<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-28088
STYLECLICK.COM INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
California 95-4145930
- --------------------------------------- ------------------------------------
(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
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of outstanding shares of the registrant's common stock, as of
November 10, 1999, was 7,404,515.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Styleclick.com Inc.
Condensed Balance Sheets
September 30, December 31,
1999 1998
------------- -------------
(Unaudited) (Note 1)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,493,451 $ 6,343,599
Accounts receivable, net of allowance 826,149 752,487
for doubtful accounts of $295,000
at September 30, 1999 and $132,500
at December 31, 1998
Prepaid expenses and other current assets 7,278,159 397,101
------------ -------------
Total current assets 12,597,759 7,493,187
Capitalized computer software development 2,759,563 3,014,043
costs, net of accumulated amortization
of $7,114,285 at September 30, 1999 and
$6,039,105 at December 31, 1998 (Note 2)
Furniture and equipment, net of accumulated 2,660,064 2,459,656
depreciation of $1,623,124 at
September 30, 1999 and $1,069,832
at December 31, 1998
Other assets 85,663 83,055
------------- -------------
Total assets $ 18,103,049 $ 13,049,941
============= =============
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 1,340,732 $ 503,198
Deferred income 428,042 237,052
------------- -------------
Total current liabilities 1,768,774 740,250
------------- -------------
Commitments (Note 3)
Stockholders' equity:
Common stock; No par value; authorized 40,583,747 26,575,627
15,000,000 shares; Issued and
outstanding 7,404,515 shares at
September 30, 1999 and 6,143,374 shares
at December 31, 1998 (Note 4)
Accumulated deficit (24,249,472) (14,265,936)
------------- -------------
Total stockholders' equity 16,334,275 12,309,691
------------- -------------
Total liabilities and $ 18,103,049 $ 13,049,941
stockholders' equity ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
Styleclick.com Inc.
Condensed Statements Of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
Net sales $ 786,546 $ 1,359,803 $ 5,151,342 $ 5,954,543
----------- ----------- ----------- ----------
Cost of sales 159,460 50,369 482,334 67,868
Selling, general and 3,599,864 2,004,955 8,930,150 5,372,950
administrative
Research and development 1,543,209 512,625 4,885,274 2,987,770
Amortization of capitalized 231,471 519,509 1,075,180 1,328,251
software development costs
----------- ----------- ----------- ----------
Total expenses 5,534,004 3,087,458 15,372,938 9,756,839
----------- ----------- ----------- ----------
Loss from operations (4,747,458) (1,727,655) (10,221,596) (3,802,296)
Investment income 80,098 127,193 238,060 379,470
----------- ----------- ----------- ----------
Net loss $(4,667,360)$(1,600,462) $(9,983,536)$(3,422,826)
=========== =========== =========== ==========
Basic loss per share (Note 5) $ (0.63) $ (0.26) $ (1.44) $ (0.56)
=========== =========== =========== ==========
Diluted loss per share $ (0.63) $ (0.26) $ (1.44) $ (0.56)
(Note 5) =========== =========== =========== ==========
Weighted average common 7,404,080 6,107,222 6,951,269 6,077,769
shares outstanding =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Styleclick.com Inc.
Condensed Statements Of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
<S> <C> <C>
-------------- --------------
Cash flows from operating activities:
Net loss $( 9,983,536) $ ( 3,422,826)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 553,293 230,922
Amortization of capitalized 1,075,180 1,328,251
software development costs
Provision for loss on accounts 45,000 462,075
receivable
Issuance of common stock and warrants 431,931 5,000
for services rendered
(Increase) decrease in:
Accounts receivable (118,662) (591,871)
Inventories 450 5,213
Prepaid expenses and other (1,314,763) 444,544
current assets
Other assets (2,612) (1,000)
Decrease in:
Accounts payable and accrued 837,534 603,900
expenses
Deferred income 190,991 122,635
------------- --------------
Net cash used in operating activities (8,285,194) (813,157)
------------- --------------
Cash flows from investing activities:
Purchase of furniture and equipment (753,701) (1,132,771)
Capitalized computer software (820,699) (1,711,591)
development cost ------------- --------------
Net cash used in investing activities (1,574,400) (2,844,362)
------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock 8,009,446 595,650
------------- --------------
Net cash provided by financing activities 8,009,446 595,650
------------- --------------
Net decrease in cash (1,850,148) (3,061,869)
Cash and cash equivalents, beginning of period 6,343,599 12,419,992
------------- --------------
Cash and cash equivalents, end of period $ 4,493,451 $ 9,358,123
============= ==============
</TABLE>
<TABLE>
<CAPTION>
Supplemental Cash Flow Information
<S> <C> <C>
Interest paid $ 0 $ 0
============ ==============
Income taxes paid $ 1,071 $ 13,263
============ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Styleclick.com Inc.
Condensed Statements Of Cash Flows
(Continued)
Supplemental Disclosure of Non-Cash Transactions
During the first nine months of 1999, the Company recorded an increase in
prepaid expenses and common stock of $5,938,674 due to the issuance of 455,218
shares of the Company's common stock and warrants to purchase a total of 538,674
shares of the Company's common stock to a project co-developer and the issuance
of warrants to purchase a total of 421,667 shares of common stock in
consideration of business promotion services provided (or to be provided) to the
Company. $371,931 of the $5,938,674 increase in prepaid expenses was expensed
during the first nine months of 1999.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 1: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Styleclick.com Inc.
("Styleclick" or the "Company"), formerly known as Modacad, Inc., have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. These adjustments
consisted of normal recurring accruals with the exception of a $249,808
write-off of capitalized software development cost in connection with the sale
of a product line in the first quarter of 1999. Operating results for the first
nine months of 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 was derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
December 31, 1998, as amended.
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adoption of Statement of Position 98-1
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The SOP, which has been adopted prospectively as of
January 1, 1999, requires the capitalization of certain costs incurred in
connection with developing or obtaining internal use software. During the first
nine months of 1999, the Company capitalized $820,699 of internal use software
development costs.
5
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
The Company recognizes revenues generated from vendor participation in the
Company's CD-ROM applications ("CD-ROM participation fees") and the Company's
on-line shopping Internet web-sites ("project participation fees") over the
terms of the corresponding contracts in a manner that matches revenue with the
related cost incurred to set up and manage vendor web-site content. Revenue
generated from services provided to customers in the development and maintenance
of their Internet web-sites ("web-site development and maintenance fees") is
recognized over the terms of the corresponding contracts in a manner that
matches revenue with the related cost incurred to develop and maintain the
web-sites. Revenue generated from advertising on the Company's on-line shopping
web-sites ("on-line advertising revenue") is recognized over the terms of the
corresponding contracts on a straight-line basis. Revenue generated from the
Company's fulfillment services provided to the Company's on-line shopping
Internet web-site participant vendors ("transactional revenue") is recognized
based on a percentage of gross revenues from the related transactions upon
notification of shipment of the vendors' products by the Company's fulfillment
warehouse. Revenue generated from referral of vendors' products to Internet
consumers through the Company's on-line shopping Internet web-sites ("product
referral fees") are recognized based on a percentage of gross revenues from the
related transactions according to the Company's on-line transactional tracking
reports.
The Company recognizes revenues related to software licenses and software
maintenance in accordance with the AICPA SOP 97-2, "Software Revenue
Recognition." Product revenue is recorded at the time of shipment, net of
estimated allowances and returns. Revenue generated from Post Contract Customer
Support is recognized on a straight-line basis over the term of the
corresponding contract, which is generally twelve months.
Comprehensive Income
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income," establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner sources.
Examples of items to be included in comprehensive income, which are excluded
from net income, include foreign currency translation adjustments and unrealized
gains and losses on available-for-sale securities. Comprehensive income is not
presented in the Company's financial statements since the Company did not have
any of the items of comprehensive income in any period presented.
Note 3: COMMITMENTS
Employment Agreements
In 1998, the Company entered into two new employment agreements, expiring on
December 31, 2005, with two key officers of the Company. Under the agreements,
these officers receive aggregate annual salaries of $400,000 and monthly
aggregate automobile allowances of $1,200. In addition, these officers received
aggregate signing bonuses of $200,000. Further, the Company shall pay an annual
performance bonus to each officer for each calendar year of the employment term
in an amount determined by the Compensation Committee of the Board of the
Directors.
6
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 3: COMMITMENTS (Continued)
In connection with the employment agreements, the same key officers were granted
five-year options to purchase up to an aggregate of 400,000 shares of the
Company's 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 employee agreements, 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. The
exercise price for such options is $15.875 per share, which is not less than the
fair market value on the date of grant. As of September 30, 1999, no granted
shares were vested.
In July 1999, the Company entered into a new employment agreement, expiring on
June 30, 2002, with a key officer of the Company. Under the agreement, the
officer receives an annual salary of $125,000 and a monthly automobile allowance
of $400.
E-Commerce Marketing Agreement
In June 1999, the Company entered into a two-year interactive marketing
agreement with an Internet Portal company (the "Portal"). Under the agreement,
the Portal will promote the Company's E-commerce Internet web-site in several
areas of the Portal's Internet web-sites. In consideration of such promotion, in
June 1999 the Company issued to the Portal warrants, expiring in December 2001,
to purchase 100,000 shares of the Company's common stock at an exercise price of
$12.34 per share. Additionally, the Company will provide payments to the Portal
totaling up to $7.5 million in cash through January 2001. As of September 30,
1999, the Company had paid $2,357,143 in cash to the Portal under this
agreement.
7
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 4: STOCKHOLDERS' EQUITY
Common Stock and Warrants
In November 1997, the Company issued to its project co-developer
("Co-developer") for services provided to the Company warrants, expiring in
November 2002, to purchase 126,316 shares of common stock at an exercise price
of $19.00 per share. Under the Project Development Agreement with the
Co-developer, the Company had an obligation to the Co-developer for certain
royalty payments in the form of cash and common stock purchase warrants in
consideration of the Co-developer's contribution to the project development. In
April 1999, the Company entered into a Stock and Warrant Purchase and Investor
Rights Agreement ("Purchase Agreement") with this Co-developer. Under the
Purchase Agreement, the Company issued to the Co-developer 455,218 shares of
common stock, warrants, expiring in April 2000, to purchase 189,674 shares of
common stock at an exercise price of $13.18 per share, warrants, expiring in
July 2000, to purchase 189,674 shares of common stock at an exercise price of
$13.18 per share and warrants, expiring in April 2004, to purchase 159,326
shares of common stock at an exercise price of $10.98 per share. In return, the
Company's royalty obligation stated in the Project Development Agreement with
the Co-developer was terminated. The issuance of shares of common stock pursuant
to the exercise of such warrants was approved by the Company's shareholders at
its 1999 Annual Meeting of Shareholders. Concurrently with the Purchase
Agreement, the Company entered into a Securities Purchase Agreement with each of
four investors. Under such agreement, the investors purchased an aggregate of
776,827 shares of the Company's common stock, warrants, expiring in April 2000,
to purchase 323,677 shares of common stock at an exercise price of $13.18 per
share, warrants, expiring in July 2000, to purchase 323,677 shares of common
stock at an exercise price of $13.18 per share and warrants, expiring in April
2004, to purchase 271,889 shares of common stock at an exercise price of $13.73
per share. The issuance of shares of common stock pursuant to the exercise of
such warrants was approved by the Company's shareholders at its 1999 Annual
Meeting of Shareholders. As a result of this offering, the Company received
approximately $7,800,000 in net proceeds after paying costs associated with the
offering. Upon completion of these transactions, the Company issued to two
placement agents in consideration of services rendered to the Company in
connection with the sale of the Company' s common stock and warrants to these
investors warrants, expiring in April 2004, to purchase 15,536 shares of common
stock at an exercise price of $10.98 per share. The issuance of shares of common
stock pursuant to the exercise of such warrants was approved by the Company's
shareholders at its 1999 Annual Meeting of Shareholders.
Warrants
In connection with the Company's IPO in March 1996, the Company issued to the
principal underwriter in the IPO, for $1,400, unit purchase warrants to purchase
140,000 units, at a per unit exercise price of $6.00, each unit consisting of
one share of common stock and one redeemable warrant exercisable to purchase one
share of common stock at an exercise price of $9.10 per share. Such unit
purchase warrants are exercisable for a four-year period, which began March 27,
1997. As of September 30, 1999, the underwriter (or assignees of the
underwriter) exercised a portion of the unit purchase warrants to purchase an
aggregate of 115,700 shares of the Company's common stock and 115,700 redeemable
common stock purchase warrants. Additionally, 30,800 of 115,700 redeemable
common stock purchase warrants were further exercised to purchase 30,800 shares
of the Company's common stock.
8
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 4: STOCKHOLDERS' EQUITY (Continued)
In December 1996, the Company issued to an outside consultant for services
provided to the Company warrants, expiring in December 1999, to purchase 250,000
shares of common stock at an exercise price of $5.00 per share. As of September
30, 1999, these warrants had not been exercised.
In July 1997, the Company issued to a financial advisor for services provided to
the Company warrants, expiring in July 2002, to purchase 100,000 shares of
common stock at an exercise price of $14.38 per share. As of September 30, 1999,
these warrants had not been exercised.
In June 1998, the Company issued to an outside promotion agency for services
provided to the Company warrants, expiring in May 2003, to purchase 50,000
shares of common stock at an exercise price of $17.75 per share. In December
1998, the Company issued to the same agency for services provided to the Company
additional warrants, expiring in November 2003, to purchase 8,333 shares of
common stock at an exercise price of $20.00 per share. During the nine months
ended September 30, 1999, the Company issued to the same agency for services
provided to the Company warrants, expiring in December 2003, to purchase 8,333
shares of common stock at an exercise price of $16.68 per share, warrants,
expiring in January 2004, to purchase 8,333 shares of common stock at an
exercise price of $20.00 per share, warrants, expiring in February 2004, to
purchase 8,333 shares of common stock at an exercise price of $16.00 per share,
warrants, expiring in March 2004, to purchase 8,333 shares of common stock at an
exercise price of $11.56 per share and warrants, expiring in April 2004, to
purchase 8,335 shares of common stock at an exercise price of $11.88 per share.
As of September 30, 1999, these warrants had not been exercised.
In March 1999, the Company issued warrants, expiring in March 2004, to purchase
250,000 shares of common stock at an exercise price of $16.80 per share in
consideration of business promotion services to be provided to the Company. As
of September 30, 1999, these warrants had not been exercised.
In June 1999, the Company issued to the Portal in connection with a two-year
E-commerce marketing agreement warrants, expiring in December 2001, to purchase
up to 100,000 shares of common stock at an exercise price of $12.34 per share.
As of September 30, 1999, these warrants had not been exercised.
In June, July and August 1999, the Company issued respectively to a financial
advisor for services provided to the Company warrants, expiring in June 2002, to
purchase 10,000 shares of common stock at an exercise price of $13.00 per share,
warrants, expiring in July 2002, to purchase 10,000 shares of common stock at an
exercise price of $13.00 per share and warrants, expiring in August 2002, to
purchase 10,000 shares of common stock at an exercise price of $13.00 per share.
As of September 30, 1999, these warrants had not been exercised.
9
<PAGE>
Styleclick.com Inc.
Notes to Condensed Financial Statements
Note 4: STOCKHOLDERS' EQUITY (Continued)
In May 1996, the Company granted to one of its non-employee directors for
services provided to the Company warrants, expiring in May 2001, to purchase
2,000 shares of common stock at an exercise price of $4.25 per share. In October
1998, in consideration for services provided to the Company, the Company
repriced to $9.50 a five-year warrant, expiring July 2002, to purchase 8,000
shares of common stock that was granted to a non-employee director in July 1997
and two ten-year warrants, expiring October 2007, to purchase a total of 4,000
shares that were granted to two non-employee directors in October 1997. In
October 1998, the Company granted to three non-employee directors in
consideration of services rendered to the Company ten-year warrants, expiring
October 2008, to purchase a total of 18,000 shares of common stock at an
exercise price of $9.50 per share. Warrants to purchase 4,000 of 18,000 shares
were cancelled in July 1999 since one of the directors was not re-elected during
the Company's 1999 Annual Meeting of Shareholders. As of September 30, 1999,
these warrants had not been exercised.
Stock Option Plan
In 1995, the Company adopted the 1995 Stock Option Plan (the "Plan") which
expires in 2006. In June 1997, the Plan was amended, upon receipt of the
requisite shareholder approval, to increase the number of shares of common stock
authorized for issuance pursuant to the exercise of stock options granted under
the Plan from 300,000 to 750,000 shares. In June 1998, the Plan was further
amended, upon receipt of the requisite shareholder approval, to increase the
number of shares of common stock authorized for issuance pursuant to the
exercise of stock options granted under the Plan from 750,000 to 1,650,000
shares. In May 1999, the Plan was further amended, subject to the receipt of
shareholder approval, which approval was obtain during the 1999 Annual Meeting
of Shareholders, to increase the number of shares of common stock authorized for
issuance pursuant to the exercise of stock options granted under the Plan from
1,650,000 to 2,500,000 shares. As of September 30, 1999, 148,500 shares had been
issued upon the exercise of options granted under the Plan; 1,841,954 shares
were issuable upon the exercise of outstanding options with exercise prices
ranging from $4.69 to $20.06 per share and 509,546 shares remained available for
additional option grants under the Plan.
Note 5: NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per common share are presented in conformity
with Statement of Financial Accounting Standard No. 128, "Earnings per Share"
("FAS 128"), for all periods presented. In accordance with FAS 128, basic net
income per share, basic net loss per share and diluted net loss per share are
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding. Diluted net income per
share is computed similarly to basic net income per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements and the notes thereto appearing elsewhere in this Form 10-Q.
General
The Company is in the business of developing, marketing, and supporting
electronic commerce ("E-commerce") Internet web-sites, Internet enabled
applications and business and consumer software products based on its
proprietary technology for content management, including modeling and rendering
technology. The Company has three principal product groups: E-commerce Internet
web-sites, consumer software including Internet enabled software applications
("consumer CD-ROM products") and business-to-business applications including CAD
and electronic merchandising products ("business-to-business products").
Since 1998, the Company has divested many of its products in the
business-to-business and consumer software product groups and has shifted its
primary business focus from the business-to-business marketplace to the emerging
consumer Internet E-commerce market. The Company is focusing its technology to
build and deploy E-commerce Internet sites, such as comparative search and
shopping solutions aimed at facilitating businesses' use of electronic commerce
to reach consumers in the apparel, footwear, accessories, cosmetics and home
furnishing industries.
Revenues generated from the Company's E-commerce Internet web-sites include
revenues received in connection with (i) services provided to customers in the
development and maintenance of their Internet web-sites ("web-site development
and maintenance fees"), (ii) vendors' participation in the Company's on-line
shopping Internet web-sites ("project participation fees"), (iii) advertising on
the Company's on-line shopping web-sites ("on-line advertising revenue"), (iv)
the Company's fulfillment services provided to the Company's on-line shopping
Internet web-site participant vendors ("transactional revenue") and (v) referral
of vendors' products to Internet consumers through the Company's on-line
shopping Internet web-sites ("product referral fees"). Revenues from project
participation fees, web-site development and maintenance fees and on-line
advertising revenue are recognized over the terms of the corresponding
contracts. Transactional revenue and product referral fees are recognized based
on a percentage of gross revenues from the related transactions. Transactional
revenue is recorded upon notification of shipment of the vendors' products by
the Company's fulfillment warehouse. Product referral fees are recorded based
upon the Company's on-line transactional tracking reports.
Revenues generated from the Company's consumer CD-ROM products include revenues
received in connection with: (i) sales of the Company's developed consumer
CD-ROM products and (ii) vendors' participation in the Company's developed
CD-ROM applications ("CD-ROM participation fees"). Sales of the products are
recognized at the time of shipment. Revenues from CD-ROM participation fees are
recognized over the terms of the corresponding contracts.
Revenues generated from the Company's business-to-business products include
revenues received in connection with: (i) sales and licenses of the Company's
developed business-to-business products and (ii) software maintenance revenues.
Sales and licenses of the products are recognized at the time of shipment.
Revenue generated from software maintenance is recognized on a straight-line
basis over the term of the corresponding contract, which is generally twelve
months.
11
<PAGE>
Results of Operations
Comparison of Three Months Ended September 30, 1999 and 1998
The following table sets forth selected items from the Company's statements of
operations for the periods ended September 30, 1999 and September 30, 1998 (in
thousands) and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 787 100.0% $ 1,360 100.0%
Cost of sales 160 20.3 50 3.7
Selling, general and administrative 3,600 457.4 2,005 147.4
Research and development 1,543 196.1 513 37.7
Amortization of software development costs 231 29.4 519 38.2
------- ------- ------- -------
Total expenses 5,534 703.2 3,087 227.0
------- ------- ------- -------
Loss from operations (4,747) (603.2) (1,727) (127.0)
Investment income 80 10.2 127 9.3
------- ------- ------- -------
Net loss $(4,667) (593.0%) $(1,600) (117.7%)
======= ======= ======= =======
</TABLE>
Net Sales
Net sales decreased $573,000, or 42%, to $787,000 in the third quarter of 1999
from $1,360,000 in the third quarter of 1998 due to a decrease of $920,000 in
revenues from the Company's consumer CD-ROM products, a decrease of $298,000 in
sales of the Company's business-to-business products (electronic merchandising
and CAD products), a decrease of $5,000 in revenues from training services and a
decrease of $50,000 in maintenance fees. These decreases were offset by an
increase of $575,000 in revenues generated from the Company's E-commerce
Internet web-sites and an increase of $125,000 in revenues from consulting
services.
Revenues generated from the Company's E-commerce Internet web-sites were
$575,000 in the third quarter of 1999 as compared to no such revenue generated
in the third quarter of 1998. The $575,000 in revenues primarily consisted of
revenues generated from web-site development and maintenance fees, project
participation fees, on-line advertising revenue and digital content generation
fees. During the first nine months of 1999, the Company, as part of its strategy
to develop its E-commerce business model, began entering into revenue sharing
and/or product referral agreements with its project participants. Under these
agreements, the Company will receive transactional revenues (shared with its
project participants) and product referral fees (from its project participants)
during the terms of such agreements. Since the Company's on-line shopping
Internet web-site was launched at the end of the first quarter of 1999, the
Company had not generated significant transactional revenues and product
referral fees during the third quarter of 1999.
Revenues generated from consumer CD-ROM products decreased $920,000, or 100%, to
$3,000 in the third quarter of 1999 from $923,000 in the third quarter of 1998
primarily due to $900,000 of revenue generated in connection with the Company's
developing CD-ROM applications in the third quarter of 1998. Such revenues were
not repeated in the third quarter of 1999 as the Company has shifted its primary
business focus to the emerging consumer Internet E-commerce market. $20,000 of
the decrease was due to lower CD-ROM participation revenues generated from the
Company's consumer CD-ROM applications in the third quarter of 1999 as compared
to the third quarter of 1998. The decrease in CD-ROM participation revenues
resulted from the Company's strategy to shift its marketing focus to Internet
E-commerce during the third quarter of 1999.
12
<PAGE>
Sales of business-to-business products decreased $298,000, or 85%, to $54,000 in
the third quarter of 1999 from $352,000 in the third quarter of 1998 primarily
due to the Company's exit from the business-to-business marketplace by selling
two of its business-to-business product lines in the first quarter of 1999 to
one of its major competitors in the business-to-business market. As a result of
such sales, the Company generated less revenue from its business-to-business
products in the third quarter of 1999 as compared to the third quarter of 1998.
Revenues from consulting services increased $125,000 due to revenue generated
from the purchaser of two of the Company's business-to-business product lines in
March 1999. No revenue was generated from consulting services in the third
quarter of 1998.
Revenues from training services decreased $5,000, or 56%, to $4,000 in the third
quarter of 1999 from $9,000 in the third quarter of 1998, and maintenance fees
decreased $50,000, or 69%, to $22,000 in the third quarter of 1999 from $72,000
in the third quarter of 1998, primarily due to the Company's overall shift in
its primary business away from the business-to-business marketplace, as
discussed above, from which most training and maintenance fees were generated.
Cost of Sales
Cost of sales increased $110,000 to $160,000 in the third quarter of 1999 from
$50,000 in the third quarter of 1998 primarily due to a $158,000 non-cash charge
to royalty expense to Intel Corp. ("Intel"), the Company's project co-developer,
during the third quarter of 1999 (The $158,000 quarterly royalty expense will be
continuously amortized from prepaid royalty expense in the future until December
2007). No such costs of sales were incurred in the third quarter of 1998. The
increase was offset by a $50,000 decrease that resulted from lower sales
generated from business-to-business products in the third quarter of 1999 as
compared to the third quarter of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,595,000, or 80%, to
$3,600,000 in the third quarter of 1999 from $2,005,000 in the third quarter of
1998 due to the following factors. Personnel costs increased $219,000, or 30%,
to $953,000 in the third quarter of 1999 from $734,000 in the third quarter of
1998. The increase in personnel costs resulted primarily from the hiring of
additional personnel in late 1998 to support the Company's increased operating
activities. Additionally, during the third quarter of 1999 certain related costs
including travel, marketing, telephone, office supplies expenses, taxes and
licenses, repair and maintenance and depreciation expense increased $1,272,000,
or 138%, to $2,197,000 in the third quarter of 1999 from $925,000 in the third
quarter of 1998. Of that increase, $1,235,000 was related to the Company's
increased marketing activities during the third quarter of 1999 to support its
new E-commerce products. Additionally, professional services including
accounting, legal and consulting services increased $140,000, or 56%, to
$392,000 in the third quarter of 1999 from $252,000 in the third quarter of
1998. The increase in professional services was primarily due to the Company's
increased requirements for these services in the third quarter of 1999 compared
to the third quarter of 1998, resulting from the Company's increased operating
activities in the emerging E-commerce market and support of its new E-commerce
products. Finally, bad debt expense decreased $35,000, or 70%, to $15,000 in the
third quarter of 1999 from $50,000 in the third quarter of 1998. Such decrease
reflected lower sales generated in the third quarter of 1999 as compared to the
third quarter of 1998.
13
<PAGE>
Research and Development
The Company incurred $1,815,000 of research and development expenditures during
the third quarter of 1999, of which $272,000 was capitalized and $1,543,000 was
expensed, compared to $1,810,000 for the third quarter of 1998, of which
$1,297,000 was capitalized and $513,000 was expensed. The small increase in
research and development expenditures from the third quarter of 1998 to the
third quarter of 1999 was primarily due to the hiring of additional personnel in
connection with the further development of the Company's Internet application
projects during the third quarter of 1999. Such increase was offset by a
decrease (of approximately $350,000) in programming services provided by
non-employee personnel in the third quarter of 1999 as compared to the third
quarter of 1998.
Amortization of Software Development Costs
The amortization of software development costs decreased $288,000, or 55%, to
$231,000 in the third quarter of 1999 from $519,000 in the third quarter of 1998
primarily due to the Company's write-off of its software capitalized cost
related to the product lines sold to one of the Company's competitors in the
first quarter of 1999. As a result of the write-off, only capitalized software
costs related to non-business-to-business products continue to be amortized
after first quarter of 1999.
Investment Income
Investment income decreased $47,000, or 37%, to $80,000 in the third quarter of
1999 from $127,000 in the third quarter of 1998 due to the decrease in income
generated from a money market account in which the Company's funds are
maintained. The decrease resulted from a lower average cash balance being
maintained in this account in the third quarter of 1999 as compared to the third
quarter of 1998.
Income Taxes
The Company recorded no provision for income taxes during the third quarters of
1999 and 1998 due to net operating losses in both quarters.
14
<PAGE>
Comparison of Nine Months Ended September 30, 1999 and 1998
The following table sets forth selected items from the Company's statements of
operations (in thousands) and the percentages that such items bear to net sales:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 5,151 100.0% $ 5,955 100.0%
Cost of sales 483 9.4 67 1.1
Selling, general and administrative 8,930 173.4 5,373 90.2
Research and development 4,885 94.8 2,988 50.2
Amortization of software development 1,075 20.8 1,328 22.3
costs ------- ------- ------- -------
Total expenses 15,373 298.4 9,756 163.8
------- ------- ------- -------
Loss from operations (10,222) (198.4) (3,801) (63.8)
Investment income 238 4.6 379 6.3
------- -------- -------- -------
Net loss $(9,984) (193.8%) $(3,422) (57.5%)
======= ======== ======== =======
</TABLE>
Net Sales
Net sales decreased $804,000, or 14%, to $5,151,000 in the first nine months of
1999 from $5,955,000 in the first nine months of 1998 due to a decrease of
$3,863,000 in revenues from the Company's consumer CD-ROM products, a decrease
of $12,000 in revenues from training services and a decrease of $109,000 in
maintenance fees. These decreases were offset by an increase of $2,022,000 in
sales of the Company's business-to-business products (electronic merchandising
and CAD products), an increase of $784,000 in revenues generated from the
Company's E-commerce Internet web-sites and an increase of $374,000 in revenues
from consulting services.
Revenues generated from the Company's E-commerce Internet web-sites were
$784,000 in the first nine months of 1999 as compared to no such revenue
generated in the first nine months of 1998. The $784,000 in revenues primarily
consisted of revenues generated from web-site development and maintenance fees,
project participation fees, on-line advertising revenue and digital content
generation fees. During the first nine months of 1999, the Company, as part of
its strategy to develop its E-commerce business model, began entering into
revenue sharing and/or product referral agreements with its project
participants. Under these agreements, the Company will receive transactional
revenues (shared with its project participants) and product referral fees (from
its project participants) during the term of such agreements. Since the
Company's on-line shopping Internet web-site was launched at the end of the
first quarter of 1999, the Company had not generated significant transactional
revenues and product referral fees during the first nine months of 1999.
Revenues generated from consumer CD-ROM products decreased $3,863,000, or 87%,
to $602,000 in the first nine months of 1999 from $4,465,000 in the first nine
months of 1998 primarily due to $1,980,000 of revenue generated during the first
nine months of 1998 from the one-time license of the Company's 3-D Home
Interiors product to its publisher and $1,400,000 of revenue generated in
connection with the Company's developing CD-ROM applications in the first nine
months of 1998. Such revenues were not repeated in the first nine months of 1999
as the Company has shifted its primary business focus to the emerging consumer
Internet E-commerce market. $483,000 of the decrease was due to lower CD-ROM
participation revenues generated from the Company's consumer CD-ROM applications
in the first nine months of 1999 as compared to the first nine months of 1998.
The decrease in CD-ROM participation revenues resulted from the Company's
strategy to shift its marketing focus to Internet E-commerce during the first
nine months of 1999.
15
<PAGE>
Sales of business-to-business products increased $2,022,000, or 162%, to
$3,268,000 in the first nine months of 1999 from $1,246,000 in the first nine
months of 1998 primarily due to the sale of two of the Company's
business-to-business product lines and the license of certain related
technologies for an up-front fee of $3,000,000 during the first nine months of
1999. In March 1999, the Company entered into an agreement with one of its major
competitors. Under the agreement, the Company sold two of its
business-to-business product lines and licensed its cataloging software to the
buyer for an up-front fee of $3,000,000, additional support fees of up to
$1,000,000, and a contingent payment of up to $1,000,000 depending on future
sales over the next 24 months generated from the product lines sold to the
buyer. Except for support services, the Company has no further obligations to
this buyer (including further development of the products sold or the software
licensed, as all development had been completed on such products and software).
The sale of these product lines was part of the overall shift in Styleclick's
primary business focus from the business-to-business marketplace to the emerging
consumer Internet electronic commerce market. As such, the revenues recognized
from the sale did not arise from, and are not necessarily representative of,
Styleclick's ongoing business. As a result of the sale, the Company generated
less revenue from its business-to-business products in the second and third
quarters of 1999 as compared to the second and third quarters of 1998.
Revenues from consulting services increased $374,000 to $379,000 in the first
nine months of 1999 from $5,000 in the first nine months of 1998 primarily due
to $375,000 in revenues for consulting services generated from the purchaser of
two of the Company's business-to-business product lines in the first quarter of
1999. No such revenue was generated in the first nine months of 1998.
Revenues from training services decreased $12,000, or 32%, to $25,000 in the
first nine months of 1999 from $37,000 in the first nine months of 1998, and
maintenance fees decreased $109,000, or 54%, to $92,000 in the first nine months
of 1999 from $201,000 in the first nine months of 1998, primarily due to the
Company's overall shift in its primary business focus away from the
business-to-business marketplace, as discussed above, from which most training
and maintenance fees were generated.
Cost of Sales
Cost of sales increased $416,000 to $483,000 in the first nine months of 1999
from $67,000 in the first nine months of 1998 primarily due to $117,000 in cost
of sales incurred in connection with the $3,000,000 sale and license of certain
of the Company's business-to-business products in the first quarter of 1999, and
a $316,000 non-cash charge to royalty expense to Intel, the Company's project
co-developer (The royalty expense will be continuously amortized at $158,000 per
quarter from prepaid royalty expense in the future until December 2007). No such
costs of sales were incurred in the first nine months of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3,557,000, or 66%, to
$8,930,000 in the first nine months of 1999 from $5,373,000 in the first nine
months of 1998 due to the following factors. Personnel costs increased $734,000,
or 32%, to $3,040,000 in the first nine months of 1999 from $2,306,000 in the
first nine months of 1998. The increase in personnel costs resulted primarily
from the hiring of additional personnel in late 1998 to support the Company's
increased operating activities and $200,000 of bonuses paid to the Company's
executives in the first nine months of 1999. Additionally, certain related costs
including travel, marketing, telephone, office supplies expenses, taxes and
licenses, repair and maintenance and depreciation expense increased $2,595,000,
or 140%, to $4,453,000 in the first nine months of 1999 from $1,858,000 in the
first nine months of 1998. Of that increase, $2,491,000 was related to the
Company's increased marketing activities during the first nine months of 1999 to
support its new E-commerce products. Additionally, professional services
including accounting, legal and consulting services increased $640,000, or 105%,
to $1,250,000 in the first nine months of 1999 from $610,000 in the first nine
months of 1998. The increase in professional services was primarily due to the
Company's increased requirements for these services in the first nine months of
1999 compared to the first nine months of 1998, resulting from the Company's
increased operating activities in the emerging E-commerce market and support of
its new E-commerce products and dispositions of certain of the Company's
business-to-business product lines. Finally, bad debt expense decreased
$417,000, or 90%, to $45,000 in the nine months of 1999 from $462,000 in the
first nine months of 1998. Such decrease was primarily attributable to the
additional bad debt reserve in the amount of $402,000 recorded by the Company
during the first nine months of 1998 upon the Company's review of certain
specific accounts. No such additional reserve was recorded in the first nine
months of 1999.
16
<PAGE>
Research and Development
The Company incurred $5,706,000 of research and development expenditures during
the first nine months of 1999, of which $821,000 was capitalized and $4,885,000
was expensed, compared to $4,777,000 for the first nine months of 1998, of which
$1,789,000 was capitalized and $2,988,000 was expensed. The 19% increase in
research and development expenditures from the first nine months of 1998 to the
first nine months of 1999 was primarily due to the hiring of additional
personnel in connection with the further development of the Company's Internet
application projects.
Amortization of Software Development Costs
The amortization of software development costs decreased $253,000, or 19%, to
$1,075,000 in the first nine months of 1999 from $1,328,000 in the first nine
months of 1998 due primarily to a $250,000 write-off of the capitalized software
cost related to the product lines sold to one of the Company's competitors in
the first nine months of 1999. The 1999 write-off was offset by a $341,000
write-off of the Company's 3-D Home Interiors product development cost in
connection with the sale of the product's license to the Company's publisher in
the first nine months of 1998. The remaining $162,000 decrease is due to lower
capitalized project costs being amortized in the first nine months of 1999 as
compared to the first nine months of 1998.
Investment Income
Investment income decreased $141,000, or 37%, to $238,000 in the first nine
months of 1999 from $379,000 in the first nine months of 1998 due to the
decrease in income generated from a money market account in which the Company's
funds are maintained. The decrease resulted from a lower average cash balance
maintained in this account in the first nine months of 1999 as compared to the
first nine months of 1998.
Income Taxes
The Company recorded no provision for income taxes during the first nine months
of 1999 and 1998 due to net operating losses in both periods.
17
<PAGE>
Liquidity and Resources of Capital
The Company's cash balance decreased $1,850,148, or 29%, to $4,493,451 at
September 30, 1999 from $6,343,599 at December 31, 1998 primarily due to a
decrease of $8,285,194 in the cash balance due to funds used by the Company in
its operating activities, a decrease of $753,701 resulting from cash used for
the purchase of furniture and equipment and a decrease of $820,699 resulting
from cash used in development of internal use computer software. Such decreases
were offset by an increase of $242,250 in cash received by the Company in
connection with stock options exercised by the Company's employees during the
first nine months of 1999, $6,000 received by the Company in connection with
warrants exercised by its IPO principal underwriter and net proceeds of
$7,761,196 received by the Company in connection with the issuance of 776,827
shares of its common stock in April 1999.
The Company's accounts receivable balance increased $236,162, or 27%, to
$1,121,149 at September 30, 1999 from $884,987 at December 31, 1998. This
increase (representing the total amount of sales generated in excess of the
total amount of cash received from the Company's customers during the first nine
months of 1999) was primarily due to a total of $144,523 receivable balance at
September 30, 1999 related to the service agreements the Company entered into
with its customers during the first nine months of 1999, under which payments
were scheduled to be made subsequent to September 30, 1999. Additionally, a
$350,000 receivable balance at September 30, 1999 was related to the revenue
generated in September from one of the Company's major customers. The increase
was offset by a decrease resulting from the collection during 1999 from two of
the Company's major customers of approximately $259,000 in accounts receivable
from such customers at December 31, 1998.
The Company's prepaid expenses and other current assets balance increased
$6,881,058 to $7,278,159 at September 30, 1999 from $397,101 at December 31,
1998 primarily due to a $5,538,674 prepayment recorded in April 1999 in
connection with the issuance of 455,218 shares of the Company's common stock and
warrants to purchase a total of 538,674 shares of the Company's common stock to
Intel, its project co-developer, as a prepayment of royalties and a $2,557,143
prepayment recorded in the first nine months of 1999 in connection with a
two-year e-commerce marketing agreement entered into by the Company with an
Internet portal company as a prepayment of future marketing expense. $316,496 of
$5,538,674 in prepaid royalties and $962,500 of $2,557,143 in prepaid
advertising were expensed during the first nine months of 1999.
The Company's accounts payable and accrued expenses balance increased $837,534
to $1,340,732 at September 30, 1999 from $503,198 at December 31, 1998 primarily
due to $363,040 of accrued payroll and related taxes recorded as of September
30, 1999. No such accruals were recorded as of December 31, 1998. Additionally,
accrued legal service fees increased $285,000 from December 31, 1998 to
September 30, 1999 due to legal services in connection with the Company's
increased operating activities in the emerging E-commerce market and support of
its new E-commerce products during the first nine months of 1999. Finally,
advertising bills in a total amount of $177,674 were recorded in the third
quarter and paid subsequent to September 30, 1999. No such bills were recorded
at December 31, 1998.
The Company's total shareholders' equity balance increased $4,024,584, or 33%,
to $16,334,275 at September 30, 1999 from $12,309,691 at December 31, 1998
primarily due to $7,761,196 in net proceeds received from the issuance of a
total of 776,827 shares of the Company's common stock to four of its investors
in April 1999, $242,250 in proceeds received from the exercise of stock options
to purchase a total of 25,500 shares of the Company's common stock by 14
employees during the first nine months of 1999 and $6,000 in proceeds received
from the exercise of warrants to purchase a total of 1,000 shares of the
Company's common stock by its IPO principal underwriter. Additionally, an
increase of $5,538,674 resulted from the Company's issuance to Intel in April
1999 of 455,218 shares of the its common stock and warrants to purchase a total
of 538,674 shares of the Company's common stock. Finally, an increase of
$460,000 resulted from the Company's issuance of warrants to purchase 437,203
shares of common stock in the first nine months of 1999 in consideration of
business promotion services provided (or to be provided) to the Company. The
increase was offset by a net operating loss in the amount of $9,983,536 during
the first nine months of 1999.
18
<PAGE>
The Company anticipates continuing to use its capital primarily to fund the
activities related to the design, development, marketing, sales and support of
the Company's E-commerce web-sites. Together with its existing capital and
anticipated funds from operations, the Company believes that its capital
resources will be sufficient to provide its anticipated cash needs for working
capital and capital expenditures for at least the next 6 months although the
Company expects to seek to raise additional capital through equity or debt
financing before then, depending on various considerations and developments.
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.
Forward-Looking Information
Certain statements in this Section and elsewhere in this report are
forward-looking in nature and relate to trends and events that may affect the
Company's future financial position and operating results. Such statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "believe," "expect," "anticipate," "intend," and
"project" and similar words or expressions are intended to identify
forward-looking statements. These statements speak only as of the date of this
report. The statements are based on current expectations, are inherently
uncertain, are subject to risks, and should be reviewed with caution. Actual
results and experience may differ materially from the forward-looking statements
as a result of many factors, including changes in economic conditions in the
markets served by the Company, increasing competition, fluctuations in raw
materials and energy prices, and other unanticipated events and conditions. It
is not possible to foresee or identify all such factors. The Company makes no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement.
19
<PAGE>
Item 3. Quantitative and Qualitative Disclosure of Market Risk
None.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
During the quarter ended September 30, 1999, the Company sold the
following securities which were not registered under the Securities
Act of 1933, as amended (the "1993 Act"):
In July 1999, the Company issued to a financial advisor for services
provided to the Company warrants, expiring in July 2002, to purchase
10,000 shares of common stock at an exercise price of $13.00 per
share. In August 1999, the Company issued to the same agency for
services provided to the Company warrants, expiring in August 2002, to
purchase 10,000 shares of common stock at an exercise price of $13.00
per share.
Exemption from the registration provisions of the 1933 Act for the
transactions described above is claimed pursuant to Section 4(2) of
the 1933 Act and/or Rule 506 of Regulation D promulgated thereunder on
the grounds that such transactions did not involve any public
offering. The purchasers 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 Company or had access to such information.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On July 16, 1999, the Company held its Annual Meeting of Shareholders
at which the shareholders approved the following:
(1) The election of Joyce Freedman, Maurizio Vecchione, Lee Freedman,
Stephen Wyle, Peter Frank and Leslie Saleson to the Board of
Directors to serve until the next annual meeting or until their
successors are elected and qualified. The following directors
received the number of votes set opposite their respective names.
<TABLE>
<CAPTION>
For Election Against Election
<S> <C> <C>
Joyce Freedman 6,722,070 0
Maurizio Vecchione 6,722,070 0
Lee Freedman 6,722,070 0
Stephen Wyle 6,722,070 0
Peter Frank 6,722,070 0
Leslie Saleson 6,722,070 0
</TABLE>
21
<PAGE>
(2) The issuance of investors warrant shares and placement agents
warrant shares in connection with the Company's private placement
which closed on April 7, 1999. The proposal provides for the
issuance of up to 919,243 shares of common stock upon exercise of
the investors warrants and up to 33,921 shares of common stock
upon exercise of the placement agents warrants. Such proposal
received 3,985,543 votes for approval and 69,507 votes against
the approval with 21,005 abstentions and 2,836,092 broker
non-votes.
(3) The issuance of private placement warrant shares to Intel
Corporation. This proposal provides for the issuance of up to
538,674 shares of common stock upon the exercise of warrants
issued to Intel on April 7, 1999 in consideration of the
termination of the Company's obligation to make royalty payments
to Intel under a 1997 software development agreement. Such
proposal received 4,027,175 votes for approval and 23,595 votes
against the approval with 20,285 abstentions and 2,836,092 broker
non-votes. .
(4) An amendment to the Company's 1995 Stock Option Plan to increase
the total number of shares of the Company's Common Stock
authorized for issuance thereunder from 1,650,000 to 2,500,000
shares. Such proposal received 3,796,514 votes for approval and
258,419 votes against the approval with 15,772 abstentions and
2,836,442 broker non-votes.
(5) An amendment to the Articles of Incorporation to change the name
of the Company from Modacad, Inc. to Styleclick.com Inc. Such
proposal received 6,811,200 votes for approval and 78,237 votes
against the approval with 17,710 abstentions.
(6) The ratification of the appointment by the Board of Directors of
Ernst & Young, as the Company's independent certified public
accountants for the 1999 fiscal year. Such proposal received
6,884,544 votes for the ratification and 4,770 votes against the
ratification with 17,833 abstentions.
Item 5. Other Information
None.
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule.1
(b) Reports on Form 8-K
Styleclick filed a report on Form 8-K, dated July 2, 1999,
relating to the E-Commerce Marketing Agreement as of June 30,
1999 by and between the Registrant and America Online.
Styleclick filed a report on Form 8-K, dated July 19, 1999,
announcing the change of its legal name from Modacad, Inc. to
Styleclick.com Inc. and its new ticker symbol from "MODA" to
"IBUY".
Confidential treatment is being requested with respect to portions of this
exhibit, and such confidential portions have been deleted and separately filed
with the Securities Exchange Commission pursuant to Rule 24b-2 promulgated under
the Exchange Act of 1934. This exhibit does not include certain schedules and
similar attachments. A list briefly identifying the contents of all omitted
schedules has been provided in this exhibit. The Company will furnish
supplementally to the Securities and Exchange Commission upon request a copy of
any omitted schedule.
- ----------------------------
1 This exhibit is being filed electronically in the electronic format
specified by EDGAR.
23
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Styleclick.com Inc.
Date: November 10, 1999 By: /s/ MAURIZIO VECCHIONE
-------------------------------
Maurizio Vecchione
President and
Co-Chief Executive Officer
/s/ BARRY HALL
-------------------------------
Barry Hall
Executive Vice President, Finance and
Chief Financial Officer
24
<PAGE>
EXHIBIT INDEX
Exhibit Description Sequentially
Number Numbered Page
27.1 Financial Data Schedule.1
* Confidential treatment is being requested with respect to portions of this
exhibit, and such confidential portions have been deleted and separately filed
with the Securities Exchange Commission pursuant to Rule 24b-2 promulgated under
the Exchange Act of 1934. This exhibit does not include certain schedules and
similar attachments. A list briefly identifying the contents of all omitted
schedules has been provided in this exhibit. The Company will furnish
supplementally to the Securities and Exchange Commission upon request a copy of
any omitted schedule.
- --------
1 This exhibit is being filed electronically in the electronic format
specified by EDGAR.
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF OPERATIONS AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FOR QUARTER ENDED SEPTEMBER 30,1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,493,451
<SECURITIES> 0
<RECEIVABLES> 1,121,149
<ALLOWANCES> 295,000
<INVENTORY> 2,025
<CURRENT-ASSETS> 12,597,759
<PP&E> 4,283,188
<DEPRECIATION> 1,623,124
<TOTAL-ASSETS> 18,103,049
<CURRENT-LIABILITIES> 1,768,774
<BONDS> 0
0
0
<COMMON> 40,583,747
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,103,049
<SALES> 5,151,342
<TOTAL-REVENUES> 5,151,342
<CGS> 482,334
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,983,536)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,983,536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,983,536)
<EPS-BASIC> (1.44)
<EPS-DILUTED> (1.44)
</TABLE>
