<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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
---------------------------
(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 May 15,
1997, was 3,919,790.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ModaCAD, Inc.
BALANCE SHEET
March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 2,165,371
Accounts receivable,
net of allowance for doubtful accounts of 118,141 719,632
Inventories 23,250
Prepaid expenses and other current assets 108,915
-------------
Total current assets 3,017,168
Capitalized computer software development costs,
net of accumulated amortization of $542,936 3,326,766
Furniture and equipment, net (Note 2) 700,282
Investment in and advances to unconsolidated subsidiry 55,324
Other assets 20,040
-------------
$ 7,119,580
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Advances - officers/stockholders, unsecured,
due on demand, non-interest bearing $ 75,000
Accounts payable and accrued expenses 355,372
Deferred income 97,468
-------------
Total current liabilities 527,840
-------------
Stockholders' equity:
Common stock. no par value; authorized 15,000,000 shares;
issued and outstanding 3,893,290 (Note 3) 11,706,905
Accumulated deficit (5,115,165)
-------------
Total stockholders' equity 6,591,740
-------------
$ 7,119,580
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
ModaCAD, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
----------- -----------
<S> <C> <C>
Net sales $ 595,890 $ 338,964
----------- -----------
Cost of sales 20,311 28,755
Selling, general and administrative 584,866 380,627
Research and development 24,878 35,507
Amortization of capitalized software
development costs 167,953 35,777
----------- -----------
Total expenses 798,008 480,666
----------- -----------
Loss from operations (202,118) (141,702)
Investment income 19,525 0
----------- -----------
Net loss $ (182,593) $ (141,702)
=========== ===========
Net loss per share (Note 4) $ (0.04) $ (0.08)
=========== ===========
Weighted average common shares outstanding 4,404,277 1,754,307
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
ModaCAD, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (182,593) $ (141,702)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 9,682 10,254
Amortization of capitalized software
development costs 167,953 35,777
Provision for loss an accounts receivable 6,000 0
Issuance of warrants for services rendered 3,000 0
(Increase) decrease in:
Accounts receivable 617,221 67,354
Inventories 2,775 (35,025)
Prepaid expenses and other current assets 18,493 (800)
Other assets 2,400 0
Increase (decrease) in:
Accounts payable and accrued expenses (15,369) 251,020
Deferred income 22,688 9,676
----------- -----------
Net cash provided by operating activities 652,250 196,554
----------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment (72,833) (70,852)
Capitalized computer software development cost (663,009) (294,926)
----------- -----------
Net cash used in investing activities (735,842) (365,778)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 0 150,000
Advances -- officers/stockholders 0 115,000
Proceeds from issuance of common stock 110,000 9,125
Increase in deferred offering costs 0 (86,967)
----------- -----------
Net cash provided by financing activities 110,000 187,158
----------- -----------
Net increase in cash 26,408 17,934
Cash, beginning of period 2,138,963 13,224
----------- -----------
Cash, end of period $2,165,371 $ 31,158
=========== ===========
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>
Office equipment $ 51,734
Computer equipment and software 918,958
Furniture and fixtures 132,929
Leasehold improvements 49,914
------------
$ 1,153,535
Less: Accumulated depreciation 453,253
------------
$ 700,282
============
</TABLE>
Note 3: STOCKHOLDERS' EQUITY
Stock Option Plan
In 1995, the Company adopted the 1995 Stock Option Plan which expires in 2006.
Under the Plan 300,000 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 $4.688, 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 $9, 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.
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 February and March 1997, the warrant
holder exercised a total of 27,500 warrants to purchase 27,500 shares of the
Company's common stock and 27,500 redeemable common stock purchase warrants for
$110,000.
4
<PAGE>
ModaCAD, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 4: NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares and
equivalent shares of common stock outstanding during each quarter. Primary and
fully-diluted earnings per share are not materially different.
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 5: SUBSEQUENT EVENTS
Exercise of Warrants
In April 1997, the aforementioned warrant holder exercised 25,000 warrants to
purchase 25,000 shares of the Company's common stock and 25,000 shares of
redeemable common stock purchase warrants for $100,000.
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.
5
<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 may receive additional revenues from the sales of
this consumer product in late 1997. However, the timing and amount of revenues
received from such products will depend 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 for such
product, customer acceptance of such product, royalties payable based on product
sales and the publisher's product release and marketing plans, all of which are
uncertain.
RESULTS OF OPERATIONS
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 March 31,
----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 596 100.0% $ 339 100.0%
Cost of sales 20 3.4 29 8.5
Selling, general and administrative 585 98.1 381 112.3
Research and development 25 4.2 35 10.5
Amortization of software development costs 168 28.2 36 10.6
------ ------ ------ ------
Total expenses 798 133.9 481 141.8
------ ------ ------ ------
Loss from operations (202) (33.9) (142) (41.8)
Investment income 20 3.4 0 0.0
------ ------ ------ ------
Net loss $(182) 30.5% $(142) (41.8%)
====== ====== ====== ======
</TABLE>
6
<PAGE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net Sales
Net sales increased $257,000, or 76%, to $596,000 in the first quarter of 1997
from $339,000 in the first quarter of 1996 primarily due to sales increases in
the Company's commercial products (electronic merchandising and CAD products),
consulting and training services. However, a decline in product maintenance
fees and sales of hardware slightly offset those increases.
Sales of commercial products increased $214,000, or 74%, to $502,000 in the
first quarter of 1997 from $288,000 in the first quarter of 1996 primarily due
to $250,000 sales generated from one of the Company's major customers in the
first quarter of 1997.
The Company received $40,000 in revenue generated from consulting services in
the first quarter of 1997 compared to no revenue from consulting services in the
first quarter of 1996. This increase was attributable to the software
consulting service provided to the aforementioned major customer in conjunction
with the $250,000 sales of commercial products.
Training services increased by $8,000, or 114%, to $15,000 in the first quarter
of 1997 from $7,000 in the first quarter of 1996 due primarily to the Company's
decisions to eliminate its outside independent contractor and provide customer
training by itself. Net sales in the first quarter of 1997 also reflect a
$3,000 decrease in product maintenance fees and hardware sales.
Cost of Sales
Cost of sales decreased $9,000, or 31%, to $20,000 in the first quarter of 1997
from $29,000 in the first quarter of 1996. This decrease was primarily due to
the Company's decision to phase out hardware sales which historically generated
low profit margins for the Company.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $204,000, or 54%, to
$585,000 in the first quarter of 1997 from $381,000 in the first quarter of
1996. This increase was primarily due to the increase of $73,000 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 $78,000 in
the first quarter of 1997 compared to the first 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 $53,000 in the
first quarter of 1997 compared to the first quarter of 1996. The increase in
professional services was primarily due to the Company's increased requirements
for these services in the first quarter of 1997 compared to the first quarter
of 1996 as a result of the Company's status as a public company in 1997.
Research and Development
The Company incurred $720,000 of research and development costs during the first
quarter of 1997, of which $695,000 was capitalized as software development costs
and $25,000 was expensed, compared to $330,000 for the first quarter of 1996, of
which $295,000 was capitalized and $35,000 was expensed. The 118% increase in
research and development expenditures from the first quarter of 1996 to the
first 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.
7
<PAGE>
Amortization of Software Development Costs
The amortization of software development costs increased $132,000, or 367%, to
$168,000 in the first quarter of 1997 from $36,000 in the first quarter of 1996
as the Company began marketing (and amortizing development costs associated
with) several new versions of software products after the first quarter of 1996.
Investment Income
Investment income of $20,000 in the first quarter of 1997 was dividend income
generated from a money market account in which the unexpended proceeds from the
Company's IPO are maintained.
Interest Expense
The Company recorded no interest expense in the first quarter of 1997 due to no
existing interest bearing debt. However, the Company incurred interest charge
of $15,000 in the first quarter of 1996 related to the $400,000 loan obtained
by the Company to help finance its IPO. The interest was repaid in April 1996
and the interest charge was capitalized and offset against the proceeds from the
IPO as this expense related directly to the cost the IPO.
Income Taxes
The Company recorded no provision for income taxes in both the first quarters of
1997 and 1996 due to the utilization of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's accounts receivable balance decreased $617,000, or 42%, to
$838,000 at March 31, 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. 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 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. As of March 31, 1997, the Company maintained
approximately $2,200,000 in unexpended IPO proceeds.
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 quarter of 1997, such lender
exercised a total of 27,500 warrants to purchase 27,500 shares of the Company's
common stock and 27,500 redeemable common stock purchase warrants for $110,000.
In April 1997, the previous 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.
8
<PAGE>
The Company's principal source of capital in the next 12 months is anticipated
to be cash flow from its operations. 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. The Company believes
that its existing capital and anticipated funds from operations will be
sufficient to provide its anticipated cash needs for working capital and capital
expenditures for at least the next 12 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.
9
<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
None.
Item 5. Other Information
None.
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.
10
<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: May 15, 1997 By: /s/ LEE FREEDMAN
---------------------------
Lee Freedman
Vice President, Finance and
Chief Financial Officer
11
<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.
12
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,165,371
<SECURITIES> 0
<RECEIVABLES> 837,773
<ALLOWANCES> 118,141
<INVENTORY> 23,250
<CURRENT-ASSETS> 3,017,168
<PP&E> 1,153,535
<DEPRECIATION> 453,253
<TOTAL-ASSETS> 7,119,580
<CURRENT-LIABILITIES> 527,840
<BONDS> 0
0
0
<COMMON> 11,706,905
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,119,580
<SALES> 595,890
<TOTAL-REVENUES> 595,890
<CGS> 20,311
<TOTAL-COSTS> 20,311
<OTHER-EXPENSES> 777,697
<LOSS-PROVISION> 6,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (182,593)
<INCOME-TAX> 0
<INCOME-CONTINUING> (182,593)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (182,593)
<EPS-PRIMARY> (0.041)
<EPS-DILUTED> (0.040)
</TABLE>
