying Warrants are redeemable at
the Company's option upon 30 days' notice to holders of the Underwriter
Underlying Warrants
- 1 -
<PAGE> 5
at a redemption price of $0.01 per Warrant if the closing bid price of the
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.
The Blosch Warrants, the Outstanding Blosch Underlying Warrants, and
the Underwriter Warrants are sometimes referred to herein as the "Warrants." The
Warrants and the Shares are sometimes referred to herein as the "Securities."
THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 3 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS COMPANY (1)
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<S> <C> <C> <C>
Common Stock, per $3.99(2) $0.00 $588,525(3)
share
- ---------------------------------------------------------------------------------------------
Blosch Underlying $0.01(2) $0.00 $1,475(3)
Warrants, per warrant
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Common Stock, per $6.50 $0.00 $341,250(4)
share
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Common Stock, per $5.99(5) $0.00 $838,600(6)
share
- ---------------------------------------------------------------------------------------------
Underwriter
Underlying Warrants, $0.01(5) $0.00 $1,400(6)
per warrant
- ---------------------------------------------------------------------------------------------
Total ......................$1,771,250 $0.00 $1,771,250
=============================================================================================
</TABLE>
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(1) Before deducting expenses payable by the Company estimated at $30,000.
(2) Issuable upon exercise of the Blosch Warrants to purchase units at an
exercise price of $4.00 per unit, each unit consisting of one share of
Common Stock and one warrant to purchase one share of Common Stock. For
purposes of this chart, the purchase price has been allocated as $3.99
For one share of common stock, and $0.01 for one warrant.
(3) Assumes the exercise of all Blosch Warrants.
(4) Assumes the exercise of all Outstanding Blosch Underlying Warrants.
- 2 -
<PAGE> 6
(5) Issuable upon exercise of the Underwriter Warrants to purchase units at
an exercise price of $6.00 Per unit, each unit consisting of one share
of Common Stock and one warrant to purchase one share of Common Stock.
For purposes of this chart, the purchase price is allocated as $5.99
For one share of Common Stock, and $0.01 for one warrant.
(6) Assumes the exercise of all Underwriter Underlying Warrants.
The date of this Prospectus is June , 1997
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<PAGE> 7
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
ModaCAD, Inc. ("ModaCAD" or the "Company") is subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company
is an electronic filer, and the Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-3 on May 7, 1997 (Reg. No. 333-26691) (herein together with all
amendments and exhibits thereto called the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities covered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement as permitted by the
rules and regulations of the Commission. For further information, reference is
made to the Registration Statement, including the exhibits filed or incorporated
as a part thereof. Statements contained herein concerning the provisions of
certain documents filed with, or incorporated by reference in, the Registration
Statement are not necessarily complete and each such statement is qualified in
its entirety by reference to the applicable document filed with the Commission.
The Registration Statement may be inspected without charge at the offices of the
Commission at 450 Fifth Street, N.W., Washington D.C. 20549, and copies of all
or any part thereof may be obtained from such office upon the payment of the
fees prescribed by the Commission.
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<PAGE> 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the
Commission under the Exchange Act are hereby incorporated by reference in this
Prospectus: (i) the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996; (ii) the Company's Quarterly Reports on Form 10-QSB for the
quarter ended March 31, 1997, and (iii) the description of the Company's Common
Stock as set forth in Item 1 of the Company's Registration Statement on Form 8A,
filed with the Commission on March 28, 1996, including any amendments or reports
filed for the purpose of updating such description.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering made by this Prospectus
shall be deemed to be incorporated in this Prospectus by reference and to be a
part of this Prospectus from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any and all of the documents referred to above which have been
or may be incorporated by reference in this Prospectus (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the information this Prospectus incorporates). Requests for such copies
should be directed to ModaCAD, Inc., 1954 Cotner Avenue, Los Angeles, California
90025, Attention: President (Telephone: (310) 312-6632).
THE COMPANY
The Company was incorporated in February 1988. The Company's executive
offices are located at 1954 Cotner Avenue, Los Angeles, California 90025, and
its telephone number is (310) 312-6632. The Company designs, markets and
supports advanced virtual reality, rendering and modeling software for
industrial design and retail customers primarily in the apparel, textile, home
furnishings and home design industries.
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before exercising the Warrants to purchase the Warrants and Shares
registered hereunder.
LIMITED OPERATING HISTORY; ACCUMULATED DEFICIT. The Company was
incorporated in February 1988 and until 1992 was primarily engaged in research
and development and had
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<PAGE> 9
limited revenues. Beginning in 1993, the Company began broader marketing efforts
to commercial accounts, which efforts were increased in 1994 and 1995. After
incurring a loss of approximately $886,500 in 1993, the Company had net income
of approximately $382,600 in 1994, net income of approximately $8,100 in 1995,
and net income of approximately $645,440 in 1996. As of March 31, 1997, the
Company had working capital of $2,489,328, shareholders' equity of $6,591,740,
and an accumulated deficit of approximately $5,115,165. The Company reported a
net loss of $182,593 for the three months ended March 31, 1997. The Company's
limited operating history makes the prediction of future operating results
difficult, and there is no assurance that the Company will continue to
experience revenue growth or that the Company will be profitable in the future.
FLUCTUATIONS IN OPERATING RESULTS. The Company has experienced, and
expects to continue to experience, substantial fluctuations in revenues and
other operating results due to a variety of factors. The Company's quarterly
results of operations can be substantially affected by factors such as demand
for the Company's products, research and development expenditures, the timing of
receipt of software license fees, customer acceptance of new products and
product enhancements, and customer acceptance of product promotions by the
Company or by its competitors. The Company's quarterly results of operations are
also affected by changes in pricing policies by the Company and by its
competitors, product returns, changes in general economic conditions and other
factors. The Company ships products as orders are received and therefore
operates with little or no backlog.
In view of such fluctuations and changes in the Company's business
strategy to concentrate its efforts on its electronic merchandising and consumer
software product lines, the Company believes that quarterly comparisons of its
financial results are not necessarily meaningful and should not be relied on as
an indication of future performance. The Company's 1996 operating results were
materially affected by nonrecurring, nonrefundable advance royalty payments
earned in the third and fourth quarters of 1996. The Company anticipates
incurring losses in the second quarter of 1997 because of increased research and
development expenditures and sales and marketing efforts associated with
completing development of and marketing new products derived from the Company's
core technology that are targeted at retailers, mass merchants, OEM users and
Internet applications for 3-D visualization. The Company's business strategy has
been focused on increased research and development and sales and marketing
activities relating to enhanced versions of its electronic merchandising
products and its new consumer software product line, and the Company's efforts
with respect to sales of its CAD software have been somewhat more limited. The
Company's operating results during the third and fourth quarters of 1997 are
expected to be significantly affected by the timing of the completion of
development and introduction of new products as well as the Company's first
consumer software product line formerly referred to internally as ModaCAD's
"Home Decorator Series" and currently referred to as "3-D Home Interiors."
Introduction of such products into the market and the revenues received by the
Company from such products will be dependent upon the timing of release for
products and marketing plans, including the 3-D Home Interiors published by
Broderbund Software, Inc. ("Broderbund"), the price established for such
products as well as the levels and timing of product sales and other factors,
many of which are uncertain.
UNCERTAINTY OF DEMAND FOR EXISTING PRODUCTS AND MARKET ACCEPTANCE OF
NEW PRODUCTS. The Company's success will to a large extent be affected by the
successful introduction and market acceptance of 3-D Home Interiors, the
Company's ability to grow its electronic merchandising business and the
Company's ability to generate continued revenues from CAD product sales.
- 6 -
<PAGE> 10
In 1996, the Company completed development of 3-D Home Interiors, the
initial title in its consumer home decorating software series, which utilizes
the Company's proprietary visualization technology. There is no assurance,
however, that the Company will be able to generate additional consumer product
titles. In March 1996, the Company licensed to Broderbund the right to publish
3-D Home Interiors (the "Broderbund Agreement"). Broderbund unveiled the product
during the first quarter of 1997 and released the product commercially in the
Spring of 1997. As with any new consumer software, it is impossible to predict
the level of demand for 3-D Home Interiors.
Sales of the Company's commercial products (CAD products and electronic
merchandising products) have begun to represent a declining percentage of the
Company's total revenues. The Company believes that its revenue growth in the
CAD market will depend substantially on (i) its ability to produce inexpensive
shrink-wrapped design software for use in standard PC's and which is available
through mass-market software distribution and (ii) increased sales of CAD
products used to create digital product catalogs for use with the Company's
electronic merchandising and consumer software products. There is no assurance
that the Company will be able to produce shrink-wrapped CAD software which will
be competitive in the marketplace or that it will be able to increase its sales
of CAD products for catalog production.
Revenue growth for the Company's electronic merchandising products is
substantially dependent upon the continued support of those products by
manufacturers and vendors in the home furnishings and home design industries.
The Company has established relationships with major home furnishing
manufacturers and vendors to feature their products or product lines in catalogs
utilizing the Company's electronic merchandising software. In addition,
retailers such as Sears Roebuck and Co. ("Sears"), J.C. Penney Company, Inc.
("J.C. Penney") and Levitz Furniture Corporation ("Levitz") have conducted or
are conducting trial uses of the Company's electronic merchandising software.
The trial uses conducted by Levitz has been completed, and Levitz has licensed
the Company's software. The Sears and J.C. Penney trial uses of the Company's
electronic merchandising software are in the latter stages of their respective
six to 12-month trial periods. There is no indication whether Sears and J.C.
Penney will license the Company's electronic merchandising software upon
completion of the trial use periods. There is no assurance that manufacturers or
vendors whose products are represented in electronic merchandising catalogs for
in-store use will continue to support the Company's electronic merchandising
software or that such companies will support the use of 3-D Home Interiors by
licensing their digital product catalogs for use with 3-D Home Interiors. If a
vendor decides not to use the Company's electronic merchandising products, the
Company would not expect it to support 3-D Home Interior. The rejection of
either or both product lines by one or more of the vendors named above could
have a material adverse effect on the success of such products due to the
significance of such vendors in the home furnishings and fixtures marketplace.
RAPID TECHNOLOGICAL CHANGES AND DEPENDENCE ON NEW PRODUCT DEVELOPMENT.
The Company is focusing its near-term product development and marketing efforts
primarily on new electronic merchandising products, commercial and consumer
product lines as well as new Internet software applications, all based on the
Company's core rendering and modeling technology. The markets for such products
are characterized by rapid changes in technology, customer needs and preferences
and evolving industry standards. In addition, the consumer market for personal
productivity software is relatively young and unpredictable. Consequently,
- 7 -
<PAGE> 11
the Company expects that it will encounter rapid product obsolescence and the
necessity for frequent new and enhanced product introductions. The introduction
of new technologies, including new operating systems, platforms and the means of
distributing consumer software and electronic merchandising products could
render the Company's products obsolete or unmarketable. The Company's future
success will depend significantly on its ability to enhance its current
products, to develop new products that meet changing customer needs on a timely
and cost-effective basis, and to respond to emerging industry standards and
other technological changes. The development of new products involves
considerable expenditures and can take from several months to several years.
Accordingly, new product development requires a long-term forecast of market
trends and customer needs and often a substantial commitment of capital
resources with no assurance that such products will be commercially viable.
There can be no assurance that the Company will be successful in enhancing its
existing products or developing new products on a timely basis or that such new
or enhanced products will achieve market acceptance or sustain any such
acceptance for any significant period. Any failure by the Company to anticipate
or respond adequately to changes in technology and customer requirements and
preferences, or any significant delays in development of enhanced and new
products, will have a material and adverse effect on the Company's business,
financial condition and results of operations.
Software products as complex as those offered by the Company may
contain undetected programming errors or "bugs" when introduced or as new
versions are released. Despite significant testing by the Company and by current
and potential distributors and customers, there is no assurance that errors will
not be found in new products after commencement of commercial shipments,
resulting in loss of or delay in market acceptance. Furthermore, from time to
time the Company and others may announce new products, capabilities or
technologies that have the potential to replace or shorten the life cycles of
the Company's existing products. Announcements of currently planned or other new
products by the Company or its competitors may cause customers to defer
purchasing the Company's existing products or cause distributors to return
products to the Company.
DEPENDENCE ON A SINGLE CORE TECHNOLOGY; LIMITED PRODUCT LINES. The
Company has derived substantially all of its revenues to date from sales of its
CAD products for industrial design applications and electronic merchandising
products, and from its new consumer product. Each of these products is based on
the Company's core rendering and modeling technology. The Company anticipates
that, in the foreseeable future, its enhanced and new products will also be
based on that technology and expected enhancements to that technology. Thus, the
Company's revenues are, and for the foreseeable future will be, based on the
market acceptance of products utilizing the Company's core technology. Any
decline in demand for products based on such technology, whether as a result of
competition, technological change or any other reason, would have a material and
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION. The markets for the Company's products are intensely and
increasingly competitive. Existing software developers and publishers may
broaden their product lines to
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<PAGE> 12
compete with the Company's products, and potential new competitors, including
software and book publishers, and diversified media companies, may enter the
market for, or increase their focus on, CAD and electronic merchandising
software in the industries served by the Company and in the consumer software
industry for home decorating and design. Some of the companies with which the
Company currently competes or may in the future compete, have or may have
greater financial, technical, sales and marketing and customer support
resources, as well as better access to consumers and electronic merchandising
customers than the Company. Some of the companies also have longer operating
histories than the Company and better brand name recognition.
There are a number of successful home design software products on the
market, including 3-D Home Architect by Broderbund, Picture this Home! Kitchen
by Autodesk, Inc., Design Center 3-D by SoftKey Software, Inc., and Home Design
3-D by Expert Software, Inc., which are expected to compete with the Company's
3-D Home Interiors. In addition to the companies whose products are mentioned
above, the Company's competitors in this market include several large companies
with substantially greater resources, as well other companies of varying sizes
and resources, including Softdesk, Inc. and Books-that-Work. There can be no
assurance that one or more of those companies will not produce products which
are more attractive to consumers than any developed by the Company or will not
be more successful than the Company in their marketing of such products.
Although Broderbund and ModaCAD have entered into the Broderbund Agreement for
the publication of 3-D Home Interiors which contains certain mutual
noncompetition covenants, such agreement does not prohibit Broderbund from
publishing or distributing similar products which could compete with the
Company's products, including Broderbund's 3-D Home Architect, which Broderbund
currently publishes. Additionally, the Company expects increased competition
from new competitors who may in the future publish competitive home decorating
software products.
DEPENDENCE ON SIGNIFICANT CUSTOMERS. During 1995 and 1996, the
Company's largest commercial product purchaser, ModaCAD Europe, accounted for
approximately 16% and 12%, respectively, of the Company's total revenues. During
1996, the publisher of the Company's first consumer product, Broderbund,
accounted for approximately 45% of the Company's total revenues. The Company may
continue to be dependent on these two or additional significant customers, the
loss of which could have a material and adverse effect on the Company's
business.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company distributes
its products in approximately 33 countries and revenues from sales outside the
United States represented 16% and 12% of the Company's revenues in 1995 and
1996, respectively. Adaptation of the Company's products for distribution in
foreign countries can be time consuming and costly. In distributing its products
in non-domestic markets, the Company faces the additional risks of unexpected
changes in regulatory requirements, tariffs and other trade barriers, longer
accounts receivable payment cycles, difficulties in managing international
operations, potentially adverse tax consequences, difficulties in repatriating
earnings and the burdens of complying with a wide
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variety of foreign laws. Although to date such risks have not materially and
adversely affected the Company's business, there is no assurance that they may
not do so in the future.
LACK OF CONSUMER PRODUCT EXPERIENCE AND NAME RECOGNITION; DEPENDENCE ON
DISTRIBUTOR. 3-D Home Interiors is the Company's first significant foray into
the consumer products market. It will be necessary for the Company or its
publisher, Broderbund, to develop a positive consumer identity for the product
in order to successfully market 3-D Home Interiors at the retail level. The cost
of developing a high-level of consumer awareness will be substantial, and the
success of advertising and other brand-awareness efforts cannot be assured. None
of the Company's executives has substantial experience in the publication or
distribution of consumer software products. Market acceptance of 3-D Home
Interiors will depend on many factors, including the product's appeal at an
acceptable price and the release and marketing strategies and support of the
Company's publisher. Broderbund will bear the marketing costs in connection with
the 3-D Home Interiors product. The Company is not currently engaging in any
independent marketing activities with respect to this product.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent on the continued service of its key technical and management
personnel, particularly Joyce Freedman, its President, Maurizio Vecchione, its
Executive Vice President, and Steven Gentry, its Director of Engineering. The
Company's growth and future success will depend in large part on its ability to
continue to hire, motivate and retain those and other qualified employees. The
competition for such personnel is intense, and the loss of key employees could
have an adverse effect on the Company. Although Ms. Freedman and Mr. Vecchione
each have an employment agreement with the Company, there can be no assurance
that the Company will be able to retain them in the future.
PATENTS; RELIANCE ON INTELLECTUAL PROPERTY PROTECTION. The Company's
ability to compete effectively depends in large part on its ability to develop
and maintain as proprietary the essential parts of its technology. The Company
holds two United States patents. The first patent covers the Company's rendering
and modeling technology. The second patent covers 3-D modeling techniques. In
addition to patent protection, the Company relies on a combination of (i) trade
secret, copyright and trademark laws, (ii) confidentiality and nondisclosure
agreements, and (iii) other contractual and technical measures to protect its
proprietary rights. Although the Company intends to enforce aggressively its
intellectual property rights, such protection may not preclude competitors from
developing products with features similar to the Company's products, and there
can be no assurance that such protection will be available or be enforceable in
any particular instance of competition or that the Company will have the
financial resources necessary to enforce its patent, trade secret or other
intellectual property rights which may be infringed. The Company employs a "lock
and key" system with respect to the proprietary information underlying its
software. This system is designed to ensure that only certain key employees have
access to such information, all of whom have signed confidentiality and
nondisclosure agreements. There can be no assurance that any confidentiality and
nondisclosure agreements between the Company and its employees and others will
provide adequate protection
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for the Company's proprietary information in the event of any unauthorized use
or disclosure of such proprietary information. The Company has seven registered
trademarks, including the mark ModaCAD. The Company is aware that the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. Furthermore, the Company has
not sought or received patent protection in any foreign jurisdiction nor
trademark protection for its product trademarks in most foreign jurisdictions.
Some aspects of the Company's products are not subject to intellectual property
protection. The costs to the Company of maintaining its trade secret and
intellectual property rights protection program have not been and are not
expected to be significant. The Company has not had to enforce its patent rights
against any third party but expects that it would have sufficient capital
resources to do so depending on the third party involved and nature of the
action.
PRODUCT INFRINGEMENT. The Company believes that its products,
trademarks and other proprietary rights do not infringe on the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not assert infringement claims against the Company in the future. The
Company has agreed to defend and indemnify Broderbund against certain
infringements, unfair competition and similar claims relating to the 3-D Home
Interiors software product and the components developed by the Company. The
successful assertion of one or more infringement claims would have a material
adverse effect on the Company's business, operating results and financial
condition. While the Company is not currently engaged in any intellectual
property litigation or proceedings, there can be no assurance that it will not
become so involved in the future. An adverse outcome in litigation or similar
proceedings could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from others or require the
Company to cease marketing or using certain products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If the Company is required to obtain licenses under
patents or proprietary rights of others, there can be no assurance that any
required licenses would be made available on terms acceptable to the Company, if
at all. In addition, the cost of responding to an intellectual property
litigation claim both in legal fees and expenses and the diversion of management
resources, whether or not the claim is valid, could have a material adverse
effect on the Company's results of operations.
NO PUBLIC MARKET FOR UNDERWRITER UNDERLYING WARRANTS. There is no
public market for the Underwriter Underlying Warrants, and there can be no
assurance that an active trading market will develop or, if it develops, that it
will be sustained. Holders of the Underwriter Underlying Warrants may,
therefore, have difficulty selling their securities should they desire to do so.
POSSIBLE VOLATILITY OF STOCK AND WARRANT PRICES. The exercise prices of
the Warrants bear no relation to any objective criteria of value, and should in
no event be regarded as an indication of any future market price of the
securities offered hereby. The trading price of the Company's Common Stock and
Warrants could be subject to significant fluctuation in response to variations
in quarterly results of operations, announcements of technological innovations
or new products by the Company or its competitors, developments or disputes with
respect to proprietary rights, general trends in the industry and overall market
conditions and other factors. The market for securities of early stage,
small-market capitalization companies has been highly volatile in the first
quarter of 1997 and in recent years, often as a result of factors unrelated to a
company's operations. The price of the Company's Common Stock ranged, in the
quarter ended March 31, 1997, from a low of 5-5/8 to a high of 10. The price of
the Company's Warrants ranged, in the quarter ended March 31, 1997, from a low
of 1-7/16 to a high of 4-11/16.
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SHARES ELIGIBLE FOR FUTURE SALE. As of June 6, 1997, the Company had
3,923,290 shares of Common Stock issued and outstanding, and if all of the
Warrants are exercised, the Company will have 5,533,290 shares of Common Stock
issued and outstanding assuming no other issuances. Of these shares, 1,662,500
shares of Common Stock are freely tradeable pursuant to an effective
registration statement on Form SB-2 under the Securities Act and 5,000 shares
are freely tradeable pursuant to an effective registration statement on Form S-8
under the Securities Act. Upon the effectiveness of the Registration Statement
of which this Prospectus forms a part, the 340,000 shares issuable upon exercise
of the Warrants will be freely tradeable without restriction or further
registration under the Securities Act by persons other than "affiliates" of the
Company (as that term is defined in Rule 144 under the Securities Act) who are
subject to Rule 144 notice and manner of sale requirements and volume
restrictions. As of June 6, 1997, 163,500 shares of Common Stock were subject
to issuance upon exercise of outstanding and exercisable options granted under
the Company's 1995 Stock Option Plan and, except to the extent that shares
issued upon exercise of such options are held by affiliates (who, as noted
above, are subject to Rule 144 notice and manner of sale requirements and volume
restrictions), will be eligible for immediate resale in the public market upon
exercise of such options.
The balance of 2,255,790 shares of outstanding Common Stock previously
issued by the Company which have not been registered under the Securities Act as
described above are "restricted securities," as that term is defined under Rule
144 promulgated under the Securities Act, and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration such as Rule 144. Each holder of Common Stock who at
the time of the Company's initial public offering was an officer, director or
key employee of the Company has entered into a "lock-up" agreement providing
that such shareholder will not offer, sell, pledge, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, any
shares of the Company's Common Stock or any security or other instrument which
by its terms is convertible into, exercisable for, or exchangeable for shares of
the Company's Common Stock until after September 26, 1997 without the prior
written consent of the underwriter for the Company's initial public offering in
March 1996. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rule 144, of the
2,255,790 restricted shares, 2,185,501 shares of Common Stock will be eligible
for sale after September 26, 1997; on such date, all such shares will have been
held for more than one year and will be tradeable subject to Rule 144 notice and
manner of sale requirements and volume restrictions applicable to sales by
affiliates. Of the remaining 70,289 restricted shares, 4,327 shares are freely
tradeable under Rule 144(k) because they have been held for more than two years
by nonaffiliates of the Company, 3,462 shares have been held for more than one
year and are thus tradeable subject to Rule 144 notice and manner of sale
requirements and volume restrictions, and 62,500 shares have been held by a
nonaffiliate of the Company for less than one year and thus are not yet freely
tradeable pursuant to Rule 144. In addition, the Company filed a registration
statement on Form S-3 with the Commission on May 1, 1997 (Reg. No. 333-26349),
which, upon its effectiveness, will register 1,610,000 shares of Common Stock
issuable upon exercise of warrants held by the public; and upon the
effectiveness of such registration, such shares, when
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issued, will be freely tradeable. Sales of substantial amounts of such shares in
the public market following the expiration of the lock-up agreements or the
prospect of such sales could adversely affect the market price of Common Stock.
CONCENTRATION OF OWNERSHIP. Assuming all of the Warrants are exercised,
the current executive officers and directors of the Company and their affiliates
will beneficially own or have voting control over approximately 54% of the
outstanding Common Stock. Accordingly, these individuals will have the ability
to influence the election of the Company's directors and effectively to control
most corporate actions. This concentration of ownership may also have the effect
of delaying, deterring or preventing a change in control of the Company.
ABSENCE OF DIVIDENDS. The Company has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future.
DILUTION. Assuming the exercise of all of the Blosch Warrants, the
Underwriter Warrants and the Outstanding Blosch Underlying Warrants at the per
unit exercise price of $4.00, $6.00 and $6.50, respectively, the issuance of the
340,000 shares of Common Stock registered hereunder, and the receipt of the
estimated net proceeds therefrom, the Company's existing shareholders will
experience an immediate increase in net tangible book value of approximately
$0.34 per share. Purchasers of Common Stock upon exercise of the Blosch Warrants
will experience immediate dilution in net tangible book value of approximately
$2.82 per share; purchasers of Common Stock upon exercise of the Underwriter
Warrants will experience immediate dilution in net tangible book value of $4.82
per share; and purchasers of Outstanding Blosch Underlying Warrants will
experience immediate dilution in net tangible book value of $5.32 per share.
REDEEMABLE WARRANTS. The Company has issued to the public as part of
its initial public offering of securities 1,610,000 warrants to purchase the
Company's Common Stock, redeemable at the option of the Company upon
satisfaction of certain conditions relating to the trading price of Common
Stock, which is traded on the Nasdaq SmallCap Market. (the "Publicly Traded
Warrants"). The Blosch Underlying Warrants are also redeemable by the Company.
The Publicly Traded Warrants are redeemable at the Company's option upon 30
days' notice to holders of the Blosch Warrants (the "Blosch Underlying
Warrantholders") 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.
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<PAGE> 17
If the Company exercises its option to redeem the Publicly Traded
Warrants prior to the issuance of the Blosch Underlying Warrants pursuant to
the exercise of the Blosch Warrants, there may not be any market for the
unredeemed Blosch Underlying Warrants when the Blosch Warrants are exercised,
and holders of the Blosch Underlying Warrants and the Underwriter Underlying
Warrants might have difficulty selling such securities.
PRESENT INTENTION TO REDEEM WARRANTS. As of the effective date of the
Registration Statement of which this Prospectus is a part, the average closing
bid price of the Company's Common Stock satisfied the minimum price condition to
the Company's redemption of the Warrants. Subject to consideration and action by
the Company's Board of Directors with respect to such redemption, it is the
Company's intention to call the Warrants for redemption following the
effectiveness of the Registration Statement of which this Prospectus is a part.
LIMITATIONS ON LIABILITY OF DIRECTORS. The Company's Articles of
Incorporation substantially limits the liability of the Company's directors to
the Company and its shareholders for breach of fiduciary and other duties to the
Company.
DISCRETIONARY USE OF PROCEEDS. The Company currently intends to use the
proceeds from the offering, in addition to its $2,138,963 of cash and
cash-equivalents on hand at December 31, 1996, for working capital purposes,
investment in additional development and acquisition opportunities, and to
finance expansion of the Company's business. The Company's management will have
broad discretion as to the use of such proceeds and management reserves the
right to reallocate all proceeds to working capital. The Company has not yet
determined in which of its existing or future development opportunities it will
ultimately invest. The Company does not currently have any pending acquisitions,
nor does it have any specific planned acquisitions. See "Use of Proceeds."
ADDITIONAL CAPITAL. While the Company has neither pending nor planned
acquisitions nor other plans that would require it to seek additional funding,
it may be required to do so to complete or accelerate certain software
development and marketing programs. There can be no assurance that such funding
will be available on terms acceptable to the Company, and failure to procure
such funding on acceptable terms could materially and adversely affect the
Company and the Company's results of operations.
USE OF PROCEEDS
The net proceeds to the Company from the offering are estimated to be
approximately $1,741,250 (after deducting estimated offering expenses of
approximately $30,000), assuming all Warrants are exercised for shares of Common
Stock. There is no assurance that any or all of the Warrants will be exercised.
The Company expects to use the net proceeds from the exercise of the Warrants
for working capital purposes, including enhancement of its existing software
products, expansion of its product lines by developing new software products
principally directed at the consumer marketplace, and expansion of its
distribution network and its sales and marketing forces within the United States
and internationally.
Pending such uses, the net proceeds will be invested in short-term,
investment grade, interest-bearing securities.
RECENT DEVELOPMENTS
In May 1997, ModaCAD announced that Broderbund commenced shipping 3-D
Home Interiors, a new consumer software product designed and developed by the
Company which is being published by Broderbund. In June 1997, ModaCAD announced
the unveiling of a new product line, called ModaVision, targeted at retailers
and mass merchants. ModaVision is designed to enable the retailer to create and
view three dimensional, photo-realistic renderings of store-featured products
to enable customers to visualize such products in a virtual room scene.
PLAN OF DISTRIBUTION
The Company will issue the Common Stock and the Blosch Underlying
Warrants and Common Stock issuable upon exercise of the Blosch Warrants only
upon exercise of the Blosch Warrants; it will issue the Common Stock issuable
upon exercise of the Outstanding Blosch Underlying Warrants only upon exercise
of the Outstanding Blosch Underlying Warrants; it will issue the Underwriter
Underlying Warrants and the Common Stock issuable upon exercise of the
Underwriter Warrants only upon exercise of the Underwriter Warrants. The Company
will issue such Warrants and/or Common Stock only to the registered holders or a
transferee of the
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<PAGE> 18
Blosch Warrants and the Underwriter Warrants, as the case may be, in accordance
with the terms of such warrants, if and when such holders exercise the warrants.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law (the "GCL")
provides that a corporation may indemnify corporate "agents" (including
directors, officers and employees of the corporation) against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with defending non-derivative actions if such person acted in good
faith and in a manner such person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of such person was unlawful, and against
expenses actually and reasonably incurred in connection with defending
derivative actions if such person acted in good faith and in a manner such
person believed to be in the best interests of the corporation and its
shareholders. Indemnification is obligatory to the extent that an agent of a
corporation has been successful on the merits in defense of any such proceeding
against such agent, but otherwise may be made only upon a determination in each
instance either by a majority vote of a quorum of the Board of Directors (other
than directors involved in such proceeding), by independent legal counsel if
such a quorum of directors is not obtainable, by the shareholders (other than
shareholders to be indemnified), or by the court, that indemnification is proper
because the agent has met the applicable statutory standards of conduct.
Corporations may also advance expenses incurred in defending proceedings against
corporate agents, upon receipt of an undertaking that the agent will reimburse
the corporation unless it is ultimately determined that the agent is entitled to
be indemnified against expenses reasonably incurred.
The indemnification provided by Section 317 of the GCL is not deemed to
be exclusive of any other rights to which agents of the Company seeking
indemnification may be entitled under any bylaw, agreement, vote of shareholders
or disinterested directors, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent such
additional rights are authorized in the Company's articles of incorporation.
Article IV of the Company's Amended and Restated Articles of Incorporation
provides that the liability of the directors of the Company for monetary damages
shall be eliminated to the fullest extent permissible under California law.
Article V of the Company's Amended and Restated Articles of Incorporation
authorizes the Company to provide for indemnification of its agents for breach
of duty to the Company and its shareholders, through bylaw provisions or through
agreements with such agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the GCL, subject to the limits on such excess
indemnification set forth in Section 204 of the GCL.
Section 5.7 of the Company's bylaws provides that the Company will
indemnify each of its agents against expenses, judgments, fines, settlements or
other amounts, actually and reasonably incurred by such person by reason of such
person having been made or threatened to be made a party to a proceeding to the
fullest extent permissible by the provisions of Section 317 of the GCL, and the
Company will advance the expenses reasonably expected to be
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<PAGE> 19
incurred by such agent upon receipt of an undertaking that the agent will
reimburse the Company unless it is ultimately determined that the agent is
entitled to be indemnified against expenses reasonably incurred.
The Company has obtained directors and officers insurance with a
maximum coverage of $2,000,000.
Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for
the Company by Coudert Brothers, Los Angeles, California.
EXPERTS
The audited financial statements and schedules incorporated by
reference in this Prospectus and elsewhere in the Registration Statement have
been audited by Singer Lewak Greenbaum & Goldstein LLP, independent public
accountants, as indicated in the report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
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Table of Contents
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Page
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ModaCAD, INC.
340,000 SHARES OF COMMON STOCK
147,500 BLOSCH UNDERLYING WARRANTS
140,000 UNDERWRITER UNDERLYING WARRANTS
PROSPECTUS
June , 1997
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with the sale
and distribution of the securities being registered. All the amounts shown are
estimates except for the SEC registration fee:
<TABLE>
<CAPTION>
Registration
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SEC registration fee ...........................................$ 1,467
Accounting fees and expenses ...................................$ 2,000
Legal fees and expenses ........................................$ 20,000
Cost of printing ............................................. .$ 2,000
Miscellaneous expenses .........................................$ 4,533
Total ..................................................$ 30,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law (the "GCL")
Corporations Code provides that a corporation may indemnify corporate "agents"
(including directors, officers and employees of the corporation) against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with defending non-derivative actions if such
person acted in good faith and in a manner such person reasonably believed to be
in the best interests of the corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of such person was
unlawful, and against expenses actually and reasonably incurred in connection
with defending derivative actions if such person acted in good faith and in a
manner such person believed to be in the best interests of the corporation and
its shareholders. Indemnification is obligatory to the extent that an agent of a
corporation has been successful on the merits in defense of any such proceeding
against such agent, but otherwise may be made only upon a determination in each
instance either by a majority vote of a quorum of the Board of Directors (other
than directors involved in such proceeding), by independent legal counsel if
such a quorum of directors is not obtainable, by the shareholders (other than
shareholders to be indemnified), or by the court, that indemnification is proper
because the agent has met the applicable statutory standards of conduct.
Corporations may also advance expenses incurred in defending proceedings against
corporate agents, upon receipt of an undertaking that the agent will reimburse
the corporation unless it is ultimately determined that the agent is entitled to
be indemnified against expenses reasonably incurred.
The indemnification provided by Section 317 of the GCL is not deemed to
be exclusive of any other rights to which agents of the Company seeking
indemnification may be entitled under any bylaw, agreement, vote of shareholders
or disinterested directors, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent such
additional rights are authorized in the Company's articles. Article IV of the
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<PAGE> 22
Company's Amended and Restated Articles of Incorporation provides that the
liability of the directors of the Company for monetary damages shall be
eliminated to the fullest extent permissible under California law. Article V of
the Company's Amended and Restated Articles of Incorporation authorizes the
Company to provide for indemnification of its agents for breach of duty to the
Company and its shareholders, through bylaw provisions or through agreements
with such agents, or both, in excess of the indemnification otherwise permitted
by Section 317 of the GCL, subject to the limits on such excess indemnification
set forth in Section 204 of the GCL.
Section 5.7 of the Company's bylaws provides that the Company will
indemnify each of its agents against expenses, judgments, fines, settlements or
other amounts, actually and reasonably incurred by such person by reason of such
person having been made or threatened to be made a party to a proceeding to the
fullest extent permissible by the provisions of Section 317 of the GCL, and the
Company will advance the expenses reasonably expected to be incurred by such
agent upon receipt of an undertaking that the agent will reimburse the Company
unless it is ultimately determined that the agent is entitled to be indemnified
against expenses reasonably incurred.
The Company has obtained directors and officers insurance with a
maximum coverage of $2,000,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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Exhibit Number
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5.1 Opinion of Coudert Brothers.
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP
23.2 Consent of Coudert Brothers (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4 of the initial filing of this
Registration Statement).
</TABLE>
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the
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<PAGE> 23
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement of any material change to such information in the
Registration Statement;
Provided, however, That paragraphs (1)(i) and (1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 24
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THE COMPANY
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS OF FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON JUNE 6, 1997.
ModaCAD, INC.
By: /s/ JOYCE FREEDMAN
----------------------------------
Joyce Freedman, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Joyce Freedman and Lee Freedman,
or either of them, his or her attorneys-in-fact and agents, each with full power
of substitution for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this Registration
Statement, and to file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each of said attorneys-in-fact and agents full power and authority to do so and
perform each and every act and thing requisite and necessary to be done in
connection with this Registration Statement, as fully to all intents and
purposes as he or her might or could do in person, hereby ratifying and
confirming all that either of said attorneys-in-fact and agents, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JOYCE FREEDMAN President and Director June 6, 1997
- ------------------------------------- (Principal Executive Officer)
Joyce Freedman
/s/ LEE FREEDMAN Vice President, Finance and June 6, 1997
- ------------------------------------- Director (Principal Financial and
Lee Freedman Accounting Officer)
/s/ MAURIZIO VECCHIONE * Executive Vice President June 6, 1997
- ------------------------------------- and Director
Maurizio Vecchione
/s/ ANDREA VECCHIONE * Director June 6, 1997
- -------------------------------------
Andrea Vecchione
/s/ F. STEPHEN WYLE * Director June 6, 1997
- -------------------------------------
F. Stephen Wyle
/s/ PETER FRANK * Director June 6, 1997
- -------------------------------------
Peter Frank
*By /s/ JOYCE FREEDMAN
-------------------------------------
Joyce Freedman, Attorney-in-fact
</TABLE>
II-4
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Number Description Page
- ------ ----------- ------------
<S> <C> <C>
5.1 Opinion of Coudert Brothers 1
23.1 Consent of Singer Lewak Greenbaum & Goldstein LLP 3
23.2 Consent of Coudert Brothers (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-4 of the initial filing of this
Registration Statement)
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5.1
June 6, 1997
ModaCAD, Inc.
1954 Cotner Avenue
Los Angeles, California 90025
Re: ModaCAD, Inc. - Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as securities counsel for ModaCAD, Inc. (the "Company") in
connection with the preparation of a registration on Form S-3, as amended (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), that was filed with the Securities and Exchange Commission
(the "Commission") on May 1, 1997, in connection with the registration of
1,610,000 shares of Common Stock issuable upon the exercise of 1,610,000
redeemable warrants (all such warrants together, the "Warrants") to purchase
1,610,000 shares of Common Stock, and such additional number of shares of
Common Stock as may become issuable pursuant to the anti-dilution provisions
of the Warrants (all such shares of Common Stock together, the "Shares").
In connection with the preparation of the Registration Statement, we
have examined such documents, instruments, records, certificates and matters as
we have considered appropriate and necessary to render this opinion. We have
assumed for the purpose of this opinion the authenticity of all documents
submitted to us as originals and the conformity with the originals of all
documents submitted to us as copies, and the genuineness of all signatures
thereon.
Based on the foregoing and in reliance thereon, it is our opinion that
the Shares have been duly authorized and, after the Registration Statement
becomes effective and after any post-effective amendment required by law is
duly completed, filed and becomes effective (such Registration Statement as it
finally becomes effective or, if required to be post-effectively amended, then
as it is so amended, is referred to hereinafter as the "Final Registration
Statement"), and when the applicable provisions of "Blue Sky" and other state
securities laws shall have been complied with, and when the Shares are issued
and sold
<PAGE> 2
ModaCAD, Inc.
June 6, 1997
Page 2
in accordance with the prospectus forming a part of the Final Registration
Statement, the Shares will be validly issued, fully paid and nonassessable.
We hereby consent to the inclusion of our opinion as Exhibit 5.1 to the
Registration Statement and further consent to the references to this firm in
the Registration Statement. In giving this consent, we do not hereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act, or the rules and regulations of the Commission thereunder.
We are opining herein as to the effect on the subject transaction only
of United States federal law and the internal (and not the conflict of law)
laws of the State of California, and we assume no responsibility as to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.
Very truly yours,
/s/ Coudert Brothers
COUDERT BROTHERS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 7, 1997, accompanying the financial
statements included in the Annual Report of ModaCAD, Inc. on Form 10-KSB for
the year ended December 31, 1996. We hereby consent to the incorporation by
reference of said report in the Registration Statement of ModaCAD, Inc. on Form
S-3 and to the use of our name as it appears under the caption "Experts."
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
- ------------------------------------------
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
June 6, 1997
