<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3861 Sepulveda Blvd., Culver City 90230
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(310) 751-2100
---------------------------
(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:
Common Stock
----------------
(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
--- ---
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 $7,781,280.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $56,532,146 based on the average bid and asked prices of $13.81
per share as quoted on the Nasdaq National Market on March 25, 1999.
The number of outstanding shares of the registrant's common stock, as of March
25, 1999, was 6,163,874.
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 1999 are incorporated into Part III
of this Annual Report.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with section 16(a) of the Exchange Act
Directors
The Directors of the Company, and certain information about them, are set forth
below:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Positions
Joyce Freedman 64 Chairman of the Board and Chief
Executive Officer
Maurizio Vecchione 37 President, Chief Operating Officer
and Director
Lee Freedman 75 Vice President, Finance, Chief
Financial Officer and Director
Andrea Vecchione 42 Secretary and Director
F. Stephen Wyle(1)(2) 55 Director
Peter Frank(1) 73 Director
Leslie Saleson(1)(2) 46 Director
</TABLE>
- -----------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Joyce Freedman is a founder of the Company and has served as a director since
its incorporation in February 1988. Ms. Freedman has served as Chairman of the
Board of the Company since its incorporation, a position to which she was
formally elected in January 1996. From February 1988 to December 1997, Ms.
Freedman also served as President of the Company and, in January 1998, became
Chief Executive Officer. From January 1986 to February 1988, Ms. Freedman was
the Chief Executive Officer of Compu-Arch, a sole proprietorship in which she
authored and marketed computer software for architects, interior designers and
engineers. Ms. Freedman holds a Master of Architecture degree from the Southern
California Institute of Architecture and engaged in private practice as an
architect from December 1984 to January 1986. Ms. Freedman is the wife of Lee
Freedman.
Maurizio Vecchione is a founder of the Company and has served as a director
since its incorporation. From February 1988 to December 1997, he served as an
Executive Vice President of the Company and became President and Chief Operating
Officer of the Company in January 1998. From March 1982 to February 1988, Mr.
Vecchione held various executive, technical and marketing positions with CAECO
Inc. (subsequently acquired by Mentor Graphics), a large computer-aided
design/computer-aided manufacture software developer, Tektronix Corporation, a
Fortune 500 computer graphics systems and instrumentation manufacturer,
Photomatrix Engineering, Inc., an imaging and computer graphics software
developer, and Proprietary Software Systems Inc., an imaging software developer
and subsidiary of General Dynamics, a defense contractor. Prior to entering
industry, Mr. Vecchione performed computer science research for a variety of
scientific institutions, including the NASA Space Science Laboratory.
Mr. Vecchione is the husband of Andrea Vecchione.
Lee Freedman has served as the Company's Vice President, Finance, Chief
Financial Officer and as a director since its incorporation. From 1983 to 1988,
Mr. Freedman was engaged in private practice as a business consultant. From 1957
to 1983, he was employed by HRT Industries Inc., then a New York Stock Exchange
listed company, which operated a chain of discount department and retail
specialty stores, and held the position of Executive Vice President for most of
that time. Mr. Freedman is the husband of Joyce Freedman.
1
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Andrea Vecchione has served as the Company's Secretary and as a director since
its incorporation. Since 1991, she has served as Executive Vice President and
Treasurer and a director of Synthetic/A/Ltd., a small multimedia software
developer which she and her husband, Maurizio Vecchione, own.
F. Stephen Wyle became a director of the Company in January 1996. Since January
1999, Mr. Wyle has been Chairman and Chief Executive Officer of Wyle
Telemedicine, a developmental stage company producing portable diagnostic
telemedicine for primary health care application. From December 1994 to January
1999, Mr. Wyle was Chairman of Wyle Laboratories, a diversified engineering and
testing company serving aerospace, nuclear power and commercial markets. From
February 1991 to December 1994, Mr. Wyle was an independent consultant providing
strategic marketing and financing assistance to early-stage, technology-based
companies. From October 1988 to February 1991, Mr. Wyle was the President of
Trancel Corporation (formerly Cell Biotech, Inc.) which was engaged in the
development of a long-term treatment for Type I diabetes.
Peter Frank became a director of the Company in November 1996. Since 1965, Mr.
Frank has been President of Los Angeles-based Managing Directors, Ltd., which he
founded as an independent investment banking firm specializing in the funding of
small cap companies as well as in mergers and acquisitions. In 1993, Mr. Frank
founded, and is President of, Baltic Treasures, Ltd. (operating as Bamburi), a
manufacturer and importer of antique furniture from Latvia and Western Russia
which is sold to retail stores in the United States.
Leslie Saleson became a director of the Company in November 1997. Since November
1998, Ms. Saleson has been President and Chief Operating Officer of Abbott
Resource Group, Inc., a privately held company based in Irvine, California. From
April 1997 to November 1998, Ms. Saleson served as an independent financial
advisor to several corporations. From February 1994 to April 1997, Ms. Saleson
was a managing director of The Westcott Group, a Beverly Hills-based merchant
bank. From 1990 to 1993 Ms. Saleson was an owner, Co-Chief Executive Officer and
Chief Financial Officer of Pogens, Inc., a packaged cookie manufacturer. In
1981, Ms. Saleson founded Saleson and Company, Inc., an investment banking firm,
where she served as President until 1990.
Executive Officers
The executive officers of the Company, and certain information about them, are
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Positions
Joyce Freedman 64 Chairman of the Board and Chief Executive Officer
Maurizio Vecchione 37 President, Chief Operating Officer and Director
Lee Freedman 75 Vice President, Finance, Chief Financial Officer
and Director
Linda Freedman 40 Vice President, Marketing
Steven Gentry 39 Vice President, Engineering
</TABLE>
Officers are appointed by and serve at the discretion of the Board of Directors.
All officers were appointed for terms ending upon their deaths, resignations,
removal or appointment and qualification of a successor. For information
concerning Joyce Freedman, Maurizio Vecchione and Lee Freedman, see "Directors"
above.
Linda Freedman has served in the capacity of Vice President, Marketing of the
Company since October 1988, a position to which she was formally elected in
January 1996. From February 1984 to September 1988, she served as Advertising
Director for Baker Communications, Inc., which publishes Beverly Hills 213, a
Beverly Hills-based newspaper. Linda Freedman is the daughter of Joyce and Lee
Freedman.
2
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Steven Gentry joined the Company in June 1992 as a Senior Product Manager, in
March 1995 became the Company's Director of Engineering, in April 1997 became
the Company's Director of Research and Development, in October 1997 became the
Company's Chief Technology Officer and, in February 1998 was appointed to the
position of Vice President, Engineering. From June 1989 to June 1992, Mr. Gentry
was self-employed, using the trade name Segtec, and engaged in the development
of software for the consumer entertainment market.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors and officers and persons holding more
than ten percent of the Company's Common Stock are required to report their
ownership of the Company's Common Stock and any changes in that ownership to the
Securities and Exchange Commission (the "SEC"). The specific due dates for these
reports have been established by the SEC, and the Company is required to
disclose in this report any failure to file by the established dates. To the
knowledge of the Company and based solely on a review of the Section 16(a)
reports furnished to the Company during 1998, none of the Company's directors,
officers or persons holding more than ten percent of the Company's Common Stock
were delinquent in filing reports pursuant to Section 16(a) of the Exchange Act.
3
<PAGE>
Item 10. Executive Compensation
Summary Compensation Table
The following table summarizes the compensation paid during each of 1998, 1997
and 1996 to the Company's chief executive officer and other executive officers
whose compensation exceeded $100,000 in 1998:
<TABLE>
<CAPTION>
Long-Term
Other Compensation Awards
Annual -------------------------
Compen- Restricted Securities
Name and Fiscal sation Stock Awards Underlying
Principal Position Year Salary Bonus (1) (2) Options
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joyce Freedman 1998 $200,000 $100,000 $7,200 $ 0 0
Chairman of the 1997 $150,000 $20,999 $4,800 $ 0 37,227
Board and Chief 1996 $150,000 $36,619 $4,800 $ 0 0
Executive Officer
Maurizio Vecchione 1998 $200,000 $100,000 $7,200 $ 0 0
President & Chief 1997 $150,000 $20,999 $4,800 $ 0 37,227
Operating Officer 1996 $150,000 $36,619 $4,800 $ 0 0
Lee Freedman 1998 $125,000 $ 0 $4,800 $ 0 50,000
Vice President, 1997 $125,000 $ 0 $4,800 $ 0 0
Finance & Chief 1996 $125,000 $ 0 $4,800 $ 0 0
Financial Officer
Linda Freedman 1998 $125,000 $ 0 $4,800 $ 0 85,000(3)
Vice President, 1997 $100,000 $32,261 $4,800 $ 0 55,000
Marketing 1996 $106,029 $24,710 $4,800 $25,965 0
Steven Gentry 1998 $120,000 $ 0 $ 0 $39,687(4) 25,000
Vice President, 1997 $100,000 $ 0 $ 0 $ 0 0
Engineering 1996 $90,833 $ 0 $ 0 $19,470 180,000
</TABLE>
____________________
(1) Other Annual Compensation consists of automobile allowances.
(2) As of December 31, 1998, Linda Freedman held 2,596 restricted shares valued
at $44,132, and Steven Gentry held 6,490 restricted shares valued at $110,330,
which values are based on the market value of the Company's Common Stock of
$17.00 per share at December 31, 1998. The Company pays no dividends on Common
Stock.
(3) Consists of options to purchase 25,000 shares granted during 1998 and
options to purchase 60,000 shares granted in previous years which were repriced
during 1998.
(4) Consists of 2,597 shares of restricted Common Stock granted to Steven Gentry
during 1998, all of which shares were vested as of December 31, 1998. The
Company pays no dividends on Common Stock.
4
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information concerning option grants during
fiscal year 1998 to each of the executive officers named in the Summary
Compensation Table who received stock option grants in 1998. The Company has not
granted any stock appreciation rights (SARs). Unless otherwise indicated in the
footnotes, all options had vested and were exercisable as of December 31, 1998.
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------
Number of Percent of Total Exercise or
Shares Underlying Options Granted to Base Price Expiration
Name Options Granted to Employees in ($/Sh) Date
Fiscal Year (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lee Freedman 25,000 3.0% $15.88 4/7/08
Lee Freedman 25,000 3.0% $16.13 4/15/08
Linda Freedman 25,000 3.0% $9.50 4/15/08
Linda Freedman 10,000(2)(3) 1.5%(4) $9.50 8/27/07
Linda Freedman 50,000(2) 7.7%(4) $9.50 10/26/07
Steven Gentry 25,000 3.0% $9.50 4/15/08
</TABLE>
____________________
(1) The Company granted options to purchase an aggregate of 840,000 shares to
employees in 1998.
(2) Represent options granted during 1998 in connection with option repricings,
which repricings were effected through the cancellation of options granted in
previous fiscal years and the grant of repriced options.
(3) As of December 31, 1998, 4,000 options had vested and were exercisable, and
the balance will vest and become exercisable in three 2,000 share installments
on October 24 of 1999, 2000 and 2001.
(4) The Company repriced options to purchase an aggregate of 649,000 shares in
1998.
5
<PAGE>
Option Exercises and Year End Value Table
The following table sets forth information concerning option exercises during
the last fiscal year by the executive officers named in the Summary Compensation
Table and the value of options held by such officers as of December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Options In-the-Money Options
at December 31, 1998 at December 31, 1998
(1)
-------------------- ---------------------
Shares Value
Acquired Realized
Name on Exercise ($) Unexercisable Unexercisable
(#) Exercisable Exercisable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joyce Freedman 0 0 37,227 0 0 0
Maurizio Vecchione 0 0 37,227 0 0 0
Lee Freedman 0 0 50,000 0 $50,000 0
Linda Freedman 0 0 82,000 6,000 $625,890 $45,000
Steven Gentry 35,000 $406,875 160,000 0 $1,807,500 0
</TABLE>
____________________
(1) Dollar value is based on the market value of the Company's Common Stock of
$17.00 per share at December 31, 1998 minus the per share exercise price.
Compensation of Directors
Three non-employee members of the Board of Directors, Andrea Vecchione, Leslie
Saleson, and Peter Frank, received compensation in the form of warrants to
purchase shares of Common Stock from the Company in 1998 for their service on
the Board. In October 1998, the Company granted to each of Andrea Vecchione,
Peter Frank and Leslie Saleson ten-year warrants to purchase 6,000 shares of
Common Stock at an exercise price of $9.50 per share, 2,000 shares of which
vested immediately and the balance of which vest in two 2,000 share installments
on October 9 of 1999 and 2000. In October 1998, the Company repriced five-year
warrants which had been granted to F. Stephen Wyle during 1997 to purchase a
total of 8,000 shares of Common Stock, changing the exercise price on such
warrants from $16.375 per share to $9.50 per share, which price was
approximately equal to the average closing price of the Company's Common Stock
on the NASDAQ National Market for the five trading days ended October 9, 1998.
Also in October 1998, the Company repriced ten-year warrants that had been
granted during 1997 to each of Leslie Saleson and Andrea Vecchione to purchase
2,000 shares of Common Stock at an exercise price of $17.25 per share, changing
such exercise price to $9.50 per share, which price was approximately equal to
the average closing price of the Company's Common Stock on the NASDAQ National
Market for the five trading days ended October 9, 1998.
Employment Contracts
Effective January 1, 1998, the Company entered into employment agreements with
Joyce Freedman, as Chairman of the Board and Chief Executive Officer, and
Maurizio Vecchione, as President and Chief Operating Officer, which have terms
expiring December 31, 2005. The employment agreements each provide for an annual
salary of $200,000, a signing bonus of $100,000 and a monthly automobile
allowance of $600. Each employment agreement further provides for an annual
performance bonus payable for each calendar year during the term of the
agreement, in an amount to be determined by the Compensation Committee of the
Board. In addition, in connection with the employment agreements, the Company
granted to each of Ms. Freedman and Mr. Vecchione a five-year option to purchase
200,000 shares of Common Stock. Such options vest and become exercisable as
follows: if the closing sale price of the Company's Common Stock is greater than
$10 per share for a period of 20 consecutive trading days in any fiscal year
during the term of the employment agreement, options to purchase 50 shares of
Common Stock for each $1,000 of net income (before deductions for taxes and
executive bonuses) of the Company in such calendar year vest and become
exercisable at an exercise price equal to the market value per share on the
grant date. No options granted under these employment agreements vested or
became exercisable for either Ms. Freedman or Mr. Vecchione during 1998.
6
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 9, 1999 by: (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's directors;
(iii) each of the executive officers named in the Summary Compensation Table;
and (iv) the current directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership (2) Percent of Class(3)
- ------------------------------- ------------------------ -------------------
<S> <C> <C>
Joyce Freedman 1,593,474 (4) 21.3%
Lee Freedman 1,364,134 (5) 18.2%
Intel Corporation 581,534 (6) 7.7%
2200 Mission College Blvd
Santa Clara, CA 95052
Maurizio and Andrea Vecchione 458,846 (7) 6.2%
Castle Creek Technology Partners, LLC 455,218 (8) 6.2%
77 W. Wacker Drive, Suite 4040
Chicago, IL 60601
Steven Gentry 166,490 (9) 2.2%
Linda Freedman 84,596 (10) 1.1%
F. Stephen Wyle 6,000 (11) *
128 Maryland Street
El Segundo, California 90245
Peter Frank 2,000 (12) *
9903 Santa Monica Blvd., Suite 327
Beverly Hills, California 90210
Leslie Saleson 4,000 (13) *
9925 Anthony Place
Beverly Hills, California 90210
All current directors and officers 2,455,358 31.6%
as a group (9 persons)
</TABLE>
____________________
* Less than one percent.
(1) The business address for Joyce Freedman, Lee Freedman, Maurizio and Andrea
Vecchione, Steven Gentry and Linda Freedman is 3861 Sepulveda Blvd., Culver
City, California 90230.
(2) Except to the extent the shares owned are subject to community property laws
or as otherwise indicated, beneficial ownership represents sole voting and sole
investment power with respect to the Company's Common Stock. Shares that a
person is deemed to beneficially own by reason of having the right to acquire
within 60 days are deemed to be outstanding for the purpose of computing the
percentage of such person's beneficial ownership.
(3) Based on 7,399,515 total shares outstanding as of April 9, 1999.
7
<PAGE>
(4) Consists of 369,292 shares held by Joyce Freedman as her separate property
and with respect to which she does not share voting or investment power with her
husband, Lee Freedman, 1,136,955 shares held jointly by Joyce Freedman and Lee
Freedman, as to which shares they share voting and investment power, 37,227
shares which may be purchased by Joyce Freedman pursuant to currently
exercisable stock options at an exercise price of $20.06 per share, 25,000
shares which may be purchased by Lee Freedman pursuant to currently exercisable
stock options at an exercise price of $15.88 per share and 25,000 shares which
may be purchased by Lee Freedman pursuant to currently exercisable stock options
at an exercise price of $16.13 per share.
(5) Consists of 139,952 shares held by Lee Freedman as his separate property and
with respect to which he does not share voting or investment power with his
wife, Joyce Freedman, 1,136,955 shares held jointly by Lee Freedman and Joyce
Freedman, as to which shares they share voting and investment power, 25,000
shares which may be purchased by Lee Freedman pursuant to currently exercisable
stock options at an exercise price of $15.88 per share, 25,000 shares which may
be purchased by Mr. Freedman pursuant to currently exercisable stock options at
an exercise price of $16.13 per share, and 37,227 shares which may be purchased
by Joyce Freedman pursuant to currently exercisable stock options at an exercise
price of $20.06 per share.
(6) Consists of 455,218 shares of Common Stock held by Intel Corporation
("Intel") and 126,316 shares which may be purchased by Intel upon the exercise
of a currently exercisable five-year warrant at an exercise price of $19.00 per
share. Amount excludes 538,674 shares of Common Stock which may be purchased by
Intel, subject to shareholder approval at the Company's 1999 Annual Meeting,
upon the exercise of common stock purchase warrants which were purchased by
Intel in April, 1999. If such shares had been included in this table, the amount
of Intel's beneficial ownership and percent of class held by Intel as of April
9, 1999 would be 1,120,208 shares and 13.9%, respectively.
(7) Consists of 417,619 shares of Common Stock held jointly by Maurizio and
Andrea Vecchione, 37,227 shares which may be purchased by Maurizio Vecchione
pursuant to currently exercisable stock options at an exercise price of $20.06
per share, and 4,000 shares which may be purchased by Andrea Vecchione upon the
exercise of vested and currently exercisable warrants at an exercise price of
$9.50 per share.
(8) Consists of 455,218 shares of Common Stock held by Castle Creek Technology
Partners LLC ("Castle Creek"). Excludes 538,674 shares of common stock which may
be purchased by Castle Creek subject to shareholder approval, upon the exercise
of common stock purchase warrants which were purchased by Castle Creek in April
1999. If such shares had been included in this table, the amount of Castle
Creek's beneficial ownership and percent of class held by Castle Creek as of
April 9, 1999 would be 993,892 shares and 12.5%, respectively. Pursuant to a
management agreement, Castle Creek Partners, LLC may be deemed to beneficially
own the securities held by Castle Creek. Castle Creek Partners, L.L.C. disclaims
such beneficial ownership. John Ziegelman and Daniel Asher, as managing members
of Castle Creek Partners, L.L.C., may be deemed to be beneficial owners of such
securities. Messrs. Asher and Ziegelman disclaim such beneficial ownership.
(9) Consists of 6,490 shares of Common Stock held by Mr. Gentry, 135,000 shares
which may be purchased by Mr. Gentry pursuant to currently exercisable stock
options at an exercise price of $5.00 per share, and 25,000 shares which may be
purchased by Mr. Gentry pursuant to currently exercisable stock options at an
exercise price of $9.50 per share.
(10) Consists of 2,596 shares of Common Stock held by Linda Freedman, 79,000
shares which may be purchased by Linda Freedman pursuant to currently
exercisable stock options at an exercise price of $9.50 per share and 3,000
shares which may be purchased by Linda Freedman pursuant to currently
exercisable stock options at an exercise price of $5.87 per share.
(11) Consists of 2,000 shares of Common Stock which may be purchased by Mr. Wyle
upon the exercise of vested and currently exercisable warrants at an exercise
price of $4.25 per share, and 4,000 shares of Common Stock which may be
purchased by Mr. Wyle upon the exercise of vested and currently exercisable
warrants at an exercise price of $9.50 per share.
(12) Consists of 2,000 shares of Common Stock which may be purchased by Mr.
Frank upon the exercise of vested and currently exercisable warrants at an
exercise price of $9.50 per share.
(13) Consists of 4,000 shares of Common Stock which may be purchased by Ms.
Saleson upon the exercise of vested and currently exercisable warrants at an
exercise price of $9.50 per share.
8
<PAGE>
Item 12. Certain Relationships and Related Transactions
The Company has employment agreements with certain executive officers. See
"Executive Compensation-Employment Contracts" above.
9
