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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-28088
MODACAD, INC.
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(Exact name of small business issuer as specified in its charter)
California 95-4145930
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1954 Cotner Avenue, Los Angeles 90025
(Address of principal executive offices) (Zip Code)
(310) 312-9826
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Unit
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(Title of Class)
Selling Shareholder's Unit Purchase Warrants
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(Title of Class)
Selling Shareholder's Common Stock Purchase Warrants
----------------------------------------------------
(Title of Class)
Common Stock
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(Title of Class)
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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The registrant's revenues for its most recent fiscal year were $3,370,222.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $12,575,020 based on the average bid and asked prices of $7.625
per share as quoted on the NASDAQ SmallCap Market on March 26, 1997.
The number of shares outstanding of the registrant's common stock, as of March
26, 1997, was 3,893,290.
Documents Incorporated by Reference: Portions of the registrant's definitive
Proxy Statement to be delivered to shareholders in connection with their Annual
Meeting of Shareholders to be held in June 1997 are incorporated into Part III
of this Annual Report.
Transitional Small Business Disclosure Format: Yes No X
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PART I
Item 1. Description of Business
THE COMPANY
ModaCAD, Inc. ("ModaCAD" or the "Company") 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 goal was to
develop software operating on personal computers ("PCs") that would enable
non-technical users to create and model 3-D synthetic objects from 2-D images
and render such objects in real time with photorealistic quality. The Company
initially focused its efforts on developing computer aided design ("CAD")
products for the industrial design segments of the textile and apparel
industries. The Company has in the past engaged in research and development and
generated limited revenues from product sales. Beginning in 1993, the Company
began broader marketing efforts, including the introduction of electronic
merchandising products, which efforts were increased in 1994, 1995 and 1996. In
late 1995, the Company began efforts to expand its business into consumer PC
software, initially through the development of a new, multiple-title consumer
software product line, formerly referred to internally as "ModaCAD's Home
Decorator Series" and currently referred to herein as the "3-D Home Interiors,"
aimed at the do-it-yourself home decorating and design marketplace. In 1996, the
Company completed the development of the 3-D Home Interiors software which has
been licensed to Broderbund Software, Inc. ("Broderbund") for publication,
marketing and distribution.
Discussion of certain matters contained in this Annual Report on Form 10-KSB may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act") and, as such, may
involve risks and uncertainties. Those forward-looking statements relate to,
among other things, expectations of the business environment in which the
Company operates, projections of future performance, product introductions,
perceived opportunities in the market and statements regarding the Company's
mission and vision. The Company's actual results, performance and achievements
may differ materially from the results, performance and achievements expressed
or implied in such forward-looking statements. From time to time, the Company
details other risks with respect to its business and financial results and
conditions in its filings with the Commission.
PRODUCTS
ModaCAD's current and future products are divided into two principal product
groups: commercial (CAD and electronic merchandising products) and consumer (3-D
Home Interiors products). The Company's products are built principally using
object-oriented technology and written in the C++ programming language. Most of
the products are available on Windows and Macintosh operating systems. ModaCAD's
products are based principally on its proprietary "core" modeling and rendering
technology. The main features of this core technology are (i) real-time
rendering performance on standard PC hardware platforms (e.g., PCs equipped with
Intel 486 (66MHz) microprocessors or better and at least eight megabytes of
random access memory), (ii) photorealistic visual simulations and (iii) easy
authoring and modeling processes.
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CURRENT PRODUCTS
CAD Products
The Company's CAD software comprises a family of four products (ModaDRAPE(R),
ModaToolkit(TM), ModaSKETCH(TM) and ModaWEAVE(R)) designed to perform modeling,
rendering and support tasks. The target market for these products is major
industrial design companies. ModaDRAPE, ModaToolkit and ModaSKETCH(TM) are
"bundled" together as the ModaDESIGN(TM) suite, ModaWEAVE, which runs only on
the Macintosh operating system, is sold independently.
Traditionally, manufacturers of design-intensive items such as fashion,
textiles, footwear, home furnishings, furniture and home improvement products
have marketed their products by first prototyping them and then producing
samples for buyers to evaluate. Because of the time and expense of the sampling
process, manufacturers have increasingly been turning to the concept of "virtual
sampling." Currently, the Company's CAD software is used to model 3-D product
visualizations from simple 2-D images, render a photorealistic picture of
simulated products and place them inside a simulated 3-D space, such as a room
interior, and perform the entire rendering process in real time without the need
for special or customized hardware. The ease of use, operability on standard PCs
and the photorealistic 3-D image production of the ModaCAD industrial design
product line serves to decrease the time and expense of product design.
The ModaDESIGN suite is an integrated design system capable of real-time
rendering, modeling 3-D surface details onto 2-D images, image processing,
artwork development and catalog authoring. ModaDRAPE is the modeling and
real-time rendering software component. ModaToolkit is the software component
that controls color management, texture management, repeat generation, screen
printing separations, color reduction function and color changes. ModaSKETCH is
the artwork development, image photo retouching and image processing software
developed by and licensed from a third party. The ModaDESIGN system is sold with
various options depending upon the user's application, and the ModaWEAVE textile
weaving simulation software is sold separately. The Company also sells an
entry-level version of the ModaDRAPE software, called Envision(R), which offers
a more limited feature set than ModaDRAPE.
Electronic Merchandising Products
ModaCAD's electronic merchandising software was designed to enable retailers to
reduce expensive product inventories by allowing "virtual" samples of products
to be presented on a computer screen directly to customers. This software is
used together with interactive kiosks and other desktop PC-based point-of-sale
systems in retail stores for special-order products to allow consumers to
visualize in an interactive format special order options (such as fabric styles
or finishes) and preview their "customized" products prior to purchasing.
ModaCAD's electronic merchandising technology represents an improvement of
traditional multimedia kiosk software by offering, in addition to catalogs of
products, the ability to manipulate or "design" customized products in a
photorealistic, real-time 3-D environment. The Company believes that the
interactive "design" function of its technology is of critical importance to
industries offering special order merchandise, such as home furnishings, home
design and home improvements. As part of its electronic merchandising business,
the Company has received orders from major retailers and
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manufacturers to produce numerous electronic catalogs on CD-ROMs containing
"digital product content" used at point-of-sale together with the Company's
electronic merchandising software. An example of such implementation is a
furniture retailer using a ModaCAD-produced CD-ROM catalog to access a
manufacturer's lines of upholstered furniture and visualize in photorealistic
detail the "draping" of special-order fabrics onto available furniture frames.
The Company's electronic merchandising products are divided into three
categories: (i) client/server technology, (ii) software products with embedded
rendering functions for special-order product visualization compatible with
kiosk hardware and desktop PCs and (iii) CD-ROM-based product catalogs in a
compatible format. Such products feature real-time rendering for visualization,
electronic order collection and special order visualization and validation.
ModaFINITY(R) is the Company's point-of-sale electronic merchandising software
for in-store cataloging and visualization of products. ModaFINITY is available
with the following product options: ModaCATALOG(TM), an apparel-specific
version; and the Server version, using a Local Area Network to manage network
client/server implementations of ModaFINITY. The ModaFINITY software can also be
effectively used as an internal line development and merchandising tool in large
retail and manufacturing operations.
FUTURE PRODUCTS
3-D Home Interiors
The Company has completed development of the initial title in its consumer home
decorating software series utilizing the Company's proprietary visualization
technology and which has been licensed to Broderbund Software, Inc. for
publication, marketing and distribution. Broderbund unveiled the product under
the name 3-D Home Interiors during the first quarter of 1997 and has announced
that it intends to release the product during the Spring of 1997. The Company
understands that 3-D Home Interiors is planned to be marketed as a complementary
product to Broderbund's existing 3-D Home Architect software. Both products will
represent the first two titles of Broderbund's 3-D Home Series. Upon its
distribution, 3-D Home Interiors and subsequent ModaCAD-authored titles in the
3-D Home Series are expected to enable consumers to perform sophisticated home
design and decorating on PCs, using digital catalogs of merchandise readily
available through retailers, in an interactive, photorealistic, 3-D environment.
3-D Home Interiors is targeted primarily at specific interior and home design
projects which the Company considers to be of broad consumer appeal.
3-D Home Interiors and subsequent ModaCAD authored 3-D Home Series titles will
employ the Company's 3-D virtual reality, real-time rendering and expert design
technology for consumer use. The products contain comprehensive cataloging
features for electronic product browsing and visualization in cooperation with
product manufacturers and retailers. The inclusion of electronic catalogs of
actual merchandise for use in the Company's design software, with drag and drop
simplicity, combined with information on special-order options, will allow each
user to become a "contract specifier" for his or her home decorating project.
In addition to anticipated revenues from the sales of 3-D Home Interiors and
subsequent ModaCAD authored 3-D Home Series titles, the Company envisions, if
such products achieve substantial market penetration, generating revenues from
"publishing and advertising" fees charged to vendors who want their products to
be featured in the 3-D Home Series. Although some small fees are being charged
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initially to retailers and manufacturers for inclusion of their products in 3-D
Home Interiors, there is no assurance that the product will generate demand
sufficient to charge significant fees. The Company has established relationships
with multiple content providers (manufacturers and retailers) essential for 3-D
Home Interiors and subsequent ModaCAD-authored 3-D Home Series titles and has
produced digital component catalogs of their products for use with 3-D Home
Interiors. The Company continues to establish relationships with new vendors to
feature their product catalogs in the 3-D Home Series. The Company believes that
the time and effort it would take a third party to establish such relationships
and produce such digital component catalogs provide the Company with a
competitive advantage, although there can be no assurance that competitors of
the Company will not devote the resources necessary to do so.
Component Catalogs
In addition to the catalogs that are part of the Company's electronic
merchandising and 3-D Home Interiors products, the Company intends for component
catalogs to be offered and sold separately for use with such products and
subsequent software titles. These catalogs are expected to be updated
periodically and are expected to be dated, creating the need for updates. Once
the 3-D Home Interiors software has been established in the consumer
marketplace, the Company envisions third-party content providers such as
magazines, retailers or manufacturers independently producing component catalogs
that are compatible with the 3-D Home Interiors and contain their products or
products they advertise or represent. Depending on the subject matter, such
independently produced catalogs could be distributed on CD-ROM and on-line
platforms, as original equipment manufacturers ("OEM") or private label products
or as supplemental catalogs to the series produced by ModaCAD.
The composition and packaging of 3-D Home Interiors, including the integration
of the digital component catalogs for subsequent 3-D Home Series titles will be
subject to the design plans and release and marketing strategies of Broderbund.
The Company expects to exploit the Internet and other emerging on-line media to
provide users with a variety of complementary "shopping" and
fulfillment/referral services in connection with 3-D Home Interiors and
subsequent 3-D Home Series titles. This is expected to allow the on-line user to
find specialized products and vendors, obtain catalog updates, locate product
stores, create project budgets, purchase additional 3-D Home Series products and
reach vendors directly.
ModaPLAN
The Company recently completed development and has commenced marketing a new
strategic space management software solution named ModaPLAN, which is derived
from the Company's proprietary 3-D rendering and electronic merchandising
technologies. ModaPLAN is expected to enable retailers and store designers to
create and view 3-D, photo-realistic renderings of store layouts and
"planograms" via powerful client/server-based technology. ModaPLAN is designed
to allow the user to integrate store layouts and planograms from one centralized
database which will contain both product and fixture information. ModaPLAN
expects to distinguish itself from companies producing software for similar uses
by the quality of its 3-D rendering of objects in layout form as well as the
ability to provide unlimited views of virtual store plans and layouts. ModaPLAN
merges the Company's advanced virtual reality technology and relational
databases into a productive planning, merchandising and analysis tool for the
retail marketplace. Although development has been completed, the Company has not
yet sold any units of this product. The Company anticipates the recognition of
revenue from the sale of ModaPLAN
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to be achieved during the second half of fiscal 1997; however, the timing and
amount of revenues received will depend on the Company's success in marketing
and consumer acceptance of the product.
ModaVISION
The Company has also recently completed development of a new commercial product
named ModaVISION, which combines the Company's patented rendering technology,
3-D photo-realistic visualization and proprietary electronic merchandising
technology to create a powerful point-of-purchase sales tool for retailers.
Targeted primarily for use by retailers as well as home-builders, ModaVISION is
designed to be an in-store sales tool and is expected to have broad interest to
a number of industries. ModaVISION is designed to enable sales representatives
working with customers to create a virtual shopping cart of actual branded
retail products and then drag and drop desired selections into a virtual room
design in order for customers to visualize such products in a simulated 3-D
environment. Although ModaVISION will be considered a professional design
application, its familiar and easily understood menus, toolbars and shortcuts
will not require the skills of a professional designer. The Company has
recognized revenue from the sale of ModaVISION during the Company's first
quarter of fiscal 1997. However, the timing and amount of future revenues
recognition will depend on the Company's success in marketing and consumer
acceptance of the product.
ModaDESIGN PRO
The Company has substantially completed development and has commenced marketing
a new CAD product entitled ModaDESIGN PRO, which is a fully integrated design
system that includes several powerful applications developed to assist design
and merchandising teams in all phases of product, textile and catalog
development. ModaDESIGN PRO's components include a proprietary textile design
system, an embedded draping system as well as image processing, sketching and
painting tools. As a design system, ModaDESIGN PRO provides a direct interface
with all leading graphic software programs, enabling designers to access
ModaDESIGN PRO directly without having to shut down other graphic design
applications. ModaDESIGN PRO is intended to streamline design and merchandising
tasks, thereby reducing product development time and expense. ModaDESIGN PRO is
expected to have the functionality to create "virtual samples" prior to actual
product development and is designed to allow users to create presentations,
story boards, and promotional material. ModaDESIGN PRO is also expected to
enable users to create comprehensive interactive image databases for use in the
Company's electronic merchandising catalogs, sales representative systems and
kiosk programs. The Company expects to begin recognizing revenue from the sale
of ModaDESIGN PRO during fiscal 1997. While ModaDESIGN PRO is currently being
made available to selected customers, the actual product release is scheduled
during fiscal 1997. Timing and the amount of future revenue recognition will
depend on the Company's success in marketing and consumer acceptance of the
product.
3-D ModaPAINTER
The Company is also engaged in the development of its next generation core
technology, tentatively called 3-D ModaPAINTER. This technology is expected to
provide 3-D painting, enhanced real-time rendering and enhanced modeling. 3-D
ModaPAINTER, if successfully developed, is expected to have both consumer and
professional applications consistent with the Company's long-term licensing
strategies for its core technologies and to augment ModaCAD's current commercial
products and enhance ModaCAD's consumer product line. 3-D ModaPAINTER is being
designed to allow digital image
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manipulation for application to 3-D models in real time, featuring new
technology developed by the Company which allows traditional 2-D image
processing tools such as brushes, air brushes and drawing tools to operate
three-dimensionally. The anticipated target markets for products that
incorporate 3-D ModaPAINTER's technology are segments of the computer graphics
marketplace, desktop publishing, games developers, multimedia authoring, CAD, as
well as computer hardware manufacturers. The Company believes that development
of this technology is important in order for the Company to maintain leadership
of its products in both commercial and consumer product markets and to create an
industry standard for 3-D modeling, photo-realistic visualization and rendering
products based upon the Company's core technologies. Although the Company has
achieved technological feasibility, significant development remains to be
completed before this technology can be incorporated into a product for
commercial use and there is no certainty as to whether or when products
utilizing 3-D ModaPAINTER will be available for sale.
MARKETING, SALES AND DISTRIBUTION
Commercial Products
The Company markets its commercial products through its direct sales force and a
network of authorized dealers and distributors. The Company employs eight sales
people and four marketing people. In addition to its Los Angeles headquarters,
the Company operates two sales offices, one in New York, New York and one in
Greensboro/High Point, North Carolina. Internationally, the Company has
established an exclusive distribution arrangement for certain European
territories with ModaCAD Europe and has established nonexclusive dealerships in
locations such as Japan, South Korea, Australia, India, Columbia, Brazil, New
Zealand and Thailand. ModaCAD Europe has been the largest purchaser of the
Company's commercial products since it was established. Sales to ModaCAD Europe
increased in 1996 compared to 1995. In 1995 and 1996, such sales accounted for
approximately 16% and 12%, respectively, of the Company's total sales.
Since the Company's commercial products are typically used by businesses to
manufacture, merchandise and/or sell specialized products, sales to an end user
- - whether direct sales by the Company or by a distributor or dealer - often
require the Company to create an individually tailored, specialized product
package for the end user. For example, an apparel manufacturer may be interested
in the design and sketching applications of the CAD products, a furniture
manufacturer may be interested in 3-D modeling and particular fabric draping
characteristics of such software and a retailer of home furnishings may be
interested in setting up product visualization stations in a showroom for use by
retail customers. In each of these cases, the Company will (i) provide the
customer with appropriate software for use under license, (ii) advise the
customer of any computer hardware it needs to buy, upgrade or adapt in order to
utilize the software, (iii) assist the customer in the creation of the database
of the customer's products or designs, and (iv) provide ongoing training and
support in the use of the product package.
ModaCAD licenses its software under either license agreements or site license
agreements, the latter being used principally for major corporate accounts.
ModaCAD offers quantity discounts for multiple-unit purchases and special
discounts to accredited educational institutions. The Company advertises its
products in trade magazines and conducts direct mail, telemarketing and a media
editorial campaign in industry trade press and general business publications. In
addition, the Company participates in major computer industry, home furnishings
and fixtures and apparel trade shows throughout the United States.
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3-D Home Interiors Products
In March 1996, the Company entered into a Software Development and Publishing
Agreement with Broderbund ("the Broderbund Agreement"), appointing Broderbund as
publisher of 3-D Home Interiors and subsequent ModaCAD authored 3-D Home Series
software titles. Broderbund is expected to distribute and market the products,
domestically and internationally, to PC hardware and software retailers and
resellers, home furnishing and fixture retailers and home improvement stores.
Under the Broderbund Agreement, the Company is responsible for the design and
development of the 3-D Home Interiors and related derivative works, including
upgrades and foreign language adaptations, subject to Broderbund's final
editorial control over the products. Broderbund has been granted exclusive
worldwide rights to publish the 3-D Home Interiors and such derivative works and
is responsible for marketing and promotion of the products and for customer
support after publication.
Broderbund is a leading software publisher and distributor. During fiscal 1996,
Broderbund reported that it released over 40 new software products including new
titles, upgrades to existing titles and transfers of existing titles to new
hardware platforms.
The Company and Broderbund also intend to market 3-D Home Interiors and
subsequent 3-D Home Series titles through the Internet and other on-line
services and direct-to-consumer channels. The Company plans to use the Internet
and other emerging on-line media to create sites relating to home decorating and
home furnishings on the World-Wide-Web and other on-line networks. The Company
already operates an Internet website which it plans to expand. The Company
envisions using 3-D Home Interiors together with websites or other computerized
or networked "environments" created by the Company or third-party manufacturers,
vendors or sellers of advertising space (such as magazines) to present an array
of complementary services, product shopping, updating options and other
services. Through such channels of distribution, consumers interested in home
decorating could experience interactive demonstrations of 3-D Home Interiors and
order the product on-line. The Company views such plans as the initial steps
toward establishing itself in the emerging electronic or on-line marketplace as
a leading provider of digital content of products for home shopping, for home
furnishing, and for in-home decorating and, eventually, for products in other
industries into which the Company's software products may be expanded.
COMPETITION
The computer software design and electronic merchandising markets are intensely
competitive and subject to rapidly changing technologies and evolving product
standards. In the broad computer software design and electronic merchandising
markets, the Company competes with numerous companies providing CAD and
rendering software, including companies such as Computer Design Inc., Gerber
Garment Technology, Inc., Info Design, Lectra Systems, Inc., Intellitek Computer
Corporation and MicroD Inc. Some of the Company's existing and potential
competitors in the software design and electronic merchandising markets have
significantly greater financial, technical, sales and marketing resources than
the Company and have longer operating histories than the Company and better
brand name recognition.
The Company believes that principal competitive factors in the commercial
product markets in which the Company competes include product functionality and
ease of use, product performance and reliability,
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customer service and support, vendor credibility and brand awareness,
technological advantages and price/performance characteristics. The Company
believes that its products compete favorably with the products of its
competitors principally due to the advantages of their real-time photorealistic
modeling and rendering functions, ease of use with existing Macintosh and
Windows operating systems and, in the case of electronic merchandising and 3-D
Home Interiors products, integration with a digital database of manufacturers'
product catalogs. Although the Company believes that it competes favorably in
the markets it serves, there can be no assurance that new or established
competitors will not offer products superior to, or lower in price than, those
of the Company.
The consumer software market is increasingly competitive, with numerous
suppliers directing new products into a highly differentiated and rapidly
developing marketplace. The Company believes that the principal competitive
factors in the consumer software market include product features and
performance, product reliability, ease of use, product reputation, price,
timeliness of product upgrades and quality of customer support and service. The
Company's competitors in this market include several large companies with
substantially greater financial, technical, marketing and other resources than
the Company, as well as numerous companies of varying sizes and resources,
including Broderbund, SoftKey Software Inc., Expert Software, Inc., Softdesk,
Inc., Autodesk, Inc. and Books-that-Work. Although Broderbund and ModaCAD have
entered into the Broderbund Agreement for the 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 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. The Company believes that its use of its core technology in
its 3-D Home Interiors products, and use of digitized catalogs of actual
products with the system, give its products the sufficient attributes to provide
an initial competitive advantage in the consumer software market.
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 Company's largest consumer product
purchaser, Broderbund Software, Inc., accounted for approximately 44% of the
company's total revenues. The Company may continue to be dependent on these two
or more significant customers, the loss of which could have a material and
adverse effect on the Company's business.
PATENTS AND PROPRIETARY RIGHTS
The Company holds two United States patents. The first one covers the Company's
core rendering and modeling technology. The second one 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. There is no assurance that
these measures will deter misappropriation of the Company's proprietary rights.
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. The Company has seven registered
trademarks, including the mark ModaCAD. The Company believes
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that its products, trademark 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 with respect to current or future products or that any such asserted
claims may not result in costly litigation.
RESEARCH AND DEVELOPMENT
ModaCAD believes that its success will depend primarily on its ability to
maintain and enhance its current product lines, develop new products, maintain
technological competitiveness and fulfill an expanding range of customer
requirements. To date, the Company has designed and developed all of its
products internally with the exception of two utility software products offered
with the ModaDESIGN system. The Company was principally a product development
company with respect to its industrial design and electronic merchandising
products until 1993, when the Company developed marketing and product
distribution capability. The Company's research and development expenditures
totaled $964,000 or 51% of revenues in fiscal 1995 and $2,217,000 or 66% of
revenues in fiscal 1996. During such periods, no significant amount of the
Company's research and development expenditures was customer sponsored.
EMPLOYEES
As of December 31, 1996, the Company employed 52 full-time employees, including
12 in sales and marketing, 12 in engineering, 15 in product development, 10 in
administration and 3 in customer support services. The Company also employs 11
consultants who work in product development. The Company believes that its
future success will depend, in part, on its ability to continue to attract, hire
and retain highly qualified personnel. The competition for such personnel in the
computer software industry is intense. None of the Company's employees are
represented by a labor union, and the Company has never experienced a work
stoppage. The Company believes that its relations with its employees are good.
Item 2. Description of Property
The Company's executive headquarters are located in a 5,100 square-foot facility
in Los Angeles, California, under a lease that expires in November 2000. The
Company also maintains a small office in Los Angeles for computerized catalog
production under a month-to-month lease. The Company leases approximately 2,400
square feet in High Point, North Carolina, for sales and marketing and customer
service activities, directed primarily toward electronic merchandising customers
under a lease that expires in June 1999. The Company leases approximately 1,500
square feet in New York primarily for facilitating marketing and customer
support activities in the Northeast region under a lease that expires in August
1999. The Company anticipates that it may require additional space in Los
Angeles in the first half of 1997 to handle the expected increased levels of
customer support and sales and marketing activities. The Company believes it can
readily acquire any needed additional space when and as needed on commercially
reasonable terms.
Item 3. Legal Proceedings
None.
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Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
TRADING PRICES OF SECURITIES
The Company's common stock and warrants are traded in the NASDAQ SmallCap Market
under the trading symbols "MODA" and "MODAW," respectively. The high and low
sales prices for each quarter of 1996 for the Company's common stock and
warrants are as follows:
<TABLE>
<CAPTION>
BID PRICES
HIGH LOW
<S> <C> <C>
COMMON STOCK
1st Quarter 1996 6-1/8 4-1/8
2nd Quarter 1996 6-11/16 3-3/4
3rd Quarter 1996 5-3/4 4
4th Quarter 1996 6-1/4 4-1/2
WARRANTS
1st Quarter 1996 2-1/4 1-3/8
2nd Quarter 1996 2-5/8 1-3/8
3rd Quarter 1996 2-3/8 1-1/2
4th Quarter 1996 2-13/16 1-1/2
</TABLE>
Market prices for the listed common stock and warrants in 1995 were not
available since the Company commenced its initial public offering in March 1996.
The first quarter 1996 figures above are based on trading prices of the
Company's securities on March 29, 1996, the only trading day for the Company's
securities in that quarter after the effective date of the Company's SB-2
Registration Statement in connection with the Company's initial public offering.
At December 31, 1996, the Company had approximately 880 shareholders of record.
The Company has not paid dividends on its common stock and does not expect to
pay dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During 1996, the Company sold the following securities which were not registered
under the Securities Act of 1993 (the "1993 Act"):
(a) In January and August 1996, the Company issued 11,251 and 1,298 shares
of common stock, respectively, to its employees for employee stock
awards in consideration for services rendered.
(b) In 1995, the Company adopted the 1995 Stock Option Plan (the "Plan")
which expires in 2006. Under the Plan, 300,000 shares have been
reserved for issuance. On January 26, 1996, the Company granted, under
the Plan, stock options to one of its employees to purchase 180,000
shares of common stock with an exercise price of $5.00 per share
exercisable through 2005. As of March 27, 1997, options to purchase
120,000 shares are exercisable. On November 25, 1996, the Company
granted additional stock options to certain of its employees to
purchase 24,000 shares of common stock with an exercise
11
<PAGE> 13
price of $4.6875 per share. These shares are exercisable for five years
after the grant date.
(c) In January 1996, the Company granted in consideration for a loan to the
Company a warrant to Kirk Blosch to purchase 75,000 shares of common
stock and 75,000 common stock purchase warrants with an exercise price
of $6.50 per share exercisable from March 27, 1996 through December
1997. On May 8, 1996, the Company granted in consideration for services
a five year warrant to one of its directors to purchase 2,000 shares of
common stock with an exercise price of $4.25 per share. On December 4,
1996, the Company granted in consideration for services a five year
warrant to a consultant to purchase 250,000 shares of common stock with
an exercise price of $5.00 per share. The warrant is exercisable
commencing the date of grant and ending three years after the date of
grant.
Exemption from the registration provisions of the 1933 Act for all of the
transactions described in paragraph (c) above is claimed pursuant to Section
4(2) of the 1933 Act and/or Rule 504 of Regulation D promulgated thereunder on
the grounds that such transactions did not involve any public offering, and,
with respect to the transactions described in paragraphs (a) and (b) above, is
claimed pursuant to Rule 701 under Section 3(b) of the Act on the grounds that
such securities were issued pursuant to written compensatory benefit plans or
contracts relating to compensation. The purchase in such transactions
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends were affixed to
the certificates evidencing the securities issued in such transactions. All
purchasers either received adequate information about the Registrant or had
access to such information.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the information
under "Item 7. Financial Statements" and the Company's consolidated financial
statements and notes thereto and other financial data included elsewhere herein.
Certain statements under this caption constitute "forward-looking statements"
under the Reform Act which involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in such
forward-looking statements. Factors that could cause actual results to differ
materially include the following: (i) unforeseen technical or other obstacles in
the development or production of the Company's software products, (ii) the
release and marketing plans of the Company's 3-D Home Interiors software by the
publisher of such software, (iii) customer acceptance of the Company's 3-D Home
Interiors consumer software products and updated or revised versions of the
Company's electronic merchandising and CAD software products, (iv) the Company's
ability to produce its products on a cost-effective and timely basis, and (v)
factors not directly related to the Company, such as competitive pressures on
pricing, market conditions in general, competition, technological progression,
product obsolescence and the changing needs of potential customers and the
software, textile, apparel, home furnishings and home design industries in
general.
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
12
<PAGE> 14
Macintosh or Windows operating systems and are grouped into two principal
product groups: commercial (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. In the first half
of 1996, the Company's revenues were generated principally from sales of its CAD
and electronic merchandising products. During the second half of 1996, the
Company generated a significant portion of its total revenue as a result of the
fulfillment of certain obligations pursuant to an agreement with its consumer
software publisher.
The Company has implemented a strategy to capitalize on the rapid growth of
electronic merchandising and the demand for inexpensive, shrink-wrapped
visualization and design software. The Company's plan is to leverage its
proprietary core modeling and rendering technology and digital database of
manufacturers' product catalogs to create a line of consumer software products
for in-home use and to expand the Company's electronic merchandising products
for in-store use.
The Company has recognized revenue in 1996 in connection with the completion of
the development of the 3-D Home Interiors product 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 publisher, Broderbund, the price Broderbund establishes for such
product, customer acceptance of such product, royalties payable based on product
sales and Broderbund's product release and marketing plans, all of which are
uncertain. The Company also plans to begin licensing its technology for 3-D
visualization in various segments of computer industry and expects to develop
products targeted at OEM users and Internet application for 3-D visualization.
The Company's longer-term strategy is to develop enhanced visualization and
design software technology and products that exploit the concepts underlying its
electronic merchandising and initial consumer products beyond home design into a
variety of retail and consumer applications.
The Company's success will depend to a large extent upon Broderbund's success in
marketing the 3-D Home Interiors product and customer acceptance of such
product and the Company's ability to grow its electronic merchandising business
and continue to generate revenues from CAD product sales. Due to a variety of
factors including the inherent uncertainties of software development, the
unpredictability of acceptance of the Company's new consumer software products
in the marketplace and the Company's ability to avoid product obsolescence,
there is no assurance that the Company will be able implement successfully its
business plan or that the Company will be profitable in the future.
RESULTS OF OPERATIONS
The following table sets forth selected items from the Company's statements of
operations (in thousands) for the years ended 1996 and 1995 and the percentages
that such items bear to net sales:
13
<PAGE> 15
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $3,370 100.0 % $1,905 100.0 %
Cost of sales 115 3.4 224 11.8
Selling, general and administrative 2,338 69.3 1,036 54.4
Research and development 78 2.3 249 13.1
Amortization of software development costs 295 8.8 80 4.2
------ ----- ------ -----
Total expenses 2,826 83.8 1,589 83.5
------ ----- ------ -----
Income from operations 544 16.2 316 16.5
Interest/Dividend income 102 3.0 0 0.0
Interest expense 0 0.0 (308) (16.1)
------ ----- ------ -----
Net income $ 646 19.2 % $ 8 0.4 %
====== ===== ====== =====
</TABLE>
1996 COMPARED WITH 1995
Net Sales
Net sales increased $1,465,000, or 77%, to $3,370,000 in 1996 from $1,905,000 in
1995 primarily due to sales increases in the Company's commercial products
(electronic merchandising and CAD products) and revenue generated in relation to
the completion of the Company's new consumer products. However, there were small
sales decreases in 1996 in hardware, consulting, training and maintenance
services which slightly offset those increases.
Sales of electronic merchandising software and CAD products increased $135,000,
or 9%, to $1,639,000 in 1996 from $1,504,000 in 1995 primarily due to
establishment of new major accounts and the release of new updates of the
Company's electronic merchandising products in 1996 compared to 1995.
Revenue generated from consumer products increased net sales by $1,380,000, or
986%, to $1,520,000 in 1996 from $140,000 in 1995 which increase was primarily
attributable to the recognition of revenue upon the fulfillment of certain
obligations under an agreement with the Company's consumer software publisher
with respect to the completion of the development of the new interior home
decorating software products in 1996.
Net sales attributable to consulting services, training and hardware sales
decreased by $25,000, or 29%, to $62,000 in 1996 from $87,000 in 1995 primarily
due to the Company's decisions to outsource some customer training to an
independent contractor and to phase out its hardware sales which historically
generated low profit margins. Net sales resulting from products maintenance fees
decreased $14,000 in 1996 compared to 1995.
Cost of Sales
Cost of sales decreased $109,000, or 49%, to $114,000 in 1996 from $225,000 in
1995. This decrease was primarily due to lower costs associated with customer
training and sales of computer hardware as a result of the Company's decision to
outsource some customer training and phase out hardware sales.
14
<PAGE> 16
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,302,000, or 126%, to
$2,338,000 in 1996 from $1,036,000 in 1995. This increase was primarily due to
the increase of $755,000 in personnel costs resulting from the hiring of
additional personnel in 1996 in support of the accelerated activities associated
with the 3-D Home Interiors consumer software product line and the development
of the Company's next generation commercial products. Certain related costs
including travel, marketing, telephone, and office supplies expenses increased
$288,000 in 1996 compared to 1995. The increases in the marketing expenses
reflect the implementation of the Company's planned expansion into new markets
after the close of its initial public offering of securities ("IPO") in April
1996.
Research and Development
The Company incurred $2,217,000 of research and development costs in 1996, of
which $2,139,000 was capitalized as software development costs and $78,000 was
expensed, compared to $964,000 for 1995, of which $715,000 was capitalized and
$249,000 was expensed. The 130% increase in research and development expenditure
from 1995 to 1996 was primarily due to the hiring of additional personnel in
connection with the development of the 3-D Home Interiors and the Company's next
generation commercial products.
Amortization of Software Development Costs
The amortization of software development costs increased $216,000, or 272%, to
$295,000 in 1996 from $80,000 in 1995 as the Company began marketing (and
amortizing development costs associated with) several new versions of software
products in 1996.
Interest/Dividend Income
Interest/Dividend income of $102,000 in 1996 was generated from a "money market"
account in which the unexpended proceeds from the Company's IPO are maintained.
Interest Expense
The Company incurred interest expense of $308,000 in 1995 on a promissory note
held by the Company's majority shareholders who are also officers of the
Company. The note and the related accrued interest were converted into 900,000
shares of the Company's common stock in March 1996 in connection with the IPO,
and no interest expense has been incurred in 1996.
Income Taxes
The Company recorded no provision for income taxes in 1996 and 1995 due to the
utilization of net operating loss carryforwards.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of capital through the first quarter of 1996
were cash flow from its operations and cash loans provided by two of its
officers who are the majority shareholders of the Company on an as-needed. At
the end of March 1996, loans by such officers and majority shareholders in the
principal amount of $3,073,713 and accrued interest thereon of $1,471,462 were
converted into 900,000 shares of the Company's common stock pursuant to an
agreement between such officers/shareholders and the Company in connection with
the Company's IPO.
In June 1995, the Company needed additional funding to support its accelerated
costs of operation and the development program for ModaCAD's 3-D Home Interiors.
To fund such costs from June 1995 through March 1996 in addition to the loans
referred to in the preceding paragraph, non-interest-bearing loans in the
aggregate amount of $390,000 were provided by such officers/shareholders. In
April 1996, a partial payment of $315,000 of the loans was made.
In December of 1995 and January 1996, a third party loaned the Company $250,000
and $150,000, respectively, to help finance the costs of the IPO and the ongoing
operations of the Company. In connection with such loans, the Company granted
the lender two-year Unit Purchase Warrants, with registration rights, to
purchase an aggregate of 200,000 units (each unit consisting of one share of
common stock and one warrant to purchase one share of common stock) with an
exercise price of $4.00 per unit. In April 1996, the loans with aggregate
principal of $400,000 and accrued interest of $14,650 were paid.
In April 1996, the Company completed an IPO of 1,400,000 units (each unit
consists 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.
In April 1996, the Company issued a warrant to the managing underwriter of its
IPO for $1,400 to purchase 140,000 units (each unit consisting of one share of
common stock and one warrant to purchase one share of common stock). (See Note 4
to Financial Statements included elsewhere herein.) The units are exercisable
for a four-year period commencing March 27, 1997 at an exercise price of $6.00
per unit.
The Company's principal source of capital in the next 12 months is anticipated
to be cash flow from its operations. The Company anticipates to continue using
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.
16
<PAGE> 18
Item 7. Financial Statements
ModaCAD, Inc.
Index to Financial Statements
17
<PAGE> 19
MODACAD, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
18
<PAGE> 20
MODACAD, INC.
CONTENTS
AS OF DECEMBER 31, 1996
================================================================================
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 20
FINANCIAL STATEMENTS
Balance Sheet 21
Statements of Operations 22
Statement of Stockholders' Equity 23
Statements of Cash Flows 24 - 25
Notes to Financial Statements 26 - 34
</TABLE>
19
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
ModaCAD, Inc.
We have audited the accompanying balance sheet of ModaCAD, Inc. as of December
31, 1996, and the related statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ModaCAD, Inc. as of December
31, 1996, and the results of its operations and cash flows for each of the two
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
February 7, 1997
20
<PAGE> 22
MODACAD, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1996
================================================================================
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,138,963
Accounts receivable, net of allowance for doubtful accounts
of $112,141 1,342,853
Inventory 26,025
Prepaid expenses and other current assets 127,408
------------
Total current assets 3,635,249
Capitalized computer software development costs,
net of accumulated amortization of $374,983 2,799,693
Furniture and equipment, net (Note 2) 669,149
Investment in and advances to unconsolidated subsidiary (Note 6) 55,324
Other assets 22,440
------------
TOTAL ASSETS $ 7,181,855
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Advances - officers/stockholders, unsecured,
due on demand, non-interest bearing $ 75,000
Accounts payable and accrued expenses (Note 3) 370,742
Deferred income 74,780
------------
Total current liabilities 520,522
------------
COMMITMENTS (Note 3)
STOCKHOLDERS' EQUITY (Note 4)
Common stock: no par value, 15,000,000 shares authorized,
3,865,790 shares issued and outstanding 11,593,905
Accumulated deficit (4,932,572)
------------
Total stockholders' equity 6,661,333
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,181,855
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 23
MODACAD, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
================================================================================
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
NET SALES (Note 7) $ 3,370,222 $1,904,725
----------- ----------
EXPENSES
Cost of sales 114,854 224,488
Selling, general and administrative 2,338,277 1,035,775
Research and development 78,105 249,247
Amortization of capitalized software development costs 295,465 79,518
----------- ----------
Total expenses 2,826,701 1,589,028
----------- ----------
INCOME FROM OPERATIONS 543,521 315,697
----------- ----------
OTHER INCOME (EXPENSE)
Investment income 101,914 -
Interest expense - related party - (307,575)
----------- ----------
Total other income (expense) 101,914 (307,575)
----------- ----------
NET INCOME $ 645,435 $ 8,122
=========== ===========
NET INCOME PER SHARE $ 0.20 $ 0.00
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,307,288 1,694,816
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 24
MODACAD, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31,
================================================================================
<TABLE>
<CAPTION>
Common Stock
----------------------------- Accumulated
Shares Amount Deficit Total
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 1,418,454 $ 1,618,117 $(5,586,129) $(3,968,012)
Net income 8,122 8,122
---------- ------------ ----------- -----------
Balance, December 31, 1995 1,418,454 1,618,117 (5,578,007) (3,959,890)
Sale of common stock 1,610,000 7,930,728 7,930,728
Offering cost (1,672,984) (1,672,984)
Conversion of notes payable
and accrued interest -
related parties 900,000 4,545,175 4,545,175
Repurchase of shares (312,168) (900,000) (900,000)
Stock issued for
compensation 12,549 62,744 62,744
Warrants exercised 236,955 9,125 9,125
Issuance of warrants for
services 1,000 1,000
Net income 645,435 645,435
---------- ------------ ----------- -----------
Balance, December 31, 1996 3,865,790 $ 11,593,905 $(4,932,572) $ 6,661,333
========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 25
MODACAD, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
================================================================================
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 645,435 $ 8,122
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 23,859 22,651
Amortization of capitalized software development costs 295,465 79,518
Provision for loss on accounts receivable 209,386 15,000
Issuance of warrants for services rendered 1,000 -
(Increase) decrease in
Accounts receivable (1,173,611) (111,648)
Inventory (16,475) -
Prepaid expenses and other current assets (122,988) 130
Other assets (10,480) (1,262)
Increase (decrease) in
Accounts payable and accrued expenses (41,669) 25,180
Deferred income 14,782 2,892
Accrued interest - 307,370
----------- ---------
Net cash (used in) provided by operating activities (175,296) 347,953
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (617,468) (130,119)
Investment in and advances to unconsolidated subsidiary - (29,924)
Capitalized computer software development cost (2,069,104) (715,144)
----------- ---------
Net cash used in investing activities (2,686,572) (875,187)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments) proceeds note payable (250,000) 250,000
(Payments) advances - officers/stockholders (200,000) 275,000
Purchase of common stock (900,000) -
Sale of common stock 7,930,728 -
Offering cost (1,602,246) (70,738)
Warrants exercised 9,125 -
----------- ---------
Net cash provided by financing activities 4,987,607 454,262
----------- ---------
Net increase (decrease) in cash 2,125,739 (72,972)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,224 86,196
----------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,138,963 $ 13,224
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 26
MODACAD, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
During the years ended December 31, 1996 and 1995, the Company paid no income
taxes and $14,700 and $0, respectively, in interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1996, the Company converted the note payable - related party principal amount
of $3,073,713 and $1,471,462 of accrued interest into 900,000 shares of common
stock of the Company, concurrently with the closing of the initial public
offering.
In 1996, the Company issued 12,549 shares of common stock to certain employees
for stock awards accrued for in prior years.
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 27
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
ModaCAD, Inc. (the "Company") was incorporated in California on
February 4, 1988. 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. The Company
sells its products and grants credit on a worldwide basis.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
basis) or market and consist primarily of computer software licenses
purchased from outside vendors.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is
provided using the straight-line method over an estimated useful
life of five years. Maintenance and minor replacements are charged
to expenses as incurred. Gains and losses on disposals of furniture
and equipment are included in the results of operations.
Software Development Costs
Software development costs are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Cost of Computer Software to Be Sold, Leased, or
Otherwise Marketed." Capitalization of software development costs
begins upon the establishment of technological feasibility and is
discontinued when the product is available for sale. The
establishment of technological feasibility and the ongoing
assessment for recoverability of capitalized software development
costs require considerable judgment by management with respect to
certain external factors, including, but not limited to,
technological feasibility, anticipated future gross revenues,
estimated economic life, and changes in software and hardware
technologies. Capitalized software development costs are comprised
primarily of direct overhead, payroll costs, and consultants' fees
of individuals working directly on the development of specific
software products.
26
<PAGE> 28
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Software Development Costs (Continued)
Amortization of capitalized software development costs is provided
on a product-by-product basis on the straight-line method over the
estimated economic life of the products (not to exceed three years).
Management periodically compares estimated net realizable value by
product to the amount of software development costs capitalized for
that product to ensure the amount capitalized is not in excess of
the amount to be recovered through revenues. Any such excess of
capitalized software development costs over expected net realizable
value is expensed at that time.
Joint Venture Investment and Advances
The Company has a 40% interest in ModaMAGIC, Inc. ("ModaMAGIC").
ModaMAGIC was formed to produce an interactive, multi-media CD-ROM
for the consumer market. As of December 31, 1996, ModaMAGIC had no
revenues and is actively marketing its product.
The Company reports its share of income and losses of ModaMAGIC
under the equity method of accounting. As of December 31, 1996, the
Company's equity in ModaMAGIC was not material to its results of
operations.
The Company has advanced $55,324 to ModaMAGIC as of December 31,
1996 (Note 6).
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For
certain of the Company's financial instruments, including cash,
accounts receivable, accounts payable, and accrued expenses, the
carrying amounts approximate fair value due to their short
maturities.
Revenue Recognition
The Company recognizes revenues related to software licenses and
software maintenance in compliance with the American Institute of
Certified Public Accountants ("AICPA") Statements of Position No.
91-1, "Software Revenue Recognition." Product revenue is recorded at
the time of shipment, net of estimated allowances and returns. Any
insignificant post-contract support obligations are accrued for at
the time of the sale. Post contract customer support ("PCS") that is
bundled with an initial licensing fee, and is for one year or less
is recognized at the time of the initial licensing, if
collectability of the resulting receivables is probable. When a PCS
is sold under a separate agreement, the revenue is recognized on a
straight-line basis over the life of the PCS agreement, generally
twelve months.
Research and Development Costs
Research and development costs are charged to expense as incurred.
These costs consist primarily of salaries, consulting fees, and
direct overhead.
27
<PAGE> 29
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets
In 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The impact of such adoption was not material.
Income Taxes
The Company uses the liability method of accounting for income taxes
pursuant to SFAS No. 109, "Accounting for Income Taxes."
Net Income Per Share
Net income per share is based on the weighted average number of
common and common equivalent shares outstanding during each year.
Primary and fully-diluted earnings per share are not materially
different.
NOTE 2 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
<TABLE>
<S> <C>
Office equipment $ 50,798
Computer equipment and software 848,300
Furniture and fixtures 131,691
Leasehold improvements 49,914
----------
1,080,703
Less accumulated depreciation 411,554
TOTAL $ 669,149
==========
</TABLE>
Depreciation expense for the years ended December 31, 1996 and 1995
was $93,818 and $22,651, respectively, of which $69,959 and $0,
respectively, were capitalized as software development costs.
NOTE 3 - COMMITMENTS
Leases
The Company leases certain facilities for its corporate and
operations offices under long-term, non-cancelable operating lease
agreements that expire through November 30, 2000.
Future minimum aggregate lease payments under non-cancelable
operating leases with initial or remaining terms of one year or more
at December 31, 1996 are as follows:
28
<PAGE> 30
NOTE 3 - COMMITMENTS (CONTINUED)
Leases (Continued)
<TABLE>
<CAPTION>
Years Ending
December 31,
<S> <C>
1997 $117,000
1998 119,000
1999 102,000
2000 68,000
--------
TOTAL $406,000
========
</TABLE>
Rent expense was approximately $74,000 (net of $81,000 rent
capitalized) and $95,000 for 1996 and 1995, respectively.
Employment Agreements
The Company has entered into employment agreements, expiring through
December 31, 2002, with certain key officers of the Company. These
officers will receive aggregate annual salaries of $300,000. Also,
an aggregate bonus of 10% of net income before taxes is payable, not
to exceed $300,000; as of December 31, 1996, the Company has accrued
approximately $72,000 for these bonuses. In addition, if the market
value of the Company's common stock is greater than $10 per share
for any 20 consecutive trading days during any fiscal year, the
Company will grant options to purchase an aggregate of 100 shares of
common stock for each $1,000 of net income before taxes in that
fiscal year up to a maximum of 120,000 options over the life of the
employment agreements. These options will be exercisable at a price
equal to the market value per share as of the date of the grant.
NOTE 4 - STOCKHOLDERS' EQUITY
Sale of Common Stock
In 1996, the Company completed an initial public offering of its
common stock. The offering consisted of 1,400,000 units at $5.01 per
unit, each unit consisting of one share of common stock and one
redeemable common stock purchase warrant. The 1,400,000 warrants
have an exercise price of $6.50 per share and expire in March 2001.
Also, the Company granted the underwriters a 45-day option to
purchase up to 210,000 additional units at $5.01 solely for the
purpose of covering over-allotment. The underwriter exercised this
option on April 25, 1996.
Also, the Company granted the underwriters warrants to purchase
140,000 units exercisable at $6.00 per share. Each unit consists of
one share of common stock and one common stock purchase warrant
exercisable at $9.10 per share. The warrants are exercisable for a
period of four years from March 27, 1996.
29
<PAGE> 31
NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)
Repurchase of Shares
In connection with the initial public offering by the Company, the
Company repurchased from a stockholder 312,168 shares of common
stock for $900,000.
Stock Split
In connection with the initial public offering by the Company, the
Board of Directors and stockholders of the Company approved in
December 1995, a .2596772 for one reverse stock split of its
outstanding common stock. In addition, the number of authorized
shares of common stock was increased to 15,000,000 shares. All per
share data presented has been retroactively restated to show the
effects of this stock split.
Shares Issued for Services
Through September 1996, the Company issued 12,549 shares of common
stock to employees of the Company for employee stock awards accrued
for in prior years. The value of the compensation was based on the
price of the Company's stock on the date the stock awards were
quoted.
Warrants
The 1,610,000 common stock purchase warrants issued during the
Company's initial public offering are 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. The warrants are redeemable at the
Company's option commencing June 25, 1996 upon 30 days notice to
holders of the warrants at $0.01 per warrant if the closing bid
price of the 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. As of December 31, 1996, no warrants have been
exercised and the Company has not invoked the call options.
In December 1996, the Company issued 250,000 common stock purchase
warrants to an outside consultant that are exercisable at a price of
$5.00 per share, expiring in December 1999. In accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company has
valued these warrants at the current market value of the services to
be rendered by the warrant holder. For the year ended December 3,
1996, the Company has recognized $1,000 of consulting expense
related to these warrants. As of December 31, 1996, these warrants
have not been exercised.
In January 1996, the Company issued 75,000 common stock purchase
warrants exercisable at a price of $6.50 per share during the period
March 27, 1996 to December 1997. As of December 31, 1996, these
warrants have not been exercised.
30
<PAGE> 32
NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)
Warrants (Continued)
Also, the Company issued 125,000 common stock purchase warrants
exercisable at $4.00 per share. Each warrant consists of one share
of common stock and one common stock purchase warrant exercisable at
a price of $6.50 per share. The warrants are exercisable during the
period March 27, 1996 to December 1997. As of December 31, 1996,
these warrants have not been exercised.
Stock Option Plan
The Company adopted the 1995 Stock Option Plan which expires in
2006. Under the Plan, 300,000 shares of the Company's common stock
have been reserved for issuance. The options issued may be either
incentive or non statutory stock options. Non statutory options may
not be issued at a price less than 85% of the fair market value of
the common stock. Incentive stock options must be issued at a price
not less than 100% of the fair market value of the common stock.
The Company has adopted only the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." It applies
Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations in
accounting for its plans and does not recognize compensation expense
for its stock-based compensation plans other than for restricted
stock and options/warrants issued to outside third parties. If the
Company had elected to recognize compensation expense based upon the
fair value at the grant date for awards under these plans consistent
with the methodology prescribed by SFAS 123, the Company's net
income and earnings per share would be reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
Net income 1996 1995
-------- ---------
<S> <C> <C>
As reported $645,435 $ 8,122
======== =========
Pro forma $327,435 $ 8,122
======== =========
Earnings per common share
Afs reported $ 0.20 $ 0.00
======== =========
Pro forma $ 0.10 $ 0.00
======== =========
</TABLE>
These pro forma amounts may not be representative of future
disclosures because they do not take into effect pro forma
compensation expense related to grants made before 1995. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions for the year ended December 31, 1996.
(The Company granted no options during the year ended December 31,
1995): dividend yields of 0%; expected volatility of 45%; risk-free
interest rates of 7%; and expected life of 7.2 years. The
weighted-average fair value of options granted during the year ended
December 31, 1996 for which the exercise price equals the market
price on the grant date was $2.88, and the weighted-average exercise
price was $4.96.
31
<PAGE> 33
NOTE 4 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plan (Continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its employee stock
options.
The following summarizes the stock options transactions under the
stock option plan:
<TABLE>
<CAPTION>
Weighted-
Average
Stock Options Exercise
Outstanding Price
------------- ---------
<S> <C> <C>
Options outstanding December 31, 1995 -
Options granted during 1996 204,000 $ 4.96
-------
Options outstanding December 31, 1996 204,000 $ 4.96
=======
Options exercisable at year end 84,000 $ 4.91
=======
Weighted-average fair value of options
granted during 1996 $ 2.88
</TABLE>
NOTE 5 - INCOME TAXES
A reconciliation of the provision for income tax expense with the
expected income tax computed by applying the federal statutory
income tax rate to income before provision for income taxes is as
follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
------ ------
<S> <C> <C>
Income tax computed at federal statutory tax rate 34.0% 34.0%
State taxes (net of federal benefit) 6.3 6.3
Utilization of net operating loss carryforwards (40.3) (40.3)
----- -----
TOTAL 0.0% 0.0%
===== =====
</TABLE>
32
<PAGE> 34
NOTE 5 - INCOME TAXES (CONTINUED)
As of December 31, 1995, the Company has federal net operating loss
carryforwards of approximately $4,116,000 which expire through 2011.
Significant components of the Company's deferred tax liabilities and
assets for federal income taxes consist of the following:
<TABLE>
<S> <C>
Deferred tax assets
Net operating loss carryforwards $ 1,494,000
Capitalized research and development cost for tax 55,000
Research credits 346,000
Other 30,000
-----------
Total deferred tax assets 1,925,000
Valuation allowance for deferred tax assets (1,925,000)
-----------
Net deferred tax asset $ -
===========
</TABLE>
At December 31, 1996, the Company has provided a valuation allowance
for the deferred tax asset since management has not been able to
determine that the realization of that asset is more likely than
not.
The net change in the valuation allowance for the year ended
December 31, 1996 was a decrease of $468,000.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company has an agreement to provide computer programming
services to ModaMAGIC which is billed at cost. For the years ended
December 31, 1996 and 1995, the Company billed approximately $0 and
$103,000 in services, respectively.
In 1996, the Company converted the note payable - related party
principal amount of $3,073,713 and accrued interest of $1,471,462
into 900,000 shares of common stock of the Company, concurrently
with the closing of the initial public offering.
33
<PAGE> 35
NOTE 7 - SALES
Major Customers
During the year ended December 31, 1996, the Company did business
with two customers whose sales comprised approximately 45% and 12%,
respectively of net sales. During the year ended December 31, 1995,
the Company did business with one customer whose sales comprised
approximately 16% of net sales.
Export Sales
For the year ended December 31, 1996, the Company had export sales
of approximately $510,000 principally comprised of $398,000 in
Europe, $54,000 in Asia and $58,000 in other geographic regions.
For the year ended December 31, 1995, the Company had export sales
of approximately $399,000 principally comprised of $300,000 in
Europe, $61,000 in Asia and $38,000 in other geographic regions.
NOTE 8 - PROFIT SHARING
In 1996, the Company adopted the ModaCAD 401(k) Plan (the "Plan").
The Plan is available to substantially all employees who meet length
and service requirements. On September 1, 1996, all permanent and
full-time employees of the Company became participants. Participants
may elect to contribute not less than 3% and no more than 15% of
their annual compensation. The Plan has a Company discretionary
profit sharing provision which the Company, for years with income
before taxes, will contribute from 0% to 5% of income before taxes.
The amount of the profit sharing contribution will be determined
each year by the Company. Employer contribution under the Plan was
approximately $34,000 for the four months ended December 31, 1996.
NOTE 9 - SUBSEQUENT EVENTS (UNAUDITED)
On February 21, 1997, a stockholder exercised 15,000 warrants at
$4.00 per share for total proceeds to the Company of $60,000, and on
March 11, 1997, the same stockholder exercised 12,500 warrants at
$4.00 per share for total proceeds to the Company of $50,000.
34
<PAGE> 36
Item 8. Changes in and Disagreements with Accounts on Accounting and
Financial Disclosure
None
35
<PAGE> 37
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with section 16(a) of the Exchange Act
Incorporated by reference to the sections of the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to he held in June 1997 (the
"Proxy Statement"), entitled "Election of Directors," "Executive Officers" and
"Common Stock Ownership of Principal Shareholders and Management--Section 16(a)
Beneficial Ownership Reporting Compliance" to be filed with the Commission.
Item 10. Executive Compensation
Incorporated by reference to the section of the Company's Proxy Statement
entitled "Executive Compensation" to be filed with the Commission.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the section of the Company's Proxy Statement
entitled "Security Ownership of Certain Beneficial Owners and Management" to be
filed with the Commission.
Item 12. Certain Relationships and Related Transactions
Incorporated by reference to the section of the Company's Proxy Statement
entitled "Certain Relationships and Related Transactions" to be filed with the
Commission.
36
<PAGE> 38
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Bylaws of Registrant, as amended.(1)
4.1 Specimen Common Stock Certificate.(2)
4.2 Specimen Warrant Certificate.(2)
4.3 Form of Warrant Agreement.(3)
4.4 Form of Representative's Warrant.(3)
4.5 Warrant dated as of December 1, 1995 issued to Kirk
Blosch.(1)
4.6 Warrant dated as of January 9, 1996 issued to Kirk
Blosch.(1)
10.1 1995 Stock Option Plan, including forms of stock option
agreements and stock purchase agreement.(1)
10.2 Employment Agreement dated as of January 1, 1996 between
the Registrant and Joyce Freedman.(1)
10.3 Employment Agreement dated as of January 1, 1996 between
the Registrant and Maurizio Vecchione.(1)
10.4 Amended and Restated Promissory Note of the Registrant
dated January 17, 1996 issued to Joyce Freedman and Lee
Freedman (the "Freedmans").(1)
10.5 Letter Agreement dated January 17, 1996 between the
Registrant and the Freedmans.(1)
10.6 Security Agreement dated October 31, 1994 between the
Registrant and the Freedmans.(1)
10.7 Conversion Agreement dated January 26, 1996 between the
Registrant and the Freedmans.(1)
10.8 Trademark Collateral Assignment and Security Agreement
dated October 31, 1994 between the Registrant and the
Freedmans.(1)
10.9 Patent Collateral Assignment and Security Agreement
dated October 31, 1994 between the Registrant and the
Freedmans.(1)
10.10 Warrant dated October 1, 1991 issued by the Registrant
to the Freedmans.(1)
10.11 Facilities lease dated October 23, 1992 between
Elizabeth A. Jennings, as lessor, and Registrant, as
lessee.(1)
10.12 Security Agreement dated as of December 1, 1995 between
the Registrant and Kirk Blosch.(1)
10.13 Security Agreement dated as of January 9, 1996 between
the Registrant and Kirk Blosch.(1)
10.14 Stock Purchase Agreement dated as of January 26, 1996
between the Registrant, Monarch Knitting Machinery Corp.
("Monarch") and Monarch Knitting Machinery (U.K.) Ltd.
("Monarch U.K.").(2)
10.15 Escrow Agreement dated as of January 26, 1996 between
the Registrant, Monarch U.K., Monarch and Blodnick
Abramowitz & Blodnick.(2)
10.16 Letter Agreement dated January 26, 1996 between the
Registrant and W.B. McKee Securities, Inc.(2)
*10.17 Distribution Agreement between the Registrant and
ModaCAD Europe ApS dated June 23, 1994.(2)
*10.18 License Agreement between the Registrant and Associated
Volume Buyers dated April 20, 1995.(2)
*10.19 License Agreement between the Registrant and Levitz
Furniture, Inc. dated
37
<PAGE> 39
February 10, 1995.(2)
*10.20 Software Development and Publishing Agreement between
the Registrant and Broderbund Software, Inc. dated March
15, 1996.(3)
10.21 Amendment No. 1 to ModaCAD, Inc. 1995 Stock Option Plan
dated October __, 1996.
*10.22 Broderbund/ModaCAD Amendment to Agreement of March 15,
1996 dated as of October 11, 1996 between the Registrant
and Broderbund Software, Inc.
*10.23 Investment Banking Consulting Agreement dated December
4, 1996 between the Registrant and Shamrock Partners,
Ltd.
23.1 Consent of Singer, Lewak, Greenbaum & Goldstein, L.L.P.
27.1 Financial Data Schedule (4)
(b) Reports on Form 8-K
None
* Confidential treatment has been granted or is being requested with respect to
portions of this exhibit, and such confidential portions have been deleted and
will be separately filed with the Securities Exchange Commission pursuant to
Rule 24b-2 promulgated under the Exchange Act of 1934 or Rule 406 promulgated
under the Securities Act of 1933.
(1) Incorporated by reference to the Company's Form SB-2 Registration Statement
(Commission File No. 333-1166-LA) filed with the Commission on February 7, 1996.
(2) Incorporated by reference to the Company's Amendment No. 1 to Form SB-2
Registration Statement (Commission File No. 333-1166-LA) filed with the
Commission on March 27, 1996.
(3) Incorporated by reference to the Company's Amendment No. 2 to Form SB-2
Registration Statement (Commission File No. 333-1166-LA) filed with the
Commission on March 19, 1996.
(4) This exhibit is being filed electronically in the electronic format
specified by EDGAR.
38
<PAGE> 40
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ModaCAD, INC.
Date: March 28, 1997 By:/s/ JOYCE FREEDMAN
----------------------------------
Joyce Freedman
Chairman of the Board and
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C> <C>
/s/ JOYCE FREEDMAN Chairman of the Board and March 28, 1997
- -------------------------------- President ----------------------
Joyce Freedman Date
/s/ MAURIZIO VECCHIONE Executive Vice President and March 28, 1997
- -------------------------------- Director ----------------------
Maurizio Vecchione Date
/s/ LEE FREEDMAN Vice President, Finance, March 28, 1997
- -------------------------------- Chief Financial Officer and ----------------------
Lee Freedman Director Date
/s/ ANDREA VECCHIONE Secretary and Director March 28, 1997
- -------------------------------- ----------------------
Andrea Vecchione Date
/s/ STEPHEN WYLE Director March 28, 1997
- -------------------------------- ----------------------
Stephen Wyle Date
/s/ PETER FRANK Director March 28, 1997
- -------------------------------- ----------------------
Peter Frank Date
</TABLE>
39
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------ ----------- -------------
<S> <C> <C>
3.1 Bylaws of Registrant, as amended.(1)
4.1 Specimen Common Stock Certificate.(2)
4.2 Specimen Warrant Certificate.(2)
4.3 Form of Warrant Agreement.(3)
4.4 Form of Representative's Warrant.(3)
4.5 Warrant dated as of December 1, 1995 issued to Kirk Blosch.(1)
4.6 Warrant dated as of January 9, 1996 issued to Kirk Blosch.(1)
10.1 1995 Stock Option Plan, including forms of stock option
agreements and stock purchase agreement.(1)
10.2 Employment Agreement dated as of January 1, 1996 between the
Registrant and Joyce Freedman.(1)
10.3 Employment Agreement dated as of January 1, 1996 between the
Registrant and Maurizio Vecchione.(1)
10.4 Amended and Restated Promissory Note of the Registrant dated
January 17, 1996 issued to Joyce Freedman and Lee Freedman
(the "Freedmans").(1)
10.5 Letter Agreement dated January 17, 1996 between the Registrant
and the Freedmans.(1)
10.6 Security Agreement dated October 31, 1994 between the
Registrant and the Freedmans.(1)
10.7 Conversion Agreement dated January 26, 1996 between the
Registrant and the Freedmans.(1)
10.8 Trademark Collateral Assignment and Security Agreement dated
October 31, 1994 between the Registrant and the Freedmans.(1)
10.9 Patent Collateral Assignment and Security Agreement dated
October 31, 1994 between the Registrant and the Freedmans.(1)
10.10 Warrant dated October 1, 1991 issued by the Registrant to the
Freedmans.(1)
10.11 Facilities lease dated October 23, 1992 between Elizabeth A.
Jennings, as lessor, and Registrant, as lessee.(1)
10.12 Security Agreement dated as of December 1, 1995 between the
Registrant and Kirk Blosch.(1)
10.13 Security Agreement dated as of January 9, 1996 between the
Registrant and Kirk Blosch.(1)
10.14 Stock Purchase Agreement dated as of January 26, 1996 between
the Registrant, Monarch Knitting Machinery Corp. ("Monarch")
and Monarch Knitting Machinery (U.K.) Ltd. ("Monarch
U.K.").(2)
10.15 Escrow Agreement dated as of January 26, 1996 between the
Registrant, Monarch U.K., Monarch and Blodnick Abramowitz &
Blodnick.(2)
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
EXIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
------ ----------- -------------
<S> <C> <C>
10.16 Letter Agreement dated January 26, 1996 between the Registrant
and W.B. McKee Securities, Inc.(2)
*10.17 Distribution Agreement between the Registrant and ModaCAD
Europe ApS dated June 23, 1994.(2)
*10.18 License Agreement between the Registrant and Associated Volume
Buyers dated April 20, 1995.(2)
*10.19 License Agreement between the Registrant and Levitz Furniture,
Inc. dated February 10, 1995.(2)
*10.20 Software Development and Publishing Agreement between the
Registrant and Broderbund Software, Inc. dated March 15,
1996.(3)
10.21 Amendment No. 1 to ModaCAD, Inc. 1995 Stock Option Plan dated
October __, 1996.
*10.22 Broderbund/ModaCAD Amendment to Agreement of March 15, 1996
dated as of October 11, 1996 between the Registrant and
Broderbund Software, Inc.
*10.23 Investment Banking Consulting Agreement dated December 4, 1996
between the Registrant and Shamrock Partners, Ltd.
23.1 Consent of Singer, Lewak, Greenbaum & Goldstein, L.L.P.
27.1 Financial Data Schedule (4)
</TABLE>
* Confidential treatment has been granted or is being requested with respect to
portions of this exhibit, and such confidential portions have been deleted and
will be separately filed with the Securities Exchange Commission pursuant to
Rule 24b-2 promulgated under the Exchange Act of 1934 or Rule 406 promulgated
under the Securities Act of 1933.
(1) Incorporated by reference to the Company's Form SB-2 Registration Statement
(Commission File No. 333-1166-LA) filed with the Commission on February 7, 1996.
(2) Incorporated by reference to the Company's Amendment No. 1 to Form SB-2
Registration Statement (Commission File No. 333-1166-LA) filed with the
Commission on March 27, 1996.
(3) Incorporated by reference to the Company's Amendment No. 2 to Form SB-2
Registration Statement (Commission File No. 333-1166-LA) filed with the
Commission on March 19, 1996.
(4) This exhibit is being filed electronically in the electronic format
specified by EDGAR.
41
<PAGE> 1
EXHIBIT 10.21
AMENDMENT NO. 1 TO
MODACAD, INC.
1995 STOCK OPTION PLAN
ModaCAD, Inc.'s 1995 Plan shall be amended as follows:
The text of Section 2(i), "Disinterested Person", of the ModaCAD,
Inc. 1995 Stock Option Plan (the "Plan") shall be deleted. The current
subsection (j) (entitled "Employee") shall be designated subsection (i); the
current sub-section (k) (entitled "Exchange Act") shall be designated (j); and
the current sub-section (l) (entitled "Incentive Stock Option") shall be
designated (k);
A new sub-section shall be inserted as subsection (m) to read in its
entirety as follows:
"Non-Employee Director" shall have that meaning, and shall be
interpreted in a manner consistent with, the meaning of such term
under Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Exchange Act, as amended from time to time.
"Director" shall mean a duly elected and qualified member of the
Board.
The second paragraph of Section 4(a) of the Plan is hereby amended
to read in its entirety as follows:
The Board may at any time appoint a Committee consisting of not less
than two persons to administer the Plan on behalf of the Board,
subject to such terms and conditions as the Board may prescribe.
Members of the Committee shall serve for such period of time as the
Board may determine. From time to time the Board may increase the
size of the Committee and appoint additional members thereto, remove
members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all
members of the Committee and thereafter directly administer the
Plan. In the event the Company has a class of equity securities
registered under Section 12 of the Exchange Act and unless the Board
determines otherwise, from the effective date of such registration,
all grants of Options to persons subject to the provisions of
Section 16(b) of the Exchange Act shall be made by the Board or in
accordance with the recommendations of a Committee of two or more
persons having full authority to act in the matter and all of whom
are Non-Employee Directors.
Dated: October __, 1996
<PAGE> 1
EXHIBIT 10.22
[Confidential treatment has been granted or requested with respect
to portions of this exhibit, and such portions have been replaced
with "**". Such confidential portions have been deleted and
separately filed with the Securities and Exchange Commission
pursuant to Rule 24b-2.]
BRODERBUND/MODACAD
AMENDMENT TO AGREEMENT OF MARCH 15, 1996
This Amendment (the "Amendment") is dated as of October 11, 1996 between
Broderbund Software, Inc. ("Publisher") and ModaCAD ("Author").
The parties hereto are parties to a Software Development and Publishing
Agreement dated March 15, 1996 (the "Agreement") relating to software products
tentatively entitled The Home Decorator Series. All terms used but not defined
herein have the meanings set forth in the Agreement. The parties wish to modify
the Agreement as set forth herein.
1. **. Section 4.03 of the Agreement shall be revised as follows:
Publisher shall pay Author a ** of ** as an advance against royalties payable on
sales of the Works, Derivative Works, Conversions, Derivative On-Line Programs
and Foreign Language Adaptations **. ** shall be paid to Author in two
installments of **. The first installment ** shall be **. Notwithstanding the
above, Publisher and Author acknowledge and agree that **. Publisher agrees to
pay the second installment **.
2. PARTIAL **. In order to provide Author with ** after the initial commercial
shipment of the Work, Publisher shall ** under Section 4.01 of the Agreement
during recoupment of the Guarantee advanced to Author hereunder.
3. SHIPMENT OF THE WORK. Publisher agrees that the initial commercial shipment
of the Work shall occur no later than three (3) months after sign-out of the
Work from quality assurance.
<PAGE> 2
4. AGREEMENT TO REMAIN IN FULL FORCE AND EFFECT. All other terms and conditions
of the Agreement, excepting those modified hereto, shall remain in full force
and effect.
AGREED AND ACCEPTED:
PUBLISHER
BRODERBUND SOFTWARE, INC.
By: /s/ John Baker
---------------------
John Baker
Publisher
AUTHOR
ModaCAD
By: /s/ Maurizio Vecchione
----------------------------
Maurizio Vecchione
Author
<PAGE> 1
EXHIBIT 10.23
[Confidential treatment has been granted or requested with respect
to portions of this exhibit, and such portions have been replaced
with "**". Such confidential portions have been deleted and
separately filed with the Securities and Exchange Commission
pursuant to Rule 24b-2.]
December 4, 1996
Ms. Joyce Freedman
ModaCAD, Inc.
1954 Cotner Avenue
Los Angeles, CA 90025
RE: Investment Banking Consulting Agreement
Dear Ms. Freedman:
This will confirm the arrangements, terms and conditions pursuant to
which Shamrock Partners, Ltd. (the "Consultant") has been retained to serve as a
financial consultant and advisor to ModaCAD, Inc. (the "Company"), on a
nonexclusive basis for a period of ** commencing December 4, 1996, and **. The
undersigned hereby agrees to the following terms and conditions:
1. Duties of Consultant. Consultant shall, at the request of the
Company, upon reasonable notice, render the following services to
the Company from time to time:
a. Consulting Services. Consultant will provide such
financial consulting services and advice pertaining to
the Company's business affairs as the Company may from
time to time reasonably request. Without limiting the
generality of the foregoing, Consultant will assist the
Company in developing, studying and evaluating
financing, merger and acquisition proposals, prepare
reports and studies thereon when advisable, and assist
in negotiations and discussions pertaining thereto. This
Agreement is not a contract for listing services;
however, nothing in this agreement will prohibit
Shamrock from listing or making a market in the
Company's securities in the OTC markets, which markets
might include the NASDAQ Small-Cap Market.
b. Financing. Consultant will assist and represent the
Company in obtaining both short and long-term financing,
if requested by the Company. The Consultant will be
entitled to additional compensation under such terms as
may be agreed to by the parties.
c. Wall Street Liaison. Consultant will, when appropriate,
arrange meetings between representatives of the Company
and individuals and financial institutions in the
investment community, such as security analysts,
portfolio managers and market makers.
The services described in this Section 1 shall be rendered by
Consultant without any direct supervision by the Company and at such time and
place and in such manner (whether by conference,
<PAGE> 2
telephone, letter or otherwise) as Consultant may determine. Consultant shall,
however, keep the Company fully advised on a current basis as to services being
performed and, upon request by the Company, shall refrain from or discontinue
performance of any service which may be specified by the Company.
2. Term. This Agreement shall continue for a period of ** from the
date hereof (the "Full Term").
3. Compensation. As compensation for Consultant's services hereunder,
the Company agrees to grant to Consultant **. ** from the date of
this Agreement, and shall be in the form attached hereto as Exhibit
A.
4. Available Time. Consultant shall make available such time as it, in
its sole discretion, shall deem appropriate for the performance of
its obligations under this Agreement. If at any time the Company
believes that Consultant is failing to perform its obligations under
this Agreement or is not devoting sufficient time to such
performance, the Company shall notify Consultant in writing of such
belief, which notice shall specify the details underlying such
belief. The parties shall attempt in good faith to resolve any
differences of opinion with respect thereto in the soonest
practicable time.
5. Relationship. Nothing herein shall constitute Consultant as an
employee or agent of the Company, except to such extent as might
hereinafter be agreed upon for a particular purpose. Except as might
hereafter be expressly agreed upon in writing, Consultant shall not
have the authority to obligate or commit the Company in any manner
whatsoever.
6. Confidentiality. Except in the course of the performance of its
duties hereunder, Consultant agrees that it shall not disclose any
trade secrets, know-how, or other proprietary information not in the
public domain learned as a result of this Agreement unless and until
such information becomes generally known. The terms of this Section
6 shall survive the termination or expiration of this Agreement.
7. Assignment. This Agreement shall not be assignable by any party **
to related parties without prior notification to the Company. **
8. Compliance with Laws. In performing services for the Company
pursuant to this Agreement, Consultant shall comply with all
applicable laws, including, but not limited to, federal and state
securities laws. Consultant represents and warrants to the Company
that Consultant has, or shall obtain prior to any performance of
services hereunder, any and all licenses, registrations and permits
necessary for the performance of Consultant's services pursuant to
this Agreement.
9. Cross Indemnification. Both the Consultant and the Company agree to
indemnify, and hold harmless each other, their officers, directors,
employees, agents and shareholders from and against any and all
claims, losses, damages, costs (including reasonable attorneys' fees
and costs) and expenses arising directly or indirectly from services
and information provided under the terms of this Agreement, or any
breach of agreements or representations set forth herein. The
covenants, agreements and terms set forth in this Section 8 shall
survive termination or expiration of this Agreement.
<PAGE> 3
10. Termination. The Company shall have the right to terminate this
Agreement at any time, for any reason. In any event, the Consultant
will at all times be **.
Agreed upon this 4th day of December, 1996.
MODACAD, INC. SHAMROCK PARTNERS, LTD.
/s/ Joyce Freedman /s/ James T. Kelly
- ----------------------------------- ----------------------------
Ms. Joyce Freedman, President James T. Kelly, President
<PAGE> 4
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANTS TO PURCHASE
** SHARES OF COMMON STOCK OF
MODACAD, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
Void after **
THE WARRANTS evidenced by this certificate have been issued for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
THIS CERTIFICATE evidences the right of Shamrock Partners, Ltd.
("Holder") to purchase, for the Warrant Price (as defined below), ** shares of
Common Stock (the "Shares"), of ModaCAD, Inc., a California corporation (the
"Company"), subject to the terms and conditions hereinafter set forth.
1. Term of Warrants. The Warrants may be exercised only during the
period commencing ** (the "Warrant Term"), and may be exercised only in
accordance with the terms and conditions hereinafter set forth.
2. Exercise of Warrants.
(a) Right to Exercise. The Warrants shall vest and become
exercisable upon commencement of the Warrant Term and may be exercised in whole
or in part at any time or from time to time during the Warrant Term.
(b) Method of Exercise; Payment; Issuance of New Warrants. The
Warrants may be exercised by Holder, in whole or in part, by the surrender of
this Certificate, properly endorsed, at the principal office of the Company, and
by the payment to the Company by certified or cashier's check of the Warrant
Price. Each Warrant shall be exercisable for one Share of Common Stock. In the
event of any exercise of the Warrants, certificates for the Shares so purchased
shall be delivered to Holder within a reasonable time after the Warrants shall
have been so exercised, and unless the Warrants have expired, a new certificate
representing the right to purchase the number of Shares, if any, with respect to
which this Certificate shall not then have been exercised shall also be issued
to Holder within such time. All such new certificates shall be dated the date
hereof and shall be identical to this Certificate except as to the number of
Shares issuable pursuant thereto. The Company shall pay all documentary, stamp
or other
<PAGE> 5
transactional taxes (other than transfer taxes) attributable to the issuance or
delivery of shares of Common Stock of the Company upon exercise of the Warrants.
(c) Restrictions on Exercise. The Warrants may not be exercised if
the issuance of the Shares upon such exercise would constitute a violation of
any applicable federal or state securities laws or other laws or regulations. As
a condition to the exercise of the Warrants, the Company may require Holder to
make such representations and warranties to the Company as may be required by
applicable law or regulation.
3. Stock Fully Paid; Reservations of Shares. The Company covenants and
agrees that all Shares will, upon issuance and payment in accordance herewith,
be fully paid, validly issued and nonassessable. The Company further covenants
and agrees that during the Warrant Term the Company will at all times have
authorized and reserved for the purpose of the issue upon exercise of the
Warrants at least the maximum number of shares of the Company's Common Stock as
are issuable upon the exercise of the Warrants.
4. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of the Warrants and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) Consolidation, Merger or Reclassification. If the Company at any
time while the Warrants remain outstanding and unexpired shall consolidate with
or merge into any other corporation, or sell all or substantially all of its
assets to another corporation, or reclassify or in any manner change the
securities then purchasable upon the exercise of the Warrants (any of which
shall constitute a "Reorganization"), then lawful and adequate provision shall
be made whereby this Certificate shall thereafter evidence the right to purchase
such number and kind of securities and other property as would have been
issuable or distributable on account of such Reorganization upon or with respect
to the securities which were purchasable under the Warrants immediately prior to
the Reorganization. The Company shall not effect any such Reorganization unless
prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such Reorganization shall
assume by written instrument executed and mailed or delivered to Holder, at the
last address of Holder appearing on the books of the Company, the obligation to
deliver to Holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, Holder may be entitled to purchase.
Notwithstanding anything in this Section 4(a) to the contrary, the prior two
sentences shall be inoperative and of no force and effect and those Warrants
which are unexercised shall expire on the completion of such Reorganization if
upon the completion of any such Reorganization the shareholders of the Company
immediately prior to such event do not own at least 50% of the equity interest
of the entity resulting from such Reorganization, the notice required by Section
4(e) hereof has been duly given and the Warrants were fully exercisable at the
time such notice was provided.
(b) Subdivision or Combination of Shares. If the Company at any time
while the Warrants remain outstanding and unexpired shall subdivide or combine
its Common Stock, the Warrant Price shall be adjusted to that price determined
by multiplying the Warrant Price in effect immediately prior to such subdivision
or combination by a fraction (i) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such
subdivision or combination and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such subdivision
or combination.
<PAGE> 6
(c) Certain Dividends and Distributions. If the Company at
any time while the Warrants are outstanding and unexpired shall take a record of
the holders of its Common Stock for the purpose of:
(i) Stock Dividends. Entitling them to receive
a dividend payable in, or other distribution without consideration of, Common
Stock, then the Warrant Price shall be adjusted to that price determined by
multiplying the Warrant Price in effect immediately prior to each dividend or
distribution by a fraction (A) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (B) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution; or
(ii) Distribution of Assets, Securities, etc.
Making any distribution without consideration with respect to its Common Stock
(other than a cash dividend) payable otherwise than in its Common Stock, Holder
shall, upon the exercise of the Warrants, be entitled to receive, in addition to
the number of Shares receivable thereupon, and without payment of any additional
consideration therefor, such assets or securities as would have been payable to
him as owner of that number of Shares receivable by exercise of the Warrants had
he been the holder of record of such Shares on the record date for such
distribution, and an appropriate provision therefor shall be made a part of any
such distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price pursuant to Subsections (b) or (c) (i) of this Section 4, the
number of Shares purchasable hereunder shall be adjusted to that number
determined by multiplying the number of such Shares purchasable upon the
exercise of the Warrants immediately prior to such adjustment by a fraction, the
numerator of which shall be the Warrant Price immediately prior to such
adjustment and the denominator of which shall be the Warrant Price immediately
following such adjustment.
(e) Notice. In case at any time:
(i) The Company shall pay any dividend payable
in stock upon its Common Stock or make any distribution, excluding a cash
dividend, to the holders of its Common Stock;
(ii) The Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or other rights;
(iii) There shall be any reclassification of the
Common Stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation; or
(iv) There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder at
least 10 days' prior written notice (or, in the event of notice pursuant to
Section 4(e)(iii), at least 30 days' prior written notice) of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect to any such reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up. Such notice in accordance with the
foregoing clause shall also specify, in the case of any such dividend,
distribution or subscription rights,
<PAGE> 7
the date on which the holders of Common Stock shall be entitled thereto, and
such notice in accordance with the foregoing clause shall also specify the date
on which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Each such written notice shall be given by first-class mail, postage
prepaid, addressed to Holder at the address of Holder as shown on the books of
the Company.
(f) No Change in Certificate. The form of this Certificate need not
be changed because of any adjustment in the Warrant Price or in the number of
Shares and Additional Warrants purchasable on its exercise. The Warrant Price or
the number of Shares and Additional Warrants shall be considered to have been so
changed as of the close of business on the date of adjustment.
5. Fractional Shares. No fractional Shares will be issued in
connection with any subscription hereunder but, in lieu of such fractional
Shares, the Company shall make a cash payment therefor upon the basis of the
fair market value of the Shares.
6. Restrictions on Transfer. The Warrants are restricted from sale,
transfer, assignment or hypothecation by operation of law. The Warrants have not
been registered under the Act or any applicable state securities laws, and may
not be offered for sale, sold, transferred, pledged or hypothecated without an
effective registration statement under the Act and under any applicable state
securities law, or an opinion of counsel, satisfactory to the Company, that an
exemption from such registration is available. The Holder understands that
because the Warrants are not registered, the Holder must hold the Warrants
indefinitely unless they are registered under the Act and any applicable state
securities laws or must obtain exemptions from registration. The Holder
represents and warrants that the Holder is purchasing the Warrants for his own
account for investment and not with the view to distribution, assignment, resale
or other transfer of the Warrants. Except as specifically stated herein, no
other person has a direct or indirect beneficial interest in the Warrants.
7. No Rights as Shareholder. Holder, as holder of the Warrants, shall
not be entitled to vote or receive dividends or be considered a shareholder of
the Company for any purpose, nor shall anything in this Certificate be construed
to confer on Holder, as such, any rights of a shareholder of the Company or any
right to vote, give or withhold consent to any corporate action, to receive
notice of meetings of shareholders, to receive dividends or subscription rights
or otherwise.
8. Definitions. As used in this Certificate:
(a) "Warrants" shall mean the rights evidenced by this
Certificate.
(b) "Warrant Price" shall mean ** per share.
9. Notices. All demands, notices, consents and other communications to
be given hereunder shall be in writing and shall be deemed duly given when
delivered personally or five days after being mailed by first class mail,
postage prepaid, properly addressed, if to the Company at ModaCAD, Inc., 1954
Cotner Avenue, Los Angeles, California 90025, and if to Holder at 111 Veterans
Square, 3rd Floor, Media, Pennsylvania 19063. The Company and Holder may change
such address at any time or times by notice hereunder to the other.
<PAGE> 8
10. Amendments; Waivers, Terminations, Governing Law; Headings. The
Warrants and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. The Warrants shall
be governed by and construed and interpreted in accordance with the laws of the
State of California. The headings in this Certificate are for convenience of
reference only and are not part of the Warrants.
Dated as of December __, 1996.
MODACAD, INC.
By:___________________________
Name:_________________________
Title:________________________
Attest:
<PAGE> 9
MODACAD, INC.
SUBSCRIPTION FORM
(To be completed and signed only upon exercise of the Warrants)
TO: ModaCAD, Inc.
1954 Cotner Avenue
Los Angeles, CA 90025
Attention: Secretary
The undersigned, the holder and registered owner of the attached
Warrants, hereby irrevocably and unconditionally elects to exercise such
Warrants and to purchase * shares of ModaCAD, Inc. Common Stock, pursuant to the
terms and conditions of the Warrants, and herewith tenders a check in the amount
of $_________ in full payment of the purchase price for such shares and
warrants, and requests that the certificate(s) for such shares and warrants be
issued in the name of and delivered to:
(Please print name and address)
____________________________________
____________________________________
____________________________________
____________________________________
Dated: __________________ SHAMROCK PARTNERS, LTD.
By:_________________________
Name:______________________
Title:_______________________
*Insert here the number of shares called for on the face of the
Warrants (or in the case of partial exercise, that portion as to which the
Warrants are being exercised), without making any adjustment for additional
Common Stock or any other securities or property which, under the adjustment
provisions of the Warrants, may be deliverable upon exercise.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File No. 333-21775) of our report dated February 7, 1997 on our audits
of the financial statements of ModaCAD, Inc. as of December 31, 1996 and for
each of the two years in the period ended December 31, 1996, which is included
in this Annual Report on Form 10-KSB.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATIONS AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH 10-QSK FOR FISCAL YEAR ENDED DECEMBER 31, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,138,963
<SECURITIES> 0
<RECEIVABLES> 1,454,994
<ALLOWANCES> 112,141
<INVENTORY> 26,025
<CURRENT-ASSETS> 3,635,249
<PP&E> 1,080,703
<DEPRECIATION> 411,554
<TOTAL-ASSETS> 7,181,855
<CURRENT-LIABILITIES> 520,522
<BONDS> 0
0
0
<COMMON> 11,593,905
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,181,855
<SALES> 3,370,222
<TOTAL-REVENUES> 3,370,222
<CGS> 114,854
<TOTAL-COSTS> 114,854
<OTHER-EXPENSES> 2,711,847
<LOSS-PROVISION> 209,386
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 645,435
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645,435
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
